BetterLife Pharma Inc. - Quarter Report: 2010 October (Form 10-Q)
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 October 31, 2010
or
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to Commission File Number 333-161157
NEUROKINE PHARMACEUTICALS
INC.
(Exact name of registrant as specified in its
charter)
| Nevada | N/A |
| (State or other jurisdiction of incorporation or organization) | (IRS Employer Identification No.) |
| 1275 West 6th Ave. Vancouver, British Columbia, Canada | V6H 1A6 |
| (Address of principal executive offices) | (Zip Code) |
604.805.7783
(Registrant’s telephone
number, including area code)
N/A
(Former name, former address and
former fiscal year, if changed since last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] YES
[ ] NO
Indicate by check mark whether the registrant has submitted
electronically and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation
S-T (§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 [ ] NO
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small 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 [ ] | Accelerated filer [ ] | |
| Non-accelerated filer [ ] | (Do not check if a smaller reporting company) | Smaller reporting company [X] |
Indicate by check mark whether the registrant is a shell company
(as defined in Rule 12b-2 of the Exchange Act
[ ]
YES [X] NO
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Check whether the registrant has filed all documents and reports
required to be filed by Sections 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
Indicate the number of shares outstanding of each of the
issuer’s classes of common stock, as of the latest practicable date.
33,621,618
common shares issued and outstanding as of December 15, 2010
Table of Contents
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
The unaudited interim financial statements of Neurokine Pharmaceuticals Inc. (the “Company”, “Neurokine”, “we”, “our”, “us”) follow. All currency references in this report are to Canadian dollars unless otherwise noted.
NEUROKINE PHARMACEUTICALS INC.
Financial Statements
(Expressed in Canadian dollars)
Nine Months Ended October 31, 2010
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Balance Sheets
(Expressed in Canadian dollars)
| October 31, | January 31, | |||||
| 2010 | 2010 | |||||
| $ | $ | |||||
| (unaudited) | ||||||
| Assets | ||||||
| Current Assets | ||||||
| Cash | 1,900 | 18,979 | ||||
| Total Assets | 1,900 | 18,979 | ||||
| Liabilities and Stockholders’ Equity | ||||||
| Current Liabilities | ||||||
| Accounts payable and accrued liabilities (Note 5) | 25,002 | 9,809 | ||||
| Loan payable (Note 3) | – | 5,000 | ||||
| Total Current Liabilities | 25,002 | 14,809 | ||||
| Stockholders’ Equity (Deficit) | ||||||
| Common Stock: 200,000,000 shares
authorized, without par value 33,621,618 and 23,829,618 shares issued and outstanding |
914,286 | 826,484 | ||||
| Common stock subscribed (Note 4) | 1,607 | 32,000 | ||||
| Additional paid-in capital | 47,235 | 42,159 | ||||
| Accumulated deficit during the development stage | (986,230 | ) | (896,473 | ) | ||
| Total Stockholders’ Equity (Deficit) | (23,102 | ) | 4,170 | |||
| Total Liabilities and Stockholders’ Equity (Deficit) | 1,900 | 18,979 | ||||
| Nature of Operations and Continuance of Business (Note 1) |
(The accompanying notes are an integral part of these financial statements)
F-1
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Statements of Operations
(Expressed in Canadian
dollars)
(unaudited)
| Accumulated | |||||||||||||||
| from June 10, | |||||||||||||||
| For the Three | For the Three | For the Nine | For the Nine | 2002 (Date of | |||||||||||
| Months Ended | Months Ended | Months Ended | Months Ended | Inception) to | |||||||||||
| October 31, | October 31, | October 31, | October 31, | October 31, | |||||||||||
| 2010 | 2009 | 2010 | 2009 | 2010 | |||||||||||
| $ | $ | $ | $ | $ | |||||||||||
| Revenue | – | – | – | – | – | ||||||||||
| Expenses | |||||||||||||||
| Foreign exchange (gain) loss | 1,034 | – | 821 | 1,169 | 4,957 | ||||||||||
| General and administrative | 4,081 | 1,330 | 26,357 | 55,940 | 102,399 | ||||||||||
| Management fees (Note 5) | 9,000 | 9,600 | 23,476 | 22,400 | 69,976 | ||||||||||
| Professional fees | 6,071 | – | 39,103 | 20,183 | 84,224 | ||||||||||
