UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended September 30, 2012

OR

For the transition period from                     to

Commission file number 333-176329

Registrant’s telephone number, including area code: (310) 421-8654

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes   X  No  

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes   X  No  

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.  See definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act (Check one).

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

Yes   o    No  X

As of November 13, 2012, there were 11,448,224 shares of the registrant’s common stock outstanding.

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CARDIGANT MEDICAL, INC.

INDEX

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PART I.  FINANCIAL INFORMATION

Item 1.  Financial Statements

CARDIGANT MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

BALANCE SHEETS

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENT

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CARDIGANT MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF OPERATIONS – Unaudited

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENTS

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CARDIGANT MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS – Unaudited

SEE NOTES TO UNAUDITED CONDENSED FINANCIAL STATEMENT

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CARDIGANT MEDICAL INC.

(A DEVELOPMENT STAGE COMPANY)

STATEMENTS OF CASH FLOWS - Unaudited (Continued)

  Non-cash investing and financing activities:

During the nine months ended September 30, 2012, the Company issued 4,284 shares of its common stock for services provided by its Chief Scientific Officer valued at $4,500 and charged to expense.  In September 2012, the Company granted its Chief Scientific Officer options to purchase 50,000 shares of the Company common stock at $1.05 per share. The options were valued at $13,613 using the Black-Scholes Option Model, of which 12,500 are vested and their fair value of $3,403 was charged to operations.  The option valuation factors included a term of 5 years, volatility of approximately 28%, a U.S Treasury interest rate of 0.72%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.

 In September 2012, the Company issued its new Chief Financial Officer options to purchase 50,000 shares of the Company common stock at $1.05 per share. The options were valued at $13,613 using the Black-Scholes Option Model, of which 12,500 are vested and their fair value of $3,403 was charged to operations.   The option valuation factors included a term of 5 years, volatility of approximately 28%, a U.S Treasury interest rate of 0.72%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.  

In August 2012, the Company issued a new member of its Board of Directors 12,000 shares of its common stock pursuant to the terms of the director’s agreement. The 12,000 shares were valued at $12,600, which is being charged to operations over the one-year term of the director’s agreement. For the three months ended September 30, 2012, $2,100 was charged to operations. The unamortized balance at September 30, 2012 of $10,500 is included in prepaid expense.  In connection with the director’s agreement, the Company granted its new member of the Board of Directors options to purchase 24,000 shares of the Company common stock at $1.05 per share. The options were valued at $10,150 using the Black-Scholes Option Model, of which 3,000 are vested and their fair value of $1,269 was charged to operations.  The option valuation factors included a term of 10 years, volatility of approximately 28%, a U.S Treasury interest rate of 1.83%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.  

 In August 2012, the Company issued a consultant 334 shares of its common stock pursuant in exchange for consulting services per the terms of the consulting agreement. The 334 shares were valued at $1.05 per share totaling $350, which was charged to operations for the three months ended September 30, 2012.  

In July 2012, the Company issued the new Chairman of its Scientific Advisory Board, 7,143 shares of its common stock pursuant to the terms of the consulting agreement. The 7,143 shares were valued at $1.05 each, totaling $7,500, which is being charged to operations over the one-year term of the consulting agreement. For the three months ended September 30, 2012, $1,875 was charged to operations. The unamortized balance at September 30, 2012 of $5,625 is included in prepaid expense.

 In April 2012, the Company issued its new Chairman of its Board of Directors 20,000 shares of its common stock pursuant to the terms    of the consulting agreement. The 20,000 shares were valued at $21,000, which is being charged to operations over the one-year   term of the consulting agreement. For the three months ended September 30, 2012, $5,250 was charged to operations, and for the nine months ended September 30, 2012, $10,500 was charged to operations.  The unamortized balance at September 30, 2012 of $10,500 is included in prepaid expense.    In connection with the consulting agreement, the Company granted its new Chairman options to purchase 40,000 shares of the Company common stock at $1.05 per share. The options were valued at $17,492 using the Black-Scholes Option Model, which 10,000 are vested and their value of $4,373 was charged to operations.  The option valuation factors included a term of 10 years, volatility of approximately 28%, a U.S Treasury interest rate of 2.23%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.

 In January 2012, the Company issued 15,000 shares of its common stock to its Chief Medical Officer in connection with its research and development efforts. The 15,000 shares were valued at $3,000, which is being charged to operations over the remaining one-year term of the underlying agreement. For the three months ended September

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30, 2012, $750 was charged to operations, and for the nine months ended September 30, 2012, $2,250 was charged to operations. The unamortized balance at September 30, 2012 of $750 is included in prepaid expense.   

