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
For the quarterly period ended December 31, 2009June 30, 2010
 
or
 
¨  TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
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.   þ Yes   ¨ No
 
    Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (ss. 232.405 of this chapter) during the preceding 12 (or for such shorter period that the registrant was required to submit and post such files).   o Yes   ¨ 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¨
o 
Accelerated filer¨
o
Non-accelerated filer¨
o
 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   þ No
 
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
 
12,743,61012,998,482 Common Shares - $0.0001 Par Value - as of February 2,August 11 , 2010
 
UNITED STATES
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
INDEX
 
PART I. FINANCIAL INFORMATION
   
Item 1.Financial Statements  Financial Statements 1
  Unaudited
Consolidated Balance Sheet as of  December 31, 2009June 30, 2010 (Unaudited) and audited Consolidated  Balance Sheet as of March 31, 20092010 1
  
Unaudited Consolidated Statements of Operations for the Three and Nine Months Ended December 31,June 30, 2010 and 2009 and 2008 2
  
Unaudited Consolidated Statements of Cash Flows for the NineThree Months Ended December 31,June 30, 2010 and 2009  and 2008 3
  
Notes To Unaudited Consolidated Financial Statements 4
Item 2. Management’s Discussion and Analysis of Financial Conditions and Results of OperationsOperations. 8
Item 3.Quantitative and Qualitative Disclosures About Market RiskRisk. 8
Item 4. Controls and Procedures9 9
   
Item 4. Controls and Procedures.10
PART II. OTHER INORMATIONINFORMATION
   
Item 1.   Legal ProceedingsProceedings.  1011
Item 1a.1A.Risk Factors.  Risk Factors. 1011
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds .Proceeds. 10
Item 3.   Defaults Upon Senior Securities11 10
Item 4.   Submission of Matters to a Vote of Security Holders 10
Item 5.    Other Information  10
Item 6. Exhibits 10
   
Signatures  12
Certifications
  
Item 3. Defaults Upon Senior Securities.11
Item 4.(Removed and Reserved)11
Item 5.Other Information11
Item 6.Exhibits11


PART I - FINANCIAL INFORMATION
 
ITEM 1.FINANCIAL STATEMENTS
 
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
UNAUDITED CONSOLIDATED BALANCE SHEET
  June 30  March 31, 
  2010  2010 
  (Unaudited)  (Restated) 
ASSETS    
Current Assets      
Cash $2,559  $4,444 
         
Total Current Assets  2,559   4,444 
         
Other Assets        
Patent Rights  165,570   165,570 
         
         
Total Assets $168,129  $170,014 
         
LIABILITIES AND STOCKHOLDERS' EQUITY ( DEFICIT)     
         
Current Liabilities        
Accounts payable $27,733  $6,518 
Accrued liabilities - related party  10,668   36,668 
Accrued interest payable - related party  56,025   59,329 
Accrued interest payable - preferred convertible stock  61,004   49,486 
Loan payable-related party  952,296   870,796 
Note payable-related party  100,000   100,000 
Total Current Liabilities  1,207,726   1,122,797 
         
Commitments and Contingencies        
         
Stockholders' EQUITY ( Deficit)        
Preferred convertible stock, $1.00 par value, 1,000,000 shares        
authorized, 473,624 issued and outstanding as of June 30, 2010        
and March 31, 2010 respectively  473,624   473,624 
Common stock, $0.0001 par value, 25,000,000 shares        
authorized, 12,998,482  issued and outstanding as of        
June 30, 2010 and March 31, 2010 respectively  1,300   1,300 
Additional paid-in capital  15,815,489   15,815,489 
Deficit accumulated during development stage  (17,152,832)  (17,065,962)
Accumulated other comprehensive loss  (177,178)  (177,234)
         
Total Stockholders'  Equity (Deficit)  (1,039,597)  (952,783)
         
Total Liabilities and Stockholders'  Equity (Deficit) $168,129  $170,014 

See Accompanying Notes to Unaudited Consolidated Financial Statements.
 
