UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
FORM 10-Q
(Mark One)
x [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarter Ended September 30, 2016quarterly period ended March 31, 2017
o [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________________ to _______ ________
Commission File Number Number: 000-52886
EASTGATE BIOTECH CORP.
(Exact name of registrant as specified in its charter)
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Nevada | 87-0639378 | |
(State or other jurisdiction of incorporation |
| (I.R.S. Employer |
2203-65 Harbour Square|Square, Toronto, Ontario|Ontario, Canada M5J 2L4
(Address of principal executive offices) (Zip Code)
Registrant’s Telephone Number, Including Area Code: (647) 692-0652647-692-0652
_______________________________________________________________
(Registrant's telephone number, including area code)
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 pastpreceding 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. Yes o [ ] No x[ X ]
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 (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). 1Yes x [ X ] No o[ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer,” “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer |
| Accelerated filer | [ ] | |
Non-accelerated filer |
| Smaller reporting company |
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| Emerging growth company | [ ] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes o [ ] No x
APPLICABLE ONLY TO CORPORATE ISSUERS[X]
Indicate the number of shares outstanding of each of the issuer'sissuer’s classes of common equity,stock, as of the latest practicable date.date: 974,305,508 as August 16, 2018.
EASTGATE BIOTECH CORP.
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PART I. |
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ITEM 1 | Financial Statements | ||
Consolidated balance sheets as of March | F-1 | ||
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F-2 | ||||||
Consolidated statements of cash flows for the three months ended March 31, 2017 and 2016 (unaudited) | F-3 | |||||
Notes to consolidated financial statements (unaudited) |
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F-4 to F-9 | ||||||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
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13-18 | ||||||
Quantitative and Qualitative Disclosures |
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18 | ||||||
Controls and Procedures |
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18-19 | ||||||
OTHER INFORMATION | ||||||
| Legal Proceedings |
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19 | ||||||
| Risk Factors |
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19 | ||||||
Unregistered Sales of Equity Securities and Use of Proceeds |
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18 | ||||||
Defaults Upon Senior Securities |
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18 | ||||||
ITEM 4. | Mine Safety Disclosures | 18 | ||||
ITEM 5. | Other Information | 18 | ||||
ITEM 6. | Exhibits | 18 | ||||
SIGNATURES | 19 |
2
PART I —1 - FINANCIAL INFORMATION
Item 1. Financial StatementsStatements.
Forward Looking Statements
The accompanyingThis quarterly report contains forward-looking statements. These statements relate to future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may”, “should”, “expect”, “plan”, “anticipate”, “believe”, “estimate”, “predict”, “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, 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 include, by way of example and not in limitation:
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the uncertainty that we will not be able to successfully execute our business plan;
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risks related to the large number of established and well-financed entities that are actively seeking suitable business opportunities;
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risks related to the failure to successfully manage or achieve growth of a new business opportunity; and
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other risks and uncertainties related to our business strategy.
This list is not an exhaustive list of the factors that may affect any of our forward-looking statements. These and other factors should be considered carefully, and readers should not place undue reliance on our forward-looking statements.
Forward looking statements are made based on management’s beliefs, estimates and opinions on the date the statements are made, and we undertake no obligation to update forward-looking statements if these beliefs, estimates and opinions or other circumstances should change. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Our unaudited balance sheet of Eastgate Biotech Corp. at September 30, 2016, related unauditedconsolidated financial statements of operationsare stated in United States dollars (US$) and cash flows for the periods ended September 30, 2016 and 2015 have beenare prepared by management in conformityaccordance with United States generally accepted accounting principles.Generally Accepted Accounting Principles. In the opinion of management, all adjustments considered necessary for a fair presentation of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature. It is suggested that these financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015 audited financial statements.included. Operating results for the interim period ended September 30, 2016,March 31, 2017, are not necessarily indicative of the results that can be expected for the fiscal year ending December 31, 2016 or any other subsequent period.full year.
As used in this quarterly report, the terms “we”, “us”, “our”, “our company” and “Eastgate” mean Eastgate Biotech, Corp., a Nevada corporation, and its’ wholly-owned subsidiary, Eastgate Pharmaceuticals, Inc., a Canadian corporation.
EASTGATE BIOTECH CORP.
CONDENSED CONSOLIDATED BALANCE SHEETS3
September 30 December 31, 2016 2015 (Unaudited) ASSETS Current Cash Deposits Sales tax recoverable Total current assets Other assets Property & Equipment, net Total other assets Total assets LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT) Current liabilities Bank indebtedness Accounts payable and accrued liabilities Deferred revenue Accrued liabilities related party Deferred rent Capital lease obligation Accrued interest - related parties Notes payable - related parties Total current liabilities Long term liabilities Capital lease obligation long term Total Liabilities Stockholders' equity (deficit) Authorized: Preferred stock:50,000,000 shares authorized at $0.00001 par value no shares issued at September 30, 2016 and December 31, 2015 Common stock: 450,000,000 shares authorized at $0.00001 par value 306,822,175 and 282,872,175 shares issued and outstanding at September 30, 2016 and December 31, 2015 respectively Additional paid-in capital Accumulated other comprehensive income Deficit accumulated Total stockholders' equity (deficit) Total liabilities and stockholders' equity (deficit) $ - $ 19,241 251,160 14,595 98,283 79,681 349,443 113,517 143,746 184,402 493,189 297,919 $ 493,189 $ 297,919 935 $ 367,204 $ 361,094 - 23,847 1,949,737 732,125 1,026 2,064 10,102 8,130 395,282 292,769 1,506,672 1,308,585 4,230,958 2,728,614 41,391 50,386 4,272,349 2,779,000 - - 3,069 2,829 9,891,004 9,137,764 23,246 31,846 (13,696,479 ) (11,653,520 ) (3,779,160 ) (2,481,081 ) $ 493,189 $ 297,919
The accompanying notes are an integral part of these condensed consolidated financial statements.
