Washington, D.C. 20549
☒ ANNUAL REPORT PURSUANT TO
SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________________
to __________________________
PART I
ITEM 1. BUSINESS
Forward-Looking Statements
This
Annual Report on Form 10-K includes a number of forward-looking statements that reflect management's current views with respect
to future events and financial performance.
Forward-looking statements are projections in respect of future events or our
future 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.
Those statements include statements regarding the intent, belief or current expectations
of us and members of our management team as well as the assumptions on which such statements are based. Prospective investors are
cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties,
and that actual results may differ materially from those contemplated by such forward-looking statements.
Forward-looking
statements made in this Annual Report on Form 10-K include statements about:
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the plans and objectives
of
management
for
future
operations, including plans or objectives relating to the development of our business plan to merge or acquire another
operating business;
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a projection of income (including income/loss), earnings (including
earnings/loss) per share, capital expenditures, dividends, capital structure or other financial items;
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our future financial performance, including any such statement
contained in a discussion and analysis of financial condition by management or in the results of operations
included pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”); and
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the assumptions underlying or relating to any
statement described in points above.
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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 this Annual Report on Form 10-K for the year ended September 30, 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.
Readers
are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with
the Securities and Exchange Commission. We undertake no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by
law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No
assurances are made that actual results of operations or the results of our future activities will not differ materially from our
assumptions.
As used in this Annual
Report on Form 10-K and unless otherwise indicated, the terms “Peak,” “we,” “us,” “our,”
or the “Company” refer to Peak Pharmaceuticals, Inc. and its Subsidiary, Peak BioPharma Corp. Unless otherwise specified,
all dollar amounts are expressed in United States dollars. Our common stock is currently listed on the OTC Markets, Pink Tier,
under the symbol “PKPH.”
Corporate
History and Overview
We were first incorporated
in Nevada as Surf A Movie Solutions, Inc. on December 18, 2007 to engage in the business of the development sale and marketing
of online video sales. We were not successful in our efforts and discontinued this line of business. Since that time and until
August 8, 2014, we were a “shell company” (as such term is defined in Rule 12b-2 under the Exchange Act).
On August 30, 2013, we
changed our name to Frac Water Systems, Inc. and on October 10, 2013 we decided to engage 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. Due to our research of the business opportunities, on December 31, 2013 we determined not to move forward
with this line of business.
In early March 2014, we
decided to enter in to the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinnoids,
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 Corporation and on March 24,
2014 changed our trading symbol on OTC Markets to “CTCO”. On December 23, 2014, we changed our name to Peak Pharmaceuticals,
Inc. and our trading symbol changed to “PKPH” on February 5, 2015.
Since early March
2014 we had been operating as a bio-pharmaceutical and nutraceutical company seeking to develop, manufacture, market and sell
safe, high quality, medicinal products based on extracts from hemp. Our primary initial focus was on exploitation of the
exclusive license we received from Canna-Pet, LLC, a developer of ingestible health products for pets made from hemp. We had
also taken initial steps related to development of over-the-counter, THC-free, hemp based products for the human market for
the prevention and alleviation of symptoms associated with inflammatory and auto-immune diseases. Recently, hemp cultivation
was legalized in 11 states, including Colorado, and, on a limited basis, at the federal level as part of the Agricultural Act
of 2014 (the “2014 US Farm Bill”) passed in February 2014, which sets the agricultural product apart from
marijuana. Industrial hemp has THC content below 0.3%, compared to the 1-20% typically found in marijuana.
On July 29, 2014, through
our wholly-owned subsidiary, Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with
Canna-Pet, LLC, (“Licensor”) a Washington limited liability corporation. They own 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”). This is used by the 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 gave 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. The License Agreement specified that during the term of the license, all intellectual
property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.
In consideration of the
grant of the license, we agreed to pay Licensor license fees in the form of royalty payments calculated based on 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:
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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.
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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.
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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.
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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.
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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.
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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.
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The following is a summary
of the net assets sold as initially determined at Septembers 30, 2015 and updated October 15, 2015:
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October 15, 2015
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September 30, 2015
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Inventory
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$
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45,436
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$
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41,705
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Prepaid Expenses
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8,821
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—
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Deposits
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8,179
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8,678
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Total assets
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$
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62,436
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$
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50,383
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Accounts payable
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103,548
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124,396
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Royalties payable
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39,506
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39,506
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Accrued liabilities
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285
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15,341
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Total liabilities
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143,339
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179,243
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Net assets sold
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$
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80,903
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$
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128,860
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Furthermore, based on advice
from the Food and Drug Administration, as well as our regulatory counsel, we decided to revise our strategy and discontinue all
efforts to develop and market hemp based health products. We currently are pursuing to acquire or merge with an entity with significant
operations in order to create a viable business model and value for our shareholders.
All of our business
operations are carried out through our wholly owned subsidiary, Peak BioPharma Corp., a Colorado corporation. Throughout this
Report, unless otherwise noted or required by the context, references to “the Company,” “us,”
“we,” “our,” and similar terms refer to Peak Pharmaceuticals, Inc. and our wholly owned subsidiary,
Peak BioPharma Corp.
We currently have authorized
350,000,000 shares of capital stock, consisting of (i) 325,000,000 shares of common stock, and (ii) 25,000,000 shares of “blank
check” Preferred Stock.
On August 15, 2012, our
board of directors and stockholders owning a majority of our outstanding common shares, authorized a 50 for 1 forward stock split
of our issued and outstanding common stock. The forward split became effective on September 27, 2012. Due to the forward split,each
outstanding share was split into 50 shares. On March 11, 2014, our board of directors authorized a 1.5 for 1 forward stock split
of our common stock in the form of a dividend. In connection therewith, our shareholders of record as of the close of business
on March 28, 2014 received an additional 0.5 share of our common stock for each share of our issued and outstanding common stock
held by them on such date. The forward stock split became effective on April 1, 2014.
Recent Corporate Developments
For the years ended September
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. 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 at the date all or a part of the principal outstanding into shares of the common stock. This would
be 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 offshore investor. 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
at the date all or a part of the principal outstanding into shares of the common stock. This would be 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.
Strategy and Outlook
If we can raise sufficient
capital, of which there can be no assurance, our business strategy is to actively pursue additional opportunities and operating
companies to merge with or acquire in furtherance of a profitable business and to build value for our shareholders.
Employees
As of the date of this
report we have 1 employee, Neil Reithinger, our principal executive officer.
Subsidiaries
All of our business operations
historically had been carried on through our wholly-owned subsidiary, Peak BioPharma Corp., a Colorado corporation.
Intellectual Property
We do not presently own
any intellectual property.
Government Regulation
Based upon the regulatory
activity related to imposition of restrictions and limitations on the sale and marketing of hemp-based health products for the
veterinary market, on October 1, 2015, we elected to terminate our license agreement with Canna-Pet and cease all operations relating
to sale of hemp-based products for animals. Furthermore, based on advice from the Food and Drug Administration, as well as our
regulatory counsel, we decided to revise our strategy and discontinue all efforts to develop and market hemp-based health products.
As a result, we are currently not subject to any government regulation.
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 below, in addition to other information contained in this 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.
Risks Related to Our Company
We have a limited operating
history upon which investors can evaluate our future prospects. We may never attain profitability.
Given our limited operating
history, management has little basis on which to forecast future demand for our products and out anticipated revenues. Our anticipated
and future expense levels are based largely on estimates of planned operations and future revenues rather than experience. It is
difficult to accurately forecast future revenues because our revenues to date have been from the Canna-Pet business, which we elected
to terminate as of October 1, 2015, subsequent to the fiscal year ended September 30, 2015.
We have a history of
losses and we may not achieve or sustain profitability in the future.
We have incurred
losses in each fiscal year since our incorporation in 2007. We anticipate that our operating expenses will increase in the
foreseeable future as we continue to explore operating companies to merge with or acquire. These efforts may prove more
expensive than we currently anticipate, and we may not succeed in generating sufficient revenues to offset these higher
expenses. If we are unable to do so, we and our business, financial condition and operating results could be materially and
adversely affected.
We will require additional
working capital in order to continue operations and we may not be able to secure the necessary additional financing.
We will require additional
working capital in order to continue to remain compliant under the Exchange Act and to continue to explore future business opportunities.
We cannot be sure that this additional financing, if needed, will be available on acceptable terms or at all. Furthermore, any
debt financing, if available, may involve restrictive covenants, which may limit our operating flexibility with respect to business
matters. If additional funds are raised through the issuance of equity securities, the percentage ownership of our existing shareholders
will be reduced, our shareholders may experience additional dilution in net book value, and such equity securities may have rights,
preferences, or privileges senior to those of our existing shareholders. If adequate funds are not available on acceptable terms,
or at all, we will be unable to develop or enhance our products and services, take advantage of future opportunities, repay debt
obligations as they become due, or respond to competitive pressures, any of which would have a material adverse effect on our business,
prospects, financial condition, and results of operations.
