BetterLife Pharma Inc. 10-K

Item 8. Financial Statements and Supplementary Data PIVOT PHARMACEUTICALS INC. Consolidated Financial Statements Years ended January 31, 2018 and 2017 (Expressed in U.S. dollars) 38 REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM To the Board of Directors and Shareholders of Pivot Pharmaceuticals Inc.: Opinion on the Financial Statements We have audited the accompanying consolidated balance sheets of Pivot Pharmaceuticals Inc. (“the Company”) as of January 31, 2018 and 2017, 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, 2018 and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the Company as of January 31, 2018 and 2017, and the results of its operations and its cash flows for each of the years in the two-year period ended January 31, 2018, in conformity with accounting principles generally accepted in the United States of America. Explanatory Paragraph Regarding Going Concern The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net capital deficiency which raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. Basis for Opinion These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB. We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion. /s/ Sadler, Gibb & Associates, LLC We have served as the Company’s auditor since 2014. Salt Lake City, UT May 1, 2018 F-1 PIVOT PHARMACEUTICALS INC. Consolidated Balance Sheets (Expressed in U.S. dollars) January 31, 2018 $ January 31, 2017 $ Assets Current assets Cash 64,511 112,421 Prepaids and other current assets 84,742 17,337 Total current assets 149,253 129,758 Security deposit – 2,900 Intangible asset, net (Note 5) 234,564 – Total assets 383,817 132,658 Liabilities and Stockholders’ Deficit Current liabilities Accounts payable and accrued liabilities 217,921 996,853 Due to related parties (Note 13) 10,104 22,574 Convertible debenture, net (Note 6) – 275,011 Derivative liabilities (Note 7) – 312,541 Promissory note (Note 8) 201,175 – Total liabilities 429,200 1,606,979 Stockholders’ Deficit Common stock: Unlimited shares authorized, without par value, 82,373,559 and 75,647,114 shares issued and outstanding, respectively (Note 9) 8,263,767 7,327,588 Additional paid-in capital 11,816,057 11,211,031 Accumulated other comprehensive income 593,728 584,813 Accumulated deficit (20,718,935 ) (20,597,753 ) Total stockholders’ deficit (45,383 ) (1,474,321 ) Total liabilities and stockholders’ deficit 383,817 132,658 Nature of operations and continuance of business (Note 1) (The accompanying notes are an integral part of these consolidated financial statements) F-2 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Operations and Comprehensive Income (Loss) (Expressed in U.S. dollars) Year Ended January 31, 2018 $ Year Ended January 31, 2017 $ Revenue – – Expenses Amortization 25,075 – Due diligence costs 8,750 – 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 – Total expenses 1,049,255 6,023,652 Loss from operations (1,049,255 ) (6,023,652 ) Other (expenses) income Amortization of discount on convertible debentures (105,392 ) (69,784 ) Gain (loss) on change in fair value of derivative liabilities 204,711 (173,110 ) Gain on disposal of asset (Note 3) 609,311 – Gain on settlement of debts 246,828 – Interest expense (27,385 ) (11,661 ) Total other income (expenses) 928,073 (254,555 ) Net loss (121,182 ) (6,278,207 ) Other comprehensive income (loss) Foreign currency translation adjustment 8,915 (160,438 ) Net comprehensive loss (112,267 ) (6,438,645 ) Net loss per share, basic and diluted (0.00 ) (0.08 ) Weighted average shares outstanding – basic and diluted 79,898,541 75,315,288 (The accompanying notes are an integral part of these consolidated financial statements) F-3 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Stockholders’ Deficit (Expressed in U.S. dollars) Common Stock Common Stock Additional Paid-In Foreign Currency Translation Shares # Amount $ Issuable $ Capital $ Adjustment $ Deficit $ Total $ Balance – January 31, 2016 74,722,100 7,054,499 16,206 6,174,601 745,251 (14,319,546 ) (328,989 ) Common stock issued for services 925,000 273,089 (16,206 ) – – – 256,883 Warrants issued with convertible debenture – – – 20,113 – – 20,113 Stock-based compensation – – – 5,016,317 – – 5,016,317 Net loss – – – – (160,438 ) (6,278,207 ) (6,438,645 ) Balance – January 31, 2017 75,647,100 7,327,588 – 11,211,031 584,813 (20,597,753 ) (1,474,321 ) Common stock issued for services 350,000 98,479 – – – – 98,479 Common stock issued for settlement of accounts payable and accrued liabilities to related parties 92,384 35,153 – – – – 35,153 Capital contribution by officers in forgiveness of liabilities – – – 552,888 – – 552,888 Common stock issued for conversion of