EASTGATE BIOTECH CORP.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
EASTGATE BIOTECH CORP. & SUBSIDIARY | |||
CONSOLIDATED BALANCE SHEETS | |||
(Unaudited) | |||
| March 31, 2017 |
| December 31, 2016 |
ASSETS |
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Current assets: |
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Cash | $ 9,348 |
| $ - |
Total current assets | 9,348 |
| - |
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Fixed and intangible assets: |
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Fixed and intangible assets, net | - |
| - |
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Other assets: |
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Total other assets | - |
| - |
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Total assets | $ 9,348 |
| $ - |
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LIABILITIES AND STOCKHOLDERS’ DEFICIT |
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Current liabilities: |
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Bank overdraft | $ - |
| $ 32,787 |
Accounts payable and accrued expenses | 423,705 |
| 279,688 |
Accrued interest | 18,000 |
| - |
Accrued liabilities related party | 2,100,055 |
| 2,095,891 |
Deferred revenue | 93,326 |
| 92,516 |
Deferred rent | 633 |
| 627 |
Capital lease obligation | 10,368 |
| 10,368 |
Notes payable | 70,403 |
| - |
Accrued interest - related party | 472,836 |
| 432,943 |
Notes payable - related party | 1,704,785 |
| 1,633,222 |
Total current liabilities | 4,894,110 |
| 4,578,042 |
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Long-term liabilities: |
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Capital lease obligation | 40,024 |
| 40,024 |
Total long-term liabilities | 40,024 |
| 40,024 |
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Total liabilities | 4,934,134 |
| 4,618,066 |
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Commitments and contingencies | - |
| - |
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Stockholders' deficit |
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Preferred stock - $0.00001 par value; authorized - 50,000,000 shares; issued and outstanding -0- and -0-, at March 31, 2017 and December 31, 2017 respectively | - | - | |
Common Stock - $0.00001 par value; 450,000,000 shares authorize; issued and outstanding 322,872,175 and 309,522,175 shares, respectively | 3,262 | 3,096 | |
Additional paid-in capital | 10,626,491 |
| 9,970,127 |
Other comprehensive income | 28,563 |
| 39,702 |
Accumulated deficit | (15,583,102) |
| (14,630,991) |
Total stockholders' deficit | (4,924,786) |
| (4,618,066) |
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Total liabilities and stockholders' deficit | $ 9,348 |
| $ - |
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See accompanying notes to the financial statements | |||
F-1 |
EASTGATE BIOTECH CORP. & SUBSIDIARY | |||
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS | |||
(Unaudited) | |||
For the three months ended | |||
March 31, 2017 | March 31, 2016 | ||
Revenues | $ - | $ - | |
Cost of Sales | |||
Cost of goods sold | - | - | |
Gross profit | - | - | |
Operating expenses: | |||
Professional fees | 42,667 | 2,636 | |
Research and development | 175,990 | 138,641 | |
General and administrative | 635,941 | 1,032,220 | |
Marketing and selling | 60,090 | 70,281 | |
Total operating expenses | 914,688 | 1,243,778 | |
Loss from operations | (914,688) | (1,243,778) | |
Other (Expense): | |||
Interest expense | (37,424) | (35,336) | |
Loss from Impairment of Assets | - | (184,402) | |
Total other (expense) | (37,424) | (219,738) | |
Net loss applicable to common stock holders | $ (952,111) | $ (1,463,516) | |
Per share data | |||
Net loss per share - basic and diluted | $ (0.00) | $ (0.01) | |
Weighted average number of shares outstanding - basic and diluted | 318,069,953 | 298,300,747 | |
Net Loss | (952,111) | (1,463,516) | |
Other Comprehensive Income (Loss) - foreign currency translation | 11,139 | (15,623) | |
Comprehensive Loss | (940,972) | (1,479,139) | |
See accompanying notes to the financial statements | |||
F-2 |
For the Three Months Ended For the Nine Months Ended September 30, September 30, 2016 2015 2016 2015 REVENUES Cost of goods sold Gross (loss) profit OPERATING EXPENSES Professional fees Research & development General and administrative Marketing and selling LOSS FROM OPERATIONS Other items Interest expense Total other items LOSS BEFORE INCOME TAXES NET LOSS BASIC AND DILUTED LOSS PER SHARE WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING - BASIC AND DILUTED COMPREHENSIVE LOSS A summary of the components of other comprehensive loss for the periods ended is as follows: Net Loss Other Comprehensive Loss - foreign currency translation Comprehensive Loss $ 1,689 $ 73,179 $ 93,525 $ 131,722 - 11,059 13,963 19,489 1,689 62,120 79,562 112,233 19,886 26,757 $ 24,191 $ 123,960 115,518 257,380 367,070 951,358 435,994 464,756 1,287,603 1,974,458 107,454 119,594 327,144 439,330 678,852 868,487 2,006,008 3,489,106 (677,163 ) (806,367 ) (1,926,446 ) (3,376,873 ) (39,778 ) (29,449 ) (116,516 ) (78,802 ) (39,778 ) (29,449 ) (116,516 ) (78,802 ) (716,941 ) (835,816 ) (2,042,962 ) (3,455,675 ) $ (716,941 ) $ (835,816 ) $ (2,042,962 ) $ (3,455,675 ) $ (0.002 ) $ (0.00 ) $ (0.007 ) $ (0.02 ) 306,732,501 217,302,267 303,779,292 161,087,899 (716,941 ) (835,816 ) (2,042,962 ) (3,455,675 ) 3,213 15,107 (8,600 ) 9,794 $ (713,728 ) $ (820,709 ) $ (2,051,562 ) $ (3,445,881 )
The accompanying notes are an integral part of these condensed consolidated financial statements.
EASTGATE BIOTECH CORP. & SUBSIDIARY | |||
CONSOLIDATED STATEMENTS OF CASH FLOWS | |||
(Unaudited) | |||
For the three months ended | |||
March 31, 2017 | March 31, 2016 | ||
(Restated) | |||
Cash flows from operating activities: | |||
Net loss | $ (952,111) | $ (1,463,516) | |
Adjustments to reconcile net loss to net cash | |||
used in operating activities: | |||
Expenses paid on the Company's behalf by related party | - | (611) | |
Common stock issued for services | 191,030 | 753,480 | |
Stock based compensation | 465,500 | - | |
Loss from impairment of assets | - | 184,402 | |
Changes in operating asset and liability account balances: | |||
Accrued liabilities related party | 4,164 | 398,021 | |
Reserve for recoverable taxes | - | (7,382) | |
Deferred rent | 6 | (368) | |
Deferred revenue | 810 | 1,085 | |
Prepaid asset | - | 14,595 | |
Accrued interest | 57,893 | 31,918 | |
Accounts payable and accrued expenses | 111,229 | (15,126) | |
Total adjustments | 830,632 | 1,360,013 | |
Net cash used in operating activities | (121,479) | (103,503) | |
Cash flows from investing activities | |||
Net cash used in investing activities | - | - | |
Cash flows from financing activities: | |||
Payment of capital lease obligation | - | (1,973) | |
Proceeds from related party notes payable | 71,563 | 94,077 | |
Proceeds from notes payable | 70,403 | - | |
Net cash provided by financing activities | 141,966 | 92,104 | |
Net increase (decrease) in cash | 20,487 | (11,399) | |
Effect of foreign currency translation adjustments | (11,139) | 2,972 | |
Cash at beginning of period | - | 19,241 | |
Cash at end of period | $ 9,348 | $ 10,814 | |
Supplemental Schedule of Cash Flow Information: | |||
Cash paid for interest | $ - | $ 3,424 | |
Cash paid for income taxes | $ - | $ - | |
See accompanying notes to the financial statements | |||
F-3 |
EASTGATE BIOTECH CORP.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
For the Nine Months Ended September 30, September 30, 2016 2015 CASH FLOWS FROM OPERATING ACTIVITIES Net loss for the period (2) Adjustments to reconcile net loss to net cash used by operating activities: Expenses paid on the Company's behalf by a related party 8 Common stock issued for services 1 Depreciation 3 Stock options issued Changes in operating assets and liabilities: Accrued interest - Prepaid asset (2) Accounts payable -5 Accounts Receivable Accrued liabilities related party 2 Sales tax recoverable (6) Deferred rent Deferred revenue Cash flows used in operating activities (1) CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment (3) Cash flows used in investing activities (3) CASH FLOWS FROM FINANCING ACTIVITIES Payment of capital lease obligation - Proceeds from notes payable related party 8 Payments on notes payable related party (5) Common stock issued for cash - Cash Overdraft Cash flows provided by financing activities 3 NET INCREASE (DECREASE) IN CASH (1) Effect of foreign currency translation adjustments Cash, beginning of the period Cash, end of the period Supplemental disclosures of cash flow information: Cash paid for income taxes Cash paid for interest Non Cash Financing activities: Common stock issued to convert liabilities Common stock issued - subscription payable Common stock issued for placement fees Employee Advance repaid for reduction of Notes payable Related Party $ (2,042,962 ) $ (3,455,675 ) (3,145 ) 753,480 1,413,109 40,656 30,693 (6 ) 291,427 102,513 78,802 (236,565 ) (55,333 ) (7,403 ) 67,498 - (38,392 ) 1,212,628 1,150,291 (14,124 ) (31,283 ) (1,147 ) (1,206 ) (25,048 ) (221,124 ) (550,069 ) - - - - (7,023 ) (4,130 ) 201,233 280,624 - (5,536 ) - 5,000 6,345 194,210 282,303 (26,913 ) (267,766 ) 7,672 (18,715 ) 19,241 286,481 $ - $ - $ - $ - $ 10,429 $ 1,261 $ - $ 1,317,330 $ - $ - $ - 85,401 - $ 3,359
The accompanying notes are an integral part of these condensed consolidated financial statements.
