Attached files
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
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QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 For the quarterly period ended
September 30, 2017
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☐
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the
transition period
from _________________ to __________________
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Commission File Number: 000-54906
Cantabio Pharmaceuticals Inc.
(Exact name of registrant as specified in its charter)
Delaware
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000-54905
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99-0373067
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(State
or other jurisdiction of incorporation)
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(Commission
File Number)
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(IRS
Employer Identification No.)
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1250 Oakmead Pkwy
Sunnyvale, California
(Address
of principal executive offices)
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94085
(Zip
Code)
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844-200-2826
Registrant’s telephone number, including area
code
N/A
(Former name or former address, if changed since last
report)
Indicate by check mark whether the issuer (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Exchange Act
during the past 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 Web site, 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
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☐
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Accelerated
filer
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☐
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Non-accelerated
filer
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☐
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(Do not
check if a smaller reporting company)
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Smaller
reporting company
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☒
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Emerging
Growth Company
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☐
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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 November 13th, 2017, there were 28,993,430 shares of the
issuer’s common stock issued and outstanding.
CANTABIO PHARMACEUTICALS, INC
FORM 10-Q
TABLE OF CONTENTS
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PART I - FINANCIAL INFORMATION
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Item 1.
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Condensed
Consolidated Interim Financial Statements (Unaudited)
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2
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Condensed
Consolidated Balance Sheets as of September 30, 2017 and March 31,
2017
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2
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Condensed
Consolidated Statements of Operations for the three and six months
ended September 30, 2017 and 2016
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3
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Condensed
Consolidated Statements of Cash Flows for the three and six months
ended September 30, 2017 and 2016
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4
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Notes
to Condensed Consolidated Financial Statements
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5
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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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12
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Item 3.
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Quantitative
and Qualitative Disclosures About Market Risk
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13
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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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14
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Item 1A.
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Risk
Factors
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14
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Item 2.
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Unregistered
Sales of Equity Securities and Use of Proceeds
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14
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Item 3.
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Defaults
Upon Senior Securities
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14
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Item 4.
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Mine
Safety Disclosures
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14
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Item 5.
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Other
Information
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14
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Item 6.
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Exhibits
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15
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SIGNATURES
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16
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1
PART I – FINANCIAL INFORMATION
CANTABIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
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September
30,
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March
31,
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2017
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2017
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ASSETS
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Current
Assets
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Cash
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$51,195
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$32,275
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Prepaid
expenses
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-
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1,248
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Total
Current Assets
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51,195
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33,523
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TOTAL
ASSETS
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$51,195
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$33,523
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LIABILITIES
& STOCKHOLDERS' EQUITY
(DEFICIT)
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Current
Liabilities
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Accounts
payable and accrued expenses
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$610,456
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$377,893
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Accrued
technology access fee
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157,831
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140,142
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Convertible
debentures
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522,408
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322,256
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Convertible
debt related party
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209,383
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-
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Note
payable related party
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-
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47,154
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Total
Current Liabilities
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1,500,078
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887,445
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TOTAL
LIABILITIES
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$1,500,078
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$887,445
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Commitments
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Stockholders'
equity (deficit)
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Common
stock, $0.001 par value, (250,000,000 shares authorized, 27.4
and 26.8 million shares issued and outstanding as
of September 30, 2017 and March 31, 2017
respectively)
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27,437
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26,805
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Stock
Subscriptions
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1,060,000
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1,060,000
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Additional
paid in capital
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269,419
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167,324
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Accumulated
deficit
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(2,805,739)
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(2,108,051)
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Total Stockholders'
Equity (Deficit)
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(1,448,883)
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(853,922)
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TOTAL LIABILITIES
& STOCKHOLDERS' EQUITY
(DEFICIT)
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$51,195
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$33,523
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
CANTABIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
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For
the three months ended September 30,
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For
the six months ended September 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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Research &
development
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$98,904
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$69,070
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$196,096
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$181,802
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General &
