BetterLife Pharma Inc. 10-Q

Item 1. Financial Statements Our unaudited interim condensed consolidated financial statements for the period ended October 31, 2016 form part of this quarterly report. All currency references in this report are to U.S. dollars unless otherwise noted. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine month periods ended October 31, 2016 are not necessarily indicative of results to be expected for any subsequent period. 3 Table of Contents PIVOT PHARMACEUTICALS INC. Condensed Consolidated Financial Statements (Expressed in U.S. dollars) Period ended October 31, 2016 (unaudited) and January 31, 2016 4 Table of Contents PIVOT PHARMACEUTICALS INC. Condensed Consolidated Balance Sheets (Expressed in U.S. dollars) October 31, 2016 $ January 31, 2016 $ (unaudited) Assets Current assets Cash 206,575 71,639 Prepaid and other current assets 19,211 31,576 Total current assets 225,786 103,215 Security deposit 2,900 2,900 Total assets 228,686 106,115 Liabilities and Stockholders’ Deficit Current liabilities Accounts payable and accrued liabilities 774,725 397,482 Due to related parties (Note 9) 25,972 37,622 Convertible debenture, net of discount (Note 4) 142,588 – Derivative liability (Note 5) 447,115 – Total liabilities 1,390,400 435,104 Stockholders’ Deficit Common stock: Unlimited shares authorized, without par value, 75,622,100 and 74,722,100 shares issued and outstanding, respectively 7,324,881 7,054,499 Common stock issuable (Note 6) 1,697 16,206 Additional paid-in capital 10,661,752 6,174,601 Accumulated other comprehensive income 635,654 745,251 Accumulated deficit (19,785,698 ) (14,319,546 ) Total stockholders’ deficit (1,161,714 ) (328,989 ) Total liabilities and stockholders’ deficit 228,686 106,115 (The accompanying notes are an integral part of these condensed consolidated financial statements) 5 Table of Contents PIVOT PHARMACEUTICALS INC. Condensed Consolidated Statements of Operations (Expressed in U.S. dollars) Three Months Ended October 31, 2016 $ Three Months Ended October 31, 2015 $ Nine Months Ended October 31, 2016 $ Nine Months Ended October 31, 2015 $ (unaudited) (unaudited) (unaudited) (unaudited) Revenue – – – – Expenses Depreciation and amortization – 86 – 269 Foreign exchange loss 60,658 4,367 138,017 8,733 General and administrative 71,301 (8,264 ) 1,045,722 866,505 Management fees (Note 9) 548,407 (116,405 ) 3,917,354 2,298,813 Professional fees 9,938 128,058 100,421 355,727 Total expenses 690,304 7,842 5,201,514 3,530,047 Loss from operations (690,304 ) (7,842 ) (5,201,514 ) (3,530,047 ) Other income (expense) Amortization of discount on convertible debenture (48,672 ) – (48,672 ) – Interest expense (3,612 ) – (3,612 ) – (Loss) gain on change in fair value of derivative liabilities (212,354 ) – (212,354 ) 14,958 Total other income (expense) (264,638 ) – (264,638 ) 14,958 Net loss (954,942 ) (7,842 ) (5,466,152 ) (3,515,089 ) Other comprehensive income (loss) Foreign currency translation adjustment (40,569 ) 142,447 109,597 (261,299 ) Net comprehensive income (loss) (995,511 ) 134,605 (5,356,555 ) (3,776,388 ) Net loss per share, basic and diluted (0.01 ) (0.00 ) (0.07 ) (0.05 ) Weighted average shares outstanding – basic and diluted 75,613,498 85,570,289 75,212,555 76,886,477 (The accompanying notes are an integral part of these condensed consolidated financial statements) 6 Table of Contents PIVOT PHARMACEUTICALS INC. Condensed Consolidated Statements of Cash Flows (Expressed in U.S. dollars) Nine Months Ended October 31, 2016 $ Nine Months Ended October 31, 2015 $ (unaudited) (unaudited) Operating activities Net loss (5,466,152 ) (3,515,089 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of discount on convertible debenture 48,672 – Depreciation – 268 Fair value of stock options vested 4,300,354 – Loss (gain) on change in fair value of derivative liabilities 212,354 (14,958 ) Stock issued for services 256,382 3,310,773 Changes in operating assets and liabilities: Prepaids and other current assets 5,938 (15,812 ) Accounts payable and accrued liabilities 366,124 71,000 Net cash used in operating activities (276,328 ) (163,818 ) Financing activities Proceeds from convertible debenture 381,350 – Proceeds from stock to be issued – 240,000 Proceeds from related party advances 16,500 1,075 Net cash provided by financing activities 397,850 241,075 Effects of exchange rate changes on cash 13,414 65,544 Increase in cash 134,936 142,801 Cash – beginning of period 71,639 838 Cash – end of period 206,575 143,639 Non-cash investing and financing activities Debt discounts on convertible debt 284,184 – Supplemental disclosures: Interest paid – – Income tax paid – – (The accompanying notes are an integral part of these condensed consolidated financial statements) 7 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 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 therapeutic pharmaceutical products, focused on the strategy of identifying new therapeutic treatments to address unmet medical needs in women’s health. 