UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-QSB (Mark One) [X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 31, 2003 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE EXCHANGE ACT For the transition period from _____________ to ____________ Commission file number _______________________________ KYTO BIOPHARMA, INC. -------------------- (Exact name of small business issuer as specified in its charter) FLORIDA 65-1086538 ------- ---------- (State or other jurisdiction of (IRS Employer Identification No.) Incorporation or organization) 41A Avenue Road, Toronto, Ontario, M5R 2G3, Canada -------------------------------------------------- (Address of principal executive offices) (416) 955-0159 -------------- (Issuer's telephone number) _____________________________________________________ (Former name, former address and former fiscal year, if changed since last report) Check whether the issuer (1) filed all reports required to be filed by section 13 or 15(d) of the Exchange Act during the past 12 months (or 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 [ ] APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY PROCEEDINGS DURING THE PRECEDING FIVE YEARS Check whether the registrant filed all documents and reports required to be filed by Section 12, 13 or 15 (d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. Yes [ ] No [ ] APPLICABLE ONLY TO CORPORATE ISSUERS State the number of shares outstanding of each of the issuer's classes of common equity, as of the latest practicable date: 6,532,816 Common Shares - $0.0001 Par Value - as of December 31, 2003. Transitional Small Business Disclosure Format (Check One) Yes [ ] No [x] KYTO BIOPHARMA, INC. AND SUBSIDIARY (A Development Stage Company) FORM 10-QSB INDEX PART I. FINANCIAL INFORMATION PAGE NUMBER Item 1. Finacial Statements (Unaudited) Consolidated Balance Sheet as of December 31, 2003 3 Consolidated Statements of Operations for the three and nine months ended December 31, 2003 and 2002 4 Consolidated Statements of Cash Flows for the nine months ended December 31, 2003 and 2002 5 Notes to Unaudited Consolidated Financial Statements 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 7 Item 3. Controls and Procedures 8 PART II. OTHER INFORMATION Item 1. Legal Proceedings 9 Item 2. Changes in Securities 9 Item 3. Defaults Upon Senior Securities 9 Item 4. Submission of Matters to a Vote of Security Holders 9 Item 5. Other Information 9 Item 6. Exhibits and Reports on Form 8-K 9 SIGNATURES 11 CERTIFICATIONS 2 PART I- FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS KYTO BIOPHARMA, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED BALANCE SHEET DECEMBER 31, 2003 ----------------- (UNAUDITED) ASSETS ------ CURRENT ASSETS Cash $ 9,026 Other receivables 4,911 ----------- TOTAL CURRENT ASSETS 13,937 ----------- EQUIPMENT, NET 2,154 ----------- TOTAL ASSETS $ 16,091 =========== LIABILITIES AND STOCKHOLDERS' DEFICIENCY ---------------------------------------- CURRENT LIABILITIES Accounts payable $ 137,291 Accrued interest payable, related party 5,375 Loans payable, related parties 129,306 ----------- TOTAL CURRENT LIABILITIES 271,972 ----------- LONG TERM LIABILITIES Note Payable, related party 100,000 ----------- TOTAL LIABILITIES 371,972 ----------- REDEEMABLE COMMON STOCK PURSUANT TO PUT OPTION 173,058 shares issued and outstanding, (Redemption value, $173,058) 173,058 ----------- STOCKHOLDERS' DEFICIENCY Preferred stock, $1.00 par value, 1,000,000 shares authorized, none issued and outstanding -- Common stock. $0.0001 par value, 25,000,000 shares authorized, 6,359,758 issued and outstanding 636 Additional paid-in capital 7,400,281 Deficit accumulated during development stage (5,789,728) Accumulated other comprehensive loss (140,128) ----------- 1,471,061 Less: Deferred consulting fee (2,000,000) ----------- TOTAL STOCKHOLDERS' DEFICIENCY (528,939) ----------- TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIENCY $ 16,091 =========== See accompanying notes to unaudited consolidated financial statements 3 KYTO BIOPHARMA, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF OPERATIONS ------------------------------------- (UNAUDITED) ----------- FOR THE PERIOD FROM MARCH 5, 1999 THREE MONTHS ENDED DECEMBER 31, NINE MONTHS ENDED DECEMBER 31 (INCEPTION) TO 2003 2002 2003 2002 DECEMBER 31, 2003 ----------- ----------- ----------- ----------- ------------------ Operating Expenses Compensation $ -- $ 224,978 $ -- $ 224,978 $ 1,588,853 Depreciation and amortization 251 158 642 438 811,946 Consulting 11,400 9,557 32,973 28,806 976,372 Bad Debt -- -- -- -- 12,819 Director fees -- -- -- -- 64,100 Financing fees -- 28,781 -- 28,781 28,781 Professional fees 8,594 8,178 21,133 18,563 43,187 General and administrative 15,603 21,028 42,600 29,893 310,619 Research and development 5,962 7,388 21,127 57,175 1,013,144 Impairment loss -- -- -- -- 1,191,846 ----------- ----------- ----------- ----------- ----------- TOTAL OPERATING EXPENSES 41,810 300,068 118,475 388,634 6,041,667 ----------- ----------- ----------- ----------- ----------- LOSS FROM OPERATIONS (41,810) (300,068) (118,475) (388,634) (6,041,667) ----------- ----------- ----------- ----------- ----------- OTHER