KBPH2018
KBPH2018
KBPH2018
20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
OR
FLORIDA
000-50390
65-1086538
(Commission
(I.R.S. Employer
of Incorporation)
File Number)
Identification No.)
(Title of Class)
Indicate by check mark if the registrant is not required to file reports pursuant
to Section 13 or Section 15(d) of the Act.
Yes [ ] No [X]
Check whether the issuer (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,
and (2) has been subject to such filing requirements for the past 90 days. Yes [X]
No [ ]
[ ]
Accelerated filer
[ ]
Non-accelerated filer
[ ]
[X]
Indicate by check mark whether the registrant is a shell company (as defined in
Rule 12b-2 of the Exchange Act). Yes [ ] No [X]
The aggregate market value of the voting common stock held by non-affiliates of the
Registrant at the close of the second quarter on September 30, 2018, was
approximately $1,040,256.
The Registrant had 5,836,832 shares of common stock, $0.0001 par value per share,
outstanding on April 30, 2019
TABLE OF CONTENTS
FORM 10-K
PART I
Page
ITEM 1.
Business
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4.
PART II
ITEM 5.
ITEM 6
ITEM 7.
ITEM 8.
ITEM 9.
8
ITEM 9A.
ITEM 9B
Other Information
PART III
ITEM 10.
10
ITEM 11.
Executive Compensation
12
ITEM 12.
13
ITEM 13.
14
ITEM 14.
14
PART IV
ITEM 15.
PART I
ITEM 1. BUSINESS
Kyto Technology and Life Science, Inc. was formed as a Florida corporation on March
5, 1999 under the name of B12 Inc. In August, 2002, the Company changed its name
from B Twelve, Inc. to Kyto BioPharma Inc. and in May 2018, the name was changed
again to Kyto Technology and Life Science, Inc.
The Company was originally formed to acquire and develop innovative minimally toxic
and non-immunosuppressive proprietary drugs for the treatment of cancer, arthritis,
and other autoimmune diseases and had been looking at a number of strategies to
become active. In April, 2018, the Board adopted a new business plan focused on the
development of early stage technology and life science businesses through early
stage investment funding. The Company has recruited a number of experienced
investment consultants from a network that includes angel investors, corporate
managers, and successful entrepreneurs across a number of technology and life
science products and markets and relies on input from these advisors in conducting
due diligence and making investment decisions. In order to offset the risk in early
stage investing, the Company works with angel investment groups and participates
only after these groups have committed to invest, and does not invest more than
$250,000 in any single investment. The Company plans to generate revenue from two
sources: (i) the sale of advisory services to its target investments and (ii)
realised gains from the sale of the businesses in which it has invested. Generally,
it is expected that investments will be realised from an exit within a period of
four years following investment.
The Company has no regular employees, full-time or part-time. The chief executive
officer of Kyto Technology and Life Science, Inc. is acting as a consultant to the
Company and does not receive compensation.
The Bylaws of Kyto Technology and Life Science, Inc. are silent regarding an annual
report to shareholders. Kyto Technology and Life Science, Inc. is a reporting
company and files reports with the U.S. Securities and Exchange Commission (SEC).
The Company is required to file quarterly reports (Form 10-Q) and an annual report
(Form 10-K) with the SEC. The annual report includes audited financial statements.
Any materials that the Company filed with the Securities and Exchange Commission
may be read and copied at the SEC's Public Reference Room at 450 Fifth Street,
N.W., Washington, D.C. 20549. Further, you may obtain information on the operation
of the Public Reference Room by calling the Commission at 1-800-SECD-0330. The
Company is an electronic filer and the SEC maintains an Internet site that contains
reports, proxy and information statements, and other information regarding issuers
that file electronically with the Commission. That site is http://www.sec.gov.
The Company operates its business virtually from third party premises, or the homes
of its directors and officers.
Not Applicable
PART II
Our common stock has traded on the OTC Bulletin Board (R), or OTCBB, since August
4, 2005. The Company's common stock is quoted on the Electronic Bulletin Board of
the OTC market, under the trading symbol KBPH. The following table sets forth, for
the calendar quarters indicated, the high and low closing prices for our common
stock as reported by OTCBB for fiscal years ended March 31, 2019 and 2018. The
quotations reflect inter-dealer prices, without retail mark-up, mark-down, or
commission and may not represent actual transactions. The market for the common
stock has been sporadic and there have been long periods during which there were
few, if any, transactions in the common stock and no reported quotations.
Accordingly, reliance should not be placed on the quotes listed below, as the
trades and depth of the market may be limited, and therefore, such quotes may not
be a true indication of the current market value of the Company's common stock.
