BetterLife Pharma Inc. 10-Q

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations Forward-Looking Statements This report on Form 10-Q contains certain forward-looking statements. All statements other than statements of historical fact are “forward-looking statements” for purposes of these provisions, including any projections of earnings, revenues, or other financial items; any statements of the plans, strategies, and objectives of management for future operation; any statements concerning proposed new products, services, or developments; any statements regarding future economic conditions or performance; statements of belief; and any statement of assumptions underlying any of the foregoing. Such forward-looking statements are subject to inherent risks and uncertainties, and actual results could differ materially from those anticipated by the forward-looking statements. These forward-looking statements involve significant risks and uncertainties, including, but not limited to, the following: competition, promotional costs and the risk of declining revenues. Our actual results could differ materially from those anticipated in such forward-looking statements as a result of a number of factors. These forward-looking statements are made as of the date of this filing, and we assume no obligation to update such forward-looking statements. The following discusses our financial condition and results of operations based upon our unaudited financial statements which have been prepared in conformity with accounting principles generally accepted in the United States. It should be read in conjunction with our financial statements and the notes thereto included elsewhere herein. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, performance or achievements. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results. Our financial statements are stated in U.S. Dollars (US$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in U.S. Dollars (US$) and all references to “common shares” refer to the common shares in our capital stock. As used in this quarterly report, the terms “we”, “us”, “our” and “our company” mean Pivot Pharmaceuticals Inc., unless otherwise indicated. General Overview We are an early stage pharmaceutical company. We were incorporated in the Province of British Columbia, Canada under the name “649186 B.C. Ltd.”, on June 10, 2002. On September 9, 2003, we changed our name to “Xerxes Health Corp.” and on June 26, 2007, we changed our name to “Neurokine Pharmaceuticals Inc.”. Effective June 4, 2014, we filed with the British Columbia Registrar of Companies a Form 11, Notice of Alteration, wherein we increased our authorized share capital from 500,000,000 common shares without par value to an unlimited number of common shares without par value. The increase of authorized capital was approved by our stockholders at the annual and special meeting held on June 3, 2014. On September 26, 2014, our company held a special meeting of stockholders to approve the removal of our company’s Pre-Existing Company Provisions, the cancellation of our current Articles and the adoption of new Articles and to approve a reverse stock split on the basis of up to one new common stock for every 100 old common stock. Effective October 8, 2014, we filed with the British Columbia Registrar of Companies a Form 11, Notice of Alteration, wherein we removed our Pre-Existing Company Provisions. 18 Table of Contents Effective April 7, 2015, we filed with the British Columbia Registrar of Companies a Form 11, Notice of Alteration, wherein we changed our name to “Pivot Pharmaceuticals Inc.”. Effective at the opening of trading on April 20, 2015, as approved by FINRA, our company effected a reverse stock split of our issued and outstanding common shares on the basis of 10 old common stock for 1 new common stock. On November 20, 2015, we completed the acquisition of IndUS Pharmaceuticals, Inc. (“IndUS”), a Delaware corporation, pursuant to an Agreement and Plan of Merger and Acquisition Agreement dated as of November 4, 2015 among our company, Pivot Pharma U.S. Inc., our wholly owned subsidiary, IndUS and Sindu Research Laboratories Pvt Ltd. As consideration for the purchase, we issued 4,512,500 shares of common stock on November 23, 2015 and 237,500 shares of common stock on December 4, 2015 and granted 41,833 stock options pursuant to the Agreement and Plan of Merger. As part of the acquisition, we appointed Dr. Pravin Chaturvedi as our new Chief Executive Officer and Director. On September 11, 2017, we completed an exchange agreement whereby we exchanged with Dr. Chaturvedi 100% of its shares of common stock of IndUS and IndUS net liabilities for 3,800,000 shares of common stock of Pivot, upon which Dr. Chaturvedi resigned as Chief Executive Officer and Director. On September 