Our independent registered
public accounting firm has expressed doubt about our ability to continue as a going concern.
Our historical financial
statements have been prepared under the assumption that we will continue as a going concern. Our independent registered public
accounting firm has issued a report that included an explanatory paragraph referring to our recurring net losses and accumulated
deficit, and expressing substantial doubt in our ability to continue as a going concern. Our ability to continue as a going concern
is dependent upon our ability to merge or acquire an operating business and obtain additional equity or debt financing or other
capital and, ultimately, to generate revenue. Our financial statements do not include any adjustments that might result from the
outcome of this uncertainty. However, if adequate funds are not available to us when we need it, and we are unable to find an operating
company to merge with or acquire, we will be required to curtail our operations which would, in turn, further raise substantial
doubt about our ability to continue as a going concern.
Risks Related to Investment
You may experience dilution
of your ownership interests because of the future issuance of additional shares of our common or preferred stock or other securities
that are convertible into or exercisable for our common or preferred stock.
Any future issuance of
our equity or equity-backed securities may dilute then current stockholders’ ownership percentages and could also result
in a decrease in the fair market value of our equity securities, because our assets would be owned by a larger pool of outstanding
equity. As described above, we may need to raise additional capital through public or private offerings of our common or preferred
stock or other securities that are convertible into or exercisable for our common or preferred stock. We may also issue such securities
related to hiring or retaining employees and consultants as payment to providers of goods and services, in connection with future
acquisitions or for other business purposes. Our Board may at any time authorize the issuance of additional common or preferred
stock without common stockholder approval, subject only to the total number of authorized common and preferred shares set forth
in our articles of incorporation. The terms of equity securities issued by us in future transactions may be more favorable to new
investors, and may include dividend and/or liquidation preferences, superior voting rights and the issuance of warrants or other
derivative securities, which may have a further dilutive effect. Also, the future issuance of any such additional shares of common
or preferred stock or other securities may create downward pressure on the trading price of our common stock. There can be no assurance
that any such future issuances will not be at a price (or exercise prices) below the price at which shares of our common stock
are then traded.
We may be unable to
raise enough capital through sales of our equity and debt securities to implement our business plan.
We will be largely
dependent on capital raised through sales of our equity and debt securities. Currently, we have not made any arrangements to
raise additional cash, and we cannot assure you that we will be able to raise the working capital as needed on terms
acceptable to us, if at all. If we are unable to raise capital as needed, we will be unable to continue operations or to
implement our business plan,and will be required to cease our operations entirely.
The ability of our Board
to issue additional stock may prevent or make more difficult certain transactions, including a sale or merger of the Company.
We currently have authorized
350,000,000 shares of capital stock consisting of (i) 325,000,000 shares of common stock, and (ii) 25,000,000 shares of "blank
check" Preferred Stock. As a result, our Board is authorized to issue up to 25,000,000 shares of preferred stock with powers,
rights and preferences designated by it. See “Preferred Stock” in the section of this Report titled “Description
of Securities.” Shares of voting or convertible preferred stock could be issued, or rights to purchase such shares could
be issued, to create voting impediments or to frustrate persons seeking to affect a takeover or otherwise gain control of the Company.
The ability of the Board to issue such additional shares of Preferred Stock, with rights and preferences it deems advisable, could
discourage an attempt by a party to acquire control of the Company by tender offer or other means. Such issuances could therefore
deprive stockholders of benefits that could result from such an attempt, such as the realization of a premium over the market price
for their shares in a tender offer or the temporary increase in market price that such an attempt could cause. Moreover, the issuance
of such additional shares of preferred stock to persons friendly to the Board could make it more difficult to remove incumbent
managers and directors from office even if such change were to be favorable to stockholders generally.
Restrictions on the
use of Rule 144 by Shell Companies or Former Shell Companies could affect your ability to resale our shares.
Historically, the SEC has
taken the position that Rule 144 under the Securities Act, as amended, is not available for the resale of securities initially
issued by companies that are, or previously were, shell companies like us, to their promoters or affiliates despite technical compliance
with the requirements of Rule 144. The SEC has codified and expanded this position in its amendments to Rule 144 which became effective
on February 15, 2008, the amendments apply to securities acquired both before and after that date, by prohibiting the use of Rule
144 for resale of securities issued by shell companies (other than business transaction related shell companies) or issuers that
have been at any time previously a shell company unless all of the following conditions are met:
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the issuer of the securities that was formerly a shell company has ceased to be a shell company;
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the issuer of the securities is subject to the reporting requirements of Section 13 or 15(d) of the Exchange
Act;
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the issuer of the securities has filed all Exchange Act reports and material required to be filed, as applicable, during the preceding 12 months (or such shorter period that the issuer was required to file such reports and materials), other than Form 8-K reports; and
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at least one year has elapsed from the time that the issuer filed current Form 10 type information with the SEC reflecting its status as an entity that is not a shell company.
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Should we fail to satisfy
the initial listing standards of the national exchanges, or our common stock is otherwise rejected for listing and remains listed
on the OTC Markets or suspended from the OTC Markets, the trading price of our common stock could suffer and the trading market
for our common stock may be less liquid and our common stock price may be subject to increased volatility.
Our common stock
is subject to the “penny stock” rules of the SEC and the trading market in the securities is limited, which makes
transactions in the stock cumbersome and may reduce the value of an investment in the stock.
The SEC has adopted Rule
15g-9 which establishes the definition of a “penny stock,” for the purposes relevant to us, as any equity security
that has a market price of less than $5.00 per share or with an exercise price of less than $5.00 per share, subject to certain
exceptions. For any transaction involving a penny stock, unless exempt, the rules require:
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that a broker or dealer approve a person’s account for transactions in penny stocks; and
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the broker or dealer receives from the investor a written agreement to the transaction, setting forth the identity and
quantity of the penny stock to be purchased.
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In order to approve a
person’s account for transactions in penny stocks, the broker or dealer must:
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obtain financial information and investment experience objectives of the person; and
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make a reasonable determination that the transactions in penny stocks are suitable for that person and the person has
sufficient knowledge and experience in financial matters to be capable of evaluating the risks of transactions in penny
stocks.
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The broker or dealer must
also deliver, prior to any transaction in a penny stock, a disclosure schedule prescribed by the SEC relating to the penny stock
market, which, in highlight form sets forth:
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the basis on which the broker or dealer made the suitability determination; and
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that the broker or dealer received a signed, written agreement from the investor prior to the transaction.
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Generally, brokers may
be less willing to execute transactions in securities subject to the “penny stock” rules. This may make it more difficult
for investors to dispose of common stock and cause a decline in the market value of stock.
Disclosure also must be
made about the risks of investing in penny stocks in both public offerings and in secondary trading and about the commissions payable
to both the broker-dealer and the registered representative, current quotations for the securities and the rights and remedies available
to an investor in cases of fraud in penny stock transactions. Finally, monthly statements must be sent disclosing recent price
information for the penny stock held in the account and information on the limited market in penny stocks. If we remain subject
to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.
If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.
We do not anticipate
paying dividends on our common stock, and investors may lose the entire amount of their investment.
To date, cash dividends
have not been declared or paid on our common stock, and we do not anticipate such a declaration or payment for the foreseeable
future. We expect to use future earnings, if any, to fund business growth. Therefore, stockholders will not receive any funds absent
a sale of their shares of common stock, subject to the limitation outlined herein. If we do not pay dividends, our common stock
may be less valuable because a return on your investment will only occur if our stock price appreciates. We cannot assure stockholders
of a positive return on their investment when they sell their shares, nor can we assure that stockholders will not lose the entire
amount of their investment.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not Applicable.
ITEM 2. PROPERTIES
Our principal executive
offices are located at 14201 N. Hayden Road, Suite A-1, Scottsdale, AZ 85260. Our registered agent is Nevada Agency and Transfer
Company, 50 West Liberty Street, Suite 880 Reno, NV 89501.
Intellectual Property
We do not presently own
any intellectual property.
ITEM 3. LEGAL PROCEEDINGS
From time to time, we may
become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. However, litigation is
subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm business.
We are currently not aware of any pending legal proceedings to which we are a party or of which any of our property is the subject,
nor are we aware of any such proceedings that are contemplated by any governmental authority.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market information
Our shares of common
stock are quoted on the OTC Markets, Pink Tier, under the symbol “PKPH.” The following table shows the reported
high and low closing bid prices per share for our common stock based on information provided by the OTC Markets. The
over-the-counter market quotations set forth for our common stock reflect inter-dealer prices, without retail mark-up,
mark-down or commission and may not necessarily represent actual transactions.
