UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

For the quarterly period ended December 31, 2014

For the transition period from _______ to _______

Commission File Number: 005-87668

12635 E. Montview Blvd., Suite 137, Aurora, CO  80045

(Address of principal executive offices)

303.415.2558

(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  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 the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

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

There were 78,363,562 shares of the issuer’s common stock outstanding as of February 11, 2015.

PEAK PHARMACEUTICALS, INC.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2014

TABLE OF CONTENTS

2

PART I – FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

3

F-1

F-2

F-3

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

Note 1 – Summary of Significant Accounting Policies

Throughout this report, the terms “our,” “we,” “us,” and the “Company” refer toPeak Pharmacecuticals, Inc. and its subsidiary.  The accompanying unaudited condensed consolidated financial statements of Peak Pharmaceuticals, Inc.,  at December 31, 2014 and 2013 have been prepared in accordance with generally accepted accounting principles (“GAAP”) for interim financial statements, instructions to Form 10-Q, and Regulation S-X. Accordingly, certain information and footnote disclosures normally included in financial statements prepared in accordance with GAAP have been condensed or omitted. These condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the year ended September 30, 2014. In management's opinion, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation to make our financial statements not misleading have been included. The results of operations for the periods ended December 31, 2014 and 2013 presented are not necessarily indicative of the results to be expected for the full year.

Peak Pharmaceuticals, Inc., was incorporated in Nevada on December 18, 2007 as Surf A Movie Solutions Inc., which was previously engaged in the development, sales and marketing of online video stores. We decided to change our business objective and in connection therewith we first changed our name to Frac Water Systems, Inc.

On October 10, 2013, we entered into an Agreement (the “Agreement”) with an unrelated third party in the business of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities (the “Business”). The Agreement was intended to enable us to engage in and commence activities involving the Business.

In consideration for consulting services to be rendered, we had agreed to pay a Monthly Project Cash Fee, a Cash Bonus Payment, 375,000 stock options and Net Income Payments.

On December 31, 2013, we determined not to move forward with our proposed business of providing solutions for the treatment and recycling of waste water resulting principally from oil and gas exploration and production activities. On December 31, 2013 we notified the other party of our determination to terminate the Agreement effective January 30, 2014 (the “Termination Date”). As of the Termination Date, we have no further obligation to make monthly project cash fee payments or bonus payments which were previously required under the Agreement. The options previously granted remain outstanding.

On March 11, 2014 our board of directors authorized a 1.5 for 1 forward split of our common stock in the form of a stock dividend. Accordingly, all references to numbers of common shares and per-share data in the accompanying financial statements have been adjusted to reflect the Stock Split on a retroactive basis.  The split did not affect the authorized capital.

On March 14, 2014, we changed our name to Cannabis Technology Corp. The name change was made in connection with our entry into the business of manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of cannabis, for the treatment of various conditions and diseases.  On December 23, 2014, we changed our name again to Peak Pharmaceuticals, Inc.  This name change was made to make our name more consistent with our business operations and plans relating to development, manufacturing and marketing of hemp-based nutraceutical and supplement products for the human and animal health markets.

Financial statements prepared in conformity with GAAP contemplate a company’s continuation as a going concern. We have incurred net losses since inception. In addition, we have an accumulated deficit of $4,638,281 as of December 31, 2014. This condition raises substantial doubt as to our ability to continue as a going concern. In response to these conditions, we may raise additional capital through the sale of equity securities, through an offering of debt securities or through borrowings from financial institutions or individuals. These financial statements do not include any adjustments that might be necessary if we are unable to continue as a going concern.

Basis of Consolidation

The consolidated financial statements include the financial statements of the Company and our wholly owned subsidiary Peak Biopharma Corp. All inter-company balances and transactions among the companies have been eliminated upon consolidation.

Inventory

Inventory consists of finished foods and is carried at the lower of cost or market on a first in first out basis.

Deferred Offering Cost

F-4

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

(Continued)

Deferred offering cost consists of costs directly related to a proposed offering of our securities.  Such cost will be charged against the gross proceeds of the offering.

Revenue Recognition

We recognize revenue from products sold when there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is determinable and collection is reasonably assured.

Expenses associated with exploring business opportunities

During the period ended December 31, 2013, we were exploring opportunities related to solutions for the treatment and recycling of waste water resulting principally from oil and gas exploration and productions activities. We determined not to proceed in that industry. Costs included legal fees, fees associated with the assumption of certain notes and other payments under the Agreement, consulting fees, attending conferences, web development, and travel. These costs include a non-cash charge of $102,932 which is the assumption of debt related to the Agreement and $2,413 which is the fair value of options granted under the Agreement.

