What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2017-04-28 compared with 2016-04-29 · 115 added, 126 removed, 273 unchanged (47% of the section changed)

8 unchanged sentences

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.

(the “Company”) as of January 31, 2017 and 2016 and the related consolidated statements of operations and comprehensive income (loss), stockholders’ deficit and cash flows for each of the years in the two-year period ended January 31, 2017.

These consolidated financial statements are the responsibility of the Company’s management.

24 unchanged sentences

Security deposit

Property and equipment, net (Note 4)

Liabilities and Stockholders’ Deficit

2 unchanged sentences

Due to related parties (Note 9)

Convertible debenture, net (Note 4)

Derivative liabilities (Note 5)

7 unchanged sentences

Accumulated deficit

(12,590,912 )

Total stockholders’ deficit

1 unchanged sentence

Nature of operations and continuance of business (Note 1)

Subsequent events (Note 11)

Commitments (Note 11)

(The accompanying notes are an integral part of these consolidated financial statements)

PIVOT PHARMACEUTICALS INC.

Consolidated Statements of Operations

Consolidated Statements of Operations and Comprehensive Income (Loss)

(Expressed in U.S.

4 unchanged sentences

Professional fees

Stock-based compensation

Total expenses

1 unchanged sentence

Other (expenses) income

Accretion of discount on convertible debentures

Financing costs

Gain on change in fair value of derivative liabilities

Loss on settlement and conversions of debentures

Amortization of discount on convertible debentures

Interest expense

(Loss) gain on change in fair value of derivative liabilities

Total other income (expenses)

Other comprehensive income

Other comprehensive (loss) income

Foreign currency translation adjustment

Net comprehensive loss

Net loss per share, basic

Net loss per share, diluted

Weighted average shares outstanding - basic

Weighted average shares outstanding - diluted

Net loss per share, basic and diluted

Weighted average shares outstanding – basic and diluted

(The accompanying notes are an integral part of these consolidated financial statements)

4 unchanged sentences

Balance – January 31, 2015

Contributed capital

Common stock issued for termination fees

Common stock issued on default of loans

Common stock issued on settlement and conversion of debentures debenture

Common stock issued to settle amounts due to related party

Balance – January 31, 2015

Common stock issued for services

1 unchanged sentence

Common stock issued for cash

Stock-based compensation (Restated)

Net loss (Restated)

Balance – January 31, 2016

Common stock issued for services

Warrants issued with convertible debenture

Stock-based compensation

Balance – January 31, 2017

(12,590,912 )

(The accompanying notes are an integral part of these consolidated financial statements)

4 unchanged sentences

Adjustments to reconcile net loss to net cash used in operating activities:

Accretion of discount on convertible debentures

Amortization of discount on convertible debenture

Common stock issued for services

Common stock issued for loan defaults

Compensation expense recognized in asset acquisition

1 unchanged sentence

Fair value of stock options vested

Gain on change in fair value of derivative liabilities

Loss on settlement and conversions of debentures

Services contributed by related party

Loss (gain) on change in fair value of derivative liabilities

Changes in operating assets and liabilities:

1 unchanged sentence

Accounts payable and accrued liabilities

Due to related parties

Net cash used in operating activities

1 unchanged sentence

Proceeds from issuance of common stock

Proceeds from issuance of convertible debentures

Proceeds from related party loans

Proceeds from issuance of convertible debenture

Proceeds from related party advances

Net cash provided by financing activities

Effects of exchange rate changes on cash

Increase (decrease) in cash

Increase in cash

Cash – beginning of period

4 unchanged sentences

Non-cash activities:

Common stock issued for settlement and conversions of debentures

Common stock issued for settlement of amounts due to related party

Common stock issued in asset acquisition

Debt discount on convertible debenture

(The accompanying notes are an integral part of these consolidated financial statements)

8 unchanged sentences

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.

The Company is in the business of developing and commercializing new treatments for unmet medical needs in women’s cancers as well as exploring new uses for existing drugs and/or developing proprietary drug delivery technologies.

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.

29 unchanged sentences

Significant Accounting Policies

(a) Basis of Presentation

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.

The Company’s fiscal year-end is January 31.

(b) Use of Estimates

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.

3 unchanged sentences

To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

Basis of Consolidation

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company.

4 unchanged sentences

IndUS Pharmaceuticals, Inc.

(d) Cash and Cash Equivalents

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, 2017 and 2016, 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.

PIVOT PHARMACEUTICALS INC.

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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

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

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

Subsequent changes to fair value are recorded in the statement of operations and comprehensive income.

Loss Per Share

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share.

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As at January 31, 2017, the Company has 6,840,834 (2016 – 1,700,750) potentially dilutive shares.

(j) Comprehensive Income (Loss)

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, 2017 and 2016, the Company’s comprehensive income included foreign currency translation adjustments.

