Retrieve Medical (RMHI) 10-Q 2015 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 2015

¨ 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: 005-87668

Peak Pharmaceuticals, Inc.

(Exact name of registrant as specified in its charter)

Nevada	26-1973257
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

12635 E. Montview Blvd., Suite 137, Aurora, CO  80045

(Address of principal executive offices)

303.415.2558

(Registrant’s telephone number, including area code)

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. Yes  x  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 (§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). Yes  x  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. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	o	Smaller reporting company	x
(Do not check if a smaller Reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yeso   Nox

There were 78,363,562 shares of the issuer’s common stock outstanding as of May 14, 2015.

PEAK PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015

TABLE OF CONTENTS

		PAGE
PART I - FINANCIAL INFORMATION
Item 1.	Financial Statements		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		4
Item 3.	Quantitative and Qualitative Disclosures About Market Risk		9
Item 4.	Controls and Procedures		9
PART II - OTHER INFORMATION
Item 1.	Legal Proceedings		10
Item 1A.	Risk Factors		10
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds		10
Item 3.	Defaults Upon Senior Securities		10
Item 4.	Mine Safety Disclosures		10
Item 5.	Other Information		10
Item 6.	Exhibits		10
SIGNATURES			12

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

	PAGE
Consolidated Condensed Balance Sheets as of March  31, 2015 (unaudited) and September 30, 2014		F-1
Consolidated Condensed Statements of Operations for the three and six months ended March 31, 2015 and 2014 (unaudited)		F-2
Consolidated Condensed Statements of Cash Flows for the six months ended March 31,  2015 and 2014 (unaudited)		F-3
Notes to Consolidated Condensed Financial Statements (unaudited)		F-4

3

Peak Pharmaceuticals, Inc.
Consolidated Condensed Balance Sheets
(Unaudited)
	March 31,		September 30,
	2015		2014
Assets
Current assets:
Cash	$	203,883	$	451,431
Inventory		65,320		-
Prepaid expenses		46,503		6,838
Total current assets		315,706		458,269
Fixed assets, net of depreciation		2,065		-
Intangible assets, net of amortization		24,306		30,139
Deposit		9,028		2,500
Total Assets	$	351,105	$	490,908
Liabilities and stockholders' equity
Liabilities
Accounts payable	$	56,393		43,534
Accounts payable - related parties		17,556		10,893
Accounts payable insurance		28,718		-
Accrued liabilities		84,512		-
Total current liabilities		187,179		54,427
Total Liabilities		187,179		54,427
Commitments and contingencies
Stockholders’ Equity (Deficit)
Preferred stock, $.00001 par value, 25,000,000 authorized, none issued or outstanding		-		-
Common stock, $0.0001 par value, 325,000,000 shares authorized, 78,363,562 and 78,163,562 shares issued and outstanding, as of March 31, 2015 and September 30, 2014, respectively		7,836		7,816
Additional paid in capital		5,420,441		4,287,720
Accumulated deficit		(5,264,351)		(3,859,055)
Total Stockholders’ Equity		163,926		436,481
Total Liabilities and Stockholders’ Equity	$	351,105	$	490,908
See the accompanying notes to the unaudited consolidated condensed financial statements

F-1

Peak Pharmaceuticals, Inc.
Consolidated Condensed Statements of Operations
(Unaudited)
	For the Three Months Ended				For the Six Months Ended
	March 31,				March 31,
	2015		2014		2015		2014
Revenue	$	220,932	$	-	$	382,292	$	-
Cost of revenue		71,296		-		115,268		-
Gross profit		149,636		-		267,024		-
Operating expenses:
General and administrative		736,433		315,457		1,665,870		444,522
Depreciation and amortization		3,038		-		5,955		-
Cost associated with exploring business opportunity		-		5,000		-		412,114
Total operating expenses		739,471		320,457		1,671,825		856,636
Operating loss		(589,835)		(320,457)		(1,404,801)		(856,636)
Other income (expenses)
Interest		(235)		(16,279)		(495)		(30,388)
Gain on extinguishment of debt		-		-		-		24,650
Total other income (expenses)		(235)		(16,279)		(495)		(5,738)
Net (loss)	$	(590,070)	$	(336,736)	$	(1,405,296)	$	(862,374)
Basic and diluted loss per common share	$	(0.01)	$	(0.01)	$	(0.02)	$	(0.01)
Weighted average number of common shares outstanding		78,363,562		66,990,267		78,276,605		78,228,900
See the accompanying notes to the unaudited consolidated condensed financial statements