EASTGATE BIOTECH CORP.Eastgate Biotech Corp. and Subsidiary
Notes to Condensedthe Unaudited Consolidated Financial Statements
September 30,For the three months ended March 31, 2017 and 2016 and December 31, 2015
NOTE 1 - CONDENSED FINANCIAL STATEMENTS
1.
Basis of Presentation
Interim Unaudited Consolidated Financial Statements
The accompanyingunaudited interim consolidated financial statements have been prepared by theof Eastgate Biotech Corp without audit. In the opinionCorporation (the “Company,” “Eastgate,” “we,” “our” or “us”) as of management, all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position, results of operations, and cash flows at September 30, 2016,March 31, 2017 and for all periods presented herein have been made.
Certain informationthe three-month period ended March 31, 2017 and footnote disclosures normally included2016 contained in financial statementsthis Quarterly Report (collectively, the “Unaudited Interim Consolidated Financial Statements”) were prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the financial statements and notes thereto included in the Company's December 31, 2015 audited financial statements.(U.S. GAAP) for all periods presented. The results of operations for the periodsthree-month period ended September 30, 2016 and 2015March 31, 2017 are not necessarily indicative of the operating results that may be expected for the full years.entire fiscal year.
The accompanying Unaudited Interim Consolidated Financial Statements have been prepared in accordance with the regulations for interim financial information of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the disclosures required by U.S. GAAP for complete financial statements. In the opinion of management, the unaudited accompanying statements of financial condition and related interim statements of operations, cash flows, and stockholders’ deficit include all adjustments (which consist only of normal and recurring adjustments) considered necessary for a fair presentation in conformity with U.S. GAAP. These Unaudited Interim Consolidated Financial Statements should be read in conjunction with our consolidated financial statements as of and for the year ended December 31, 2016.
2.
Organization and Nature of Operations
Organization
Eastgate Biotech Corp. (The Company) was organized on September 8, 1999, under the laws of the State of
Nevada.
During the year ended December 31, 2012 the Company acquired Eastgate Pharmaceuticals Inc. (“EPI”), as a wholly-owned subsidiary of the Company, from our CEO, Anna Gluskin, its sole shareholder, officer, and director. EPI is a Province of Ontario, Canada corporation.
Nature of Business
The Company is engaged in the research and development of drug delivery innovations, development of improved and novel formulations, and forms of alternative dosage delivery of existing biologically active molecules.
We are primarily engaged in the development of novel formulations of natural compounds and pharmaceutical products. We intend to accomplish this by developing our proprietary self-emulsifying drug delivery systems, predominantly forming Nano-emulsions. Although we have not finalized any pharmaceuticals products and are in the early stages of research, our goal is to be able to develop patentable and Trade Secret formulations of pharmaceutical, nutraceutical dietary supplements and consumer health products. We recently started marketing and distribution and have limited sales for some of our nutraceuticals products.
NOTE 2 - GOING CONCERNF-4
The
Some of our proposed products under development are based on existing natural compounds. Many of these proposed products are made of essential oils and plant extracts. Our proposed products comprise excipients listed in the FDA “Inactive Ingredients Guide” that we believe are safe and approved for human consumption. Additionally, we believe that these proposed products can be manufactured using common equipment. We anticipate that we will be able to apply self-emulsifying technologies for development of a variety of pharmaceuticals and natural products for different applications.
3.
Going Concern
These accompanying unaudited consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in conformity with generally accepted accounting principles, which contemplatethe normal course of business. As of March 31, 2017, the Company had an accumulated deficit of $15,583,102 and negative working capital of $4,884,762. The continuation of the Company as a going concern. However,concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities, obtain the necessary debt or equity financing, and generating profitable operations from the Company has accumulated deficit of $13,696,479 as of September 30, 2016. The Company currently has limited liquidity, and has not completed its efforts to establish a stabilized source of revenues’s future operations. However, there can be no assurance that these arrangements will be sufficient to cover operating costs over an extended periodfund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of time, raisingthese matters cannot be predicted at this time. These factors raise substantial doubt about itsregarding the Company’s ability to continue as a going concern. These accompanying unaudited consolidated financial statements do not include any adjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern.
Management anticipates that
4.
Basis of Presentation
The financial statements of the Company will be dependent, for the near future, on additional investment capital to fund operating expenses The Company intends to position itself so that it may be able to raise additional funds through the capital markets. In light of management's efforts, therehave been prepared in accordance with US GAAP and are no assurances that the Company will be successfulexpressed in this or any of its endeavors or become financially viable and continue as a going concern.
NOTE 3 - SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of Eastgate Biotech Corp. and its wholly-owned subsidiary Eastgate Pharmaceuticals Inc.U.S. dollars. All intercompanyinter-company accounts and transactions have been eliminated in consolidation.eliminated. The Company’s fiscal year end is December 31.
5.
Summary of Significant Accounting Policies
a) Use of Estimates
The preparation of unaudited consolidated financial statements in conformity with accounting principles generally accepted in the United States of AmericaUS GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenuerevenues and expenses during the reporting period. ActualThe Company regularly evaluates estimates and assumptions related to the deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results couldof which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from thosethe Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company and its wholly owned subsidiary Eastgate Pharmaceuticals, Inc. All significant inter-company transactions are eliminated.
F-5
c) Cash and Cash Equivalents
For purposes of the statement of cash flows, thecash includes demand deposits, saving accounts and money market accounts. The Company considers all highly liquid instruments purchased with a maturitymaturities of sixthree months or less when purchased to be cash equivalentsequivalents.
d) Accounts receivable and concentration of credit risk
The Company carries no accounts receivable for the periods reported herein. This has currently eliminated the risk of default in the collection of accounts receivable. In addition, our concentration risk, which is evaluated on a quarterly basis is currently, virtually nil.
e) Allowance for doubtful accounts
The allowance for doubtful accounts is based on the Company’s assessment of the collectability of customer accounts and the aging of the accounts receivable. The Company regularly reviews the adequacy of the Company’s allowance for doubtful accounts through identification of specific receivables where it is expected that payments will not be received. The Company also establishes an unallocated reserve that is applied to all amounts that are not specifically identified. In determining specific receivables where collections may not have been received, the Company reviews past due receivables and gives consideration to prior collection history and changes in the customer’s overall business condition. The allowance for doubtful accounts reflects the Company’s best estimate as of the reporting dates.
