CANNABIS GLOBAL, INC. - Quarter Report: 2008 November (Form 10-Q)
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
____________________
FORM
10-Q
(Mark
One)
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T
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QUARTERLY
REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For
quarterly period ended November 30, 2008
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£
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TRANSITION
REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
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For the
transition period from _____ to _____
Commission
File Number 333-146404
____________________
MICROCHANNEL
TECHNOLOGIES CORPORATION
(Exact
name of registrant as specified in its charter)
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Nevada
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98-0539775
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(State
or other jurisdiction of incorporation or organization)
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(I.R.S.
Employer Identification Number)
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3905
National Drive, Suite 110
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20866
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Burtonsville,
MD
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(Zip
Code)
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(Address
of principal executive offices)
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(888)
522-6422
(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 T 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.
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Large
accelerated filer
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£
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Accelerated
filer
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£
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Non-accelerated
filer (Do not check if a smaller reporting company)
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£
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Smaller
reporting company
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T
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Indicate
by check mark whether the registrant is a shell company (as defined in 12b-2 of
the Exchange Act.) Yes T No £.
Indicate
the number of shares outstanding of each of the issuer’s classes of common
stock, as of the latest practicable date: 53,864,600 shares of Common Stock, par
value $0.0001, were outstanding on January 1, 2009.
MICROCHANNEL TECHNOLOGIES CORPORATION
FORM
10-Q
For
the Quarterly Period Ended November 30, 2008
Table
of Contents
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PART
I FINANCIAL INFORMATION
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Item
1.
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Financial
Statements (Unaudited).
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3
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4
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5
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6
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7
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Item
2.
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10 | |
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Item
4T.
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13
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PART
II OTHER INFORMATION
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Item
1.
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14
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Item
2.
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14
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Item
3.
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14
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Item
4.
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14
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Item
5.
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14
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Item
6.
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14
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Certifications
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PART I —
FINANCIAL
INFORMATION
Item 1. Financial Statements
(Unaudited)
MICROCHANNEL TECHNOLOGIES CORPORATION
(A
Development Stage Company)
BALANCE
SHEETS
NOVEMBER
30, 2008 AND AUGUST 31, 2008
(Expressed
in U.S. Dollars)
(Unaudited)
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November 30,
2008
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August 31,
2008
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|||||||
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ASSETS
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||||||||
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Current
assets
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||||||||
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Cash and cash equivalents
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$ | 310,885 | $ | 328,260 | ||||
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Total
current assets
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310,885 | 328,260 | ||||||
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Total assets
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$ | 310,885 | $ | 328,260 | ||||
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LIABILITIES
AND STOCKHOLDERS' EQUITY
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||||||||
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Liabilities
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||||||||
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Current
liabilities
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||||||||
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Accounts
payable
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$ | 7,366 | $ | 3,840 | ||||
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Accrued payable
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- | 10,000 | ||||||
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Total
liabilities
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7,366 | 13,840 | ||||||
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Stockholders'
equity
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||||||||
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Common
stock: $0.0001 par value; Authorized: 300,000,000 shares 53,864,600 issued
and outstanding at November 30, 2008 and August 31, 2008
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5,386 | 5,386 | ||||||
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Additional
paid-in capital
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556,711 | 556,711 | ||||||
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Deficit accumulated during the development
stage
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(258,578 | ) | (247,677 | ) | ||||
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Total stockholders' equity
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303,519 | 314,420 | ||||||
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Total liabilities and stockholders'
equity
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$ | 310,885 | $ | 328,260 | ||||
(The
accompanying notes are an integral part of these financial
statements)
MICROCHANNEL TECHNOLOGIES CORPORATION
(A
Development Stage Company)
STATEMENTS
OF OPERATIONS
FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2008 AND 2007
AND
FOR THE PERIOD FROM INCEPTION (FEBRUARY 28, 2005) TO NOVEMBER 30,
2008
(Expressed
in U.S. Dollars)
(Unaudited)
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Cumulative
February 28, 2005 (inception) to
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Three
Months Ended November 30,
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|||||||||||
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November 30, 2008
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2008
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2007
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||||||||||
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Revenue
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$ | - | $ | - | $ | - | ||||||
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Operating
expenses (income)
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||||||||||||
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Option
fee (Note 4)
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2,000 | - | - | |||||||||
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Research
and development (Note 4)
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175,839 | (10,000 | ) | - | ||||||||
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Director
and officer fees- related party (Note 5)
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23,950 | 6,750 | 3,000 | |||||||||
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Professional
fees
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47,428 | 12,146 | 6,437 | |||||||||
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Other operating expenses
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18,301 | 2,423 | 1,755 | |||||||||
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Total operating expenses
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267,518 | 11,319 | 11,192 | |||||||||
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Loss
from operations
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(267,518 | ) | (11,319 | ) | (11,192 | ) | ||||||
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Other
income
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||||||||||||
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Interest income
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8,940 | 418 | 3,730 | |||||||||
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Total other income
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8,940 | 418 | 3,730 | |||||||||
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Net loss
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$ | (258,578 | ) | $ | (10,901 | ) | $ | (7,462 | ) | |||
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Net
loss per common share:
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||||||||||||
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Basic
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$ | (0.00 | ) | $ | (0.00 | ) | ||||||
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Weighted
average number of common shares outstanding:
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||||||||||||
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Basic
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53,864,600 | 53,864,600 | ||||||||||
(The
accompanying notes are an integral part of these financial
statements)
MICROCHANNEL TECHNOLOGIES CORPORATION
(A
Development Stage Company)
STATEMENTS
OF STOCKHOLDERS' EQUITY (DEFICIT)
FROM
INCEPTION (FEBRUARY 28, 2005) TO NOVEMBER 30, 2008
(Expressed
in U.S. Dollars)
(Unaudited)
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Deficit
accumulated
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||||||||||||||||||||
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Common Stock
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Additional
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during
the
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Total
stockholders'
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|||||||||||||||||
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Shares
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Amount
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paid-in capital
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development stage
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equity (deficit)
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||||||||||||||||
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Common
stock issued at $0.0001 per share
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53,864,600 | $ | 5,386 | $ | (5,286 | ) | $ | - | $ | 100 | ||||||||||
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Net loss for the period ended August 31,
2005
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- | - | - | (52,898 | ) | (52,898 | ) | |||||||||||||
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Balance,
August 31, 2005
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53,864,600 | 5,386 | (5,286 | ) | (52,898 | ) | (52,798 | ) | ||||||||||||
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Net loss for the year ended August 31,
2006
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- | - | - | (82,739 | ) | (82,739 | ) | |||||||||||||
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Balance,
August 31, 2006
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53,864,600 | 5,386 | (5,286 | ) | (135,637 | ) | (135,537 | ) | ||||||||||||
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Conversion
of debt to equity on August 31, 2007
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- | - | 561,997 | - | 561,997 | |||||||||||||||
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Net loss for the year ended August 31,
2007
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- | - | - | (27,405 | ) | (27,405 | ) | |||||||||||||
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Balance,
August 31, 2007
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53,864,600 | 5,386 | 556,711 | (163,042 | ) | 399,055 | ||||||||||||||
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Net loss for the year ended August 31,
2008
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- | - | - | (84,635 | ) | (84,635 | ) | |||||||||||||
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Balance,
August 31, 2008
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53,864,600 | $ | 5,386 | $ | 556,711 | $ | (247,677 | ) | $ | 314,420 | ||||||||||
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Net loss for the three months ended November 30,
2008
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- | - | - | (10,901 | ) | (10,901 | ) | |||||||||||||
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Balance, November 30, 2008
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53,864,600 | $ | 5,386 | $ | 556,711 | $ | (258,578 | ) | $ | 303,519 | ||||||||||
(The
accompanying notes are an integral part of these financial
statements)
STATEMENTS
OF CASH FLOWS
FOR
THE THREE MONTHS ENDED NOVEMBER 30, 2008 AND 2007, AND FOR THE
PERIOD
FROM INCEPTION (FEBRUARY 28, 2005) TO NOVEMBER 30, 2008
(Expressed
in US Dollars)
(Unaudited)
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Cumulative
February 28, 2005 (inception) to
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Three
Months Ended November 30,
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|||||||||||
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November 30, 2008
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2008
