UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________
FORM 10-Q
———————
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedDecember 31, 2008
or
For the transition period from: _____________ to _____________
KYTO BIOPHARMA, INC.
(Exact name of registrant as specified in its charter)
FLORIDA | 000-50390 | 65-1086538 |
(State or Other Jurisdiction | (Commission | (I.R.S. Employer |
of Incorporation) | File Number) | Identification No.) |
B1-114 Belmont Avenue Toronto, Ontario Canada M5R 1P8
(Address of Principal Executive Office) (Zip Code)
(416) 960-8790
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yesþ No ¨
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.
Large accelerated filer ¨ | Accelerated filer ¨ |
Non-accelerated filer ¨ | Smaller reporting company þ |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes¨ No þ
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
12,743,610Common Shares - $0.0001 Par Value - as ofFebruary 11, 2009
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
INDEX
1
PART I - FINANCIAL INFORMATION
ITEM 1.
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEET
December 31, 2008 and March 31, 2008
See Accompanying Notes to Unaudited Consolidated Financial Statements
2
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
|
| For the Three Months Ended |
|
| For the Nine Months Ended |
|
| For the Period March 5, 1999 (inception) to |
| |||||||||||
|
| December 31, |
|
| December 31, |
|
| December 31, |
| |||||||||||
|
| 2008 |
|
| 2007 |
|
| 2008 |
|
| 2007 |
|
| 2008 |
| |||||
Operating Expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||
Compensation |
| $ | –– |
|
| $ | –– |
|
| $ | –– |
|
| $ | –– |
|
| $ | 1,750,636 |
|
Depreciation and amortization |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 814,183 |
|
Consulting |
|
| 15,107 |
|
|
| 11,496 |
|
|
| 43,455 |
|
|
| 37,763 |
|
|
| 9,789,784 |
|
Bad debt |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 12,819 |
|
Director fees |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 314,100 |
|
Financing fees |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 28,781 |
|
Professional fees |
|
| 9,188 |
|
|
| 4,400 |
|
|
| 39,574 |
|
|
| 21,900 |
|
|
| 193,940 |
|
General and administrative |
|
| 11,693 |
|
|
| 13,572 |
|
|
| 41,246 |
|
|
| 35,157 |
|
|
| 547,119 |
|
Research and development |
|
| 45,638 |
|
|
| 14,659 |
|
|
| 165,622 |
|
|
| 73,862 |
|
|
| 1,467,300 |
|
Loss on debt conversion |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 519,795 |
|
Impairment loss |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 1,191,846 |
|
Total Operating Expenses |
|
| 81,626 |
|
|
| 44,127 |
|
|
| 289,897 |
|
|
| 168,682 |
|
|
| 16,630,303 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expenses) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 4,922 |
|
Interest expense |
|
| (7,644 | ) |
|
| (15,709 | ) |
|
| (23,961 | ) |
|
| (21,805 | ) |
|
| (86,857 | ) |
Gain on debt forgivemess |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| 5,933 |
|
|
| 78,665 |
|
Loss on disposal of equipment |
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| –– |
|
|
| (567 | ) |
Foreign currency transaction gain |
|
| (159,710 | ) |
|
| 9,052 |
|
|
| (202,540 | ) |
|
| 184,994 |
|
|
| 286,169 |
|
Total Other Income (Expense), net |
|
| (167,354 | ) |
|
| (6,657 | ) |
|
| (226,501 | ) |
|
| 169,122 |
|
|
| 282,332 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Income (Loss) |
| $ | (248,980 | ) |
| $ | (50,784 | ) |
| $ | (516,398 | ) |
| $ | 440 |
|
| $ | (16,347,971 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income (Loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||
Foreign currency translation gain (loss) |
|
| 160,537 |
|
|
| (9,060 | ) |
|
| 203,487 |
|
|
| (185,362 | ) |
|
| (214,520 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Comprehensive Loss |
| $ | (88,443 | ) |
| $ | (59,844 | ) |
| $ | (312,911 | ) |
| $ | (184,922 | ) |
| $ | (16,562,491 | ) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||
during the year - basic and diluted |
|
| 12,743,610 |
|
|
| 12,080,203 |
|
|
| 12,743,610 |
|
|