12, 2017, we entered into a licensing agreement with Altum Pharmaceuticals Inc. (“Altum”) whereby we were granted worldwide rights to BiPhasix Transdermal Drug Delivery Technology (“BiPhasix Technology”) for the delivery and commercialization of cannabinoids, cannabidiol (“CBD”), and tetrahydrocannabinol (“THC”) based products. Financial consideration included: · Issuance of 2,500,000 shares of common stock on effective date of agreement · Issuance of 2,500,000 shares of common stock of Pivot upon Health Canada Natural Product Number (“NPN”) approval; · Royalties on annual gross sales; and · 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. On September 23, 2017, we entered into a collaboration and license agreement with SolMic GmbH (“Solmic”) whereby we acquired worldwide rights to Solmic’s Solubilisation 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. On December 19, 2017, we commenced trading on the Canadian Securities Exchange under the symbol “PVOT”. On February 28, 2018, we completed the acquisition of ERS Holdings, LLC (“ERS”) pursuant to an Exchange Agreement dated as of February 10, 2018 among Pivot Pharmaceuticals Inc. (“Pivot”), ERS and the members of ERS. As consideration for the purchase, we paid $333,333 in cash on closing and will pay an additional $333,333 six (6) and twelve (12) months after closing for total cash payment of $1 million. On September 7, 2018, the payment due six (6) months after closing was extended to September 30, 2018. In addition, we also issued 5,000,000 shares of our common stock and will pay royalties on future net sales. ERS has developed a patented technology called “RTIC” Ready-To-Infuse-Cannabis, relating to the transformation of cannabis oil into powder for infusion into a variety of food and beverage products such as capsules, K-Cups, stick packs, baked mixes, liquid shots, protein shakes, topicals, lotions, and bottled beverages. On March 2, 2018, we 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 Pivot, Dr. Joseph Borovsky, Dr. Leonid Lurya and Thrudermic. As consideration for the purchase, we paid $1 in cash on closing and issued 500,000 shares of our common stock. 19 Table of Contents On August 7, 2018, we entered into a licensing agreement with Solubest Ltd. (“Solubest”) whereby we acquired worldwide rights for the use, development and commercialization of its patented Solumer™ Oral Drug Delivery Technology (“Solumer™”) for the improved bioavailability, delivery and commercialization of CBD, THC and other biocannabis-based products. Financial consideration included: · Royalties on net sales; · Monthly license fee from execution of the agreement until commercialization; · Monthly development fee of licensed products; and · Milestone payments upon commercialization and aggregate net sales of $5,000,000. Our principal executive office is located at 1275 West 6th Avenue, Vancouver, B.C. Canada V6H 1A6. Our telephone number is (604) 805-7783. Our Current Business We are an emerging biopharmaceutical company engaged in the development and commercialization of therapeutic pharmaceuticals and nutraceuticals, as well as drug delivery platform technologies. Our company focuses on pharmaceutical development of proprietary drug delivery technologies for multiple indications using small molecules, biological and botanical (e.g. cannabinoids) products to treat unmet medical needs. In September 2017, we in-licensed a patented topical transdermal drug delivery technology platform, BiPhasix, and an oral drug delivery technology, Solmic Micelle, for delivery of cannabinoids. We have also acquired the Ready-To-Infuse Cannabis technology in February 2018 and the Thrudermic Transdermal Nanotechnology (transdermal) in March 2018. Our wholly-owned subsidiaries, Pivot Green Stream Health Solutions Inc. (“PGS”) and Pivot Naturals, LLC (“Pivot Naturals”) (formerly, ERS), focus on the research, development, and commercialization of cannabinoid based nutraceuticals. PGS will generate data to support the safety and efficacy of cannabinoids as Natural Health Product (“NHPs”) as outlined in Health Canada Regulations in order to make particular health claims. Health Canada publishes the Natural Health Products Regulations (“NHPR”) which set out the requirements governing the sale, manufacture, packaging, labelling, importation, distribution and storage of NHPs. According to Health Canada, the objective of the NHPR is to provide reasonable assurance that products offered for sale in Canada are safe, efficacious and of high quality. PGS may also follow applicable and harmonized regulations for product development and commercialization in the US, European Union and Asia Pacific regions. Alternatively, PGS will commercialize certain cannabinoid products with a Licensed Producer and/or Licensed Distributor as per the