Quarter Ended
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Bid High
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Bid Low
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September 30, 2017
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$
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0.050
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$
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0.020
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June 30, 2017
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$
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0.070
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$
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0.030
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March 31, 2017
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$
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0.140
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$
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0.042
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December 31, 2016
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$
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0.100
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$
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0.020
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September 30, 2016
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$
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0.035
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$
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0.017
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June 30, 2016
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$
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0.040
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$
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0.011
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March 31, 2016
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$
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0.040
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$
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0.012
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December 31, 2015
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$
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0.050
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$
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0.021
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Transfer Agent
The transfer agent and
registrar for our common stock is Securities Transfer Corporation, 2901 North Dallas Parkway, Suite 380, Plano, Texas 75093. Their
phone number is (469) 633-0101 and their website is www.stctransfer.com.
Holders of Common Stock
As of the date of this
report, we have 78,363,567 shares of common stock issued and outstanding held by approximately 19 stockholders of record.
Registration Rights
There were no registration
rights as of September 30, 2017
Dividends
We have never paid any
cash dividends on our capital stock and do not anticipate paying any cash dividends on our common stock in the foreseeable future.
We intend to retain future earnings to fund ongoing operations and future capital requirements. Any future determination to pay
cash dividends will be at the discretion of our Board and will be dependent upon financial condition, results of operations, capital
requirements and such other factors as the Board deems relevant.
ITEM 6. SELECTED FINANCIAL DATA
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Cautionary Notice Regarding Forward Looking
Statements
The information contained
in Item 7 contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results may materially differ from those projected in the
forward-looking statements because of certain risks and uncertainties set forth in this report. Although management believes that
the assumptions made, and expectations reflected in the forward-looking statements are reasonable, there is no assurance that the
underlying assumptions will, in fact, prove to be correct or that actual results will not be different from expectations expressed
in this report.
We desire to take
advantage of the “safe harbor” provisions of the Private Securities Litigation Reform Act of 1995. This filing
contains a number of forward-looking statements that reflect management’s current views and expectations with respect
to our business, strategies, products, future results and events, and financial performance. All statements made in this
filing other than statements of historical fact, including statements addressing operating performance, clinical developments
which management expects or anticipates will or may occur in the future, including statements related to our technology,
market expectations, future revenues, financing alternatives, statements expressing general optimism about future operating
results, and non-historical information, are forward looking statements. In particular, the words “believe,”
“expect,” “intend,” “anticipate,” “estimate,” “may,” variations
of such words, and similar expressions identify forward-looking statements, but are not the exclusive means of identifying
such statements, and their absence does not mean that the statement is not forward-looking. These forward-looking statements
are subject to certain risks and uncertainties, including those discussed below. Our actual results, performance
or achievements could differ materially from historical results as well as those expressed in, anticipated, or implied by
these forward-looking statements. We do not undertake any obligation to revise these forward-looking statements to reflect
any future events or circumstances.
Readers should not place
undue reliance on these forward-looking statements, which are based on management’s current expectations and projections
about future events. They are not guarantees of future performance, they are subject to risks, uncertainties and assumptions (including
those described below), and apply only as of the date of this filing. Our actual results, performance or achievements could differ
materially from the results expressed in, or implied by, these forward-looking statements. Factors which could cause or contribute
to such differences include, but are not limited to, the risks to be discussed in this Annual Report on Form 10-K, information
in press releases, and other communications to shareholders issued by us from time to time. We undertake no obligation to publicly
update or revise any forward-looking statements, whether because of new information, future events, or otherwise.
Use of Generally Accepted Accounting Principles
(“GAAP”) Financial Measures
We use United States GAAP
financial measures in the section of this report captioned “Management’s Discussion and Analysis or Plan of Operation”
(MD&A), unless otherwise noted. All the GAAP financial measures used by us in this report relate to the inclusion of financial
information. This discussion and analysis should be read in conjunction with our financial statements and the notes thereto included
elsewhere in this annual report. All references to dollar amounts in this section are in United States dollars, unless expressly
stated otherwise. Please see our “Risk Factors” for a list of our risk factors.
Overview
This subsection of MD&A
provides an overview of the important factors that management focuses on in evaluating our businesses, financial condition and
operating performance, our overall business strategy and our financial results for the periods covered.
Results
of Operations
Comparison
of the Years Ended September 30, 2017 to the Years Ended September 30, 2016
Revenue
No revenue or cost of sales were generated for
the years ended September 30, 2017 or September 30, 2016 due to the termination of the license agreement with Canna-Pet, LLC.
Operating
Expenses
The Company’s expenses
for the years ended September 30, 2017 and 2016, are summarized as follows:
|
|
|
Year ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
$
|
44,987
|
|
$
|
189,928
|
|
Depreciation and amortization
|
|
|
—
|
|
|
18,974
|
|
Stock based compensation
|
|
|
—
|
|
|
(1,296,431
|
)
|
Total operating expenses
|
|
$
|
44,987
|
|
$
|
(1,087,529
|
)
|
The decrease
in general and administrative expenses for the year ended September 30, 2017, compared to the year ended September 30, 2016
of $144,941 is due to the termination of the license agreement with Canna-Pet, LLC and the overall reduction of operation
related to the business. The decrease in depreciation & amortization of $18,974 for year ended September 30, 2017
compared to 2016, is due to the remainder of the website being amortized in 2016. The increase in equity based
compensation from($1,296,431) to $0 for the year ended September 30, 2017 compared to 2016 was due to the forfeiture and
reversal of stock options to officers in 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 years ended September 30, 2017 and 2016:
|
|
|
Years ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Revenues
|
|
$
|
—
|
|
$
|
—
|
|
Cost of goods sold
|
|
|
—
|
|
|
—
|
|
General and administrative
|
|
|
|
|
|
(6,197
|
)
|
Gain on disposal of discontinued operations
|
|
|
—
|
|
|
80,903
|
|
Total operating expenses
|
|
$
|
—
|
|
$
|
74,706
|
|
Other Expenses:
|
|
|
Years ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Interest Expense
|
|
$
|
1,239
|
|
$
|
—
|
|
Change in Fair Value of Convertible Debt
|
|
|
5,000
|
|
|
|
|
Total other expenses
|
|
$
|
6,239
|
|
$
|
—
|
|
The increase from $0
to $6,239 in other expenses for the year ended September 30, 2017 compared to the year prior is attributed to interest that
was accrued on the two convertible notes received during the years ended September 30, 2017, as well as a change in fair
value on these notes.
Liquidity and Capital Resources
Working Capital
The following table sets forth a summary of
changes in working capital for the years ended September 30, 2017 and 2016:
|
|
|
Year ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Current Assets
|
|
$
|
2,991
|
|
$
|
1,304
|
|
Current Liabilities
|
|
|
195,676
|
|
|
142,762
|
|
Working capital
|
|
$
|
(192,685
|
)
|
$
|
(141,458
|
)
|
The increase in
current assets of $1,687 is mainly due to an increase in cash from the two convertible notes received during the year ended
September 30, 2017. The increase in current liabilities of $52,914 is primarily due to the increase in accounts payable as
well as the two convertible notes issued during the year ended September 30, 2017.
Cash Flows
The following table sets forth a summary of
changes in cash flows for the years ended September 30, 2017 and 2016:
|
|
|
Years Ended September 30,
|
|
|
|
|
2017
|
|
|
2016
|
|
Net Income (loss)
|
|
|
(51,227
|
)
|
|
1,162,235
|
|
Net cash used in operating activities
|
|
$
|
(18,314
|
)
|
$
|
(200,352
|
)
|
Net cash provided by(used in) investing activities
|
|
|
—
|
|
|
—
|
|
Net cash provided by financing activities
|
|
|
20,000
|
|
|
—
|
|
Change in cash
|
|
$
|
1,686
|
|
$
|
(200,352
|
)
|
As of September 30, 2017,
our cash balance was $2,991. 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 years ended September 30, 2017 was $18,314 mainly due the net loss that was incurred during the year.
Net cash provided by financing
for the years ended September 30, 2017 was $20,000 from 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 borrowing 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 years to cover such
costs.
Going
Concern
The 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 September 30, 2017 of $5,056,087, as well as negative cash flows
of $18,314 from operating activities. The Company's cash and cash equivalents balance as of September 30, 2017 is $2,991.
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 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.
Cash
Requirements
Management anticipates
that it will require an additional $30,000 over the next twelve months to cover costs. This amount could increase if we encounter
difficulties that we cannot anticipate at the time or if we acquire other businesses. As of the date of this filing, we had cash
and cash equivalents of $2,856. There can be no assurance, however, that financing will be available or, if it is available, that
we will be able to structure such financing on terms acceptable to us and that it will be sufficient to fund our cash requirements
until we can reach a level of profitable operations and positive cash flows. Even if we are able to raise the funds required, it
is possible that we could incur unexpected costs and expenses or experience unexpected cash requirements that would force us to
seek additional financing. If additional financing is not available or is not available on acceptable terms, we will have to curtail
our operations.