| Research and development | – | 3,185 | – | 3,185 | 224,674 | ||||||||||
| Royalty and license fee | – | – | – | – | 500,000 | ||||||||||
| Total Expenses | 20,186 | 14,115 | 89,757 | 102,877 | 986,230 | ||||||||||
| Net Loss | (20,186 | ) | (14,115 | ) | (89,757 | ) | (102,877 | ) | (986,230 | ) | |||||
| Net loss per share, basic and diluted | – | – | – | – | |||||||||||
| Weighted average shares outstanding | 31,934,661 | 23,829,618 | 26,636,241 | 23,782,727 |
(The accompanying notes are an integral part of these financial statements)
F-2
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Statements of Cash Flows
(Expressed in Canadian
dollars)
(unaudited)
| Accumulated from | |||||||||
| For the Nine | For the Nine | June 10, 2002(Date | |||||||
| Months Ended | Months Ended | of Inception) to | |||||||
| October 31, | October 31, | October 31, | |||||||
| 2010 | 2009 | 2010 | |||||||
| $ | $ | $ | |||||||
| Operating Activities | |||||||||
| Net loss for the period | (89,757 | ) | (102,877 | ) | (986,230 | ) | |||
| Adjustments to reconcile net loss to net cash used in operating activities: | |||||||||
| Shares issued for management fees | 6,400 | 22,400 | 38,400 | ||||||
| Shares issued for royalties | – | – | 500,000 | ||||||
| Shares issued for services | – | – | 60,000 | ||||||
| Stock-based compensation | 5,076 | 42,159 | 47,235 | ||||||
| Changes in operating assets and liabilities: | |||||||||
| Accounts payable and accrued liabilities | 20,476 | – | 30,285 | ||||||
| Due to related parties | – | 3,453 | – | ||||||
| Net Cash Used In Operating Activities | (57,805 | ) | (34,865 | ) | (310,310 | ) | |||
| Financing Activities | |||||||||
| Proceeds from issuance of common shares and subscriptions | 40,726 | 20,421 | 307,210 | ||||||
| Proceeds from loans received | – | 5,000 | 5,000 | ||||||
| Net Cash Provided by Financing Activities | 40,726 | 25,421 | 312,210 | ||||||
| Increase (Decrease) in Cash | (17,079 | ) | (9,444 | ) | 1,900 | ||||
| Cash – Beginning of Period | 18,979 | 29,724 | – | ||||||
| Cash – End of Period | 1,900 | 20,280 | 1,900 | ||||||
| Supplemental disclosures: | |||||||||
| Interest paid | – | – | – | ||||||
| Income tax paid | – | – | – | ||||||
| Non-cash investing and financing activities: | |||||||||
| Shares issued for settlement of debt | 10,000 | -- | 10,000 |
(The accompanying notes are an integral part of these financial statements)
F-3
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Notes to the Financial Statements
Nine Months
Ended October 31, 2010
(Expressed in Canadian dollars)
(unaudited)
| 1. |
Nature of Business and Continuance of Operations |
|
Neurokine Pharmaceuticals Inc. (the “Company”) was incorporated in British Columbia under the Business Corporations Act on June 10, 2002. The Company is a development stage company, as defined by Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 915, “Development Stage Entities” and is in the business of developing and commercializing new uses for existing prescription drugs for diseases mediated by acute and chronic inflammatory reactions as well as developing proprietary encapsulation technology in the treatment of neurodegenerative diseases. | |
|
These financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at April 30, 2010, the Company has not earned any revenue, and has an accumulated deficit of $986,230. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern. | |
| 2. |
Significant Accounting Policies |
| (a) |
Basis of Presentation | |
|
The financial statements and the related notes of the Company are prepared in accordance with generally accepted accounting principles in the United States and are expressed in Canadian dollars. The Company’s fiscal year-end is January 31. |
| (b) |
Interim Financial Statements | |
|
These interim unaudited financial statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information. They do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. Therefore, these financial statements should be read in conjunction with the Company’s audited financial statements and notes thereto for the year ended January 31, 2010. | ||
|
