BetterLife Pharma Inc. 10-Q

Item 1 . Financial Statements Our unaudited interim condensed consolidated financial statements for the period ended July 31, 2017 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 six month periods ended July 31, 2017 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 July 31, 2017 (unaudited) and January 31, 2017 4 Table of Contents PIVOT PHARMACEUTICALS INC. Condensed Consolidated Balance Sheets (Expressed in U.S. dollars) July 31, 2017 $ January 31, 2017 $ (unaudited) Assets Current assets Cash 9,943 112,421 Prepaid and other current assets 23,195 17,337 Total current assets 33,138 129,758 Security deposit 2,900 2,900 Total assets 36,038 132,658 Liabilities and Stockholders’ Deficit Current liabilities Accounts payable and accrued liabilities 736,565 996,853 Due to related parties (Note 7) 47,000 22,574 Convertible debenture, net of discount (Note 3) 394,042 275,011 Derivative liability (Note 4) 142,905 312,541 Total liabilities 1,320,512 1,606,979 Stockholders’ Deficit Common stock: Unlimited shares authorized, without par value, 75,847,114 and 75,647,114 shares issued and outstanding, respectively 7,351,568 7,327,588 Additional paid-in capital 11,764,740 11,211,031 Accumulated other comprehensive income 522,339 584,813 Accumulated deficit (20,923,121 ) (20,597,753 ) Total stockholders’ deficit (1,284,474 ) (1,474,321 ) Total liabilities and stockholders’ deficit 36,038 132,658 (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 and Comprehensive Income (Expressed in U.S. dollars) Three Months Ended July 31, 2017 $ Three Months Ended July 31, 2016 $ Six Months Ended July 31, 2017 $ Six Months Ended July 31, 2016 $ (unaudited) (unaudited) (unaudited) (unaudited) Revenue - - - - Expenses Foreign exchange (gain) loss (7,575 ) 63,129 62,562 77,359 General and administrative 75,641 72 128,930 974,421 Management fees 132,478 1,122,368 269,773 3,368,947 Professional fees 48,211 (6,171 ) 73,008 90,483 Total expenses 248,755 1,179,398 534,273 4,511,210 Loss from operations (248,755 ) (1,179,398 ) (534,273 ) (4,511,210 ) Other income (expense) Amortization of discount on convertible debenture – – (105,392 ) – Gain on change in fair value of derivative liabilities 91,564 – 171,451 – Gain on settlement of debts 160,000 – 160,000 – Interest expense (8,365 ) – (17,154 ) – Total other income (expense) 243,199 – 208,905 – Net loss (5,556 ) (1,179,398 ) (325,368 ) (4,511,210 ) Other comprehensive income (loss) Foreign currency translation adjustment 2,081 (36,363 ) 62,473 150,166 Net comprehensive loss (3,475 ) (1,215,761 ) (262,895 ) (4,361,044 ) Net income (loss) per share, basic and diluted (0.00 ) (0.02 ) (0.00 ) (0.06 ) Weighted average shares outstanding – basic and diluted 75,737,423 75,179,627 75,693,254 75,010,761 (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) Six Months Ended July 31, 2017 $ Six Months Ended July 31, 2016 $ (unaudited) (unaudited) Operating activities Net loss (325,368 ) (4,511,210 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization of discount on convertible debenture 105,392 – Fair value of stock options vested 773 3,858,395 Gain on change in fair value of derivative liabilities (171,451 ) – Gain on settlement of debts (160,000 ) – Stock issued for services 23,986 252,598 Changes in operating assets and liabilities: Prepaids and other current assets (5,376 ) 13,686 Accounts payable and accrued liabilities 403,022 271,953 Net cash used in operating activities (129,022 ) (114,578 ) Financing activities Proceeds from related party advances 25,500 33,000 Net cash provided by financing activities 25,500 33,000 Effects of exchange rate changes on cash 1,044 12,989 Decrease in cash (102,478 ) (68,589 ) Cash – beginning of period 112,421 71,639 Cash – end of period 9,943 3,050 Supplemental disclosures: Interest paid – – Income tax paid – – Non-cash investing and financing activities Capital contribution through forgiveness of debt 520,425 - (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 (Unaudited) Period ended July 31, 2017 (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 July 31, 2017, the Company has not earned any revenue, has a working capital deficit of $1,287,374 and an accumulated deficit of $20,923,121. 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 (Unaudited) Period ended July 31, 2017 (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. (“IndUS”) 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. As at July 31, 2017, the Company had 5,908,347 (January 31, 2017 – 9,692,748) potentially dilutive shares. (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 (Unaudited) Period ended July 31, 2017 (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. 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 4). 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 per share, 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 6). As of July 31, 2017, the carrying value of the convertible debenture is $394,042 (January 31, 2017 - $275,011) which is net of debt discounts related to conversion feature, financing costs and warrants of $nil, $nil and $nil, respectively (January 31, 2017 - $94,709, $6,126 and $6,477, respectively). As of July 31, 2017, interest accrued on the convertible debenture is $27,748 (January 31, 2017 - $10,307) and the fair value of the conversion option derivative liability is $142,905 (January 31, 2017 - $312,541). As of July 31, 2017, the Company has not repaid the convertible debenture, which is in default. 