Off-Balance
Sheet Arrangements
We have no off-balance
sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in
financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is
material to stockholders.
Effects of Inflation
We
do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Critical Accounting Policies and Estimates
Our financial statements
and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on
a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
periods.
We regularly evaluate the
accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included
in the notes to our financial statements. In general, management’s estimates are based on historical experience, on information
from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances.
Actual results could differ from those estimates made by management.
Cash
The Company considers all
highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents. As of September
30, 2017, the Company does not have any cash equivalents.
Accounts Receivable
The company does not presently
have any Accounts Receivable.
Non-controlling Interest
None
Net Loss Per Share of Common Stock
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 years ended September 30, 2017, any equivalents
would have been anti-dilutive as we had a loss for the period then ended.
Income Taxes
The provision for income
taxes is determined in accordance with the provisions of ASC Topic 740,
Accounting for Income Taxes
(“ASC 740”).
Under this method, deferred tax assets and liabilities are recognized for the future tax consequences attributable to differences
between the financial statement carrying amounts of existing assets and liabilities and their respective tax basis. Deferred tax
assets and liabilities are measured using enacted income tax rates expected to apply to taxable income in the years in which those
temporary differences are expected to be recovered or settled. Any effect on deferred tax assets and liabilities of a change in
tax rates is recognized in income in the period that includes the enactment date.
ASC 740 prescribes a comprehensive
model for how companies should recognize, measure, present, and disclose in their financial statements, uncertain tax positions
taken or expected to be taken on a tax return. Under ASC 740, tax positions must initially be recognized in the financial statements
when it is more likely than not the position will be sustained upon examination by the tax authorities. Such tax positions must
initially and subsequently be measured as the largest amount of tax benefit that has a greater than 50% likelihood of being realized
upon ultimate settlement with the tax authority assuming full knowledge of the position and relevant facts.
For the years ended September
30, 2017 and 2016 we did not have any interest and penalties or any significant unrecognized uncertain tax positions.
Stock-Based Compensation
We periodically issue stock
options and warrants to employees and non-employees in non-capital raising transactions for services and for financing costs. We
account for stock option and warrant grants issued and vested to employees based on
ASC 718 Compensation—Stock Compensation
,
where the award is measured at its fair value at the date of grant and is amortized ratably over the service period. We account
for stock option and warrant grants issued and vesting to non-employees in accordance with
ASC 505 Equity
, where the value
of the stock compensation is based upon the measurement date as determined at either (a) the date at which a performance commitment
is reached, or (b) at the date at which the necessary performance to earn the equity instruments is complete.
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:
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.
Goodwill
The Company periodically
reviews the carrying value of intangible assets not subject to amortization, including goodwill, to determine whether impairment
may exist. Goodwill and certain intangible assets are assessed annually, or when certain triggering events occur, for impairment
using fair value measurement techniques. These events could include a significant change in the business climate, legal factors,
a decline in operating performance, competition, sale or disposition of a significant portion of the business, or other factors.
Specifically, goodwill impairment is determined using a two-step process. The first step of the goodwill impairment test is used
to identify potential impairment by comparing the fair value of a reporting unit with its carrying amount, including goodwill.
The Company uses level 3 inputs and a discounted cash flow methodology to estimate the fair value of a reporting unit. A discounted
cash flow analysis requires one to make various judgmental assumptions including assumptions about future cash flows, growth rates,
and discount rates. The assumptions about future cash flows and growth rates are based on the Company’s budget and long-term
plans. Discount rate assumptions are based on an assessment of the risk inherent in the respective reporting units. If the fair
value of a reporting unit exceeds its carrying amount, goodwill of the reporting unit is considered not impaired and the second
step of the impairment test is unnecessary. If the carrying amount of a reporting unit exceeds its fair value, the second step
of the goodwill impairment test is performed to measure the amount of impairment loss, if any. The second step of the goodwill
impairment test compares the implied fair value of the reporting unit’s goodwill with the carrying amount of that goodwill.
If the carrying amount of the reporting unit’s goodwill exceeds the implied fair value of that goodwill, an impairment loss
is recognized in an amount equal to that excess. The implied fair value of goodwill is determined in the same manner as the amount
of goodwill recognized in a business combination. That is, the fair value of the reporting unit is allocated to all the assets
and liabilities of that unit (including any unrecognized intangible assets) as if the reporting unit had been acquired in a business
combination and the fair value of the reporting unit was the purchase price paid to acquire the reporting unit.
Concentrations of Credit Risk
The Company maintains deposits
in a financial institution which is insured by the Federal Deposit Insurance Corporation (“FDIC”). At various times,
the Company has deposits in this financial institution in excess of the amount insured by the FDIC. The Company has not experienced
any losses related to these balances and believes its credit risk to be minimal.
Newly Issued Accounting Pronouncements
In May 2014, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2014-09 (ASU 2014-09) "
Revenue from
Contracts with Customers
." ASU 2014-09 will supersede most current revenue recognition guidance, including industry-specific
guidance. The underlying principle is that an entity will recognize revenue upon the transfer of goods or services to customers
in an amount that the entity expects to be entitled to in exchange for those goods or services. The guidance provides a five- step
analysis of transactions to determine when and how revenue is recognized. Other major provisions include capitalization of certain
contract costs, consideration of the time value of money in the transaction price, and allowing estimates of variable consideration
to be recognized before contingencies are resolved in certain circumstances. The guidance also requires enhanced disclosures regarding
the nature, amount, timing and uncertainty of revenue and cash flows arising from an entity’s contracts with customers. The
guidance is effective for the interim and annual periods beginning on or after December 15, 2016 (early adoption is not permitted).
The guidance permits the use of either a retrospective or cumulative effect transition method. On July 9, 2015, the FASB decided
to delay the effective date of the new revenue standard by one year. The FASB also agreed to allow entities to choose to adopt
the standard as of the original effective date. The Company is currently evaluating the impact of this standard.
In August 2014, the FASB
issued ASU 2014-15,
Presentation of Financial Statements-Going Concern
(Subtopic 205-40):
Disclosure of Uncertainties
about an Entity’s Ability to Continue as a Going Concern
. ASU 2014-15 defines management’s responsibility to evaluate
whether there is substantial doubt about an organization’s ability to continue as a going concern and to provide related
footnote disclosures. The amendments in this ASU are effective for the annual period ending after December 15, 2016, and for annual
periods and interim periods thereafter, although early adoption is permitted. This guidance is not expected to have an impact on
the financial statements of the Company. If any event occurs in future periods that could affect our ability to continue as going
concern, we will provide appropriate disclosures as required by ASU 2014-15.
In July 2015, the Financial
Accounting Standards Board (“FASB”) issued Accounting Standards Update No. 2015-11 (ASU 2015-11),
Simplifying the
Measurement of Inventory
. According to ASU 2015-11, an entity should measure inventory within the scope of this update at the
lower of cost and net realizable value. Net realizable value is the estimated selling prices in the ordinary course of business,
less reasonably predictable costs of completion, disposal, and transportation. Subsequent measurement is unchanged for inventory
measured using LIFO or the retail inventory method. The amendments in ASU 2015-11 more closely align the measurement of inventory
in GAAP with the measurement of inventory in International Financial Reporting Standards (IFRS). The Board has amended some of
the other guidance in Topic 330 to more clearly articulate the requirements for the measurement and disclosure of inventory. However,
the Board does not intend for those clarifications to result in any changes in practice. Other than the change in the subsequent
measurement guidance from the lower of cost or market to the lower of cost and net realizable value for inventory within the scope
of ASU 2015-11, there are no other substantive changes to the guidance on measurement of inventory. For public business entities,
the amendments in ASU 2015-11 are effective for fiscal years beginning after December 15, 2016, including interim periods within
those fiscal years. The amendments in ASU 2015-11 should be applied prospectively with earlier application permitted as of the
beginning of an interim or annual reporting period. The Company elected to early adopt the above. The adoption doesn’t have
a significant impact on the Company’s consolidated financial position or results of operations.
In January 2016, the
FASB issued ASU 2016-01,
Financial Instruments – Overall: Recognition and Measurement of Financial Assets and
Financial Liabilities
. The pronouncement requires equity investments (except those accounted for under the equity method
of accounting, or those that result in consolidation of the investee) to be measured at fair value with changes in fair value
recognized in net income. ASU 2016-01 requires public business entities to use the exit price notion when measuring the fair
value of financial instruments for disclosure purposes, requires separate presentation of financial assets and financial
liabilities by measurement category and form of financial asset, and eliminates the requirement for public business entities
to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for
financial instruments measured at amortized cost. These changes become effective for the Company's fiscal year beginning
January 1, 2018. The expected adoption method of ASU 2016-01 is being evaluated by the Company and the adoption is not
expected to have a significant impact on the Company’s consolidated financial position or results of operations.