(k) Research and Development Costs

Research and Development Costs

Research costs are expensed in the period that they are incurred.

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

Significant Accounting Policies (continued)

(l) Income Taxes

There were no research costs incurred during the years ended January 31, 2017 and 2016.

The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”.

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During the years ended January 31, 2017 and 2016, there were no charges for interest or penalties.

(m) Financial Instruments and Fair Value Measures

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

Significant Accounting Policies (continued)

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.

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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 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, and the fair value of derivative liabilities is determined based on “Level 3” inputs.

The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

Significant Accounting Policies (continued)

(n) Foreign Currency Translation

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.

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Gains or losses arising on translation are recognized in other comprehensive income (loss) as foreign currency translation adjustments.

(o) Recent Accounting Pronouncements

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

Significant Accounting Policies (continued)

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.

Property and Equipment

Accumulated amortization

Net carrying value

Office furniture and equipment

Depreciation expense included as a charge to income was $322 and $409 for the years ended January 31, 2016 and 2015, respectively.

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 $134,892 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).

As of January 31, 2017, the carrying value of the convertible debenture is $275,010 (January 31, 2016 - $nil), which is net of debt discounts related to conversion feature, financing costs and warrants of $94,709, $6,126 and $6,477 respectively (January 31, 2016 - $nil, $nil and $nil, respectively).

As of January 31, 2017, interest accrued on the convertible debenture is $10,307 (January 31, 2016 - $nil) and the fair value of the conversion option derivative liability is $312,541 (January 31, 2016 - $nil).

PIVOT PHARMACEUTICALS INC.

3 unchanged sentences

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:

380,000 warrants expiring on July 30, 2015

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)

Derivative liability consists of convertible debenture with variable conversion price (Note 4).

The fair value of derivative liability as at January 31, 2017 and 2016 is as follows:

September 2016 convertible debenture

The fair value of derivative financial liability was determined using the binomial option pricing model, using the following assumptions:

Interest Rate

Dividend Yield

Expected Life

As at issuance date:

380,000 warrants expiring on July 30, 2015

September 2016 convertible debenture

As at January 31, 2017:

September 2016 convertible debenture

During the year ended January 31, 2017:

(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.

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.

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.

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.

On July 31, 2016 and January 31, 2017, 25,000 shares of common stock, valued at $3,750 and $2,708, respectively, 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.

During the year ended January 31, 2016:

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:

3 unchanged sentences

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.

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

Common Stock (continued)

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.

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.

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:

2 unchanged sentences

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.

PIVOT PHARMACEUTICALS INC.

Notes to the Consolidated Financial Statements

Year ended January 31, 2016

(Expressed in U.S.

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 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.

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 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.

Share Purchase Warrants

1 unchanged sentence

Weighted Average Exercise Price

Balance, January 31, 2015 and 2014

Balance, January 31, 2016

Balance, January 31, 2017

As at January 31, 2017, the following share purchase warrant was outstanding:

Number of Warrants

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.

PIVOT PHARMACEUTICALS INC.

9 unchanged sentences

Weighted Average Remaining Contractual Life (years)

Outstanding, January 31, 2015 and 2014

Outstanding, January 31, 2015

Outstanding, January 31, 2016

Outstanding, January 31, 2017

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)

Interest Rate

Dividend Yield

Expected Life

200,000 options expiring on November 30, 2020

7,250,000 options expiring on February 22, 2021

29,000 options expiring on May 2, 2021

4,000,000 options expiring on December 14, 2021

41,833 options expiring on January 23, 2021

Additional information regarding stock options as of January 31, 2017, is as follows:

2 unchanged sentences

December 14, 2020

February 22, 2021

December 14, 2021

January 23, 2022

$1,267 of stock-based compensation have yet to be recognized and will be recognized in future periods.

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).

PIVOT PHARMACEUTICALS INC.

2 unchanged sentences

(Expressed in U.S.

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.

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.

Related Party Transactions

As at January 31, 2017, the Company owed $4,154 (2016 - $800) to a director of the Company, which is unsecured, non-interest bearing, and due on demand.

As at January 31, 2017, the Company owed $18,421 (2016 – receivable of $866) to the Company’s Chief Executive Officer, which is unsecured, non-interest bearing, and due on demand.

As at January 31, 2017, the Company owed $nil (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).

The Company has approximately $9 million 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, 2017 and 2016, respectively, as a result of the following:

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(Expressed in U.S.

Income Taxes (continued)

The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating loss:

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 vests 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 February 29, 2016 and March 31, 2016, 25,000 and 25,000 shares of common stock, respectively, were issued to the Company's CEO as compensation.

The Company’s minimum future lease commitments are:

Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

1 unchanged sentence

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data