Research and Development

Expenditures for research activities relating to product development and improvement are charged to expense as incurred. We incurred $532 in research and development expenses for the three months ended December 31, 2014. There were no research and development expenses in 2013.

Loss per Share

We calculate net loss per share in accordance with ASC Topic 260, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of Common Stock outstanding for the period, and diluted earnings per share is computed by including Common Stock equivalents outstanding for the period in the denominator. At December 31, 2014 and 2013 any equivalents would have been anti-dilutive as we had losses for the periods then ended.

Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position. ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.

Note 2 - Intangibles

Intangibles at December 31, 2014 and September 30, 2014, consists of Website, $35,000, less accumulated amortization of $7,778 and $4,861, respectively.  The website is being amortized over three years.  

Estimated future amortization expense related to intangible property as of December 31, 2014 is as follows:

Note 3 – Related Party Transactions

Parties, which can be corporations or individuals, are considered to be related if we have the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions.  Companies are also considered to be related if they are subject to common control or common significant influence.

Accounts payable – related party

F-5

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

(Continued)

Accounts payable – related parties are the amounts payable to an officer and directors of the Company for reimbursement of expenses they incurred on behalf of the Company as well as Director fees.

Note 4 – Commitments and Contingencies

Canna-Pet License Agreement

In July, 2014, through our wholly-owned subsidiary, Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with a Washington limited liability corporation (“Licensor”), which owns the brand name “Canna-Pet” and certain related intellectual property including, but not limited to, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists, trade secrets and know-how, and other related intellectual property (collectively, the “Licensed Intellectual Property”), used by Licensor in the conduct of its business related to the production and sale of medical products made from industrial hemp which are intended exclusively for consumption by pets. Pursuant to the License Agreement, Licensor granted to us a perpetual, exclusive, world-wide license to use the Licensed Intellectual Property in conjunction with our business and the production and sale of medical products made from industrial hemp as well as the right to sublicense the Licensed Intellectual Property to third parties. The License Agreement gives us the right to produce and sell existing products utilizing the Licensed Intellectual Property and to develop new products, jointly with Licensor or otherwise, based upon the Licensed Intellectual Property. The License Agreement provides us with an immediate revenue source and access to Licensor’s customer base. During the term of the license, all intellectual property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.

In consideration of the grant of the license, we have agreed to pay Licensor license fees in the form of royalty payments calculated on the basis of gross proceeds received by us from sales of products manufactured, marketed or sold by us utilizing the Licensed Intellectual Property or any subsequently developed intellectual property which is jointly owned by us and Licensor.

The royalty will be calculated and paid by us on a quarterly basis using calendar quarters ending March 31, June 30, September 30, and December 31 each year and will be equal to fifteen percent (15%) of the first $1,000,000 of gross proceeds received by us during the quarter and ten percent (10%) on gross proceeds in excess of $1,000,000 received by us during the quarter. On or before the date, which is 45 days following the end of each calendar quarter, we will calculate the amount of the royalty due to Licensor for that quarter and will make payment in full of such amount to Licensor. For purposes of calculating the amount of royalty due for each quarter, “gross proceeds” will not include amounts received by us as payments for any and all taxes, duties, governmental charges, sales expenses, freight or shipping charges, and the like.

Commencing in 2015, we have agreed to pay Licensor a guaranteed minimum royalty amounts based upon the gross proceeds received by us from the sale of products (the “License Based Products”) utilizing the Licensed Intellectual Property or subsequently developed jointly owned intellectual property. The guaranteed minimum royalty payments are as follows:

F-6

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

(Continued)

All royalty payments made by us during any calendar year will be credited against the minimum annual royalty amounts due and payable by us for such year. In the event that the aggregate amount of royalties payable by us for any calendar year are not sufficient to satisfy our minimum annual royalty payment obligation for that year, we will be obligated to pay the unpaid balance of the minimum royalty amount to Licensor on or before February 28 of the following year

Royalty payments for the three month period ended December 31, 2014 was $25,615 and is included in general and administrative expenses and accrued liabilities.

Non-cancelable Operating Lease

We lease office and lab space under non-cancelable operating lease, which expires August 31, 2015.  There are no automatic extension periods in the lease.

The aggregate minimum requirements under non-cancelable leases as of December 31, 2014 are as follows:

Rent expense was $6,331 and $4,000 for the three months ended December 31, 2014 and 2013 respectively.