In February 2016, the FASB
issued ASU 2016-02,
Leases
(Topic 842), which supersedes the existing guidance for lease accounting, Leases (Topic 840).
ASU 2016-02 requires lessees to recognize leases on their balance sheets, and leaves lessor accounting largely unchanged. The amendments
in this ASU are effective for fiscal years beginning after December 15, 2018 and interim periods within those fiscal years. Early
application is permitted for all entities. ASU 2016-02 requires a modified retrospective approach for all leases existing at, or
entered into after, the date of initial application, with an option to elect to use certain transition relief. The Company is currently
evaluating the impact of this new standard on its consolidated financial statements.
In March 2016, the FASB
issued authoritative guidance regarding the accounting for share-based payment transactions, including income tax consequences,
classification of awards as either equity or liabilities, and classification on the statement of cash flows. The guidance is to
be applied for annual periods beginning after December 15, 2016 and interim periods within those annual periods, and early adoption
is permitted. The guidance requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively
depending on the amendment(s) applied. The Company is currently evaluating the impact of adopting this guidance.
In April 2016, the FASB
issued ASU 2016 – 10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”.
The amendments in this Update clarify the two following aspects (a) contracts with customers to transfer goods and services in
exchange for consideration and (b) determining whether an entity’s promise to grant a license provides a customer with either
a right to use the entity’s intellectual property (which is satisfied at a point in time) or a right to access the entity’s
intellectual property (which is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement
necessary to comply with Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact
of adopting this guidance.
In August 2016, the FASB
issued ASU 2016-15, “Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”.
The new guidance is intended to reduce diversity in practice in how certain transactions are classified in the statement of cash
flows. ASU 2016-15 is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided
that all of the amendments are adopted in the same period. The guidance requires application using a retrospective transition method.
The Company is currently evaluating the impact of adopting this guidance.
In November 2016, the
FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the
reconciliation of the beginning-of-period and end-of-period amounts shown in the statement of cash flows include restricted cash
and restricted cash equivalents. If restricted cash is presented separately from cash and cash equivalents on the balance sheet,
companies will be required to reconcile the amounts presented on the statement of cash flows to the amounts on the balance sheet.
Companies will also need to disclose information about the nature of the restrictions. The guidance is effective for fiscal years
beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact
of adopting this guidance.
In January 2017, FASB issued ASU 2017-01, “Business Combinations (Topic 805) Clarifying the Definition
of a Business”. The amendments in this Update is to clarify the definition of a business with the objective of adding guidance
to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses.
The definition of a business affects many areas of accounting including acquisitions, disposals, goodwill, and consolidation.
The guidance is effective for annual periods beginning after December 15, 2017, including interim periods within those periods.
The Company is currently evaluating the impact of adopting this guidance.
On May 10, 2017, the Financial
Accounting Standards Board (“FASB”) issued an Accounting Standards Update (“ASU”) 2017-09 “Compensation—Stock
Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance to clarify when to account for a change
to the terms or conditions of a share-based payment award as a modification. Under the new guidance, modification accounting is
required only if the fair value, the vesting conditions, or the classification of the award (as equity or liability) changes as
a result of the change in terms or conditions. The guidance is effective prospectively for all companies for annual periods beginning
on or after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact of adopting this guidance.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY
DATA
The information called
for by Item 8 is included following the "Index to Financial Statements" on page F-1 contained in this annual report on
Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH
ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Evaluation
of Disclosure Controls and Procedures
Under the supervision and
with the participation of our senior management, including our Chief Executive Officer and our Chief Financial Officer, we performed
an evaluation of the effectiveness of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under
the Exchange Act, as of the end of the period covered by this annual report (the “Evaluation Date”). Based on this
evaluation, our Chief Executive Officer who is also our Chief Financial Officer concluded that, as of September 30, 2017, our disclosure
controls and procedures were not effective to provide reasonable assurance that material information required to be disclosed by
us in the reports filed or submitted by us under the Exchange Act is (i) recorded, processed, summarized and reported within the
time periods specified in the SEC’s rules and forms and (ii) accumulated and communicated to the Chief Executive Officer
and Chief Financial Officer, as appropriate to allow timely decisions regarding disclosure.
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 September 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.
|
Management’s Report on Internal
Control over Financial Reporting
As
of September 30, 2017, management assessed the effectiveness of our internal control over financial reporting based on the criteria
for effective internal control over financial reporting established in Internal Control-Integrated Framework issued by the Committee
of Sponsoring Organizations of the Treadway Commission (“COSO”) and SEC guidance on conducting such assessments. Based
on that evaluation, they concluded that during the period covered by this report, such internal controls and procedures were not
effective to detect the inappropriate application of US GAAP rules as more fully described below. This was due to deficiencies
that existed in the design or operation of our internal controls over financial reporting that adversely affected our internal
controls and that may be considered to be material weaknesses.
The
matters involving internal controls and procedures that our management considered to be material weaknesses under the standards
of the Public Company Accounting Oversight Board were:
(i)
|
lack of a functioning audit committee;
|
|
|
(ii)
|
inadequate segregation of duties consistent with control objectives; and
|
|
|
(iii)
|
ineffective controls over period-end financial disclosure and reporting processes.
|
The
aforementioned material weaknesses were identified by our Chief Executive and Financial Officer in connection with the review of
our financial statements as of September 30, 2017.
Management believes the
weaknesses identified above have not had any material effect on our financial statements. However, we are currently reviewing our
disclosure controls and procedures related to these material weaknesses and expect to implement changes as soon as practicable
and as resources allow, including identifying specific areas within our governance, accounting and financial reporting processes
to add adequate resources to remediate these material weaknesses.
Changes in Internal Control Over Financial
Reporting
There were no changes
in our internal control over financial reporting during the year ended September 30, 2017 that have materially affected, or
are reasonably likely to materially affect our internal control over financial reporting.
Management’s Remediation Plan
Subject
to raising additional working capital, we
plan to take steps to enhance and improve the design of our internal control over
financial reporting. During the period covered by this annual report on Form 10-K, we have not been able to remediate the material
weaknesses identified above. To remediate such weaknesses, we plan to implement the following changes in the next fiscal year once
we have identified a suitable business to acquire and as our capital resources allow:
(i)
|
appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management and implement modifications to our financial controls to address such inadequacies;
|
|
|
(ii)
|
adopt sufficient written policies and procedures for accounting and financial reporting; and
|
|
|
(iii)
|
appoint independent board members and a functioning audit committee.
|
The remediation efforts
set out in (i) is largely dependent upon our company identifying and acquiring a suitable operating business and securing additional
financing to cover the costs of hiring the requisite personnel and implementing the changes required. If we are unsuccessful in
such endeavors, remediation efforts may be delayed. Because of the inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues, if any, within our company have been detected. These inherent
limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple
error or mistake.
Management believes that
despite our material weaknesses set forth above, our financial statements for the year ended September 30, 2017 are fairly stated,
in all material respects, in accordance with US GAAP.
ITEM 9B. OTHER INFORMATION
None.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND
CORPORATE GOVERNANCE
Directors and Executive Officers, Promoters
and Control Persons
Set forth below is the
present director and executive officer of the Company. Except as set forth below, there are no other persons who have been nominated
or chosen to become directors nor are there any other persons who have been chosen to become executive officers. Other than as
set forth below, there are no arrangements or understandings between any of the directors, officers and other persons pursuant
to which such person was selected as a director or an officer.
Name
|
Position Held with Company
|
Age
|
Date First Elected or
Appointed
|
Neil Reithinger
(1)
|
Chief Executive Officer, Chief Financial Officer and Director
|
47
|
April 6, 2016
|
Notes
(1)
|
On April 6, 2016, the Board of Directors of the Company accepted the resignation of Arnold Tinter as Chief Executive Officer and Chief Financial Officer, effective as of March 31, 2016, and in accordance with the provisions of Section 4.4 of the Company’s Bylaws, appointed Neil Reithinger as Chief Executive Officer and Chief Financial Officer, to fill the vacancies created by the resignation of Mr. Tinter. Furthermore, in accordance with the provisions of Section 3.6 of the Company’s Bylaws, Neil Reithinger was appointed as a member of the Company’s Board of Directors to fill the vacancy created by the resignation of Vered Caplan, to serve for the remainder of her unexpiredterm as a director, and thereafter until his successor has been duly elected and qualified.
|
Business Experience
The following is a brief
account of the education and business experience of Neil Reithinger, our sole officer and director, during the past five years,
indicating his principal occupation during the period, and the name and principal business of the organization by which he was
employed
.
Neil Reithinger – Chief Executive
Officer, Chief Financial Officer and Director
Mr. Reithinger is the Founder
and President of Eventus Advisory Group, LLC (“Eventus”), a private, CFO-services firm incorporated in Arizona that
specializes in capital advisory and SEC compliance for publicly-traded and emerging growth companies, a firm he founded in 2009.