Common Stock
High
Low
First quarter
2.35
2.35
Second quarter
2.35
$
2.35
Third quarter
2.35
2.35
Fourth quarter
2.35
2.35
First quarter
2.40
2.35
Second quarter
2.35
$
2.35
Third quarter
2.35
2.35
Fourth quarter
2.35
2.35
There were 5,836,832 shares of common stock outstanding as of the end of the fiscal
year ended March 31, 2019.
(B) HOLDERS
(C) DIVIDENDS
The Company has not paid any dividends to date and has no plans to do so in the
foreseeable future.
The holders of Class A and B Preferred Stock shall be entitled to receive out of
any funds of the Corporation at a time legally available for the declaration of
dividends, dividends at a rate as shall be established within the sole discretion
of the Board of Directors and under such terms and conditions as the Board shall
prescribe, provided, however, that in the event dividends shall be declared,
dividends on issued and outstanding Class A and B Preferred Stock shall be payable
before any dividends shall be declared or paid upon or set apart for the Common
Stock, all such dividends being noncumulative in nature.
The Company has authorized the creation of the Kyto Technology and Life Science,
Inc. Incentive Stock Option Plan for the benefit of employees, consultants and
directors. A pool of 2,697,085 shares was allocated to the option pool. These
options have subsequently vested and been exercised, as a result of which there are
no options outstanding or available for grant as of March 31, 2019.
Earnings per share for each of the fiscal years shown below are based on the
weighted average number of shares outstanding.
March 31,
2019
March 31,
2018
Net Loss
(230,107)
(90,827)
Loss Per Share
(0.05)
(0.03)
Total assets
1,592,682
7,504
Total liabilities
28,950
324,460
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND RESULTS OF
OPERATION
The Company has not been profitable and since its inception in March 1999 has had
no revenue until the current fiscal year. In April, 2018, the Board adopted a new
business plan focussed on the development of early stage technology and life
science businesses through a combination of small investment funding and a range of
technical and advisory business services. In order to fund the new business plan,
the Company converted $320,000 of related party debt and accrued liabilities and
raised $1,770,000 in cash from the sale of investment units under the terms of a
private placement offered to accredited investors.
For the years ended March 31, 2019 and 2019, the Company’s net loss was $230,107
and $90,827, respectively.
Working capital:
The Company had a working capital surplus of $65,684 at March 31, 2019 and a
working capital deficit of $(316,956) as of March 31, 2018. Cash was $93,634 and $4
as of March 31, 2019 and 2018, respectively.
The Company’s cash outflow from operations for the years ended March 31, 2019 and
2018 was $205,225 and $31,319, respectively.
The Company’s net cash flow from financing activities for the years ended March 31,
2019 and 2018 was $1,796,903 and $31,323, respectively. During the year ended March
31, 2019, the Company raised $1,770,000 from private placements of preferred
investment units from accredited investors.
The Company has adopted a new business plan to assist early stage technology and
life science companies by leveraging its network of experienced industry
specialists to provide a combination of professional advisory services and
investment, and thereby accelerate their development.
Attached audited financial statements for Kyto Technology and Life Science, Inc.
for the fiscal years ended March 31, 2019 and 2018 can be found beginning on page
F-1.
The Company did not change accountants during the year and as of the date of these
financial statements there are no disagreements with the findings of their
accountants.
We maintain disclosure controls and procedures that are designed to ensure that
material information required to be disclosed in our periodic reports filed under
the Securities Exchange Act of 1934, as amended, or 1934 Act, is recorded,
processed, summarized, and reported within the time periods specified in the SEC’s
rules and forms and to ensure that such information is accumulated and communicated
to our management, including our chief executive officer/chief financial officer
(principal financial officer) as appropriate, to allow timely decisions regarding
required disclosure. During the year ended March 31, 2019 we carried out an
evaluation, under the supervision and with the participation of our management,
including the principal executive officer and the principal financial officer
(principal financial officer), of the effectiveness of the design and operation of
our disclosure controls and procedures, as defined in Rule 13(a)-15(e) under the
1934 Act. Based on this evaluation, because of the Company’s limited resources and
limited number of employees, management concluded that our disclosure controls and
procedures were ineffective as of March 31, 2019
With the participation of our Chief Executive Officer/ Chief Financial Officer
(principal financial officer), our management conducted an evaluation of the
effectiveness of our internal control over financial reporting as of March 31, 2019
based on the framework in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission ("COSO"). Based on
our evaluation and the material weaknesses described below, management concluded
that the Company did not maintain effective internal control over financial
reporting as of March 31, 2019 based on the COSO framework criteria. Management has
identified control deficiencies regarding the lack of segregation of duties and the
need for a stronger internal control environment. Management of the Company
believes that these material weaknesses are due to the small size of the Company’s
accounting staff. The small size of the Company’s accounting staff may prevent
adequate controls in the future, such as segregation of duties, due to the
cost/benefit of such remediation. To mitigate the current limited resources and
limited employees, we rely heavily on direct management oversight of transactions,
along with the use of legal and accounting professionals. As we grow, we expect to
increase our number of employees, which will enable us to implement adequate
segregation of duties within the internal control framework.