The financial statements included herein are unaudited; however, they contain all normal recurring accruals and adjustments that, in the opinion of management, are necessary to present fairly the Company’s financial position at October 30, 2010, and the results of its operations and cash flows for the three and nine month periods ended October 31, 2010 and 2009. The results of operations for the period ended October 31, 2010 are not necessarily indicative of the results to be expected for future quarters or the full year. |
F-4
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Notes to the Financial Statements
Nine Months
Ended October 31, 2010
(Expressed in Canadian dollars)
(unaudited)
| 2. |
Significant Accounting Policies (continued) | |
| (c) |
Use of Estimates | |
|
The preparation of these financial statements in conformity with generally accepted accounting principles in the United States 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 revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair value on share-based payments, and deferred income tax 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 of 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 the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. | ||
| (d) |
Recent Accounting Pronouncements | |
|
In March 2010, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update 2010-11 (ASU 2010-11), “Derivatives and Hedging (Topic 815): Scope Exception Related to Embedded Credit Derivatives.” The amendments in this Update are effective for each reporting entity at the beginning of its first fiscal quarter beginning after June 15, 2010. Early adoption is permitted at the beginning of each entity’s first fiscal quarter beginning after issuance of this Update. The Company does not expect the provisions of ASU 2010-11 to have a material effect on the financial position, results of operations or cash flows of the Company. | ||
|
In February 2010, the FASB issued ASU No. 2010-09 “Subsequent Events (ASC Topic 855) “Amendments to Certain Recognition and Disclosure Requirements” (“ASU No. 2010-09”). ASU No. 2010-09 requires an entity that is an SEC filer to evaluate subsequent events through the date that the financial statements are issued and removes the requirement for an SEC filer to disclose a date, in both issued and revised financial statements, through which the filer had evaluated subsequent events. The adoption did not have an impact on the Company’s financial position and results of operations. | ||
|
In January 2010, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) No. 2010-06, “Improving Disclosures about Fair Value Measurements.” ASU No. 2010-06 amends FASB Accounting Standards Codification (“ASC”) 820 and clarifies and provides additional disclosure requirements related to recurring and non-recurring fair value measurements and employers’ disclosures about postretirement benefit plan assets. This ASU is effective for interim and annual reporting periods beginning after December 15, 2009. The adoption of ASU 2010-06 did not have a material impact on the Company’s financial statements. | ||
|
In January 2010, the FASB issued an amendment to ASC 505, Equity, where entities that declare dividends to shareholders that may be paid in cash or shares at the election of the shareholders are considered to be a share issuance that is reflected prospectively in EPS, and is not accounted for as a stock dividend. This standard is effective for interim and annual periods ending on or after December 15, 2009 and is to be applied on a retrospective basis. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements. | ||
F-5
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Notes to the Financial Statements
Nine Months
Ended October 31, 2010
(Expressed in Canadian dollars)
(unaudited)
| 2. |
Significant Accounting Pronouncements (continued) | |
| (d) |
Recent Accounting Pronouncements | |
|
In January 2010, the FASB issued an amendment to ASC 820, Fair Value Measurements and Disclosure, to require reporting entities to separately disclose the amounts and business rationale for significant transfers in and out of Level 1 and Level 2 fair value measurements and separately present information regarding purchase, sale, issuance, and settlement of Level 3 fair value measures on a gross basis. This standard, for which the Company is currently assessing the impact, is effective for interim and annual reporting periods beginning after December 15, 2009 with the exception of disclosures regarding the purchase, sale, issuance, and settlement of Level 3 fair value measures which are effective for fiscal years beginning after December 15, 2010. The adoption of this standard is not expected to have a significant impact on the Company’s financial statements. | ||