Accounts payable insurance relates to committed payments for the purchase of insurance.  The amount of the insurance policy was $60,000 and the original payable was $48,000, bears interest at the rate of 6.5% per annum, and has monthly payments of $4,944 through September, 2015.

Note 5 – Stockholders’ Equity

On December 22, 2014, pursuant to a Placement Agent Agreement, we issued 200,000 restricted shares of our common stock. The shares were valued at $36,000. $0.18 per share, the trading value, and charged to stock based compensation.

Note 6 – Options

In connection with the Agreement described in Note 1, we issued options to purchase 375,000 shares of our common stock. The options have a term of 10 years, are exercisable at $0.0067 per share and vest twelve months from the date of issuance, October 10, 2013.

The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $2,413. The options have been expensed to the cost of the project which we are not moving forward on. The following assumptions were used in the Black-Scholes option pricing model:

During the period from October 2013 through December 2013 we issued options to purchase 1,387,500 shares of our common stock to officers and directors of the company.  In January 2014 all of those options were cancelled.

In May 2014, we issued non-qualified options to purchase 4,500,000 shares of our common stock to certain officers of the Company. The options are exercisable at $0.20 per share and have graded vesting over 4 years.

The fair value of the options, estimated at the date of grant using the Black-Scholes option pricing model was $4,415,649.  The following assumptions were used in the Black-Scholes option pricing model:

F-7

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

(Continued)

As per guidance in the ASC Topic 718, Compensation - Stock Compensation (“ASC 718”), we are amortizing the fair value of the options on a straight line basis over the requisite service period for each separately vesting portion of the award as if the award was, in-substance, multiple awards (graded vesting attribution method).

The following is a summary of outstanding stock options issued to employees and directors as of December 31, 2014:

The following is a summary of outstanding stock options issued to non-employees, excluding directors, as of December 31, 2014:

Total option expense for the three months ended December 31, 2014 was $621,988.

Note 7 – Income Tax

We account for income taxes in interim periods in accordance with ASC Topic 740, Income Taxes (“ASC 740”). We have determined an estimated annual effective tax rate. The rate will be revised, if necessary, as of the end of each successive interim period during our fiscal year to our best current estimate. As of December 31, 2014 the estimated effective tax rate for the year will be zero.

There are open statutes of limitations for taxing authorities in federal and state jurisdictions to audit our tax returns from 2011 through the current period. Our policy is to account for income tax related interest and penalties in income tax expense in the statement of operations. There have been no income tax related interest or penalties assessed or recorded.

ASC 740 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This pronouncement also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition.

For the three month periods ended December 31, 2014 and 2013 we did not have any interest and penalties associated with tax positions. As of December 31, 2014 we did not have any significant unrecognized uncertain tax positions.

F-8

Peak Pharmaceuticals, Inc.

Notes to Consolidated Condensed Financial Statements

December 31, 2014 and 2013

(Unaudited)

(Continued)

Note 8 - Subsequent Events

Management has evaluated all activity and concluded that no subsequent events have occurred that would require recognition in these financial statements or disclosure in the notes to these financial statements.

F-9

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

SPECIAL NOTE OF CAUTION REGARDING FORWARD-LOOKING STATEMENTS

This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, Section 21E of the Securities Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts included in this Quarterly Report on Form 10-Q, including without limitation, statements in this Management’s Discussion and Analysis of Financial Condition and Results of Operations regarding our financial position, estimated working capital, business strategy, the plans and objectives of our management for future operations and those statements preceded by, followed by or that otherwise include the words “believe”, “expects”, “anticipates”, “intends”, “estimates”, “projects”, “target”, “goal”, “plans”, “objective”, “should”, or similar expressions or variations on such expressions are forward-looking statements. We can give no assurances that the assumptions upon which the forward-looking statements are based will prove to be correct. Because forward-looking statements are subject to risks and uncertainties, actual results may differ materially from those expressed or implied by the forward-looking statements. There are a number of risks, uncertainties and other important factors that could cause our actual results to differ materially from the forward-looking statements, including, but not limited to, the availability and pricing of additional capital to finance operations.

Except as otherwise required by the federal securities laws, we disclaim any obligations or undertaking to publicly release any updates or revisions to any forward-looking statement contained in this Quarterly Report on Form 10-Q to reflect any change in our expectations with regard thereto or any change in events, conditions or circumstances on which any such statement is based.