He is also the President of Eventus Consulting, P.C., a registered CPA firm in Arizona, a firm he founded in 2012. He has also
been Chief Financial Officer, Secretary and Treasurer of Orgenesis Inc. since August 2014. Mr. Reithinger earned a B.S. in Accounting
from the University of Arizona and is a Certified Public Accountant. He is a Member of the American Institute of Certified Public
Accountants and the Arizona Society of Certified Public Accountants.
Family Relationships
Being our sole officer
and director, there are no family relationships that are relevant.
Significant Employees
We do not have other significant
employees.
Committees of Board of Directors
There are currently no
committees of the Board of Directors.
Term of Office
Our directors cease to
hold office immediately before their election at an annual general meeting or their appointment by the unanimous resolution of
our shareholders, but are eligible for reelection or reappointment. Notwithstanding the foregoing, our directors hold office until
their successors are elected or appointed, or until their deaths, resignations or removals. Our officers hold office at the discretion
of our board of directors, or until their deaths, resignations or removals.
Potential Conflicts of Interest
We are not aware of any
conflicts of interest with our directors and officers.
Director Independence
We are not currently subject
to listing requirements of any national securities exchange or inter-dealer quotation system which has requirements that a majority
of the Board be “independent” and, as a result, we are not at this time required to have our Board comprised of a majority
of “Independent Directors.” Currently, we have one director, Neil Reithinger, who is not “independent”
within the definition of independence provided in the Marketplace Rules of The NASDAQ Stock Market.
Section 16(a) Beneficial Ownership Compliance
Section 16(a) of the Securities
Exchange Act, as amended, requires our executive officers and directors, and persons who own more than 10% of our common stock,
to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to
provide us with copies of those filings. Based solely on our review of the copies of such forms received by us, or written representations
from certain reporting persons, during the year ended September 30, 2017, the filing requirements applicable to its officers, directors
and greater than 10% beneficial owners were complied.
Code of Ethics
In December 2013, we adopted
a Code of Ethics that applies to our principal executive officer, principal financial officer, principal accounting officer or
controller, persons performing similar functions as well as to our directors and employees. A copy of our Code of Ethics was filed
as Exhibit 14.1 to our Annual Report on Form 10-K for the fiscal year ended September 30, 2013, as filed with the Securities and
Exchange Commission on December 27, 2013.
ITEM 11. EXECUTIVE COMPENSATION
Summary Compensation
The following table
sets forth information concerning the total compensation paid or accrued by us during the two fiscal years ended September
30, 2017, and 2016 to (i) all individuals that served as our principal executive officer or acted in a similar capacity for
us at any time during the fiscal year ended September 30, 2017; (ii) all individuals that were serving as executive officers
of ours at the end of the fiscal year ended September 30, 2017 that received annual compensation during the fiscal year ended
September 30, 2017 in excess of $100,000; and (iii) all individuals not serving as executive officers of ours at the end of
the fiscal year ended September 30, 2017 that received annual compensation during the fiscal year ended September 30, 2017 in
excess of $100,000.
Name and
Principal
Position
|
Year
|
Salary
($)
|
Bonus
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Nonequity
Incentive
Plan
Compensa-
tion
($)
|
Change in
Pension Value
and Non
Qualified
Deferred
Compensation
Earnings
($)
|
All Other
Compensa
tion
($)
|
Total
($)
|
Neil Reithinger
CEO & CFO
1
|
2017
2016
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
Soren Mogelsvang,
CEO
1
|
2017
2016
|
-
$ 43,750
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
$ 43,750
|
Arnold Tinter,
CFO
1
|
2017
2016
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
-
-
|
Notes
(1)
|
During
the year ended September 30, 2016, Mr. Mogelsvang & Mr. Tinter tenured their resignations as the Chief Executive and
Chief Financial Officer. Neil Reithinger was appointed as Chief Executive and Chief Financial Officer on April 6, 2016.
Mr. Reithinger is the Founder and President of Eventus. Eventus provides accounting services to the Company
in connection with audit coordination, financial statement preparation and SEC filings. Eventus is owned by
Mr. Reithinger, our sole officer and director. The Company pays customary fees for these
services. During the year ended September 30, 2017, we incurred fees of $24,478 to Eventus.
|
Outstanding Equity Awards at Fiscal Year
End
The following table summarizes the outstanding
equity awards held by each named executive officer of our company as of September 30, 2017.
|
Number of
Securities
Underlying
Unexercised
Options
(#) Exercisable
|
Number of
Securities
Underlying
Unexercised
Options
Unexercisable
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Securities
Underlying
Unexercised
Unearned
Options
(#)
|
Option
Exercise
Price
($)
|
Option
Expir-
ation
Date
|
Number of
Shares or
Units
of
Stock that
have
not
Vested
(#)
|
Market
Value
of
Shares
or
Units
of
Stock
that
have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Number of
Unearned
Shares,
Units or
Other
Rights
that
have
not
Vested
(#)
|
Equity
Incentive
Plan
Awards:
Market or
Payout
Value of
Unearned
Shares, Units
or
Other
Rights that
Have
not
Vested
($)
|
Neil Reithinger
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
Retirement or Similar Benefit Plans
There are no arrangements
or plans in which we provide retirement or similar benefits for our directors or executive officers.
Resignation, Retirement, Other Termination,
or Change in Control Arrangements
We have no contract, agreement,
plan or arrangement, whether written or unwritten, that provides for payments to our directors or executive officers at, following,
or in connection with the resignation, retirement or other termination of our directors or executive officers, or a change in control
of our company or a change in our directors’ or executive officers’ responsibilities following a change in control.
Director Compensation
The following table sets
forth for each director, certain information concerning their compensation for the year ended September 30, 2017.
|
Fees
Earned or
Paid in
Cash
($)
|
Stock
Awards
($)
|
Option
Awards
($)
|
Non-Equity
Incentive Plan
Compensation
($)
|
Change in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
($)
|
All other
Compensation
($)
|
Total
($)
|
Neil
Reithinger
|
-
|
-
|
-
|
-
|
-
|
-
|
-
|
We have no plans in place
and have never maintained any plans that provide for the payment of retirement benefits or benefits that will be paid primarily
following retirement including, but not limited to, tax qualified deferred benefit plans, supplemental executive retirement plans,
tax qualified deferred contribution plans and nonqualified deferred contribution plans. Similarly, we have no contracts, agreements,
plans or arrangements, whether written or unwritten, that provide for payments to the named executive officers or any other persons
following, or in connection with the resignation, retirement or other termination of a named executive officer, or a change in
control of us or a change in a named executive officer’s responsibility following a change in control.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL
OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
The following tables set
forth, as of September 30, 2017 certain information with respect to the beneficial ownership of our common stock by each stockholder
known by us to be the beneficial owner of more than 5% of our common stock and by each of our current directors and executive officers.
Each person has sole voting and investment power with respect to the shares of common stock, except as otherwise indicated. Beneficial
ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
In the following tables,
we have determined the number and percentage of shares beneficially owned in accordance with Rule 13d3 of the Securities Exchange
Act of 1934 based on information provided to us by our controlling stockholder, executive officers and directors, and this information
does not necessarily indicate beneficial ownership for any other purpose. In determining the number of shares of our common stock
beneficially owned by a person and the percentage ownership of that person, we include any shares as to which the person has sole
or shared voting power or investment power, as well as any shares subject to warrants or options held by that person that are currently
exercisable or exercisable within 60 days.
Security Ownership of Certain Beneficial
Holders
Title of Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of
Class
(1)(2)
|
Common Stock
|
Aaron Gelber
14645 Sulky Court Run
Mokesville, VA 20181
|
14,939,999 Direct
|
19.06%
|
Common Stock
|
Iris Yachin
7 Orchard Way North
Potomac, MD 20854
|
14,939,999 Direct
|
19.06%
|
Common Stock
|
Talal Yassin
3040 Rosebery Ave
West Vancouver BC, Canada
V7V 349
|
4,871,319 Direct
|
6.22%
|
|
Total Beneficial Holders as a
Group
|
34,751,317 Direct
|
44.34%
|
Security Ownership of Management
Title of Class
|
Name and Address of
Beneficial Owner
|
Amount and Nature of
Beneficial Ownership
|
Percent of
Class
(1)(2)
|
Common Stock
|
Neil Reithinger
14201 N Hayden Road, Suite A-1
Scottsdale, AZ 85260
|
-
|
-
|
Common Stock
|
Directors & Executive Officers
as a group (1 person)
|
-
|
-
|
Notes
(1)
|
Percentages are based upon 78,363,567 shares of our common stock issued and outstanding as of September 30, 2017.
|
|
|
(2)
|
Beneficial ownership is determined in accordance with the rules of the SEC and generally includes voting or investment power with respect to securities. Shares of common stock underlying options, warrants or notes currently exercisable or convertible or exercisable within 60 days of September 30, 2017 are deemed outstanding for the purpose of computing the percentage of the person holding such option, warrant or note but are not deemed outstanding for computing the percentage of any other person.
|
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
Except as set out below,
as of September 30, 2017, there have been no transactions, or currently proposed transactions, in which we were or are to be a
participant and the amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year-end
for the last two completed fiscal years, and in which any of the following persons had or will have a direct or indirect material
interest:
•
|
any director or executive officer of our company;
|
|
|
•
|
any person who beneficially owns, directly or indirectly, shares carrying more than 5% of the voting rights attached to our outstanding shares of common stock;
|
|
|
•
|
any promoters and control persons; and
|
|
|
•
|
any member of the immediate family (including spouse, parents, children, siblings and in laws) of any of the foregoing persons.
|
Effective June 15,
2015, Neil Reithinger was appointed as President, Treasurer, Secretary and a director, and is now the Company’s sole
director and officer. Mr. Reithinger is the Founder and President of Eventus Advisory Group, LLC, a private, CFO-services
firm, and Eventus Consulting, P.C., a registered CPA firm (collectively “Eventus”). Eventus provides accounting
and advisory services to the Company in connection with audit coordination, financial statement preparation and SEC filings.
