Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations

You should read the following discussion and analysis of our financial condition and results of operations in conjunction with our consolidated financial statements and the related notes to the consolidated financial statements included elsewhere in this Form 10-Q. The following discussion and analysis contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934, including, without limitation, statements regarding our expectations, beliefs, intentions or future strategies that are signified by the words “expect,” “anticipate,” “intend,” “believe,” or similar language. All forward-looking statements included in this document are based on information available to us on the date hereof, and we assume no obligation to update any such forward-looking statements. Our business and financial performance are subject to substantial risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. In evaluating our business, you should carefully consider the information set forth under the heading “Risk Factors” in the reports we file with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements.

Business Overview

We are a life science company focused on the development and commercialization of a pharmaceutical preparation to treat obesity and the symptoms of type 2 diabetes. We believe that a drug that will step up the body’s metabolism of fat will address the biggest health problem in the world, obesity. Obesity is also implicated as a causative and an additive to a host of other conditions, the most important of which are Type 2 diabetes, cardiovascular disease and cancer. Type II diabetes, which now consumes roughly one sixth of every health care dollar in America, is a direct result of obesity.

For our first product opportunity we have engaged Charles River Laboratories for the discovery of a small molecule drug that activates metabolic pathways to increase energy expenditure. In completed animal trials our proprietary approach to the pharmaceutical activation of this LKB-1 AMPK ( Adenosine Monophosphate dependent Protein Kinase) pathway resulted in increased energy expenditure, decreased fat mass and resulting weight loss, lower blood glucose, improved insulin sensitivity, lower cholesterol, and lower blood triglyceride levels.

Unlike most other FDA approved weight loss drugs, our strategy does not depend on a pharmaco-neurological manipulation of the higher-brain centers for appetite and/or satiety. Rather, our proprietary drug approach targets the master energy regulatory pathway that has been proven to exist not only in higher mammals, but also in all living cells that possess a nucleus. Because an intensive aerobic and resistance strength-training regime is the natural way to activate these pathway effects, we believe that our drug will help obese patients mimic the effect of a more healthy lifestyle and lose weight.

On November 16, 2017 we were selected to become a resident company at the Johnson & Johnson Innovation, JLABS facility at the Texas Medical Center in Houston, (JLABS @ TMCx). The Company has therefor relocated its headquarters to Houston, Texas as of February 1, 2016. The Company will begin by occupying office space and will later expand its physical operations to take advantage of the availability of laboratory facilities and equipment and especially the access to expertise and mentoring that make this a compelling opportunity for the Company.

Financial Operations Overview

Upon commercialization of the Company’s obesity therapeutic, we will begin working with third-party payors to establish reimbursement coverage policies. Where policies are not in place, we will pursue case-by-case reimbursement. We believe that as much as 20% of our future revenues may be derived from product(s) billed to Medicare. We will begin working with many payors, including Medicare, to establish policy-level reimbursement, which, if in place, will allow us to recognize revenues upon submitting an invoice. We do not expect to recognize the majority of revenues in this manner until calendar 2022, at the earliest.

Since our inception, we have generated significant net losses. As of November 30, 2016, we had an accumulated deficit of $3,185,259. We incurred net losses of $137,915 and $159,182 in the three months ended November 30, 2016 and 2015, respectively and $576,912 and $1,073,355 for the nine months ended November 30, 2016 and 2015, respectively. We expect our net losses to continue for at least the next several years. We anticipate that a substantial portion of our capital resources and efforts will be focused on research and development, both to develop our initial obesity therapeutic and to develop additional products for obesity and type 2 diabetes, scale up our commercial organization, and other general corporate purposes. Our financial results will be limited by a number of factors, including establishment of coverage policies by third-party insurers and government payors, our ability in the short term to collect from payors often requiring a case-by-case manual appeals process, and our ability to recognize revenues other than from cash collections on therapeutics billed until such time as reimbursement policies or contracts are in effect. Until we receive routine reimbursement and are able to record revenues as therapeutics are prescribed and delivered, we are likely to continue reporting net losses.

