NOTE 6 - SUBSEQUENT EVENTS
Management has evaluated all activity and
concluded that no subsequent events have occurred that would
require recognition in these financial statements or disclosure in
the notes to these financial statements.
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Forward-Looking Statements
This
report contains forward-looking statements. The following
discussion should be read in conjunction with the financial
statements and related notes contained in our Annual Report on Form
10-K, as filed with the Securities & Exchange Commission on
September 12, 2017. Certain statements made in this discussion are
"forward-looking statements" within the meaning of The Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are projections in respect of future events or financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may,”
“should,” “expects,” “plans,”
“anticipates,” “believes,”
“estimates,” “predicts,”
“potential” or “continue” or the negative
of these terms or other comparable terminology.
These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” set forth in our Annual
Report on Form 10-K for the year ended September 30, 2016, any of
which may cause our company’s or our industry’s actual
results, levels of activity, performance or achievements to be
materially different from any future results, levels of activity,
performance or achievements expressed or implied by these
forward-looking statements. These risks may cause the
Company’s or its industry’s actual results, levels of
activity or performance to be materially different from any future
results, levels of activity or performance expressed or implied by
these forward-looking statements.
Although
the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee
future results, levels of activity or performance. Moreover,
neither the Company nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements.
The Company is under no duty to update any forward-looking
statements after the date of this report to conform these
statements to actual results.
As used
in this quarterly report and unless otherwise indicated, the terms
“we,” “us,” “our,”
“Peak,” or the “Company” refer to Peak
Pharmaceuticals, Inc, including our wholly-owned subsidiary Peak
BioPharma Corp (“Peak BioPharma”). Unless otherwise
specified, all dollar amounts are expressed in United States
dollars.
Corporate Overview
We were
incorporated as Surf A Movie Solutions Inc. in Nevada on December
18, 2007 to engage in the business of the development, sales and
marketing of online video stores. We were not successful in our
efforts and have ceased this line of business.
On
October 10, 2013, we entered into a joint venture agreement with
Produced Water Solutions, Inc., a Colorado corporation, that was in
the business of providing economically and environmentally sound
solutions for the treatment and recycling of wastewater resulting
principally from oil and gas exploration and production activities.
As a result of our research of this business opportunity, on
December 31, 2013, we determined not to move forward with this line
of business.
In
early March 2014, we entered into the business of developing,
manufacturing and marketing pharmaceutical level products
containing phytocannabinoids, an abundant and pharmaceutically
active component of industrial hemp, for the prevention and
alleviation of various conditions and diseases. In connection
therewith, on March 17, 2014 we changed our name to Cannabis
Therapy Corp. On December 23, 2014, we changed our name to Peak
Pharmaceuticals, Inc. All of our business operations are carried on
through our wholly-owned subsidiary, Peak BioPharma Corp., a
Colorado corporation.
On July
29, 2014, through Peak BioPharma, we entered into a license
agreement (the “License Agreement”) with Canna-Pet, LLC
(“Licensor”), a Washington limited liability company,
which owns the brand name “Canna-Pet” and certain
related intellectual property including, but not limited to,
trademarks and copyrights, formulations, recipes, production
processes and systems, websites, domain names, customer lists,
supplier lists, trade secrets and know-how, and other related
intellectual property (collectively, the “Licensed
Intellectual Property”), used by Licensor in the conduct of
its business related to the production and sale of medical products
made from industrial hemp which are intended exclusively for
consumption by pets. Pursuant to the License Agreement, the
Licensor granted to us a perpetual, exclusive, world-wide license
to use the Licensed Intellectual Property in conjunction with our
business and the production and sale of medical products made from
industrial hemp as well as the right to sublicense the Licensed
Intellectual Property to third parties. The License Agreement gives
us the right to produce and sell existing products utilizing the
Licensed Intellectual Property and to develop new products, jointly
with Licensor or otherwise, based upon the Licensed Intellectual
Property. The License Agreement provided us with an immediate
revenue source and access to Licensor’s customer base. During
the term of the license, all intellectual property rights in and to
the Licensed Intellectual Property remained the exclusive property
of Licensor.
In
consideration of the grant of the license, we agreed to pay
Licensor license fees in the form of royalty payments calculated on
the basis of gross proceeds received by us from sales of products
manufactured, marketed or sold by us utilizing the Licensed
Intellectual Property or any subsequently developed intellectual
property which is jointly owned by us and Licensor. We began
selling Canna-Pet products in October 2014.