administrative
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177,435
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218,521
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368,169
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372,849
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Total operating
expenses
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276,339
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287,591
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564,265
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554,651
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Loss
from operations
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(276,339)
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(287,591)
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(564,265)
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(554,651)
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Other
income (expense):
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Interest
expense
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(112,952)
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(3,995)
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(187,423)
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(7,864)
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Change in fair
value of embedded derivatives
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44,000
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54,000
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Foreign currency
transaction gain (loss)
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-
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(1,962)
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-
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3,100
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Total other
expense, net
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(68,952)
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(5,957)
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(133,423)
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(4,764)
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Net
loss
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$(345,291)
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$(293,548)
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$(697,688)
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$(559,415)
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Net
loss per share - basic and diluted
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$(0.01)
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$(0.01)
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$(0.03)
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$(0.02)
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Weighted
average shares outstanding, basic and diluted
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27,284,000
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26,805,000
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27,145,000
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26,805,000
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
CANTABIO PHARMACEUTICALS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
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Six
Months Ended
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September 30, |
September
30,
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2017
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2016
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CASH
FLOWS FROM OPERATING ACTIVITIES
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Net
loss
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$(697,688)
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$(559,415)
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Adjustments to
reconcile net loss to net cash used in operating
activities:
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Amortization
of debt discount
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156,406
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Change
in fair value of embedded derivative
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(54,000)
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Stock
issued in lieu of services
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39,549
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Changes in
operating assets and liabilities:
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Accounts
payable and accrued expenses
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232,564
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31,638
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Accrued
technology access fee
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17,688
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16,256
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Accrued
debenture interest
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21,153
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-
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Due
to officers
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(6,420)
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Prepaid
Expenses
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1,248
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---
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Net
cash used in operating activities
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(283,080)
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(519,175)
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CASH
FLOWS FROM FINANCING ACTIVITIES
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Proceeds
from issuance of convertible debt related party, net of issuance
cost
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175,000
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-
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Proceeds
from issuance of convertible debenture, net of issuance
cost
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127,000
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Proceeds
from notes payable related party
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10,022
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Repayment
to notes payable related party
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(15,328)
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Share
subscriptions
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485,000
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Net
cash provided by financing activities
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302,000
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479,694
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Net
increase (decrease) in cash
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(18,920)
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(39,481)
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Cash at
beginning of period
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32,275
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52,110
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Cash at
end of period
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$51,195
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$12,629
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Schedule of non-cash financing activities
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Recognition
of beneficial conversion feature associated with convertible
debentures
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$35,000
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$-
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27,178
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The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
CANTABIO PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
(Unaudited)
NOTE 1 – ORGANIZATION AND DESCRIPTION OF THE
BUSINESS
Cantabio Pharmaceuticals Inc. (the “Company” or
“Cantabio”) is a preclinical stage biotechnology
company focusing on commercializing novel therapies and the
intellectual property generated from research and development
activities for Parkinson’s disease (PD) and Alzheimer’s
disease (AD). The Company’s strategy involves integration of
therapeutic focus, the targeting of family biophysics, drug
discovery technology and expertise into an innovative drug
discovery approach, which synergizes to identify and develop small
molecule pharmacological chaperones for clinical trials. In
addition, the Company’s research efforts concentrate on the
development of therapeutic proteins that can pass through the
blood-brain barrier and supplement in vivo levels of proteins with
display loss of function during disease conditions.
NOTE 2 – LIQUIDITY AND GOING CONCERN
As of September 30, 2017, the Company had a working capital deficit
of approximately $1.4 million and losses from operations of
approximately $0.6 million.
The Company typically raises capital which it spends on maintaining
its research and corporate operations. At this early stage in the
life of the Company funding is often short term in nature. While
the Company has been proficient in raising funds in the past the
short-term nature of these funding cycles raises substantial doubt
about the Company's ability to continue as a going concern within
one year from the date of this filing.
Management is addressing going concern risk by seeking new sources
of capital and is continuing initiatives to raise capital through
private placements, related party loans and other institutional
sources to meet future working capital requirements. Furthermore,
strategic partnerships, most likely with larger pharmaceutical
industry companies, will be needed to continue to fund research and
development costs as our projects expand. These measures, if
successful, may contribute to reduce the risk of going concern
uncertainties for the Company for at least twelve months from
issuance of these condensed consolidated financial
statements.
The ability of the Company to continue as a going concern is
dependent upon its ability to raise additional capital and achieve
profitable operations. The accompanying financial statements do not
include any adjustments that might be necessary if the Company is
unable to continue as a going concern.
NOTE 3 – SUMMARY OF SIGNIFICANT ACCOUNTING
POLICIES
The Company has developed the additional accounting policies below.