  December 31,  March 31, 
  2009  2009 
  Unaudited  (Audited) 
ASSETS    
Current Assets:      
Cash $1,175  $12,754 
Prepaid expenses  3,333   47,562 
Total Current Assets  4,508   60,316 
         
Total Assets $4,508  $60,316 
         
LIABILITIES AND STOCKHOLDERS' DEFICIT     
         
Current Liabilities:        
Accounts payable $10,761  $8,317 
Accrued liabilities - related party  61,833   43,333 
Accrued interest payable - related party  57,671   52,784 
Accrued interest payable - preferred convertible stock  43,028   24,128 
Loan payable-related party  507,562   353,824 
Note payable-related party  100,000   100,000 
Total Current Liabilities  780,855   582,386 
         
Commitments and Contingencies        
         
Stockholders' Deficit:        
Preferred convertible stock, $1.00 par value, 1,000,000 shares        
authorized, 473,624 issued and outstanding, respectively  473,624   473,624 
Common stock, $0.0001 par value, 25,000,000 shares        
authorized, 12,743,610  issued and outstanding respectively  1,275   1,275 
Additional paid-in capital  15,654,944   15,654,944 
Deficit accumulated during development stage  (16,728,956)  (16,474,669)
Accumulated other comprehensive loss  (177,234)  (177,244)
         
Total Stockholders' Deficit  (776,347)  (522,070)
         
Total Liabilities and Stockholders' Deficit $4,508  $60,316 
See accompanying notes to consolidated financial statements.
1
 
KYTO BIOPHARMA, INC. AND SUBSIDIARY
 (A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENTS OF OPERATIONS
 
        For the period from 
        March 5, 1999 
  For The Quarter Ended  (inception) to 
  June 30  June 30, 
  2010  2009  2010 
          
Operating Expenses         
Compensation $-  $-  $1,750,636 
Depreciation and amortization  -   -   814,183 
Consulting  12,547   14,000   9,872,356 
Bad debt  -   -   12,819 
Director fees  -   -   314,100 
Financing fees  -   -   28,781 
Professional fees  4,313   12,095   249,249 
General and administrative  9,143   9,494   612,867 
Research and development  9,019   42,039   1,673,970 
Loss on debt conversion  -   -   519,795 
Impairment loss  -   -   1,191,846 
Total Operating Expenses  35,022   77,628   17,040,602 
             
             
Other Income (Expenses)            
Interest income  -   -   4,922 
Interest expense  (8,215)  (7,845)  (134,727)
Gain on debt forgiveness  -   -   78,665 
Loss on related party receivable  (43,689)  -   (309,620)
Loss on disposal of equipment  -   -   (567)
Foreign currency transaction gain  56   99,331   249,097 
Total Other Income (Expense), net  (51,848)  91,486   (112,230)
             
             
Net Income (Loss) $(86,870) $13,858  $(17,152,832)
             
             
Comprehensive Income (Loss)            
Foreign currency translation gain (loss)  (56)  (99,253)  (177,290)
             
             
Total Comprehensive Loss $(86,926) $(85,395) $(17,330,122)
             
             
Weighted average number of shares outstanding            
during the year - basic and diluted  12,998,482   12,743,610     
             
             
Net loss per share - basic and diluted $(0.01) $0.00     
              For the period from 
              March 5, 1999 
  For The Three Months Ended  For The Nine Months Ended  (inception) to 
  December 31,  December 31,  December 31 
  2009  2008  2009  2008  2009 
                