| 12,080,203 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per share - basic and diluted |
| $ | (0.01 | ) |
| $ | (0.00 | ) |
| $ | (0.02 | ) |
| $ | (0.02 | ) |
|
|
|
|
See Accompanying Notes to Unaudited Consolidated Financial Statements
3
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
|
|
| Nine Months Ended December 31, |
|
| (Inception March 5, 1999) to |
| |||||||
|
|
| 2008 |
|
| 2007 |
|
| December 31, 2008 |
| ||||
Cash Flows from Operating Activities: |
|
|
|
|
|
|
|
|
| |||||
Net income (loss) |
| $ | (516,398 | ) |
| $ | 440 |
|
| $ | (16,347,971 | ) | ||
Adjustment to reconcile net loss to net cash provided by (used in) |
|
|
|
|
|
|
|
|
|
|
|
| ||
| operating activities: |
|
|
|
|
|
|
|
|
|
|
|
| |
| Depreciation and amortization |
|
| –– |
|
|
| –– |
|
|
| 814,183 |
| |
| Recognition of services rendered by consultant |
|
| –– |
|
|
| –– |
|
|
| 10,227,893 |
| |
| Stock based consulting expense |
|
| –– |
|
|
| –– |
|
|
| 854,345 |
| |
| Stock based director fees |
|
| –– |
|
|
| –– |
|
|
| 314,100 |
| |
| Stock based rent and administrative fees |
|
| –– |
|
|
| –– |
|
|
| 167,028 |
| |
| Preferred convertible stock issued for interest due on outstanding preferred convertible stock |
|
| –– |
|
|
| –– |
|
|
| 13,890 |
| |
| Common stock warrants issued as financing fee |
|
| –– |
|
|
| –– |
|
|
| 3,783 |
| |
| Loss on disposal of equipment |
|
| –– |
|
|
| –– |
|
|
| 567 |
| |
| Impairment loss |
|
| –– |
|
|
| –– |
|
|
| 1,191,846 |
| |
| Gain on debt forgiveness |
|
| –– |
|
|
| –– |
|
|
| (9,837 | ) | |
| Gain on settlement of accounts payable |
|
| –– |
|
|
| (5,885 | ) |
|
| (59,654 | ) | |
| Loss on settlement of accounts payable |
|
| –– |
|
|
| –– |
|
|
| 519,795 |
| |
| Amortization of stock based financing fee |
|
| –– |
|
|
| –– |
|
|
| 25,010 |
| |
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
| Other receivable |
|
| (42 | ) |
|
| –– |
|
|
| (42 | ) | |
| Prepaids and other assets |
|
| 39,353 |
|
|
| 11,956 |
|
|
| (6,333 | ) | |
| Accounts payable and accrued expenses |
|
| (12,226 | ) |
|
| (46,456 | ) |
|
| 501,198 |
| |
| Related party accounts payable, accrued interest, and accrued liabilities |
|
| 45,794 |
|
|
| –– |
|
|
| 66,673 |
| |
Net Cash Used in Operating Activities |
|
| (443,519 | ) |
|
| (39,945 | ) |
|
| (1,723,526 | ) | ||
Cash Flows from Investing Activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Purchase of property and equipment |
|
| –– |
|
|
| –– |
|
|
| (4,463 | ) | ||
Net Cash Used in Investing Activities |
|
| –– |
|
|
| –– |
|
|
| (4,463 | ) | ||
Cash Flows from Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
| ||
Issuance of Convertible preferred stock |
|
| –– |
|
|
| 457,553 |
|
|
| –– |
| ||
Proceeds from common stock issuance, net of offering cost |
|
| –– |
|
|
| –– |
|
|
| 958,222 |
| ||
Loan proceeds from related parties, net |
|
| 243,824 |
|
|
| –– |
|
|
| 1,022,199 |
| ||
Repayment of loan to related parties |
|
| –– |
|
|
| (233,430 | ) |
|
| (26,792 | ) | ||
Net Cash Provided by Financing Activities |
|
| 243,824 |
|
|
| 224,123 |
|
|
| 1,953,629 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Effect of Exchange Rate on Cash |
|
| 203,487 |
|
|
| (185,362 | ) |
|
| (214,520 | ) | ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Net Increase (decrease) in Cash and Cash Equivalents |
|
| 3,792 |
|
|
| (1,184 | ) |
|
| 11,120 |
| ||
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Cash and Cash Equivalents at Beginning of Period |
|
| 7,328 |
|
|
| 3,848 |
|
|
| –– |
| ||
Cash and Cash Equivalents at End of Period |
| $ | 11,120 |
|
| $ | 2,664 |
|
| $ | 11,120 |
|
4
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS (Continued)
See Accompanying Notes to Unaudited Consolidated Financial Statements
5
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 1 – DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Kyto Biopharma, Inc. was formed as a Florida corporation on March 5, 1999. B Twelve, Limited, Kyto Biopharma, Inc.'s wholly-owned Canadian subsidiary (collectively referred to as the "Company"), was also formed on March 5, 1999. On August 14, 2002, the parent Company changed its name from B Twelve, Inc. to Kyto Biopharma, Inc.