F-2

Peak Pharmaceuticals, Inc.
Consolidated Condensed Statements of Cash Flows
For the Six Months Ended March 31, 2015 and 2014
(Unaudited)
	2015		2014
Net cash used in operating activities	$	(245,362)	$	(486,888)
Cash flows from investing activity activities:
Purchase of fixed assets		(2,186)		-
Net cash used in financing activities		(2,186)		-
Cash flows from financing activities:
Proceeds from debt		-		500,000
Sale of stock		-		225,000
Repurchase of stock		-		(125,000)
Net cash provided by financing activities		-		600,000
Net change in cash		(247,548)		113,112
Cash, beginning of period		451,431		4,906
Cash, end of period	$	203,883	$	118,018
Supplemental disclosure of cash flow information
Cash paid for interest	$	495	$	-
Cash paid for income taxes	$	-	$	-
Non-cash financing activities:
Common shares for settlement of debt	$	-	$	9,860
Cancellation of shares	$	-	$	30,000
See the accompanying notes to the unaudited consolidated condensed financial statements

F-3

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

March 31, 2015 and 2014

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer to Peak Pharmaceuticals, Inc. and its subsidiary.  The accompanying unaudited condensed consolidated financial statements of Peak Pharmaceuticals, Inc., at March 31, 2015 and 2014 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended September 30, 2014. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended March 31, 2015 and 2014 presented are not necessarily indicative of the results to be expected for the full year.

Peak Pharmaceuticals, Inc. was incorporated in Nevada on December 18, 2007 as Surf A Movie Solutions Inc., which was previously engaged in the development, sales and marketing of online video stores. We decided to change our business objective and in connection therewith we first changed our name to Frac Water Systems, Inc. and explored the possibilities of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  On December 31, 2013, we determined not to move forward with that business model.

On March 14, 2014, we changed our name to Cannabis Technology Corp. The name change was made in connection with our entry into the business of manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of cannabis, for the treatment of various conditions and diseases.  On December 23, 2014, we changed our name again to Peak Pharmaceuticals, Inc.  This name change was made to make our name more consistent with our business operations and plans relating to development, manufacturing and marketing of hemp-based nutraceutical and supplement products for the human and animal health markets.

Financial statements prepared in conformity with GAAP contemplate a company’s continuation as a going concern. We have incurred net losses since inception. In addition, we have an accumulated deficit of $5,264,351 as of March 31, 2015. This condition raises substantial doubt as to our ability to continue as a going concern. In response to these conditions, we may raise additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. These financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiary Peak BioPharma Corp. All inter-company balances and transactions among the companies have been eliminated upon consolidation.

Inventory

Inventory consists of finished goods and is carried at the lower of cost or market on a first in first out basis.

Revenue Recognition

We recognize revenue from products sold when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collection is reasonably assured.

Expenses associated with exploring business opportunities

During the three and six month periods ended March 31, 2014, we were exploring opportunities related to solutions for the treatment and recycling of waste water resulting principally from oil and gas exploration and productions activities. We determined not to proceed in that industry. Costs included legal fees, fees associated with the assumption of certain notes and other payments under the Agreement, consulting fees, attending conferences, web development, and travel. These costs include a non-cash charge of $102,932 which is the assumption of debt related to the Agreement and $2,413 which is the fair value of options granted under the Agreement.

Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. We incurred $11,335 and $11,867 in research and development expenses for the three and six months ended March 31, 2015, respectively. There were no research and development expenses in 2014.

F-4

Loss per Share

We calculate net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding for the period, and diluted earnings per share is computed by including Common Stock equivalents outstanding for the period in the denominator. At March 31, 2015 and 2014 any equivalents would have been anti-dilutive as we had losses for the periods then ended.

Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position. ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.

Note 2 - Intangibles

Intangibles at March 31, 2015 and September 30, 2014, consist of Website, $35,000, less accumulated amortization of $10,694 and $4,861, respectively.  The website is being amortized over three years.  

Estimated future amortization expense related to intangible property as of March 31, 2015 is as follows:

Years ending September 30,	Total Amortization
2015		$	5,833
2016			11,667
2017			6,806
		$	24,306

Note 3 – Related Party Transactions

Parties, which can be corporations or individuals, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.  Companies are also considered to be related if they are subject to common control or common significant influence.