This annual report does not include an attestation report of our registered public
accounting firm regarding internal control over financial reporting. Management’s
report was not subject to attestation by our registered public accounting firm
pursuant to temporary rules of the Securities and Exchange Commission that permit
us to provide only management’s report in this Annual Report on Form 10-K.
During the fiscal year ended March 31, 2019, we have engaged a third-party
bookkeeping and accounting service to post accounting entries and reconcile our
bank accounts. While this creates segregation of duties between the bookkeeping
function and management supervision and control, we still remain a small company
and therefore do not believe that these
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS;
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT
Age
Position
Georges Benarroch
72
Director
Paul Russo
76
Simon Westbrook
70
The business experience of the persons listed above during the past five years are
as follows:
Mr. Benarroch has been a director of the Company since May 5, 2000. He was elected
as President and Chief Executive Officer effective February 27, 2006. Mr. Benarroch
is the President and Chief Executive Officer of Comindus Finance Inc. Mr. Benarroch
has 40 years of investment banking as well as money management experience. Mr.
Benarroch has raised financing for numerous companies, public as well as private
and has managed for 35 years investment firms, in the USA, Canada and Europe. As
well he has been the CEO of a Canadian multibillion dollar asset management firm.
Mr. Benarroch resigned as President and Chief Executive Officer of KBPH on April
26, 2018 but remains as a Director.
Dr. Russo is the Co-founder and CEO of Kyto Technology and Life Science, Inc. He is
also the Founder & Chairman of GEO Semiconductor (www.geosemi.com) since 2014,
after having served as Chairman & CEO from its founding in 2008. Dr. Russo also
serves as a Director of InBay (www.inbaytech.com), Irystec (www.irystec.com),
Semplus (www.sempluscorp.com) and several other technology ventures (Peekaboo,
Dynamount, Illuminati, Thrive, and other technology startups). Dr. Russo is heavily
involved with the Band of Angels, the Keiretsu Forum and other similar
organizations which review over 1,000 start-ups' business plans per year. He is
also a Board Advisor to BWG, LLC. Dr. Russo has served as an outside director of
ATI Technologies from 2001 through its acquisition by AMD in 2006.
Prior to founding GEO Semiconductor, Dr. Russo founded Silicon Optix in 2000, a
privately held fabless semiconductor company, serving as its Chairman & CEO through
2008. Prior to Silicon Optix, Dr. Russo was the founder, Chairman and CEO of
Genesis Microchip (acquired by ST Micro in 2007) following Genesis Microchip’s NASD
IPO in 1998.
Effective March 15, 2018, Simon Westbrook was appointed the Company's Chief
Financial Officer. In 2009, Mr. Westbrook founded Aargo Inc, a company specializing
in financial consulting services to corporations in various tech-related
industries. Prior to Aargo, Inc., Mr. Westbrook was CFO of Amber Networks, Inc.,
and the Chief Financial Officer of Sage, Inc. (NASDAQ: SAGI), a Silicon Valley
company specializing in flat panel displays. Before joining Sage, Mr. Westbrook
held a number of senior financial positions at Creative Technology (NASDAQ: CREAF),
a leading PC multimedia company, and Atari Corp (AMEX: ATC), the video game and
home computer company both in the USA and overseas. At various times, he has held
positions as an advisory board member of the Silicon Valley Financial Executives
Institute, and various technology start-up companies where he has assisted in
strategic planning, fund raising and team development. Simon is a Chartered
Accountant and holds a Masters in Economics from Trinity College, Cambridge in the
UK.
The Company does not currently have, nor expect to receive a significant
contribution from, employees that are not executive officers.
There are no material events that have occurred in the last five years that would
affect the evaluation of the ability or integrity of any director, person nominated
to become a director, executive officer, promoter or control person of the Company.
The Company has currently no audit committee. The Board of Directors approved the
financial statements for the previous year.