INCOME (EXPENSE) Interest income -- -- 58 -- 4,800 Interest expense (1,301) (10,840) (3,352) (12,936) (8,032) Gain on settlement -- -- -- -- 59,654 Loss on settlement -- -- -- -- (16,296) Loss on disposal of assets -- -- -- -- (567) Foreign currency transaction gain 41,774 5,963 127,752 11,110 212,380 ----------- ----------- ----------- ----------- ----------- TOTAL OTHER INCOME (EXPENSE), NET 40,473 (4,877) 124,458 (1,826) 251,939 ----------- ----------- ----------- ----------- ----------- NET INCOME (LOSS) $ (1,337) $ (304,945) $ 5,983 $ (390,460) $(5,789,728) =========== =========== =========== =========== =========== Comprehensive Loss Foreign currency translation loss (41,742) (80,354) (127,479) (80,354) (140,128) ----------- ----------- ----------- ----------- ----------- Total Comprehensive Loss $ (43,079) $ (385,299) $ (121,496) $ (470,814) $(5,929,856) =========== =========== =========== =========== =========== Net Loss Per Share - Basic and Diluted $ 0.00 $ (0.06) $ 0.00 $ (0.08) $ (1.40) =========== =========== =========== =========== =========== Weighted average number of shares outstanding during the year - basic and diluted 6,359,758 5,278,744 6,359,758 5,208,709 4,135,601 =========== =========== =========== =========== =========== See accompanying notes to unaudited consolidated financial statements 4 KYTO BIOPHARMA, INC. AND SUBSIDIARY (A DEVELOPMENT STAGE COMPANY) CONSOLIDATED STATEMENTS OF CASH FLOWS ------------------------------------- (UNAUDITED) ----------- FOR THE PERIOD FROM MARCH 5, 1999 Nine Months Ended December 31, (INCEPTION) TO 2003 2002 DECEMBER 31, 2003 ----------- ----------- ----------------- Cash Flows from Operating Activities: Net Income (loss) $ 5,983 $ (390,460) $(5,789,728) Adjustment to reconcile net income (loss) to net cash used in operating activities: Depreciation and amortization 642 438 811,946 Stock based compensation -- 224,977 1,477,892 Stock based consulting expense -- -- 854,345 Stock based director fees -- -- 64,100 Stock based rent and administrative fees 30,000 25,000 40,000 Common stock warrants issued as financing fee -- 3,783 3,783 Loss on disposal of assets -- -- 567 Impairment loss -- -- 1,191,846 Gain on settlement of accounts payable -- -- (59,654) Loss on settlement of accounts payable -- -- 16,296 Amortization of stock based financing fee -- 24,997 24,997 Changes in operating assets and liabilities: (Increase) decrease in: Other receivables 3,290 (71) (4,911) Prepaids and other assets -- (3) -- Increase (decrease) in: Accounts payable and accrued expenses 15,649 (11,730) 559,082 ----------- ----------- ----------- NET CASH PROVIDED BY (USED IN) OPERATING ACTIVITIES 55,564 (123,069) (809,439) ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of property and equipment -- -- (4,463) ----------- ----------- ----------- NET CASH USED IN INVESTING ACTIVITIES -- -- (4,463) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from common stock issuance, net of offering cost -- 22 708,222 Loan proceeds from related parties, net 75,511 159,363 283,756 Repayment of loan to related parties -- -- (26,792) ----------- ----------- ----------- NET CASH PROVIDED BY FINANCING ACTIVITIES 75,511 159,385 965,186 ----------- ----------- ----------- Effect of Exchange Rate on Cash (127,479) (9,122) (142,258) Net Increase in Cash and Cash Equivalents 3,596 27,194 9,026 Cash and Cash Equivalents at Beginning of Period 5,430 3,801 -- ----------- ----------- ----------- CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 9,026 $ 30,995 $ 9,026 =========== =========== =========== 5 See accompanying notes to unaudited consolidated financial statements KYTO BIOPHARMA, INC. AND SUBSIDIARY (A Development Stage Company) NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS DECEMBER 31, 2003 NOTE 1 BASIS OF PRESENTATION - ------------------------------ The accompanying unaudited consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules and regulations of the United States Securities and Exchange Commission for interim consolidated financial information. Accordingly, they do not include all the information and footnotes necessary for a comprehensive presentation of consolidated financial position and results of operations. It is management's opinion, however, that all material adjustments (consisting of normal recurring adjustments) have been made, which are necessary for a fair consolidated financial statement presentation. The results for the interim period are not necessarily indicative of the results to be expected for the year. Activities during the development stage include acquisition of financing and intellectual properties and research and development activities conducted by others under contracts. For further information, refer to the audited consolidated financial statements and footnotes of the Company for the year ending March 31, 2003 included in the Company's Form 10-SB. NOTE 2 LOANS PAYABLE, RELATED PARTIES - --------------------------------------- During the nine months ended December 31, 2003, the Company received the remaining $50,000 portion of a $100,000 debt financing transaction with a principal stockholder plus an additional $25,511. All loans are non-interest bearing, unsecured and