Operating Expenses               
Compensation $-  $-  $-  $-  $1,750,636 
Depreciation and amortization  -   -   -   -   814,183 
Consulting  14,000   15,107   41,999   43,455   9,845,810 
Bad debt  -   -   -   -   12,819 
Director fees  -   -   -   -   314,100 
Financing fees  -   -   -   -   28,781 
Professional fees  5,844   9,188   28,026   39,574   224,936 
General and administrative  9,525   11,693   29,656   41,246   590,382 
Research and development  39,672   45,638   130,756   165,622   1,649,360 
Loss on debt conversion  -   -   -   -   519,795 
Impairment loss  -   -   -   -   1,191,846 
Total Operating Expenses  69,041   81,626   230,437   289,897   16,942,648 
                     
                     
Other Income (Expenses)                    
Interest income  -   -   -   -   4,922 
Interest expense  (8,401)  (7,644)  (23,787)  (23,961)  (118,396)
Gain on debt forgiveness  -   -   -   -   78,665 
Loss on disposal of equipment  -   -   -   -   (567)
Foreign currency translation gain  (129)  (159,710)  (63)  (202,540)  249,068 
Total Other Income (Expense), net  (8,530)  (167,354)  (23,850)  (226,501)  213,692 
                     
                     
Net Income (Loss) $(77,571) $(248,980) $(254,287) $(516,398) $(16,728,956)
                     
                     
Comprehensive  Loss                    
Foreign currency translation gain (loss)  139   160,537   10   203,487   (177,234)
                     
                     
Total Comprehensive Loss $(77,432) $(88,443) $(254,277) $(312,911) $(16,906,190)
                     
                     
Weighted average number of shares outstanding                    
during the year - basic and diluted  12,743,610   12,743,610   12,743,610   12,743,610     
                     
                     
Net  Income (Loss) per share - basic and diluted $(0.01) $(0.01) $(0.02) $(0.02)    

See Accompanying Notes to Unaudited Consolidated Financial Statements.
 
See accompanying notes to consolidated financial statements.
2
 
KYTO BIOPHARMA, INC. AND SUBSIDIARY
 (A Development Stage Company)
UNAUDITED CONSOLIDATED STATEMENT OF CASH FLOWS
 
        March 5, 1999 
  For the Nine Months Ended December 31,  (Inception) to 
  2009  2008  December 31, 2009 
Cash Flows from Operating Activities:         
Net income (loss) $(254,287) $(516,398) $(16,728,956)
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  -   -   (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)  - 
Prepaids and other assets  44,229   39,353   (3,333)
Accounts payable and accrued expenses  20,944   (12,226)  558,466 
Related party accounts payable, accrued interest, and accrued liabilities  23,787   45,794   76,379 
Net Cash Used in Operating Activities  (165,327)  (443,519)  (2,034,495)
             
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:            
Proceeds from common stock issuance, net of            
offering cost  -   -   958,222 
Loan proceeds from related parties, net  153,738   243,824   1,285,937 
Repayment of loan to related parties  -   -   (26,792)
Net Cash Provided by Financing Activities  153,738   243,824   2,217,367 
             
Effect of Exchange Rate  10   203,487   (177,234)
             
Net Increase (decrease) in Cash and Cash Equivalents  (11,579)  3,792   1,175 
             
Cash and Cash Equivalents at Beginning of Period  12,754   7,328   - 
             
Cash and Cash Equivalents at End of Period $1,175  $11,120  $1,175 
             
             
Supplemental Disclosure of Cash Flow Information:            
Cash paid for:            
Interest $-  $-  $- 
Taxes $-  $-  $- 
             
Supplemental Disclosure of Non-Cash            
Investing and Financing Activities:            
Conversion of debt to equity $-  $-  $1,102,154 
Stock issued for deferred consulting services $-  $-  $6,750,000 
Conversion of liabilities to note payable $-  $-  $102,023 
Stock issued for debt restructuring anti-dilusion provision $-  $-  $800,000 
Conversion of preferred shares to common shares $-  $-  $250,000 
Stock issued for future services $-  $-  $1,200,000 
Issued common shares for intangible assets $-  $-  $2,000,000 
  For the Quarters Ended June 30,  
March 5, 1999
 (Inception) to
 