The following table sets forth all annual and long-term compensation for services
in all capacities rendered to Kyto by its executive officers and directors for each
of the last two most recently completed fiscal years ended
Annual Compensation in $
Payouts in $
Name and principal position
Year
Salary
Bonus
Other annual
compensation
Securities
under
options/SARs
granted
Restricted
Shares or
restricted share
units
LT incentives
Georges Benarroch,
Director
2018
-
-
2017
Paul Russo,
2018
-
-
2018
Simon Westbrook,
2017
-
-
Granted
Vested
Exercised
2,697,085
2,697,085
2,697,085
-
-
None
All directors hold office until the next annual meeting of stockholders and until
their successors have been duly elected and qualified. There are no agreements with
respect to the election and compensation of directors. The Board of Directors
appoints officers annually and each executive officer serves at the discretion of
the Board of Directors. The Company does not have any standing committees at this
time.
The Company does not currently maintain insurance for the benefit of the directors
and officers of Kyto against liabilities incurred by them in their capacity as
directors or officers of Kyto. Kyto does not maintain a pension plan for its
employees, officers or directors.
None of the directors or senior officers of Kyto and no associate of any of the
directors or senior officers of Kyto was indebted to the Company during the
financial period ended March 31, 2019 of Kyto other than for routine indebtedness.
None
None
The following persons (including any group as defined in Regulation S-B, Section
228.403) are known to the Company, as the issuer, to be beneficial owner of more
than five percent (5%) of any class of the said issuer's voting securities.
Title of class
Common shares
Percentage of class
Common
2,697,085
46.2%
Common
2,697,085
46.2%
Common shares
Percentage of class
Common
(1)
2,697,085
46.20%
Common
2,697,085
46.20%
Common
-
0.00%
At March 31, 2018, a balance of $311,430 was payable to a director, chairman and
major shareholder of the Company in respect of expenses and fees incurred by him on
behalf of the Company. At June 30, 2018, a total of $314,901 of the related party
loans and accrued liabilities were converted into 400,000 investment units
(“Units”) consisting of 400,000 shares of Series A preferred stock, and 400,000
Warrants to purchase common stock at $1.20 per share. The units were valued at
$0.80 per unit. (See Note 5.) The Company recorded a loss on conversion of related
party debt of $5,099 and $0 respectively, during the years ended March 31, 2019 and
March 31, 2018.
10
No other professional services were rendered by RBSM LLP for audit related services
rendered during the fiscal years ended March 31, 2019 and 2018.
No professional services were rendered by RBSM LLP for tax compliance, tax advice,
and tax planning the fiscal years ended March 31, 2019 and 2018.
EXHIBIT
NUMBER
DESCRIPTION
3(i)(a)
Articles of Incorporation of Kyto Technology and Life Science, Inc.*
3(i)(b)
Articles of Amendment changing name to Kyto Technology and Life Science, Inc.*
3(ii)
31.1
Section 302 Certification of the principal executive officer and the principal
financial and accounting officer**
32.1
* Filed as Exhibit to Company's Form 10-SB on September 12th, 2003, with the
Securities and Exchange Commission
Kyto Technology and Life Science, Inc. will conduct its business honestly and
ethically wherever we operate in the world. We will constantly improve the quality
of our services, products and operations and will create a reputation for honesty,
fairness, respect, responsibility, and integrity, trust and sound business
judgment. No illegal or unethical conduct on the part of officers, directors,
employees or affiliates is in the company's best interest. Kyto Technology and Life
Science, Inc. will not compromise its principles for short-term advantage. The
ethical performance of this company is the sum of the ethics of those who work
here. Thus, we are all expected to adhere to high standards of personal integrity.
11
Officers, directors, and employees of the company must never permit their personal
interests to conflict, or appear to conflict, with the interests of the company,
its clients or affiliates. Officers, directors and employees must be particularly
careful to avoid representing Kyto Technology and Life Science, Inc. in any
transaction with others with whom there is any outside business affiliation or
relationship. Officers, directors, and employees shall avoid using their company
contacts to advance their private business or personal interests at the expense of
the company, its clients or affiliates.
Officers, directors and employees of Kyto Technology and Life Science, Inc. will
often come into contact with, or have possession of, proprietary, confidential or
business-sensitive information and must take appropriate steps to assure that such
information is strictly safeguarded. This information - whether it is on behalf of
our company or any of our clients or affiliates - could include strategic business
plans, operating results, marketing strategies, customer lists, personnel records,
upcoming acquisitions and divestitures, new investments, and manufacturing costs,
processes and methods. Proprietary, confidential and sensitive business information
about this company, other companies, individuals and entities should be treated
with sensitivity and discretion and only be disseminated on a need-to-know basis.