10 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements (Unaudited) Period ended July 31, 2017 (Expressed in U.S. dollars) 4. Derivative Liability Derivative liability consists of convertible debenture with variable conversion price (Note 3). The fair value of derivative liability as at July 31, 2017 and January 31, 2017 is as follows: July 31, 2017 $ January 31, 2017 $ September 2016 convertible debenture 142,905 312,541 142,905 312,541 The fair value of derivative financial liability was determined using the binomial 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 July 31, 2017: September 2016 convertible debenture 162 % 1.13 % 0 % 0.25 5. 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, 2017 15,520,833 0.38 4.2 68,599 Granted – – – – Forfeited – – – – Outstanding, July 31, 2017 15,520,833 0.38 3.73 1,590 11 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements (Unaudited) Period ended July 31, 2017 (Expressed in U.S. dollars) 5. Stock Options (continued) 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) 29,000 options expiring on May 2, 2021 394 % 1.68 % 0 % 3.7 Additional information regarding stock options as of July 31, 2017, is as follows: Options Outstanding Options Exercisable Exercise Price $ Expiry Date 200,000 200,000 0.25 November 30, 2020 4,000,000 4,000,000 0.10 December 14, 2020 7,250,000 7,250,000 0.70 February 22, 2021 29,000 28,000 0.34 May 2, 2021 4,000,000 4,000,000 0.10 December 14, 2021 41,833 41,833 0.05 January 23, 2022 15,520,833 15,519,833 $37 of stock-based compensation have yet to be recognized and will be recognized in future periods. 6. Share Purchase Warrant The following table summarizes the continuity of share purchase warrant: Number of Warrants Weighted Average Exercise Price $ Balance, January 31, 2017 434,622 0.10 Granted – – Balance, July 31, 2017 434,622 0.10 As at July 31, 2017, the following share purchase warrant was outstanding: Number of Warrants Exercise Price $ Expiry Date 434,622 0.10 Upon repayment of convertible debenture (Note 3) Pursuant to the convertible debenture (Note 3), 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. 12 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements (Unaudited) Period ended July 31, 2017 (Expressed in U.S. dollars) 7. Related Party Transactions As at July 31, 2017, the Company owed $3,737 (January 31, 2017 - $4,154) to a director of the Company, which is unsecured, non-interest bearing, and due on demand. As at July 31, 2017, the Company owed $43,264 (January 31, 2017 – $18,420) to the Company’s past Chief Executive Officer (Note 10). At July 31, 2017, $552,889 of accrued management fees to the Company’s Chief Financial Officer and Chief Business Officer were forgiven. 8. Fair Value Measurements The Company’s financial liabilities carried at fair value measured on a recurring basis as of July 31, 2017 and January 31, 2017, consisted of the following: Total fair value at July 31, 2017 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liability (1) $ 142,905 $ - $ 142,905 $ - Total fair value at January 31, 2017 Quoted prices in active markets (Level 1) Significant other observable inputs (Level 2) Significant unobservable inputs (Level 3) Derivative liability (1) $ 312,541 $ - $ 312,541 $ - _______________ (1) Derivative liability amounts are due to the embedded derivatives of convertible debenture issued by the Company and are calculated using the binomial option pricing model (Note 4). The Company has no financial assets carried at fair value. 9. Commitments The Company’s minimum future lease commitments are: $ 2018 12,000 2019 23,900 2020 12,000 10. Subsequent Events On September 11, 2017, the Company entered into an exchange agreement with its subsidiary, IndUS, and its Chief Executive Officer whereby the Company exchanged all of its outstanding common stock of IndUS for 3,800,000 common stock of the Company, upon with its Chief Executive Officer resigned. As part of this exchange agreement, the Company provided its past Chief Executive Officer with a non-interest bearing promissory note of $200,000 payable at the earlier of 45 days after the completion of a financing of at least $2,000,000 and September 10, 2027, and in discharge of all obligations with respect to all accrued and unpaid salary through September 11, 2017. Approximately $350,000 of liabilities belonging to IndUS will be assumed by the Company’s past Chief Executive Officer. 13 Table of Contents PIVOT PHARMACEUTICALS INC. Notes to the Condensed Consolidated Financial Statements (Unaudited) Period ended July 31, 2017 (Expressed in U.S. dollars) 10. Subsequent Events (continued) Concurrently, on September 11, 2017, the Company appointed Dr. Patrick Frankham as its interim Chief Executive Officer. On September 12, 2017, the Company entered into a licensing agreement with Altum Pharmaceuticals Inc. (“Altum”) whereby the Company was granted worldwide rights to BiPhasix Transdermal Drug Delivery Technology (“BiPhasix Technology”) for the delivery and commercialization of cannabinoids, cannabidiol (“CBD”), and tetrahydrocannabinol-based products. Financial consideration includes: · Issuance of 2,500,000 shares of common stock on closing of the licensing agreement (issuable as at September 15, 2017); · Issuance of 2,500,000 shares of common stock of the Company upon Health Canada Natural Product Number (“NPN”) approval for a CBD product developed using the BiPhasix Technology; · Five percent (5%) royalties on annual net sales; and · For pharmaceutical products: o $1,000,000 payable upon first Investigative New Drug Application approval; o $1,000,000 payable upon positive outcome of Phase II trial in first indication; and o $2,000,000 payable upon New Drug Application approval. 14 Table of Contents