The following discussion should be read in conjunction with our audited consolidated financial statements and the accompanying notes included elsewhere in this Annual Report. The following discussion contains forward-looking statements that involve risks and uncertainties.

Overview

Peak Pharmaceuticals, Inc., (“our,” “we,” “us,” and the “Company”) was incorporated in Nevada on December 18, 2007 as Surf A Movie Solutions Inc., which was previously engaged in the development, sales and marketing of online video stores. We decided to change our business objective and in connection therewith we first changed our name to Frac Water Systems, Inc.

On October 10, 2013, we entered into an Agreement (the “Agreement”) with an unrelated third party in the business of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities (the “Business”). The Agreement was intended to enable us to engage in and commence activities involving the Business.

On December 31, 2013, we determined not to move forward with our proposed business of providing solutions for the treatment and recycling of waste water resulting principally from oil and gas exploration and production activities. On December 31, 2013 we notified the other party of our determination to terminate the Agreement effective January 30, 2014 (the “Termination Date”). As of the Termination Date, we have no further obligation to make monthly project cash fee payments or bonus payments which were previously required under the Agreement. The options previously granted remain outstanding.

On March 11, 2014 our board of directors authorized a 1.5 for 1 forward split of our common stock in the form of a stock dividend.  Accordingly, all references to numbers of common shares and per-share data in the accompanying financial statements have been adjusted to reflect the Stock Split on a retroactive basis.  The split did not affect the authorized capital.

In early March 2014 we determined to enter into the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinnoids, an abundant and pharmaceutically active component of industrial hemp, for the prevention and alleviation of various conditions and diseases. In connection therewith, on March 17, 2014 we changed our name to Cannabis Therapy Corporation and on March 24, 2014 changed our trading symbol on OTC Markets to “CTCO”.   On December 23, 2014, we changed our name to Peak Pharmaceuticals, Inc.  Following the name change, our common stock temporarily remained listed for quotation on OTC Markets under the symbol “CTCO” pending assignment of a new trading symbol by Financial Industry Regulatory Authority, Inc. (FINRA). Effective as of February 5, 2015, FINRA assigned the new trading symbol “PKPH” to the Company’s shares.  Accordingly, as of that date, the Company’s shares ceased trading under the symbol “CTCO” and began trading under the newly assigned trading symbol “PKPH.”. 

All of our business operations are carried on through our wholly-owned subsidiary, Peak BioPharma Corp., a Colorado corporation.  

4

In July, 2014, through Peak BioPharma Corp., we entered into a License Agreement (the “License Agreement”) with a Washington limited liability corporation (“Licensor”), which owns the brand name “Canna-Pet” and certain related intellectual property including, but not limited to, trademarks and copyrights, formulations, recipes, production processes and systems, websites, domain names, customer lists, supplier lists, trade secrets and know-how, and other related intellectual property (collectively, the “Licensed Intellectual Property”), used by Licensor in the conduct of its business related to the production and sale of medical products made from industrial hemp which are intended exclusively for consumption by pets. Pursuant to the License Agreement, Licensor granted us a perpetual, exclusive, world-wide license to use the Licensed Intellectual Property in conjunction with our business and the production and sale of medical products made from industrial hemp as well as the right to sublicense the Licensed Intellectual Property to third parties. The License Agreement gives us the right to produce and sell existing products utilizing the Licensed Intellectual Property and to develop new products, jointly with Licensor or otherwise, based upon the Licensed Intellectual Property. The License Agreement provides us with an immediate revenue source and access to Licensor’s customer base. During the term of the license, all intellectual property rights in and to the Licensed Intellectual Property remain the exclusive property of Licensor.

In consideration of the grant of the license, we have agreed to pay Licensor license fees in the form of royalty payments calculated on the basis of gross proceeds received by us from sales of products manufactured, marketed or sold by us utilizing the Licensed Intellectual Property or any subsequently developed intellectual property which is jointly owned by us and Licensor.

The royalty will be calculated and paid by us on a quarterly basis using calendar quarters ending March 31, June 30, September 30, and December 31 each year and will be equal to fifteen percent (15%) of the first $1,000,000 of gross proceeds received by us during the quarter and ten percent (10%) on gross proceeds in excess of $1,000,000 received by us during the quarter. On or before the date, which is 45 days following the end of each calendar quarter, we will calculate the amount of the royalty due to Licensor for that quarter and will make payment in full of such amount to Licensor. For purposes of calculating the amount of royalty due for each quarter, “gross proceeds” will not include amounts received by us as payments for any and all taxes, duties, governmental charges, sales expenses, freight or shipping charges, and the like.

