Attached files
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM 10-Q
☑
QUARTERLY
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Quarterly Period Ended December 31, 2016
or
☐
TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the Transition Period from _________ to _________
Commission file number: 005-87668
PEAK PHARMACEUTICALS, INC.
(Exact
name of registrant as specified in its charter)
Nevada
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26-1973257
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(State
or other jurisdiction of incorporation or
organization)
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(I.R.S.
Employer Identification No.)
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14201 N. Hayden Road, Suite A-1, Scottsdale, AZ 85260
(Address
of principal executive offices)
(480) 659-6404
(Registrant’s
telephone number, including area code)
700 N. Colorado Blvd., #734, Denver, CO 80206
(Former
address of principal executive offices)
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes ☑ No ☐
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate website, if any, every Interactive Data
File required to be submitted and posted pursuant to Rule 405 of
Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes ☐ No
☑
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of “large accelerated
filer,” “accelerated filer,” and “smaller
reporting company” in Rule 12b-2 of the Exchange
Act.
Large
accelerated filer
|
☐
|
Accelerated
filer
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☐
|
Non-accelerated
filer
|
☐
|
Smaller
reporting company
|
☑
|
(Do not
check if a smaller reporting company)
|
Emerging
growth company
|
☐
|
If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☑.
As of
September 12, 2017, there were 78,363,567 shares of
registrant’s common stock outstanding.
1
PEAK PHARMACEUTICALS, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED DECEMBER 31, 2016 AND 2015
TABLE OF CONTENTS
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Page
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PART I. FINANCIAL
INFORMATION
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ITEM
1
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Financial
Statements
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3
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Condensed
Consolidated Balance Sheets as of December 31, 2016 (unaudited) and
September 30, 2016
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3
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Condensed
Consolidated Statements of Operations for the Three Months Ended
December 31, 2016 and 2015 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the Three Months Ended
December 31, 2016 and 2015 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements
(unaudited)
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7
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ITEM
2.
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Management’s
Discussion and Analysis of Financial Condition and Results of
Operations
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10
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ITEM
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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14
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ITEM
4.
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Controls
and Procedures
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14
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PART II. OTHER
INFORMATION
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ITEM
1.
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Legal
Proceedings
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15
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ITEM
1A.
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Risk
Factors
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15
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ITEM
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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16
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ITEM
3.
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Defaults
Upon Senior Securities
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16
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ITEM
4.
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Mine
Safety Disclosures
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16
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ITEM
5.
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Other
Information
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16
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ITEM
6.
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Exhibits
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17
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SIGNATURES
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18
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2
PART I – UNAUDITED FINANCIAL INFORMATION
ITEM 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
PEAK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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December
31,
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September
30,
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2016
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2016
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(Unaudited)
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(Audited)
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Assets
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Current
assets:
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Cash
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$1,179
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$1,304
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Total
current assets
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1,179
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1,304
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Total
Assets
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$1,179
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$1,304
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Liabilities
and stockholders' deficit
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Liabilities
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Accounts
payable
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$111,283
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$82,526
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Accounts
payable - related parties
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20,877
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47,877
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Accrued
liabilities
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12,360
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12,360
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Total
current liabilities
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144,520
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142,762
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Total
Liabilities
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144,520
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142,762
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Stockholders’
Deficit
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Preferred
stock, $.00001 par value, 25,000,000 authorized, none issued or
outstanding
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-
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-
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Common
stock, $0.0001 par value, 325,000,000 shares authorized, 78,363,562
shares issued and outstanding, as of December 31, 2016 and
September 30, 2015
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7,836
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7,836
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Additional
paid in capital
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4,855,566
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4,855,566
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Accumulated
deficit
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(5,006,743)
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(5,004,860)
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Total
Stockholders’ Deficit
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(143,341)
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(141,458)
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Total
Liabilities and Stockholders’ Deficit
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$1,179
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$1,304
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The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
3
PEAK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For the
Three Months Ended
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December 31,
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2016
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2015
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Operating
expenses (income):
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General
and administrative
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$1,883
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$101,659
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Depreciation
and amortization