debenture 4,623,825 601,097 – – – – 601,097 Common stock issued for acquisition of license 2,500,000 262,500 – – – – 262,500 Common stock and warrants issued for cash 2,735,000 324,000 – – – – 324,000 Common stock issued for finder’s fee 225,250 (5,050 ) – – – – (5,050 ) Cancellation of common stock pursuant to disposal of asset (3,800,000 ) (380,000 ) – – – – (380,000 ) Stock-based compensation – – – 52,138 – – 52,138 Net loss – – – – (8,915 ) (121,182 ) (112,267 ) Balance – January 31, 2018 82,373,559 8,263,767 – 11,816,057 593,728 (20,718,935 ) (45,383 ) (The accompanying notes are an integral part of these consolidated financial statements) F-4 PIVOT PHARMACEUTICALS INC. Consolidated Statements of Cash Flows (Expressed in U.S. dollars) Year Ended January 31, 2018 $ Year Ended January 31, 2017 $ Operating activities Net loss (121,182 ) (6,278,207 ) Adjustments to reconcile net loss to net cash used in operating activities: Amortization 25,075 – Amortization of discount on convertible debenture 105,392 69,784 Common stock issued for services 98,479 256,867 Fair value of stock options vested 49,608 4,820,100 (Gain) loss on change in fair value of derivative liabilities (204,711 ) 173,110 Gain on disposal of assets (609,311 ) – Gain on settlement of debts (246,828 ) – Changes in operating assets and liabilities: Prepaids and other current assets (72,747 ) 8,018 Due to related parties 9,616 18,334 Accounts payable and accrued liabilities 534,384 572,545 Other liabilities 36,623 – Net cash used in operating activities (395,602 ) (359,449 ) Financing activities Proceeds from issuance of common stock and warrants 324,000 – Proceeds from debenture 36,500 – Proceeds from issuance of convertible debenture – 379,718 Net cash provided by financing activities 360,500 379,718 Effects of exchange rate changes on cash (12,808 ) 20,513 Net change in cash (47,910 ) 40,782 Cash – beginning of period 112,421 71,639 Cash – end of period 64,511 112,421 Supplemental cash flow disclosures (Note 13) (The accompanying notes are an integral part of these consolidated financial statements) F-5 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 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 pharmaceuticals and nutraceuticals, as well as drug delivery platform 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. As at January 31, 2018, the Company has not earned any revenue, has a working capital deficit of $279,947 and an accumulated deficit of $20,718,935. 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 for a period of one year from the issuance of these financial statements. 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) 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 Pivot Green Stream Health Solutions Inc. 100 % Canada F-6 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 2. Significant Accounting Policies (continued) (d) Cash and Cash Equivalents The Company considers all highly liquid instruments with a maturity of three months or less at the time of issuance to be cash equivalents. As at January 31, 2018 and 2017, the Company had no cash equivalents. (e) Intangible Asset Intangible assets consists of costs incurred to acquire a license. Intangible assets are considered finite live assets and recorded at cost less accumulated amortization and accumulated impairment. Subsequent expenditures are capitalized only when they increase the future economic benefits embodied in the asset. Amortization is recorded using the straight-line method and is intended to amortize the license over its estimated useful life of four years. (f) 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. (g) 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 and comprehensive income. (h) Loss Per Share The Company computes net loss per share in accordance with ASC 260, Earnings Per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive. As at January 31, 2018, the Company has excluded 6,153,764 (2017 – 6,840,834) potential dilutive shares. (i) 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, 2018 and 2017, the Company’s comprehensive income included foreign currency translation adjustments. (j) Research and Development Costs Research costs are expensed in the period that they are incurred. F-7 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 2. Significant Accounting Policies (continued) (k) Income Taxes The Company accounts for income taxes using the asset and liability method in accordance with ASC 740, “Income Taxes”. The asset and liability method provides that deferred tax assets and liabilities are recognized for the expected future tax consequences of temporary differences between the financial reporting and tax bases of assets and liabilities, and for operating loss and tax credit carry-forwards. Deferred tax assets and liabilities are measured using the currently enacted tax rates and laws that will be in effect when the differences are expected to reverse. The Company records a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized. As of January 31, 2018 and 2017, the Company did not have any amounts recorded pertaining to uncertain tax positions. The Company files federal and provincial income tax returns in Canada. The 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. (l) 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, accounts payable, and accrued liabilities, due to related parties and promissory note. 