  2010  2009  June 30, 2010 
Cash Flows from Operating Activities:         
Net income (loss) $(86,870) $13,858  $(17,152,832)
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)
 Loss on related party receivable  43,689   -   309,620 
 Gain on settlement of accounts payable  -   -   (59,654)
 Loss on settlement of accounts payable  -   -   519,795 
 Amortization of stock based financing fee  -   -   25,010 
Changes in operating assets and liabilities:            
 Loan receivable  (43,689)  -   (309,620)
 Prepaids and other assets  -   44,229   (5,000)
 Accounts payable and accrued expenses  (4,785)  11,434   524,272 
 Related party accounts payable, accrued interest, and accrued liabilities  8,214   7,845   92,710 
Net Cash Used in Operating Activities  (83,441)  77,366   (2,477,901)
              
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:            
Proceeds from common stock issuance, net of            
 offering cost  -   -   958,222 
Loan proceeds from related parties, net  81,500   10,215   1,730,671 
Repayment of loan to related parties  -   -   (26,792)
Net Cash Provided by Financing Activities  81,500   10,215   2,662,101 
              
Effect of Exchange Rate on Cash  56   (99,253)  (177,178)
              
Net Increase (decrease) in Cash and Cash Equivalents  (1,885)  (11,672)  2,559 
              
Cash and Cash Equivalents at Beginning of Period  4,444   12,754   - 
              
Cash and Cash Equivalents at End of Period $2,559  $1,082  $2,559 
              
              
Supplemental Disclosure of Cash Flow Information:            
Cash paid for:            
           Interest  $-  $-  $- 
           Taxes  $-  $-  $- 
              
Supplemental Disclosure of Non-Cash            
Investing and Financing Activities:            
 Conversion of debt to equity $-  $-  $1,102,154 
 Stock issued for deferred consulting services $-  $-  $6,750,000 
 Conversion of liabilities to note payable $-  $-  $102,023 
 Stock issued for debt restructuring anti-dilution provision $-  $-  $800,000 
 Conversion of preferred shares to common shares $-  $-  $250,000 
 Stock issued for future services $-  $-  $1,200,000 
 Issued common shares for intangible assets $-  $-  $2,000,000 
See Accompanying Notes to Unaudited Consolidated Financial Statements.
 
See accompanying notes to consolidated financial statements.
3
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)June 30, 2010
 
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, 20092010 included in the Company's Form 10-K.
 
The Company is exposed to foreign exchange rate fluctuations as the financial results of the company’s Canadian subsidiary is translated into U.S. dollars on consolidation. The functional currency of Kyto’s subsidiary is the Canadian dollar.
 
NOTE 2 – GOING CONCERN
 
As reflected in the accompanying consolidated financial statements, the Company has a working capital deficiency of $776,347,$1,205,167 a deficit accumulated during development stage of $16,728,956$17,152,832 and a stockholders' deficit of $776,347$1,039,597 as of December 31, 2009.June 30, 2010. 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 highly 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.
 
4
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)
June 30, 2010
 
NOTE 3 – ACCOUNTING STANDARDS UPDATES
 
In December 2009,April 2010, the FASB has publishedissued Accounting Standard Update No. 2010-13 “Stock Compensation” (Topic 718). ASU 2010-16 ““Transfers and Servicing (Topic 860): Accounting for TransfersNo.2010-13 provides amendments to Topic 718 to clarify that an employee share-based payment award with an exercise price denominated in the currency of Financial Assets.” ASU No. 2009-16a market in which a substantial portion of the entity's equity securities trades should not be considered to contain a condition that is not a revision to ASC 860, “Transfers and Servicing,” and amends the guidance on accounting for transfers of financial assets, including securitization transactions, where entities have continued exposure to risks related to transferred financial assets. ASU No. 2009-16 also expands the disclosure requirements formarket, performance, or service condition. Therefore, an entity would not classify such transactions. This ASU will becomean award as a liability if it otherwise qualifies as equity. The amendments in this Update are effective for usfiscal years, and interim periods within those fiscal years, beginning on April 1, 2010..  Early adoptionor after December 15, 2010. The amendments in this Update should be applied by recording a cumulative-effect adjustment to the opening balance of retained earnin gs. The cumulative-effect adjustment should be calculated for all awards outstanding as of the beginning of the fiscal year in which the amendments are initially applied, as if the amendments had been applied consistently since the inception of the award. The cumulative-effect adjustment should be presented separately. Earlier application is permitted. The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect any future stock distributions.distributions
 