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2007
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||||||||||
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Cash
flows from operating activities
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||||||||||||
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Net
loss for the period
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$ | (258,578 | ) | $ | (10,901 | ) | $ | (7,462 | ) | |||
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Adjustments
to reconcile net loss to net cash used in operating
activities:
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||||||||||||
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Changes
in operating assets and liabilities:
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||||||||||||
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Increase
in accounts payable
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7,366 | 3,526 | - | |||||||||
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Increase (decrease) in accrued
payable
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- | (10,000 | ) | 900 | ||||||||
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Net cash flows used in operating
activities
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(251,212 | ) | (17,375 | ) | (6,562 | ) | ||||||
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Cash
flows from financing activities
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||||||||||||
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Increase
in payable - related party
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561,997 | - | 3,000 | |||||||||
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Proceeds from the issuance of common
stock
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100 | - | - | |||||||||
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Net cash flows provided by financing
activities
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562,097 | - | 3,000 | |||||||||
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Increase
(decrease) in cash and cash equivalents
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310,885 | (17,375 | ) | (3,562 | ) | |||||||
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Cash
and cash equivalents at beginning of period
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- | 328,260 | 399,055 | |||||||||
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Cash and cash equivalents at end of
period
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$ | 310,885 | $ | 310,885 | $ | 395,493 | ||||||
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Supplemental
cash flow information:
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||||||||||||
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Interest
paid in cash
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$ | - | $ | - | $ | - | ||||||
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Income
taxes paid in cash
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- | - | - | |||||||||
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Supplemental
non-cash transaction:
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||||||||||||
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Conversion
of debt to equity
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$ | 561,997 | $ | - | $ | - | ||||||
(The
accompanying notes are an integral part of these financial
statements)
MICROCHANNEL TECHNOLOGIES CORPORATION
(a
development stage company)
NOTES
TO THE FINANCIAL STATEMENTS (UNAUDITED)
November
30, 2008
(Expressed
in US Dollars)
Note
1. Organization and Going Concern Uncertainties
MicroChannel
Technologies Corporation (“the Company”) was formed as a wholly-owned subsidiary
of Octillion Corp. Octillion Corp. spun off the Company’s issued and outstanding
shares to Octillion’s shareholders on December 18, 2007, the date on which a
registration statement was declared effective by the United States Securities
and Exchange Commission (“SEC”). The Company was incorporated under the name
MultiChannel Technologies Corporation on February 28, 2005 in the State of
Nevada, and changed to its existing name on April 4, 2005. On October 2, 2007,
the Company executed a forward split of its issued and outstanding shares of
common stock on the basis of 53.8646 for 1, resulting in 53,864,600 common
shares to be issued and outstanding. The effects of the stock split
have been retroactively applied to all periods presented.
On April
29, 2005, an Option Agreement (the “ISURF Agreement”) was executed between Iowa
State Research Foundation Inc., (“ISURF”) and the Company, pursuant to which the
Company acquired an option to obtain a license to certain nerve regeneration
technologies being developed by ISURF. On September 30, 2008, the ISURF
Agreement expired, thereby concluding the Company’s research and development of
technologies and products for peripheral and optic nerve damage and nerve
regeneration. Upon conclusion of the ISURF Agreement, researchers
were unable to identify suitable, commercially-available cells for use in this
technology. The Company does not anticipate renewal of the ISURF
Agreement or the Sponsored Project Agreement related to the ISURF Nerve
Regeneration Technology. The Company is currently undertaking efforts
to identify new commercial opportunities, including other innovative medical and
health care technologies.
The
Company has not generated any revenues and has an accumulated deficit of
$258,578 as of November 30, 2008. In view of these conditions, the ability of
the Company to continue as a going concern is in substantial doubt and dependent
upon achieving a profitable level of operations and on the ability of the
Company to obtain necessary financing to fund ongoing operations. Management
believes that its current and future plans enable it to continue as a going
concern for the next twelve months.
To meet
these objectives, the Company continues to seek other sources of financing in
order to support existing operations and expand the range and scope of its
business. However, there are no assurances that any such financing can be
obtained on acceptable terms, if at all. Management believes that actions
presently taken provide the opportunity for the Company to continue as a going
concern. The Company's ability to achieve these objectives cannot be determined
at this time.
These
financial statements do not give effect to any adjustments which would be
necessary should the Company be unable to continue as a going concern and
therefore be required to realize its assets and discharges its liabilities in
other than the normal course of business and at amounts different from those
reflected in the accompanying financial statements.
Note
2. Presentation of Interim Information
The
accompanying unaudited interim financial statements have been prepared in
accordance with Form 10-Q instructions and in the opinion of management of
MicroChannel Technologies Corporation, include all adjustments (of a normal
recurring nature) considered necessary to present fairly the financial position
of the Company as of November 30, 2008 and August 31, 2008 and the related
results of operations, stockholders’ equity (deficit), and cash flows for the
three months ended November 30, 2008 and 2007 and for the cumulative period from
February 28, 2005 (inception), to November 30, 2008. These results have been
determined on the basis of generally accepted accounting principles and
practices in the United States and applied consistently with those used in the
preparation of the Company’s 2008 Annual Report on Form 10-K.