In April 2011, the Company issued 15,000 shares of its common stock to its Chief Medical Officer in connection with its research and development efforts. The 15,000 shares were valued at $3,000 and are being charged to operations over the two-year term of     the underlying consulting agreement.  During the six months ended June 30, 2011, the Company issued 9,250 shares of its common stock for services provided by its Chief Scientific Officer valued at $1,850.  In June 2011, the Company cancelled $880 of accounts payable for bookkeeping services in exchange for the issuance of 4,400 shares of its common stock.   

SEE NOTES TO UNAUDITED CONSOLIDATED CONDENSED FINANCIAL STATEMENTS

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CARDIGANT MEDICAL, INC.

NOTES TO FINANCIAL STATEMENTS

SEPTEMBER 30, 2012

(UNAUDITED)

(1) Nature and Continuance of Operations

Description of the Business

Cardigant Medical Inc. ("Cardigant" or "Company") is a development stage biotechnology company focused on the development of novel biologic compounds and enhanced methods for local delivery for the treatment of cardiovascular disease. Cardigant was founded on April 17, 2009 and is incorporated within the state of Delaware.  The Company is engaged in research and development in multiple locations but maintains its corporate office in greater Los Angeles. Effective January 1, 2012, the Company has revoked it S election status, and will be a taxable entity going forward.

The Company is in the development stage, as defined in Accounting Codification Standard ("ACS") Topic 915-10. From its inception (April 17, 2009) through September 30, 2012, the Company has not had any revenue from its principal planned operations. The Company will continue to report as a development stage company until significant revenues are produced.

Effective January 19, 2012, and for a period of one year thereafter, the Company and certain shareholders, through a self-underwritten registration, are offering to the general public a total of 2,500,000 shares of the Company’s common stock at a price of $1.05 per share. Of the 2,500,000 shares offered, 300,000 shares are being offered by certain shareholders included a total of 116,350 shares held by the Company’s management. During the nine-months ended September 30, 2012, the Company issued 156,813 shares of its common stock and received $164,884 through the offering.

Going Concern

The Company's financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America and have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities in the normal course of business.  The Company has generated losses from operations to date, does not expect to generate operating revenue for several years, and its viability is dependent upon its ability to obtain financing and the success of its future operations. These financial statements do not include any adjustments relating to the recoverability and classification of recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

Basis of Presentation

The accompanying unaudited financial statements contain all adjustments (consisting only of normal recurring adjustments) which, in the opinion of management, are necessary to present fairly the financial position of the Company as of September 30, 2012, and the results of its operations for the three and nine months ended September 30, 2012 and 2011, and cash flows for the nine months ended September 30, 2012 and 2011. Certain information and footnote disclosures normally included in financial statements have been condensed or omitted pursuant to rules and regulations of the U.S. Securities and Exchange Commission (“the Commission”). The Company believes that the disclosures in the unaudited financial statements are adequate to ensure the information presented is not

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misleading. However, the unaudited financial statements included herein should be read in conjunction with the financial statements and notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2011 filed with the Commission on April 2, 2012.

The accompanying financial statements are prepared using the accrual method of accounting in accordance with accounting principles generally accepted in the United States of America.

(2) Summary of Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the condensed financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Cash and Cash Equivalents

The Company considers all highly liquid debt instruments and other short-term investments with maturities of three months or less, when purchased, to be cash equivalents. The Company maintains cash balances at one financial institution that is insured by the Federal Deposit Insurance Corporation ("FDIC") up to $250,000. As of September 30, 2012, the Company's cash balances did not exceed the FDIC limits.

Revenue Recognition

The Company recognizes revenue when evidence of an arrangement exists, title has passed (generally upon shipment) or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Revenue from product sales to new customers is recognized when all elements of the sale have been delivered. All costs related to product shipment are recognized at time of shipment. The Company does not provide for rights of return to customers on product sales and therefore does not record a provision for returns.

Revenue from grant awards is recorded as income when the funds from the respective grant are received and all conditions under the grant have been met.

Property and Equipment

Property and equipment are stated at cost.  Major renewals and improvements are charged to the asset accounts while replacements, maintenance and repairs that do not improve or extend the lives of the respective assets are expensed.  At the time property and equipment are retired or otherwise disposed of, the asset and related accumulated depreciation accounts are relieved of the applicable amounts.  Gains or losses from retirements or sales are credited or charged to income.

Depreciation is computed on the straight-line method for financial reporting and income tax reporting purposes. The Company’s computer software is being depreciated over three years for financial reporting and three years for tax purposes as permitted by the tax code. Depreciation expense charged to operations for the three months ended September 30, 2012 and 2011 amounted to $350 and $0, respectively. Depreciation expense charged to operations for the nine months ended September 30, 2012 and 2011 amounted to $749 and $0, respectively.

