NOTE 2 – GOING CONCERN AND MANAGEMENT’S
LIQUIDITY PLANS
As of June 30, 2018, the
Company had an accumulated deficit of $5,077,511 and a working capital deficiency of $214,110. During the nine months ended June
30, 2018, the Company used cash in operating activities of $28,632. As of June 30, 2018, the Company had cash of $17,359. 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.
7
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 accounts payable at June 30, 2018 are amounts
totaling $47,877 (December 31, 2017 $47,877) owed to related parties.
NOTE 4 –NOTES PAYABLE
Loan with Trius Holdings Limited
On March 17, 2017, the
Company 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. Trius 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 the closing price of the common stock on the date of the lender’s notice of conversion,
subject to a floor of $0.01. On May 11, 2018, the agreement had been amended to extend the maturing date of the note from March
21, 2018 to March 21, 2019.
Loan with Individual
On March 30, 2017, the
Company entered into an agreement with an individual. Pursuant to the terms of the agreement, the individual acquired a 12% convertible
note with an aggregate face value of $10,000. The note matures in one year. The individual 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 the closing price of the common stock on the date of the lender’s notice of conversion, subject to a floor
of $0.01. On May 11, 2018, the agreement had been amended to extend the maturing date of the note from March 30, 2018 to March
30, 2019.
Loan with Mediapark Investments Limited
On January 10, 2018, the
Company entered into an agreement with Mediapark Investments Limited (“Mediapark”.) Pursuant to the terms of the agreement,
Mediapark acquired a 12% promissory note with an aggregate face value of $23,000. The note matures in 180 days on July 10, 2018.
As of July 9, 2018, the loan was extended to July 10, 2019.
Loan with Individual
On April 2, 2018, the Company
entered into an agreement with an individual. Pursuant to the terms of the agreement, we received a promissory note in the amount
of $20,000. The note is due and payable in full on October 2, 2018 and it accrues interest at a rate of 12% per annum.
Total accrued interest
on the above notes was $4,336 as of June 30, 2018 (March 31, 2018 $3,049) and is reflected in accrued liabilities on the accompanying
balance sheet.
NOTE 5 – STOCKHOLDERS’ EQUITY
We had no preferred or
common stock transactions during the nine-month period ended June 30, 2018 and 2017.
8
NOTE 6 – OPTIONS
No stock options were granted
during the quarters ended June 30, 2018 and 2017.
The following is a summary
of outstanding stock options issued to employees and directors as of June 30, 2018:
|
|
|
Number
of Options
|
|
Exercise Price per
Share
|
|
Average
Remaining
Term in
Years
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2017 and June 30, 2018
|
|
|
2,916,000
|
|
|
$0.0067
|
|
5.70
|
Exercisable
|
|
|
2,916,000
|
|
|
$0.0067
|
|
5.70
|
The following is a summary
of outstanding stock options issued to non-employees, excluding directors, as of June 30, 2018:
|
|
|
Number
of Options
|
|
Exercise Price per
Share
|
|
Average
Remaining
Term
in Years
|
|
|
|
|
|
|
|
|
Outstanding September 30, 2017 and June 30, 2018
|
|
|
375,000
|
|
|
$0.0067
|
|
5.30
|
Exercisable
|
|
|
375,000
|
|
|
$0.0067
|
|
5.30
|
There was no equity-based
compensation for the nine months ended June 30, 2018 and 2017.
9
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 January 12, 2018. 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, 2017, as filed on January 12, 2018,
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.
10
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.
|
11
The following is a summary
of the net assets sold as initially determined at Septembers 30, 2015 and updated October 15, 2015:
|
|
October 15, 2015
|
|
September 30, 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
June 30, 2018, we received two promissory notes. One promissory note was for $23,000 on January 10, 2018 and the other was for
$20,000 on April 2, 2018.
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 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 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 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 Mediapark Investments Limited
On January 10, 2018, we
entered into an agreement with Mediapark Investments Limited. Pursuant to the terms of the agreement, the investor acquired a 12%
promissory note with an aggregate face value of $23,000. The note matures in 180 days, on July 10, 2018.
Loan with Individual
On April 2, 2018, the
Company entered into an agreement with an individual. Pursuant to the terms of the agreement, we received a promissory note in
the amount of $20,000. The note is due and payable in full on October 2, 2018 and it accrues interest at a rate of 12% per annum.
