BetterLife Pharma Inc. 10-K/A

Item 8. Financial Statements and Supplementary Data 35 PIVOT PHARMACEUTICALS INC. Consolidated Financial Statements Years ended January 31, 2016 and 2015 (Expressed in U.S. dollars) 36 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors Pivot Pharmaceuticals Inc. We have audited the accompanying consolidated balance sheets of Pivot Pharmaceuticals Inc. (the "Company") as of January 31, 2016 and 2015 and the related consolidated statements of operations, stockholders' deficit and cash flows for each of the years in the two-year period ended January 31, 2016. These consolidated financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Pivot Pharmaceuticals Inc. as of January 31, 2016 and 2015, and the results of their operations and cash flows for each of the years in the two-year period ended January 31, 2016, in conformity with U.S. generally accepted accounting principles. The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company had an accumulated deficit, negative working capital, and no revenue to date as of January 31, 2016 which raises substantial doubt about its ability to continue as a going concern. Management's plans concerning these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. As mentioned in Note 12, the accompanying consolidated financial statements have been restated for the correction of an error relating to the Company's understatement of stock-based compensation expenses for the year ended January 31, 2016. /s/ Sadler, Gibb & Associates, LLC Salt Lake City, UT April 29, 2016, except for Notes 8, 10, 11 and 12, as to which the date is June 7, 2016 37 PIVOT PHARMACEUTICALS INC. Consolidated Balance Sheets (Expressed in U.S. dollars) January 31, 2016 $ January 31, 2015 $ (Restated) Assets Current assets Cash 71,639 839 Prepaids and other current assets 31,576 99 Total current assets 103,215 938 Security deposit 2,900 - Property and equipment, net (Note 4) - 327 Total assets 106,115 1,265 Liabilities and Stockholders' Deficit Current liabilities Accounts payable and accrued liabilities 397,482 41,134 Due to related parties (Note 9) 37,622 - Derivative liabilities (Note 5) - 14,656 Total liabilities 435,104 55,790 Stockholders' Deficit Common stock: Unlimited shares authorized, without par value, 74,722,100 and 65,863,766 shares issued and outstanding, respectively (Note 6) 7,054,499 3,470,818 Common stock issuable (Note 6) 16,206 – Additional paid-in capital 6,174,601 262,278 Accumulated other comprehensive income 745,251 224,860 Accumulated deficit ( 14,319,546 ) (4,012,481 ) Total stockholders' deficit (328,989 ) (54,525 ) Total liabilities and stockholders' deficit 106,115 1,265 Nature of operations and continuance of business (Note 1) Subsequent events (Note 11) (The accompanying notes are an integral part of these consolidated financial statements) 38 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Operations (Expressed in U.S. dollars) Year Ended January 31, 2016 $ Year Ended January 31, 2015 $ (Restated) Revenue - - Expenses Depreciation and amortization 322 409 Foreign exchange loss 13,911 52,930 General and administrative 961,746 30,607 Management fees 2,268,297 2,694 Professional fees 340,220 30,844 Stock-based compensation 6,736,994 - Total expenses 10,321,490 117,484 Loss from operations (10,321,490 ) (117,484 ) Other (expenses) income Accretion of discount on convertible debentures - (8,723 ) Financing costs - (152,754 ) Gain on change in fair value of derivative liabilities 14,425 188,701 Loss on settlement and conversions of debentures - (973,856 ) Interest expense - (64,888 ) Total other income (expenses) 14,425 (1,011,520 ) Net loss (10,307,065 ) (1,129,004 ) Other comprehensive income Foreign currency translation adjustment 520,391 153,950 Net comprehensive loss (9,786,674 ) (975,054 ) Net loss per share, basic (0.13 ) (0.10 ) Net loss per share, diluted (0.13 ) (0.10 ) Weighted average shares outstanding - basic 77,718,219 11,599,995 Weighted average shares outstanding - diluted 77,718,219 11,599,995 (The accompanying notes are an integral part of these consolidated financial statements) 39 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Stockholders' Equity (Deficit) (Expressed in U.S. dollars) Common Stock Common Stock Additional Paid-In Foreign Currency Translation Shares # Amount $ Issuable $ Capital $ Adjustment $ Deficit $ Total $ Balance – January 31, 2014 10,076,707 1,656,334 224,685 259,540 70,910 (2,883,477 ) (672,008 ) Contributed capital – – – 2,738 – – 2,738 Common stock issued for termination fees 1,000,000 224,685 (224,685 ) – – – – Common stock issued on default of loans 2,750,000 152,613 – – – – 152,613 Common stock issued on settlement