|
The Company has implemented all new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its financial position or results of operations. | ||
| 3. |
Loan Payable | |
|
On April 1, 2009, the Company entered into a demand loan with a company controlled by a director of the Company for $5,000. Under the terms of the loan, the amount is unsecured, non-interest bearing, and due on demand. On July 30, 2010, the loan was converted into 2,000,000 common shares of the Company. Refer to Note 4(d). | ||
| 4. |
Common Stock | |
| (a) |
On March 31, 2010, the Company issued 144,000 common shares with a fair value of $28,800 for management fees that were previously recorded as common stock subscribed. | |
| (b) |
On May 3, 2010, the Company issued 48,000 common shares with a fair value of $9,600 for management fees that were previously recorded as common stock subscribed. | |
| (c) |
On July 31, 2010, the Company received $20,566 (US$20,000) for the issuance of 4,000,000 units. Each unit is comprised of one common share of the Company and one-quarter share purchase warrant where each share purchase warrant grants the holder to purchase one additional common share of the Company at $0.005 per unit for a five year period from the date of issuance. | |
| (d) |
On July 31, 2010, the Company received $10,283 (US$10,000) for the issuance of 2,000,000 units. Each unit is comprised of one common share of the Company and one share purchase warrant where each share purchase warrant grants the holder to purchase one additional common share of the Company at $0.005 per unit for a five year period from the date of issuance. | |
| (e) |
On July 31, 2010, the Company issued 2,000,000 units at US$0.005 per unit to settle $5,000 of loan payable and $5,283 of accounts payable. Each unit is comprised of one common share of the Company and one share purchase warrant where each share purchase warrant grants the holder to purchase one additional common share of the Company at $0.005 per unit for a five year period from the date of issuance. | |
F-6
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Notes to the Financial Statements
Nine Months
Ended October 31, 2010
(Expressed in Canadian dollars)
(unaudited)
| 4. |
Common Stock (continued) | |
| (f) |
On September 9, 2010, the Company issued 1,200,000 common shares for proceeds of $6,203 (US$6,000) relating to the exercise of share purchase warrants and issued 400,000 common shares for proceeds of $2,067 (US$2,000) relating to the exercise of stock options. The Company also issued 400,000 common shares for stock options exercised for proceeds of US$2,000. | |
| 5. |
Related Party Transactions | |
| (a) |
During the nine months ended October 31, 2010, the Company incurred management fees of $18,400 (2009 - $nil) to management and directors of the Company. | |
| (b) |
As at October 31, 2010, the Company owes $919 (January 31, 2010 - $2,913) to a company controlled by a director of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| (c) |
As at October 31, 2010, the Company owes $7,443 (January 31, 2010 - $343) to the President of the Company. The amounts owing are unsecured, non-interest bearing, and due on demand. | |
| 6. |
Stock Options | |
|
The following table summarizes the continuity of the Company’s stock options: | ||
| Weighted | Weighted | ||||||||||||
| average | average | Aggregate | |||||||||||
| exercise | remaining | intrinsic | |||||||||||
| Number | price | contractual life | value | ||||||||||
| of options | $ | (years) | $ | ||||||||||
| Outstanding and exercisable, January 31, 2010 | 1,300,000 | 0.05 | |||||||||||
| Granted | 1,200,000 | 0.005 | |||||||||||
| Exercised | (400,000 | ) | 0.005 | ||||||||||
| Expired | (300,000 | ) | 0.20 | ||||||||||
| Outstanding and exercisable, October 31, 2010 | 1,800,000 | 0.005 | 4.35 | 4,527,000 |
Additional information regarding stock options as of October 31, 2010, is as follows:
| Exercise | ||
| Number of | Price | |
| Options | $ | Expiry Date |
| 1,000,000 | 0.005 | January 21, 2015 |
| 800,000 | 0.005 | May 25, 2015 |
| 1,800,000 |
F-7
NEUROKINE PHARMACEUTICALS INC.