Long-Lived Assets

The Company accounts for its long-lived assets in accordance with ASC Topic 360-10 "Accounting for the Impairment or Disposal of Long-Lived Assets." ASC Topic 360-10 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that the historical cost carrying value of an asset

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may no longer be appropriate. The Company assesses recoverability of the carrying value of an asset by estimating the future net cash flows expected to result from the asset, including eventual disposition. If the future net cash flows are less than the carrying value of the asset, an impairment loss is recorded equal to the difference between the asset's carrying value and fair value or disposable value. As of September 30, 2012, the Company had no long-lived assets.

Research and Development

The Company accounts for research and development costs in accordance with ASC Topic 730-10 "Research and Development." Under ASC Topic 730-10, all research and development costs must be charged to expenses as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company sponsored research and development costs related to both present and future products are expensed in the period incurred. For the three months ended September 30, 2012 and 2011, the Company incurred research and development expenses of $53,345 and $52,160, respectively. For the nine months ended September 30, 2012 and 2011, the Company incurred research and development expenses of $118,474 and $128,975, respectively.

Income Taxes

Income taxes are accounted for under the asset and liability method in accordance with ASC Topic 740-10.  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 and operating loss carry forwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. When it is considered to be more likely than not that a deferred tax asset will not be realized, a valuation allowance is provided for the excess.

Effective January 1, 2012, the Company has elected to revoke it S election status, and will be a taxable entity going forward. Previously, the Company’ shareholders elected under the Internal Revenue Code to be taxed as an S corporation. Generally, in lieu of corporate income taxes, the shareholders of an S corporation are taxed on their proportionate share of the Company's taxable income.  

Stock-Based Compensation

The Company accounts for its stock-based compensation under ASC Topic 505-50. This standard defines a fair value-based method of accounting for stock-based compensation. In accordance with ASC Topic 505-50, the cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the period in which the Company expects to receive the benefit, which is generally the vesting period.

See Note (6) Stockholder’s Equity (Deficit) for detail stock-based compensation activity.

The Company adopted its 2010 Stock Option Plan in May of 2010 allowing for a maximum of five million shares to be issued. At September 30, 2012, 164,000 options have been granted with an exercise price of $1.05, of which 38,000 are vested.

We have previously placed a value for our private share placements at $0.20 per share. On January 19, 2012, the United States Securities and Exchange Commission granted our registration statement as filed on Form S-1. The pricing in this offering is $1.05. Any equity based transactions occurring subsequent to January 19, 2012 will be priced at $1.05 until such time as a market develops for our shares, if one develops at all.

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Per Share Amounts

The Company reports earnings (loss) per share in accordance with ASC Topic 260-10 "Earnings per Share." Basic earnings (loss) per share is computed by dividing income (loss) available to common shareholders by the weighted average number of common shares available. For the three months ended September 30, 2011, the Company did not have equity or financial instruments issued or granted which would be anti-dilutive. As of September 30, 2012, the Company has issued 164,000 stock options of which 38,000 are vested, which, if exercised, would be dilutive.

Recent Accounting Pronouncements

The Company continually assesses any new accounting pronouncements to determine their applicability to the Company. Where it is determined that a new accounting pronouncement affects the Company’s financial reporting, the Company undertakes a study to determine the consequence of the change to its financial statements and assures that there are proper controls in place to ascertain that the Company’s financials properly reflect the change.

(3) Fair Value Measurements

The Company follows the provisions of ASC No. 820-10 "Fair Value Measurements."ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 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. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1   - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2   - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 Level 3   - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or liability. (The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.)

The following table presents the Company's fair value hierarchy for those assets and liabilities measured at fair value on a recurring basis as of September 30, 2012:

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September 30, 2012

                                       Level                       Fair Value           Carrying  Amount

Liabilities

Due to stockholder                 2                              $29,181                       $29,181

Recorded value for the stockholder liability approximate its fair value due to the short maturities of such instrument.

 (4) Related Party Transactions

The Company has received some of its working capital from its founder, Jerett A. Creed. These costs have been carried as a shareholder loan accruing interest at the rate of 5% per annum. On January 4, 2010, Mr. Creed converted $50,000 of the outstanding shareholder loan balance in exchange for 11,000,000 shares of the Company's common stock. There was no compensation or interest expense included in the conversion. The amounts due at September 30, 2012, including accrued interest, amounted to $0.  Interest expense charged to operations for the three months ended September 30, 2012 and 2011 amounted to $323 and $537 respectively. Interest expense charged to operations for the nine ended September 30, 2012 and 2011 amounted to $1,240 and $1,900 respectively. During the third quarter of 2012, no shares were sold to affiliates and family members of the Company’s management.

 (5) Accrued Officer's Compensation

The Company has been accruing a salary in the amount of $120,000 per annum for its founder Jerett A. Creed since January 3, 2010. The balances accrued at September 30, 2012 and 2011 were $420,000 and $300,000, respectively. Salary is allocated between research and development and general and administrative based upon time spent.