and conversion of debentures 35,524,538 610,109 – – – – 610,109 Common stock issued to settle amounts due to related party 16,512,521 827,077 – – – – 827,077 Net loss – – – – 153,950 (1,129,004 ) (975,054 ) Balance – January 31, 2015 65,863,766 3,470,818 – 262,278 224,860 (4,012,481 ) (54,525 ) Common stock issued for services 2,708,333 3,296,726 16,206 – – – 3,312,932 Common stock issued in asset acquisition (Note 2) 4,750,000 46,723 – – – – 46,723 Common stock issued for cash 1,400,000 240,232 – – – – 240,232 Stock-based compensation (Restated) – – – 5,912,323 – – 5,912,323 Net loss (Restated) – – – – 520,391 (10,307,065 ) (9,786,674 ) Balance – January 31, 2016 (Restated) 74,722,100 7,054,499 16,206 6,174,601 745,251 (14,319,546 ) (328,989 ) (The accompanying notes are an integral part of these consolidated financial statements) 40 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Cash Flows (Expressed in U.S. dollars) Year Ended January 31, 2016 $ Year Ended January 31, 2015 $ (Restated) Operating activities Net loss ( 10,307,065 ) (1,129,004 ) Adjustments to reconcile net loss to net cash used in operating activities: Accretion of discount on convertible debentures - 10,745 Common stock issued for services 3,340,821 - Common stock issued for loan defaults - 152,754 Compensation expense recognized in asset acquisition 349,158 - Depreciation and amortization 322 409 Fair value of stock options vested 6,387,837 - Gain on change in fair value of derivative liabilities (14,425 ) (188,701 ) Loss on settlement and conversions of debentures - 973,856 Services contributed by related party - 2,738 Changes in operating assets and liabilities: - Prepaids and other current assets (15,939 ) 4,716 Accounts payable and accrued liabilities 95,349 88,771 Due to related parties - 36,459 Net cash used in operating activities (163,942 ) (47,257 ) Financing activities Proceeds from issuance of common stock 240,232 - Proceeds from issuance of convertible debentures - 10,863 Proceeds from related party loans - 36,458 Net cash provided by financing activities 240,232 47,321 Effects of exchange rate changes on cash (5,490 ) (160 ) Increase (decrease) in cash 70,800 (96 ) Cash – beginning of period 839 935 Cash – end of period 71,639 839 Supplemental disclosures: Interest paid - 246 Income tax paid - - Non-cash activities: Common stock issued for settlement and conversions of debentures - 697,868 Common stock issued for settlement of amounts due to related party - 887,390 Common stock issued in asset acquisition 46,723 - (The accompanying notes are an integral part of these consolidated financial statements) 41 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 1. Nature of Operations and Continuance of Business Pivot Pharmaceuticals Inc. (the "Company") was incorporated in British Columbia under the Business Corporations Act on June 10, 2002. On April 7, 2015, the Company changed its name from Neurokine Pharmaceuticals Inc. to Pivot Pharmaceuticals Inc. The Company is in the business of developing and commercializing new uses for existing prescription drugs as well as developing proprietary encapsulation technology in the treatment of neurodegenerative diseases. These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As at January 31, 2016, the Company has not earned any revenue, has a working capital deficit of $331,899 and an accumulated deficit of $14,319,546. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. These factors raise substantial doubt about the Company's ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern. 2. Asset Acquisition On November 20, 2015, the Company completed the acquisition of IndUS Pharmaceuticals, Inc. ("IndUS") pursuant to an Agreement and Plan of Merger and Acquisition Agreement dated as of November 4, 2015. As consideration for the purchase, the Company issued 4,750,000 shares of common stock, of which 4,512,500 shares of common stock were issued on November 23, 2015 and 237,500 shares of common stock were issued on December 4, 2015 which shares were being held as a contingency pertaining to the liabilities of IndUS which were assumed by Pivot. The Company will also be granting 41,833 stock options pursuant to the Agreement and Plan of Merger. IndUS is a United States-India cross-border pharmaceutical company conducting research and development activities for advancing novel therapeutics in the areas of oncology, infectious diseases and diabetes whose assets consisted of a portfolio of patented and proprietary, novel anticancer drug candidates from multiple chemical classes of molecules referred to as pyrrolobenzodiazepine dimers. The Company evaluated this acquisition in accordance with ASC 805, Business Combinations (10-55-4) to discern whether the assets and operations of IndUS met the definition of a business. The Company concluded there were not a sufficient number of key processes obtained to develop the inputs into outputs, nor could such processes be easily obtained by the Company. Accordingly, the Company accounted for this transaction as the acquisition of assets and a key employee (compensation arrangement). The transaction was accounted for in accordance with asset acquisition guidance found in ASC 805 and share based payment guidance found in ASC 718, Compensation – Stock Compensation. The consideration transferred, assets acquired, liabilities assumed and compensation expense recognized is as follows: Consideration paid: $ Liabilities assumed 260,400 Stock options granted 35,637 Common stock issued 46,723 Total purchase price 342,760 42 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 2. Asset Acquisition (continued) Consideration received: $ Cash 14,606 Other current assets 4,684 Compensation expense 323,470 Net value of assets purchased 342,760 3. Significant Accounting Policies (a) Basis of Presentation The consolidated financial statements and the related notes of the Company are prepared in accordance with generally accepted accounting principles in the United States and are expressed in U.S. dollars. The Company's fiscal year-end is January 31. (b) Use of Estimates The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States 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. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, assumptions used to determine the fair values of stock-based compensation and derivative liabilities and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company's estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. (c) Basis of Consolidation The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidating entities include: % of ownership Jurisdiction Pivot Pharmaceuticals Inc. Parent Canada IndUS Pharmaceuticals, Inc. 100% USA (d) Cash and Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at January 31, 2016 and 2015, the Company had no cash equivalents. (e) Property and Equipment Property and equipment is comprised of office equipment and is recorded at cost. The Company amortizes the cost of equipment on a straight-line basis over their estimated useful life of five years. 43 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 3. Significant Accounting Policies (continued) (f) Long-lived Assets In accordance with ASC 360, "Property, Plant and Equipment", the Company tests long-lived assets or asset groups for recoverability when events or changes in circumstances indicate that their carrying amount may not be recoverable. Circumstances which could trigger a review include, but are not limited to: significant decreases in the market price of the asset; significant adverse changes in the business climate or legal factors; accumulation of costs significantly in excess of the amount originally expected for the acquisition or construction of the asset; current period cash flow or operating losses combined with a history of losses or a forecast of continuing losses associated with the use of the asset; and current expectation that the asset will more likely than not be sold or disposed significantly before the end of its estimated useful life. Recoverability is assessed based on the carrying amount of the asset and its fair value, which is generally determined based on the sum of the undiscounted cash flows expected to result from the use and the eventual disposal of the asset, as well as specific appraisal in certain instances. An impairment loss is recognized when the carrying amount is not recoverable and exceeds fair value. (g) Stock-Based Compensation The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock-Based Compensation, using the fair value method. All transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. (h) Derivative Financial Instruments Derivative financial instruments that are not classified as equity and are not used in hedging relationships are measured at fair value. Subsequent changes to fair value are recorded in the statement of operations. (i) Loss Per Share The Company computes net loss per share in accordance with ASC 260, Earnings Per Share. ASC 260 requires presentation of both basic and diluted earnings per share ("EPS") on the face of the consolidated statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at January 31, 2016, the Company has 1,700,750 (2015 – 460,000) potentially dilutive shares. (j) Comprehensive Income (Loss) ASC 220, Comprehensive Income , establishes standards for the reporting and display of comprehensive loss and its components in the consolidated financial statements. As at January 31, 2016 and 2015, the Company's comprehensive income included foreign currency translation adjustments. (k) Research and Development Costs Research costs are expensed in the period that they are incurred. 