(A Development Stage
Company)
Notes to the Financial Statements
Nine Months
Ended October 31, 2010
(Expressed in Canadian dollars)
(unaudited)
| 6. |
Stock Options (continued) |
|
The fair values for stock options granted have been estimated using the Black-Scholes option pricing model assuming no expected dividends and the following weighted average assumptions: |
| Nine months | |
| ended | |
| October 31, | |
| 2010 | |
| Risk-free Interest rate | 2.06% |
| Expected life (in years) | 5.0 |
| Expected volatility | 125% |
|
The weighted average fair value of the stock options granted during fiscal 2010 was $0.004 per option. As of October 31, 2010, the Company has no unrecognized compensation expense relating to unvested options. | |
| 7. |
Share Purchase Warrants |
|
The following table summarizes the continuity of share purchase warrants: |
| Weighted | |||||||
| Average | |||||||
| Number of | Exercise Price | ||||||
| Warrants | $ | ||||||
| Balance, January 31, 2010 | – | – | |||||
| Issued | 5,000,000 | 0.005 | |||||
| Exercised | (1,200,000 | ) | 0.005 | ||||
| Balance, October 31, 2010 (unaudited) | 3,800,000 | 0.005 |
As at October 31, 2010, the following share purchase warrants were outstanding:
| Exercise | ||
| Number of | Price | |
| Warrants | $ | Expiry Date |
| 3,800,000 | 0.005 | July 29, 2015 |
| 3,800,000 |
F-8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
Forward Looking Statements
This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements.
These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our consolidated financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein.
General Overview
We are a development stage biopharmaceutical company. We were incorporated in the Province of British Columbia, Canada under the name “649186 B.C. Ltd.” on June 10, 2002. On September 9, 2003 we changed our name to “Xerxes Health Corp.” and on June 26, 2007 we adopted our current name, “Neurokine Pharmaceuticals Inc.”. We have no subsidiaries.
Our principal executive office is located at 1275 West 6th Avenue, Vancouver, British Columbia, Canada, V6H 1A6. Our telephone number is (604) 805-7783.
We are engaged in the development and commercialization of therapeutic pharmaceutical products with a strategic emphasis on research and development to innovate applications for existing drugs. This is commonly known as drug re-profiling. Our research and development activities are focused on assessing known drugs and compounds, developing hypotheses concerning their usage for new indications (diseases), and conducting experimentation and clinical research to test those hypotheses. Where appropriate based on our research, we intend to depart from a strict re-profiling strategy to develop new variants of, or delivery methods for, existing drugs or compounds.
Our business model currently includes the following activities:
- identifying new indications for approved and marketed products;
- securing intellectual property rights to those products;
- conducting preliminary laboratory tests and clinical trials; and
- establishing partnerships with large pharmaceutical and biotechnology companies to develop and commercialize products outside of their initial market focus.
Results of Operations
The following summary of our results of operations should be read in conjunction with our financial statements for the quarter ended October 31, 2010, which are included herein.
Our operating results for the three and nine months ended October 31, 2010 and 2009 are summarized as follows:
2
| Three Months Ended | Nine Months Ended | |||||||||||
| October 31, | October 31, | |||||||||||
| 2010 | 2009 | 2010 | 2009 | |||||||||
| Revenue | $ | - | $ | - | $ | - | $ | - | ||||
| Foreign exchange loss (gain) | $ | 1,034 | $ | - | $ | 821 | $ | 1,169 | ||||
| General and administrative | $ | 4,081 | $ | 1,330 | $ | 26,357 | $ | 55,940 | ||||
| Management fees | $ | 9,000 | $ | 9,600 | $ | 23,476 | $ | 22,400 | ||||
| Professional fees | $ | 6,071 | $ | - | $ | 39,103 | $ | 20,183 | ||||
| Research and Development | $ | - | $ | 3,185 | $ | - | $ | 3,185 | ||||
| Net Loss | $ | 20,186 | $ | 14,115 | $ | 89,757 | $ | 102,877 | ||||
For the three months ended October 31, 2010, our net losses increased by $6,071 as compared to the three months ended October 31, 2009. Our losses increased primarily due to an increase in professional fees. For the nine months ended October 31, 2010, our net losses decreased by $13,120 as compared to the nine months ended October 31, 2009. Our losses decreased primarily due to a decrease in general and administrative expenses. Our net loss from inception is $986,230.