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-
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3,346
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Equity
based compensation
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-
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280,053
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Total
operating expenses
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1,883
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385,058
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Operating
loss
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(1,883)
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(385,058)
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Loss
from continuing operations
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(1,883)
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(385,058)
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Income
from operations of discontinued Canna-Pet component
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-
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71,099
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Net
loss
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$(1,883)
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$(313,959)
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Per
share information:
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Basic
weighted average shares outstanding
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78,363,562
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78,363,562
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Diluted
weighted average shares outstanding
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78,363,562
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78,363,562
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Continuing
operations:
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Net
loss per share - basic and diluted
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$(0.00)
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$(0.00)
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Discontinued
operations:
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Net
loss per share - basic and diluted
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$(0.00)
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$0.00
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The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
4
PEAK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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2016
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2015
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Cash
flows from operating activities:
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Net
income (loss)
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$(1,883)
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$(313,959)
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Adjustment to reconcile net loss to net cash used in operating
activities:
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Stock
based compensation
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-
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280,053
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Other
general and administration
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-
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50,132
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Depreciation
and amortization
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-
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3,346
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Change
in operating assets and liabilities:
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Accounts
payable and accrued liabilities
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1,757
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(159,120)
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Net
cash used in operating activities
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(126)
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$(139,548)
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Net
change in cash
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(126)
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(139,548)
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Cash,
beginning of period
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1,304
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201,656
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Cash,
end of period
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$1,179
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$62,108
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Supplemental
disclosure of cash flow information
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Cash
paid for interest
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$-
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$-
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Cash
paid for income taxes
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$-
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$-
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The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
5
PEAK PHARMACEUTICALS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – NATURE OF OPERATIONS, BASIS OF PRESENTATION AND
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company was incorporated in Nevada on December 18, 2007. After
a number of name changes, we again changed our name to Peak
Pharmaceuticals, Inc. on December 23, 2014. This name was
consistent with our business operations and plans relating to
development, manufacturing and marketing of hemp-based
nutraceutical and supplement products for the human and animal
health markets. On October 1, 2015, we discontinued certain
operations of the Company.
Throughout this report, the terms “our,”
“we,” “us,” and the “Company”
refer to Peak Pharmaceuticals, Inc. and its subsidiary, Peak
BioPharma Corp.
Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements of the Company have been prepared in accordance with
generally accepted accounting principles (“GAAP”) for
interim financial statements, instructions to Form 10-Q, and
Regulation S-X. Accordingly, certain information and footnote
disclosures normally included in financial statements prepared in
accordance with GAAP have been condensed or omitted. These
condensed consolidated financial statements should be read in
conjunction with the financial statements and notes thereto
included in our annual report on Form 10-K for the year ended
September 30, 2016. In management's opinion, all adjustments
(consisting only of normal recurring adjustments) considered
necessary for a fair presentation to make our financial statements
not misleading have been included. The results of operations for
the interim periods are not necessarily indicative of the results
to be expected for the full year, or any other period.
Basis of Consolidation
The condensed consolidated financial statements include the
financial statements of the Company and our wholly owned subsidiary
Peak BioPharma Corp. All inter-company balances and transactions
among the companies have been eliminated upon
consolidation.
Use of Estimates
The preparation of financial statements in accordance with GAAP
requires management to make estimates and assumptions that affect
the reported amounts of assets and liabilities and revenues and
expenses during the periods reported. Actual results may differ
from these estimates.
Financial Instruments
Our financial instruments consist of cash, and accounts payable.
The carrying values of these instruments approximate fair value due
to the short-term maturities of these instruments.
Fair Value Measurements
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC)” Topic
820, Fair
Value Measurements and Disclosures ("ASC 820"), provides a comprehensive framework
for measuring fair value and expands disclosures which are required
about fair value measurements. Specifically, ASC 820 sets forth a
definition of fair value and establishes a hierarchy prioritizing
the inputs to valuation techniques, giving the highest priority to
quoted prices in active markets for identical assets and
liabilities and the lowest priority to unobservable value inputs.
ASC 820 defines the hierarchy as follows:
6
Level 1 – Quoted prices are available in active markets for
identical assets or liabilities as of the reported date. The types
of assets and liabilities included in Level 1 are highly liquid and
actively traded instruments with quoted prices, such as equities
listed on the New York Stock Exchange.
Level 2 – Pricing inputs are other than quoted prices in
active markets, but are either directly or indirectly observable as
of the reported date. The types of assets and liabilities in Level
2 are typically either comparable to actively traded securities or
contracts, or priced with models using highly observable
inputs.
Level 3 – Significant inputs to pricing that are unobservable
as of the reporting date. The types of assets and liabilities
included in Level 3 are those with inputs requiring significant
management judgment or estimation, such as complex and subjective
models and forecasts used to determine the fair value of financial
transmission rights.
Long-lived Assets
On a periodic basis, management assesses whether there are any
indicators that the value of our long-lived assets may be impaired.