regulations concerning Access to Cannabis for Medical Purposes Regulations (“ACMPR”) since certain active ingredients in cannabinoids remain restricted until new legislation permits ease of development and distribution in 2018. Lastly, PGS may also develop products containing cannabinoid active ingredients obtained from industrial hemp according to the Industrial Hemp Regulations (“IHR”) permitting such products provided they are sourced from industrial hemp. Otherwise stated, this means that the plants and plant parts of the genera Cannabis, the leaves and flowering heads of which do not contain more than 0.3% THC w/w, and includes the derivatives of such plants and plant parts. PGS’s pipeline targets indications such as cancer supportive care, pain and inflammation, women’s sexual dysfunction, dermatology and eye disease. 20 Table of Contents Our overall strategy includes the following: 1. Acquire market-ready natural health products from third-parties for rebranding and re-sale; 2. Acquire cannabinoid-based food additives for medical consumer sales; 3. Develop cannabinoid-based natural health products using our BiPhasix topical platform technology; 4. Develop pharmaceutical products delivered using our BiPhasix topical platform technology; 5. Obtain partnerships with Health Canada approved Authorized Licensed Producers and/or Licensed Distributors, which can provide restricted and non-restricted cannabinoids as per the ACMPR or the IHR; 6. Acquire novel proprietary drug delivery technologies, for example, metered dose, intra-nasal, suppositories; 7. Make an application at the appropriate time to acquire Health Canada’s Authorized Licensed Producers and Licensed Dealers licenses as per the ACMPR; 8. Out-license our platform technologies to Licensed Producers or Licensed Distributors and other drug developers; 9. Secure and develop further intellectual property; 10. Opportunistically acquire later‑stage drug candidates that provide new treatment options to address unmet medical needs in health care; and 11. Establish partnerships with large and specialty pharmaceutical companies and/or biotechnology companies to collaboratively develop and/or commercialize our products. Our Research and Development Strategy Our management team has implemented a business minded and cost conscious approach to product research and development by focusing on development of novel therapies to address unmet needs in health care. Our research and development strategy will apply novel drug delivery options for new and/or existing drugs or NHPs. For a drug to be successful it must be both efficacious and acceptably safe. Before a drug may be commercially marketed, it must be scrutinized and approved by applicable health authorities (such as Health Canada and the FDA in the United States) in each country or jurisdiction where it is sought to be sold. In pharmaceutical research and development, clinical trials are conducted to assess the safety and efficacy of the drug and the data to be collected for such new drugs. Health authorities then scrutinize the preclinical and clinical data and determine, based on the results, whether a drug may be sold to the public. Similarly, clinical trials can only take place once satisfactory information has been gathered on the quality of the product and its non-clinical safety, and approval to conduct clinical trials has been granted by the appropriate health authority in the country where the trial is scheduled to take place. Clinical trials involving new drugs are commonly classified into four phases. Each phase of the drug approval process is treated as a separate clinical trial. The drug development process will normally proceed through all four phases over many years. If the drug successfully passes through Phases I, II and III, it will usually be approved by the national regulatory authority for use in the general population. Phase IV trials are ‘post approval’ studies. Due to the considerable cost that may be required to complete a full series of clinical trials, the burden of paying for all the necessary people and services is usually borne by the sponsor, who may be the pharmaceutical or biotechnology company that developed the drug that is the subject of the study. Since the diversity of roles may exceed the resources of the sponsor, clinical trials are often managed by outsourced partners such as contract research organizations. Furthermore, approval rates for new drugs at each clinical trial stage are prohibitively low, which may require the sponsor to finance additional trials or abandon the drug under development altogether. 