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. F-8 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 2. Significant Accounting Policies (continued) (m) Foreign Currency Translation The functional currency of the parent entity, Pivot Pharmaceuticals Inc., and the wholly-owned subsidiary, Pivot Green Stream Health Solutions Inc., is the Canadian dollar. The Company’s presentation currency is the US dollar. Monetary assets and liabilities are translated using the exchange rate prevailing at the consolidated balance sheet date. Non-monetary assets and liabilities denominated in foreign currencies are translated at rates of exchange in effect at the date of the transaction. Expenses are translated at average rates for the period. Gains and losses arising on translation or settlement of foreign currency denominated transactions or balances are included in the determination of income. Results of operations are translated into the Company’s presentation currency, US dollars, at an appropriate average rate of exchange during the year. Net assets and liabilities are translated to US dollars for presentation purposes at rates of exchange in effect at the end of the period. Gains or losses arising on translation are recognized in other comprehensive income (loss) as foreign currency translation adjustments. (n) Reclassifications We have made reclassifications to certain numbers reported in the prior year to conform to the presentation of the current year. (o) Recent Accounting Pronouncements The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations. 3. Disposal of Asset On September 11, 2017, the Company completed an exchange agreement whereby the Company exchanged with its past Chief Executive Officer 100% of its shares of common stock of its wholly-owned subsidiary, IndUS Pharmaceuticals, Inc. (“IndUS”), for 3,800,000 shares of common stock of the Company (Note 9(b)). Pursuant to the exchange agreement, the Company has provided its former Chief Executive Officer a promissory note (Note 8(a)) in the amount of $200,000 in discharge of all obligations with respect to Dr. Chaturvedi’s accrued salary totaling $267,267 through September 11, 2017 for which a gain of $102,259 has been included in gain on settlement of debts in the statement of operations. The disposal of IndUS resulted in a gain as follows: 3,800,000 shares of common stock acquired and cancelled $ 380,000 Net liabilities exchanged 229,311 Gain on disposal of asset $ 609,311 The disposal of IndUS did not meet the definition of discontinued operations as it did not represent a strategic shift that has a major effect on the Company’s operations and financial results. F-9 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 4. Asset Acquisitions (a) BiPhasix License On September 12, 2017, the Company entered into a licensing agreement with Altum Pharmaceuticals Inc. (“Altum”), a party related by way of common director and officers, whereby the Company acquired worldwide rights to the BiPhasix™ transdermal drug delivery technology for the development and commercialization of Cannabinoids, Cannabidiol and Tetrahydrocannabinol products. Consideration included: 1) Issuance of 2,500,000 shares of common stock on September 12, 2017 valued at $247,556 (Notes 5 and 9(c)); 2) Issuance of 2,500,000 shares of common stock of Pivot upon Health Canada Natural Product Number approval (not yet issued as of the date of this report); 3) Royalties on annual gross sales; and 4) For pharmaceutical products, milestone payments payable upon first Investigative New Drug Approval, upon positive outcome of Phase II trial in first indication, and upon New Drug Application approval. As of January 31, 2018 and the date of this report, no milestones have been achieved. (b) SolMic Solubilization License On September 23, 2017, the Company entered into a collaboration and license agreement with SolMic GmbH (“Solmic”) whereby the Company will acquire worldwide rights to Solmic’s Solubilization Technology for the development and commercialization of cannabinoid-containing natural extracts. Milestones include payments upon the following developments: 1) Regulatory approval of a natural health product; 2) First approval of an investigative new drug application for a pharmaceutical product; 3) Positive outcome of a Phase II clinical trial of a pharmaceutical product in the first indication; and 4) Approval of a New Drug Application for a pharmaceutical product by the US Food and Drug Administration. Other consideration include a sales milestone upon aggregate net sales of $5,000,000 and royalties on aggregate net sales, which have not been achieved as at January 31, 2018 and as of the date of this report. 