due on demand. All activity with this principal stockholder represents a 100% concentration of all debt financing proceeds received during the nine months ended December 31, 2003 (See Notes 4 and 5). At December 31, 2003, total loans payable - related parties was $129,306. NOTE 3 STOCKHOLDERS' DEFICIENCY - --------------------------------- (A) REDEEMABLE COMMON STOCK PURSUANT TO PUT OPTION In November 2002 and February 2003, the Company issued an aggregate 273,058 shares of its common stock having a fair value of $273,058 to settle certain accounts payable under a debt settlement agreement ("agreement") with three unrelated parties. Of the total stock issued in connection with the agreement, two of these parties received an aggregate 173,058 shares of common stock. In addition, these two creditors received a written put option for the aggregate 173,058 shares of common stock previously issued. Specifically, three years from the date of the initial settlement, the put option holders have a thirty day period in which to notify the Company of their intent to put the options back to the Company at a redemption price of $1.00 per share. The Company will then have 90 days from the notification date to make the required payment. The redemption value of these shares of common stock at December 31, 2003 is $173,058. In accordance with the provisions of EITF No.00-19, since the contract requires a net cash settlement (transfer of assets to settle obligation), the put options are classified preceding stockholders' deficiency as a liability. The provisions of SFAS No. 150 were not effective for these transactions since the effective date for SFAS No. 150 was May 31, 2003, with no retroactive accounting treatment allowed. (B) EXPIRED COMMON STOCK OPTION On June 1, 2003, 250,000 stock options having an exercise price of $1.00 per share expired without being exercised. 6 NOTE 4 RELATED PARTIES - ------------------------ During the nine months ended December 31, 2003, the Company received the remaining $50,000 portion of a $100,000 debt financing transaction with a principal stockholder plus an additional $25,511 (See Notes 2 and 5). NOTE 5 GOING CONCERN - ---------------------- As reflected in the accompanying consolidated financial statements, the Company has a working capital deficiency of $258,035, deficit accumulated during development stage of $5,789,728 and a stockholders' deficiency of $528,938 at December 31, 2003. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan, raise capital, and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is currently a development stage company and its continued existence is dependent upon the Company's ability to resolve its liquidity problems, principally by obtaining additional debt financing and/or equity capital. During the nine months ended December 31, 2003, the Company received $75,511 in related party debt financing (See notes 2 and 4). The Company has yet to generate an internal cash flow, and until the sales of its product begins, the Company is very dependent upon debt and equity funding. The Company must successfully complete its research and development resulting in a saleable product. However, there is no assurance that once the development of the product is completed and finally gains Federal Drug and Administration clearance, that the Company will achieve a profitable level of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS PLAN OF OPERATION Kyto is in the development stage of its operations and was formed in March 1999 to acquire and develop early-stage compounds which may have potential use as therapeutic agents for the treatment of cancer and diseases of the immune system. The Company intends to build itself into a biopharmaceutical company that develops receptor-mediated technologies to control the uptake of vitamin B12 by non-controlled proliferative cells. Vitamin B12 regulates one of two major cellular pathways for the production of folates, the cell's primary source of carbon and the progenitor for the synthesis of DNA. Kyto is currently engaged in the development of a portfolio of potential targeted biologic treatments based on: i) the delivery of cytotoxic drugs to cancer cells using the vitamin B12 as a Trojan Horse, ii) the therapeutic effect of vitamin B12 depletion by receptor modulators, and iii) the use of monoclonal antibodies to block the vitamin B12 uptake by cancer cells. Kyto's portfolio consists of molecules at the research and development stage which may ultimately prove useful in the treatment of certain types of cancer and inflammatory diseases. Kyto believes that there are several human therapeutics applications for its drug candidates. Specifically, a number of properties of the Company's drug delivery and vitamin B12 depletion technologies suggest a potential role for its drug candidates in the therapy of solid tumors such as colorectal and breast cancer in addition to treatment of leukemias. The Company had not been profitable and had no revenues from operations since its inception in March 1999. As reflected in the accompanying unaudited consolidated financial statements, the Company has a working capital deficiency of $258,035, deficit accumulated during development