PLAN OF OPERATIONS
Kyto Technology and Life Science, Inc. (the "Company") was formed as a Florida
corporation on March 5, 1999 under the name of B Twelve, Inc. In August, 2002,
the Company changed its name from B Twelve, Inc. to Kyto BioPharma Inc. and in
May 2018, the name was changed again to Kyto Technology and Life Science, Inc.
In July 2019, the Company was re-incorporated as a Delaware company. The Company
operates virtually, from public locations or the homes of its officers, and does
not currently lease any office space.
The Company was originally formed to acquire and develop proprietary drugs for
the treatment of cancer, arthritis, and other autoimmune diseases and had been
evaluating a number of strategies. In April 2018, the Board adopted a new
business plan focused on the development of early-stage technology and life
science businesses through early stage investment funding. The Company has
recruited a number of experienced investment consultants from a network that
includes angel investors, corporate managers, sophisticated early stage
investors and successful entrepreneurs with experience across a number of
technology and life science products and markets, and relies on input from these
advisors in conducting due diligence and making investment decisions. In order
to offset the risk in early-stage investing, the Company works with angel
investment groups and other sophisticated investors and participates only after
these groups have completed due diligence and committed to invest, in effect
becoming lead investors. The Company then completes its own due diligence and
invests under identical terms as the lead investors. The Company will do
follow-on investments in existing portfolio companies, assuming adequate
progress, when portfolio companies initiate new financing rounds. The Company
currently does not typically invest more than $250,000 in any single investment.
Generally, the Company's investments represent less than 5% ownership interests,
and the Company therefore has no effective control or influence over the
management or commercial decisions of the companies in which it invests. The
Company plans to generate revenue from realized gains from the sale of the
businesses in which it has invested, or some or all of its shareholdings in
those cases where portfolio companies go public. Generally, it is expected that
investments will be realized from an exit within a period of four to five years
following initial investment. Such exits or liquidity events are outside the
Company's control and depend on merger and acquisition ("M&A") transactions or
an initial public offering ("IPO") which may result in cash or equity proceeds.
Accordingly, it is difficult to forecast revenue, net income, and cash flow.
Other than making its initial and, potentially, follow-on investments in its
portfolio companies, the Company does not provide any financial support to any
of its investees.
The Company has one regular employee - the CEO, Mr, Paul Russo. Prior to
December 31, 2020, he was acting as a consultant to the Company and did not
receive contractual compensation for his services in the form of cash. As of
January 1, 2021, Mr. Russo was engaged as an employee of the Company at a salary
of $400,000 per annum of which $100,000 and $300,000 was earned in the three
months and nine months ended December 31, 2021, respectively, of which a balance
of $80,000 was deferred at December 31, 2021. No consulting fees and no options
were granted to him during these periods. During the three months and nine
months ended December 31, 2020, Mr. Russo received no payroll or consulting
fees, however in the three and nine months ended December 31, 2020, he received
a bonus of $50,000 and was granted options to purchase 215,000 shares of Common
stock.
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The Company has created a portfolio of minority investments in early-stage
start-up companies and derives its revenue opportunity from the sale of those
investments. Such sales are outside the Company's control and depend on M&A
transactions or IPOs which may result in cash or equity proceeds. Accordingly,
it is difficult to forecast revenue, net income, and cash flow. As of December
31, 2021, the Company had approximately $600,000 of cash to cover its operating
expenses, and new investment requirements, and is continuing to raise additional
funding on a recurring monthly basis. If successful, it will have sufficient
funding for further investments and ongoing operations. However, there is no
assurance that the Company will be able to raise sufficient cash to cover its
requirements on attractive terms, if at all, and whether it will be able to
continue as a going concern. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. Stay at home orders and
general economic uncertainties arising out of the current Covid-19 epidemic have
created additional delays and uncertainty. To date there has been no disruption
to the Company's business operations, although some of its portfolio investment
companies report delays in their programs.
At March 31, 2020, management determined that the Company was an investment
company for purposes of ASC 946 disclosure, and committed to follow the
specialized accounting and reporting guidance contained therein. Accordingly, a
new company, Kyto Investments, Inc. ("KI") was incorporated in Delaware in
December 2020 in preparation for a restructuring and an N-2 Registration
Statement filed in March 2021 for review by the SEC. KI is an internally
managed, closed-end investment company that has elected to be regulated as a
business development company ("BDC") under the Investment Company Act of 1940,
as amended (the "1940 Act"). Immediately upon effectiveness of this N-2
Registration Statement, the Company will merge with KI and the Company will be
the surviving entity. As of the completion of the merger, the Company will
constitute a "successor issuer" for the purposes of Rule 414 under the
Securities Act and may continue the current offering by filing post-effective
amendments to the Registration Statements. Prior to the merger, the Company had
fewer than 100 non-affiliated investors and filed under the 1934 Act relying on
exemption Rule 3( c )(1).
