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 June 30, 2017
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
|
☐
|
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 AND NINE MONTHS ENDED JUNE 30, 2017 AND
2016
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 June 30, 2017 (unaudited) and
September 30, 2016
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3
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Condensed
Consolidated Statements of Operations for the Three and Nine Months
Ended June 30, 2017 and 2016 (unaudited)
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4
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Condensed
Consolidated Statements of Cash Flows for the Nine Months Ended
June 30, 2017 and 2016 (unaudited)
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5
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Notes
to Condensed Consolidated Financial Statements
(unaudited)
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6
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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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11
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ITEM
3.
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Quantitative
and Qualitative Disclosures about Market Risk
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16
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ITEM
4.
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Controls
and Procedures
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16
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PART II. OTHER
INFORMATION
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ITEM
1.
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Legal
Proceedings
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17
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ITEM
1A.
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Risk
Factors
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17
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ITEM
2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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17
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ITEM
3.
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Defaults
Upon Senior Securities
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17
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ITEM
4.
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Mine
Safety Disclosures
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17
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ITEM
5.
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Other
Information
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17
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ITEM
6.
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Exhibits
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18
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SIGNATURES
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19
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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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June
30,
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September
30
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2017
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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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$3,303
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$1,304
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Prepaid
expenses
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6,000
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-
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Total
current assets
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9,303
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1,304
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Total
Assets
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$9,303
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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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$91,874
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$82,526
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Accounts
payable - related parties
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47,877
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47,877
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Convertible
notes payable
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25,000
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-
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Accrued
liabilities
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12,995
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12,359
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Total
current liabilities
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177,746
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142,763
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Total
Liabilities
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177,746
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142,763
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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 June 30, 2017 and September
30, 2016
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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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(5,031,844)
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(5,004,860)
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Total
Stockholders’ Deficit
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(168,442)
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(141,458)
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Total
Liabilities and Stockholders’ Deficit
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$9,303
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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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For the
Nine Months Ended
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||
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June
30,
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June
30,
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2017
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2016
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2017
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2016
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Operating
expenses:
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General
and administrative
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$14,037
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$9,836
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$21,350
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$185,833
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Depreciation
and amortization
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-
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-
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-
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18,974
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Stock
based compensation
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-
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-
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-
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(1,296,431)
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Total
operating expenses
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14,037
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9,836
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21,350
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(1,091,624)
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Operating
income (loss)
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(14,037)
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(9,836)
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(21,350)
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1,091,624
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Other
income expenses
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Interest
expense
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(598)
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-
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(634)
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-
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Change
in fair value of convertible debt
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-
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-
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(5,000)
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-
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Total
other expenses
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(598)
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-
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(5,634)
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-
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Income
(loss) from continuing operations
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(14,635)
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(9,836)
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(26,984)
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1,091,624
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Income
from operations of discontinued Canna-Pet component (gain on
disposal of $80,903 for the nine months ended June 30,
2016)
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-
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-
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-
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74,706
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Net
income (loss)
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$(14,635)
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$(9,836)
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$(26,984)
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$1,166,330
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Per
share information:
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Basic
weighted average shares outstanding
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78,363,562
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78,363,562
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78,363,562
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78,363,562
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Diluted
weighted average shares outstanding
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78,363,562
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78,363,562
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78,363,562
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80,372,603
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Continuing
operations:
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Net
income (loss) per share - basic and diluted
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$(0.00)
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$0.00
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$(0.00)
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$0.01
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Discontinued
operations:
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Net
income (loss) per share - basic and diluted
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$(0.00)
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$0.00
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$(0.00)
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$0.00
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The
accompanying footnotes are an integral part of these condensed
consolidated financial statements.
4
PEAK PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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2017
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2016
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Cash
flows from operating activities:
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Net
income (loss)
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$(26,984)
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$1,166,330
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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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(1,296,431)
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Depreciation
and amortization
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-
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18,245
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Change
in fair value of convertible debt
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5,000
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-
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Change
in operating assets and liabilities:
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Prepaids
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(6,000)
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9,750
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Accounts
payable and accrued liabilities
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36,984
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(1,035)
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Accounts
payable - related parties
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(27,000)
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30,584
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Disposal
of discontinued operations
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-
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(127,524)
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Net
cash used in operating activities
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(18,000)
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(200,081)
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Cash
flows from financing activities:
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Proceeds
from issuance of convertible notes payable
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20,000
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-
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Net
cash provided by financing activities
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20,000
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-
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Net
change in cash
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2,000
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(200,081)
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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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$3,303
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$1,575
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Supplemental
disclosure of cash flow information
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Cash
paid for interest
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$-
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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, convertible notes payable,
derivative liability, 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. For the three and nine months ended June 30, 2017, any
equivalents would have been anti-dilutive as we had a loss for the
period 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 managements 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.