Accounts payable – related parties are the amounts payable to officers and directors of the Company for reimbursement of expenses they incurred on behalf of the Company as well as Director fees.

Note 4 – Commitments and Contingencies

Canna-Pet License Agreement

In July, 2014, through our wholly-owned subsidiary, Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with a Washington limited liability corporation (“Licensor”), which owns the brand name “Canna-Pet” and certain related intellectual property including, but not limited to, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists, trade secrets and know-how, and other related intellectual property (collectively, the “Licensed Intellectual Property”), used by Licensor in the conduct of its business related to the production and sale of medical products made from industrial hemp which are intended exclusively for consumption by pets. Pursuant to the License Agreement, Licensor granted to us a perpetual, exclusive, world-wide license to use the Licensed Intellectual Property in conjunction with our business and the production and sale of medical products made from industrial hemp as well as the right to sublicense the Licensed Intellectual Property to third parties. The License Agreement gives us the right to produce and sell existing products utilizing the Licensed Intellectual Property and to develop new products, jointly with Licensor or otherwise, based upon the Licensed Intellectual Property. The License Agreement provides us with an immediate revenue source and access to Licensor’s customer base. During the term of the license, all intellectual property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.

In consideration of the grant of the license, we have agreed to pay Licensor license fees in the form of royalty payments calculated on the basis of gross proceeds received by us from sales of products manufactured, marketed or sold by us utilizing the Licensed Intellectual Property or any subsequently developed intellectual property which is jointly owned by us and Licensor.

F-5

The royalty will be calculated and paid by us on a quarterly basis using calendar quarters ending March 31, June 30, September 30, and December 31 each year and will be equal to fifteen percent (15%) of the first $1,000,000 of gross proceeds received by us during the quarter and ten percent (10%) on gross proceeds in excess of $1,000,000 received by us during the quarter. On or before the date, which is 45 days following the end of each calendar quarter, we will calculate the amount of the royalty due to Licensor for that quarter and will make payment in full of such amount to Licensor. For purposes of calculating the amount of royalty due for each quarter, “gross proceeds” will not include amounts received by us as payments for any and all taxes, duties, governmental charges, sales expenses, freight or shipping charges, and the like.

Commencing in 2015, we have agreed to pay Licensor a guaranteed minimum royalty amounts based upon the gross proceeds received by us from the sale of products (the “License Based Products”) utilizing the Licensed Intellectual Property or subsequently developed jointly owned intellectual property. The guaranteed minimum royalty payments are as follows:

Time Period	Minimum Annual License Fee
January 1, 2015 through December 31, 2015	Calculated based on gross proceeds equal to twice the verifiable sales of License Based Products for the calendar year ended December 31, 2014, with royalties equal to 15% on gross proceeds of up to $4,000,000 for the year and 10% on gross proceeds in excess of $4,000,000.
January 1, 2016 through December 31, 2016	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2017 through December 31, 2017	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2018 through December 31, 2018	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2019 through December 31, 2019	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2020 through December 31, 2020, and all succeeding years	The minimum annual royalty payment for the calendar year beginning January 1, 2020 and for all subsequent calendar years will be equal to the minimum annual royalty payment calculated for the calendar year ended December 31, 2019.

All royalty payments made by us during any calendar year will be credited against the minimum annual royalty amounts due and payable by us for such year. In the event that the aggregate amount of royalties payable by us for any calendar year are not sufficient to satisfy our minimum annual royalty payment obligation for that year, we will be obligated to pay the unpaid balance of the minimum royalty amount to Licensor on or before February 28 of the following year

Royalty payments for the three and six month periods ended March 31, 2015 were $33,140 and $57,344, respectively, and are included in general and administrative expenses and accrued liabilities.

Non-cancelable Operating Lease

We lease office and lab space under non-cancelable operating lease, which expires August 31, 2015.  There are no automatic extension periods in the lease.

The aggregate minimum requirements under non-cancelable leases as of March 31, 2015 are as follows:

Years ending September 30,
2015	$	9,700

Rent expense was $5,820 and $0.00 for the three months ended March 31, 2015 and 2014, respectively, and $12,151 and $4,000 for the six months ended March 31, 2015 and 2014, respectively.