Until the company has publicly released the material information, an employee must
not disclose it to anyone except those within the company whose positions require
use of the information.
Employees must not buy or sell the company's securities when they have knowledge of
material information concerning the company until it has been disclosed to the
public and the public has had sufficient time to absorb the information.
Employees shall not buy or sell securities of another corporation, the value of
which is likely to be affected by an action by the company of which the employee is
aware and which has not been publicly disclosed.
Officers, directors and employees will seek to report all information accurately
and honestly, and as otherwise required by applicable reporting requirements.
Officers, directors and employees will obey all Equal Employment Opportunity laws
and act with respect and responsibility towards others in all of their dealings.
Officers, directors and employees will remain personally balanced so that their
personal life will not interfere with their ability to deliver quality products or
services to the company and its clients.
12
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused
this report to be signed on its be signed on its behalf by the undersigned,
thereunto duly authorized.
KYTO TECHNOLOGY AND LIFE SCIENCE, INC.
Pursuant to the requirements of the Securities Act of 1933, this report has been
signed by the following persons on behalf of the registrant and in the capacities
and on the dates indicated.
Signature
Title
Date
Paul Russo
/s/ Georges Benarroch
Director
Georges Benarroch
Simon Westbrook
13
Table of Contents
F-2
F-3
Statements of Operations for the years ended March 31, 2019 and 2018
F-4
Statement of Stockholders' Deficit for the years ended March 31, 2019 and 2018
F-5
Statements of Cash Flows for the years ended March 31, 2019 and 2018
F-6
F-7
F-1
To the Board of Directors and Stockholders of Kyto Technology and Life Science,
Inc.
We have audited the accompanying balance sheets of Kyto Technology and Life
Science, Inc. (the Company) as of March 31, 2019 and 2018, and the related
statements of operations, stockholders’ equity (deficit), and cash flows for each
of the years in the two year period ended March, 31, 2019, and the related notes
(collectively referred to as the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the financial
position of the Company as of March 31, 2019 and 2018, and the results of its
operations and its cash flows for each of the years in the two year period ended
March 31, 2019, in conformity with accounting principles generally accepted in the
United States of America.
These financial statements are the responsibility of the Company’s management. Our
responsibility is to express an opinion on the Company’s financial statements based
on our audits. We are a public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal
securities laws and the applicable rules and regulations of the Securities and
Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those
standards require that we plan and perform the audit to obtain reasonable assurance
about whether the financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting. As part of our
audits, we are required to obtain an understanding of internal control over
financial reporting, but not for the purpose of expressing an opinion on the
effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion.
/s/RBSM LLP
Henderson, NV
F-2
Balance Sheets
March 31,
March 31,
2019
2018
ASSETS
Current Assets
Cash
93,634
$
4
Receivables
1,000
7,500
94,634
7,504
Investments
1,498,048
-
Total Assets
1,592,682
7,504
21,700
13,030
7,250
311,430
28,950
324,460
Commitments and Contingencies
2,612,500
584
314
31,561,501
32,063,476
Accumulated deficit
(32,610,853)
(32,380,746)
1,563,732
(316,956)
1,592,682
7,504
The accompanying notes are an integral part of these audited financial statements.
F-3
Statements of Operations
2019
2018
9,000
-
Operating Expenses
239,082
90,827
239,082
90,827
(90,827)
(25)
(230,107)
(90,827)
Net income (tax) benefit
Net Loss
(230,107)
(90,827)
3,139,747
(0.05)
(0.03)
The accompanying notes are an integral part of these audited financial statements.
F-4
Preferred
Preferred
Stock
Preferred
Preferred
Stock
Common
Common
Stock
Additional
Paid-in
Accumulated
Stock #
Amount
Stock #
Amount
Stock #
Amount
Capital
Deficit
Total
$ -
$ -
3,139,747
$ 314
$32,063,476
$(32,289,919)
$(226,129)
Net (loss) for year ended March 31, 2018
(90,827)
(90,827)
Balance, March 31, 2018
3,139,747
314
32,063,476
(32,380,746)
(316,956)
-
-
(230,107)
(230,107)
2,212,500
2,212,500
(442,500)
1,770,000
Series A Preferred stock issued for conversion of related party debt
400,000
400,000
(80,000)
320,000
Exercise of options for common stock at $.006 per share
2,697,085
270
15,912
16,182
-
-
4,613
4,613
2,612,500
$2,612,500
$ -
5,836,832
$ 584
$31,561,501
$(32,610,853)
$1,563,732
The accompanying notes are an integral part of these audited financial statements.