In December 2009,April 2010, the FASB has publishedissued Accounting Standard Update No. 2010-17. “Revenue Recognition-Milestone Method” (Topic 605) ASU 2010-16 Consolidations (Topic 810): ImprovementsNo.2010-17 provides guidance on defining a milestone and determining when it may be appropriate to Financial Reporting by Enterprises Involved with Variable Interest Entities.” ASU No. 2009-17 amendsapply the guidancemilestone method of revenue recognition for consolidationresearch or development transactions. An entity often recognizes these milestone payments as revenue in their entirety upon achieving a specific result from the research or development efforts. A vendor can recognize consideration that is contingent upon achievement of VIEs primarily relateda milestone in its entirety as revenue in the period in which the milestone is achieved only if the milestone meets all criteria to be considered substantive. Determining whether a milestone is substantive is a matter of judgment made at the determinationinception of the primary beneficiary of the VIE. Thisarrangement. The ASU will become effectiveis eff ective for usfiscal years and interim periods within those fiscal years beginning on April 1,or after June 15, 2010. Early adoptionapplication is permitted. Entities can apply this guidance prospectively to milestones achieved after adoption. However, retrospective application to all prior periods is also permitted.  The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect any future stock distributions.statements
 
In January 2010, the FASB has published ASU 2010-01 “Equity (Topic 505)- Accounting for Distributions to Shareholders with Components of Stock and Cash—a consensus of the FASB Emerging Issues Task Force,” as codified in ASC 505,. ASU No. 2010-01 clarifies the treatment of certain distributions to shareholders that have both stock and cash components. The stock portion of such distributions is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect any future stock distributions.
In January 2010, the FASB has published ASU 2010-02 “Consolidation (Topic 810)- Accounting and Reporting for Decreases in Ownership of a Subsidiary—a Scope Clarification,” as codified in ASC 810, “Consolidation.” ASU No. 2010-02 applies retrospectively to April 1, 2009, our adoption date for ASC 810-10-65-1 as previously discussed in this financial note. This ASU clarifies the applicable scope of ASC 810 for a decrease in ownership in a subsidiary or an exchange of a group of assets that is a business or nonprofit activity. The ASU also requires expanded disclosures. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.    The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect future divestitures of subsidiaries or groups of assets within its scope.

In January 2010, the FASB has published ASU 2010-06 “Fair Value Measurements and Disclosures (Topic 820): - Improving Disclosures about Fair Value Measurements. ASU No. 2010-06 clarifies improve disclosure requirement related to fair value measurements and disclosures – Overall Subtopic (Subtopic 820-10) of the FASB Accounting Standards Codification. The new disclosures and clarifications of existing disclosures are effective for interim and annual reporting periods beginning after December 15, 2009, except for the disclosure about purchase, sales, issuances, and settlement in the roll forward of activity in Level 3 fair value measurements.  Those disclosures are effective for fiscal years beginning after December 15, 2010, and for interim periods within those fiscal years.

The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis  The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect any future stock distributions.
5
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)



NOTE 3 – ACCOUNTING STANDARDS UPDATES (Continued)

In January 2010, the FASB has published ASU 2010-05 “Compensation – Stock Compensation (Topic 718)- Escrowed Share Arrangements and the Presumption of Compensation.
ASU No. 2010-01 clarifies the treatment of certain distributions to shareholders that have both stock and cash components. The stock portion of such distributions is considered a share issuance that is reflected in earnings per share prospectively and is not a stock dividend. The amendments in this Update are effective for interim and annual periods ending on or after December 15, 2009, and should be applied on a retrospective basis.  The adoption of this ASU did not have a material impact on our consolidated financial statements; however, it may affect any future stock distributions.