Our total current liabilities as of October 31, 2010 were $25,002 as compared to total liabilities of $14,809 as of January 31, 2010. The increase was due to an increase in trade payables related to professional fees and filing fees.
Revenue
We have not earned any revenues since our inception and we do not anticipate earning revenues in the upcoming quarter.
Liquidity and Financial Condition
Working Capital
| At | At | |||||
| October 31, | January 31, | |||||
| 2010 | 2010 | |||||
| Current Assets | $ | 1,900 | $ | 18,979 | ||
| Current Liabilities | $ | 25,002 | $ | 14,809 | ||
| Working Capital (Deficit) | $ | (23,102 | ) | $ | 4,170 |
Cash Flows
| Nine Months Ended | ||||||
| October 31, | ||||||
| 2010 | 2009 | |||||
| Net Cash Provided (Used) by Operating Activities | $ | (57,805 | ) | $ | (34,865 | ) |
| Net Cash Provided (Used) by Financing Activities | $ | 40,726 | $ | 25,421 | ||
| Increase (Decrease) in Cash During the Period | $ | (17,079 | ) | $ | (9,444 | ) |
Operating Activities
The increase in cash used on operating activities during the period in 2010 was the result of increased expenses and a decrease in the use of stock based compensation to pay for services. The increase in cash provided by financing activities during the period ended 2010 was the result of an increase in proceeds from issuances of our common stock.
3
Investing Activities
We did not have any investing activities during the nine months ended October 31, 2010 and 2009.
Financing Activities
We will require additional funds to fund our budgeted expenses over the next 12 months. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable. We need to raise additional funds in the immediate future in order to proceed with our budgeted expenses.
Specifically, we estimate our operating expenses and working capital requirements for the next 12 months to be as follows:
| Description | Estimated Expenses | |||
| Sales and Marketing Costs | ||||
| Advertising | $ | 3,600 | ||
| Investor Relations | $ | 60,000 | ||
| Literature | $ | 6,000 | ||
| Conference Attendance | $ | 21,000 | ||
| Travel | $ | 22,000 | ||
| Entertainment and Promotions | $ | 2,400 | ||
| Total Sales and Marketing Costs | $ | 115,000 | ||
| General and Administrative Expenses | ||||
| Professional Fees | $ | 60,000 | ||
| Consulting Support | $ | 30,000 | ||
| Employee Salaries and Benefits | $ | 384,000 | ||
| Office Equipment | $ | 1,600 | ||
| Office Supplies | $ | 1,200 | ||
| Office and Lab Lease | $ | 40,000 | ||
| Telephone, Fax, Cellular, Internet | $ | 6,000 | ||
| Vehicles and Transportation | $ | 14,400 | ||
| Total General and Administrative Expenses | $ | 537,200 | ||
| Clinical Trials | ||||
| NK-001 | $ | 1,355,000 | ||
| NK-002 | $ | 500,000 | ||
| Total Clinical Trials | $ | 1,855,000 |
Based on our planned expenditures, we will require additional funds of approximately $2.5 million to proceed with our business plan over the next 12 months. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources.
Inflation
The amounts presented in the financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments.
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Off-Balance Sheet Arrangements
As of October 31, 2010, we had no off balance sheet transactions that have or are reasonably likely to have a current or future effect on our financial condition, changes in our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements.
Use of Estimates
The preparation of these financial statements in conformity with generally accepted accounting principles in the United States 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 revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the fair value on share-based payments, and deferred income tax 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 of 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 the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.
Basic and Diluted Net Loss Per Share
Our 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 income (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 common shares 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
As a “smaller reporting company”, we are not required to provide the information required by this Item.
ITEM 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission's rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure. We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (our principal executive officer) and our chief financial officer (our principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of October 31, 2010. Based on the evaluation of these disclosure controls and procedures the chief executive officer (our principal executive officer) and the chief financial officer (our principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective.