(6) Stockholder's Equity (Deficit)

There is no public market for the Company's common shares. Since its inception, the Company has negotiated the value of its common stock in arm's length transactions with all unrelated parties. 

Nine Months Ended September 30, 2012

During the nine months ended September 30, 2012, the Company issued 4,284 shares of its common stock for services provided by its Chief Scientific Officer valued at $4,500 and charged to expense.  In September 2012, the Company granted its Chief Scientific Officer options to purchase 50,000 shares of the Company common stock at $1.05 per share. The options were valued at $13,613 using the Black-Scholes Option Model, of which 12,500 are vested and their fair value of $3,403 was charged to operations.  The option valuation factors included a term of 5 years, volatility of approximately 28%, a U.S Treasury interest rate of 0.72%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.  

In September 2012, the Company issued its new Chief Financial Officer options to purchase 50,000 shares of the Company common stock at $1.05 per share. The options were valued at $13,613 using the Black-Scholes Option Model, of which 12,500 are vested and their fair value of $3,403 was charged to operations.   The option valuation factors included a term of 5 years, volatility of approximately 28%, a U.S Treasury interest rate of 0.72%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.  

In August 2012, the Company issued a new member of its Board of Directors 12,000 shares of its common stock pursuant to the terms of the director’s agreement. The 12,000 shares were valued at $12,600, which is being charged

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to operations over the one-year term of the director’s agreement. For the three months ended September 30, 2012, $2,100 was charged to operations. The unamortized balance at September 30, 2012 of $10,500 is included in prepaid expense.  

In connection with the director’s agreement, the Company granted its new member of the Board of Directors options to purchase 24,000 shares of the Company common stock at $1.05 per share. The options were valued at $10,150 using the Black-Scholes Option Model, of which 3,000 are vested and their fair value of $1,269 was charged to operations.  The option valuation factors included a term of 10 years, volatility of approximately 28%, a U.S Treasury interest rate of 1.83%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.   

In August 2012, the Company issued a consultant 334 shares of its common stock pursuant in exchange for consulting services per the terms of the consulting agreement. The 334 shares were valued at $1.05 per share totaling $350, which was charged to operations for the three months ended September 30, 2012.  

In July 2012, the Company issued the new Chairman of its Scientific Advisory Board, 7,143 shares of its common stock pursuant to the terms of the consulting agreement. The 7,143 shares were valued at $1.05 each, totaling $7,500, which is being charged to operations over the one-year term of the consulting agreement. For the three months ended September 30, 2012, $1,875 was charged to operations. The unamortized balance at September 30, 2012 of $5,625 is included in prepaid expense.  

In April 2012, the Company issued its new Chairman of its Board of Directors 20,000 shares of its common stock pursuant to the terms    of the consulting agreement. The 20,000 shares were valued at $21,000, which is being charged to operations over the one-year   term of the consulting agreement. For the three months ended September 30, 2012, $5,250 was charged to operations, and for the nine months ended September 30, 2012, $10,500 was charged to operations.  The unamortized balance at September 30, 2012 of $10,500 is included in prepaid expense.    In connection with the consulting agreement, the Company granted its new Chairman options to purchase 40,000 shares of the Company common stock at $1.05 per share. The options were valued at $17,492 using the Black-Scholes Option Model, which 10,000 are vested and their value of $4,373 was charged to operations.  The option valuation factors included a term of 10 years, volatility of approximately 28%, a U.S Treasury interest rate of 2.23%, a dividend rate of 0.0% with an exercise price of $1.05, and a stock price of $1.05.  

In January 2012, the Company issued 15,000 shares of its common stock to its Chief Medical Officer in connection with its research and development efforts. The 15,000 shares were valued at $3,000, which is being charged to operations over the remaining one-year term of the underlying agreement. For the three months ended September 30, 2012, $750 was charged to operations, and for the nine months ended September 30, 2012, $2,250 was charged to operations. The unamortized balance at September 30, 2012 of $750 is included in prepaid expense.     

Nine Months Ended September 30, 2011

During the nine months ended September 30, 2011, the Company issued its chief scientific officer 18,750 shares of common shares as part compensation pursuant to the service agreement, which were valued at $5,750 and expensed to research and development. During the same nine month period the Company issued 15,000 due under its service agreement with its Chief Medical Officer. These shares were valued at $3,000 and were initially classified as a prepaid expense. The $3,000 was amortized to research and development over the twelve months of the agreement’s term. Also during the nine month period, the Company issued 4,400 shares of its common stock for accounting services that were valued at $880 and charged to operations. Also during the same nine month period the Company issued 40,000 shares for $8,000.