F-5
Net loss
(230,107)
(90,827)
5,099
-
Option compensation expense
4,613
Receivables
(1,000)
(7,500)
64,000
8,670
3,008
(205,225)
(31,319)
(1,498,048)
(1,498,048)
-
CASH FLOW FROM FINANCING ACTIVITIES
1,770,000
16,182
10,721
31,323
Total cash provided by financing activities
1,796,903
31,323
93,630
4
-
93,634
Interest Paid
25
Taxes Paid
-
$
320,000
-
The accompanying notes are an integral part of these audited financial statements.
F-6
Kyto Technology and Life Science, Inc. was formed as a Florida corporation on March
5, 1999 under the name of B12 Inc. In August, 2002, the Company changed its name
from B Twelve, Inc. to Kyto BioPharma Inc. and in May 2018, the name was changed
again to Kyto Technology and Life Science, Inc.
The Company was originally formed to acquire and develop innovative minimally toxic
and non-immunosuppressive proprietary drugs for the treatment of cancer, arthritis,
and other proliferate and autoimmune diseases and had been looking at a number of
strategies to become active. In April, 2018, the Board adopted a new business plan
focused on the development of early stage technology and life science businesses
through early stage investment funding. The Company has recruited a number of
experienced investment consultants from a network that includes angel investors,
corporate managers, and successful entrepreneurs across a number of technology and
life science products and markets and relies on input from these advisors in
conducting due diligence and making investment decisions. In order to offset the
risk in early stage investing, the Company works with angel investment groups and
participates only after these groups have committed to invest and does not plan to
invest more than $250,000 in any single investment. The Company plans to generate
revenue from two sources: (i) the sale of advisory services to its target
investments and (ii) realised gains from the sale of the businesses in which it has
invested. Generally, it is expected that investments will be realised from an exit
within a period of four years.
(B) LIQUIDITY
The Company derives revenue from two sources: proceeds from the sale of investments
and fees earned from the provision of financial advisory services to portfolio
investment companies. As a minority, early-stage investor, the Company does not
have the ability to manage the timing or acceptance of liquidity events that will
realize its investments, nor the ability to predict when they may happen, although
as a guideline, it would expect such events to occur around four years after its
investments are made. The Company will book the revenue from investment activities
upon completion of sale and receipt of net proceeds, after deducting related
transaction expenses. The Company does not recognize any revenue from unrealized
gains. The Company is in regular contact with the management of its portfolio
investment companies and, from time to time, provides investment advice on a
meeting or project basis under its advisory agreements. The services are invoiced,
and the revenue recognized, upon completion.
(D) INCOME TAXES
The Company accounts for income taxes under the Financial Accounting Standards
Accounting Standard Codification Topic 740 "Accounting for Income Taxes" ("Topic
740"). Under Topic 740, deferred tax assets and liabilities are recognized for the
future tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted tax rates expected
to apply to taxable income in the years in which those temporary differences are
expected to be recovered or settled. Under Topic 740, the effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period, which includes the enactment date.
F-7
Significant estimates during the fiscal year ended March 31, 2019 and 2018 include
the valuation allowance of stock options and warrants.
The Company considers all highly liquid investments with original maturities of
three months or less at the time of purchase to be cash equivalents. There were no
cash equivalents at March 31, 2019 and 2018, respectively.
(G) CONCENTRATIONS
The Company maintains its cash in bank checking and deposit accounts, which, at
times, may exceed federally insured limits. As of March 31, 2019 and 2018, the
Company did not have any deposits in excess of federally insured limits. The
Company has not experienced any losses in such accounts through March 31, 2019 and
2018, respectively.
(J) INVESTMENTS
The Company carries investments at the lower of cost or fair market value. These
investments are accounted for as cost method investments in accordance with ASC 325
as we own less than 20% of the voting securities and do not have the ability to
exercise significant influence over operating and financial policies of the
entities. The Company reviews the performance of the underlying investments to
determine their current and future potential value and liquidity. In the event that
Management considers the value of an investment to be impaired, the carrying value
of the investment will be written down by an impairment charge to reflect
Management’s estimated valuation.
F-8
ASC 820 defines fair value as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market participants
at the measurement date. Additionally, ASC 820 requires the use of valuation
techniques that maximize the use of observable inputs and minimize the use of
unobservable inputs. These inputs are prioritized below:
Level 1: Observable inputs such as quoted market prices in active markets for
identical assets or liabilities
Level 3: Unobservable inputs for which there is little or no market data, which
require the use of the reporting entity’s own assumptions.