At March 31, 2017 and December 31, 2016, the Company had an allowance for bad debts in the amount of $0 and $0, respectively.
f) Basic and Diluted Net Loss per Share
The Company computes net loss per share in accordance with ASC 260, Earnings per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the income statement. Basic EPS is computed by dividing net loss available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential shares of common stock outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.
g) Financial Instruments
Pursuant to ASC 820, Fair Value Measurements and Disclosures, an entity is required to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the extentfair value measurement. ASC 820 prioritizes the fundsinputs into three levels that may be used to measure fair value:
F-6
Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.
Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.
Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.
The Company did not have any Level 2 or Level 3 assets or liabilities as of September 30, 2017, with the exception of its notes payable. The carrying amounts of these liabilities at September 30, 2017 approximate their respective fair value based on the Company’s incremental borrowing rate.
Cash is considered to be highly liquid and easily tradable as of March 31, 2017 and therefore classified as Level 1 within our fair value hierarchy.
In addition, FASB ASC 825-10-25 Fair Value Option, or ASC 825-10-25, was effective for January 1, 2008. ASC 825-10-25 expands opportunities to use fair value measurements in financial reporting and permits entities to choose to measure many financial instruments and certain other items at fair value. The Company did not elect the fair value options for any of its qualifying financial instruments
h) Income Taxes
Potential benefits of income tax losses are not being heldrecognized in the accounts until realization is more likely than not. The Company has adopted ASC 740 “Accounting for investment purposes.Income Taxes” as of its inception. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in this financial statement because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.
i) Revenue Recognition
The Company recognizes revenue when it is realized or realizable and earned. We considerin accordance with ASC-605, “Revenue Recognition,” which requires that four basic criteria must be met before revenue realized or realizable and earned when all of the following criteria are met: (i)can be recognized: (1) persuasive evidence of an arrangement exists, (ii)exists; (2) delivery has occurred or title has passed; (3) the selling price is fixed and determinable; and (4) collectability is reasonably assured. Determination of criteria (3) and (4) are based on management's judgments regarding the fixed nature of the selling prices of the products delivered and the collectability of those amounts.
Revenues are recognized (a) for larger construction type projects based on the percentage of completion method; or (b) for direct sales of products, upon shipment, provided that a signed purchase order has been received, the price is fixed, title has transferred, collection of resulting receivables is reasonably assured, and there are no remaining significant obligations. Reserves for sales returns and allowances, based on historical levels of returns and discounts, current economic trends and changes in customer demand.
Provisions for discounts and rebates to customers, estimated returns and allowances, and other adjustments are provided for in the same period the related sales are recorded. The Company will defer any revenue for which the product has not been delivered or is subject to refund until such time that the Company and the customer jointly determine that the product has been shippeddelivered or the servicesno refund will be required.
F-7
j) Reclassification
Certain reclassifications have been renderedmade to conform the prior period data to the customer, (iii)current presentation. These reclassifications had no effect on reported net loss.
6.
Notes Payable
Notes Payable to Related Parties:
The Company owed $2,177,621 and $2,066,165 in notes and accrued interest to an officer and director at March 31, 2017 and December 31, 2016, respectively.
During the sales price is fixedthree months ended March 31, 2017 and 2016, the Company made no repayments of notes or determinable, and (iv) collection is reasonably assured.accrued interest.
Research and Development CostsNotes Payable, others:
The Company expenses researchcompany has notes due to unrelated parties totaling $70,403 and development costs to operations as incurred. Research$0 at March 31, 2017 and development expenses are comprised of costs incurred in performing researchDecember 31, 2016, respectively.
At March 31, 2017 and development activities, including employee-related expenses; laboratory supplies and other direct expenses; third-party contractual costs relating to nonclinical studies and related contract manufacturing expenses, development of manufacturing processes and regulatory registration.
Foreign Currency Translation
Foreign denominated assets and liabilities ofDecember 31, 2016, the Company are translated into U.S. dollars at the prevailing exchange rates in effect at the endhas accrued interest of the reporting period. Income statement accounts are translated at a weighted average of exchange rates which were in effect during the period. Translation adjustments that arise from translating the foreign subsidiary's financial statements from local currency to U.S. currency are recorded in the other comprehensive loss component of stockholders' equity.$18,000 and $0, respectively.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard and will not report inception to date financial information.7.
Related Party Transactions
The Company has evaluated recent accounting pronouncementsowes accrued compensation totaling $799,270 and their adoption has not had or is not expected$733,333 to have a material impact ontwo officers at March 31, 2017 and December 31, 2016, respectively.
During the Company's financial position or statements.three months ended March 31, 2017 and 2016, the Company made repayments of accrued compensation of $2,156 and $0, respectively.
As of December 31, 2016, $107,069 of the Company’s accounts payable are owed to two formerly related parties.
8.
Stockholders’ Equity
a)
Authorized
NOTE 4 - RELATED-PARTY TRANSACTIONSAuthorized capital stock consists of:
· 450,000,000 shares of common stock with a par value of $0.00001 per share; and
·
50,000,000 preferred shares with a par value of $0.00001 per share
F-8
b) Share Issuances
During the period ended March 31, 2017, the Company issued the following common shares:
·
In January 2017, the Company issued 1,000,000 shares of common stock at an average price of $0.0318 per share (the share price at the time of issuance) to consultants who are also accredited investors.
·
In February 2017, the Company issued 8,100,000 shares of common stock at an average price of $0.0399 per share (the share price at the time of issuance) to consultants who are also accredited investors.
·
In March 2017, the Company issued 3,000,000 shares of common stock at an average price of $0.04 per share (the share price at the time of issuance) to consultants who are also accredited investors.
·
In March 2017, the Company issued 500,000 shares of common stock at an average price of $0.043 per share (the share price at the time of issuance) to consultants who are also accredited investors.
1.
Commitments and Contingencies
Notes payable – related partiesLitigation
The Company has recorded loansmay, from shareholders, amounts duetime to shareholders for expenses paidtime, become involved in various lawsuits and legal proceedings, which arise in the ordinary course of business. However, litigation is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. The Company is currently not aware of any such legal proceedings that it believes will have, individually or in the aggregate, a material adverse effect on its behalf by shareholders as Notes payable - related parties on
2.
Subsequent Events
We have evaluated subsequent events through the balance sheet. The amounts comprising Notes payable – related parties bear interest ranging from 5 percent per annum to 10 percent per annum, are unsecured and are due and payable upon demand.
During the nine months ended September 30, 2016 the CEO and companies owned by the CEO as well as a company owned by a related party shareholder have advanced cash to the Companydate of $201,233, and have had expenses paid by the Company of $3,146 on their behalf. At September 30, 2016 the Company has not repaid any of related party loans. During the year ended December 31, 2015 the CEO and the current President advanced the company cash of $310,825 and were repaid $5,536 of advances made. In addition during this period they paid $2,337 of expenses on behalfissuance of the companyunaudited consolidated financial statements, and were reimbursed for $5,432 in expenses they previously paid. This accounts forbelow are the increase in notes payable related party for the year ended December 31, 2015 of $302,194. As of September 30, 2016 and December 31, 2015, the Company owed $395,281 and $292,798 of accrued interest to related parties, respectively, resulting from interest expense of $102,483 and $109,954, respectively.material recognizable subsequent events.