Commencing in 2015, we have agreed to pay Licensor a guaranteed minimum royalty amounts based upon the gross proceeds received by us from the sale of products (the “License Based Products”) utilizing the Licensed Intellectual Property or subsequently developed jointly owned intellectual property. The guaranteed minimum royalty payments are as follows:

All royalty payments made by us during any calendar year will be credited against the minimum annual royalty amounts due and payable by us for such year. In the event that the aggregate amount of royalties payable by us for any calendar year are not sufficient to satisfy our minimum annual royalty payment obligation for that year, we will be obligated to pay the unpaid balance of the minimum royalty amount to Licensor on or before February 28 of the following year.

We are currently selling Canna-Pet products utilizing e-commerce.  We are currently sourcing our inventory from the Licensor, but anticipate securing new product manufacturing during the next few months.

5

Critical Accounting Policies and Estimates

Our financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting principles applied on a consistent basis. 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, the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. 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.

Recent Pronouncements

From time to time, new accounting pronouncements are issued that we adopt as of the specified effective date. We believe that the impact of recently issued standards that are not yet effective may have an impact on our results of operations and financial position.  ASU Update 2014-15 Presentation of Financial Statements-Going Concern (Sub Topic 205-40) issued August 27, 2014 by FASB defines management’s responsibility to evaluate whether there is substantial doubt about an organization’s ability to continue as a going concern. The additional disclosure requirement is effective after December 15, 2016 and will be evaluated as to impact and implemented accordingly.

Results of Operations

Results of Operation for Three Months Ended December 31, 2014 as Compared to the Three Months Ended December 31, 2013

(References to 2014 and 2013 are to the three months ended December 31, 2014 and 2013 respectively, unless otherwise specified.)

We began generating revenue during the three months ended December 31, 2014.  For 2014 we had revenue of $161,360.  Our cost of revenue, which is our cost of products sold for that period was $43,972and our gross profit was $117,338 which was 72.7%.  We had no sales in 2013.

During 2014 our business efforts were dedicated to the business of developing, manufacturing and marketing pharmaceutical level products containing phytocannabinnoids, an abundant and pharmaceutically active component of industrial hemp, for the prevention and alleviation of various conditions and diseases.  During 2013 we were exploring business opportunities of providing economically and environmentally sound solutions for the treatment and recycling of wastewater resulting principally from oil and gas exploration and production activities.  On December 31, 2013, we determined not to move forward with that proposed business.

In connection with that business and general and administrative expenses not directly related to the cost associated with our previous business, we incurred general and administrative expenses of $896,354.  The following is a breakdown of those costs:

The equity based compensation was from the amortization of previously issued stock option to officers and directors.  Seven million four hundred sixteen thousand (7,416,000) options are outstanding, and vest over varying periods.  The options are exercisable

6

through 2024 at prices ranging from $0.0067 to $0.20.  Three million six hundred sixty six thousand (3,666,000) of the outstanding options are currently exercisable.  In addition we issued 200,000 restricted shares of our common stock to  an investment banking firm. The shares were valued at $36,000,  or $0.18 per share, the trading value as of the date of issuance.

Investor and public relations costs were paid primarily to three firms in order for the public and industry to be aware of our business direction. We do not anticipate that these cost will be as high in future periods.

Legal and professional fees were incurred in connection with the changes in our business and the costs of being a public company. We anticipate that legal and professional fees will remain at or near the current levels.

Personnel costs relate to 2 full time employees during the year. We anticipate hiring at least 2 more employees in the near future.

Royalty expense is directly related to the License Agreement with Canna-Pet as more fully described above.  Our sales under this agreement started in October 2014.

Consulting fees relate primarily to marketing studies provided to us by the University of Michigan executive MBA program.  We are utilizing these studies to refine our business plan.

Amortization is related to our intangible asset, our website.

Other general and administrative costs include costs such as insurance, IT costs, travel, communications, and office expenses.  

In December 2013, after completing our analysis of our opportunities in the oilfield services business, we determined that we would not enter that segment. We expensed all cost related to our evaluation of the industry and any commitment made in that endeavor.

The following is a breakdown of such costs:

We had a loss from operations of $814,966 for 2014 as compared to $536,179 for 2013.

In 2013 other income and (expense) included a $24,650 gain on extinguishment of debt.

For 2014 we had a net loss of $815,226 as compared to $525,638 for 2013.