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 of October 31, 2016, the Company has not earned any revenue, has a working capital deficit of $1,164,614 and an accumulated deficit of $19,785,698. 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. 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) Interim Financial Statements These interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position, results of operations and cash flows for the periods shown. The condensed consolidated results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. Certain disclosures and financial information have been condensed in accordance with generally accepted accounting principles in the United States. 8 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 2. Significant Accounting Policies (continued) (d) 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 (e) 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 for all exercisable options and warrants and the if-converted method for all outstanding convertible debentures. 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. At October 31, 2016 and 2015, the Company had 8,705,847 and zero potentially dilutive shares, respectively. (f) 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, due to related parties and convertible debenture. 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. 9 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 2. Significant Accounting Policies (continued) (g) 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. 3. Property and Equipment Cost $ Accumulated amortization $ October 31, 2016 Net carrying value $ (unaudited) January 31, 2016 Net carrying value $ Office furniture and equipment 1,628 1,628 – – Depreciation expense included as a charge to income was $nil and $268 for the nine months ended October 31, 2016 and 2015, respectively. 4. Convertible Debenture On September 30, 2016, the Company issued a convertible debenture with a non-related party for $500,000 Canadian Dollars ($380,411 US Dollars at September 30, 2016) (“Initial Advance”). The debenture is secured under a General Security Agreement, bears interest at 8% per annum and matures on the earlier of: · The date the lender demands repayment of principal and interest following an event of default, · The date of a dissolution event, · The date of a liquidity event, and · March 30, 2017. The Company may request one or more additional advances of up to an aggregate amount of $1,000,000 Canadian Dollars (“Additional Advances”) provided that the aggregate amount under the convertible debenture does not exceed $1,500,000 Canadian Dollars. The note, including the Initial Advance and any Additional Advances, is convertible into common shares at a conversion price equal to the average closing market price of the Company’s common stock during the five day period leading up to the conversion date. The Company recorded the conversion feature of the convertible debenture as a derivative liability at an estimated fair value of $221,158 with a corresponding discount to the convertible debenture (Note 5). Pursuant to the convertible loan agreement, the Company issued 434,622 share purchase warrants to which the lender may acquire an interest in the Company equal to 12% of the maximum principal amount outstanding at any time at a price of $0.10, which equates to the ten day average trading price of the Company’s common stock determined as at September 30, 2016. The Company calculated the 434,622 share purchase warrants based on the maximum outstanding principal balance on the convertible loan as of September 30, 2016. The Company recorded the share purchase warrant at an estimated fair value of $20,154 with a corresponding discount to the convertible debenture (Note 8). 10 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 4. Convertible Debenture (continued) As of October 31, 2016, the carrying value of the convertible debenture is $191,215 Canadian Dollars ($142,588 US Dollars at October 31, 2016) (January 31, 2016 - $nil) with accrued interest $2,533 (January 31, 2016 - $nil). As of October 31, 2016, the fair value of the conversion option derivative liability is $447,115 (January 31, 2016 - $nil). 5. Derivative Liability Derivative liability consists of convertible debenture with variable conversion price (Note 4). The fair value of derivative liability as at October 31, 2016 and January 31, 2016 is as follows: October 31, 2016 $ January 31, 2016 $ September 2016 convertible debenture 447,115 – 447,115 – 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: September 2016 convertible debenture 296 % 0.45 % 0 % 0.50 As at October 31, 2016: September 2016 convertible debenture 311 % 0.51 % 0 % 0.41 6. Common Stock (a) On February 10, 2016, the Company issued 100,000 shares of common stock to service providers for services provided valued at $68,000. The value of the common stock was based on the market price of the stock on the date of issuance. (b) On February 29, 2016, March 31, 2016, May 2, 2016, May 31, 2016, June 28, 