NOTE 5 - SALES TAX RECOVERABLE
Sales tax receivable
The Company recovers sales tax paid, for which returns are filed on annual basis. At September 30, 2016, $98,283 was claimed as recoverable compared to the December 31, 2015 balance of $79,681. Sales tax recoverable is a result of sales tax paid on eligible expenses.
NOTE 6 - STOCKHOLDERS' EQUITY
On February 1st 2016,In April 2017, the Company issued a total100,000 shares of 23,400,000 restrictedcommon stock at the market price on the date of issue.
·
In May 2017, the Company issued 5,250,000 shares of common stock at the market price on the date of issue.
·
In June 2017, the Company issued 500,000,000 shares of common stock to variousits CEO and its President (250,000,000 each) at a price of $0.0001 per common shares.
·
In June 2017, the Company issued 87,333,333 shares of common stock to its consultants in exchange for services renderedtheir services. The shares were issued at the market price on the date of $0.0322 per share.issuance.
·
In October 2017, the Company issued 13,000,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
·
In January 2018, the Company issued 5,000,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
On· In July 16, 2016, 550, 251 warrants were exercised by their holders using cashless exercise provision at the price of $0.00001 per share. This resulted in 550,000 common shares being issued to these holders.
The following table summarizes the stock options that are issued, outstanding and exercisable
Stock Options Issued & Outstanding Exercise Expiration September 30 December 31 Price Date 2016 2015 0.286 February 12, 2020 $ 10,375,000 10,375,000
As of September 30, 2016,2018, the Company had 41,164,901 warrantsissued 37,500,000 shares of common stock to purchase common stock. All outstanding warrants have a weighted average priceconsultants in exchange for their services.
· In July 2017, the Company issued 600,000 shares of $0.07preferred stock to consultants in exchange for their services. The shares were issued at $0.01 per share, and have a weighted average remaining life of 2.81 years.convert 1:1 into common shares.
The following table summarizes warrants that are issued, outstanding and exercisableF-9
Warrants Issued & Outstanding Exercise Expiration September 30 December 31 Price Date 2016 2015 0.25 March 14, 2019 0.25 March 21, 2019 0.25 June 6, 2019 0.05 October 16, 2019 0.04 December 31, 2019 0.04 January 5, 2020 0.04 August 19, 2020 0.00001 October 6, 2020 $ 3,495,000 3,495,000 $ 3,480,000 3,480,000 $ 2,022,300 2,022,300 $ 150,000 150,000 8,125,000 8,125,000 $ 8,146,225 8,146,225 125,000 125,000 15,621,376 16,171,627 41,164,901 41,715,152
NOTE 7 - SUBSEQUENT EVENTS
In accordance with ASC 855 Company management reviewed all material events through the date of this report and determined that there are no material subsequent events to report except as described below:
Management'sManagement’s Discussion and Analysis of Financial Condition and Results of Operations
Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements.” These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements.
Overview & General History
Organization
Eastgate Biotech Corp. (The Company) was organized on September 8, 1999, under the laws of the State of
Nevada, and is traded on the OTCPink exchange.
Nature of Business
The Company is engaged in the research and development of drug delivery innovations, development of improved and novel formulations, and forms of alternative dosage delivery of existing biologically active molecules.
We are primarily engaged in the development of novel formulations of natural compounds and pharmaceutical products. We intend to accomplish this by developing our proprietary self-emulsifying drug delivery systems, predominantly forming Nano-emulsions. Although we have not finalized any pharmaceuticals products and are in the early stages of research, our goal is to be able to develop patentable and Trade Secret formulations of pharmaceutical, nutraceutical dietary supplements and consumer health products. We recently started marketing and distribution and have limited sales for some of our nutraceuticals products.
Some of our proposed products under development are based on existing natural compounds. Many of these proposed products are made of essential oils and plant extracts. Our proposed products comprise excipients listed in the FDA “Inactive Ingredients Guide” that we believe are safe and approved for human consumption. Additionally, we believe that these proposed products can be manufactured using common equipment. We anticipate that we will be able to apply self-emulsifying technologies for development of a variety of pharmaceuticals and natural products for different applications.
Results of Operations for the three months ended March 31, 2017 and 2016.
Operating Revenues
In the three-month period ended March 31, 2017 and 2016, we generated $0 and $0, respectively, in revenue from the sales of drug delivery systems, natural compounds, and pharmaceutical products.
13
Cost of Goods Sold
In the three-month periods ended March 31, 2017 and 2016, we incurred $0 and $0, respectively, as cost of goods sold.
Gross profit (loss)
The Company did not have any gross profit (loss) in the three-month periods ended March 31, 2017 and 2016.
Operating Expenses
Our operating expenses for the three-month periods ended March 31, 2017 and 2016 are outlined in the table below:
Three Months Ended | |||
March 31, | |||
2017 | 2016 | ||
Professional fees | $ 42,667 | $ 2,636 | |
Research & development | 175,990 | 138,641 | |
General and administrative | 635,941 | 1,032,220 | |
Marketing & selling | 60,090 | 70,281 | |
Total | $ 914,688 | $ 1,243,778 |
The following selected comparative financial information has been derived from and should be read in conjunction with the company's financial statementsOperating expenses for the ninethree-months ended March 31, 2017 was $914,688 and $1,243,778, respectively. The decrease in operating expense during the three-months ended March 31, 2017 versus 2016 is primarily attributed to a decrease in general and administrative costs.
Other Expenses
In addition to operating expenses, we incurred interest expenses of $37,424 and $35,336 during the three-months ended March 31, 2017, and 2016, respectively. The increase in interest expense during the period ended March 31, 2017 is primarily attributable to the fact that the debt was added incrementally throughout 2017. In addition, for the three-month period ended March 31, 2016, the Company recorded a loss from impairment of assets with no similar discontinued operations of $184,402.
Net Loss
We incurred a net loss of $952,111 and $1,463,516 for the three-months ended March 31, 2017 and 2016, respectively.
Liquidity and Capital Resources
Liquidity is the ability of a company to generate funds to support its current and future operations, satisfy its obligations, and otherwise operate on an ongoing basis. Significant factors in the management of liquidity are funds generated by operations, levels of accounts receivable and accounts payable and capital expenditures.
To date we have financed our operations through sales of common stock and the issuance of debt.
The continuation of the Company as a going concern is dependent upon the continued financial support from its management, and its ability to identify future investment opportunities and obtain the necessary debt or equity financing and generating profitable operations from the Company’s future operations. However, there can be no assurance that these arrangements will be sufficient to fund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
14
Working Capital
Percentage | |||||
March 31, | December 31, | Increase | |||
2017 | 2016 | (Decrease) | |||
Current Assets | $ 9,348 | $ - | -% | ||
Current Liabilities | $ 4,894,110 | $ 4,578,042 | 6.9% | ||
Working Capital Deficit | $ (4,884,762) | $ (4,578,042) | 6.7% |
At March 31, 2017, our cash balance was $9,348 compared to $0 at December 31, 2016. The increase in cash is attributed to proceeds of $71,563 in notes payable to a related party, and proceeds of $70,403 from other notes, all of which were used to pay operating expenses.