44 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 3. Significant Accounting Policies (continued) (l) Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, "Income Taxes". The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As of January 31, 2016 and 2015, the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company files federal and provincial income tax returns in Canada and federal and state income tax returns in the United States. The Company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended January 31, 2016 and 2015, there were no charges for interest or penalties. (m) Financial Instruments and Fair Value Measures ASC 820, Fair Value Measurements, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument's categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value: Level 1 Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities. Level 2 Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data. Level 3 Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities. The Company's financial instruments consist principally of cash, amounts receivable, accounts payable and accrued liabilities and due to related parties. Pursuant to ASC 820, the fair value of our cash is determined based on "Level 1" inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. 45 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 3. Significant Accounting Policies (continued) (n) Foreign Currency Translation The functional currency of the parent entity, Pivot Pharmaceuticals Inc., is the Canadian dollar and the functional currency of its subsidiary is the US dollar. The Company's presentation currency is the US dollar. Monetary assets and liabilities are translated using the exchange rate prevailing at the consolidated balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Expenses are translated at average rates for the period. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Results of operations are translated into the Company's presentation currency, US dollars, at an appropriate average rate of exchange during the year. Net assets and liabilities are translated to US dollars for presentation purposes at rates of exchange in effect at the end of the period. Gains or losses arising on translation are recognized in other comprehensive income (loss) as foreign currency translation adjustments. (o) Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations. 4. Property and Equipment Cost $ Accumulated amortization $ January 31, 2016 Net carrying value $ January 31, 2015 Net carrying value $ Office furniture and equipment 1,628 1,628 - 327 Depreciation expense included as a charge to income was $322 and $409 for the years ended January 31, 2016 and 2015, respectively. 46 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 5. Derivative Liability Derivative liability consists of share purchase warrants originally issued in private placements with conversion/exercise prices denominated in United States dollars, which differs from the parent entity's functional currency. The fair values of derivative liability as at January 31, 2016 and 2015 are as follows: January 31, 2016 $ January 31, 2015 $ 380,000 warrants expiring on July 30, 2015 - 14,656 - 14,656 The fair value of derivative financial liability was determined using the Black-Scholes option pricing model, using the following assumptions: Expected Volatility Risk-free Interest Rate Expected Dividend Yield Expected Life (in years) As at issuance date: 380,000 warrants expiring on July 30, 2015 125 % 1.26 % 0 % 4.50 6. Common Stock During the year ended January 31, 2016: (a) On March 6, 2015, 10,000,000 shares of common stock were issued to directors, an officer and a consultant (the "shareholders") and valued at $894,656 using the market price of the stock on the date of issuance. An additional 30,000,000 shares of common stock were held in escrow and to be released as follows: 10,000,000 shares of common stock on each of August 25, 2015, February 25, 2016 and February 25, 2017. On August 25, 2015, 10,000,000 shares of common stock were released to the shareholders. In October 2015, the shareholders returned 20,000,000 shares of common stock issued and received to the Company for cancellation. On the same date, the remaining 20,000,000 shares of common stock held in escrow were returned to the Company for cancellation. (b) On April 15, 2015, the Company issued 2,500,000 shares of common stock to a service provider and an officer