5. Intangible Asset Cost BiPhasix License $ Balance, January 31, 2017 – License agreement (Note 4(a)) 247,556 Effect of foreign exchange rate changes 12,083 Balance, January 31, 2018 259,639 Accumulated Amortization Balance, January 31, 2017 – Amortization 25,075 Balance, January 31, 2018 25,075 Net book value, January 31, 2018 234,564 Net book value, January 31, 2017 – Weighted average life remaining on intangible asset is 3.6 years. Future amortization for the next four years is: F-10 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 5. Intangible Asset (continued) Expiry Date $ 2019 79,793 2020 79,793 2021 79,793 2022 48,969 6. 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 7). 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 11). On September 18, 2017, the lender converted the outstanding principal and accrued interest of the convertible debenture into 4,623,825 shares of common stock (Note 9(d)) of the Company at a conversion price of $0.10. A loss on conversion of debenture of $21,236 was recorded within gain on settlement of debts in the consolidated statements of operations and comprehensive income. As of January 31, 2018, the carrying value of the convertible debenture is $nil (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 January 31, 2018, interest accrued on the convertible debenture is $nil (January 31, 2017 - $10,307) and the fair value of the conversion option derivative liability is $nil (January 31, 2017 - $312,541). F-11 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 7. Derivative Liability Derivative liability consists of convertible debenture with variable conversion price (Note 6). On September 18, 2017, the convertible debenture was converted into shares of common stock (Note 6). The fair value of derivative liability as at January 31, 2018 and January 31, 2017 is as follows: January 31, 2018 $ January 31, 2017 $ September 2016 convertible debenture – 312,541 – 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 8. Promissory Note January 31, 2018 $ January 31, 2017 $ Principal (Note 8(a)) 200,000 – (a) Promissory Note – Former Chief Executive Officer (Note 3) Promissory note bears interest at 8% per annum. Principal and accrued interest are due on the earlier of: 1) 30 days after the completion of a financing of at least $2,000,000 and (ii) September 10, 2027, provided that if repayment occurs prior to the second anniversary date, all interest will be waived. On February 28, 2018, the Company issued senior secured convertible debentures for gross proceeds of $5,000,000 Canadian dollars (Note 15). Accordingly, accrued interest being waived, principal was due and repaid on March 30, 2018. In accordance with ASC 470-10-45-2, the Company has classified the note payable as a current liability. (b) Promissory Note – Third Party On September 27, 2017, the Company issued a promissory note in the amount of $400,000, bearing interest at 12% per annum and maturing on December 31, 2018, which no proceeds have been received by the Company as at January 31, 2018. As part of the promissory note, 100,000 shares of our common stock were issued (Note 9(d)). F-12 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 9. Common Stock During the year ended January 31, 2018: (a) On July 19, 2017, 200,000 shares of common stock were issued for services rendered. (b) On September 11, 2017, 3,800,000 shares of common stock were acquired and cancelled pursuant to the share exchange agreement (Note 3). (c) On September 12, 2017, 2,500,000 shares of common stock were issued pursuant to the Altum licensing agreement (Note 4(a)). (d) On September 18, 2017, 4,623,825 shares of common stock were issued upon conversion of convertible debenture (Note 6). (e) On October 26, 2017, 100,000 shares of common stock were issued pursuant to a promissory note issued (Note 8(b)). (f) In October 2017, the Company received proceeds totaling $223,000 pursuant to private placements for the issuance of 2,230,000 shares of common stock at a price of $0.10 per share. 