stage of $5,789,729 and a stockholders' deficiency of $528,939 at December 31, 2003. The ability of the Company to continue as a going concern is dependent on the Company's ability to further implement its business plan, raise capital, and generate revenues. The consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern. The Company is currently a development stage company and its continued existence is dependent upon the Company's ability to resolve its liquidity problems, principally by obtaining additional debt financing and/or equity capital. The Company has yet to generate an internal cash flow, and until the sales of its product begins, the Company is very dependent upon debt and equity funding. The Company must successfully complete its research and development resulting in a saleable product. However, there is no assurance that once the development of the product is completed and finally gains Federal Drug and Administration clearance, that the Company will achieve a profitable level of operations. The Company has, as of the end of December 31, 2003, $371,972 in liabilities. The Company estimates that it will require approximately $200,000 to meet operating costs for this fiscal year, excluding research and development costs. In addition, the Company is seeking up to two million dollars ($2,000,000) in research and development funds. 7 To meet the projected cash requirements as stated above, the Company intends to obtain cash loans from one or more of its stockholders, several of whom have expressed a desire to provide operating loan funds for the Company. Additionally, the Company intends to seek alliances with other pharmaceutical and biotechnology companies for product co-development. Management is also looking to merger opportunities or to acquire companies and products to raise capital. The Company's plan of operation for the next twelve months is to continue to focus its efforts on finding new sources of capital and on research activities and the development of its drug candidates which maximize the utility and application of its platform technologies. Management expects the Company to incur additional operating losses over the next several years as research and development efforts, preclinical and clinical testing activities and manufacturing scale-up efforts expand. To date, we have not had any material product sales and do not anticipate receiving any revenue from the sale of products in the upcoming year. Our sources of working capital have been equity financings and interest earned on investments. The Company operates in a rapidly changing environment that involves a number of factors, some of which are beyond management's control, such as financial market trends and investors' appetite for new financings. It should also be emphasized that, should the Company not be successful in completing its own financing (either by debt or by the issuance of securities from treasury), the Company may be unable to continue to operate as a going concern. ITEM 3. CONTROLS AND PROCEDURES (a) Evaluation of Disclosure Controls and Procedures: An evaluation of the registrant's disclosure controls and procedures (as defined in Section 13(a)-14(c) of the Securities Exchange Act of 1934 (the "Act")) was carried out under the supervision and with the participation of the Registrant's President and Chief Executive Officer within the 90-day period preceding the filing date of this quarterly report. The registrant's President and Chief Executive Officer concluded that the registrant's disclosure controls and procedures as currently in effect are effective in ensuring that the information required to be disclosed by the registrant in the reports it files or submits under the Act is (i) accumulated and communicated to the registrant's management in a timely manner, and (ii) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms. (b) Changes in Internal Controls: In the Quarter ended December 31, 2003, the registrant did not make any significant changes in, nor take any corrective actions regarding, its internal controls or other factors that could significantly affect these controls. 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS None ITEM 2. CHANGES IN SECURITIES None ITEM 3. DEFAULTS UPON SENIOR SECURITIES None ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION None. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K Index to Exhibits on page 10. 9 INDEX TO EXHIBITS EXHIBIT NUMBER DESCRIPTION - -------------- ----------- 3(i)(a) Articles of Incorporation of Kyto Biopharma, Inc.* 3(i)(b) Articles of Amendment changing name to Kyto Biopharma, Inc.* 3(ii) Bylaws of Kyto Biopharma, Inc.* 31.1 Section 302 Certification** 32.1 Certification pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 ** * Filed as Exhibit to Company's Form 10-SB on September 12th, 203, with the Securities and Exchange Commission **Filed as Exhibit with this Form 10-QSB 10 SIGNATURES In accordance with the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. Kyto Biopharma, Inc. -------------------- (Registrant) Date February 10, 2004 /s/ Jean-Luc Berger, Director ------------------------------ (Signature) Jean-Luc Berger President and Chief Executive Officer 11