An asset’s value may be impaired only if management’s
estimate of the aggregate future cash flows, on an undiscounted
basis, to be generated by the asset are less than the carrying
value of the asset.
If impairment has occurred, the loss is measured as the excess of
the carrying amount of the asset over its fair value. Our estimates
of aggregate future cash flows expected to be generated by our
long-lived asset are based on a number of assumptions that are
subject to economic and market uncertainties. As these factors are
difficult to predict and are subject to future events that may
alter management’s assumptions, the future cash flows
estimated by management in their impairment analyses may not be
achieved.
Loss Per Share
We calculate net loss per share in accordance with ASC Topic
260, Earnings per
Share. Basic net loss per share
is computed by dividing net loss by the weighted average number of
shares of common stock outstanding for the period, and diluted
earnings per share is computed by including common stock
equivalents outstanding for the period in the denominator. At
December 31, 2016 and 2015, any equivalents would have been
anti-dilutive as we had losses for the periods then
ended.
Recent Pronouncements
From time to time, new accounting pronouncements are issued that we
adopt as of the specified effective date. We believe that the
impact of recently issued standards that are not yet effective may
have an impact on our results of operations and financial
position.
ASU Update 2014-09, Revenue from Contracts with
Customers (Topic 606) issued
May 28, 2014 by the FASB and the IASB converged guidance on
recognizing revenue in contracts with customers on an effective
date after December 31, 2017 will be evaluated as to impact and
implemented accordingly.
ASU Update 2014-15, Presentation of Financial
Statements-Going Concern (Sub
Topic 205-40) issued August 27, 2014 by FASB defines
management’s responsibility to evaluate whether there is a
substantial doubt about an organizations ability to continue as a
going concern. The additional disclosure required is effective
after December 31, 2015 and will be evaluated as to impact and
implemented accordingly.
In April 2015, the FASB issued ASU 2015-03, Interest-Imputation of
Interest: Simplifying the Presentation of Debt Issuance
Cost. The guidance requires an
entity to present debt issuance costs in the balance sheet as a
direct reduction from the carrying amount of the debt liability,
consistent with debt discounts, rather than as an asset.
Amortization of debt issuance costs will continue to be reported as
interest expense. Debt issuance costs related to revolving credit
arrangements, however, will continue to be presented as an asset
and amortized ratably over the term of the arrangement. ASU 2015-03
is effective for reporting periods beginning after December 15,
2015 including interim periods within those annual periods. Early
application is permitted, and upon adoption, ASU 2015-03 should be
applied on a retrospective basis. We have adopted ASU 2015-03 and
it has not had a material impact on our Consolidated Financial
Statements.
7
In July 2015, the FASB issued ASU 2015-11, Inventory, which simplifies the measurement principle of
inventories valued under the First-In, First-Out
(“FIFO”) or weighted average methods from the lower of
cost or market to the lower of cost and net realizable value. ASU
2015-11 is effective for reporting periods beginning after December
15, 2016 including interim periods within those annual periods. We
do not expect the standard to have a material impact on our
Consolidated Financial Statements.
In November 2015, the FASB issued ASU 2015-17, Balance Sheet Classification
of Deferred Taxes, which
requires that deferred tax assets and liabilities be classified as
noncurrent on the consolidated balance sheet. ASU 2015-17 is
effective for annual periods beginning after December 15, 2016,
including interim periods within those annual periods. Early
adoption is permitted as of the beginning of an interim or annual
reporting period. Upon adoption, ASU 2015-17 may be applied either
prospectively or retrospectively. We do not expect the adoption of
this guidance to have a material impact on our Consolidated
Financial Statements.
In February 2016, the FASB issued ASU No. 2016-02,
Leases, to improve financial reporting about leasing
transactions. This ASU will require organizations that lease assets
(“lessees”) to recognize a lease liability and a
right-of-use asset on its balance sheet for all leases with terms
of more than twelve months. A lease liability is a lessee’s
obligation to make lease payments arising from a lease, measured on
a discounted basis and a right-of-use asset represents the
lessee’s right to use, or control use of, a specified asset
for the lease term. The amendments in this ASU simplify the
accounting for sale and leaseback transactions primarily because
lessees must recognize lease assets and lease liabilities. This ASU
leaves the accounting for the organizations that own the assets
leased to the lessee (“lessor”) largely unchanged
except for targeted improvements to align it with the lessee
accounting model and Topic 606, Revenue from Contracts with
Customers. We do not expect the adoption of this guidance to have a
material impact on our Consolidated Financial
Statements.