Accounts payable insurance relates to committed payments for the purchase of insurance.  The amount of the insurance policy was $60,000 and the original payable was $48,000, bears interest at the rate of 6.5% per annum, and has monthly payments of $4,944 through September 2015.

F-6

Note 5 – Stockholders’ Equity

On December 22, 2014, pursuant to a Placement Agent Agreement, we issued 200,000 restricted shares of our common stock. The shares were valued at $36,000, $0.18 per share, the trading value, and charged to stock based compensation.

Note 6 – Options

In 2013 we issued options to purchase 375,000 shares of our common stock. The options have a term of 10 years, are exercisable at $0.0067 per share and vested twelve months from the date of issuance, October 10, 2013.

The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $2,413. The options have been expensed to the cost of the project which we are not moving forward on. The following assumptions were used in the Black-Scholes option pricing model:

Expected life (in years)	10
Volatility (based on a comparable companies)	130	%
Risk Free interest rate	2.71	%
Dividend yield (on common stock)	-

In May 2014, we issued non-qualified options to purchase 4,500,000 shares of our common stock to certain officers of the Company. The options are exercisable at $0.20 per share and have graded vesting over 4 years.

The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $4,415,649.  The following assumptions were used in the Black-Scholes option pricing model:

Expected life (in years)	10
Volatility (based on a comparable companies)	123	%
Risk Free interest rate	2.56	%
Dividend yield (on common stock)	-

As per guidance in the ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), we are amortizing the fair value of the options on a straight line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (graded vesting attribution method).

The following is a summary of outstanding stock options issued to employees and directors as of March 31, 2015:

	Number of Options	Exercise price per share		Average remaining term in years	Aggregate intrinsic value at date of grant
Outstanding September 30, 2014	7,416,000	$	0.0067 - 0.20		-
Issued					-
Cancelled					-
Outstanding March 31, 2015	7,416,000	$	0.0067 - 0.20	9.07	-
Exercisable	3,766,000	$	0.0067 - 0.20	9.00	-

The following is a summary of outstanding stock options issued to non-employees, excluding directors, as of December 31, 2014:

	Number of Options	Exercise price per share		Average remaining term in years	Aggregate intrinsic value at date of grant
Outstanding September 30, 2014	375,000	$	0.0067		-
Issued					-
Cancelled					-
Outstanding March 31, 2015	375,000	$	0.0067	8.55	-
Exercisable	375,000	$	0.0067	8.55	-

F-7

Total option expense for the three and six months ended March 31, 2015 was $474,753 and $1,096,741, respectively.

Note 7 – Income Tax

We account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. As of March 31, 2015 the estimated effective tax rate for the year will be zero.

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2011 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

For the three and six months ended March 31, 2015 and 2014 we did not have any interest and penalties associated with tax positions. As of March 31, 2015 we did not have any significant unrecognized uncertain tax positions.

Note 8 - Subsequent Events

Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements.

F-8

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties.

Overview

Peak Pharmaceuticals, Inc. was incorporated in Nevada on December 18, 2007 as Surf A Movie Solutions Inc., which was previously engaged in the development, sales and marketing of online video stores. We decided to change our business objective and in connection therewith we first changed our name to Frac Water Systems, Inc. and explored the possibilities of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  On December 31, 2013, we determined not to move forward with that business model.

On March 14, 2014, we changed our name to Cannabis Technology Corp. The name change was made in connection with our entry into the business of manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of cannabis, for the treatment of various conditions and diseases.  On December 23, 2014, we changed our name again to Peak Pharmaceuticals, Inc.  This name change was made to make our name more consistent with our business operations and plans relating to development, manufacturing and marketing of hemp-based nutraceutical and supplement products for the human and animal health markets.

All of our business operations are carried on through our wholly-owned subsidiary, Peak BioPharma Corp., a Colorado corporation.  

In July 2014, through our wholly-owned subsidiary, Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with a Washington limited liability corporation (“Licensor”), which owns the brand name “Canna-Pet” and certain related intellectual property including, but not limited to, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists, trade secrets and know-how, and other related intellectual property (collectively, the “Licensed Intellectual Property”), used by Licensor in the conduct of its business related to the production and sale of medical products made from industrial hemp which are intended exclusively for consumption by pets. Pursuant to the License Agreement, Licensor granted to us a perpetual, exclusive, world-wide license to use the Licensed Intellectual Property in conjunction with our business and the production and sale of medical products made from industrial hemp as well as the right to sublicense the Licensed Intellectual Property to third parties. The License Agreement gives us the right to produce and sell existing products utilizing the Licensed Intellectual Property and to develop new products, jointly with Licensor or otherwise, based upon the Licensed Intellectual Property. The License Agreement provides us with an immediate revenue source and access to Licensor’s customer base. During the term of the license, all intellectual property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.