Certain
information and footnote disclosures normally included in the quarterly
financial statements presented in accordance with generally accepted accounting
principles in the United States have been condensed or omitted. It is suggested
that the accompanying unaudited interim financial statements be read in
conjunction with the financial statements and notes thereto incorporated by
reference in the Company’s 2008 Annual Report on Form 10-K.
Recently
Issued Accounting Standards
In
September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (SFAS
157), which defines fair value, establishes a framework for measuring fair
value, and expands disclosures about fair-value measurements required under
other accounting pronouncements. It does not change existing guidance as to
whether or not an instrument is carried at fair value. SFAS 157 is effective for
financial statements issued for fiscal years beginning after November 15, 2007,
and interim periods within those fiscal years. In February 2008, the FASB issued
FASB Staff Position No. FAS 157-1 (FSP FAS 157-1), which excludes SFAS No. 13,
“Accounting for Leases” and certain other accounting pronouncements that address
fair value measurements under SFAS 13, from the scope of SFAS 157. In February
2008, the FASB issued FASB Staff Position No. 157-2 (FSP 157-2), which provides
a one-year delayed application of SFAS 157 for nonfinancial assets and
liabilities, except for items that are recognized or disclosed at fair value in
the financial statements on a recurring basis (at least annually). The Company
is required to adopt SFAS 157 as amended by FSP FAS 157-1 and FSP FAS 157-2 on
September 1, 2009, the beginning of its fiscal year 2010. The Company
does not expect the application of SFAS No. 157 to have a material effect on the
Company’s financial statements.
In
October 2008, the FASB issued FASB Staff Position No. FAS 157-3, “Determining
the Fair Value of a Financial Asset in a Market That Is Not Active” (FSP 157-3),
which clarifies the application of SFAS 157 when the market for a financial
asset is inactive. Specifically, FSP 157-3 clarifies how (1) management’s
internal assumptions should be considered in measuring fair value when
observable data are not present, (2) observable market information from an
inactive market should be taken into account, and (3) the use of broker quotes
or pricing services should be considered in assessing the relevance of
observable and unobservable data to measure fair value. The guidance in FSP
157-3 is effective immediately. The adoption of FSP 157-3 is not
expected to have a material effect on the Company’s financial
statements.
In
February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for
Financial Assets and Financial Liabilities, Including an Amendment to FASB No.
115” (SFAS 159). Under SFAS 159, entities may elect to measure specified
financial instruments and warranty and insurance contracts at fair value on a
contract-by-contract basis, with changes in fair value recognized in earnings
each reporting period. The election, called the fair value option, will enable
entities to achieve an offset accounting effect for changes in fair value of
certain related assets and liabilities without having to apply more complex
hedge accounting provisions. SFAS No. 159 is effective for fiscal
years beginning after November 15, 2007. The Company did not elect
the fair value option for any of its existing financial assets or financial
liabilities; therefore, this statement did not have a material impact on the
Company’s financial statements.
In June
2008, the FASB issued Staff Position EITF 03-06-1, “Determining Whether
Instruments Granted in Share-Based Payment Transactions Are Participating
Securities” (FSP EITF 03-06-1). FSP EITF 03-06-1 provides that unvested
share-based payment awards that contain non-forfeitable rights to dividends or
dividend equivalents (whether paid or unpaid) are participating securities and
shall be included in the computation of earnings per share pursuant to the
two-class method in SFAS No. 128, “Earnings per Share”. FSP
EITF 03-06-1 did not have any impact on the Company’s financial
statements.
In June
2007, the Emerging Issues Task Force of the FASB issued EITF Issue No. 07-3,
Accounting for Nonrefundable
Advance Payments for Goods or Services to be Used in Future Research and
Development Activities, (“EITF 07-3”) which is effective for new
contracts entered into for fiscal years beginning after December 15,
2007. EITF 07-3 requires that nonrefundable advance payments for
future research and development activities be deferred and capitalized. Such
amounts will be recognized as an expense as the goods are delivered or the
related services are performed. The Company adopted EITF 07-3 on
September 1, 2008, the beginning of its fiscal year 2009. The
adoption of EITF 07-3 did not have a material impact on the Company’s financial
statements.