Based
upon recent regulatory activity related to imposition of
restrictions and limitations on the sale of hemp-based health
products for pets, we elected to terminate our license agreement
with the Licensor, effective as of October 1, 2015, and to cease
all operations relating to sale of hemp-based products for
pets.
On
October 12, 2015, we entered into an agreement for the termination
(“Termination Agreement”) of the License Agreement,
effectively selling the discontinued operations. The Termination
Agreement contained the following provisions:
●
Termination of
License: The parties agreed to terminate the License Agreement
effective as of October 1, 2015. This termination was made by
mutual agreement of the parties pursuant to and in accordance with
the provisions of the License Agreement.
●
Return of Licensed
Intellectual Property: We agreed to return all Licensed
Intellectual Property to the Licensor, and our right to use all, or
any portion, of the Licensed Intellectual Property ceased effective
as of October 1, 2015. Pursuant to the terms of the License
Agreement, the Licensed Intellectual Property included the brand
name “Canna-Pet” and certain related intellectual
property, including, but not limited, trademarks and copyrights,
formulations, recipes, production processes and systems, websites,
domain names, customer lists, supplier lists trade secrets and
know- how, and other related intellectual property.
●
Return of Other
Property: In addition to return of the Licensed Intellectual
Property, we agreed to transfer to Licensor all product inventory,
Colorado hemp with permits and authorization, all
production/fulfillment contracts, all e-commerce accounts and
processing, all non-disclosure and research agreements and any and
all other property in our possession which was used by us in the
conduct of our business related to production and sale of medical
cannabis products for pets made from hemp and low-THC cannabis
plants.
●
Office Space,
Equipment and Employees: In conjunction with the execution of the
Termination Agreement, we granted the Licensor the right to use our
office space, for the three-month period from October 1, 2015
through December 31, 2015, on a rent-free basis.
●
Consideration: As
consideration for the cancellation of the License Agreement and the
return of other property, as described above, the Licensor agreed
to waive payment by us and to release us from liability for payment
of any and all unpaid royalties, invoices and other amounts which
were otherwise currently due and payable by us to Licensor for
sales of Canna-Pet products for all periods through and including
September 30, 2015.
●
Collections: On
October 15, 2015, we forwarded to the Licensor all payments
received by us after September 30, 2015 (net of amounts received by
us for taxes, duties, governmental charges, freight or shipping
charges, and the like) for Canna- Pet products sold on or after
October 1, 2015.
The
following is a summary of the net assets sold as initially
determined at Septembers 30, 2015 and updated October 15,
2015:
|
|
|
Inventory
|
$
45,436
|
$
41,705
|
Prepaid
Expenses
|
8,821
|
-
|
Deposits
|
8,179
|
8,678
|
Total
assets
|
$
62,436
|
$
50,383
|
|
|
|
Accounts
payable
|
103,548
|
124,396
|
Royalties
payable
|
39,506
|
39,506
|
Accrued
liabilities
|
285
|
15,341
|
Total
liabilities
|
143,339
|
179,243
|
Net assets
sold
|
$
80,903
|
$
128,860
|
Our
common stock is currently listed on the OTC Markets, QB Tier, under
the symbol “PKPH”.
Recent Corporate Developments
Since
the commencement of the year through December 31, 2016, we have not
experienced any corporate developments.
Results of Operations
Comparison of the Three Months Ended December 31, 2016
Revenue
There
were no revenues for the three months ended December 31, 2016 or
2015.
Operating Expenses
Our
expenses for the three months ended December 31, 2016 are
summarized as follows in comparison to our expenses for the three
months ended December 31, 2015:
|
Three
Months Ended December 31,
|
|
|
|
|
|
General and
administrative
|
$
1,883
|
$
101,659
|
Depreciation and
amortization
|
-
|
3,346
|
Stock based
compensation
|
-
|
280,053
|
Total operating
expenses
|
$
1,883
|
$
385,058
|
General
and administrative expense decreased by $99,776 for the three
months ended December 31, 2016 from the comparative period of 2015.
The decrease is due to the termination of the license agreement
with Canna-Pet, LLC and the overall reduction in operating expenses
related to the operation of that business. Depreciation and
amortization expense decreased by $3,346 and stock based
compensation decreased by $280,053 due to the reduction in
operations of the business.