330,000 shares of common stock were issued on October 30 and 1,900,000 shares of common stock were issued on November 2, 2017. On November 2, 2017, 200,000 shares of common stock related to share issue costs on this private placement were issued. (h) On October 31, 2017, the Company settled $35,153 of accounts payable through the issuance of 92,384 shares of common stock (Note 12(d)), which were issued on November 2, 2017. (i) On November 7, 2017, 50,000 shares of common stock were issued for services rendered. (j) Effective December 15, 2017, the Company closed a private placement for an aggregate of 505,000 units, consisting of one common share and one half of one share purchase warrant, at price of $0.20 per unit for gross proceeds of $101,000. On November 21, 2017, 380,000 shares of common stock and 190,000 share purchase warrants were issued. On December 18, 2017, 125,000 shares of common stock and 62,500 share purchase warrants were issued. Finder’s fee consisted of a cash payment of $5,050 and issuance of 25,250 units, consisting of one common share and one half of one share purchase warrant. On December 18, 2017, 25,250 shares of common stock and 12,625 share purchase warrants related to the finder’s fee were issued. During the year ended January 31, 2017: (k) 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. (l) 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. (m) 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. (n) 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. F-13 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 10. Share Purchase Warrants The following table summarizes the continuity of share purchase warrants: Number of Warrants Weighted Average Exercise Price $ Balance, January 31, 2017 434,622 0.10 Granted (Note 9(j)) 265,125 0.35 Expired (434,622 ) 0.10 Balance, January 31, 2018 265,125 0.35 As at January 31, 2018, the following share purchase warrants were outstanding: Number of Warrants Exercise Price $ Expiry Date 190,000 0.35 May 20, 2019 75,125 0.35 June 14 ,2019 11. 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, 2016 6,200,000 0.10 3.9 32,000 Granted 11,320,833 0.48 4.4 36,599 Forfeited (2,000,000 ) (0.10 ) – – Outstanding, January 31, 2017 15,520,833 0.38 4.2 68,599 Granted 100,000 0.39 4.79 163,000 Forfeited (2,000,000 ) (0.70 ) – – Outstanding, January 31, 2018 13,620,833 0.34 3.26 22,917,756 F-14 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 11. 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) 200,000 options expiring on November 30, 2020 415 % 1.48 % 0 % 3.8 5,250,000 options expiring on February 22, 2021 388 % 1.48 % 0 % 4.3 29,000 options expiring on May 2, 2021 375 % 1.73 % 0 % 3.5 4,000,000 options expiring on December 14, 2021 426 % 2.10 % 0 % 5.0 41,833 options expiring on January 23, 2021 428 % 1.94 % 0 % 5.0 100,000 options expiring on November 14, 2022 382 % 1.76 % 0 % 4.8 Additional information regarding stock options as of January 31, 2018, 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 5,250,000 5,250,000 0.70 February 22, 2021 29,000 29,000 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 100,000 25,000 0.39 November 14, 2022 13,620,833 13,545,833 $112,147 of stock-based compensation have yet to be recognized and will be recognized in future periods. 12. Supplemental Cash Flow Disclosures January 31, 2018 $ January 31, 2017 $ Supplemental disclosures: Interest paid – – Income tax paid – – Non-cash investing and financing activities: Capital contribution through forgiveness of debt 552,888 – Common stock issued for finders’ fee 39,673 – Common stock issued for settlement of accounts payable 35,153 – Common stock issued for settlement of convertible debenture 601,097 – Common stock issued for intangible asset 262,500 – Debt discounts on convertible debt – 174,364 Promissory note issued for settlement of accrued salaries 200,000 – Common stock received and constructively retired in disposition of assets 380,000 – F-15 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 13. Related Party Transactions (a) As at January 31, 2018, the Company owed $4,767 (2017 - $4,154) to a director of the Company, which is unsecured, non-interest bearing, and due on demand. (b) As at January 31, 2018, the Company owed $nil (2017 – $18,421) to the Company’s past Chief Executive Officer. (c) On September 12, 2017, the Company entered into a licensing agreement with Altum, a party related by way of common director and officers, whereby the Company acquired worldwide rights to the BiPhasix™ transdermal drug delivery technology for the development and commercialization of Cannabinoids, Cannabidiol and Tetrahydrocannabinol products (Note 4(a)). As at January 31, 2018, the Company owed Altum $5,337 (2017 - $nil) for expenses paid on behalf of the Company, which was repaid subsequent to year end. (d) During the year ended January 31, 2018, a capital contribution amounting to $552,888 was made by two officers who forgave accrued management fees. In addition, $35,153 of accounts payable due to a company controlled by the Company’s Chief Financial Officer were settled for 92,384 shares of common stock. 