 (7) Income Taxes

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 and operating loss carry forwards. 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. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the

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enactment date. When it is considered to be more likely than not that a deferred tax asset will not be realized, a valuation allowance is provided for the excess.

Effective January 1, 2012, the Company revoked its “S” election status, and is now subject to income tax on its net taxable income. As of September 30, 2012, the Company has a net operating loss carryover of approximately $182,000 available to offset future income for income tax reporting purposes, which will expire in 2032, if not previously utilized. As of September 30, 2012, the Company has a deferred tax asset consisting solely of its taxable net operating loss of approximately $49,000. The Company has established a valuation allowance offsetting its deferred tax asset in full as management believes that it is more likely than not that the net operating loss will not be utilized.

The Company's policy regarding income tax interest and penalties is to expense those items as general and administrative expense and to identify them for tax purposes.  During the three months and nine months ended September 30, 2012 and 2011, income tax interest and penalties in the statement of operations totaled $0 and $0, respectively.  The Company files income tax returns in the U.S. federal jurisdiction and the state of California. The Company is subject to income tax examination by tax authorities for 2009, 2010 and 2011.

(8) Commitments and Contingencies

Rental Agreement

On May 3, 2011 the Company entered into a rental agreement for laboratory space at a bioscience collective in Pasadena, California. The rental agreement calls for a security deposit of $1,100 and monthly rent payments of $1,100. The lease is month to month and can be terminated by either party with thirty days' notice. 

Rent expense for the three months ended September 30, 2012 and 2011 totaled $3,300 and $3,300, respectively.  Rent expense for the nine months ended September 30, 2012 and 2011 totaled $9,900 and $5,102, respectively.

Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion and analysis should be read in conjunction with our financial statements and related notes thereto.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains certain statements that may be deemed “forward-looking statements” within the meaning of United States of America securities laws.  All statements, other than statements of historical fact, that address activities, events or developments that we intend, expect, project, believe or anticipate and similar expressions or future conditional verbs such as will, should, would, could or may occur in the future are forward-looking statements. Such statements are based upon certain assumptions and assessments made by our management in light of their experience and their perception of historical trends, current conditions, expected future developments and other factors they believe to be appropriate.

These statements include, without limitation, statements about our anticipated expenditures, including those related to clinical research studies and general and administrative expenses; the potential size of the market for our potential products, future development and/or expansion of our potential products and therapies in our markets, our ability to generate product revenues, our ability to obtain regulatory clearance and expectations as to our future financial performance. Our actual results will likely differ, perhaps materially, from those anticipated in these forward-looking statements as a result of various factors, including: our need and ability to raise additional cash, the costs of conducting research in the life sciences field and risks associated with the regulatory requirements applicable to us. The forward-looking statements included in this report are subject to a number of additional material risks and uncertainties, including but not limited to the risks described in our filings with the Securities and Exchange Commission and under the “Risk Factors” section in Part II below.

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Overview

We are a development stage biotechnology company focused on systemic and local drug delivery for the treatment of cardiovascular and peripheral vascular disease. Cardigant was founded to capitalize on the belief that local drug delivery to the vasculature holds the potential to improve outcomes and treat previously untreated disease segments most notably vulnerable atherosclerotic plaque lesions of the coronary, peripheral, and neuro vasculatures. Our focus is on treating atherosclerosis and plaque stabilization using systemic and targeted delivery of large molecule therapeutics based on high density lipoprotein (HDL) targets. Circulating plasma levels of HDL are inversely correlated with coronary artery disease. Towards this goal, we are evaluating drug formulations based on the apoa-1 protein that are delivered both systemically via intravenous infusion and via a catheter to one or more lesions as identified by intravascular ultrasound (IVUS) and or optical coherence tomography (OCT). Our product candidate consists of a recombinant protein construct coding for the apoa-1 protein in a phospholipid formulation. The apoa-1 protein's primary function is the promotion of reverse cholesterol transport (RCT) from the arterial wall to the liver for catabolism and excretion. Apolipoprotein A-I is a protein that in humans is encoded by the Apoa-1 gene. It has a specific role in the metabolism of lipids. Naturally occurring Apoa-1 is the major protein component of HDL also known as the good cholesterol. Apoa-1 protein constitutes roughly 70% of the HDL composition. There are both naturally occurring and synthetically modified mutations of the apoa-1 protein. Some of these mutations can have positive effects on cholesterol mobilization. We are currently evaluating various apoa-1 based protein sequences to determine the optimal drug candidate based on efficacy, minimum royalty costs and available production methods among other factors. We have been evaluating the catheter based local delivery of our product for specifically reducing the plaque content and burden within one or more adjacent sites. 

As we are a development stage company, we have incurred losses since our inception in April of 2009. As we continue to raise funds and further our development program, we expect to incur even greater expenses and losses. We have no revenues and do not expect to incur any revenue for several years until such time as our lead therapeutic compound may, if at all, be approved by a regulatory body for sale in a region of the world covered by that regulatory body.