Liquidity and Capital Resources

We expect that we will need to raise additional funds in order to fully effectuate our business plan. We may seek to raise additional capital through the issuance of debt or equity, through entrance into strategic arrangements with third parties, or through other means.  However, there can be no assurance that additional capital will be available to us at all, or if available, that it will be available on terms which are acceptable to us.  Our inability to raise additional capital would have a severe negative impact on our ability to remain a viable company. 

At December 31, 2014, cash was $281,984.

Net cash used in operating activities was $169,477 for the three months ended December 31, 2014, as compared to net cash used of $331,914 for the three months ended December 31, 2013. The decrease in net cash used in operations was primarily due to our change in operating plans and the revenue generated from the sale of our products.

There were no cash investing activities during the three month periods ended December 31, 2014 and 2013.

There were no cash financing activities during the three months ended December 31, 2014.  During the three months ended December

7

31, 2013, we had $500,000 in proceeds from sales of our convertible notes.  In addition we received $225,000 in proceeds from the sales of our common stock.

We believe that we have sufficient capital to maintain the business of manufacturing and marketing pharmaceutical level products containing phytocannabinoids, an abundant and pharmaceutically active component of cannabis, for the treatment of various conditions and diseases, however we will need additional capital to bring the business to profitability.

There is no assurance that we will be able to obtain any financing or enter into any form of credit arrangement. Although we may be offered such financing, the terms may not be acceptable to us. If we are not able to secure financing, or if it is offered to us on unacceptable terms,  our business plan may have to be modified or curtailed or certain aspects of it may need to be terminated. There is no assurance that even with financing we will be able to achieve our goals.

Off Balance Sheet Arrangements

None.

Contractual Obligations

Not applicable.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 4. CONTROLS AND PROCEDURES

Evaluation of Disclosure Controls and Procedures

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 and chief financial officer as appropriate, to allow timely decisions regarding required disclosure. At the end of the quarter ended December 31, 2014 we carried out an evaluation, under the supervision and with the participation of our management, including our principal executive officer and the principal financial officer, of the effectiveness of the design and operation of our disclosure controls and procedures.  Based on this evaluation, we determined that as of December 31, 2014, our disclosure controls and procedures were not effective due to a lack of segregation of duties caused by limited personnel.

Limitations on Effectiveness of Controls and Procedures

Our management, including our Chief Executive Officer (Principal Executive Officer) and Chief Financial Officer (Principal Financial Officer), does not expect that our disclosure controls and procedures will prevent all errors and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the Company have been detected. These inherent limitations include, but are not limited to, the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Controls

During the fiscal quarter ended December 31, 2014, there have been no changes in our internal control over financial reporting that have materially affected or are reasonably likely to materially affect our internal controls over financial reporting.

8

PART II – OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

From time to time we may be a defendant and plaintiff in various legal proceedings arising in the normal course of our business. We are currently not a party to any material legal proceedings or government actions, including any bankruptcy, receivership, or similar proceedings. In addition, we are not aware of any known litigation or liabilities involving the operators of our properties that could affect our operations. Furthermore, as of the date of this Quarterly Report, our management is not aware of any proceedings to which any of our directors, officers, or affiliates, or any associate of any such director, officer, affiliate, or security holder is a party adverse to our company or has a material interest adverse to us.

ITEM 1A. RISK FACTORS

Not applicable.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

On December 22, 2014 we issued 200,000 shares of our restricted common stock pursuant to a placement agent agreement with a registered securities broker dealer. under which we are receiving investment banking services. The shares were issued as payment of a  Retainer Fee which is part of the compensation to be paid by the Company for investment banking services.

The foregoing issuances of securities were made in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended (the “Act”), for transactions of an issuer not involving a public offering and/or Rule 506 of Regulation D under the Act.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

None.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

In reviewing the agreements included as exhibits to this Form 10-Q, please remember that they are included to provide you with information regarding their terms and are not intended to provide any other factual or disclosure information about the Company or the other parties to the agreements. The agreements may contain representations and warranties by each of the parties to the applicable agreement. These representations and warranties have been made solely for the benefit of the parties to the applicable agreement and:

Accordingly, these representations and warranties may not describe the actual state of affairs as of the date they were made or at any other time. Additional information about the Company may be found elsewhere in this Form 10-Q and the Company’s other public filings, which are available without charge through the SEC’s website at http://www.sec.gov.

9

The following exhibits are included as part of this report:

________________

 ** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

10

SIGNATURES

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

11