2016, August 2, 2016 and August 30, 2016, the Company issued 25,000 shares of common stock on each of these dates to the Company’s CEO as monthly compensation valued at $15,000, $13,750, $7,500, $6,000, $4,875, $3,757 and $3,250, respectively. The value of the common stock was based on the market price of the stock on the date of issuance. (c) In June 2016, 600,000 shares of common stock were issued to service providers and valued at $144,500 based on the market price of the stock on the dates of issuances. (d) On July 31, 2016, 25,000 shares of common stock, valued at $3,750, previously held in escrow were released to a member of the Company’s Scientific Advisory Board (“SAB member”). The value of the common stock was based on the market price of the stock on the date of issuance. On October 31, 2016, common stock with a fair value of $1,697 remains issuable to this SAB member. 11 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 7. Stock Options Effective December 30, 2015, the Company adopted a stock option plan. Under this plan, the Company may grant options to its directors, officers, employees and consultants up to an amount as determined by the Company and will be no more than a percentage of its outstanding common stock as may be required by the stock exchange the Company is listed with. The exercise price of the stock options will be determined by the Company and will be no less than any minimum exercise price as may be required by the stock exchange the Company is listed with. The following table summarizes the continuity of the Company’s stock options: Number of Options Weighted Average Exercise Price (US$) Weighted Average Remaining Contractual Life (years) Aggregate Intrinsic Value (US$) Outstanding, January 31, 2015 80,000 0.05 – – Granted 6,200,000 0.10 4.1 4,930,000 Expired (80,000 ) (0.05 ) – – Outstanding, January 31, 2016 6,200,000 0.10 4.1 4,930,000 Granted 7,279,000 0.70 4.3 – Forfeited (2,000,000 ) (0.10 ) – – Outstanding, October 31, 2016 11,479,000 0.48 4.2 36,000 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 400 % 1.16 % 0 % 4.1 7,250,000 options expiring on February 22, 2021 393 % 1.16 % 0 % 4.3 29,000 options expiring on May 2, 2021 393 % 1.16 % 0 % 4.5 Additional information regarding stock options as of October 31, 2016, is as follows: Options Outstanding Option Exercisable Exercise Price $ Expiry Date 200,000 100,000 0.25 November 30, 2020 4,000,000 4,000,000 0.10 December 14, 2020 7,250,000 5,437,500 0.70 February 22, 2021 29,000 26,000 0.34 May 2, 2021 11,479,000 9,563,500 $83,068 of stock-based compensation have yet to be recognized and will be recognized in future periods. 12 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 8. Share Purchase Warrant The following table summarizes the continuity of share purchase warrant: Number of Warrants Weighted Average Exercise Price $ Balance, January 31, 2016 – – Granted 434,622 0.10 Balance, October 31, 2016 434,622 0.10 As at October 31, 2016, the following share purchase warrant was outstanding: Number of Warrants Exercise Price $ Expiry Date 434,622 0.10 March 30, 2017 Pursuant to the convertible debenture (Note 4), the Company will be required to issue additional share purchase warrants on any Additional Advances to which the lender may acquire an interest in the Company equal to 12% of the maximum principal amount outstanding. 9. Related Party Transactions As at October 31, 2016, the Company owed $4,694 (January 31, 2016 - $800) to a director of the Company, which is unsecured, non-interest bearing, and due on demand. As at October 31, 2016, the Company owed $16,721 (January 31, 2016 – Receivable of $866) to the Company’s Chief Executive Officer. As at October 31, 2016, the Company owed $4,557 (January 31, 2016 - $37,622) 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). On April 15, 2015, the Company issued 2,000,000 shares of common stock to an officer for services provided. This $191,356 of compensation expense has been included in professional fees. 13 PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements Period ended October 31, 2016 (Expressed in U.S. dollars) 10. Fair Value Measurements The Company’s financial liabilities carried at fair value measured on a recurring basis as of October 31, 2016 and January 31, 2016, consisted of the following: Total fair value at October 31, 2016 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liability (1) $ 447,115 $ - $ 447,115 $ - Total fair value at January 31, 2016 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liability (1) $ - $ - $ - $ - (1) Derivative liability amounts are due to the embedded derivatives of convertible debenture issued by the Company and are calculated using the Black Scholes pricing model (Note 5). The Company has no financial assets carried at fair value. 11. Subsequent Events Management has evaluated subsequent events through the date these financial statements were available to be issued. Based on such evaluation, no events occurred that required disclosure. 14 Table of Contents