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
NOTE 2 COMMITMENTS AND CONTINGENCIES
At March 31, 2018, a balance of $311,430 was payable to a director, chairman and
major shareholder of the Company in respect of expenses and fees incurred by him on
behalf of the Company. At June 30, 2018, a total of $314,901 of the related party
loans and accrued liabilities were converted into 400,000 investment units
(“Units”) consisting of 400,000 shares of Series A preferred stock, and 400,000
Warrants to purchase common stock at $1.20 per share. The units were valued at
$0.80 per unit. (See Note 5.) The Company recorded a loss on conversion of related
party debt of $5,099 and $0 respectively, during the years ended March 31, 2019 and
March 31, 2018.
STOCKHOLDERS DEFICIENCY
Basic earnings per share are computed by dividing earnings available to common
stockholders by the weighted average number of common shares outstanding during the
period. Diluted earnings per share reflect per share amounts that would have
resulted if dilutive potential common stock had been converted to common stock.
Diluted net loss per share is not reported where the diluted earnings per share
would be anti-dilutive. The following reconciles amounts reported in the financial
statements for the years ended:
2019
2018
(230,107)
(90,827)
4,768,369
3,139,747
(0.05)
(0.03)
F-9
On December 22, 2017, the Tax Cuts and Jobs Act (the TCJA), which significantly
modified U.S. corporate income tax law, was signed into law by President Trump. The
TCJA contains significant changes to corporate income taxation, including but not
limited to the reduction of the corporate income tax rate from a top marginal rate
of 35% to a flat rate of 21%, limitation of the tax deduction for interest expense
to 30% of earnings (except for certain small businesses), limitation of the
deduction for net operating losses to 80% of current year taxable income and
generally eliminating net operating loss carrybacks, allowing net operating losses
to carryforward without expiration, one-time taxation of offshore earnings at
reduced rates regardless of whether they are repatriated, elimination of U.S. tax
on foreign earnings (subject to certain important exceptions), immediate deductions
for certain new investments instead of deductions for depreciation expense over
time, and modifying or repealing many business deductions and credits (including
changes to the orphan drug tax credit and changes to the deductibility of research
and experimental expenditures that will be effective in the future).
The Company had no income tax provision for the years ended March 31, 2019 and 2018
because the Company had net operating losses for federal and state tax purposes.
The net operating loss carryovers may be subject to annual limitations under
Internal Revenue Code Section 382/383, and similar state provisions, should there
be a greater than 50% ownership change as determined under the applicable income
tax regulations. The amount of the limitation would be determined based on the
value of the company immediately prior to the ownership change and subsequent
ownership changes could further impact the amount of the annual limitation or
eliminate them entirely. An ownership change pursuant to Section 382/383 may have
occurred in the past or could happen in the future, such that the NOLs available
for utilization could be significantly limited or eliminate them entirely.
2019
2018
(21.0)%
(21.0)%
(8.8)%
(4.7)%
Permanent differences
- %
-%
29.8%
25.7%
-%
-%
The Company has determined that a valuation allowance for the entire net deferred
tax asset is required. A valuation allowance is required if, based on the weight of
evidence, it is more likely than not that some or the entire portion of the
deferred tax asset will not be realized. After consideration of all the evidence,
management has determined that a full valuation allowance is necessary to reduce
the deferred tax asset to zero.
The tax effects of temporary differences that give rise to deferred tax assets and
liabilities are presented below:
For the years ended March 31
2019
2018
6,304,297
6,898,057
230,107
90,827
Permanent differences
6,534,404
6,988,884
Valuation allowance
(6,534,404)
(6,988,884)
At March 31, 2019 and 2018, the Company had net operating loss carry forwards for
federal and state income tax purposes of approximately $6.5 million and $6.9
million, respectively. These loss carryforwards expire within fifteen to twenty
years of the respective tax years and may be used to offset future taxable income
through 2038.
F-10
The TCJA, also introduces a limitation on the amount of NOLs that a corporation may
deduct in a single tax year under section 172(a) equal to the lesser of the
available NOL carryover or 80 percent of a taxpayer’s pre-NOL deduction taxable
income (the “80-percent limitation”). This limitation applies only to losses
arising in tax years that begin after Dec. 31, 2017 based upon section 172(e)(1) of
the amended statute.
The utilization of the net operating loss carry forwards is dependent upon the
ability to generate sufficient taxable income during the carry forward period. In
addition, utilization of these carry forwards may be limited due to ownership
changes rules, as defined in the Internal Revenue Code 382/383. The Company has not
determined if an ownership change has occurred that would limit the use of the net
operating losses or eliminate them entirely.
The Company’s tax returns are subject to examination by tax authorities beginning
with the year ended March 31, 2015 (or the tax year ended March 31, 2013 if the
Company were to utilize its NOLs).