In
December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in
Consolidated Financial Statements, an Amendment of Accounting Research Bulletin
No 51” (SFAS 160). SFAS 160 establishes accounting and reporting standards for
ownership interests in subsidiaries held by parties other than the parent,
changes in a parent’s ownership of a noncontrolling interest, calculation and
disclosure of the consolidated net income attributable to the parent and the
noncontrolling interest, changes in a parent’s ownership interest while the
parent retains its controlling financial interest and fair value measurement of
any retained noncontrolling equity investment. SFAS 160 is effective for
financial statements issued for fiscal years beginning after December 15, 2008,
and interim periods within those fiscal years. Early adoption is prohibited. The
Company must adopt SFAS 160 on September 1, 2009, the beginning of its fiscal
year 2010. The Company does not expect the application of SFAS No.
160 to have a material effect on its financial statements.
In
December 2007, the FASB issued SFAS No. 141R, “Business Combinations” (SFAS
141R), which establishes principles and requirements for the reporting entity in
a business combination, including recognition and measurement in the financial
statements of the identifiable assets acquired, the liabilities assumed, and any
noncontrolling interest in the acquiree. SFAS 141R applies prospectively to
business combinations for which the acquisition date is on or after the
beginning of the first annual reporting period beginning on or after December
15, 2008, and interim periods within those fiscal years. The Company must adopt
SFAS 141R on September 1, 2009, the beginning of its fiscal year
2010. The Company does not expect the application of SFAS 141R to
have a material effect on its financial statements.
Note
3. Net Loss Per Share
Basic net
loss per share is computed by dividing the net loss by the weighted average
number of common shares outstanding during the period. The Company does not have
any stock options and warrants outstanding that would be
anti-dilutive.
For
purposes of earnings per share computations, shares of common stock that are
issuable at the end of a reporting period are included as
outstanding.
Following
is the computation of basic net loss per share for the three months ended
November 30, 2008 and 2007:
|
Three months ended
November 30,
|
||||||||
|
2008
|
2007
|
|||||||
|
Numerator
- net loss
|
$ | (10,901 | ) | $ | (7,462 | ) | ||
|
Denominator
- weighted average number of common shares outstanding
|
53,864,600 | 53,864,600 | ||||||
|
Basic
net loss per common share
|
$ | (0.00 | ) | $ | (0.00 | ) | ||
Note
4. Option Interest in Nerve Regeneration Technologies
On April
29, 2005, an Option Agreement (the “ISURF Agreement”) was executed between Iowa
State Research Foundation Inc., (“ISURF”) and the Company, pursuant to which the
Company acquired an option to obtain a license to certain nerve regeneration
technologies being developed by ISURF. On October 13, 2005, the ISURF Agreement
was amended to modify the payment due dates. On November 12,
2007, the ISURF Agreement was amended to extend the ISURF Agreement to September
30, 2008 and increase the total amount due pursuant to the ISURF Agreement by
$50,000 (the “Amended ISURF Agreement”). On September 30, 2008, the Amended
ISURF Agreement expired, thereby concluding the Company’s research and
development of technologies and products for peripheral and optic nerve damage
and nerve regeneration. Upon conclusion of the Amended ISURF
Agreement, researchers were unable to identify suitable, commercially-available
cells for use in this technology. The Company does not anticipate
renewal of the Amended ISURF Agreement or the Sponsored Project Agreement
related to the ISURF Nerve Regeneration Technology.
The
consideration payable pursuant to the Amended ISURF Agreement is summarized as
follows:
|
-
|
Payment
of $2,000 in option fees upon execution of the ISURF
Agreement;
|
|
-
|
Payment
of $155,839 to support the research project entitled “Conduits with
Micropatterned Film for Peripheral Nerve Regeneration” of
which $50,000 was due within 90 days of execution of the ISURF Agreement,
and four subsequent equal payments of $26,460 each due quarterly,
beginning on January 31, 2006. An additional $50,000 was
payable in five equal installments of $10,000 each due every two months
upon the execution of the Amended ISURF Agreement on November 12,
2007. As of November 30, 2008, the Company has paid $155,839
pursuant to the original ISURF Agreement and $20,000 pursuant to the
Amended ISURF Agreement.
|
|
-
|
Contingent
upon satisfactory progress and success of the above project, provide an
additional $73,166 for the project entitled “Conduits with Micropatterned
Films for Optic Nerve Regeneration”. The Company did not
initiate the second research
project.
|
Due to
the inability of the researchers to identify suitable, commercially-available
cells for use in the peripheral and optic nerve damage and nerve regeneration
technologies it was determined that the Company was not obligated to make the
remaining $30,000 in payments pursuant to the terms of the Amended ISURF
Agreement. Accordingly, during the three months ended November 30,
2008, the Company recorded a reversal of $10,000 previously accrued during the
quarter ended May 31, 2008 pursuant to the Amended ISURF
Agreement. The Company did not incur any research and development
expense pursuant to the Amended ISURF Agreement during the three months ended
November 30, 2007. During the period from inception (February 28, 2005) to
November 30, 2008, the Company recorded $175,839 as research and development
expense and $2,000 as option fee expense pursuant to the Amended ISURF
Agreement.
