NOTE 7 - SUBSEQUENT EVENTS
Management
has evaluated all activity and concluded that no subsequent events
have occurred that would require recognition in these financial
statements or disclosure in the notes to these financial
statements.
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, as filed
on September 12, 2017, any of which may cause our company’s
or our industry’s actual results, levels of activity,
performance or achievements to be materially different from any
future results, levels of activity, performance or achievements
expressed or implied by these forward-looking statements. These
risks may cause the Company’s or its industry’s actual
results, levels of activity or performance to be materially
different from any future results, levels of activity or
performance expressed or implied by these forward-looking
statements.
Although
the Company believes that the expectations reflected in the
forward-looking statements are reasonable, it cannot guarantee
future results, levels of activity or performance. Moreover,
neither the Company nor any other person assumes responsibility for
the accuracy and completeness of these forward-looking statements.
The Company is under no duty to update any forward-looking
statements after the date of this report to conform these
statements to actual results.
As used
in this quarterly report and unless otherwise indicated, the terms
“we,” “us,” “our,”
“Peak,” or the “Company” refer to Peak
Pharmaceuticals, Inc, including our wholly-owned subsidiary Peak
BioPharma Corp (“Peak BioPharma”). Unless otherwise
specified, all dollar amounts are expressed in United States
dollars.
Corporate Overview
We were
incorporated as Surf A Movie Solutions Inc. in Nevada on December
18, 2007 to engage in the business of the development, sales and
marketing of online video stores. We were not successful in our
efforts and have ceased this line of business.
On
October 10, 2013, we entered into a joint venture agreement with
Produced Water Solutions, Inc., a Colorado corporation, that was in
the business of providing economically and environmentally sound
solutions for the treatment and recycling of wastewater resulting
principally from oil and gas exploration and production activities.
As a result of our research of this business opportunity, on
December 31, 2013, we determined not to move forward with this line
of business.
In
early March 2014, we entered into the business of developing,
manufacturing and marketing pharmaceutical level products
containing phytocannabinoids, an abundant and pharmaceutically
active component of industrial hemp, for the prevention and
alleviation of various conditions and diseases. In connection
therewith, on March 17, 2014 we changed our name to Cannabis
Therapy Corp. On December 23, 2014, we changed our name to Peak
Pharmaceuticals, Inc. All of our business operations are carried on
through our wholly-owned subsidiary, Peak BioPharma Corp., a
Colorado corporation.
On July
29, 2014, through Peak BioPharma, we entered into a license
agreement (the “License Agreement”) with Canna-Pet, LLC
(“Licensor”), a Washington limited liability company,
which owns the brand name “Canna-Pet” and certain
related intellectual property including, but not limited to,
trademarks and copyrights, formulations, recipes, production
processes and systems, websites, domain names, customer lists,
supplier lists, trade secrets and know-how, and other related
intellectual property (collectively, the “Licensed
Intellectual Property”), used by Licensor in the conduct of
its business related to the production and sale of medical products
made from industrial hemp which are intended exclusively for
consumption by pets. Pursuant to the License Agreement, the
Licensor granted to us a perpetual, exclusive, world-wide license
to use the Licensed Intellectual Property in conjunction with our
business and the production and sale of medical products made from
industrial hemp as well as the right to sublicense the Licensed
Intellectual Property to third parties. The License Agreement gives
us the right to produce and sell existing products utilizing the
Licensed Intellectual Property and to develop new products, jointly
with Licensor or otherwise, based upon the Licensed Intellectual
Property. The License Agreement provided us with an immediate
revenue source and access to Licensor’s customer base. During
the term of the license, all intellectual property rights in and to
the Licensed Intellectual Property remained the exclusive property
of Licensor.
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
For the
six months ended March 31, 2017, our company has received two
convertible promissory notes from unrelated third parties. These
loans are convertible into shares of our company pursuant to the
terms of the loan agreements. In the descriptions below of the
loans, the issuance of common shares pursuant to the conversion of
debt pursuant to convertible promissory notes, and the issuance of
common shares pursuant to the exercise of warrants, transactions
are a on a post reverse stock split basis. All the loans,
convertible promissory notes, and warrants include terms that make
them subject to the share splits.
Loan Agreements
Loan with Trius Holdings Limited
On March 17, 2017, we entered into an agreement with Trius Holdings
Limited. Pursuant to the terms of the agreement, the investor
acquired a 12% convertible note with an aggregate face value of
$10,000. The note matures in one year. The holder of this note is
entitled, at its option, to convert all or a part of the principal
outstanding at the date into shares of the of common stock in the
Company at a price equal to a 20% discount to closing price of the
common stock on the date of the lender’s notice of
conversion, subject ot a floor of $0.01.
Loan with Individual
On March 30, 2017, we entered into an agreement with an individual.