At March 31, 2017, we had total current liabilities of $4,894,110, compared with total current liabilities of $4,578,042 at December 31, 2016. The increase in total liabilities is attributed to an increase in notes payable to related parties, deferred sales, and increases in accounts payable and accrued liabilities of $148,181 and accrued interest of $18,000.
At March 31, 2017, we had a working capital deficit of $4,884,762 compared with a working capital deficit of $4,578,042 at December 31, 2016. The increase in working capital deficit is primarily due to an increase in related party loans of $71,563 and increases in accounts payable and accrued expenses which were offset by cash obtained from proceeds of common stock sales.
Cash Flows
For the Three Months Ended | Percentage | ||||
March 31, | March 31, | Increase | |||
2017 | 2016 | (Decrease) | |||
Cash Used in Operating Activities | $ (121,479) | $ (103,503) | (17.4) % | ||
Cash Used in Investing Activities | - | - | -% | ||
Cash Provided by Financing Activities | 141,966 | 92,104 | 54.1% | ||
Net Increase (decrease) in Cash | $ 20,487 | $ (11,399) | 279.7% |
Cash flow from Operating Activities
During the three months ended September 30,March 31, 2017, we used $121,479 of cash in operating activities compared to the use of $103,503 of cash for operating activities during the three months ended March 31, 2016. The increase in the use of cash for operating activities was mainly attributed to positive cash flow adjustments of 830,632 to our 2017 period net loss of $952,111, which were less than the positive cash flow adjustments of $1,360,013 to our 2016 and 2015.period loss of $1,463,516.
For the Three Months ended For the Nine Months ended September 30 September 30 2016 2015 2016 2015 Revenues Cost of sales Gross profit Operating Expenses Professional fees Research & development General & administrative Marketing and selling Total operating expenses Loss from operations Interest income Net loss 15$ 1,689 $ 73,179 $ 93,525 $ 131,722 - 11,059 13,963 19,489 1,689 62,120 79,562 112,233 19,886 26,759 24,191 123,960 115,518 257,380 367,070 951,358 435,994 464,756 1,287,603 1,974,458 107,454 119,594 327,144 439,330 678,852 868,487 2,006,008 3,489,106 (677,163 ) (806,367 ) (1,926,446 ) (3,376,873 ) (39,778 ) (29,449 ) (116,516 ) (78,802 ) $ (716,941 ) $ (835,816 ) $ (2,042,962 ) $ (3,455,675 )
Cash flow from Investing Activities
September 30 December 31 2016 2015 Total assets Working Capital $ 493,189 $ 297,919 $ (3,881,515 ) $ (2,615,097 )
Results of OperationsDuring the three months ended March 31, 2017 and 2016, we used $0 in investing activities.
Cash flow from Financing Activities
During the three months ended September 30 2016 company recorded revenue from royalty income. During the three months ended September 30, 2016, our net loss was $716,941 compared to a net loss of $835,816 for the three months ended September 30, 2015. The decreased loss for 2016 of $118,875 was primarily due to the fact the company had reduced G&A expenses by 28,762, the researchMarch 31, 2017 and development expenses by $141,862, professional fees decreased respectively by $6,871 and marketing & selling expenses decreased by $12,140. These changes in expenditures combined with a gross profit on royalty revenue of $1,689 resulted in the decreased loss of $118,875 for the quarter.
During the nine months ended September 30, 2016 company recorded revenue of $93,525. During the nine months ended September 30, 2016, our net loss was $2,042,962 compared to a net loss of $3.455.675 for the nine months ended September 30, 2015. The decreased loss for 2016 of $1,412,713 was due to the fact the company was less active in the nine month period ended September 30, 2016 due to lack of funding. The primary reasons for the decrease were decrease in operating expenses including a decrease in professional fees of $99,769, a decrease in R&D expenses of $584,288, a decrease in marketing and selling of $112,186 and a decrease of general and administrative expense of $686,855.
Sales
This quarter we recorded revenue of $1,689 from royalty income. Cost of sales was nil for a gross profit of $1,689 compared to sales of $73,179with the cost of sales of $11,059 for a gross profit of $62,120 in the same quarter ending September 30 2015
During the nine months ended September 30 2016, we have recorded $93,525 in revenues. Costreceived net proceeds of sales was $13,963 for a gross profit of $79,562 compared to revenue of $131,722with the cost of sales of $19,489 for a gross profit of $112,233 for the nine months ended September 30 2015.
Operating Expenses
Professional fees
During the third quarter ended September 30, 2016, professional fees expenses were $19,886, a decrease of $6,871$141,966 and $92,104, respectively from the third quarter of 2015 professional fees expense of $26,757. The decrease can be attributed to decrease in legal expenses for the quarter.
During the first nine months ended September 30, 2016, professional fees expenses were $24,191, a decrease of $99,769 from the first nine months of 2015 professional fees expense of $123,960. The first quarter of 2015 included the costs of an equity raise; the company did not have these expenses in the nine months ended September 30 2016.
Research and development
Research and development costs consist of fees paid to consultants for laboratory evaluation of product chemistry and formulation as well as tests and studies to assess the efficacy and potential safety of our products. Also included in research and development are laboratory consumables.
During the third quarter ended September 30, 2016, research and development expenses of $115,518 decreased by $141,862 from $257,380 for the third quarter of 2015. The decrease was a result of the company's lack of funding.
During the nine months ended September 30, 2016, research and development expenses of $367,070 decreased by $584,288 from $951,358 for the first nine months of 2015. The decrease was a result of the company’s lack of funding.
General and administrative
During the third quarter of 2016, we incurred general and administrative expenses of $435,994 a decrease of $28,762 from $464,756 for the third quarter of 2015.
During the first nine months of 2016, we incurred general and administrative expenses of $1,287,603, a decrease of $686,855 from $1,974,458 for the first nine months of 2015.
Marketing and selling
During the third quarter ended September 30, 2016, marketing and selling expenses of $107,454 decreased by $12,140 from $119,594 for the third quarter of 2015. The decrease is a result of the company reduced promotional activities during 2016.
During the nine months ended September 30, 2016, marketing and selling expenses of $327,144 decreased by $112,186 from $439,330 for the nine months ended September 30, 2015. The decrease is a result of lack of funding. The company continuing negotiations in various parts of the world for the sale of distribution licenses for the sale of the company’s pharmaceutical and nutraceutical products.
Interest expense
Interest expense of $39,778 for the third quarter ended September 30, 2016 an increase of $10,329 from $29,449 for the third quarter of 2015. The increase is attributed to an increase in loans from stockholders during the period.
Interest expense of $116,516 for the nine months ended September 30, 2016 an increase of $37,714 from $78,802 for the nine months ended September 30, 2015. The increase is attributed to an increase in loans from stockholders during the period.
Liquidity and Capital Resources
At September 30, 2016 we had a working capital deficit of $3,881,515 which is an increase of $1,266,418 from the December 31, 2015 deficit balance of $2,615,097.financing activities. The increase in proceeds from financing activities is mainly attributed to $70,403 in proceeds from notes payable which were not present in the 2016 period, offset by proceeds from notes payable related parties of $71,563 in the 2017 period compared to $94,077 in the 2016 period.