Note
5. Related Party Transactions
During
the three months ended November 30, 2008 and 2007, the Company incurred $6,000
and $3,000 as compensation for services that executive officers provided to the
Company.
During
the three months ended November 30, 2008 and 2007, the Company incurred $750 and
$0 as compensation for services that a non-employee director provided to the
Company.
As of
November 30, 2008, the Company owed $2,250 to executive officers and a
non-employee director for services rendered to the Company.
Related
party transactions are in the normal course of operations and are recorded at
amounts established and agreed between the related parties.
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations.
Forward-Looking
Statements
Except
for the historical information presented in this document, the matters discussed
in this Form 10-Q for the three months ended November 30, 2008, and specifically
in the items entitled "Management’s Discussion and Analysis of Financial
Condition and Results of Operations," or otherwise incorporated by reference
into this document, contain "forward-looking statements" (as such term is
defined in the Private Securities Litigation Reform Act of 1995). These
statements are identified by the use of forward-looking terminology such as
"believes," "plans," "intend," "scheduled," "potential," "continue,"
"estimates," "hopes," "goal," "objective," expects," "may," "will," "should," or
"anticipates" or the negative thereof or other variations thereon or comparable
terminology, or by discussions of strategy that involve risks and
uncertainties.
The safe
harbor provisions of Section 21E of the Securities Exchange Act of 1934, as
amended, and Section 27A of the Securities Act of 1933, as amended, apply to
forward-looking statements made by the Company. The reader is cautioned that no
statements contained in this Form 10-Q should be construed as a guarantee or
assurance of future performance or results. These forward-looking statements
involve risks and uncertainties, including those identified within this Form
10-Q. The actual results that the Company achieves may differ materially from
any forward-looking statements due to such risks and uncertainties. These
forward-looking statements are based on current expectations, and the Company
assumes no obligation to update this information. Readers are urged to carefully
review and consider the various disclosures made by the Company in this Form
10-Q and in the Company's other reports filed with the Securities and Exchange
Commission that attempt to advise interested parties of the risks and factors
that may affect the Company's business.
Overview
MicroChannel
Technologies Corporation was formed as a wholly-owned subsidiary of Octillion
Corp. Octillion Corp. spun off the Company’s issued and outstanding shares to
Octillion’s shareholders on December 18, 2007. The Company was
incorporated under the name MultiChannel Technologies Corporation on February
28, 2005 in the State of Nevada, and changed to its existing name on April 4,
2005.
The
Company is a development stage technology company focused on the identification,
acquisition, and development of technologies and products which it believes have
the potential for commercialization. The Company’s strategy is to initially
acquire rights to technologies and products that are being developed by third
parties, primarily universities and government agencies, through cooperative
research and development agreements. Until September 30, 2008, the
Company’s research and development activities were focused on technologies and
products for peripheral and optic nerve damage and nerve regeneration,
specifically the development of the Iowa State University Research Foundation
Inc. (“ISURF”) Nerve Regeneration Technology. On September 30, 2008,
the Option Agreement and Sponsored Project Agreement between the Company and
ISURF expired, thereby concluding the Company’s research and development of
technologies and products for peripheral and optic nerve damage and nerve
regeneration. Upon conclusion of these agreements with ISURF,
researchers were unable to identify suitable, commercially-available cells for
use in this technology. The Company does not anticipate renewal of
these agreements with ISURF.
The
Company is currently undertaking efforts to identify new commercial
opportunities, including other innovative medical and health care
technologies.