The Company is a biopharmaceutical company, formed to acquire and develop innovative minimally toxic and non-immunosuppressive proprietary drugs for the treatment of cancer, arthritis, and other proliferate and autoimmune diseases. The Company has subsequently built itself into a development stage biopharmaceutical company that develops receptor-mediated technologies to control the uptake of vitamin B12 by non-controlled proliferative cells.
Activities during the development stage include acquisition of financing and intellectual properties and research and development activities conducted by others under contracts.
The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim consolidated financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of consolidated financial position and results of operations.
It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair consolidated financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year.
For further information, refer to the audited consolidated financial statements and footnotes of the Company for the year ending March 31, 2008 included in the Company's Form 10-KSB.
NOTE 2 – GOING CONCERN
As reflected in the accompanying consolidated financial statements, the Company has a working capital deficiency of $432,648, a deficit accumulated during development stage of $16,347,971 and a stockholders' deficiency of $432,648 as of December 31, 2008. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan, raise capital, and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
The Company has yet to generate an internal cash flow, and until the sales of its product begins, the Company is very dependent upon debt and equity funding. The Company must successfully complete its research and development resulting in a saleable product. However, there is no assurance that once the development of the product is completed and finally gains Federal Drug and Administration clearance, that the Company will achieve a profitable level of operations.
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS
Employers’ Disclosures about Postretirement Benefit Plan Assets
In December 2008, the Financial Accounting Standards Board (“FASB”) issued FASB Staff Position on Financial Accounting Standard (“FSP FAS”) No. 132(R)-1, “Employers’ Disclosures about Postretirement Benefit Plan Assets.” This FSP amends FASB Statement No. 132(R) (“SFAS No. 132(R)”), “Employers’ Disclosures about Pensions and Other Postretirement Benefits,” to provide guidance on an employer’s disclosures about plan assets of
6
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
a defined benefit pension or other postretirement plan. FSP FAS No. 132(R)-1 also includes a technical amendment to SFAS No. 132(R) that requires a nonpublic entity to disclose net periodic benefit cost for each annual period for which a statement of income is presented. The required disclosures about plan assets are effective for fiscal years ending after December 15, 2009. The technical amendment was effective upon issuance of FSP FAS No. 132(R)-1. The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.
Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises
In December 2008, the FASB issued FSP FIN No. 48-3, “Effective Date of FASB Interpretation No. 48 for Certain Nonpublic Enterprises.” FSP FIN No. 48-3 defers the effective date of FIN No. 48, “Accounting for Uncertainty in Income Taxes,” for certain nonpublic enterprises as defined in SFAS No. 109, “Accounting for Income Taxes.” However, nonpublic consolidated entities of public enterprises that apply U.S. generally accepted accounting principles (GAAP) are not eligible for the deferral.FSP FIN No. 48-3 was effective upon issuance. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.
Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities
In December 2008, the FASB issued FSP FAS No. 140-4 and FIN No. 46(R) -8, “Disclosures by Public Entities (Enterprises) about Transfers of Financial Assets and Interests in Variable Interest Entities.” This FSP amends SFAS No. 140, “Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities,” to require public entities to provide additional disclosures about transfers of financials assets. FSP FAS No. 140-4 also amends FIN No. 46(R)-8, “Consolidation of Variable Interest Entities,” to require public enterprises, including sponsors that have a variable interest entity, to provide additional disclosures about their involvement with a variable interest entity. FSP FAS No. 140-4 also requires certain additional disclosures, in regards to variable interest entities, to provide greater transparency to financial statement users. FSP FAS No. 140-4 is effective for the first reporting period (interim or annual) ending after December 15, 2008, with early application encouraged. The Company is currently assessing the impact of FSP FAS No. 140-4 on its consolidated financial position and results of operations.
Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary
In November 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 08-8, “Accounting for an Instrument (or an Embedded Feature) with a Settlement Amount That is Based on the Stock of an Entity’s Consolidated Subsidiary.” EITF No. 08-8 clarifies whether a financial instrument for which the payoff to the counterparty is based, in whole or in part, on the stock of an entity’s consolidated subsidiary is indexed to the reporting entity’s own stock. EITF No. 08-8 also clarifies whether or not stock should be precluded from qualifying for the scope exception of SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities,” or from being within the scope of EITF No. 00-19, “Accounting for Derivative Financial Instruments Indexed to, and Potentially Settled in, a Company’s Own Stock.” EITF No. 08-8 is effective for fiscal year s beginning on or after December 15, 2008, and interim periods within those fiscal years. The implementation of EITF No. 08-8 will not have a material impact on the Company's consolidated financial position and results of operations.
7
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Accounting for Defensive Intangible Assets
In November 2008, the FASB issued EITF Issue No. 08-7, “Accounting for Defensive Intangible Assets.” EITF No. 08-7 clarifies how to account for defensive intangible assets subsequent to initial measurement. EITF No. 08-7 applies to all defensive intangible assets except for intangible assets that are used in research and development activities. EITF No. 08-7 is effective for intangible assets acquired on or after the beginning of the first annual reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of EITF No. 08-7 on its consolidated financial position and results of operations.
Equity Method Investment Accounting Considerations
In November 2008, the FASB issued EITF Issue No. 08-6 (“EITF No. 08-6”), “Equity Method Investment Accounting Considerations.” EITF No. 08-6 clarifies accounting for certain transactions and impairment considerations involving the equity method. Transactions and impairment dealt with are initial measurement, decrease in investment value, and change in level of ownership or degree of influence. EITF No. 08-6 is effective on a prospective basis for fiscal years beginning on or after December 15, 2008. The Company is currently assessing the impact of EITF No. 08-6 on its consolidated financial position and results of operations.
Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active
In October 2008, the FASB issued FSP FAS No. 157-3, “Determining the Fair Value of a Financial Asset When the Market for That Asset is Not Active.” This FSP clarifies the application of SFAS No. 157, “Fair Value Measurements,” in a market that is not active. The FSP also provides examples for determining the fair value of a financial asset when the market for that financial asset is not active. FSP FAS No. 157-3 was effective upon issuance, including prior periods for which financial statements have not been issued. The impact of adoption was not material to the Company’s consolidated financial condition or results of operations.
Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement
In September 2008, the FASB issued EITF Issue No. 08-5 (“EITF No. 08-5”), “Issuer’s Accounting for Liabilities Measured at Fair Value with a Third-Party Credit Enhancement.” This FSP determines an issuer’s unit of accounting for a liability issued with an inseparable third-party credit enhancement when it is measured or disclosed at fair value on a recurring basis. FSP EITF No. 08-5 is effective on a prospective basis in the first reporting period beginning on or after December 15, 2008. The Company is currently assessing the impact of FSP EITF No. 08-5 on its consolidated financial position and results of operations.
Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161
In September 2008, the FASB issued FSP FAS No. 133-1, “Disclosures about Credit Derivatives and Certain Guarantees: An Amendment of FASB Statement No. 133 and FASB Interpretation No. 45; and Clarification of the Effective Date of FASB Statement No. 161.” This FSP amends FASB Statement No. 133, “Accounting for Derivative Instruments and Hedging Activities,” to require disclosures by sellers of credit derivatives, including credit derivatives embedded in a hybrid instrument. The FSP also amends FASB Interpretation No. 45, “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others,” to require and additional disclosure about the current status of the payment/performance risk of a guarantee. Finally, this FSP clarifies the Board’s intent about the effective date of FASB Statement No. 161, “Disclosur es about Derivative Instruments and Hedging Activities.” FSP FAS No. 133-1 is effective for fiscal years ending after November 15, 2008. The Company is currently assessing the impact of FSP FAS No. 133-1 on its consolidated financial position and results of operations.