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
$5,031,844 as of June 30, 2017. 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.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Loan with Trius Holdings Limited
8
On
March 17, 2017, we entered into an agreement with Trius Holdings
Limited. Pursuant to the terms of the agreement, the investor
acquired a 12% convertible note with an aggregate face value of
$10,000. The note matures in one year. The holder of this note is
entitled, at its option, to convert all or a part of the principal
outstanding at the date into shares of the of common stock in the
Company at a price equal to a 20% discount to the closing price of
the common stock on the date of the lender’s notice of
conversion, subject to a floor of $0.01.
Loan with Individual
On
March 30, 2017, we entered into an agreement with an individual.
Pursuant to the terms of the agreement, the investor acquired a 12%
convertible note with an aggregate face value of $10,000. The note
matures in one year. The holder of this note is entitled, at its
option, to convert all or a part of the principal outstanding at
the date into shares of the of common stock in the Company at a
price equal to a 20% discount to the closing price of the common
stock on the date of the lender’s notice of conversion,
subject to a floor of $0.01.
Total
accrued interest on the above notes was $634 as of June 30, 2017
and is reflected in accrued expenses on the accompanying balance
sheet. The Company recorded a loss on the notes of $5,000 based on
the fair value of the notes on the dates of issuance.
NOTE 5 – STOCKHOLDERS’ EQUITY
We had
no preferred or common stock transactions during the three and
nine-month periods ended June 30, 2017 and 2016
NOTE 6 – OPTIONS
The
following is a summary of outstanding stock options issued to
employees and directors as of June 30, 2017:
|
Number
of Options
|
|
Exercise
Price per
Share
|
|
Average
Remaining
Term
in
Years
|
|
Aggregate
Intrinsic
Value
at Date
of
Grant
|
|
|
|
|
|
|
|
|
Outstanding
October 1, 2015
|
7,416,000
|
|
$0.0067
- $0.20
|
|
|
|
-
|
Issued
|
-
|
|
|
|
|
|
-
|
Cancelled
|
(4,500,000)
|
|
|
|
|
|
-
|
Outstanding
June 30, 2017 and September 30, 2016
|
2,916,000
|
|
$0.0067
|
|
6.30
|
|
-
|
Exercisable
|
2,916,000
|
|
$0.0067
|
|
6.30
|
|
-
|
9
The
following is a summary of outstanding stock options issued to
non-employees, excluding directors, as of June 30,
2017:
|
Number
of Options
|
|
Exercise
Price per
Share
|
|
Average
Remaining
Term
in
Years
|
|
Aggregate
Intrinsic
Value
at Date
of
Grant
|
|
|
|
|
|
|
|
|
Outstanding
June 30, 2017, September 30, 2016 and October 1, 2015
|
375,000
|
|
$0.0067
|
|
6.70
|
|
-
|
Exercisable
|
375,000
|
|
$0.0067
|
|
6.70
|
|
-
|
Total
equity based compensation for the three months ended June 30, 2017
and 2016 was $0 and $0 respectively. Total equity based
compensation for the nine months ended June 30, 2017 and 2016 was
$0 and ($1,296,431), respectively.
NOTE 7 - 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.
10
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, as filed
on September 12, 2017, 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.
11
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
|
12
Our
common stock is currently listed on the OTC Markets, QB Tier, under
the symbol “PKPH”.
Recent Corporate Developments
For the
nine months ended June 30, 2017, our company has received two
convertible promissory notes from unrelated third parties. These
loans are convertible into shares of our company pursuant to the
terms of the loan agreements. In the descriptions below of the
loans, the issuance of common shares pursuant to the conversion of
debt pursuant to convertible promissory notes, and the issuance of
common shares pursuant to the exercise of warrants, transactions
are a on a post reverse stock split basis. All the loans,
convertible promissory notes, and warrants include terms that make
them subject to the share splits.
Loan Agreements
Loan with Trius Holdings Limited
On
March 17, 2017, we entered into an agreement with Trius Holdings
Limited. Pursuant to the terms of the agreement, the investor
acquired a 12% convertible note with an aggregate face value of
$10,000. The note matures in one year. The holder of this note is
entitled, at its option, to convert all or a part of the principal
outstanding at the date into shares of the of common stock in the
Company at a price equal to a 20% discount to the closing price of
the common stock on the date of the lender’s notice of
conversion, subject to a floor of $0.01.
Loan with Individual
On
March 30, 2017, we entered into an agreement with an individual.
Pursuant to the terms of the agreement, the investor acquired a 12%
convertible note with an aggregate face value of $10,000. The note
matures in one year. The holder of this note is entitled, at its
option, to convert all or a part of the principal outstanding at
the date into shares of the of common stock in the Company at a
price equal to a 20% discount to the closing price of the common
stock on the date of the lender’s notice of conversion,
subject to a floor of $0.01.
Results of Operations
Comparison of the Three Months Ended June 30, 2017 to the Three
Months Ended June 30, 2016
Revenue
No
revenue or cost of sales were generated for the three months ended
June 30, 2017 or June 30, 2016 due to the overall reduction in
operations of the business.