21 Table of Contents We will also develop products regulated under Canada’s Natural Health Products Guidance and support claims with clinical based data as per current regulations. Preclinical safety studies for pharmaceutical or NHP product development will be conducted over the next 12 months to advance at least one of our product candidates. Our Platform Technologies BiPhasix Transdermal Drug Delivery Technology (Topical Platform) Pivot has acquired worldwide rights from Altum for its patented topical transdermal drug delivery technology platform, or BiPhasix, which we will use for the delivery and commercialization of cannabinoid, cannabidiol (“CBD”) and tetrahydrocannabinol (“THC”) based products. The BiPhasix technology has the potential to deliver drugs less invasively than by injections. It also has the potential to topically deliver therapeutic amounts of drugs with better absorption rates, where creams, ointments or conventional liposomes have not been effective. Thrudermic Transdermal Nanotechnology (Topical Platform) Pivot has acquired the worldwide rights to Thrudermic’s patented Transdermal Nanotechnology for the development and commercialization of transdermal cannabinoids. Developed in Israel, the Thrudermic lipid-based nano dispersion technology for topical cannabinoids uses FDA approved materials. The technology has the ability to specifically formulate individual drugs to control and prolong drug release while maintaining steady therapeutic concentrations, The technology can handle water soluble and water insoluble drugs with no change to the skin morphology, no sensitivity to the digestive system, no pain from injections and no observed adverse reactions. Solmic Solubilization Drug Delivery Technology (Oral Platform) Pivot has acquired the worldwide rights to Solmic’s Solubilisation Technology for the development and commercialization of cannabinoid-containing natural extracts. Solmic’s technology allows active ingredients to become water soluble without changing their composition and nature. Solubilized substances that are packed in micelles are protected from degradation from light, stomach acid, and from enzymes released in the intestinal tract. The micellisation process results in a stable, homogenous and transparent mixture, which significantly increases uptake of fat soluble ingredients from the gut into the blood system of fat soluble ingredients, resulting in greater bioavailability. Solumer Drug Delivery Technology (Oral Platform) Pivot has acquired the worldwide rights to Solubest’s Solumer Technology for the oral delivery of cannabinoids, such as CBD and THC, with improved bioavailability. The Solumer Technology allows to convert the cannabinoids to powder for tablets and capsules and the powder can be dispersed in liquids to give a clear solution that is colorless, and flavorless for beverage applications. Ready-To-Infuse Cannabis Technology Pivot’s patented Ready-To-Infuse-Cannabis (“RTIC”) process technology creates precise and repeatable dosing of cannabis by transforming concentrated cannabis oil into a stable, emulsifiable, odorless and flavorless powder form. The derived powder may then be encapsulated and infused for use in beverages, edibles, lotions and additional health and personal care products. The RTIC process is conducive for manufacturing of a wide array of products, including: 22 Table of Contents 1. Capsules/Tablets: One of our patents is issued for use in capsules and tablets. Another of our patents has numerous claims for adding other active ingredients to tablets and capsules, such as Melatonin or Gingko Biloba, allowing for specific treatment for targeted effects. Efficient mass production of capsules, conforming to GMP standards is part of our core competencies and manufacturing capabilities. Production of capsules is scheduled for the second quarter of the calendar year 2019. 2. Beverage/Additive Stick Packs: Single-serve stick packs are convenient and functional when used in hot beverages. Stick packs are also highly functional. Production of stick packs is scheduled for the second quarter of the calendar year 2019. 3. Pet Products: Our patented cannabis powder will also be mass produced and packaged in bulk for both consumer pet health needs. Production of pet powders is scheduled for the second quarter of calendar year 2019. 