Reclassifications
Certain amounts from prior periods have been reclassified for
consistency with the presentation of the three-month period ended
December 31, 2016. These reclassifications had no effect on the
reported results of operations.
NOTE 2 – GOING CONCERN AND MANAGEMENT’S LIQUIDITY
PLANS
Financial
statements prepared in conformity with GAAP contemplate a
company’s continuation as a going concern. We have incurred
net losses since inception and have an accumulated deficit of
$5,006,743 as of December 31, 2016. This condition raises
substantial doubt as to our ability to continue as a going concern.
Although the expenses of our operations have been significantly
reduced, we need to still evaluate raising additional capital
through the sale of equity securities, through an offering of debt
securities or through borrowings from financial institutions or
individuals. There can be no assurance that such a plan will be
successful.
Accordingly, the accompanying condensed consolidated financial
statements have been prepared in conformity with U.S. GAAP, which
contemplates continuation of the Company as a going concern and the
realization of assets and the satisfaction of liabilities in the
normal course of business. The carrying amounts of assets and
liabilities presented in the condensed consolidated financial
statements do not necessarily represent realizable or settlement
values. The condensed consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
NOTE 3 – RELATED PARTY TRANSACTIONS
Parties, which can be corporations or individuals, are considered
to be related if we have the ability, directly or indirectly, to
control the other party or exercise significant influence over the
other party in making financial and operating decisions. Companies
are also considered to be related if they are subject to common
control or common significant influence.
Accounts payable – related parties are the amounts payable to
officers and directors of the Company for reimbursement of expenses
they incurred on behalf of the Company as well as Directors’
fees and salaries.
8
NOTE 4 – STOCKHOLDERS’ EQUITY
We had
no preferred or common stock transactions during the three-month
period ended December 31, 2016 and 2015
NOTE 5 – OPTIONS
The following is a summary of outstanding stock options issued to
employees and directors as of December 31, 2016:
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Number
of Options
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Exercise Price per
Share
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Average
Remaining
Term in
Years
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Aggregate
Intrinsic
Value at Date
of Grant
|
|
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Outstanding October 1, 2015
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7,416,000
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$0.0067 - $0.20
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-
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Cancelled
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(4,500,000)
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-
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Outstanding December 31, 2016 and September 30, 2016
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2,916,000
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$0.0067 - $0.20
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-
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Exercisable
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2,916,000
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$0.0067
|
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7.20
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-
|
The following is a summary of outstanding stock options issued to
non-employees, excluding directors, as of December 31,
2016:
|
Number
of Options
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Exercise Price per
Share
|
|
Average
Remaining
Term
in Years
|
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Aggregate
Intrinsic
Value at Date
of Grant
|
|
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|
|
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Outstanding December 31, 2016, September 30, 2016 and October 1,
2015
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375,000
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$0.0067
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6.79
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-
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Exercisable
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375,000
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$0.0067
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6.79
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-
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Total equity based compensation for the three months ended December
31, 2016 and 2015 was $0 and $280,053, respectively.
NOTE 6 - SUBSEQUENT EVENTS
Management has evaluated all activity and
concluded that no subsequent events have occurred that would
require recognition in these financial statements or disclosure in
the notes to these financial statements.
9
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This
report contains forward-looking statements. The following
discussion should be read in conjunction with the financial
statements and related notes contained in our Annual Report on Form
10-K, as filed with the Securities & Exchange Commission on
September 12, 2017. Certain statements made in this discussion are
"forward-looking statements" within the meaning of The Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are projections in respect of future events or financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may,”
“should,” “expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential” or “continue” or the negative
of these terms or other comparable terminology.
These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” set forth in our Annual
Report on Form 10-K for the year ended September 30, 2016, any of
which may cause our company’s or our industry’s actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity,
performance or achievements expressed or implied by these
forward-looking statements. These risks may cause the
Company’s or its industry’s actual results, levels of
activity or performance to be materially different from any future
results, levels of activity or performance expressed or implied by
these forward-looking statements.
Although
the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee
future results, levels of activity or performance. Moreover,
neither the Company nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements.
The Company is under no duty to update any forward-looking
statements after the date of this report to conform these
statements to actual results.
As used
in this quarterly report and unless otherwise indicated, the terms
“we,” “us,” “our,”
“Peak,” or the “Company” refer to Peak
Pharmaceuticals, Inc, including our wholly-owned subsidiary Peak
BioPharma Corp (“Peak BioPharma”). Unless otherwise
specified, all dollar amounts are expressed in United States
dollars.