8
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act, and Enhanced Disclosures for all Endowment Funds
In August 2008, the FASB issued FSP FAS No. 117-1, “Endowments of Not-for-Profit Organizations: Net Asset Classification of Funds Subject to an Enacted Version of the Uniform Prudent Management of Institutional Funds Act (“UPMIFA”), and Enhanced Disclosures for all Endowment Funds.” The intent of this FSP is to provide guidance on the net asset classification of donor-restricted endowment funds. The FSP also improves disclosures about an organization’s endowment funds, both donor-restricted and board-designated, whether or not the organization is subject to the UPMIFA. FSP FAS No. 117-1 is effective for fiscal years ending after December 31, 2008. Earlier application is permitted provided that annual financial statements for that fiscal year have not been previously issued. The implementation of FSP FAS No. 117-1 will not have a material impact on the Company's consolidated financial position and results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
In June 2008, the FASB issued EITF Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” EITF No. 03-6-1 addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The EITF 03-6-1 affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. EITF 03-6-1 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF 03-6-1 on its consolidated financial position and results of operations.
Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities
In June 2008, the FASB issued FSP Emerging Issues Task Force (“EITF”) Issue No. 03-6-1, “Determining Whether Instruments Granted in Share-Based Payment Transactions Are Participating Securities.” The FSP addresses whether instruments granted in share-based payment transactions are participating securities prior to vesting and, therefore, need to be included in the earnings allocation in computing earnings per share under the two-class method. The FSP affects entities that accrue dividends on share-based payment awards during the awards’ service period when the dividends do not need to be returned if the employees forfeit the award. This FSP is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of FSP EITF No. 03-6-1 on its consolidated financial position and results of operations.
Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an entity's Own Stock
In June 2008, the FASB ratified EITF Issue No. 07-5, "Determining Whether an Instrument (or an Embedded Feature) Is Indexed to an Entity's Own Stock" (EITF No. 07-5). EITF No. 07-5 provides that an entity should use a two step approach to evaluate whether an equity-linked financial instrument (or embedded feature) is indexed to its own stock, including evaluating the instrument's contingent exercise and settlement provisions. It also clarifies on the impact of foreign currency denominated strike prices and market-based employee stock option valuation instruments on the evaluation. EITF No. 07-5 is effective for fiscal years beginning after December 15, 2008. The Company is currently assessing the impact of EITF No. 07-5 on its consolidated financial position and results of operations.
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KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 3 – RECENT ACCOUNTING PRONOUNCEMENTS (Continued)
Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement)
In May 2008, the FASB issued FSP Accounting Principles Board (“APB”) Opinion No. 14-1, “Accounting for Convertible Debt Instruments That May Be Settled in Cash upon Conversion (Including Partial Cash Settlement).” The FSP clarifies the accounting for convertible debt instruments that may be settled in cash (including partial cash settlement) upon conversion. The FSP requires issuers to account separately for the liability and equity components of certain convertible debt instruments in a manner that reflects the issuer's nonconvertible debt (unsecured debt) borrowing rate when interest cost is recognized. The FSP requires bifurcation of a component of the debt, classification of that component in equity and the accretion of the resulting discount on the debt to be recognized as part of interest expense in our consolidated statement of operations. The FSP requires retrospective application to the terms of ins truments as they existed for all periods presented. The FSP is effective for the Company as of April 1, 2009 and early adoption is not permitted. The Company is currently evaluating the potential impact of FSP APB No. 14-1 upon its consolidated financial statements.
The Hierarchy of Generally Accepted Accounting Principles
In May 2008, the FASB issued Statement of Financial Accounting Standards (“SFAS”) No. 162, "The Hierarchy of Generally Accepted Accounting Principles" (SFAS No.162). SFAS No. 162 identifies the sources of accounting principles and the framework for selecting the principles used in the preparation of financial statements. SFAS No. 162 is effective 60 days following the SEC's approval of the Public Company Accounting Oversight Board amendments to AU Section 411, "The Meaning of Present Fairly in Conformity with Generally Accepted Accounting Principles". The implementation of this standard will not have a material impact on the Company's consolidated financial position and results of operations.