Going Concern
These accompanying unaudited condensed consolidated financial statements have been prepared on a going concern basis, which implies that the Company will continue to realize its assets and discharge its liabilities in the normal course of business. As of March 31, 2017, the Company had an accumulated deficit is primarily a resultof $15,583,102 and negative working capital of $4,884,762. The continuation of the loss forCompany as a going concern is dependent upon the nine months of $2,042,962 netted bycontinued financial support from its management, and its ability to identify future investment opportunities and obtain the $753,480 of this loss having been paid by issuing common stock for services.
Expenses incurred during 2016 have been paid for by related parties including our current CEOnecessary debt or equity financing and current President as well as through issuinggenerating profitable operations from the company’s common stock. Because we have no cash reserves or generate sufficient revenue, we expect to continue to rely on the stockholders and equity raises to pay expenses until such time as weCompany’s future operations. However, there can generate sufficient cash flows to pay our ongoing operational costs. There isbe no assurance that the company will be able to obtain equity raises before the company develops revenue sources with sufficient cash flow to cover expenses.
During the nine months ended September 30, 2016 the stockholders contributed a net amount of $198,087, made up of $201,233 advanced in cash less $3,146 of expenses paid by the company on behalf of the related party. At September 30, 2016 and December 31, 2015, we had bank overdraft of $935 and cash on hand of $19,241, respectively. At September 30, 2016 we had accrued liabilities - related party of $1,949,737, compared to $732,125 at December 31, 2015. The increase represents the accrual of wages to company executive officers during the nine month ended September 30, 2016. At September 30, 2016 we had notes payable - related party of $1,506,672, compared to $1,308,585 at December 31, 2015. The increase represents additional contributions from stockholders during the nine months ended September 30, 2016. Accrued interest – related party at September 30, 2016 was $395,281 compared to $292,769 at December 31, 2015, which reflects the added interest of $102,513 on the related party payable. Accounts payable and accrued liabilities increased by $6,110 from $361,094 at December 31, 2015, to $367,204 at September 30, 2016, primarily a result of the fact the company is in a fund raising situation.
In the opinion of management, inflation has not and will not have a material effect on our operations until such time as we raise funds or successfully complete an acquisition or merger. At that time, management will evaluate the possible effects of inflation related to our business and operations.
At September 30, 2016, we had a stockholders' deficit of $3,779,160 compared to a stockholders' deficit of $2,481,081 at December 31, 2015. The increase in stockholders' deficit is primarily attributed to operating loss offset by the issuance of common stock for service in the first nine months of 2016.
As of March 10, 2017, we had cash on hand of $2,428. We believe that our available cash combined with continued advances from related partiesthese arrangements will be sufficient to carry on general corporate functions forfund its ongoing capital expenditures, working capital, and other cash requirements. The outcome of these matters cannot be predicted at this time. These factors raise substantial doubt regarding the next three months, although we will needCompany’s ability to limit cash outlays for research and product development until we can secure additional funds. We are presently investigating possible funding opportunities to arrange for additional funds, although wecontinue as a going concern. These accompanying unaudited consolidated financial statements do not haveinclude any definitive agreement or arrangement for such funds. We expectadjustments to the recoverability and classification of recorded asset amounts and classification of liabilities that additional fundingmight be necessary should the Company be unable to proceed with development of the intellectual property acquired in 2015 will most likely be from the sale of securities or from stockholder loans. We may not be successful in our efforts to obtain equity financing to carry out our business plan and there is doubt regarding our ability to complete our planned development program. We estimate that cash requirements for the next twelve months will be approximately $5,000,000. In the past year, we have relied on advances from related parties for financing our operations. We continue to explore potential funding opportunities, which may be in the form of debt or the sale of equity securities. In the event we are unsuccessful in arranging for outside funding, we will most likely continue to rely on related parties to provide funding, although there are no firm commitments or agreements with any related party to provide funds in the future.as a going concern.
Net Operating Loss
We have accumulated a net operating loss carryforward of approximately $11,653,520 as of December 31, 2015. This loss carry forward may be offset against future taxable income through the year 2033. The use of these losses to reduce future income taxes will depend on the generation of sufficient taxable income prior to the expiration of the net operating loss carryforwards. In the event of certain changes in control, there will be an annual limitation on the amount of net operating loss carryforwards that can be used. No tax benefit has been reported in the financial statements for the year ended December 31, 2015 or the nine month period ended September 30, 2016 because it has been fully offset by a valuation reserve. The use of future tax benefit is undeterminable because we presently have no operations.
Recent Accounting Pronouncements
In June 2014, the Financial Accounting Standards Board issued Accounting Standards Update No. 2014-10, which eliminated certain financial reporting requirements of companies previously identified as "Development Stage Entities" (Topic 915). The amendments in this ASU simplify accounting guidance by removing all incremental financial reporting requirements for development stage entities. The amendments also reduce data maintenance and, for those entities subject to audit, audit costs by eliminating the requirement for development stage entities to present inception-to-date information in the statements of income, cash flows, and shareholder equity. Early application of each of the amendments is permitted for any annual reporting period or interim period for which the entity's financial statements have not yet been issued (public business entities) or made available for issuance (other entities). Upon adoption, entities will no longer present or disclose any information required by Topic 915. The Company has adopted this standard and will not report inception to date financial information.
The company has evaluated other recent accounting pronouncements and their adoption has not had nor is expected to have a material impact on the company's financial position or statements.
Off-Balance Sheet Arrangements
We have no significant 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 isare material to stockholders.
Plan of Operation
Following the closing of a patent acquisition agreement (the "Acquisition Agreement") in 2012, we have become engaged in the development and ultimate formulation of other novel formulations of natural compounds and pharmaceutical products that have limitations in effective use for human consumption. We believe our self-emulsifying drug delivery technology can improve the efficacy of existing products and formulations based on natural or well-established compounds and known biologically active compounds. We intend to conduct our research and development through collaborative programs. We anticipate relying on arrangements with third party drug developers such as contract research organizations and clinical research sites for a significant portion of our product development efforts.
The Acquisition Agreement enabled us to acquire certain products, formulas, processes, proprietary technology and/or patents and patent applications related to pharmaceutical, nutraceutical, food supplements and consumer health products. We have not formulated any final products or receive approvals from any regulatory agencies or generated any revenues from product sales. We have not been profitable since our inception through the current date.
We expect to incur significant operating losses for the next several years and until we are able to formulate a commercially viable product. We also expectintend to continue to incur significant operatingrely on loans from related parties and capital expenditures and anticipate that our expenses will increase substantially in the foreseeable future as we:
Future product revenue will depend on our ability to develops, receive regulatory approvals for, and successfully market, our product candidates. In the event that our development efforts result in regulatory approval and successful commercialization of our product candidates, we will generate revenue from directprivate sales of our products and/or, if we licenseshares of common stock in order to continue to fund our productsbusiness operations. Issuances of additional shares will result in dilution to future collaborators, from the receipt of license fees and royalties from licensed products.
Management estimates that our research and development expenses for the next 12 months will be approximately $3.0 million, primarily for research and pilot studies. We also estimate that other expenses, including personnel, general and administrative and miscellaneous expenses could be as much as $2.0 million during the same time period. Because we currently have no revenues, most likely the only source of funding these expenses will be through the private sale of our securities, either equity or debt. We are currently exploring possible funding sources, but we have not entered into any arrangements or agreements for funding as of this time. If we are unable to raise the necessary funding, our research and development plans will be delayed indefinitely.existing stockholders. There can beis no assurance that we will be ableachieve any additional sales of the equity securities or arrange for debt or other financing to raise the funds necessary to carry outfund our business plan on terms favorable to the company, or at all.operations and other activities.