4. Lotions and Topical Creams: Our patented lotion and topical technology will be mass produced and packaged for consumer health needs. Production of lotions and topical creams is scheduled for the first quarter of calendar 2019. Our Product Development Initiatives Our product development initiatives will address unmet medical needs in health care. PRODUCT DELIVERY TECHNOLOGY INDICATION GLOBAL MARKET SIZE (1) ESTIMATED PRODUCT LAUNCH PGS-N001 Solmic Solubilisate / Oral Cancer supportive care (CINV) (chemo-induced nausea and vomiting) >$1B 2019 PGS-N002 Solmic Solubilisate / Oral Restless leg syndrome >$2B 2019 PGS-N003 Solmic Solubilisate / Oral Pain and inflammation (for opioid withdrawal) >$15B 2019 PGS-N004 Solmic Solubilisate / Oral Cancer supportive care (mucositis relief) >$12B 2019 PGS-N005 BiPhasix / Topical Female sexual dysfunction (HSDD) (hypoactive sexual desire disorder) >$6B 2019 PGS-N006 BiPhasix / Topical Pain and inflammation (joints/opioid withdrawal) >$20B 2019 PGS-N007 BiPhasix / Topical Dermatology (skin irritation/redness/ itching) >$13B 2019 PGS-N008 BiPhasix / Topical Eye disease (glaucoma, intra-ocular pressure) >$3B 2019 PGS-N009 Thrudermic / Topical Pain and inflammation (opioid withdrawal) >$15B 2019 PGS-N010 Solmic Solubilisate / Oral Migraine (nausea, vomiting, dizziness, sensitivity to light, sounds and smells) >$10B 2019 ____________ (1) Derived from IMS data Results of Operations The following summary of our results of operations should be read in conjunction with our financial statements for the period ended October 31, 2018, which are included herein. 23 Table of Contents Our operating results for the three and nine months ended October 31, 2018 and 2017 are summarized as follows: Three Months Ended Nine Months Ended October 31, October 31, 2018 2017 2018 2017 Revenue $ Nil $ Nil $ Nil $ Nil Amortization $ (187,309 ) $ (8,309 ) $ (504,346 ) $ (8,309 ) Due diligence costs $ (52,188 ) $ Nil $ (181,091 ) $ Nil Foreign exchange gain (loss) $ (30,702 ) $ (38,762 ) $ (64,789 ) $ (101,324 ) General and administrative $ (432,112 ) $ (50,480 ) $ (1,609,280 ) $ (179,410 ) Licensing fees $ (23,181 ) $ Nil $ (23,181 ) $ Nil Professional fees $ (214,450 ) $ (55,166 ) $ (468,048 ) $ (128,174 ) Rent $ (93,067 ) $ Nil $ (126,690 ) $ Nil Research and development $ (65,029 ) $ Nil $ (237,103 ) $ Nil Salaries and wages $ (313,463 ) $ (31,941 ) $ (817,494 ) $ (301,714 ) Sales and marketing $ (309 ) $ Nil $ (7,309 ) $ Nil Total Other Income (Expenses) $ (1,965,711 ) $ 715,384 $ (2,377,031 ) $ 924,293 Net Income (Loss) $ (3,377,521 ) $ 530,726 $ (6,416,362 ) $ 205,362 For the nine months ended October 31, 2018, our net loss increased by $6,621,724 from a net income of $205,362 during the prior period to a net loss of $6,416,362 in the current period. For the three months ended October 31, 2018, our net loss increased by $3,908,247 from a net income of $530,726 during the prior period to a net loss of $3,377,521 in the current period. Net incomes during the three and nine months ended October 31, 2017 resulted primarily from the recognition of gain on settlements of debts related to accrued consulting fees forgiven, debts converted into shares of our common stock, as well as conversion of accrued liabilities related to our past Chief Executive Officer into a promissory note. Net loss increased during the three and nine months ended October 31, 2018 due to the following. In March 2018, our company secured convertible debentures totaling $3,926,804 ($5,000,000 Canadian Dollars), which allowed our company to pursue development of our platform technologies and to secure and develop further intellectual property. During the nine months ended October 31, 2018, we completed the acquisitions of the Thrudermic Transdermal Nanotechnology and Pivot Naturals, LLC and its RTIC patents and performed due diligence on other potential transactions, which resulted in increases to amortization, due diligence costs, consulting fees within general and administrative costs, professional fees and research and development for both the three and nine months ended October 31, 2018. Pursuant to these acquisition, we entered into employment contracts which increased our salaries and wages expense. Should our company be successful in securing continued financing for the development of our platform technologies, we expect our future expenses to be consistent with our expenses for the nine months ended October 31, 2018. In addition to the above increased expenses, we settled convertible debentures totaling $1,144,601 ($1,500,000 Canadian Dollars) through the issuance of 3,750,000 units, with each unit consisting of one common stock and one share purchase warrant, which resulted in a loss on extinguishment of convertible debentures of $1,508,836 being included in other income (expenses). Revenue We have not earned any revenues since our inception and we do not anticipate earning revenues in the upcoming quarter. 