The Company pays customary fees for these services. During the years ended September 30, 2017 and 2016, the Company incurred
fees of $24,478 and $1,726, respectively, to Eventus and has $6,100 in related party accounts payable on the accompanying
balance sheet as of September 30, 2017. In addition, Eventus paid certain expenses of the Company and is owed $6,100 recorded
as due to related party on the accompanying balance sheet as of September 30, 2017. The office space used by the Company is
provided by Eventus at no charge.
Named Executive Officers and Current Directors
For information regarding
compensation for our named executive officers and current directors, see “Executive Compensation.”
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit and Accounting Fees
Effective July 12, 2016,
EideBailly LLP (“EideBailly”) resigned as our independent registered public accounting firm. On March 17, 2017, we
engaged Dale Matheson Carr-Hilton Labonte LLP (“DMCL”) as our new independent registered public accounting firm. The
following table sets forth the fees billed to the Company for professional services rendered by EideBailly and DMCL, respectively,
for each of the years ended September 30, 2017 and 2016:
|
|
|
DMCL
|
|
|
EIDE BAILLY
|
|
Services
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
Audit fees
|
|
$
|
18,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26,500
|
|
Audit related fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Tax fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
All other fees
|
|
|
—
|
|
|
—
|
|
|
—
|
|
|
—
|
|
Total fees
|
|
$
|
18,000
|
|
$
|
—
|
|
$
|
—
|
|
$
|
26,500
|
|
Audit Fees
The audit fees were paid
for the audit services of our annual and quarterly reports and issuing consents for our registration statements.
Pre-Approval Policies and Procedures
Our board of
directors pre approves all services provided by our independent registered public accounting firm. All of the above services
and fees were reviewed and approved by the board of directors before the respective services were rendered. Our board of
directors has considered the nature and amount of fees billed and believes that the provision of services for activities
unrelated to the audit is compatible with maintaining their respective independence.
The accompanying footnotes are an integral part
of these consolidated financial statements.
The accompanying footnotes are an integral part
of these consolidated financial statements.
The accompanying footnotes are an integral part
of these consolidated financial statements.
The accompanying footnotes are an integral
part of these consolidated financial statements.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
YEAR ENDED SEPTEMBER 30, 2017
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 numerous name changes, the Company changed its 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 audited consolidated financial
statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of
America (“U.S. GAAP”).
Basis of Consolidation
The 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 consolidated financial statements
in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported
amounts of expenses during the reporting period. Actual results could differ from those estimates.
Significant estimates made in connection with
the accompanying consolidated financial statements include the estimate of valuation of stock-based compensation, and valuation
allowances against net deferred tax assets.
Financial Instruments
Our financial instruments consist of cash,
accounts payable and convertible notes. 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”)
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:
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.
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.
The Company’s financial instruments consist
of cash, accounts payable and convertible notes. The estimated fair value of these financial instruments approximates their carrying
amounts due to the short-term nature of these instruments.
Certain non-financial assets are measured at
fair value on a nonrecurring basis. Accordingly, these assets are not measured and adjusted to fair value on an ongoing basis,
but are subject to periodic impairment tests. These items primarily include long-lived assets and other intangible assets.
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.
Our only long-lived assets are our
website and computer equipment. 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 several 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. During the years ended September 30, 2017, we charged $nil (2016
- $18,974) to amortization expense for the impairment of our website.
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 year ended September 30, 2017, any equivalents would have been
anti-dilutive as we had a loss for the period then ended.
Cash and Cash Equivalents
The Company considers all highly liquid investments
with an original maturity of three months or less when purchased to be cash equivalents. As of September 30, 2017, the Company
does not have any cash equivalents.
Income Taxes
Income taxes are provided based upon the liability
method of accounting pursuant to the
ASC Topic 740 Income Taxes
. Under this approach, deferred income taxes are recorded
to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial
reporting amounts at each year-end. A valuation allowance is recorded against the deferred tax asset if management does not believe
the Company has met the “more likely than not” standard to allow recognition of such an asset.
Equity Based Payments
Equity based payments are accounted for
in accordance with
ASC Topic 718, Compensation – Stock Compensation
. The compensation cost is based upon fair
value of the equity instrument at the date grant. The fair value has been estimated using the Black Scholes option pricing
model. In addition, payments made to non-employees are accounted for in accordance with
ASC Topic 505, Equity-Based payments to Non-Employees.
Intangible Asset
The intangible asset is our website that was
being amortized over the expected useful life which we estimated to be three years. During the year ended September 30, 2016, it
was determined the website was fully impaired as it was no longer used and as such we expensed the remaining balance to amortization
expense. Amortization expense charged to operations for the twelve-month period ended September 30, 2017 and 2016, was $nil and
$18,974, respectively.
Recently Issued Accounting 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.
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. ASU No. 2016-02 is effective for reporting periods beginning after
December 15, 2018. We do not expect the adoption of this guidance to have a material impact on our Consolidated Financial Statements.
In March 2016, the FASB issued authoritative
guidance regarding the accounting for share-based payment transactions, including income tax consequences, classification of awards
as either equity or liabilities, and classification on the statement of cash flows. The guidance is to be applied for annual periods
beginning after December 15, 2016 and interim periods within those annual periods, and early adoption is permitted. The guidance
requires companies to apply the requirements retrospectively, modified retrospectively, or prospectively depending on the amendment(s)
applied. The Company is currently evaluating the impact of adopting this guidance.
In April 2016, the FASB issued ASU 2016 –
10 “Revenue from Contract with Customers: identifying Performance Obligations and Licensing”. The amendments in this
Update clarify the two following aspects (a) contracts with customers to transfer goods and services in exchange for consideration
and (b) determining whether an entity’s promise to grant a license provides a customer with either a right to use the entity’s
intellectual property (which is satisfied at a point in time) or a right to access the entity’s intellectual property (which
is satisfied over time). The amendments in this Update are intended to reduce the degree of judgement necessary to comply with
Topic 606. This guidance has no effective date as yet. The Company is currently evaluating the impact of adopting this guidance.
In August 2016, the FASB issued ASU 2016-15,
“Statement of Cash Flows (Topic 230) Classification of Certain Cash Receipts and Cash Payments”. The new guidance is
intended to reduce diversity in practice in how certain transactions are classified in the statement of cash flows. ASU 2016-15
is effective for the Company beginning in the first quarter of fiscal 2019. Early adoption is permitted, provided that all of the
amendments are adopted in the same period. The guidance requires application using a retrospective transition method. The Company
is currently evaluating the impact of adopting this guidance.
In November 2016, the FASB issued ASU 2016-18,
“Statement of Cash Flows (Topic 230) Restricted Cash”. The new guidance requires that the reconciliation of the beginning-of-period
and end-of-period amounts shown in the statement of cash flows include restricted cash and restricted cash equivalents. If restricted
cash is presented separately from cash and cash equivalents on the balance sheet, companies will be required to reconcile the amounts
presented on the statement of cash flows to the amounts on the balance sheet. Companies will also need to disclose information
about the nature of the restrictions. The guidance is effective for fiscal years beginning after December 15, 2017, and interim
periods within those fiscal years. The Company is currently evaluating the impact of adopting this guidance.
In January 2017, FASB issued ASU 2017-01, “Business
Combinations (Topic 805) Clarifying the Definition of a Business”. The amendments in this Update is to clarify the definition
of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted
for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting including
acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15,
2017, including interim periods within those periods. The Company is currently evaluating the impact of adopting this guidance.