Corporate Overview
We were
incorporated as Surf A Movie Solutions Inc. in Nevada on December
18, 2007 to engage in the business of the development, sales and
marketing of online video stores. We were not successful in our
efforts and have ceased this line of business.
On
October 10, 2013, we entered into a joint venture agreement with
Produced Water Solutions, Inc., a Colorado corporation, that was in
the business of providing economically and environmentally sound
solutions for the treatment and recycling of wastewater resulting
principally from oil and gas exploration and production activities.
As a result of our research of this business opportunity, on
December 31, 2013, we determined not to move forward with this line
of business.
In
early March 2014, we entered into the business of developing,
manufacturing and marketing pharmaceutical level products
containing phytocannabinoids, an abundant and pharmaceutically
active component of industrial hemp, for the prevention and
alleviation of various conditions and diseases. In connection
therewith, on March 17, 2014 we changed our name to Cannabis
Therapy Corp. On December 23, 2014, we changed our name to Peak
Pharmaceuticals, Inc. All of our business operations are carried on
through our wholly-owned subsidiary, Peak BioPharma Corp., a
Colorado corporation.
On July
29, 2014, through Peak BioPharma, we entered into a license
agreement (the “License Agreement”) with Canna-Pet, LLC
(“Licensor”), a Washington limited liability company,
which owns the brand name “Canna-Pet” and certain
related intellectual property including, but not limited to,
trademarks and copyrights, formulations, recipes, production
processes and systems, websites, domain names, customer lists,
supplier lists, trade secrets and know-how, and other related
intellectual property (collectively, the “Licensed
Intellectual Property”), used by Licensor in the conduct of
its business related to the production and sale of medical products
made from industrial hemp which are intended exclusively for
consumption by pets. Pursuant to the License Agreement, the
Licensor granted to us a perpetual, exclusive, world-wide license
to use the Licensed Intellectual Property in conjunction with our
business and the production and sale of medical products made from
industrial hemp as well as the right to sublicense the Licensed
Intellectual Property to third parties. The License Agreement gives
us the right to produce and sell existing products utilizing the
Licensed Intellectual Property and to develop new products, jointly
with Licensor or otherwise, based upon the Licensed Intellectual
Property. The License Agreement provided us with an immediate
revenue source and access to Licensor’s customer base. During
the term of the license, all intellectual property rights in and to
the Licensed Intellectual Property remained the exclusive property
of Licensor.
10
In
consideration of the grant of the license, we agreed to pay
Licensor license fees in the form of royalty payments calculated on
the basis of gross proceeds received by us from sales of products
manufactured, marketed or sold by us utilizing the Licensed
Intellectual Property or any subsequently developed intellectual
property which is jointly owned by us and Licensor. We began
selling Canna-Pet products in October 2014.
Based
upon recent regulatory activity related to imposition of
restrictions and limitations on the sale of hemp-based health
products for pets, we elected to terminate our license agreement
with the Licensor, effective as of October 1, 2015, and to cease
all operations relating to sale of hemp-based products for
pets.
On
October 12, 2015, we entered into an agreement for the termination
(“Termination Agreement”) of the License Agreement,
effectively selling the discontinued operations. The Termination
Agreement contained the following provisions:
●
Termination of
License: The parties agreed to terminate the License Agreement
effective as of October 1, 2015. This termination was made by
mutual agreement of the parties pursuant to and in accordance with
the provisions of the License Agreement.
●
Return of Licensed
Intellectual Property: We agreed to return all Licensed
Intellectual Property to the Licensor, and our right to use all, or
any portion, of the Licensed Intellectual Property ceased effective
as of October 1, 2015. Pursuant to the terms of the License
Agreement, the Licensed Intellectual Property included the brand
name “Canna-Pet” and certain related intellectual
property, including, but not limited, trademarks and copyrights,
formulations, recipes, production processes and systems, websites,
domain names, customer lists, supplier lists trade secrets and
know- how, and other related intellectual property.
●
Return of Other
Property: In addition to return of the Licensed Intellectual
Property, we agreed to transfer to Licensor all product inventory,
Colorado hemp with permits and authorization, all
production/fulfillment contracts, all e-commerce accounts and
processing, all non-disclosure and research agreements and any and
all other property in our possession which was used by us in the
conduct of our business related to production and sale of medical
cannabis products for pets made from hemp and low-THC cannabis
plants.
●
Office Space,
Equipment and Employees: In conjunction with the execution of the
Termination Agreement, we granted the Licensor the right to use our
office space, for the three-month period from October 1, 2015
through December 31, 2015, on a rent-free basis.