24 Table of Contents Liquidity and Financial Condition Working Capital At At October 31, January 31, 2018 2018 Current Assets $ 556,024 $ 149,253 Current Liabilities $ 3,650,935 $ 429,200 Working Capital (Deficit) $ (3,094,911 ) $ (279,947 ) Our total current assets as of October 31, 2018 were $556,024 as compared to total current assets of $149,253 as of January 31, 2018. The increase was primarily due to cash received upon issuance of convertible debentures of $3,817,119 ($5,000,000 Canadian Dollars) and issuance of units, consisting of a common stock and a share purchase warrant per unit, of $976,164 (net of share issuance costs), offset with cash used for the payments of past obligations, working capital and business acquisitions. Our total current liabilities as of October 31, 2018 were $3,650,935 as compared to total current liabilities of $429,200 as of January 31, 2018. The increase in current liabilities was primarily attributed to convertible debentures of $3,817,119 ($5,000,000 Canadian Dollars) issued during the period and amounts remaining to be paid on the acquisition of Pivot Naturals of $329,419 ($423,923 Canadian Dollars), net of convertible debentures of $1,144,601 ($1,500,000 Canadian Dollars) settled. Cash Flows Nine Months Ended October 31, 2018 2017 Net Cash Used In Operating Activities $ (3,560,374 ) $ (199,711 ) Net Cash Used In Investing Activities $ (659,999 ) $ Nil Net Cash Provided By Financing Activities $ 4,583,134 $ 332,625 Effects of Exchange Rate Changes on Cash $ (20,371 ) $ 5,051 Increase (Decrease) in Cash During the Period $ 342,390 $ 137,965 Operating Activities During the nine months ended October 31, 2018, our cash used by operating activities increased by $3,360,663 when compared to cash used in operating activities during the nine months ended October 31, 2017. During the period, we acquired Pivot Naturals and the Thrudermic Transdermal Nanotechnology, which resulted in increase in due diligence costs, general and administration, professional fees and salaries and wages. In addition, proceeds from convertible debentures issued during the period allowed our company to pursue our business strategy, including development of our oral and transdermal drug delivery platforms and preparation of our RTIC products for production and commercialization, which resulted in increased research and development costs and rent from securing manufacturing facilities. Investing Activities During the nine months ended October 31, 2018, we acquired Pivot Naturals through the issuance of 5,000,000 shares of our common stock and a payment of $659,999. We did not have any investing activities during the nine months ended October 31, 2017. Financing Activities During the nine months ended October 31, 2018, we received net proceeds of $3,817,119 from convertible debentures, $394,616 from promissory note and $976,164 from issuance of units of our company. We repaid loan payable and promissory notes of $15,925 and $588,839, respectively. 25 Table of Contents 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 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. 26 Table of Contents 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. Inflation The amounts presented in the consolidated financial statements do not provide for the effect of inflation on our operations or financial position. The net operating losses shown would be greater than reported if the effects of inflation were reflected either by charging operations with amounts that represent replacement costs or by using other inflation adjustments. 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 consolidated 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 consolidated financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with the accounting principles generally accepted in the United States of America. Preparing consolidated 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 consolidated financial statements is critical to an understanding of our consolidated financial statements. 27 Table of Contents 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. Our 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. 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. 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. 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. 28 Table of Contents Our company’s financial instruments consist principally of cash, accounts payable and accrued liabilities and amounts due to related parties. Pursuant to ASC 820, the fair value of cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets and derivative liabilities is determined based on “Level 2” inputs, as determined by observable market data. 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. 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. The functional currency of our wholly-owned subsidiary, Pivot Naturals, LLC, is the US dollar. Our 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 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 our consolidated financial statements and we do not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on our consolidated financial position or results of operations. Item 3. Quantitative and Qualitative Disclosure About Market Risk As a “smaller reporting company”, we are not required to provide the information required by this Item.