Pursuant to the terms of the agreement, the investor acquired a 12%
convertible note with an aggregate face value of $10,000. The note
matures in one year. The holder of this note is entitled, at its
option, to convert all or a part of the principal outstanding at
the date into shares of the of common stock in the Company at a
price equal to a 20% discount to closing price of the common stock
on the date of the lender’s notice of conversion, subject to
a floor of $0.01.
Results of Operations
Comparison of the Three Months Ended March 31, 2017 to the Three
Months Ended March 31, 2016
Revenue
No
revenue or cost of sales were generated for the three months ended
March 31, 2017 or March 31, 2016 due to the overall reduction in
operations of the business.
Operating Expenses
Our
expenses for the three months ended March 31, 2017 are summarized
as follows in comparison to our expenses for the three months ended
March 31, 2016:
|
Three
Months Ended March 31,
|
|
|
|
|
|
General and
administrative
|
$
5,430
|
$
74,337
|
Depreciation and
amortization
|
-
|
15,628
|
Stock based
compensation
|
-
|
(1,576,484
)
|
Total operating
expenses
|
$
5,430
|
$
(1,486,519
)
|
General
and administrative expense decreased by $68,907 for the three
months ended March 31, 2017 from the comparative period of 2016.
The decrease is due to the overall reduction in operating expenses
related to the operation of that business. Depreciation and
amortization expense decreased by $15,628 due to the write-down of
our website costs during the three months ended March 31, 2016.
Stock based compensation increased by $1,576,484 due to the
forfeiture and reversal of stock options to officers resulting in a
credit of $1,576,484 during the three months ended March 31,
2016.
Comparison of the Six Months Ended March 31, 2017 to the Six Months
Ended March 31, 2016
Revenue
No
revenue or cost of sales were generated for the three months ended
March 31, 2017 or for the three months ended March 31, 2016. due to
the termination of the license agreement with Canna-Pet, LLC and
the overall reduction in operations of the business.
Operating Expenses
Our
expenses for the six months ended March 31, 2017 are summarized as
follows in comparison to our expenses for the six months ended
March 31, 2016:
|
Six
Months Ended March 31,
|
|
|
|
|
|
General and
administrative
|
$
7,313
|
$
175,996
|
Depreciation and
amortization
|
-
|
18,974
|
Stock based
compensation
|
-
|
(1,296,431
)
|
Total operating
expenses
|
$
7,313
|
$
(1,101,461
)
|
General
and administrative expense decreased by $168,683 for the six months
ended March 31, 2017 from the comparative period of 2016, due to
the overall reduction in operating expenses related to the
operation of that business. Depreciation and amortization expense
decreased by $18,974 due to the impairment and the write-down of
website costs during the six months ended March 31, 2016. Stock
based compensation increased by $1,296,431 primarily due to the
forfeiture and reversal of stock options to officers resulting in a
credit of $1,296,431 during the six months ended March 31,
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 from discontinued operations presented in the statements of
operations consists of the following for the six-month periods
ended March 31, 2017 and 2016:
|
|
|
Revenues
|
$
-
|
$
-
|
Cost of goods
sold
|
-
|
-
|
General and
administrative expenses
|
-
|
-
|
Gain on disposal of
discontinued operations
|
3,607
|
74,706
|
Income from
discontinued operations
|
$
3,607
|
$
74,706
|
Liquidity and Financial Condition
Working Capital Deficiency
|
|
|
Current
assets
|
$
21,095
|
$
1,304
|
Current
liabilities
|
174,904
|
142,762
|
Working capital
deficiency
|
$
(153,809
)
|
$
(141,458
)
|
The
increase in current assets is mainly due to two convertible notes
for $10,000 received during the six months ended March 31, 2017.
The increase in current liabilities is due primarily from the
increase in accounting fees recorded in accounts payable to
complete and bring current the Company’s SEC
filings.
Cash Flow
s
|
Six
Months Ended March 31,
|
|
|
|
Net income
(loss)
|
$
(12,350
)
|
$
1,176,167
|
Net cash provided
(used) in operating activities
|
(209
)
|
(199,770
)
|
Net cash used in
investing activities
|
-
|
-
|
Net cash provided
by financing activities
|
20,000
|
-
|
Increase (decrease)
in cash
|
$
19,791
|
$
(199,770
)
|
As of
March 31, 2017, our cash balance was $21,095. 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 six months ended March 31, 2017 was
$209 mainly due to the limited business activity during the
period.
Net
cash provided by financing for the six months ended March 31, 2017
was $20,000 due to two promissory notes received.
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 March 31, 2017 of approximately $5 million, as well as
negative cash flows from operating activities. The Company's cash
and cash equivalents balance as of March 31, 2017, is $21,095.
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 and
six months ended March 31, 2017.
Newly Issued Accounting Pronouncements
See
Note 1 to our financial statements included herein for the three
and six months ended March 31, 2017 for a discussion of Recently
Issued Accounting Pronouncements.