14. Income Taxes The Company has approximately $7.7 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, 2018 and 2017, respectively, as a result of the following: 2018 $ 2017 $ Net loss before taxes 121,182 6,329,029 Statutory rate 26.0 % 26.0 % Expected tax recovery 31,507 1,645,548 Lower effective tax rate on losses in U.S. jurisdiction (1,458 ) (2,538 ) Permanent differences and other 5,950 (1,380,771 ) Expenses deductible for tax purposes 28 35 Current period losses not recognized (36,027 ) (262,274 ) Income tax provision – – The significant components of deferred income tax assets and liabilities as at January 31, 2018 and 2017, after applying enacted corporate income tax rates, are as follows: 2018 $ 2017 $ Share issue costs 7,047 – Non-capital losses carried forward 2,004,369 2,351,702 Valuation allowance (2,011,416 ) (2,351,702 ) Net deferred tax asset – – F-16 PIVOT PHARMACEUTICALS INC. Notes to the Consolidated Financial Statements Year ended January 31, 2017 (Expressed in U.S. dollars) 14. Income Taxes (continued) The following table lists the fiscal year in which the loss was incurred and the expiration date of the operating loss: Expiry Date Non-Capital Loss $ 2029 353,468 2030 63,430 2031 113,439 2032 535,169 2033 - 2034 558,959 2035 1,185,382 2036 3,772,475 2037 1,030,791 2038 95,570 7,708,683 15. Subsequent Events Effective February 28, 2018, the Company issued promissory notes for up to CDN $1,000,000 which accrue interest at 10% per annum and mature on December 29, 2022. CDN$557,000 was advanced to the Company, which was repaid with proceeds from the issuance of senior secured convertible debentures on February 28, 2018. Effective February 28, 2018, the Company issued senior secured convertible debentures with a conversion price of $1.74 per common share for aggregate gross proceeds of CDN$5,000,000 (the "Offering"). The convertible debentures will bear interest at the rate of 10% per annum, payable quarterly, and will mature 12 months following the date of their issuance. Beginning on the date that is four months and one day following the issuance of the convertible debentures, the Company may force the conversion of the principal amount of the then outstanding convertible debentures at the conversion price on not less than 30 days’ notice should the daily volume weighted average trading price of the shares of common stock be greater than $2.50 for any 20 consecutive trading days on the Canadian Stock Exchange, or such other exchange our common shares are principally traded. On February 28, 2018, the Company completed the acquisition of ERS Holdings, LLC (“ERS”) pursuant to an Exchange Agreement dated as of February 10, 2018 among the Company, ERS and the members of ERS. As consideration for the purchase, the Company paid $333,333 in cash on closing, issued 5,000,000 shares of common stock and will pay an additional $333,333 six and twelve (12) months after closing. Financial consideration include royalties on future annual net sales. On March 2, 2018, the Company completed the acquisition of Thrudermic, LLC (“Thrudermic”) and worldwide rights to Thrudermic’s patented Transdermal Nanotechnology for the development and commercialization of transdermal cannabinoids pursuant to an Exchange Agreement dated as of March 2, 2018 among the Company, Dr. Joseph Borovsky, Dr. Leonid Lurya and Thrudermic. As consideration for the purchase, the Company paid $1 in cash on closing and issued 500,000 shares of our common stock. On March 12, 2018, the Company granted 200,000 options to purchase common stock to a third party with exercise price of $1.76 Canadian dollars per share, expiry on March 11, 2023 and equal monthy vesting over 12 months. On March 14, 2018 and April 4, 2018, the Company issued 75,000 and 62,500 shares of common stock, respectively, to third parties for services rendered. On March 31, 2018, the Company issued 44,087 shares of common stock pursuant to employment agreements entered into upon the acquisitions of ERS and Thrudermic. F-17 Table of Contents Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure There were no disagreements related to accounting principles or practices, financial statement disclosure, internal controls or auditing scope or procedure during the two fiscal years and interim periods, including the interim period up through the date the relationship ended.