On May 10, 2017, the Financial Accounting
Standards Board (“FASB”)issued an Accounting Standards Update (“ASU”) 2017-09
“Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting”, which provides guidance to
clarify when to account for a change to the terms or conditions of a share-based payment award as a modification. Under the
new guidance, modification accounting is required only if the fair value, the vesting conditions, or the classification of
the award (as equity or liability) changes as a result of the change in terms or conditions. The guidance is effective
prospectively for all companies for annual periods beginning on or after December 15, 2017. Early adoption is permitted. The
Company is currently evaluating the impact of adopting this guidance.
NOTE 2 – GOING CONCERN AND
MANAGEMENT’S LIQUIDITY PLANS
As of September 30, 2017,the Company had
an accumulated deficit of $5,056,087 and aworking capital deficiency of $192,685. During the years ended September 30, 2017
and 2016, the Company used cash in operating activities of $18,314 and $200,352, respectively. These conditions raise
substantial doubt about the Company’s ability to continue as a going concern. The Company recognizes it will need to
raise additional capital in order to fund operations, and meet its payment obligations. There is no assurance that additional
financing will be available when needed or that management will be able to obtain financing on terms acceptable to the
Company and whether the Company will generate revenues, become profitable and generate positive operating cash flow. If the
Company is unable to raise sufficient additional funds on favorable terms, it will have to develop and implement a plan to
further extend payables and to raise capital through the issuance of debt or equity on less favorable terms until sufficient
additional capital is raised to support further operations. There can be no assurance that such a plan will be
successful.
Accordingly, the accompanying 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 consolidated financial statements do not necessarily represent realizable or settlement
values. The 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 they 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. Included in general and administrative expense for the years ended September 30,
2017 and September 30, 2016 are $23,680 and $24,000 of consulting fees, $nil and $24,000 of Directors’ fees, and $nil and
$48,355 of salaries to be paid to officers and directors of the Company, respectively. Included in accounts payable for the years
ended September 30, 2017 and September 30, 2016 are $24,478 and $1,726 of amounts due to a company controlled by an officer of
the Company, respectively.
NOTE 4 – CONVERTIBLE NOTES PAYABLE
Loan with Trius Holdings Limited
On March 17, 2017, we entered into an agreement
with Trius Holdings Limited (“Trius”). Pursuant to the terms of the agreement, Trius 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
at the date all or a part of the principal outstanding into shares of the Company’s common stock. This would be 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 SukhAthwal
On March 30, 2017, we entered into an agreement
with SukhAthwal (“Athwal”). Pursuant to the terms of the agreement, Athwal 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 at
the date all or a part of the principal outstanding into shares of the Company’s common stock. This would be 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 $1,240 as of September 30, 2017 and is reflected in accrued expenses on the accompanying balance sheet. The Company
recorded a loss of $5,000 based on the change in fair value.
NOTE 5 – STOCKHOLDERS’ EQUITY
The Company had no preferred or common stock
transactions during the years ended September 30, 2017 and 2016
NOTE 6 - OPTIONS
No stock options were granted during the years ended September 30,
2017 and 2016.
As per guidance in the ASC Topic 718, Compensation
- Stock Compensation (“ASC 718”), we are amortizing the fair value of the options on a straight-line basis over the
requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (graded
vesting attribution method).
During the year ended September 30, 2016, officers
holding 4,500,000 options resigned and the options were no longer exercisable. In accordance with ASC 718, previously expensed
equity based compensation which requisite service will not be provided and are forfeited and reversed. As a result, previously
recorded equity based compensation of $1,296,431 was reversed and credited to equity based compensation expense during the year
ended September 30, 2016.
The following is a summary of outstanding stock
options issued to employees and directors as of September 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 September 30, 2016 and September 30, 2017
|
|
|
2,916,000
|
|
$
|
0.0067
|
|
|
6.45
|
|
|
—
|
|
Exercisable
|
|
|
2,916,000
|
|
$
|
0.0067
|
|
|
6.45
|
|
|
—
|
|
The following is a summary of outstanding stock
options issued to non-employees, excluding directors, as of September 30, 2017:
|
|
|
Number
of Options
|
|
|
Exercise Price per
Share
|
|
|
Average
Remaining
Term
in Years
|
|
|
Aggregate
Intrinsic
Value at Date
of Grant
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2017 and 2016
|
|
|
375,000
|
|
$
|
0.0067
|
|
|
6.04
|
|
|
—
|
|
Exercisable
|
|
|
375,000
|
|
$
|
0.0067
|
|
|
6.04
|
|
|
—
|
|
Total equity based compensation for the years
ended September 30, 2017 and 2016 was $nil and ($1,296,431), respectively.
NOTE 7 – DISCONTINUED OPERATIONS
Based upon recent regulatory activity related
to imposition of restrictions and limitations on the sale of hemp-based health products for pets, the Company 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, the Company 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 and Equipment: 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, 2016.
• 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 October 15, 2015:
|
|
|
October 15, 2015
|
|
Inventory
|
|
$
|
41,705
|
|
Deposits
|
|
|
8,678
|
|
Total assets
|
|
$
|
50,383
|
|
|
|
|
|
|
Accounts payable
|
|
|
124,396
|
|
Royalties payable
|
|
|
39,506
|
|
Accrued liabilities
|
|
|
15,341
|
|
Total liabilities
|
|
|
179,243
|
|
Net assets sold
|
|
$
|
128,860
|
|
The income from discontinued operations presented
in the statements of operations consists of the following for the years ended September 30, 2016:
|
|
|
2016
|
|
Revenues
|
|
$
|
—
|
|
Cost of goods sold
|
|
|
—
|
|
General and administrative expenses, including depreciation and amortization
|
|
|
(6,197
|
)
|
Depreciation
|
|
|
—
|
|
Interest expense
|
|
|
—
|
|
Gain on disposal of discontinued operations
|
|
|
80,903
|
|
Income from discontinued operations
|
|
$
|
74,706
|
|
NOTE 8 – INTANGIBLE ASSETS
Intangible assets at September 30, 2017 and
September 30, 2016, consist of website costs of $35,000, less accumulated amortization of $35,000. The website costs have been
fully amortized.
NOTE 9– COMMITMENTS AND CONTINGENCIES
We have no commitments or contingencies as
of September 30, 2017 and 2016.
NOTE 10 – DEFERRED INCOME TAX
Deferred income tax provision for the years
ended September 30, 2017 and 2016 is summarized below:
|
|
|
2017
|
|
|
2016
|
|
Federal
|
|
$
|
(17,400
|
)
|
$
|
(64,500
|
)
|
State
|
|
|
(1,600
|
)
|
|
(5,900
|
)
|
Total deferred
|
|
|
(19,000
|
)
|
|
(70,400
|
)
|
Increase in valuation allowance
|
|
|
19,000
|
|
|
70,400
|
|
|
|
$
|
—
|
|
$
|
—
|
|
The provision for income taxes differs from the amount computed
by applying the statutory federal income tax rate before provision for income taxes. The sources and tax effect of the differences
are as follows:
|
|
|
2017
|
|
|
2016
|
|
Income tax provision – federal rate
|
|
|
34.0
|
%
|
|
34.0
|
%
|
State income taxes, net of federal benefit
|
|
|
3.1
|
%
|
|
3.1
|
%
|
Effect of net operating loss
|
|
|
(37.1%
|
)
|
|
(37.1%
|
)
|
|
|
|
—
|
|
|
—
|
|
The net deferred income tax assets at September
30, 2017 and 2016 were approximately $401,200 and $382,200, respectively.
ASC 740 requires a valuation allowance to reduce
the deferred tax assets reported if, based on the weight of evidence, it is more than likely than not that some portion or all
of the deferred tax assets will not be recognized. After consideration of all the evidence, both positive and negative, management
has determined that a full valuation allowance at September 30, 2017 and 2016, respectively, is necessary to reduce the deferred
tax assets to the amount that is more likely than not to be realized. The change in valuation allowance for the current year is
$16,800.
As of September 30, 2017, we have a net
operating loss carry forwards of approximately $1,081,300 (2016: $1,030,100). The loss will be available to offset future
taxable income. If not used, the secarry forwards will expire in varying amounts through 2037.
There are open statutes of limitations for
taxing authorities in federal and state jurisdictions to audit our tax returns from 2011 through the current period. Our policy
is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been
no income tax related interest or penalties assessed or recorded.
ASC 740 prescribes a recognition threshold
and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting
in interim periods, disclosure, and transition.
For the years ended September 30, 2017 and
2016 we did not have any interest and penalties associated with tax positions. As of September 30, 2017, we did not have any significant
unrecognized uncertain tax positions.
NOTE 11 – RECLASSIFICATION OF COMPARATIVE
FIGURES
Certain prior year amounts included in the
consolidated statements of operations have been reclassified to conform to the current year presentation. Such reclassifications
had no impact on previously reported net loss.