●
Consideration: As
consideration for the cancellation of the License Agreement and the
return of other property, as described above, the Licensor agreed
to waive payment by us and to release us from liability for payment
of any and all unpaid royalties, invoices and other amounts which
were otherwise currently due and payable by us to Licensor for
sales of Canna-Pet products for all periods through and including
September 30, 2015.
●
Collections: On
October 15, 2015, we forwarded to the Licensor all payments
received by us after September 30, 2015 (net of amounts received by
us for taxes, duties, governmental charges, freight or shipping
charges, and the like) for Canna- Pet products sold on or after
October 1, 2015.
The
following is a summary of the net assets sold as initially
determined at Septembers 30, 2015 and updated October 15,
2015:
|
October
15, 2015
|
September
30, 2015
|
Inventory
|
$45,436
|
$41,705
|
Prepaid
Expenses
|
8,821
|
-
|
Deposits
|
8,179
|
8,678
|
Total
assets
|
$62,436
|
$50,383
|
|
|
|
Accounts
payable
|
103,548
|
124,396
|
Royalties
payable
|
39,506
|
39,506
|
Accrued
liabilities
|
285
|
15,341
|
Total
liabilities
|
143,339
|
179,243
|
Net assets
sold
|
$80,903
|
$128,860
|
11
Our
common stock is currently listed on the OTC Markets, QB Tier, under
the symbol “PKPH”.
Recent Corporate Developments
Since
the commencement of the year through December 31, 2016, we have not
experienced any corporate developments.
Results of Operations
Comparison of the Three Months Ended December 31, 2016
Revenue
There
were no revenues for the three months ended December 31, 2016 or
2015.
Operating Expenses
Our
expenses for the three months ended December 31, 2016 are
summarized as follows in comparison to our expenses for the three
months ended December 31, 2015:
|
Three
Months Ended December 31,
|
|
|
2016
|
2015
|
|
|
|
General and
administrative
|
$1,883
|
$101,659
|
Depreciation and
amortization
|
-
|
3,346
|
Stock based
compensation
|
-
|
280,053
|
Total operating
expenses
|
$1,883
|
$385,058
|
General
and administrative expense decreased by $99,776 for the three
months ended December 31, 2016 from the comparative period of 2015.
The decrease is due to the termination of the license agreement
with Canna-Pet, LLC and the overall reduction in operating expenses
related to the operation of that business. Depreciation and
amortization expense decreased by $3,346 and stock based
compensation decreased by $280,053 due to the reduction in
operations of the business.
Discontinued Operations
Our
Canna-Pet business segment began operations in October 2014. As a
result of recent regulatory activity related to imposition of
restrictions and limitations on the sale of hemp-based health
products for pets, on October 1, 2015, we elected to terminate our
license agreement with Canna-Pet, LLC and to cease all operations
relating to sale of hemp-based products for pets.
The
income (loss) from discontinued operations presented in the
statements of operations consists of the following for the
three-month period ended December 31, 2016 and 2015:
|
2016
|
2015
|
Revenues
|
$-
|
$-
|
Cost of goods
sold
|
-
|
-
|
General and
administrative expenses
|
-
|
(9,804)
|
Gain on disposal of
discontinued operations
|
-
|
80,903
|
|
$-
|
$71,099
|
12
Liquidity and Financial Condition
Working Capital Deficiency
|
December
31,
2016
|
September
30,
2016
|
Current
assets
|
$1,179
|
$1,304
|
Current
liabilities
|
144,520
|
142,762
|
Working capital
deficiency
|
$(143,341)
|
$(141,458)
|
The
decrease in current assets is due to bank fees of $126 during the
quarter. The increase in current liabilities is due primarily to
late fees being incurred on the open accounts payable during the
three months ended December 31, 2016.
Cash Flows
|
Three
Months Ended December 31,
|
|
|
2016
|
2015
|
Net
loss
|
$(1,883)
|
$(313,959)
|
Net cash used in
operating activities
|
(126)
|
(139,548)
|
Net cash used in
investing activities
|
-
|
-
|
Net cash provided
by financing activities
|
-
|
-
|
Increase (decrease)
in cash
|
$(126)
|
$(139,548)
|
As of
December 31, 2016, our cash balance was $1,179. The Company does
not expect its current cash and operating income to be sufficient
to meet its financial needs for continuing operations over the next
twelve months.
Net
cash used in operations for the three months ended December 31,
2016 was $126 mainly due to bank fees on our checking
account.