Other ASUs not effective until after December 31 2009,June 30, 2010, are not expected to have a significant effect on the Company’s consolidated financial position or results of operations.
 
NOTE 44- PATENT RIGHTS
On  February 10, 2010, the Company purchased a portfolio of patents, patents pending, and related intellectual property (collectively the "Intellectual Property") from a third party in exchange for 254,872 shares of the Company's common stock and cash of $5,000 which was paid during the quarter ending June 30, 2010. The shares were valued at $0.63 per share resulting in  total value of $165,570.
 Kyto executed an “Executive Licensing Agreement” with The Research Foundation of State University of New York, “RFSUNY”, allowing Kyto to license certain technology surrounding the Human Transcobalamin Receptor.  The licensing agreement is active until the expiry of the patent rights.  The rights primarily relate to the patent: “Transcobalamin Receptor Polypeptides, Nucleic Acids, and Modulators Thereof, and Related Methods of Use in Modulating Cell Growth and Treating Cancer and Cobalamin Deficiency”. The Patents were valued for $165,570.
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NOTE 5 – LOANS PAYABLE – RELATED PARTY
 
During the ninethree  months ended December 31, 2009,June 30, 2010, the Company borrowed $153,738$81,500 from a related party of the Company. The loan is non-interest bearing, unsecured, due on demand, does not follow any specific repayment terms and included in the loans payable,payable- related party balance.
 
NOTE 6- LOAN RECEIVABLE FROM RELATED PARTY
In June 2009, 2 of the founders of the Company entered into a Standstill Agreement with the Clayton Foundation to license and commercialize from the Clayton Foundation for Research a portfolio of product candidates based on proprietary technology in part developed at the MD Anderson Cancer Center by Dr Michael Rosenblum, a former director of Kyto Biopharma Inc.

The services of 2 biotechnology specialized investment banks were secured in order to prepare a business plan, a valuation of the licenses and raise the funds necessary for the clinical development of targeted anticancer therapeutic proteins.

Through a new entity, Targeted Payload Therapeutics (TPT), funds advanced by a related party were advanced to TPT for the payment of the “Standstill Agreement”, fees related to the services of the 2 investment banks and expenses related to the transaction. The shareholders of TPT upon closing were: Kyto Biopharma Inc., Dr. Sagman, a director and one of the founders of the Company, the Clayton Foundation and scientists instrumental in bringing the transaction and continuing the development of the pipeline of products.
During the year ended March 31, 2010, Kyto loaned $265,931 to a newly founded US based biotechnology company, TPT. Amounts loaned under this note was non- interest bearing, unsecured, due on demand and do not follow any specific repayment terms.TPT was created to commercialize licensed technology which was developed at leading medical centers of excellence in the USA. Two of the founders of Kyto, Mr. Georges Benarroch and Dr. Uri Sagman, are also the founders of TPT. Kyto also loaned additional $43,689 during the quarter ending June 30, 2010.
On May 7, 2010 the Company announced the cancellation of its agreement with Targeted Payload Therapeutics Inc. ("TPT") and pursue any activities under Standstill Agreement. For the periods ending June 30, 2010 and March 31, 2010, the Company has written off an impaired loan of $43,689 and $265,931, respectively, toward loss incurred as a consequence of cancellation of agreement with TPT.

6
KYTO BIOPHARMA, INC. AND SUBSIDIARY
(A Development Stage Company)
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2009
(Unaudited)June 30, 2010
 
NOTE 5 -7- EQUITY
 
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 459,734473,624 shares of 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. 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 accrued on the Convertible Preferred Stock through December 31, 2009 is $43,028.June 30, 2010 was $61,004.
 
