BetterLife Pharma Inc. 10-K

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations The following discussion should be read in conjunction with our audited financial statements and the related notes for the years ended January 31, 2018 and January 31, 2017 that appear elsewhere in this annual report. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to such differences include, but are not limited to those discussed below and elsewhere in this annual report, particularly in the section entitled "Risk Factors" of this annual report. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles. Purchase of Significant Equipment We do not intend to purchase any significant equipment over the next twelve months. Personnel Plan We do not expect any material changes in the number of employees over the next 12 month period (although we may enter into employment or consulting agreements with our officers or directors). We do and will continue to outsource contract employment as needed. 31 Table of Contents Results of Operations For the Years Ending January 31, 2018 and 2017 Year Ended January 31, 2018 2017 Revenue $ Nil $ Nil Operating expenses $ 1,049,255 $ 6,023,652 Accretion of discounts on convertible debentures $ 105,392 $ 69,784 (Gain) loss on change in fair value derivative $ (204,711 ) $ 173,110 Gain on disposal of asset $ (609,311 ) $ Nil Gain on settlements of debentures $ (246,828 ) $ Nil Interest expense $ 27,385 $ 11,661 Net loss $ 121,182 $ 6,278,207 During the year ended January 31, 2018, we disposed of our shares of common stock of IndUS and IndUS net liabilities for 3,800,000 shares of common stock of Pivot, which resulted in a gain on disposal of asset of $609,311. In addition, we recorded a gain on settlement of debentures related to conversion of debentures into our common stock, settlement of accounts payable into common stock and conversion of accrued management fees into a promissory note upon the disposal of our shares of IndUS common stock. Expenses Our operating expenses for our years ended January 31, 2018 and 2017 are outlined in the table below: Year Ended January 31, 2018 2017 Depreciation and amortization $ 25,075 $ Nil Due diligence costs $ 8,750 $ Nil Foreign exchange loss $ 101,466 $ 194,566 General and administrative $ 344,868 $ 1,597,990 Management fees $ 303,421 $ 4,119,231 Professional fees $ 195,371 $ 111,865 Research and development $ 70,304 $ Nil Operating expenses for year ended January 31, 2018 decreased by $4,974,397 as compared to the comparative period in 2017. In 2017, $1,304,738 of stock-based compensation was included in general and administrative expense as a result of 700,000 common stock issued for services and grants of 6,320,833 options to purchase our common stock. In 2018, $148,909 of stock-based compensation was included in general and administrative to recognize 350,000 shares of our common stock issued to third party service providers and 100,000 stock options granted to members of our advisory board. Management fees decreased by $3,815,810 from the year ended January 31, 2017 to the year ended January 31, 2018. In 2017, 5,000,000 options to purchase our common stock granted to management. In 2018, no options were granted. Revenue We have not earned any revenues since our inception and we do not anticipate earning revenues in the upcoming quarter. Equity Compensation Our company has a stock option plan which was adopted and approved by our shareholders on December 30, 2015. During our fiscal year ended January 31, 2017: · 7,250,000 stock options with exercise price of $0.70 and maturity on February 22, 2021 were granted to directors, officers and consultants, · 29,000 stock options with exercise price of $0.34, maturity on May 2, 2021 and vesting on May 3, 2016 (26,000 stock options), November 2, 2016 (1,000 stock options), May 2, 2017 (1,000 stock options) and November 2, 2017 (1,000 stock options) were granted to a consultant, and · 41,833 stock options with exercise price of $0.05 and maturity on January 23, 2022 were granted to related parties pursuant to the Agreement and Plan of Merger and Acquisition Agreement dated as of November 4, 2015 between our company and IndUS. 32 Table of Contents During our fiscal year ended January 31, 2018, 100,000 stock options with exercise price of $0.39 and maturity on November 14, 2022 were granted. We currently do not have any other equity compensation plans or arrangements. Liquidity and Financial Condition Working Capital At January 31, 2018 At January 31, 2017 Current Assets $ 149,253 $ 129,758 Current Liabilities $ 429,200 $ 1,606,979 Working Capital (Deficit) $ (279,947 ) $ (1,477,221 ) Cash Flows Year Ended January 31, 2018 Year Ended January 31, 2017 Net Cash used in Operating Activities $ (395,602 ) $ (377,783 ) Net Cash used in Investing Activities $ Nil $ Nil Net Cash Provided by Financing Activities $ 360,500 $ 398,052 Effects of exchange rate changes on cash $ (12,808 ) $ 20,513 (Decrease) Increase in Cash During the Period $ (47,910 ) $ 40,782 We will require additional funds to fund our budgeted expenses over the next 12 months. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There is still no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Further, we may continue to be unprofitable. We need to raise additional funds in the immediate future in order to proceed with our budgeted expenses. Specifically, we estimate our expenses and working capital requirements for the next 12 months to be as follows: Product Development Estimated Expenses Development of BiPhasix Topical Cream (20g) $ 1,430,000 Development of Thrudermic Topical Tube (20g) 1,590,000 Development of Solmic Oral Dropper Bottle (30ml) 1,040,000 Development of Ready-to-infuse Powderized Products 2,310,000 Product Registration and Regulatory 1,590,000 Data Generation to Claim Indications 3,180,000 Manufacturing and Supply 7,150,000 Sales and Marketing Costs 3,970,000 General and Administrative 1,990,000 Total: $ 24,250,000 33 Table of Contents Based on our planned expenditures, we will require additional funds of approximately $24.25 million to proceed with our business plan over the next 12 months and the commencement of commercialization of our product initiatives. If we secure less than the full amount of financing that we require, we will not be able to carry out our complete business plan and we will be forced to proceed with a scaled back business plan based on our available financial resources. Funds raised will be used towards the recruitment of appropriate management and research and development (“R&D”) personnel, as well as towards product development expenditures. Specifically, the funds will be used to cover R&D expenses associated with 1) manufacturing scale-up of our products at a GMP-certified, high potency drug manufacturing facility; 2) development and manufacture of formulation of our products at a GMP-certified product manufacturing facility for administration of the drug candidates in animals (for safety evaluation) and subsequently to humans 3) submission to appropriate regulatory authorities for NHP registration. We anticipate that we will incur substantial losses for the foreseeable future. We have negative cash