Aside from these additions to the Company’s accounting
policies there have been no material changes in the Company’s
significant accounting policies to those previously disclosed in
the Company’s annual report on Form 10-K, which was filed
with the SEC on June 30, 2017.
Warrant Liability
The Company accounts for certain common stock warrants outstanding
as a liability at fair value and adjusts the instruments to fair
value at each reporting period. This liability is subject to
re-measurement at each balance sheet date until exercised, and any
change in fair value is recognized in the Company's statements of
operations. The fair value of the warrants issued by the Company
has been estimated using a valuation pricing model, at each
measurement date that incorporates various inputs including
remaining contractual term, stock volatility, risk free rate and
dividend yield.
5
Equity-linked Financial Instruments
Certain of the Company’s debt instruments include embedded
derivatives that require bifurcation from the host contract under
the provisions of ASC 815, Derivatives and Hedging. Under this
guidance, the Company recognizes the embedded derivatives at fair
value and records a gain or loss resulting from the change in fair
values at the end of each reporting period. In connection with
issuance of the Company’s Zhu Notes, beginning on July 3,
2017, the Company became contingently obligated to issue shares in
excess of the 250 million authorized by shareholders. Consequently,
the ability to settle these obligations with shares would be
unavailable causing these and other share-settled obligations to
potentially be settled in cash. The Company applies a sequencing
policy regarding share settlement wherein equity-linked financial
instruments with the earliest issuance date would be settled first.
Thus, all equity-linked financial instruments, which are
convertible or exercisable into common stock, issued concurrent or
subsequent to the Zhu Notes are classified as derivative
liabilities, with the exception of instruments related to employee
share-based compensation.
Sequencing
As of July 3, 2017, the Company adopted a sequencing policy whereby
all future equity-linked instruments may be classified as a
derivative liability with the exception of instruments related to
share-based compensation issued to employees or
directors.
Recent Accounting Standards
Fiscal 2019 Accounting Pronouncement Adoptions
In August 2016, the FASB issued ASU No.
2016-15, Statement of Cash Flows (Topic
230): Classification of Certain Cash Receipts and Cash
Payments. This new standard
clarifies certain aspects of the statement of cash flows, including
the classification of debt prepayment or debt extinguishment costs
or other debt instruments with coupon interest rates that are
insignificant in relation to the effective interest rate of the
borrowing, contingent consideration payments made after a business
combination, proceeds from the settlement of insurance claims,
proceeds from the settlement of corporate-owned life insurance
policies, distributions received from equity method investees and
beneficial interests in securitization transactions. This new
standard also clarifies that an entity should determine each
separately identifiable source of use within the cash receipts and
payments on the basis of the nature of the underlying cash flows.
In situations in which cash receipts and payments have aspects of
more than one class of cash flows and cannot be separated by source
or use, the appropriate classification should depend on the
activity that is likely to be the predominant source or use of cash
flows for the item. This new standard will be effective for us on
April 1, 2018. The Company is currently evaluating the impact
of this new standard and does not expect it to have a material
impact on our financial statements.
In February 2016, the FASB issued ASU 2016-02, Leases (Topic 842).
ASU 2016-02 increases the transparency and comparability among
organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing
arrangements. Certain qualitative and quantitative disclosures are
required, as well as a retrospective recognition and measurement of
impacted leases. The new ASU is effective for fiscal years and
interim periods within those years beginning after December 15,
2018, with early adoption permitted. The Company is currently
evaluating the impact of this new standard and does not expect it
to have a material impact on our financial statements.
NOTE 4 – MATERIAL AGREEMENTS
There have been no material changes in the Company’s material
agreements to those previously disclosed in the Company’s
annual report on Form 10-K, which was filed with the SEC on
September 30, 2017.