In consideration of the grant of the license, we have agreed to pay Licensor license fees in the form of royalty payments calculated on the basis of gross proceeds received by us from sales of products manufactured, marketed or sold by us utilizing the Licensed Intellectual Property or any subsequently developed intellectual property which is jointly owned by us and Licensor.

4

The royalty will be calculated and paid by us on a quarterly basis using calendar quarters ending March 31, June 30, September 30, and December 31 each year and will be equal to fifteen percent (15%) of the first $1,000,000 of gross proceeds received by us during the quarter and ten percent (10%) on gross proceeds in excess of $1,000,000 received by us during the quarter. On or before the date, which is 45 days following the end of each calendar quarter, we will calculate the amount of the royalty due to Licensor for that quarter and will make payment in full of such amount to Licensor. For purposes of calculating the amount of royalty due for each quarter, “gross proceeds” will not include amounts received by us as payments for any and all taxes, duties, governmental charges, sales expenses, freight or shipping charges, and the like.

Commencing in 2015, we have agreed to pay Licensor a guaranteed minimum royalty amounts based upon the gross proceeds received by us from the sale of products (the “License Based Products”) utilizing the Licensed Intellectual Property or subsequently developed jointly owned intellectual property. The guaranteed minimum royalty payments are as follows:

Time Period	Minimum Annual License Fee
January 1, 2015 through December 31, 2015	Calculated based on gross proceeds equal to twice the verifiable sales of License Based Products for the calendar year ended December 31, 2014, with royalties equal to 15% on gross proceeds of up to $4,000,000 for the year and 10% on gross proceeds in excess of $4,000,000.
January 1, 2016 through December 31, 2016	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2017 through December 31, 2017	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2018 through December 31, 2018	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2019 through December 31, 2019	Calculated based on gross proceeds equal to 115% of the amount of gross proceeds used to calculate the minimum royalty for the prior calendar year ended December 31.
January 1, 2020 through December 31, 2020, and all succeeding years	The minimum annual royalty payment for the calendar year beginning January 1, 2020 and for all subsequent calendar years will be equal to the minimum annual royalty payment calculated for the calendar year ended December 31, 2019.

All royalty payments made by us during any calendar year will be credited against the minimum annual royalty amounts due and payable by us for such year. In the event that the aggregate amount of royalties payable by us for any calendar year are not sufficient to satisfy our minimum annual royalty payment obligation for that year, we will be obligated to pay the unpaid balance of the minimum royalty amount to Licensor on or before February 28 of the following year

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

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.

Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.

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 ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.

Results of Operations

Results of Operation for Three Months Ended March 31, 2015 as Compared to the Three Months Ended March 31, 2014

We began generating revenue during in October 2014.  For three months ended March 31, 2015 we had revenue of $220,932.  Our cost of revenue, which is our cost of products sold for that period was $71,296 and our gross profit was $149,636 which was 67.8%.  We had no sales in three months ended March 31, 2014.

During the three months ended March 31, 2015 our business efforts were dedicated to the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinnoids, an abundant and pharmaceutically active component of industrial hemp, for the prevention and alleviation of various conditions and diseases.  During the three months ended March 31, 2014 we were exploring business opportunities of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  On December 31, 2013, we determined not to move forward with that proposed business.

In connection with that business and general and administrative expenses not directly related to the cost associated with our previous business, we incurred general and administrative expenses of $896,354.  The following is a breakdown of those costs:

	Three months ended March 31,
	2015		2014		Difference
Stock based compensation	$	474,753	$	259,661	$	215,092
Legal and professional fees		64,945		28,915		36,030
Personnel costs		53,757		18,363		35,394
Investor and public relations		26,203		-		26,203
Royalty		33,140		-		33,140
Directors’ fees		15,000		-		15,000
Other		68,635		8,518		60,117
	$	736,433	$	315,457	$	420,976

Equity based compensation was from the amortization of previously issued stock option to officers and directors.  Seven million four hundred sixteen thousand (7,416,000) options are outstanding, and vest over varying periods.  The options are exercisable through 2024 at prices ranging from $0.0067 to $0.20.  Three million six hundred sixty six thousand (3,766,000) of the outstanding options are currently exercisable.