The ISURF Nerve Regeneration
Technology
On April
29, 2005, the Company entered into an Option Agreement with ISURF (the “ISURF
Agreement”), pertaining to ISURF Nerve Regeneration Technology. The
ISURF Agreement granted the Company an exclusive worldwide option to obtain a
license to make, use, and sell nerve regeneration products developed from the
ISURF Nerve Regeneration Technology. On October 13, 2005, the ISURF
Agreement was amended to modify the payment due dates. On
November 12, 2007, the ISURF Agreement was amended to extend the ISURF Agreement
to September 30, 2008 and increase the total amount due pursuant to the ISURF
Agreement by $50,000 (the “Amended ISURF Agreement”). On September 30, 2008, the
Amended ISURF Agreement expired, thereby concluding the Company’s research and
development of technologies and products for peripheral and optic nerve damage
and nerve regeneration. Upon conclusion of the Amended ISURF
Agreement, researchers were unable to identify suitable, commercially-available
cells for use in this technology. The Company does not anticipate
renewal of the Amended ISURF Agreement or the Sponsored Project Agreement
related to the ISURF Nerve Regeneration Technology.
Pursuant
to the terms of the Amended ISURF Agreement, the Company had the right to
negotiate the terms of its license with ISURF upon payment of a flat fee of
$2,000 (which was paid) and provide funding for two research projects that were
being conducted at ISU through the Company’s Sponsored Project
Agreement.
Under
terms of the Amended ISURF Agreement, the Company agreed to fund two research
projects at ISU, the first of which was titled “Conduits with Micropatterned
Films for Peripheral Nerve Regeneration”, in the amount of
$205,839. As of September 30, 2008, the expiration date of the
Amended ISURF Agreement, the Company has paid $175,839 pursuant to the Amended
ISURF Agreement. Due to the inability of the researchers to identify
suitable, commercially-available cells for use in the peripheral and optic nerve
damage and nerve regeneration technologies it was determined that the Company is
not obligated to make the remaining $30,000 in payments pursuant to the terms of
the Amended ISURF Agreement. Accordingly, during the three months
ended November 30, 2008, the Company recorded a reversal of $10,000 previously
accrued during the quarter ended May 31, 2008 pursuant to the Amended ISURF
Agreement.
Contingent
upon satisfactory progress of the above project, the Company also agreed to
provide an additional $73,166 for the second project, titled “Conduits with
Micropatterned Films for Optic Nerve Regeneration,” which would test the
efficacy of biodegradable micropatterned conduits on optic nerve
regeneration. The Company did not initiate the second research
project.
Results of
Operation
Research
and development resulted in income during the three months ended November 30,
2008, due to the reversal of $10,000 previously accrued during the quarter ended
May 31, 2008 pursuant to the Amended ISURF Agreement.
Director
and officer fees for the three months ended November 30, 2008 and 2007 were
$6,750 and $3,000, which consisted entirely of fees paid to a non-employee
director and executive officers for services rendered to the Company. See
“Related Party Transactions” below.
Professional
fees primarily consist of accounting and audit fees and legal
fees. Professional fees for the three months ended November 30, 2008
was $12,146 an increase of $5,709 from $6,437 during the same period in
2007. The increase is substantially attributable to the Company
closing its administrative office in Vancouver, British Columbia, Canada,
effective August 31, 2008, terminating all of the employees in Vancouver,
Canada. Due to this downsizing, as of September 1, 2008, the Company
began outsourcing its accounting function to third parties resulting in an
increase in accounting fees of approximately $3,400.
Other
operating expenses for the three months ended November 30, 2008 was $2,423, an
increase of $668, from $1,755 during the same period in 2007. The
increase is primarily the result of slight increases in travel and Securities
and Exchange Commission filing fees, offset by a decrease in rent as a result of
the Company closing its administration office in Vancouver, Canada, effective
August 31, 2008. Rent for the Vancouver, Canada administrative office
was CAD$700 per month.
Interest
income was $418 for the three months ended November 30, 2008, a decrease of
$3,312 from $3,730 during the same period in 2007. The decrease is
the result of lower average monthly cash balances maintained during the three
months ended November 30, 2008 and a decline in the interest rate on the
Company’s interest-bearing cash accounts from the first quarter of 2008 to the
first quarter of 2009.
Liquidity and Capital
Resources
The
accompanying financial statements have been prepared assuming the Company will
continue as a going concern. The Company incurred cumulative losses
of $258,578 through November 30, 2008. Due to the "start up" nature
of the Company's business, the Company expects to incur losses as it continues
development of its technologies and expands. These conditions raise
substantial doubt about the Company’s ability to continue as a going
concern. Management recognizes that in order to meet the Company’s
capital requirements, and continue to operate, additional financing will be
necessary. The Company is evaluating alternative sources of financing
to improve its cash position and is undertaking efforts to raise capital, but
there is no assurance that such additional funds will be available for the
Company to finance its operations on acceptable terms, if at all. If
the Company is unable to raise additional capital or generate positive cash
flow, it is unlikely that the Company will be able to continue as a going
concern. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
As of
November 30, 2008, the Company had a cash balance of $310,885. The Company has
financed its operations primarily from $400,000 received from Octillion Corp.,
its former parent company. This amount was subsequently converted to
equity as part of the spin-off in December 2007.