As a BDC, the Company will be required to comply with certain regulatory
requirements. The Company also intends to elect to be treated for U.S. federal
income tax purposes as a regulated investment company ("RIC") under Subchapter M
of the Internal Revenue Code of 1986, as amended (the "Code"). As a RIC, the
Company is required to comply with additional regulatory requirements. The
Company has prepared and submitted sequentially two N-2 Registration Statements
to the SEC for review but has not yet received final approval of its
registration as at the filing date of this report.
Results of Operations
Revenue: In the three months and nine months ended December 31, 2021 the Company
reported no realized investment income as there were no liquidity events related
to its investment portfolio. The Company reported $691,864 and $2,095,180 of net
change in unrealized gains from investments respectively, in these periods. In
the three months and nine months ended December 31, 2020 the Company reported no
realized investment income as there were no liquidity events related to its
investment portfolio. The Company reported $328,694 and $806,942 of net change
in unrealized gains from investments respectively, in these same periods.
Professional fees: In the three months and nine months ended December 31, 2021,
the Company reported $98,241 and $371,600, respectively, of professional fees,
mainly for legal and accounting services. In the corresponding three months and
nine months ended December 31, 2020 the Company reported $91,669 and $168,212,
respectively.
Other operating expenses: Other operating expenses include payroll, consulting,
and travel and conference fees associated with raising capital and review of
investment deal-flow. In the three months and nine months ended December 31,
2021, the Company incurred other operating expenses of $273,473 and $741,089,
respectively. In the corresponding three months and nine months ended December
31, 2020, the Company incurred other operating expenses of $241,047 and
$363,983, respectively.
For the three months and nine months ended December 31, 2021, the Company's net
increase in net assets resulting from operations was $188,151 and $499,798,
respectively. For the corresponding three months and nine months ended December
31, 2020, the Company's net increase (decrease) in net assets resulting from
operations was ($4,017) and $275,252, respectively.
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During the three and nine months ended December 31, 2021, the Company was
subject to shelter in place regulations imposed by the State of California in
mitigation of the spread of the Corona 19 virus. Since the Company does not have
any dedicated office space and works virtually from the homes of its officers,
there was no major disruption in working routines which continued by video and
teleconference. Uncertainty arising from Covid 19 created a slow-down in the
rate at which the Company was able to raise Class B funding, and thereby
continue to make investments, however the Company did see a reduction in travel
and investor relations expenses during the period. The Company has more than 60
discrete investments in a range of different industry and geographic segments,
many of which are in the life science and medical space. While there is clearly
a risk that our portfolio companies may be adversely affected in their ability
to raise future funding or do business, there have been no management reports
revealing major problems and some of our portfolio companies may actually
benefit from new opportunities created. We believe that our policy of spreading
our investments in relatively small amounts over a large number of portfolio
companies helps mitigate some of the risk that might be suffered by any of our
investments.
Liquidity, Capital Resources and Going Concern
The Company had net assets of $12,911,623 and $6,993,163 at December 31, 2021
and March 31, 2021, respectively. Cash was $608,223 and $1,437,868 at December
31, 2021 and March 31, 2021, respectively.
The Company's condensed interim financial statements are prepared in accordance
with U.S. GAAP, which requires the use of estimates, assumptions and the
exercise of subjective judgment as to future uncertainties. Actual results could
differ from those estimates, assumptions, and judgments. Significant items
subject to such estimates will include determining the fair value of
investments, revenue recognition, income tax uncertainties, stock-based
compensation, and other contingencies.
The Company has created a portfolio of minority investments in early-stage
start-up companies and derives its revenue opportunity from the sale of those
investments. Such sales are outside the Company's control and depend on M&A
transactions or IPOs which may result in cash or equity proceeds. Accordingly,
it is difficult to forecast revenue, net income, and cash flow. As of December
31, 2021, the Company had approximately $600,000 of cash to cover its operating
expenses, and new investment requirements and is continuing to raise additional
funding on a recurring monthly basis. If successful, it will have sufficient
funding for further investments and ongoing operations. However, there is no
assurance that the Company will be able to raise sufficient cash to cover its
requirements on attractive terms, if at all, and whether it will be able to
continue as a going concern. These conditions raise substantial doubt about the
Company's ability to continue as a going concern. The accompanying condensed
interim financial statements have been prepared assuming the Company will
continue to operate as a going concern and do not include any adjustments that
might result from the outcome of this uncertainty. Stay at home orders and
general economic uncertainties arising out of the current Covid-19 epidemic have
created additional delays and uncertainty. To date there has been no disruption
to the Company's business operations, although some of its portfolio investment
companies report delays in their programs.
Cash from operating activities
The Company used net cash of $4,520,139 in operating activities during the nine
months ended December 31, 2021 compared to $2,876,156 used for the nine months
ended December 31, 2020. The main reasons for the higher level in 2021 were an
increase in investments in portfolio companies and increased professional fees
and operating expenses.
Cash from investing activities
No cash was used in investing activities.