Forward-Looking and Cautionary StatementsCritical Accounting Policies
Statements containedOur financial statements and accompanying notes have been prepared in this report which are not historical facts, may be considered "forward-lookingaccordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements" which term is defined by in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the Private Securities Litigation Reform Actreported amounts of 1995. Any "safe harbor under this Act does not apply to a "penny stock" issuer, which definition would includeassets and liabilities, the company. Forward-lookingdisclosure of contingent assets and liabilities at the date of the financial statements are based on current expectations and the current economic environment. We caution readers that such forward-looking statements are not guaranteesreported amounts of future performance. Unknown risksrevenues and uncertainties as well as other uncontrollable or unknown factors could cause actual results to materially differ fromexpenses during the results, performance or expectations expressed or implied by such forward-looking statements.reporting periods.
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We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.
Our significant accounting policies are more fully described in Note 5 to our unaudited consolidated financial statements included in this Quarterly Report.
Recently Issued Accounting Pronouncements
The Company has implemented all new accounting pronouncements that are in effect. These pronouncements did not have any material impact on the financial statements unless otherwise disclosed, and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our financial position or results of operations.
Off-Balance Sheet Arrangements
We had no off-balance sheet arrangements as of March 31, 2017 and December 31, 2016.
Inflation
We do not believe that inflation has had a material effect on our Company’s results of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
Not Applicable.
This item is not required for a smaller reporting company.
Item 4. Controls and Procedures.
EvaluationOur management is responsible for establishing and maintaining a system of Disclosure Controls and Procedures. Disclosuredisclosure controls and procedures (as defined in RulesRule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934) areAct) that is designed to ensure that information required to be disclosed by us in the reports filedthat we file or submittedsubmit under the Exchange Act is recorded, processed, summarized and reported, within the time periods specified in the Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Exchange Act is accumulated and communicated to the issuer’s management, including its principal executive officer or officers and principal financial officer or officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure.
An evaluation was conducted under the supervision and with the participation of our management of the effectiveness of the design and operation of our disclosure controls and procedures as of March 31, 2017. Based on that evaluation, our management concluded that our disclosure controls and procedures were not effective as of such date to ensure that information required to be disclosed in the reports that we file or submit under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in SEC rules and forms. Disclosure and control procedures are also designed to ensure that such information is accumulated and communicated to management, including the chief executive officer and chief financial officer, to allow timely decisions regarding required disclosures.
As of the end of the period covered by this quarterly report, we carried out an evaluation, under the supervision and with the participation of management, including our chief executive officer and chief financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures. In designing and evaluating the disclosure controls and procedures, management recognizes that there are inherent limitations to the effectiveness of any system of disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of achieving their desired control objectives. Additionally, in evaluating and implementing possible controls and procedures, management is required to apply its reasonable judgment. Based on the evaluation described above, our management, including our chief executive officer and chief financial officer, concluded that, as of September 30, 2016, our disclosure controls and procedures were not effective due to a lack of adequate segregation of duties and the absence of an audit committee.
Changes in Internal Control Over Financial Reporting. Management has
During the quarter ended March 31, 2017, management evaluated whether any change in our internal control over financial reporting occurred during the quarterperiod then ended September 30, 2016.had taken place. Based on its evaluation, management, including the chief executive officer and chief financial officer, has concluded that there has been no change in our internal control over financial reporting during the quarter ended September 30, 2016March 31, 2017 that has materially affected, or is reasonably likely to materially affect our internal control over financial reporting.
PART II — OTHERII-OTHER INFORMATION
Item 1. Legal ProceedingsProceedings.
None
There are no material pending legal proceedings to which we are a party or to which any of our property is subject and, to the best of our knowledge, no such actions against us are contemplated or threatened.
Item 1A. Risk FactorsFactors.
Not Applicable.
This item is not required for a smaller reporting company.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
In January 2017, the Company issued 1,000,000 shares of common stock at an average price of $0.0318 per share (the share price at the time of issuance) to consultants who are also accredited investors.
In February 2017, the Company issued 8,100,000 shares of common stock at an average price of $0.0399 per share (the share price at the time of issuance) to consultants who are also accredited investors.
In March 2017, the Company issued 3,000,000 shares of common stock at an average price of $0.04 per share (the share price at the time of issuance) to consultants who are also accredited investors.
In March 2017, the Company issued 500,000 shares of common stock at an average price of $0.043 per share (the share price at the time of issuance) to consultants who are also accredited investors.
In April 2017, the Company issued 100,000 shares of common stock at the market price on the date of issue.
In May 2017, the Company issued 5,250,000 shares of common stock at the market price on the date of issue.
In June 2017, the Company issued 500,000,000 shares of common stock to its CEO and its President (250,000,000 shares each) at a price of $0.0001 per common shares.
In June 2017, the Company issued 87,333,333 shares of common stock to its consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
On February 1, 2016, weIn October 2017, the Company issued 23,400,00013,000,000 shares of common stock to consultants in exchange for services renderedtheir services. The shares were issued at the market price on the date of $0.0322issuance.
In January 2018, the Company issued 5,000,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
In July 2018, the Company issued 37,500,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
In July 2017, the Company issued 600,000 shares of preferred stock to consultants in exchange for their services. The shares were issued at $0.01 per share. The issuance of these securities was deemed to be exempt from the registration requirements of the Securities Act of 1933, as amended by virtue of Section 4(a)(2) thereof, as a transaction by an issuer not involving a public offering.share, and convert 1:1 into common shares.
Item 3. Defaults Upon Senior Securities
None.
This Item is not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
This Item is not applicable.
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Item 5. Other Information
Subsequent Events
In April 2017, the Company issued 100,000 shares of common stock at the market price on the date of issue.
In May 2017, the Company issued 5,250,000 shares of common stock at the market price on the date of issue.
In June 2017, the Company issued 500,000,000 shares of common stock to its CEO and its President (250,000,000 shares each) at a price of $0.0001 per common shares.
In June 2017, the Company issued 87,333,333 shares of common stock to its consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
This Item is not applicable.In October 2017, the Company issued 13,000,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
In January 2018, the Company issued 5,000,000 shares of common stock to consultants in exchange for their services. The shares were issued at the market price on the date of issuance.
In July 2017, the Company issued 600,000 shares of preferred stock to consultants in exchange for their services. The shares were issued at $0.01 per share, and convert 1:1 into common shares.
Item 6. Exhibits
Exhibit | |
31.1 | Certification of Chief Executive Officer |
101.INS | XBRL Instance Document |
101.SCH | XBRL Taxonomy Extension Schema Document |
101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF | XBRL Taxonomy Extension Definition Document |
101.LAB | XBRL Taxonomy Extension Label Linkbase Document |
101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
Pursuant to 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.
EASTGATE BIOTECH CORP.
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Name: Anna Gluskin
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(Principal Executive Officer)
Date: August 16, 2018
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By: /s/ Rose Perri
Name: Rose Perri
Title: President and Treasurer
(Principal Financial and Accounting Officer)
Date: August 16, 2018
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