Determination of the Useful Life of Intangible Assets
In April 2008, the FASB issued Staff Position on Financial Accounting Standard (“FSP FAS”) No. 142-3, “Determination of the Useful Life of Intangible Assets”, which amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of intangible assets under SFAS No. 142 “Goodwill and Other Intangible Assets”. The intent of this FSP is to improve the consistency between the useful life of a recognized intangible asset under SFAS No. 142 and the period of the expected cash flows used to measure the fair value of the asset under SFAS No. 141 (revised 2007) “Business Combinations” and other U.S. generally accepted accounting principles. The Company is currently evaluating the potential impact of FSP FAS No. 142-3 on its consolidated financial statements.
NOTE 4 – LOANS PAYABLE – RELATED PARTY
During the nine months ended December 31, 2008, the Company borrowed $243,824 from a related party of the Company. The loan is non-interest bearing, unsecured, due on demand, and included in the loans payable, related party balance.
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KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2008
NOTE 5 – EQUITY
Convertible Preferred Shares
On May 24, 2007 the Company entered into an agreement with Credifinance Capital Corp, a related party, to issue up to 500,000 Convertible Preferred Stock at $1.00 per share. This agreement is on an installment basis. During the year ended March 31, 2008, the Company issued 459,734 Convertible Preferred Stock to Credifinance Capital Corp. for a total of $473,624 to satisfy a related party loan payable. Convertible Preferred Stock may be converted into Common Shares at a price of $0.45 per Common Share for a period of two years. The Convertible Preferred Stock bears interest at a rate of 5% per annum. Preferred convertible stock has the same voting rights as common stock. Interest expense for the Convertible Preferred Stock was $13,890 for the year ended March 31, 2008 and has been paid through issuance of 13,890 additional shares of Convertible Preferred Stock.Interest expense accrued on the Convertible Preferred Stock f or the nine months ended December 31, 2008 was $17,983.
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
PLAN OF OPERATION
During the period ending December 31, 2008, the Company continued to evaluate its Intellectual Property Portfolio. Under the recommendation from Patent Attorneys and Senior Management, Kyto has elected to cancel patent protection in non essential jurisdictions, to allow more focus to be placed on Kyto’s monoclonal antibody technologies.
The Company’s R&D efforts are progressing with respect to the development of a novel cancer therapy through the regulation of Vitamin B12 uptake. To date the Company has, conclusively identified the protein and the gene encoding the Vitamin B12 receptor, isolated and cloned three monoclonal antibodies to the Vitamin B12 receptor, and is proceeding toward the development of fully humanized antibodies.
An article authored by two of Kyto’s consulting scientists (Dr. Quadros and Dr. Sequeira) describing findings relating to Kyto’s process, was published in “Blood” magazine, on September 8, 2008, in an article titled “The protein and the gene encoding the receptor for the cellular uptake of transcobalamin-bound cobalamin”. “Blood” magazine is published by the American Society of Hematology.
Nearing the end of fiscal year 2008, Kyto proceeded with its planned antibody strategy and collaborated with a 3rd party vendor to acquire antibodies. The development of this antibody technology will be overseen by RFSUNY and is currently in the early stages of development. The Company does not yet have an estimate of the total costs associated with this development. As the Company has no current revenues from operations, management fully expects to incur additional liabilities in order to fund the development of this strategy.
Over the next twelve months the company will focus its efforts on further developing its antibodies with the assistance of an outsourced manufacturer and the help of scientists from RFSUNY and MD Anderson, with the goal of developing fully humanized antibodies. At this time Kyto has had success in demonstrating kills to a variety of cancer cells expressing the Vitamin B12 receptor.
The report of our Independent Registered Public Accounting firm on our March 31, 2008 financial statements includes an explanatory paragraph indicating that there is substantial doubt about our ability to continue as a going concern due to substantial recurring losses from operations, cash used in operations, stockholders’ deficit and significant accumulated deficit and working capital deficit. Our ability to continue as a going concern will be determined by our ability to obtain additional financing and maintain operations. We do not currently have sufficient financial resources to fund our operations. Therefore, we need additional funds to continue these operations. The Company operates in a rapidly changing environment that involves a number of factors, some of which are beyond management’s control, such as financial market trends and investors’ appetite for new financings. It should be emphasized that, should the Compa ny not be successful in completing its own financing (either by debt or by the issuance of securities from treasury), the Company may be unable to continue to operate as a going concern.