Cash from financing activities
The Company had a net cash inflow from financing activities of $3,690,494 in the
nine months ended December 31, 2021 compared to $3,406,195 in the nine months
ended December 31, 2020. This inflow included $3,567,001 proceeds from the sale
of Class B preferred stock (including B-1 and B-3), and $122,875 proceeds from
the sale of common stock, respectively, in the nine months ended December 31,
2021, compared to $1,873,125 from the sale of Class B preferred stock, and
$1,566,229 proceeds from the sale of common stock, respectively, in the
corresponding nine month prior period ended December 31, 2020.
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The Company's plan of operations for the next twelve months is to continue to
focus its efforts on finding new sources of capital by means of private
placements, and to use this capital to fund additional investments as they
become available, and to cover operating expenses. The Company is planning to
uplift from OTC to the NASDAQ market, and raise additional funding from an
initial public offering ("IPO)" for which as an initial step it has submitted an
N-2 filing to the SEC for review.
CRITICAL ACCOUNTING POLICIES
USE OF ESTIMATES
In preparing financial statements, management is required to make estimates and
assumptions that affect the reported amounts of assets and liabilities,
disclosure of contingent assets and liabilities at the date of the financial
statements, and revenues and expenses during the period presented. Actual
results may differ from these estimates.
Significant estimates at December 31, 2021 and March 31, 2021 include the
valuation of investments, deferred tax assets, tax allowance, stock options and
warrants.
INVESTMENT AND VALUATION OF INVESTMENT AT FAIR VALUE
The Company reviews the performance of its investments based on available
information, including management reports, press releases, web site
announcements and progress reports, third party equity updates, management
interviews and, where accessible, financial reports, to determine their fair
values. In the event that Management considers the fair value of an investment
to be greater or less than the current book value, the difference will be
reflected as unrealized gains or losses in investments in the statements of
operations.
The Company adopted Financial Accounting Standards Board ("FASB") Accounting
Standards Codification ("ASC") 820, "Fair Value Measurements and Disclosures",
for assets and liabilities measured at fair value on a recurring basis. ASC 820
establishes a common definition for fair value to be applied to existing GAAP
that require the use of fair value measurements which establishes a framework
for measuring fair value and expands disclosure about such fair value
measurements.
Fair value is defined as the price that would be received to sell an asset or
paid to transfer a liability in an orderly transaction between market
participants. Fair value is an exchange price notion under which fair value is
the price in an orderly transaction between market participants to sell an asset
or transfer a liability in the market in which the reporting entity would
transact for the asset or liability.
The Company has established procedures to estimate the fair value of its
investments which the Company's board of directors has reviewed and approved.
The Company uses observable market data to estimate the fair value of
investments to the extent that market data is available. In the absence of
quoted market prices in active markets, or quoted market prices for similar
assets or in markets that are not active, the Company uses the valuation
methodologies described below with unobservable data based on the best available
information in the circumstances, which incorporates the Company's assumptions
about the factors that a market participant would use to value the asset.
For investments for which quoted market prices are not available, which comprise
most of our investment portfolio, fair value is estimated by using the income,
market, or back-solve approach. The income approach is based on the assumption
that value is created by the expectation of future benefits discounted to a
current value and the fair value estimate is the amount an investor would be
willing to pay to receive those future benefits. The market approach compares
recent comparable transactions to the investment. The back solve method involves
comparing available data over a period of time and inferring a new valuation
based on changes from a known starting point, for example the cost of an
investment. Adjustments are made for any dissimilarity between the comparable
transactions and the investments. These valuation methodologies involve a
significant degree of judgment on the part of our management and board.
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In determining the appropriate fair value of an investment using these
approaches, the most significant information and assumptions may include, as
applicable: available current market data, including relevant and applicable
comparable market transactions, applicable market yields and multiples, security
covenants, call protection provisions, information rights, the nature and
realizable value of any collateral, the investment's ability to make payments,
its earnings and discounted cash flows, the markets in which the company does
business, comparisons of financial ratios of peer companies that are public,
merger and acquisition comparables, the principal market and enterprise values,
environmental factors, subsequent financings by the portfolio investment, among
other factors.
The estimated fair values do not necessarily represent the amounts that may be
ultimately realized due to the occurrence or nonoccurrence of future
circumstances that cannot be reasonably determined. Because of the inherent
uncertainty of the valuation of the investments, the estimate of fair values may
differ significantly from the value that would have been used had a broader
market for the investments existed.
RECENT ACCOUNTING PRONOUNCEMENTS
Management does not believe that any recently issued, but not yet effective,
accounting standards if currently adopted would have a material effect on the
accompanying financial statements.
OFF-BALANCE SHEET ARRANGEMENTS
As of the date of this Quarterly Report on Form 10-Q, we do not have any
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 investors.
IMPACT OF INFLATION
The Company does not foresee any implications being created by the current rate
of inflation.
CONTRACTUAL OBLIGATION
The Company has no contractual obligations outside the normal course of business
with its vendors, advisors, and consultants.
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