6
NOTE 5 – RELATED PARTY TRANSACTIONS
Toth and Associates LTD
On July 1, 2016, the Company entered into a consulting agreement
with Toth and Associates LTD for Dr. Toth to act as the
Company’s CEO. The standard monthly fee is approximately
$13,000 plus any additional uncontracted hours at the same rate,
and bonuses as follows (A) upon raising of capital on behalf of, or
as part of the Company, an amount equal to 1.5% of the capital
raised, (B) increasing the performance of the Company as measured
by valuation in either an agreed valuation in the context of an
investment or, in the case of a public company, market
capitalization reaching $30.0 million, a fixed bonus of $50,000,
payable wholly or in mutually agreed tranches over a 6 month period
subsequent to the valuation event, (C) on the issuance of new stock
for the purposes of a capital raise of an amount over $5.0 million,
common stock equal to 1% of the Company’s post-investment
issued share capital and (D) in the event of the Company, including
any affiliated entities, securing a licensing agreement with any
third party, an amount equivalent to 1.5% of any payments to the
Company under such licensing agreement.
Capro LTD
On July 1, 2016, the Company entered a consulting agreement with
Capro, LTD for Dr. Thomas Sawyer to act as the Company’s
COO. The standard monthly fee is approximately $11,000
plus any additional uncontracted hours at the same rate, and
bonuses as follows (A) upon raising of capital on behalf of, or as
part of the Company, an amount equal to 1.5% of the capital raised,
(B) increasing the performance of the Company as measured by
valuation in either an agreed valuation in the context of an
investment or, in the case of a public company, market
capitalization reaching $30.0 million, a fixed bonus of $50,000,
payable wholly or in mutually agreed tranches over a 6 month period
subsequent to the valuation event and (C) on the issuance of new
stock for the purposes of a capital raise of an amount over $5.0
million, common stock equal to 1% of the Company’s
post-investment issued share capital and (D) in the event of the
Company, including any affiliated entities, securing a licensing
agreement with any third party, an amount equivalent to 1.5% of any
payments to the Company under such licensing
agreement.
Eden Professional LTD
On July 1, 2016, the Company entered a consulting agreement with
Eden Professional LTD for Mr. Simon Peace to act as the
Company’s CFO. The standard monthly fee is
approximately $7,000 plus any additional uncontracted hours at the
same rate, and bonuses as follows (A) upon raising of capital on
behalf of, or as part of the Company, an amount equal to 1.5% of
the capital raised, (B) increasing the performance of the Company
as measured by valuation in either an agreed valuation in the
context of an investment or, in the case of a public company,
market capitalization reaching $30.0 million, a fixed bonus of
$50,000, payable wholly or in mutually agreed tranches over a 6
month period subsequent to the valuation event and (C) on the
issuance of new stock for the purposes of a capital raise of an
amount over $5.0 million, common stock equal to 1% of the
Company’s post-investment issued share capital and (D) in the
event of the Company, including any affiliated entities, securing a
licensing agreement with any third party, an amount equivalent to
1.5% of any payments to the Company under such licensing
agreement.
7
Costs incurred associated with related party transactions noted
above included in general and administrative in the statement of
operations are as follows:
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For
the three months ended September 30,
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For
the six months ended September 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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Toth and Associates LTD
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$40,000
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$36,000
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$80,000
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$72,000
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Capro LTD
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33,000
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30,000
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66,000
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60,000
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Eden Professional LTD
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21,000
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19,000
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42,000
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38,000
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Max Zhu Consulting (1)
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6,000
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6,000
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12,000
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12,000
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Total related party
transactions
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$100,000
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$91,000
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$200,000
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$182,000
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(1)
Max
Zhu, an investor in and lender to the Company, also works as Head
of Computer Aided Drug Design for the Company under a consultancy
contract.
Accounts payable and accrued expenses includes amounts payable to
related parties of $0.4 and $0.2 million for the period ended
September 30, 2017 and March 31, 2017, respectively.
NOTE 6 – CONVERTIBLE DEBENTURES
On January 25, 2017, the Company entered into a securities purchase
agreement with an accredited investor to place Convertible
Debentures (as amended the “Debentures”) with a
maturity date of January 25, 2018 in the aggregate principal amount
of up to $600,000 (the “Transaction”), provided that in
case of an event of default, the Debentures may become at the
holder’s election immediately due and payable. The initial
closing of the Transaction occurred on January 25, 2017 when the
Company issued a Debenture for $300,000. A second closing for
$150,000 occurred on March 2, 2017 and a third closing for $150,000
occurred on May 3, 2017. The Debentures bear interest at the rate
of 5% per annum. In addition, the Company must pay to the holder a
fee equal to 7% of the amount of the Debentures to assist in their
monitoring costs for the Debentures. The net proceeds of the
financing were used for general corporate matters and for other
expenses.