Net cash
used in operating activities was $17,375 for the three months ended November 30,
2008 compared to net cash used of $6,562 for the same period in
2007. The increase in cash used in operating activities is
substantially attributable to the Company closing its administrative office in
Vancouver, British Columbia, Canada, effective August 31, 2008, terminating all
of the employees in Vancouver, Canada. Due to this downsizing, as of
September 1, 2008, the Company began outsourcing its accounting function to
third parties resulting in increases in accounting fees. In addition,
there were slight increases in legal fees as well as non-employee director and
executive officer fees. See “Related Party Transactions”
below.
Net cash
provided by financing activities was $0 for the three months ended November 30,
2008 compared to net cash provided by financing activities of $3,000 for the
same period in 2007, representing the amount owed to the then current President
of the Company for services rendered during the quarter ended November 30,
2007.
Related Party
Transactions
During
the three months ended November 30, 2008 and 2007, the Company incurred $6,000
and $3,000 as compensation for services that executive officers provided to the
Company.
During
the three months ended November 30, 2008 and 2007, the Company incurred $750 and
$0 as compensation for services that a non-employee director provided to the
Company.
As of
November 30, 2008, the Company owed $2,250 to executive officers and a
non-employee director for services rendered to the Company.
Related
party transactions are in the normal course of operations and are recorded at
amounts established and agreed between the related parties.
Other Contractual
Obligations
As of
November 30, 2008, the Company does not have any contractual
obligations.
Off-Balance Sheet
Arrangements
The
Company has no off-balance sheet arrangements.
Recent Accounting
Pronouncements
See Note
2: “Presentation of Interim Information” to the Financial Statements
in this Form 10-Q.
Item
4T. Controls and Procedures
(a)
Evaluation of Disclosure Controls and Procedures
The
Company’s management, with the participation of its Chief Executive Officer and
Chief Financial Officer, has evaluated the effectiveness of the Company’s
disclosure controls and procedures (as defined in 13a-15(e) and 15d-15(e) of the
Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end
of the period covered by this report. Based on that evaluation, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures are effective to provide reasonable
assurance that information required to be disclosed in the Company’s periodic
filings under the Exchange Act is accumulated and communicated to the Company’s
management, including the Chief Executive Officer and Chief Financial Officer,
to allow timely decisions regarding required disclosure.
(b)
Changes in Internal Control over Financial Reporting
There
were no changes in the Company’s internal control over financial reporting (as
defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred
during the period covered by this report that has materially affected, or is
reasonably likely to materially affect, the Company’s internal control over
financial reporting.
PART
II – OTHER INFORMATION
|
Legal
Proceedings.
|
None
|
Unregistered
Sales of Equity Securities and Use of
Proceeds.
|
None
|
Item 3.
|
Defaults
Upon Senior Securities
|
None
|
Submission
of Matters to a Vote of Security
Holders
|
None
|
Item 5.
|
Other
Information
|
None
|
Item 6.
|
Exhibits
|
|
Certification
of the Chief Executive Officer pursuant to Rule
13a-14(a)
|
|
Certification
of the Chief Financial Officer pursuant to Rule
13a-14(a)
|
|
Certification
by the Chief Executive Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
|
Certification
by the Chief Financial Officer pursuant to 18 U.S.C. 1350 as adopted
pursuant to Section 906 of the Sarbanes-Oxley Act of
2002
|
SIGNATURES
Pursuant
to the requirements of Sections 13 or 15 (d) of the Securities and Exchange Act
of 1934, the Registrant has duly caused this report to be signed on its behalf
by the undersigned thereunto duly authorized.
|
MicroChannel Technologies
Corporation
|
|
|
(Registrant)
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
|
Date
|
Signature
|
Title
|
|
January
13, 2009
|
/s/ Meetesh Patel
|
President,
Chief Executive Officer, Director
|
|
Meetesh
Patel
|
||
|
January
13, 2009
|
/s/ David Gamache
|
Chief
Financial Officer, Treasurer,
|
|
David
Gamache
|
Secretary,
Director
|
15