NOTE 6 –8 - SUBSEQUENT EVENTS
 
The companyManagement evaluated all activities of the Company through the issuance date of the Company’s Consolidated  financial states and concluded that no subsequent events through February 12, 2010, the datehave occurred that would require adjustments or disclosures into the consolidated financial statements were issued and concluded there are no other material subsequent events.
 
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ITEM 2.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS
 
PLAN OF OPERATION
 
During the periodyear ending DecemberMarch 31, 2009,2010, the Company has continued to conduct a comprehensive review of its existing Intellectual Property portfolio with the assistance various IP legal firms and consultants. As a result of this review, the Company has elected to drop some of its patents while funding the remaining patents in full.
 
The efforts of the Company’s R&D have produced notable accomplishments with respect to the development of a novel cancer therapy through the regulation of Vitamin B12 uptake, an essential nutrient for cells. For the first time, the Company has conclusively identified the protein and the gene encoding the Vitamin B12 receptor. The work which is currently done by SUNY on utilizing the Vitamin B12 pathway provides for several strategies aimed at preventing the proliferation of cancer cells.  
 
On May 4, 2007,The company is pleased to announce that on June 29, 2010,  the Company signed a formal consultancy agreement with Dr. Michael Rosenblum, Head, ImmunopharmacologyCanadian Patent Office issued the Patents for  Canadian Patent Application No, 2187346, in the name of  Receptor Modulating Agents and Targeted Therapy Laboratory, Department of Experimental Therapeutics at M.D. Anderson Medical Center at theMethods Relating Thereto.  The patentees are The University of Texas to assist the Company with determining the scientificWashington  and commercial viability of its scientific technology. Dr. Rosenblum provides assistance to the CompanyKyto Biopharma, Inc.  The application was filed on an as-needed basis forApril 7, 1995  and receives $3,000 per month as remuneration. The Company has also held discussions with other potential strategic partnerswill remain in order to determine if those relationships will provide the Company with benefits related to its corporate development. As of the date of this filing none of those discussions have resulted in formal collaborative relationships.
On May 24, 2007 the Company entered into an agreement with a related party (Credifinance Capital Corp) to issue 500,000 Convertible Preferred Shares at $1.00 per share. This agreement is on an installment basis. Preferred Shares may be converted into Common Shares at a price of $0.45 per Common Shareforce for a period of two years. The Convertible Preferred Shares are cumulative and will bear interest at an interest rate of 5% per annum. As of December 31, 2009  473,624 preferred shares were issued.20 years from the filing date.
 
The report of our Independent Registered Public Accounting firm dated  June 28, 2010 on our March 31, 20092010 consolidated 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’sman agement’s control, such as financial market trends and investors’ appetite for new financings. It should be emphasized that, should the Company 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.
 
In discussions with various collaborative partners, the Company has decided to pursue a specific antibody strategy with the assistance of RFSUNY and an outsourced third party vendor. 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 9 months.
 
On February 10, 2010 Kyto executed an “Executive Licensing Agreement” with The Research Foundation of State University of New York, “RFSUNY”, allowing Kyto to license certain technology surrounding the Human Transcobalamin Receptor.  The licensing agreement is active until the expiry of the patent rights.  The rights primarily relate to the patent: “Transcobalamin Receptor Polypeptides, Nucleic Acids, and Modulators Thereof, and Related Methods of Use in Modulating Cell Growth and Treating Cancer and Cobalamin Deficiency”.
Results of Operations
For the three months ended June 30, 2010 the Company’s net loss of $86,870 was $100,728 below net income of $13,858 for the three months ended June 30, 2010.    The comprehensive loss for the three months ended June 30, 2010 was 86,926 was $1,531 below loss of $85,395 for the three months ended June 30, 2009.
8

Liquidity and Capital Resources
The Company had working capital deficits  of $1,205,167 as of June 30, 2010 and $607,465 as of June 30, 2009.   Cash were $2,559 as of  June 30, 2010  and $1,082 as of June 30, 2009.
Cash  from operating activities
The Company’s cash outflow from operations of $83,441 for the three months ended June 30, 2010 was $160,807  below cash flow from operations of $77,366 for the three months ended June 30, 2009.  