The Debentures may be converted at any time on or prior to maturity
at the lower of $0.3107 or 93% of the average of the three lowest
daily volume weighted average price (“VWAP”) during the
10 consecutive trading days immediately preceding the conversion
date, provided that as long as we are not in default under the
Debenture, the conversion price may never be less than
$0.05.
Any time after the six-month anniversary of the issuance of a
Debenture that the daily VWAP is less than $0.05 for a period of
twenty consecutive trading days (the “Triggering Date”)
and only for so long as such conditions exist after a Triggering
Date, the Company shall make monthly payments beginning on the last
calendar day of the month when the Triggering Date occurred. Each
monthly payment shall be in an amount equal to the sum of (i) the
principal amount outstanding as of the Triggering Date divided by
the number of such monthly payments until maturity, (ii) a
redemption premium of 20% in respect of such principal amount and
(iii) accrued and unpaid interest hereunder as of each payment
date. The Company may, no more than twice, obtain a thirty-day
deferral of a monthly payment due as a result of a Triggering Date
through the payment of a deferral fee in the amount equal to 10% of
the total amount of such monthly payment. Each deferral payment may
be paid by the issuance of such number of shares as is equal to the
applicable deferral payment divided by a price per share equal to
93% of the average of the four lowest daily VWAPs during the 10
consecutive Trading Days immediately preceding the due date in
respect of such monthly payment begin deferred, provided that such
shares issued will be immediately freely tradable shares in the
hands of the holder.
8
Debt discount, embedded redemption feature and beneficial
conversion feature
Upon issuance of the Debentures in the three closings, the Company
recognized an aggregate debt discount of approximately $239,000 to
the aggregate $600,000 principal value of Debentures, comprised
approximately of the following:
Fees paid to an
affiliate of the lender
|
|
$109,000
|
Beneficial
conversion feature
|
|
103,000
|
Estimated fair
value of embedded derivative
|
|
27,000
|
Aggregate
discount amount
|
|
$239,000
|
The debenture is presented net of the related debt discount and the
discount is amortized to interest expense over the
Debenture’s term using the effective interest
method.
Beneficial Conversion Feature
At the time of each closing, the Debenture’s effective
conversion price was below the quoted market price of the
Company’s common stock. As such, the Company recognized a
beneficial conversion feature equal to the intrinsic value of the
conversion feature on each issuance date, resulting in a discount
to the Debenture with a corresponding credit to additional paid-in
capital.
Embedded Derivative
The monthly payment provision within the Debentures is a
contingent put option that is required to be separately measured at
fair value, with subsequent changes in fair value recognized in the
Condensed Consolidated Statements of Operations. The Company
estimated the fair value of the monthly payment provision, as of
the issuance date and September 30, 2017 using probability analysis
of the occurrence of a Triggering Date applied to the
discounted maximum redemption premium for any given payment. The
probability analysis utilized in calculating the embedded
derivative upon issuance and at September 30, 2017 was calculated
using the following key inputs:
|
Key Inputs
|
Stock
price
|
$0.052 - $0.23
|
Probability
of Triggering Date
|
5.8–40.9%
|
Volatility
|
213.7%
|
Risk-free
rate
|
0.82–1.20%
|
Discount
rate
|
39.6%
|
The maximum redemption was discounted at 39.6%, the calculated
effective rate of the Debenture before measurement of the
contingent put option. The fair value estimate of the embedded
derivative is a Level 3 measurement. The roll-forward of the Level
3 fair value measurement, for the three months ended September 30,
2017, is as follows:
Balance
at
March
31, 2017
|
Issuance
|
Net
unrealized (gain)/loss
|
Balance
at
September
30, 2017
|
24,000
|
$$6,000
|
$ $(3,000)
|
$$27,000
|
9
The carrying value of the Debentures, as of September 30, 2017, is
comprised of the following:
Secured
Convertible Debenture at September 30, 2017:
|
|
Principal value of
5%, convertible
|
$575,000
|
Fair value of
embedded derivative
|
27,000
|
Accrued
Interest
|
14,399
|
Debt
discount
|
(93,991)
|
Carrying
value of Secured Convertible Debenture Note
|
$522,408
|
As of September 30, 2017, the estimated aggregate fair value of
outstanding convertible notes payable is approximately $0.6
million. The fair value estimate is based on the estimated option
value of the conversion terms. The estimated fair value represents
a Level 3 measurement.