On January 19, 2012, the United States Securities and Exchange Commission recognized the Company's registration statement as filed on Form S-1 as effective (File No. 333-176329). This self underwritten registered offering provides for the sale of up to 2.2 million shares of Common Stock priced at $1.05 per share.  This offering is still open.  Additional information can be found in the Prospectus as filed with the SEC.

Revenues

We are a development stage company with our first product candidate several years away from generating any revenue. We do not expect to generate any revenue from the sale of our technology for several years. We do however occasionally apply for non-taxable grant funding to support our research and development efforts. We currently have grant applications outstanding, however, we can make no guarantees that any grant money will be awarded from these applications. In November of 2010 we were awarded a non-taxable grant in the amount of $170,750. $60,200 of this was paid in December of 2010 with the remaining $110,550 paid in February of 2011. This grant was awarded under the Qualifying Therapeutic Discovery Project Program. There were no specific future performance obligations under the grant as it was awarded based on previous research and development expenses incurred.

Cost of Product Sales

We do not currently sell any products and do not expect to for several years. We are targeting a product cost in the 10-15% of sales as our goal. This is simply an internal goal that is subject to many uncertainties including the ability

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to cost effectively produce the product, establish a supportable market price in the region of approval and obtain sufficient reimbursement from governmental and or third party insurance agencies.

Research and Development Expenses ("R&D")

Our research and development expenses primarily consist of personnel-related costs, technical consulting fees, and contract research fees. As our senior management are largely involved with overseeing our current development programs, we currently allocate 80% of Mr. Creed's salary (accrued or otherwise) and 100% of Drs. Sinibaldi and Perin to R&D expense. We expect to hire additional technical personnel, engage in additional pre-clinical studies and incur additional patent fees. As such we expect our R&D spending to increase in the coming periods. Although we have multiple potential development programs, we are currently only working on one program. This program is focused on optimizing our biologic compound for systemic delivery in the treatment of acute coronary syndromes. However, since it is likely that we will use the same biologic compound for both systemic and local delivery, it is expected that a substantial portion of the work we are incurring for this development program will translate to other methods of delivery and as well as potential disease states. Assuming we are able to raise sufficient funds, we expect to incur an additional $1.5 million over the next 18 months in execution of our pre-clinical and clinical development programs. We believe this will take us through the required approval to begin a phase I trial. This number is composed of the following estimates of major expenses: $600,000 of employee related R&D costs; $385,000 of formulation development, protein process development, and cGMP production; and $325,000 of additional pre-clinical development studies including standard toxicology studies. Since this is highly dependent on the availability of funds, it may be important to understand the order and amount of spending in the event that funds are received piecemeal. In the event that insufficient funds are available to complete all of the outlined work, we would initially focus on the formulation development of the final drug dosage. This is estimated to cost approximately $150,000; we would then expect to begin additional pre-clinical studies using this final drug dosage conducted as non-GLP studies confirming the efficacy of our final drug dosage. This is estimated to cost approximately $125,000. Next we would finalize contract based small scale cGMP production of our protein required to conduct our toxicology studies. This is estimated at $175,000. Finally we would perform our GLP toxicology studies estimated at $200,000. We expect the culmination of this work to allow us to submit all required evidence to initiate a phase I trial in the US or other region of the world.

Selling, General and Administrative Expenses ("SG&A")

Our selling, general and administrative expenses consist primarily of non allocated salaries including benefits. As we expect to hire additional personnel, we expect this amount to increase to approximately $300,000 over the next 12-18 months. Additionally we expect to move into a new office space which will add an additional $24,000 annual expense. In September 2012, we hired a Chief Financial Officer at an initial reduced salary of $5,000 per month, with a bonus opportunity upon the achievement of certain milestones, plus options to purchase 50,000 shares of the Company common stock at $1.05 per share, vesting over a 4 month period.  We also expect to incur an additional $30,000 per year of investor relations expenses for disseminating company information, news releases and public filings.

Results of Operations for the Three and Nine Months ended September 30, 2012 as Compared to the Three and Nine Months ended September 30, 2011

Revenues

We are development stage and do not have a product commercially available for sale. We do not expect to realize any revenue for several years. As such it is imperative that the reader recognize that our primary source of working capital will generally come from equity sales. We do however occasionally apply for non taxable grant funding to support our research and development efforts. We currently have grant applications outstanding, however, we can make no guarantees that any grant money will be awarded from these applications. In November of 2010 we were

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awarded a non-taxable grant in the amount of $170,750. $60,200 of this was paid in December of 2010 with the remaining $110,550 paid in February of 2011.