Operating Expenses
Our
expenses for the three months ended June 30, 2017 are summarized as
follows in comparison to our expenses for the three months ended
June 30, 2016:
|
Three
Months Ended June 30,
|
|
|
2017
|
2016
|
|
|
|
General and
administrative
|
$14,037
|
$ 9,836
|
Depreciation and
amortization
|
-
|
-
|
Stock based
compensation
|
-
|
-
|
Total operating
expenses
|
$14,037
|
$ 9,836
|
General
and administrative expense increased by $4,201 for the three months
ended June 30, 2017 from the comparative period of 2016. The
increase is due primarily to increased accounting fees incurred to
bring our filings current with the SEC. Depreciation and
amortization expense as well as stock based compensation was $0 for
the three months ended June 30, 2017 and 2016.
13
Comparison of the Nine Months Ended June 30, 2017 to the Nine
Months Ended June 30, 2016
Revenue
No
revenue or cost of sales were generated for the nine months ended
June 30, 2017 or for the nine months ended June 30, 2016 due to the
termination of the license agreement with Canna-Pet, LLC and the
overall reduction in operations of the business.
Operating Expenses
Our
expenses for the nine months ended June 30, 2017 are summarized as
follows in comparison to our expenses for the nine months ended
June 30, 2016:
|
Nine
Months Ended June 30,
|
|
|
2017
|
2016
|
|
|
|
General and
administrative
|
$21,350
|
$185,833
|
Depreciation and
amortization
|
-
|
18,974
|
Stock based
compensation
|
-
|
(1,296,431)
|
Total operating
expenses
|
$21,350
|
$(1,091,624)
|
General
and administrative expense decreased by $164,483 for the nine
months ended June 30, 2017 from the comparative period of 2016, due
to the overall reduction in operating expenses related to the
scaling down of operation of the business. Depreciation and
amortization expense decreased by $18,974 due to the impairment and
the write-down of website costs during the nine months ended June
30, 2016. Stock based compensation increased by $1,296,431
primarily due to the forfeiture and reversal of stock options to
officers resulting in a credit of $1,296,431 during the nine months
ended June 30, 2016.
Discontinued Operations
Our
Canna-Pet business segment began operations in October 2014. Due to
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
nine-month periods ended June 30, 2017 and 2016:
|
2017
|
2016
|
Revenues
|
$-
|
$-
|
Cost of goods
sold
|
-
|
-
|
General and
administrative expenses
|
-
|
-
|
Gain on disposal of
discontinued operations
|
-
|
74,706
|
|
$-
|
$74,706
|
Liquidity and Financial Condition
Working Capital Deficiency
|
June
30,
2017
|
September
30,
2016
|
Current
assets
|
$9,303
|
$1,304
|
Current
liabilities
|
177,746
|
142,762
|
Working capital
deficiency
|
$(168,443)
|
$(141,458)
|
14
The
increase in current assets is mainly due to the increase in prepaid
expenses during the nine months ended June 30, 2017. The increase
in current liabilities is due primarily from the increase in
accounting fees recorded in accounts payable to bring the
Company’s SEC filings current for the nine-month period
ending June 30, 2017.
Cash Flows
|
Nine
Months Ended June 30,
|
|
|
2017
|
2016
|
Net income
(loss)
|
$(26,984)
|
$1,174,208
|
Net cash provided
(used) in operating activities
|
(18,000)
|
(200,081)
|
Net cash used in
investing activities
|
-
|
-
|
Net cash provided
by financing activities
|
20,000
|
-
|
Increase (decrease)
in cash
|
$2,000
|
$(200,081)
|
As of
June 30, 2017, our cash balance was $3,303. 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 nine months ended June 30, 2017 was
$18,000 mainly due to the net loss incurred for the
period.
Net
cash provided by financing for the nine months ended June 30, 2017
was $20,000 from the issuance of two promissory notes during the
period.
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 June 30, 2017 of approximately $5 million, as well as
negative cash flows from operating activities. The Company's cash
and cash equivalents balance as of June 30, 2017, is $3,303. 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.
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.
15
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 and
nine months ended June 30, 2017.
Newly Issued Accounting Pronouncements
See
Note 1 to our financial statements included herein for the three
and nine months ended June 30, 2017 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 June 30, 2017, 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.
Based
on this evaluation, we determined that as of June 30, 2017, 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.
16
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 June 30, 2017 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.
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.
17
ITEM 6. EXHIBITS
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)
|
(10)
|
Material Contracts
|
10.1
|
Convertible
Promissory Note dated March 21, 2017 with Trius Holdings Limited
(incorporated by reference to our Registrant’s Quarterly
Report on Form 10-Q filed on March 31, 2016.)
|
10.2
|
Convertible
Promissory Note dated March 30, 2017 with Sukh Athwal (incorporated
by reference to our Registrant’s Quarterly Report on Form
10-Q filed on March 31, 2016.)
|
(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.
|
18
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
|
|
19