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. As of March 31, 2018, the Company had
accumulated a deficit of $32,380,746 from all prior operations. 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, 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 60% is paid monthly, and the balance deferred to be
paid once the Company lists and starts trading on the Nasdaq exchange. The full
terms of Mr. Russo's employment are described in an engagement letter filed on
Form 8-K on February 1, 2021, which was approved by the Compensation committee
of the Board of Directors on that date. During the three months ended June 30,
2021, Mr. Russo received $80,000 gross payroll, no consulting fees and no
options were granted. During the three months ended June 30, 2020, Mr. Russo
received no payroll or consulting fees, and no options were granted to him.
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 the date
of this filing, 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.
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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 ended June 30, 2021 and June 30, 2020, the Company
reported no realized investment income as there were no liquidity events related
to its investment portfolio. The Company reported $53,000 and $0 of unrealized
gains from investments respectively, for the three months ended June 30, 2021
and 2020.
Professional fees: In the three months ended June 30, 2021 and June 30, 2020,
the Company reported $166,954 and $12,938, respectively, of professional fees,
mainly for legal and accounting services.
Other Operating expenses: Other operating expenses include payroll, consulting,
and travel and conference fees associated with fund raising and review of
investment deal-flow. In the three months ended June 30, 2021 and June 30, 2020,
the Company incurred other operating expenses of $219,838 and $25,930,
respectively.
For the three months ended June 30, 2021 and 2020, the Company's net decrease in
net assets resulting from operations was $333,792 and $38,868, respectively.
During the three months ended June 30, 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 Series 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 and Capital Resources
The Company had net assets of $8,537,246 and $6,993,163 at June 30, 2021 and
March 31, 2021, respectively. Cash was $481,506 and $1,437,868 at June 30, 2021
and March 31, 2021, respectively.
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Cash from operating activities
The Company used net cash of $1,632,238 in operating activities during the three
months ended June 30, 2021 compared to $282,427 used for the three months ended
June 30, 2020. 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 $675,876 in the
three months ended June 30, 2021 compared to $375,000 in the three months ended
June 30, 2020. This inflow included $553,002 proceeds from the sale of Series B
preferred stock, and $122,874 proceeds from the sale of common stock,
respectively, in the three months ended June 30, 2021, compared to $375,000 from
the sale of Series B preferred stock in the corresponding prior period.
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 June 30, 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 the underlying investments based on
available information, including management reports, press releases, web site
announcements and progress reports, third party equity updates, subsequent
financing transactions, management interviews and, where accessible, financial
reports, to determine their current and future potential value and liquidity. In
the event that Management considers the value of an investment to be impaired,
the carrying value of the investment will be written down by an impairment
charge to reflect Management's estimated valuation. The Company recognized
impairment of one of its investments which was written down by $61,046 in
September, 2019. The Company has not experienced any other impairment
write-downs in any prior or subsequent periods.
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 US 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.
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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 will use 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 will use 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 will
comprise most of our investment portfolio, fair value will be estimated by using
the income or market 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. 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.
In determining the appropriate fair value of an investment using these
approaches, the most significant information and assumption 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 portfolio company's ability to make
payments, its earnings and discounted cash flows, the markets in which the
portfolio company does business, comparisons of financial ratios of peer
companies that are public, merger and acquisition comparable, the principal
market and enterprise values, environmental factors, financing transactions by
the portfolio company, among other factors.
The estimated fair values will 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.
The authoritative accounting guidance prioritizes the use of market-based inputs
over entity-specific inputs and establishes a three-level hierarchy for fair
value measurements based upon the transparency of inputs to the valuation. The
three levels of valuation hierarchy are defined as follows:
Level 1: Observable inputs such as quoted market prices in active markets for
identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are
corroborated by market data
Level 3: Unobservable inputs for which there is little or no market data, which
require the use of the reporting entity's own assumptions. Most of our
investments fall into this category.
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.
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CONTRACTUAL OBLIGATION
The Company has no contractual obligations outside the normal course of business
with its vendors, advisors, and consultants.
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K2X TECHNOLOGY & LIFE SCIENCE, INC. 