The Company has, as of the end of December 31, 2008, $450,143 in total liabilities. As of the date of filing of this Form 10-Q with the U.S. Securities and Exchange Commission, the Company did receive a commitment of one of its stockholders to continue to provide operating loan funds to the Company.
ITEM 3.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required for smaller reporting company.
ITEM 4.
CONTROLS AND PROCEDURES
Under the supervision and with the participation of our management, we have evaluated the effectiveness of our disclosure controls and procedures as required by Exchange Act Rule 13a-15(b) as of the end of the period covered by this report. Based on that evaluation, we have concluded that these disclosure controls and procedures are effective.
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REPORT OF MANAGEMENT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting for external purposes in accordance with accounting principles generally accepted in the United States of America. Internal control over financial reporting includes maintaining records that in reasonable detail accurately and fairly reflect our transactions; providing reasonable assurance that transactions are recorded as necessary for preparation of our financial statements; providing reasonable assurance that receipts and expenditures of company assets are made in accordance with management authorization; and providing reasonable assurance that unauthorized acquisition, use or disposition of company assets that could have a material effect on our financial statements would be prevented or detected on a timely basis. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected.
Management conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this evaluation, management concluded that the company’s internal control over financial reporting was effective as of December 31 ,2008. the company’s internal control over financial reporting is effective based on those criteria.
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ITEM 1.
LEGAL PROCEEDINGS
A claim against the Company has been commenced by SHI Consulting in the amount of $32,416 plus GST for damages resulting from a breach of contract and prejudgment and post judgment interest and costs. The Company counterclaimed for $300,000 for breach of contract plus interest and costs. The action is in preliminary stages. The Company has not recorded a liability for this claim as management believes they will prevail.
ITEM 1A.
RISK FACTORS.
Not required for smaller reporting company.
ITEM 2.
UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
None
ITEM 3.
DEFAULTS UPON SENIOR SECURITIES
None
ITEM 4.
SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5.
OTHER INFORMATION
None.
ITEM 6.
EXHIBITS
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INDEX TO EXHIBITS
EXHIBIT NUMBER |
| DESCRIPTION |
3(i)(a) |
| Articles of Incorporation of Kyto Biopharma, Inc.* |
3(i)(b) |
| Articles of Amendment changing name to Kyto Biopharma, Inc.* |
3(ii) |
| Bylaws of Kyto Biopharma, Inc.* |
10.1 |
| Research collaboration agreement between The Research Foundation of State University of New York and B. Twelve Ltd. (Kyto Biopharma, Inc.) [dated August 19, 1999]** |
10.2 |
| Collaborative Research Agreement to synthesize new vitamin B12 analogs signed between the Company and New York University [dated November 11, 1999]** |
10.3 |
| Extension/Modification Research Collaboration Agreement between the Research Foundation of State University of New York and B Twelve, Inc., (Kyto Biopharma, Inc.) Modification No. 1 [dated November 01, 2000]** |
10.4 |
| Debt Settlement Agreement and Put Option (dated November 2002) between Kyto Biopharma, Inc. and New York University.** |
10.5 |
| Extension/Modification Research Collaboration Agreement between the Research Foundation of State University of New York and Kyto Biopharma, Inc., Modification No. 2 [dated December 2004]. ** |
10.6 |
| Services Agreement between Kyto Biopharma, Inc. and Gerard Serfati [dated November 1, 2004]*** |
| Section 302 Certification** | |
| Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** |
————��——
* Filed as Exhibit to Company's Form 10-SB on September 12th, 2003, with the Securities and Exchange Commission.
** Filed as Exhibit with this Form 10-Q.
*** Previoulsy filed with Form S-8 on November 18, 2004.
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SIGNATURES
In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| Kyto Biopharma, Inc. | |
| (Registrant) | |
|
|
|
|
|
|
| By: | /s/ GEORGES BENARROCH |
|
| Georges Benarroch Acting President and Chief Executive Officer |
|
|
Date: February 11, 2009
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