Cost of Product Sales

We do not currently have any product costs and do not expect to incur any costs of this type for several years. Any costs associated with producing or procuring product for pre-clinical or clinical studies is considered R&D expenses.

Research and Development Expenses

Research and development expenses for the three months ended September 30, 2012 were $53,345 versus $52,160 for the three months ended September 30, 2011. This represents a 2% increase from the prior year period.  These expenses consisted mainly of allocated salary for our CEO, expense for our CSO and other consultants and laboratory supplies. We expect our R&D expenses to ramp up to approximately $700,000 over the next 18 months with most of the expenses back ended.

Research and development expenses for the nine months ended September 30, 2012 were $118,474 versus $128,975 for the nine months ended September 30, 2011. This represents an 8% decrease from the prior year period. The change from the prior year period is mostly attributed to less pre-clinical work going on during the period.

Selling, General and Administrative Expenses

Selling, general and administrative expenses for the three months ended September 30, 2012 were $37,095 versus $23,114 for the three months ended September 30, 2011. This represents a 60% increase from the prior period. This amount consisted primarily of salary expense, and professional services and the change is due primarily to an increase in accounting fees for ongoing reporting obligations, and the hiring of a Chief Financial Officer.

Selling, general and administrative expenses for the nine months ended September 30, 2012 were $95,724 versus $46,253 for the nine months ended September 30, 2011. This represents a 107% increase from the prior period. This amount consisted primarily of salary expense, and professional services and the change is due primarily to an increase in accounting and legal fees in preparation for our Form S-1 filing and ongoing reporting obligations.

Net Income (Loss)

We had a net loss for the three months ended September 30, 2012 of $90,763 versus a net loss of $74,757 for the three months ended September 30, 2011. We had a net loss for the nine months ended September 30, 2012 of $216,238 versus a net loss of $65,524 for the nine months ended September 30, 2011. This change is due to the $110,550 grant revenue that was realized during the first quarter of 2011. Without the additional grant revenue, the net loss would have been $176,074 representing a 23% increase in net loss in 2012 compared to 2011 reflecting the increase in professional services fees during the current year. On a per share basis, we had a $0.01 loss for the three months ended September 30, 2012 and a $0.01 loss for the three months ended 2011.  On a per share basis, we had a $0.02 loss for the nine months ended September 30, 2012 and a $0.01 loss for the nine months ended 2011.

Liquidity and Capital Resources

Sources of Liquidity

During the nine months ended September 30, 2012, net cash used by operating activities totaled $114,589. Net cash provided by investing activities totaled $45,886. Net cash provided by financing activities during the period was $166,516 of which included proceeds of $164,884 received from the sale of 156,914 shares of our common stock through our public offering less net repayments of $1,632 on advances we received from our president. The resulting change in cash for the period was an increase of $97,813. The cash balance at the beginning of the period was $8,230. The cash balance at September 30, 2012 was $106,043.

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During the nine months ended September 30, 2011, net cash provided by operating activities totaled $51,529. Net cash used in investing activities during the nine month period related to our reinvestment of a $100,000 certificate of deposit, and redemption of a $50,000 certificate of deposit. Net cash used by financing activities during the period was $20,114 which consisted of $8,000 from the sale of 40,000 shares of our common stock, and net repayments of $28,114 on advances we received from our president. The resulting change in cash for the period was a decrease of $19,639. The cash balance at the beginning of the period was $57,830. The cash balance at September 30, 2011 was $38,191.

As of September 30, 2012, the Company had $494,418 in total current liabilities, which was represented by $13,715 in accounts payable, $31,522 in accrued expenses, $420,000 in accrued officer’s compensation and $29,181 due to the Company’s president a stockholder.  This is in comparison to September 30, 2011, where the Company had $399,638 in total current liabilities, which was represented by $26,350 in accounts payable, $24,637 in accrued expenses, $330,000 in accrued officer’s compensation and $18,651 due to the Company’s president for advances he made to the Company.

The Company had no long-term liabilities at September 30, 2012; therefore the Company’s total liabilities at September 30, 2012 amounted to $494,418.  This is in comparison to September 30, 2011, where the Company had no long-term liabilities and had total liabilities of $399,638.

The Company is not aware of any known trends, events or uncertainties which may affect its future liquidity.

We are development stage and do not have a product commercially available for sale. We do not expect to realize any revenue for several years. As such it is imperative that the reader recognize that our primary source of working capital will generally come from equity sales. We do, however, occasionally apply for non-taxable grant funding to support our research and development efforts. We currently have grant applications outstanding, however, we can make no guarantees that any grant money will be awarded from these applications. Our business is subject to risks inherent in the establishment of a new business enterprise, including limited capital resources and possible cost overruns.

Off-Balance Sheet Arrangements

We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.