We need
to raise additional operating capital on an immediate basis.
Although the expenses of our operations have been significantly
reduced due to the termination of the license agreement as outline
in Note 3 of the financial statements, we need to still evaluate
raising additional capital through the sale of equity securities,
through an offering of debt securities or through borrowings from
individuals. There can be no assurance that such a plan will be
successful.
As of
the date of this filing, we do not have enough sufficient cash on
hand to cover our operating expenses through the next quarter. In
the absence of any ongoing commercial operations, we need enough
cash to pay certain outside professionals to maintain our
compliance under the Securities Act of 1934. Management anticipates
that it will require an additional $30,000 over the next twelve
months to cover such costs.
Going Concern
The
unaudited condensed consolidated financial statements contained in
this report have been prepared assuming that the Company will
continue as a going concern. The Company has cumulative net losses
through December 31, 2016 of approximately $5 million. The
Company's cash and cash equivalents balance as of December 31, 2016
is $1,179. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
While
we will actively seek to identify sources of liquidity, there are
no assurances that such additional sources of liquidity can be
obtained on terms acceptable to us on a commercially reasonable
basis, or at all. These factors raise substantial doubt about our
ability to continue as a going concern. Furthermore, our
“going concern” and lack of commercial operations may
make it more difficult for us to raise funds.
13
The
unaudited condensed consolidated financial statements do not
include any adjustments that may be necessary should the Company be
unable to continue as a going concern. The Company’s
continuation as a going concern is dependent on its ability to
obtain additional financing as may be required and ultimately to
attain profitability. If the Company raises additional funds
through the issuance of equity, the percentage ownership of current
shareholders could be reduced, and such securities might have
rights, preferences or privileges senior to its common stock.
Additional financing may not be available upon acceptable terms, or
at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict its future plans for
developing its business and achieving commercial revenues. If the
Company is unable to obtain the necessary capital, the Company may
have to cease operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
significant accounting policies are more fully described in the
notes to our financial statements included herein for the three
months ended December 31, 2016.
Newly Issued Accounting Pronouncements
See
Note 1 to our financial statements included herein for the three
months ended December 31, 2016 for a discussion of Recently Issued
Accounting Pronouncements.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
Not
applicable.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We
maintain disclosure controls and procedures that are designed to
ensure that material information required to be disclosed in our
periodic reports filed under the Securities Exchange Act of 1934,
as amended, or 1934 Act, is recorded, processed, summarized, and
reported within the time periods specified in the SEC’s rules
and forms and to ensure that such information is accumulated and
communicated to our management, including our chief executive
officer and chief financial officer as appropriate, to allow timely
decisions regarding required disclosure. At the end of the quarter
ended December 31, 2016, we carried out an evaluation, under the
supervision and with the participation of our management, including
our principal executive officer and the principal financial
officer, of the effectiveness of the design and operation of our
disclosure controls and procedures.
We do
not have an audit committee. While we are not currently obligated
to have an audit committee, including a member who is an
“audit committee financial expert,” as defined in Item
407 of Regulation S-K, under applicable regulations or listing
standards; however, it is management’s view that such a
committee is an important internal control over financial
reporting, the lack of which may result in ineffective oversight in
the establishment and monitoring of internal controls and
procedures.
14
Based
on this evaluation, we determined that as of December 31, 2016, our
disclosure controls and procedures were not effective due to the
following:
●
We do not have a
majority of independent directors on our board of directors, which
may result in ineffective oversight in the establishment and
monitoring of required internal controls and
procedures.
●
We have an
inadequate number of personnel to properly implement control
procedures.
●
Due to the size and
lack of resources of our Company, we have not fully developed
formal accounting policies and procedures.
●
We have not
properly complied with all aspects of the Internal
Control-Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (COSO) in
2013.
Limitations on Effectiveness of Controls and
Procedures
Our
management, including our Chief Executive Officer (Principal
Executive Officer) and Chief Financial Officer (Principal Financial
Officer), does not expect that our disclosure controls and
procedures will prevent all errors and all fraud. A control system,
no matter how well conceived and operated, can provide only
reasonable, not absolute, assurance that the objectives of the
control system are met. Further, the design of a control system
must reflect the fact that there are resource constraints and the
benefits of controls must be considered relative to their costs.