flows from current operating activities and may continue to be unprofitable. Even if we carry out our expanded research and development activities on our products, there is no guarantee that we will be able to market them or derive any revenues from their sale. Although we are anticipating commercialization to commence on some of our product initiatives over the next 12 months, anticipated revenues will not be sufficient to finance our business plan. We intend to raise capital through equity and, if necessary, debt financing. We anticipate that the bulk of any additional funding we receive will be in the form of equity financing from the sale of our common stock. However, we do not have any financing arranged and we cannot provide any assurance that we will be able to raise sufficient funds from the sale of our common stock to fund our operations or planned research and development activities. In the absence of such financing, we will not be able to carry out our planned research and development activities. Even if we are successful in obtaining equity financing to fund our operations and research and development activities, there is no assurance that we will obtain the funding necessary to pursue any advanced research and development following the completion of our planned clinical trials. If we do not continue to obtain additional financing, we may be forced to abandon our business plan. There is no assurance that we will be able to maintain operations at a level sufficient for an investor to obtain a return on his investment in our common stock. Any modifications to our plans will be based on many factors, including the results of our R&D and the amount of available capital. Further, the extent to which we carry out our development of planned products is dependent upon the amount of financing available to us. Future Financings We will require additional financing in order to enable us to proceed with our plan of operations, as discussed above, including approximately $24.25 million over the next 12 months to pay for product development, sales and marketing and general and administrative expenses. These cash requirements are in excess of our current cash and working capital resources. Accordingly, we will require additional financing in order to continue operations and to repay our liabilities. There is no assurance that any party will advance additional funds to us in order to enable us to sustain our plan of operations or to repay our liabilities. We anticipate continuing to rely on equity sales of our common stock in order to continue to fund our business operations. Issuances of additional shares will result in dilution to our existing stockholders. There is no assurance that we will achieve any additional sales of our equity securities or arrange for debt or other financing to fund our planned business activities. We presently do not have any arrangements for additional financing for the expansion of our operations, and no potential lines of credit or sources of financing are currently available for the purpose of proceeding with our plan of operations. Contractual Obligations As a “smaller reporting company”, we are not required to provide tabular disclosure obligations. 34 Table of Contents Going Concern We have not generated any revenues and are dependent upon obtaining outside financing to carry out our operations and pursue our pharmaceutical research and development activities. If we are unable to generate future cash flows, raise equity or secure alternative financing, we may not be able to continue our operations and our business plan may fail. You may lose your entire investment. If our operations and cash flow improve, management believes that we can continue to operate. However, no assurance can be given that management’s actions will result in profitable operations or an improvement in our liquidity situation. The threat of our ability to continue as a going concern will cease to exist only when our revenues have reached a level able to sustain our business operations. Off-Balance Sheet Arrangements We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders. Critical Accounting Policies The discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenue, and expenses. These estimates and assumptions are affected by management’s application of accounting policies. We believe that understanding the basis and nature of the estimates and assumptions involved with the following aspects of our financial statements is critical to an understanding of our financial statements. Use of Estimates The preparation of these 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 financial statements and the reported amounts of revenues and expenses during the reporting period. Our company regularly evaluates estimates and assumptions related to the recoverability of long-lived assets, valuation of convertible debentures, assumptions used to determine the fair value of stock-based compensation and derivative liabilities, and deferred income tax asset valuation allowances. Our 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 our company may differ materially and adversely from our company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected. Long-lived Assets In accordance with ASC 360, “Property, Plant and Equipment”, our 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. 35 Table of Contents Stock-Based Compensation Our 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. 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. Income Taxes Our 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 carryforwards. 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. Our 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, 2018 and 2017, our company did not have any amounts recorded pertaining to uncertain tax positions. Our company files federal and provincial income tax returns in Canada. Our company recognizes interest and penalties related to uncertain tax positions in tax expense. During the years ended January 31, 2018 and 2017, there were no charges for interest or penalties. 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. Our 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. We believe that the recorded values of all of our other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. 36 Table of Contents Foreign Currency Translation The functional currency of our parent entity, Pivot Pharmaceuticals Inc., and our wholly-owned subsidiary, Pivot Green Stream Health Solutions Inc., is the Canadian dollar. Our company’s presentation currency is the US dollar. Monetary assets and liabilities are translated using the exchange rate prevailing at the 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 our 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. Recent Accounting Pronouncements Our company has implemented all new accounting pronouncements that are in effect and that may impact its 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 financial position or results of operations. Item 7A. Quantitative and Qualitative Disclosures About Market Risk As a “smaller reporting company”, we are not required to provide the information required by this Item. 37 Table of Contents