Future Financings

On January 19, 2012, the United States Securities and Exchange Commission granted our registration statement as filed on Form S-1 (File No. 333-176329). This registered offering is still ongoing as of this filing. We will continue to rely on equity sales of our common shares in order to continue to fund our business operations. Issuances of additional shares will result in dilution to existing stockholders. There is no assurance that we will achieve any additional sales of the equity securities or arrange for debt or other financing to fund our operations and other activities.

Critical Accounting Policies

We regularly evaluate the accounting policies and estimates that we use to make budgetary and financial statement assumptions. A complete summary of these policies is included in the notes to our financial statements. In general, management's estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from those estimates made by management.

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Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Revenue Recognition

The Company will recognize revenue when evidence of an arrangement exists, title has passed or services have been rendered, the selling price is fixed or determinable and collectability is reasonably assured. Revenue from product sales to new customers will be recognized when all elements of the sale have been delivered. All costs related to product shipment will be recognized at time of shipment. The Company does not expect to provide for rights of return to customers on product sales and therefore will not record a provision for returns. Revenue from grant awards is recorded as income when the funds from the respective grant are received and all conditions under the grant have been met.

Research and development

The Company accounts for research and development costs in accordance with the ASC 730-10, “Research and Development.” Under ASC 730-10, all research and development costs must be charged to expense as incurred. Accordingly, internal research and development costs are expensed as incurred. Third-party research and development costs are expensed when the contracted work has been performed or as milestone results have been achieved. Company-sponsored research and development costs related to both present and future products are expensed in the period incurred.

Fair Value of Financial Instruments

The Company follows the provisions of ASC No. 820-10 "Fair Value Measurements."ASC 820-10 relates to financial assets and financial liabilities. ASC 820-10 defines fair value, establishes a framework for measuring fair value in accounting principles generally accepted in the United States of America (GAAP), and expands disclosures about fair value measurements. The provisions of this standard apply to other accounting pronouncements that require or permit fair value measurements and are to be applied prospectively with limited exceptions.

ASC 820-10 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. ASC 820-10 establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity's own assumptions, about market participant assumptions, that are developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of the fair value hierarchy under ASC 820-10 are described below:

Level 1   - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

Level 2   - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3   - Inputs that are both significant to the fair value measurement and unobservable. These inputs rely on management's own assumptions about the assumptions that market participants would use in pricing the asset or

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liability. (The unobservable inputs are developed based on the best information available in the circumstances and may include the Company's own data.)

Stock-Based Compensation

The Company accounts for stock-based compensation under ASC Topic 505-50. This standard defines a fair value-based method of accounting for stock-based compensation. The cost of stock-based compensation is measured at the grant date based on the value of the award and is recognized over the period in which the Company expects to receive the benefit, which is generally the vesting period.

Item 3.  Quantitative and Qualitative Disclosures about Market Risk

N/A

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

In connection with our compliance with securities laws and rules, our Chief Financial Officer has evaluated our disclosure controls and procedures on September 30, 2012. Prior to September 2012, the Chief Financial Officer was also serving in the capacity of Chief Executive Officer, Chief Accounting Officer and company director. Because of these multiple roles, it is impossible to fully segregate duties. As such he has concluded that our disclosure controls and procedures are ineffective. There have been no significant changes in our internal controls or in other factors that could significantly affect these controls subsequent to the date of their evaluation including any corrective actions with regard to significant deficiencies and material weaknesses. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission in the Internal Control-Integrated Framework. Inherent in a development stage entity is the problem of segregation of duties. Given that the Company has a limited accounting department, segregation of duties cannot be completely accomplished at this stage in the business lifecycle.

Based on its assessment, management has concluded that the Company's disclosure controls and procedures and internal control over financial reporting are not effective based on those criteria.

Changes in Internal Control over Financial Reporting

There has been no change in our internal control over financial reporting during the quarter ended September 30, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

We are not currently a party to or engaged in any material legal proceedings. However, we may be subject to various claims and legal actions arising in the ordinary course of business from time to time.

Item 1A. Risk Factors

N/A

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

See Note (6) Stockholder’s Equity (Deficit) in Notes To Financial Statements of this filing for detail stock-based compensation activity.

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Item 3. Defaults Upon Senior Securities

None

Item 4. (Reserved)

Item 5.  Other Information

Current report form 8-K filed on September 17, 2012 is incorporated by reference.

Current report form 8-K filed on August 17, 2012 is incorporated by reference.

Item 6.  Exhibits

SIGNATURES 

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

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CARDIGANT MEDICAL, INC.

Dated: November 13, 2012

By: /s/ Jerett A. Creed

Jerett A. Creed

Chief Executive Officer

Dated: November 13, 2012

By: /s/ Jack R. A. Mott

Jack R. A. Mott

Chief Financial Officer,

(Principal Financial Officer, Principal Accounting Officer)

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