Cash from financing activities
The Company’s net cash outflow from financing activities of 81,500 as of June 30, 2010 was $71,285 higher than cash outflow from financing activities of $10,215 for the three months ended June, 2009.
The Company’s plan of operation for the next twelve months is to continue to focus its efforts on finding new sources of capital and on R&D activities related to the development and application of its antibody technologies. The Company has, as of the end of  December 31, 2009, $780,855 in total liabilities.technologies.. 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.
 
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ITEM 4.
CONTROLS AND PROCEDURES
 
(a)
The Company maintains disclosure controls and procedures that are designed to ensure that information required to be disclosed in the Company’s reports filed with the SEC is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to the Company’s management, including its principle executive officrs, as appropriate,
Evaluation of Disclosure Controls and Procedures.  We maintain “disclosure controls and procedures” as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934.  In designing and evaluating our disclosure controls and procedures, our management recognized that disclosure controls and procedures, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of disclosure controls and procedures are met.  Additionally, in designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures.  The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions.  Based on his evaluation as of the end of the period covered by this report, our Chief Executive Officer who also serves as our principal financial and accounting officer has concluded that our disclosure controls and procedures were not effective such that the information relating to our company, required to be disclosed in our Securities and Exchange Commission reports (i) is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and (ii) is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure.

Our management concluded that our disclosure controls and procedures were not effective as a result of a material weakness in our disclosure controls and procedures because we failed to properly disclose that we had terminated an agreement with a related party which led to a conclusion that amounts advanced to that related party were non-recoverable which also led to a material weakness in our internal control over financial reporting.  In August 2010, immediately prior to the filing of this report, we determined that our financial statements for the year ended March 31, 2010 could not be relied upon because we did not properly impair a related party receivable.  As a result of this error, we have restated our consolidated balance sheet at March 31, 2010 and related cons olidated statement of operations, consolidated statement of changes in stockholders’ deficiency and consolidated statement of cash flows for the year ended March 31, 2010.  A material weakness is a control deficiency, or combination of control deficiencies, that results in more than a remote likelihood that a material misstatement of our annual or interim financial statements would not be prevented or detected. In order to remediate this weakness, during the second quarter of 2011 we will institute enhanced disclosure policies to ensure that information is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms and  is accumulated and communicated to our management, including our Chief Executive Officer, to allow timely decisions regarding required disclosure, as well as instituting enhanced procedures for evaluating related party receivables.  We expect that the material weakness in our disclosure controls and procedures will be remediated prior to September 30, 2010.

Changes in Internal Control over Financial Reporting.  There have been no changes in our internal control over financial reporting during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
The Company’s management has evaluated, with the participation of the principle executive offers the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.
 
(b)The registrant’s principal executive officers have determined that there have been no changes in the registrant’s internal control over financial reporting that occurred during the registrant’s last fiscal quarter that have materially affected, or are reasonably likely to materially affect, the registrant’s internal control over financial reporting.

910

PART II. OTHER INFORMATION
 
ITEM 1.LEGAL PROCEEDINGS
 
None
 
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 HOLDERSREMOVED AND RESERVED
 
None
 
ITEM 5.OTHER INFORMATION
 
None.
 
ITEM 6.EXHIBITS
 
Index to Exhibits on page 11.12.
 

1011

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]***
   
31.1
 Section 302 Certification*Certification of principal executive officer.**
31.2Section 302 Certification of principal financial and accounting officer.**
   
32.1
 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.
***Previously filed with Form S-8 on November 18, 2004.

1112
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
And Acting Chief Executive Officer
  
 
Date:  February 12,August 23, 2010
 

 

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