Total accrued interest
on the above notes was $4,336 as of June 30, 2018 (March 31, 2018 $3,049) and is reflected in accrued liabilities on the accompanying
balance sheet.
12
Results
of Operations
Comparison
of the Three Months Ended June 30, 2018 to the Three Months Ended June 30, 2017
Revenue
No revenue or cost of sales were generated for
the three months ended June 30, 2018 or June 30, 2017 due to the overall reduction in operations of the business.
Operating
Expenses
Our expenses for the three months ended June
30, 2018 are summarized as follows in comparison to our expenses for the three months ended June 30, 2017:
|
|
Three Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
|
General and administrative
|
|
$
|
2,998
|
|
$
|
14,037
|
Depreciation and amortization
|
|
|
-
|
|
|
-
|
Stock based compensation
|
|
|
-
|
|
|
-
|
Total operating expenses
|
|
$
|
2,998
|
|
$
|
14,037
|
General and administrative
expense decreased by $11,039 for the three months ended June 30, 2018 from the comparative period of 2017 due to the scaling down
of business. Depreciation and amortization expense, as well as stock-based compensation were $0 for the three months ended June
30, 2018 and June 30, 2017.
Comparison
of the Nine Months Ended June 30, 2018 to the Nine Months Ended June 30, 2017
Revenue
No revenue or cost of sales were generated for
the nine months ended June 30, 2018 or for the nine months ended June 30, 2017.
Operating
Expenses
Our expenses for the nine
months ended June 30, 2018 are summarized as follows in comparison to our expenses for the nine months ended June 30, 2017:
|
|
Nine Months Ended June 30,
|
|
|
2018
|
|
2017
|
|
|
|
General and administrative
|
|
$
|
18,208
|
|
$
|
21,350
|
Depreciation and amortization
|
|
|
-
|
|
|
-
|
Stock based compensation
|
|
|
-
|
|
|
-
|
Total operating expenses
|
|
$
|
18,208
|
|
$
|
21,350
|
General and administrative
expense decreased by $3,142 for the nine months ended June 30, 2018 from the comparative period of 2017, due to an overall decrease
in business operations. Depreciation and amortization expense as well as stock-based compensation were $0.
13
Other
Expenses
|
|
Nine Months ended June 30,
|
|
|
2018
|
|
2017
|
Interest Expense
|
|
$
|
3,094
|
|
$
|
634
|
Change in Fair Value of Convertible Debt
|
|
|
-
|
|
|
5,000
|
Total other expenses
|
|
$
|
3,094
|
|
$
|
5,634
|
Interest expense increased
from $634 to $3,094 for the nine months ended June 30, 2018 from the comparative period of 2017 due to additional accrued interest
on the notes.
Liquidity and Financial
Condition
Working Capital Deficiency
|
|
|
June 30,
2018
|
|
|
June 30,
2017
|
Current assets
|
|
$
|
17,359
|
|
$
|
2,991
|
Current liabilities
|
|
|
231,469
|
|
|
195,676
|
Working capital deficiency
|
|
$
|
(214,110)
|
|
$
|
(192,685)
|
The increase in current
assets is mainly due to the receipt of a promissory note during the nine months ended June 30, 2018. The increase in current liabilities
is due to transfer agent, filing and accounting fees incurred for the nine-month period ending June 30, 2018.
Cash Flows
|
|
Nine Months Ended June 30,
|
|
|
2018
|
|
2017
|
Net income (loss)
|
|
$
|
(21,302)
|
|
$
|
(26,984)
|
Net cash provided (used) in operating activities
|
|
|
(28,632)
|
|
|
(18,000)
|
Net cash used in investing activities
|
|
|
-
|
|
|
-
|
Net cash provided by financing activities
|
|
|
43,000
|
|
|
20,000
|
Increase (decrease) in cash
|
|
$
|
17,359
|
|
$
|
3,303
|
As of June 30, 2018, our
cash balance was $17,359. 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 nine months ended June 30, 2018 was $28,632 mainly due a decrease in accounts payable.
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 outlined 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.
14
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 June 30, 2018 of $5,077,511, as well as negative cash flows of $28,632 from operating
activities. The Company's cash and cash equivalents balance as of June 30, 2018 is $17,359. 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.
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 nine months ended June 30, 2018.
Newly Issued Accounting Pronouncements
See Note 1 to our financial
statements included herein for the nine months ended June 30, 2018 for a discussion of Recently Issued Accounting Pronouncements.