Because of the inherent limitations in all control systems, no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within the Company
have been detected. These inherent limitations include, but are not
limited to, the realities that judgments in decision-making can be
faulty and that breakdowns can occur because of simple error or
mistake. Additionally, controls can be circumvented by the
individual acts of some persons, by collusion of two or more
people, or by management override of the control. The design of any
system of controls also is based in part upon certain assumptions
about the likelihood of future events and there can be no assurance
that any design will succeed in achieving its stated goals under
all potential future conditions. Over time, controls may become
inadequate because of changes in conditions, or the degree of
compliance with the policies or procedures may deteriorate. Because
of the inherent limitations in a cost-effective control system,
misstatements due to error or fraud may occur and not be
detected.
Changes in Internal Control Over Financial Reporting
There
were no changes in our internal control over financial reporting
during the three months ended December 31, 2016 that have
materially affected, or are reasonably likely to materially affect
our internal control over financial reporting.
PART II – OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
The
Company knows of no material pending legal proceedings to which the
Company or its Subsidiaries are a party or of which any of its
properties, or the properties of its Subsidiaries, are the subject.
In addition, the Company does not know of any such proceedings
contemplated by any governmental authorities.
The
Company knows of no material proceedings in which any of the
Company’s directors, officers or affiliates, or any
registered or beneficial stockholder is a party adverse to the
Company or its Subsidiaries or has a material interest adverse to
the Company or its Subsidiaries.
ITEM 1A. RISK FACTORS
An
investment in the Company’s common stock involves a number of
very significant risks. You should carefully consider the risk
factors included in the “Risk Factors” section of the
Annual Report on Form 10-K for the year ended September 30, 2016
that was filed on September 12, 2017, in addition to other
information contained in those reports and in this quarterly report
in evaluating the Company and its business before purchasing shares
of its common stock. The Company’s business, operating
results and financial condition could be adversely affected due to
any of those risks.
15
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF
PROCEEDS
None.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not
Applicable.
ITEM 5. OTHER INFORMATION
None.
16
ITEM 6. EXHIBITS
Exhibits
required by Regulation S-K
Exhibit
|
|
|
Number
|
Description
|
|
(2)
|
Plan of acquisition, reorganization, arrangement, liquidation or
succession
|
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on September 5, 2013)
|
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on September 5, 2013)
|
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on March 20, 2014)
|
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on March 20, 2014)
|
|
2.1
|
Articles of Merger
(incorporated by reference to our Registration Statement on Form
8-K filed on December 30, 2014)
|
|
2.2
|
Agreement and Plan
of Merger (incorporated by reference to our Registration Statement
on Form 8-K filed on December 30, 2014)
|
|
(3)
|
(i) Articles of Incorporation; and (ii) Bylaws
|
|
3.1
|
Articles of
Incorporation (incorporated by reference to our Registration
Statement on Form S-1 filed on December 29, 2008)
|
|
3.1.2
|
Certificate of
Amendment to Articles of Incorporation (incorporated by reference
to our Registration Statement on Form 10-K filed on December 26,
2012)
|
|
3.1.3
|
Certificate of
Change (incorporated by reference to our Registration Statement on
Form 10-K filed on December 26, 2012)
|
|
3.2
|
Bylaws
(incorporated by reference to our Registration Statement on Form
S-1 filed on December 29, 2008)
|
|
(4)
|
Instruments Defining the Rights of Security Holders, Including
Indentures
|
|
4.1
|
Specimen Common
Stock Certificate (incorporated by reference to our Registration
Statement on Form S-1 filed on December 29, 2008)
|
|
4.1
|
Form
of Registrant’s 10% Senior Convertible Promissory Note
(incorporated by reference to our Registration Statement on Form
8-K filed on October 17, 2013)
|
|
(31)
|
Rule 13a-14(a)/15d-14(a) Certification
|
|
(32)
|
Section 1350 Certification
|
|
(101)*
|
Interactive Data Files
|
|
101.INS
|
XBRL
Instance Document
|
|
101.SCH
|
XBRL
Taxonomy Extension Schema Document
|
|
101.CAL
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
101.DEF
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
101.LAB
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
101.PRE
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
|
*
|
Filed herewith.
|
|
|
|
|
**
|
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed
or part of any registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, are deemed not
filed for purposes of Section 18 of the Securities and Exchange Act
of 1934, and otherwise are not subject to liability under those
sections.
|
17
SIGNATURES
Pursuant
to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
PEAK PHARMACEUTICALS, INC.
By: /s/
Neil Reithinger
|
|
Neil
Reithinger
|
|
Chief
Executive Officer and Chief Financial Officer (Principal Executive
Officer, Principal Financial Officer and Principal Accounting
Officer)
|
|
Date:
September 12, 2017
|
|
18