On August 16, 2017, holders of approximately $27,000 in principal
amount and accrued interest with respect to Secured Convertible
Debentures exercised the conversion option and converted into 0.3
million shares of common stock. The Company recognized additional
interest expense of approximately $6,000 upon the conversion
resulting from the remaining unamortized debt
discount.
Events of Default or Financial covenants
The Company is in compliance with all terms associated with the
convertible note.
NOTE 7 – CONVERTIBLE DEBT RELATED PARTY
On July 3, 2017 and August 31, 2017, the Company issued convertible
notes payable to Max Zhu for an aggregate principal balance of
$220,000, in exchange for cash of $175,000 and the exchange of a
note payable to Mr. Zhu with a principal balance of $45,000. The
extinguished notes payable was fully matured.
The convertible notes payable have a six-month term and incurs
interest at rates ranging from 18% to 23% through maturity. If the
notes are not repaid within the six-month term, the interest rate
increases on each note to rates ranging from 23% to 28%. The
Company has the option to settle the principal and all accrued
interest of each note in cash or shares and the Company may prepay
the principal and all accrued interest, in cash or shares, without
penalty. The note holder has the right to convert all or any
portion of the outstanding principal and accrued interest of each
note into common shares of the Company at a conversion price of the
lesser of: (i) $0.08 per share, or (ii) a price equal to 80% of the
lowest VWAP during the five consecutive days before the notice of
conversion.
Upon issuance of the convertible notes, the Company recognized an
aggregate debt discount of approximately $0.2 million relating to
the bifurcated embedded conversion option. At the end of the fiscal
period, the bifurcated embedded conversion option was measured at
fair value of $0.1 million, resulting in a gain of $0.1
million.
The analysis utilized in calculating the embedded derivative upon
issuance and at September 30, 2017 was calculated using the
following key inputs:
|
Key Inputs
|
Stock
price
|
$$0.05- $0.11
|
Contractual
term
|
0.3
- 0.5 years
|
Volatility
|
124.2-159.3%
|
Risk-free
rate
|
1.1%
|
10
The fair value estimate of the embedded derivative is a Level 3
measurement. The roll-forward of the Level 3 fair value
measurement, for the three months ended September 30, 2017, is as
follows:
Balance
at
Issuance
|
Net
unrealized (gain)/loss
|
Balance
at
September
30, 2017
|
159,000
|
$ $(52,000)
|
$$107,000
|
The carrying value of the Notes, as of September 30, 2017, is
comprised of the following:
Secured
Convertible Debenture at September 30, 2017:
|
|
Principal value of
5%, convertible
|
$220,000
|
Fair value of
embedded conversion option
|
107,000
|
Accrued
Interest
|
6,730
|
Debt
discount
|
(124,347)
|
Carrying
value of Secured Convertible Debenture Note
|
$209,383
|
As of September 30, 2017, the estimated aggregate fair value of
outstanding convertible notes payable is approximately $0.3
million. The fair value estimate is based on the estimated option
value of the conversion terms. The estimated fair value represents
a Level 3 measurement.
NOTE 8 – CAPITAL STOCK
Issuance of shares for consulting services.
Through September 30, 2017 the Company issued approximately 0.3
million shares with a fair value of approximately $40,000 as
compensation for services performed.
Issuance of shares for conversions of debt
On August 16, 2017, the Company issued 0.3 million shares upon
conversion of approximately $27,000 of debentures and accrued
interest by an investor.
Potentially dilutive securities
|
September
30,
|
September
30,
|
|
2017
|
2016
|
Potentially dilutive securities
|
|
|
Convertible
debentures (Note 6)
|
11,331,000
|
-
|
Convertible debt
related party (Note 7)
|
5,450,000
|
-
|
|
|
|
Note 9 – SUBSEQUENT EVENTS
During October 2017, the Company issued approximately 1.6 million
shares upon conversion of approximately $76,000 of
debentures.
11
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial condition
and results of operations should be read in conjunction with our
financial statements and related notes included elsewhere in this
report.