Legal and professional fees include legal, accounting and consulting fees we incurred in connection with the changes in our business and the costs of being a public company. We anticipate that legal and professional fees will remain at or near the current levels.

Personnel costs relate to 2 full time employees during the year. We anticipate hiring at least 2 more employees in the near future.

Investor and public relations costs were paid primarily to three firms in order for the public and industry to be aware of our business direction. We do not anticipate that these cost will be as high in future periods.

Royalty expense is directly related to the License Agreement with Canna-Pet as more fully described above.  Our sales under this agreement started in October 2014.

We did not incur any Directors’ fees in the three months ended March 31, 2014.

Other general and administrative costs include costs such as insurance, IT costs, travel, communications, and office expenses.  

In December 2013, after completing our analysis of our opportunities in the oilfield services business, we determined that we would not enter that segment. We expensed all cost related to our evaluation of the industry and any commitment made in that endeavor.

We had a loss from operations of $589,835 for the three months ended March 31, 2015 as compared to $320,457 for the three months

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ended March 31, 2014.

Other income and expense included interest expense of $235 and $16,279 for the three months ended March 31, 2015 and 2014, respectively.  We had convert able debt in 2014 which was converted to equity prior to the three month period ended March 31, 2015.

We had a net loss of $590,070 for the three months ended March 31, 2015 as compared to $336,736 for 2014.

Results of Operation for Six Months Ended March 31, 2015 as Compared to the Six Months Ended March 31, 2014

We began generating revenue during in October 2014.  For six months ended March 31, 2015 we had revenue of $382,292.  Our cost of revenue, which is our cost of products sold for that period was $115,268 and our gross profit was $267,024 which was 69.8%.  We had no sales in six months ended March 31, 2014.

During the six months ended March 31, 2015 our business efforts were dedicated to the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinnoids, an abundant and pharmaceutically active component of industrial hemp, for the prevention and alleviation of various conditions and diseases.  During the six months ended March 31, 2014 we were exploring business opportunities of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  On December 31, 2013, we determined not to move forward with that proposed business.

In connection with that business and general and administrative expenses not directly related to the cost associated with our previous business, we incurred general and administrative expenses of $1,665,870.  The following is a breakdown of those costs:

	Six months ended March 31,
	2015		2014		Difference
Stock based compensation	$	1,132,741	$	260,583	$	872,158
Legal and professional fees		143,830		68,670		75,160
Personnel costs		101,989		43,060		58,929
Investor and public relations		76,210		9,000		67,210
Royalty		57,344		0		57,344
Director's fees		24,000		12,500		11,500
Other		129,756		50,709		79,047
	$	1,665,870	$	444,522	$	1,221,348

Equity based compensation was from the amortization of previously issued stock option to officers and directors.  Seven million four hundred sixteen thousand (7,416,000) options are outstanding, and vest over varying periods.  The options are exercisable through 2024 at prices ranging from $0.0067 to $0.20.  Three million six hundred sixty six thousand (3,766,000) of the outstanding options are currently exercisable.

Legal and professional fees include legal, accounting and consulting fees we incurred in connection with the changes in our business and the costs of being a public company. We anticipate that legal and professional fees will remain at or near the current levels.

Personnel costs relate to 2 full time employees during the year. We anticipate hiring at least 2 more employees in the near future.

Investor and public relations costs were paid primarily to three firms in order for the public and industry to be aware of our business direction. We do not anticipate that these cost will be as high in future periods.

Royalty expense is directly related to the License Agreement with Canna-Pet as more fully described above.  Our sales under this agreement started in October 2014.

From January 2014 until September 2014 we paid no Directors’ fees.  We began paying fees in October 2014.

Other general and administrative costs include costs such as insurance, IT costs, travel, communications, and office expenses.  

In December 2013, after completing our analysis of our opportunities in the oilfield services business, we determined that we would not enter that segment. We expensed all cost related to our evaluation of the industry and any commitment made in that endeavor.