Discontinued Operations
Our
Canna-Pet business segment began operations in October 2014. As a
result of recent regulatory activity related to imposition of
restrictions and limitations on the sale of hemp-based health
products for pets, on October 1, 2015, we elected to terminate our
license agreement with Canna-Pet, LLC and to cease all operations
relating to sale of hemp-based products for pets.
The
income (loss) from discontinued operations presented in the
statements of operations consists of the following for the
three-month period ended December 31, 2016 and 2015:
|
|
|
Revenues
|
$
-
|
$
-
|
Cost of goods
sold
|
-
|
-
|
General and
administrative expenses
|
-
|
(9,804
)
|
Gain on disposal of
discontinued operations
|
-
|
80,903
|
|
$
-
|
$
71,099
|
Liquidity and Financial Condition
Working Capital Deficiency
|
|
|
Current
assets
|
$
1,179
|
$
1,304
|
Current
liabilities
|
144,520
|
142,762
|
Working capital
deficiency
|
$
(143,341
)
|
$
(141,458
)
|
The
decrease in current assets is due to bank fees of $126 during the
quarter. The increase in current liabilities is due primarily to
late fees being incurred on the open accounts payable during the
three months ended December 31, 2016.
Cash Flows
|
Three
Months Ended December 31,
|
|
|
|
Net
loss
|
$
(1,883
)
|
$
(313,959
)
|
Net cash used in
operating activities
|
(126
)
|
(139,548
)
|
Net cash used in
investing activities
|
-
|
-
|
Net cash provided
by financing activities
|
-
|
-
|
Increase (decrease)
in cash
|
$
(126
)
|
$
(139,548
)
|
As of
December 31, 2016, our cash balance was $1,179. The Company does
not expect its current cash and operating income to be sufficient
to meet its financial needs for continuing operations over the next
twelve months.
Net
cash used in operations for the three months ended December 31,
2016 was $126 mainly due to bank fees on our checking
account.
We need
to raise additional operating capital on an immediate basis.
Although the expenses of our operations have been significantly
reduced due to the termination of the license agreement as outline
in Note 3 of the financial statements, we need to still evaluate
raising additional capital through the sale of equity securities,
through an offering of debt securities or through borrowings from
individuals. There can be no assurance that such a plan will be
successful.
As of
the date of this filing, we do not have enough sufficient cash on
hand to cover our operating expenses through the next quarter. In
the absence of any ongoing commercial operations, we need enough
cash to pay certain outside professionals to maintain our
compliance under the Securities Act of 1934. Management anticipates
that it will require an additional $30,000 over the next twelve
months to cover such costs.
Going Concern
The
unaudited condensed consolidated financial statements contained in
this report have been prepared assuming that the Company will
continue as a going concern. The Company has cumulative net losses
through December 31, 2016 of approximately $5 million. The
Company's cash and cash equivalents balance as of December 31, 2016
is $1,179. These factors raise substantial doubt about the
Company's ability to continue as a going concern.
While
we will actively seek to identify sources of liquidity, there are
no assurances that such additional sources of liquidity can be
obtained on terms acceptable to us on a commercially reasonable
basis, or at all. These factors raise substantial doubt about our
ability to continue as a going concern. Furthermore, our
“going concern” and lack of commercial operations may
make it more difficult for us to raise funds.
The
unaudited condensed consolidated financial statements do not
include any adjustments that may be necessary should the Company be
unable to continue as a going concern. The Company’s
continuation as a going concern is dependent on its ability to
obtain additional financing as may be required and ultimately to
attain profitability. If the Company raises additional funds
through the issuance of equity, the percentage ownership of current
shareholders could be reduced, and such securities might have
rights, preferences or privileges senior to its common stock.
Additional financing may not be available upon acceptable terms, or
at all. If adequate funds are not available or are not available on
acceptable terms, the Company may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict its future plans for
developing its business and achieving commercial revenues. If the
Company is unable to obtain the necessary capital, the Company may
have to cease operations.
Off-Balance Sheet Arrangements
We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures or capital
resources that is material to stockholders.
Effects of Inflation
We do
not believe that inflation has had a material impact on our
business, revenues or operating results during the periods
presented.
Critical Accounting Policies and Estimates
Our
significant accounting policies are more fully described in the
notes to our financial statements included herein for the three
months ended December 31, 2016.
Newly Issued Accounting Pronouncements
See
Note 1 to our financial statements included herein for the three
months ended December 31, 2016 for a discussion of Recently Issued
Accounting Pronouncements.