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Critical Accounting Policies and Significant Judgments and Estimates

This discussion and analysis of our financial condition and results of operations is based on our consolidated financial statements, which have been prepared in accordance with United States generally accepted accounting principles. The preparation of these financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities and expenses and the disclosure of contingent assets and liabilities at the date of the financial statements, as well as revenues and expenses during the reporting periods. We evaluate our estimates and judgments on an ongoing basis. We base our estimates on historical experience and on various other factors we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results could therefore differ materially from those estimates under different assumptions or conditions.

We believe the following critical accounting policies reflect our more significant estimates and assumptions used in the preparation of our financial statements.

Revenue Recognition

We have generated no revenues since our inception. Product revenues for our first product, our therapeutic for the treatment of obesity, are expected to be generated from the projected commercial launch in 2022, and are expected to be recognized on a cash basis because we will have limited collection experience and a limited number of contracts. In accordance with our policy, revenues for tests therapeutic prescribed will be recognized on an accrual basis when the related costs are incurred, provided there is a contract or coverage policy in place and the following criteria are met:

·

persuasive evidence that an arrangement exists;

·

delivery has occurred or services rendered;

·

the fee is fixed and determinable; and

·

collectability is reasonably assured.

Determination of the last two criteria will be based on management’s judgment regarding the nature of the fee charged for products or services delivered and the collectability of those fees.

We expect to generally bill third-party payors for our obesity therapeutic upon the filling of a patient prescription. Accordingly, we take assignment of benefits and the risk of collection with the third-party payor. We usually bill the patient directly for amounts owed after multiple requests for payment have been denied or only partially paid by the insurance carrier. As a new drug, our obesity therapeutic may be considered investigational by payors and not covered under their reimbursement policies. Consequently, we expect to pursue case-by-case reimbursement where policies are not in place or payment history has not been established.

Contract revenues are expected to be derived from studies conducted with biopharmaceutical and pharmaceutical companies and will be recognized on a contract specific basis. Under certain contracts, our input, measured in terms of full-time equivalent level of effort or running a set of assays through our laboratory under a contractual protocol, will trigger payment obligations and revenues will be recognized as costs are incurred or assays are processed. Certain contracts May have payment obligations that are triggered as milestones are complete, such as completion of a successful set of experiments. In these cases, revenues are recognized when the milestones are achieved.

Clinical Collaborator Costs

We expect to enter into collaboration and clinical trial agreements with clinical collaborators and record these costs as research and development expenses. We plan to record accruals for estimated study costs comprised of work performed by our collaborators under contract terms. All clinical collaborators will be expected to enter into agreements with us, which specify work content and payment terms.

Results of Operations

Comparison of the Three and Nine Months Ended November 30, 2016 and November 30, 2015

Revenues . There were no revenues for the three and nine months ended November 30, 2016 and November 30, 2015, respectively, because we have not yet commercialized our obesity therapeutic.

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Cost of Product Revenues . No cost of product revenues were recorded in the three months and nine months ended November 30, 2016 and November 30, 2015, respectively, because we have not yet commercialized our obesity therapeutic.

General and Administrative Expenses . General and administrative expenses totaled $121,459 for the three months ended November 30, 2016 as compared to $51,247 for the three months ended November 30, 2015. General and administrative expenses totaled $530,875 for the nine months ended November 30, 2016 as compared to $854,520 for the nine months ended November 30, 2015. This represents an increase of $70,212 for the three months and a decrease of $323,645 for the nine months ended November 30, 2016. This increase for the three-month period was due in part to increased costs for legal, accounting and other professional costs in the 2016 period. The decrease for the nine-month period was due to a significant charge due to $625,000 of stock-based compensation in the 2015 period.

Research and Development Expenses.  Research and development expenses were $7,500 for the three months ended November 30, 2016 as compared to $107,935 for the three months ended November 30, 2015. Research and development expenses were $23,904 for the nine months ended November 30, 2016 as compared to $218,835 for the nine months ended November 30, 2015. This represents a decrease of $100,435 for the three months ended November 30, 2016 over the three months ended November 30, 2015 versus a decrease of 194,931 over the nine-month period. This three-month and nine month decrease was primarily as a result of decreased R&D activities.