The following is a breakdown of such costs:

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Legal fees	$	128,203
Cash payments pursuant to the JV Agreement		80,000
Non-cash payments (assumption of debt) pursuant to the JV Agreement		102,932
Non-cash payments (fair value of options) pursuant to the JV Agreement		2,413
Consulting fees		41,651
Web development		25,000
Conference fess and cost of attendance		17,423
Travel costs		14,492
	$	412,114

We had a loss from operations of $1,404,801 for the six months ended March 31, 2015 as compared to $856,636 for the six months ended March 31, 2014.

Other income and (expense) included interest expense of $495 and $30,388 for the six months ended March 31, 2015 and 2014, respectively.  We had convert able debt in 2014 which was converted to equity prior to the three month period ended March 31, 2015.  During the six months ended March 31, 2014 we had a gain on the extinguishment of debt of $24,650.

We had a net loss of $1,405,296 for the six months ended March 31, 2015 as compared to $862,374 for 2014.

Liquidity and Capital Resources

We expect that we will need to raise additional funds in order to fully effectuate our business plan. We may seek to raise additional capital through the issuance of debt or equity, through entrance into strategic arrangements with third parties, or through other means.  However, there can be no assurance that additional capital will be available to us at all, or if available, that it will be available on terms which are acceptable to us.  Our inability to raise additional capital would have a severe negative impact on our ability to remain a viable company. 

At March 31, 2015, cash was $203,883.

Net cash used in operating activities was $245,362 for the six months ended March 31, 2015, as compared to net cash used of $486,888 for the six months ended March 31, 2014. The decrease in net cash used in operations was primarily due to our change in operating plans and the revenue generated from the sale of our products.

We used cash of $2,186 for investing activities during the six month periods ended March 31, 2015. There were no investing activities in the six months ended March 31, 2014.

There were no cash financing activities during the six months ended March 31, 2015.  During the six months ended March 31, 2014, we had $500,000 in proceeds from sales of our convertible notes.  In addition we received $225,000 in proceeds from the sales of our common stock and used cash to repurchased stock in the amount of $125,000.

We believe that we have sufficient capital to maintain the business of manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of cannabis, for the treatment of various conditions and diseases, however we will need additional capital to bring the business to profitability.

There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing, or if it is offered to us on unacceptable terms, our business plan may have to be modified or curtailed or certain aspects of it may need to be terminated. There is no assurance that even with financing we will be able to achieve our goals.

Off Balance Sheet Arrangements

None.

Contractual Obligations

Not applicable.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

We maintain disclosure controls and procedures that are designed to ensure that material information required to be disclosed in our periodic reports filed under the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and to ensure that such information is accumulated and communicated to our management, including our chief executive officer and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended March 31, 2015 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, we determined that as of March 31, 2015, our disclosure controls and procedures were not effective due to a lack of segregation of duties caused by limited personnel.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls 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. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls

During the fiscal quarter ended March 31, 2015, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

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PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

None

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

·   should not in all instances be treated as categorical statements of fact, but rather as a way of allocating the risk to one of the parties if those statements prove to be inaccurate;

·   have been qualified by disclosures that were made to the other party in connection with the negotiation of the applicable agreement, which disclosures are not necessarily reflected in the agreement;

·   may apply standards of materiality in a way that is different from what may be viewed as material to you or other investors; and

·   were made only as of the date of the applicable agreement or such other date or dates as may be specified in the agreement and are subject to more recent developments.

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

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The following exhibits are included as part of this report:

Exhibit No.	Description
31.1	Certification of Principal Executive Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002
31.2	Certification of Principal Financial Officer pursuant to Section 302 the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
32.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

101 SCH XBRL Schema Document

101 INS XBRL Instance Document

101 CAL XBRL Taxonomy Extension Calculation Linkbase Document

101 LAB XBRL Taxonomy Extension Label Linkbase Document

101 PRE XBRL Taxonomy Extension Presentation Linkbase Document

101 DEF XBRL Taxonomy Extension Definition Linkbase Document

________________

 ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

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SIGNATURES

In accordance with the requirements of the Securities Exchange Act of 1934, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Peak Pharmaceuticals, Inc.
Date: May 15, 2015	By:	/s/ Soren Mogelsvang
		Soren Mogelsvang
		Chief Executive Officer
	Peak Pharmaceuticals, Inc.
Date: May 15, 2015	By:	/s/ Arnold Tinter
		Arnold Tinter
		Chief Financial Officer

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