This Quarterly Report contains forward-looking statements about our
business, financial condition and prospects that reflect
management’s assumptions and beliefs based on information
currently available. The expectations indicated by such
forward-looking statements might not be realized. If any of our
management’s assumptions should prove incorrect, or if any of
the risks and uncertainties underlying such expectations should
materialize, our actual results may differ materially from those
indicated by the forward-looking statements.
The key factors that are not within our control and that may have a
direct bearing on operating results include, but are not limited
to, managements’ ability to raise capital in the future, the
retention of key employees and changes in the regulation of our
industry. There may be other risks and circumstances that
management may be unable to predict.
When used in this Quarterly Report, words such as, "believes,"
"expects," "intends," "plans," "anticipates," "estimates" and
similar expressions are intended to identify forward-looking
statements, although there may be certain forward-looking
statements not accompanied by such expressions.
As of September 30, 2017, we had approximately $51,000 cash in the
bank. This amount will not satisfy our cash requirements for the
next twelve months. We plan to satisfy our future cash requirements
by additional equity financing. This will likely be in the form of
private placements of common stock. Additional equity financing may
not be available to us on acceptable terms or at all, and thus we
could fail to satisfy our future cash requirements.
If we are unsuccessful in raising the additional proceeds through a
private placement offering, we will then have to seek capital from
other sources such as debt financing, which may not be available to
us. However, if such financing were available, we would likely have
to pay additional costs associated with high risk loans and be
subject to an above market interest rate. At such time these funds
are required, management would evaluate the terms of such debt
financing and determine whether the business could manage the debt
load. If we cannot raise additional proceeds via a private
placement of our common stock or secure debt financing we would be
required to cease as a business. As a result, investors in our
common stock would lose all of their investment.
Results of Operations for the three months ended September 30,
2017, as compared to the three months ended September 30,
2016.
Our operating expenses decreased to $276,339 for the three months
ended September 30, 2017 from $287,591 in the three months ended
September 30, 2016. The R&D spend of $98,904 in the three
months to September 30, 2017 compares with $69,070 on R&D in
the same period in 2016, the increase being due to growth in the
R&D organisation and payment of a license fees. There was a
decrease of approximately $41,000 in General and Administrative to
$177,435 in the three months to September 30, 2017 from $218,521 in
the three months to September 30, 2016. The decrease was driven by
decreased legal and professional fees related to fundraising
activities in 2016 and by careful management of travel and general
expenses.
We generated Other Expense in the three months ended September 30,
2017 of $68,952 made up of $112,952 of interest expense, the
majority of which relates to amortization of debt discount
connected with convertible instruments, offset by a gain in the
value of embedded derivatives of $44,000. Other Income for the same
period of 2016 was $5,957 made up of $3,995 interest expense
relating to a technology license and $1,962 of foreign currency
transaction loss.
12
Results of Operations for the six months ended September 30, 2017,
as compared to the six months ended September 30,
2016.
Our operating expenses increased to $564,265 for the six months
ended September 30, 2017 from $554,651 in the six months ended
September 30, 2016. R&D spend of $196,096 in the six months to
September 30, 2017, compared to $181,802 in the same period in 2016
driven by higher staff costs in 2017 partially offset by lower
third-party R&D costs. There was a slight decrease in General
and Administrative expenses to $368,169 in the six months to
September 30, 2017 from $372,849 in the same period in
2016.
Other Expense in the six months ended September 30, 2017 was
$133,423 made up of $187,423 of interest expense, the majority of
which relates to amortization of debt discount connected with
convertible instruments, offset by a gain in the value of embedded
derivatives of $54,000. In the six months to September 30, 2016,
Other Expense was $4,764, made up of $7,864 of interest expense
partially offset by $3,100 of foreign currency transaction
gain.
Liquidity and Capital Resources
On September 30, 2017, we had $51,195 in current assets, consisting
entirely of cash. Our total current liabilities as of September 30,
2017, were $1,500,078. Thus, we had negative working capital of
$1,448,883 as of September 30, 2017.
Cash Flows from Financing Activities. During the six months ended September 30, 2017,
financing activities provided $302,000, comprised of $127,000
through a convertible debenture facility, and $175,000 through
convertible loan facilities. This compares to $480,000 during the
same period last year, comprised of $485,000 raised in funds for
issuance of future equity, offset by a net repayment of debt of
$5,000.