Interest Expense, Net. We recorded $3 of interest income during the three months ended November 30, 2016 and $0 during the three months ended November 30, 2015. We recorded $8,959 of interest expense during the three months ended November 30, 2016 and $0 during the nine months ended November 30, 2015. We recorded $22,150 of interest expense during the nine months ended November 30, 2016 and $0 during the nine months ended November 30, 2015.

Net Loss. As a result of the fact that we remain a development stage company with no product revenues as well as the other factors described above, we had a net loss of $137,915 for the three months ended November 30, 2016 as compared to $159,182 for the three months ended November 30, 2015 and we had a net loss of $576,912 for the nine months ended November 30, 2016 as compared to $1,073,355 for the nine months ended November 30, 2015.

Liquidity and Capital Resources

Since our inception, we have incurred significant losses and, as of November 30, 2016, we had an accumulated deficit of $3,185,259. We have not yet achieved profitability and anticipate that we will continue to incur net losses for the foreseeable future. We expect that our research and development, general and administrative and selling and marketing expenses will continue to grow and, as a result, we will need to generate significant product revenues to achieve profitability. We may never achieve profitability.

Sources of Liquidity

Since our inception, our operations have been financed through the sale of our common stock and issuance of debt. Through November 30, 2016, we had received net proceeds of approximately $310,801 through the sale of our common stock to investors. In December of 2015 and January of 2016 we entered into a Convertible Note Agreement with two investors for a total of $60,000. On April 20, 2016 we entered into an unsecured promissory note with Corelli Capital A.G. for the sum of $292,500. We entered into an Equity Line of Credit Agreement with Corelli Capital A.G. on July 12, 2016. As of November 30, 2016, we had cash and cash equivalents of $302.

Cash Flows

As of November 30, 2016, we had $302 in cash and cash equivalents, compared to $0 on November 30, 2015.

Net cash used in operating activities was $492,184 for the nine months ended November 30, 2016, compared to $22,052 for the nine months ended November 30, 2015. The increase in cash used was primarily due to increased operating expenses.

Net cash used in investing activities was $9,939 for the nine months ended November 30, 2016, compared to $0 for the six months ended November 30, 2015. We expect amounts used in investing activities to increase in fiscal year 2017 and beyond as we expand research and development activities and establish our proposed commercial laboratory.

Net cash provided by financing activities during the six months ended November 30, 2016 was $492,500, compared to $0 for the six months ended November 30, 2015. This is mainly due to proceeds received from notes payable and the equity line of credit with Corelli Capital A.G.

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Contractual Obligations

As of November 30, 2016, we had the following contractual commitments:

We are required to make a series of annual minimum royalty payments under the License Agreement with Albert Einstein College of Medicine beginning on the first anniversary date, or March 3, 2015. The initial payment of $30,000, due March 3, 2015 was not made and the second annual payment, due March 3, 2016 was not made. As of the date of this filing the Company has received an advice that payment is due but no formal notice of default from Albert Einstein College of Medicine. The Company plans to pay these minimum royalty payments as soon as adequate funds are available.

For a period of seven years on each anniversary of the first payment, we are required to make additional payments in amounts that gradually increase beginning in year five. We are required to make additional payments of $30,000 in each of 2017 and 2018 and $50,000 in 2019, $75,000 in 2020, and $100,000 in 2021 and every year the License is in effect thereafter.

We currently lease administrative and office space from JLABS @ TMCx at 2450 Holcombe Boulevard, Houston, Texas 77021 on a twelve month lease for an annual cost of $6,000.

We had previously reported that beginning in the second half of calendar 2017, we had intended to enter into arrangements for the acquisition of laboratory equipment, computer hardware and software, leasehold improvements and office equipment. Because of our residence with JLABS @ TMCx, we will have access at a nominal increased lease cost to laboratory facilities and equipment and accordingly will no longer enter into separate arrangements for such equipment.