NOTE 6 EQUITY
As of March 31, 2019 and March 31, 2018, there are 4,000,000 shares of Series A
preferred stock (“Series A”) authorized at a par value of $1.00 per share. The
Company has outstanding 2,612,500 shares of Series A as a result of the sale during
the year ended March 31, 2018 of 2,212,500 Units at $0.80 per Unit in a private
placement to accredited investors for $2,212,500, and 400,000 Units for the
conversion of $320,000 of related party debt. The Units consist of one Series A
share and one warrant per Unit. The Series A can either be converted into Common
Shares upon listing of the Company on Nasdaq or elect to receive $1.60 per share.
In the event of any liquidation or winding up of the Company, the holders of the
Series A shall be entitled to receive in preference to the holders of Common Shares
a per share amount equal to two times (2 X) their original purchase price plus any
declared but unpaid dividends (the Liquidation Preference). All share issuances and
obligations are recognized on the books and stock register, however, as at the date
of this report certificates have not been delivered as a result of administrative
delays in transferring to the Company’s selected stock transfer agent. On March 26,
2019 the Board approved resolutions to increase the authorized share capital from 2
million to 4 million Series A Preferred Shares, and the number of units to be sold
in the private placement from 3 million to 4 million, subject to demand and
investment requirements as determined from time to time by the Board.
There are also 1,500,000 shares of Series B preferred stock (“Series B”) authorized
at a par value of $0.80 per share. No Series B was issued or outstanding as at
March 31, 2019 or March 31, 2018. The Series B can either be converted into Common
Shares upon listing of the Company on Nasdaq or elect to receive $1.60 per share.
In the event of any liquidation or winding up of the Company, the holders of the
Series B shall be entitled to receive in preference to the holders of Common Shares
and Series A, a per share amount equal to two times (2 X) their original purchase
price plus any declared but unpaid dividends (the Liquidation Preference)
The Company has authorized 100,000,000 shares of common stock at a par value of
$0.0001 per share. As of March 31, 2019, and March 31, 2018 a total of 5,836,832
and 3,139,747 shares of the Company’s common stock were issued and outstanding,
respectively.
F-11
In April 2018, a total of $320,000 of related party loans and accrued liabilities
were converted into Units consisting of 400,000 shares of Series A, and 400,000
Warrants to purchase common stock at $1.20 per share. Additionally, since April
2018, the Company has sold 2,212,500 investment units to accredited investors in a
private placement for $1,770,000 in cash.
In April 2018, the Company approved the introduction of the Kyto Technology and
Life Science, Inc. Incentive Stock Option Plan for the benefit of employees,
consultants and directors, with the objective of securing the benefit of services
for stock options rather than cash salaries. In the year ended March 31, 2018, the
Company granted a total of 2,697,085 options at an exercise price of $0.006 per
share. During the year ended March 31, 2019, 2,697,085 options vested upon the
closing of the private placement and were exercised for $16,182.
Number of options
in years
Outstanding March 31, 2018
Granted
2,697,085
Exercised
(2,697,085)
Cancelled
-
In connection with the grant of stock options the Company recognises the value of
the related option expense using the Black Scholes model, with appropriate
assumptions for option life, stock value, risk free interest rate, volatility, and
cancellations. The assumptions used for options granted in the year ended March 31,
2019 were as follows:
0.006
Exercise Price
0.006
Term in Years
1.00
Volatility assumed
73.0%
0.0%
1.79%
The compensation expense calculated at time of grant is amortised over the vesting
period for the options granted. During the year ended March 31, 2019, the Company
amortised $4,613 as option expense.
F-12
In conjunction with the sale of stock Units, the Company issued 2,612,200 warrants
to purchase common stock at a price of $1.20 per share for a period of three years.
The Company values the warrants using the Black Scholes model, with appropriate
assumptions for warrant life, stock value, risk free interest rate, and volatility.
Number of warrants
Granted
2,612,500
1.20
3.00
Exercised
Cancelled
2,612,500
1.20
2.41
2,612,500
2.41
At March 31, 2019 the value of the warrants was $0 as the Company did not bifurcate
the value of Series A and warrants within the Units sold. There were no warrants
issued or outstanding at March 31, 2018.
Since March 31, 2019, the Company has raised $525,000 from the sale of 656,250
Series A preferred stock units through private placements.
Since March 31, 2019, the Company has invested $123,500 in two additional
investment opportunities.
In April 2019, the Board authorized and paid a bonus of $50,000 to the chief
executive officer in recognition of his success in fund raising.
F-13