The Company typically raises capital which it spends on maintaining
its research and corporate operations. At this early stage in the
life of the Company funding is often short term in nature. While
the Company has been proficient in raising funds in the past, the
short-term nature of these funding cycles raises substantial risk
around the Company's ability to continue as a going
concern.
Management is addressing going concern risk by seeking new sources
of capital and is continuing initiatives to raise capital through
private placements, related party loans and other institutional
sources to meet future working capital requirements. Furthermore,
strategic partnerships, most likely with larger pharmaceutical
industry companies, will be needed to continue to fund research and
development costs as our projects expand. These measures, if
successful, may contribute to reduce the risk of going concern
uncertainties for the Company beyond the next twelve
months.
Our financial statements indicate there is substantial doubt about
our ability to continue as a going concern as this would depend
upon our ability to obtain ongoing financing and ultimately to
generate sufficient cash flow to meet our obligations on a timely
basis. Our plans and efforts to achieve the above steps might not
be successful, which raises substantial doubt about the Company's
ability to continue as a going concern within one year from the
date of this filing.
OFF BALANCE SHEET ARRANGEMENTS
The Company does not have any off-balance sheet arrangements that
have or are reasonably likely to have a current or future effect on
the Company's financial condition, changes in financial condition,
revenues or expenses, results of operations, liquidity, capital
expenditures or capital resources that are material to
investors.
Item 3. Quantitative and Qualitative Disclosures about Market
Risk
Not applicable.
13
Item 4. Controls and Procedures
A set of disclosure controls and procedures designed to ensure that
information required to be disclosed by us in the reports filed
under the Securities Exchange Act, is recorded, processed,
summarized and reported within the time periods specified by the
SEC’s rules and forms is required to be maintained by
management. Disclosure controls should be designed with the
objective of ensuring that this information is accumulated and
communicated to our management, including our chief executive
officer and our chief financial officer, as appropriate, to allow
timely decisions regarding required disclosure. Management
has not designed and currently does not maintain a designed set of
disclosure controls and procedures.
We have not evaluated the effectiveness of our disclosure controls
and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under
the Securities Exchange Act of 1934, as amended) as of the end of
the period covered by this report. As a result, management has
concluded that our disclosure controls and procedures were not
effective for the year ended September 30, 2017, due to the
following:
1.
Failure
to design and maintain a set of disclosure and control
procedures
2.
Lack
of segregation of duties as a result of limited personnel.
3.
Lack
of Functioning Audit Committee - We do not have an Audit
Committee, our board of directors currently acts as our Audit
Committee. We do not have an independent
director.
PART II: OTHER INFORMATION
Item 1. Legal Proceedings.
None.
Item 2. Unregistered Sales of Equity Securities and Use of
Proceeds.
On July 3, 2017, the Company entered into a convertible debt
arrangement with Max Zhu for $75,000 and amended an existing loan
of $45,000 to be upon the same terms as the July 3, 2017
convertible debt arrangement.
On August 31, 2017, the Company entered into a further convertible
debt arrangement with Max Zhu for $100,000.
The conversion of all these loans shall be at a price which is the
lower of $0.08 per share and 80% of the lowest calculated
volume-weighted average price of the stock during the five days
before the date of the conversion notice. We made these issuances
in reliance on the registration exemption provided by Section
4(a)(2) of the Securities Act of 1933, as amended.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
None
|
Item 5. Other Information
None.
14
Item 6. Exhibits
31.1
|
Certification
of Principal Executive Officer and Acting Principal Accounting
Officer pursuant to Rule 13a-14 and 15d-14 of the Securities
Exchange Act of 1934
|
31.2
|
Certification
of Chief Financial Officer pursuant to Rule 13a-14 and 15d-14 of
the Securities Exchange Act of 1934
|
32.1
|
Certification
of the Principal Executive Officer and Acting Principal Officer
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
32.2
|
Certification
of the Principal Financial Officer pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002
|
Exhibit 101
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
15
SIGNATURES
In accordance with the requirements of the Securities Exchange Act
of 1934, the registrant caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Cantabio Pharmaceuticals Inc.
By: /s/ Gergely
Toth
Gergely Toth
Its: President, Chief Executive Officer, Director (Principal
Executive Officer).
November [--], 2017
By: /s/ Simon
Peace
Simon Peace
Its: Chief Financial Officer, Director (Principal Accounting
Officer)
November [--], 2017
16