for services provided valued at $239,195. The value of the common stock was based on the market price of the stock on the date of issuance. (c) In July 2015, 1,000,000 shares of common stock were issued for cash proceeds of $200,084 or $0.20 per share. In April 2015, 400,000 shares of common stock were issued for cash proceeds of $40,148 or $0.10 per share. (d) On August 1, 2015, 25,000 shares of common stock were issued to a member of the Company's Scientific Advisory Board ("SAB member") and valued at $9,125 using the market price of the stock on the date of issuance. An additional 75,000 shares of common stock are held in escrow and will be released as follows: 25,000 shares of common stock on each of January 31, 2016, July 31, 2016 and January 31, 2017. On January 31, 2016, 25,000 shares of common stock were released to the SAB member. For the year ended January 31, 2016, an additional $16,206 was recognized for services provided, which was valued using the market price of the stock on January 31, 2016. 47 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 6. Common Stock (continued) (e) On August 24, 2015, 100,000 shares of common stock were issued to a service provider and valued at $53,500 using the market price of the stock on the date of issuance. (f) On November 23, 2015, 4,512,500 shares of common stock were issued pursuant to the asset acquisition (Note 2). On December 4, 2015, a further 237,500 shares of common stock were issued pursuant to this acquisition. The shares issued were valued at $46,723, which is the net value of assets purchased. (g) On November 30, 2015, 8,333 shares of common stock were issued to the Company's Chief Executive Officer ("CEO") pursuant to an employment agreement and valued at $8,750 using the market price of the stock on the date of issuance. On December 31, 2015 and January 29, 2016, 25,000 shares of common stock were issued to the Company's CEO pursuant to the same employment agreement and valued, using market prices of the stock on these dates, at $25,000 and $22,500, respectively. During the year ended January 31, 2015: (a) 1,500,000 shares of common stock were issuable pursuant to a default penalty on a convertible debenture on April 27, 2014. (b) 1,000,000 shares of common stock were issuable pursuant to a default penalty on a loan payable on September 19, 2014. (c) 16,512,521 shares of common stock were issuable in January 2015 to settle $150,740 of amounts due to a related party. (d) 250,000 shares of common stock were issued during the year pursuant to default penalties on convertible debentures and 29,920,253 shares of common stock were issuable in January 2015 on conversion of convertible debentures. 1,000,000 shares of common stock were issued during the year pursuant to termination fee on a convertible debenture. (e) 5,604,285 shares of common stock were issuable in January 2015 to settle loans payable. 7. Share Purchase Warrants The following table summarizes the continuity of share purchase warrants: Number of Warrants Weighted Average Exercise Price $ Balance, January 31, 2015 and 2014 380,000 0.05 Expired (380,000 ) (0.05 ) Balance, January 31, 2016 - - 48 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 8. Stock Options Effective December 30, 2015, the Company adopted a stock option plan. Under this plan, the Company may grant options to its directors, officers, employees and consultants up to an amount as determined by the Company and will be no more than a percentage of its outstanding common stock as may be required by the stock exchange the Company is listed with. The exercise price of the stock options will be determined by the Company and will be no less than any minimum exercise price as may be required by the stock exchange the Company is listed with. The following table summarizes the continuity of the Company's stock options: Number of Options Weighted Average Exercise Price (US$) Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (US$) Outstanding, January 31, 2015 and 2014 80,000 0.05 0.3 / 1.3 - Granted 6,200,000 0.10 4.9 4,930,000 Expired (80,000 ) (0.05 ) - - Outstanding, January 31, 2016 6,200,000 0.10 4.9 4,930,000 The fair value of stock-based compensation expense was estimated using the Black-Scholes option pricing model and the following assumptions: Expected Volatility Risk-free Interest Rate Expected Dividend Yield Expected Life (in years) 200,000 options expiring on November 30, 2020 433 % 1.63 % 0 % 5.0 6,000,000 options expiring on December 14, 2020 429 % 1.71 % 0 % 5.0 Additional information regarding stock options as of January 31, 2016, is as follows: Options Outstanding Options Exercisable Exercise Price $ Expiry Date 200,000 50,000 0.25 November 30, 2020 6,000,000 6,000,000 0.10 December 14, 2020 6,200,000 6,050,000 $125 ,319 of stock-based compensation have yet to be recognized and will be recognized in future periods. 