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Changes in Internal Controls
During the quarter covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On September 9, 2010, we issued 1,200,000 common shares for proceeds of $6,203 (US$6,000) relating to the exercise of share purchase warrants and issued 400,000 common shares for proceeds of $2,067 (US$2,000) relating to the exercise of stock options. We also issued 400,000 common shares for stock options exercised for proceeds of US$2,000. These securities were issued under exemptions from registration in Regulation S of the Securities Act of 1933, as amended.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. [REMOVED AND RESERVED]
ITEM 5. OTHER INFORMATION
None.
ITEM 6. EXHIBITS
| Exhibit | Description |
| No. | |
| (3) | Articles of Incorporation and Bylaws |
|
3.1 |
Articles of Incorporation 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
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| 3.2 |
“Company Act” Memorandum of 649186 B.C. Ltd. Certificate of Amendment (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.3 |
Certificate of Filing of 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.4 |
Certificate of Incorporation of 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.5 |
Certificate of Name Change of 649186 B.C. Ltd. to Xerxes Health Corp. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.6 |
Transition Application of Xerxes Health Corp. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.7 |
Certificate of Name Change of Xerxes Health Corp. to Neurokine Pharmaceuticals Inc. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 3.8 |
Notice of Alteration to Authorized Share Structure (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| (10) |
Material Contracts |
| 10.1 |
Share Subscription of Dr. Ahmad Doroudian dated September 17, 2007 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.2 |
Non-Exclusive License Agreement with Globe Laboratories Inc. dated June 17, 2008 (incorporated by reference from our Registration Statement on Form S-1/A filed on December 3, 2009) |
| 10.3 |
Management Consulting Agreement with Penny Green dated April 1, 2009 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.4 |
Director and Option Agreement with Dr. Kamran Shojania dated July 13, 2009 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.5 |
Director and Option Agreement with Dr. Maziar Badii dated July 13, 2009 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.6 |
Shareholder’s Agreement withi Dr. Hassan Salari dated July 24, 2009 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.7 |
Shareholder’s Agreement with Francine Salari dated July 24, 2009 (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009) |
| 10.8 |
Clinical Trial Services Agreement with Virtus Clinical Development (Pty) Limited dated March 1, 2009 (incorporated by reference from our Registration Statement on Form S-1/A filed on March 4, 2010) |
| 10.9 |
Master Service Agreement with Northern Lipids Inc. Dated October 2, 2007 (incorporated by reference from our Registration Statement on Form S-1/A filed on December 3, 2009) |
| 10.10 |
Assignment of Invention (NK-001) dated January 30, 2008 (incorporated by reference from our Registration Statement on Form S-1/A filed on December 3, 2009) |
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| 10.11 | Assignment of Invention (NK-002) dated April 18, 2008 (incorporated by reference from our Registration Statement on Form S-1/A filed on December 3, 2009) |
| 10.12 | Subscription Agreement with Hassan Salari (incorporated by reference from our Form 8-K filed on August 12, 2010) |
| 10.13 | Subscription Agreement with Ahmad Doroudian (incorporated by reference from our Form 8-K filed on August 12, 2010) |
| (31) | Rule 13a-14(d)/15d-14(d) Certifications |
| 31.1* | Section 302 Certification under Sarbanes-Oxley Act of 2002 of Ahmad Doroudian |
| 31.2* | Section 302 Certification under Sarbanes-Oxley Act of 2002 of Moira Ong |
| (32) | Section 1350 Certifications |
| 32.1* | Section 906 Certification under Sarbanes-Oxley Act of 2002 of Ahmad Doroudian |
| 32.2* | Section 906 Certification under Sarbanes-Oxley Act of 2002 of Moira Ong |
* Filed herewith.
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SIGNATURES
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.
| NEUROKINE PHARMACEUTICALS INC. | |
| (Registrant) | |
| Dated: December 15, 2010 | /s/ Ahmad Doroudian |
| Dr. Ahmad Doroudian | |
| President, Chief Executive Officer and Director | |
| (Principal Executive Officer) | |
| Dated: December 15, 2010 | /s/ Moira Ong |
| Moira Ong | |
| Chief Financial Officer | |
| (Principal Financial Officer and Principal Accounting | |
| Officer) |
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