9. Related Party Transactions (a) As at January 31, 2016, the Company owed $800 (2015 - $nil) to a director of the Company, which is unsecured, non-interest bearing, and due on demand. (b) As at January 31, 2016, the Company has a receivable of $866 (2015 - $nil) from the Company's Chief Executive Officer, which has been received subsequent to year end. (c) As at January 31, 2016, the Company owed $37,622 (2015 - $nil) to related parties related to stock options to be granted pursuant to the Agreement and Plan of Merger and Acquisition Agreement dated as of November 4, 2015 between the Company and IndUS (Note 2). 49 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) 9. Related Party Transactions (continued) (d) During the year ended January 31, 2016, the Company's director performed services valued at $nil (2015 - $2,694) which have been recorded as a contribution to capital. 10. Income Taxes The Company has approximately $6,400,000 of non-capital losses carried forward to offset taxable income in future years which expire beginning in fiscal 2029. The income tax benefit differs from the amount computed by applying the Canadian federal and provincial statutory rates to net loss before income taxes for the years ended January 31, 2016 and 2015, respectively, as a result of the following: 2016 $ 2015 $ Net loss before taxes 10,307,065 1,129,004 Statutory rate 26.0 % 26.0 % Expected tax recovery 2,679,837 293,541 Lower effective tax rate on losses in U.S. jurisdiction (22 ) – Permanent differences and other (1,657,428 ) 46,688 Expenses deductible for tax purposes 44 48 Current period losses not recognized (1,022,431 ) (340,277 ) Income tax provision – – The significant components of deferred income tax assets and liabilities as at January 31, 2016 and 2015, after applying enacted corporate income tax rates, are as follows: 2016 $ 2015 $ Non-capital losses carried forward 1,664,848 705,256 Valuation allowance (1,664,848 ) (705,256 ) Net deferred tax asset - - 50 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2016 (Expressed in U.S. dollars) The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating loss: Expiry Date Non-Capital Loss $ 2029 310,811 2030 55,776 2031 99,749 2032 470,584 2033 - 2034 491,503 2035 1,042,328 2036 3,932,512 6,403,263 11. Subsequent Events (a) In February 2016, the Company issued 100,000 shares of common stock to consultants. (b) On February 23, 2016, the Company granted 7,250,000 options to purchase the Company's common stock to officers, directors and consultants at an exercise price of $0.70 per share with a maturity date of February 22, 2021. The stock options vest as follows: 1,812,500 immediately, 1,812,500 on May 23, 2016, 1,812,500 on August 23, 2016 and 1,812,500 on November 23, 2016. (c) On each of February 29, 2016 , March 31, 2016, May 2, 2016 and May 31, 2016, 25,000 shares of common stock were issued to the Company's CEO as compensation. (d) On May 3, 2016, the Company granted 29,000 options to purchase the Company's common stock to a consultant at an exercise price of $0.34 per share with a maturity date of May 2, 2021. The stock options vest as follows: 26,000 immediately, 1,000 on November 2, 2016, 1,000 on May 2, 2017 and 1,000 on November 2, 2017. 51 12. Restatement The Company has restated the 2016 financial statements as originally presented in its 10K filed on April 29, 2016. The changes and explanation of such are as follows: Consolidated balance sheet as of January 31, 2016: Originally Reported $ Restatement Adjustment $ As Restated $ Additional paid-in capital 4,574,647 1,599,954 6,174,601 Accumulated other comprehensive income 616,571 128,680 745,251 Accumulated deficit (12,590,912 ) (1,728,634 ) (14,319,546 ) Consolidated statement of operations for the year ended January 31, 2016: Originally Reported $ Restatement Adjustment $ As Restated $ Stock-based compensation 5,008,360 1,728,634 6,736,994 Total expenses 8,592,856 1,728,634 10,321,490 Net loss (8,578,431 ) (1,728,634 ) (10,307,065 ) Foreign currency translation adjustment 336,120 184,271 520,391 Net comprehensive loss (8,242,311 ) (1,544,363 ) (9,786,674 ) The adjustments above reflect restatement due to additional stock-based compensation of $1,728,634 being recognized on the 6,200,000 stock options granted during the year, together with the effects of translating the additional expense into the Company's presentation currency. 52 Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods, including the interim period up through the date the relationship ended.