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 Canadian Dollars (C$) and are prepared in accordance with United States Generally Accepted Accounting Principles. In this quarterly report, unless otherwise specified, all dollar amounts are expressed in Canadian Dollars (C$) 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. 23 Table of Contents 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. 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 December 19, 2017, we commenced trading on the Canadian Securities Exchange under the symbol "PVOT". On February 28, 2018, we completed the acquisition of Pivot Naturals, LLC (previously ERS Holdings, LLC) (“Pivot Naturals”) pursuant to an Exchange Agreement dated as of February 10, 2018 among Pivot Pharmaceuticals Inc. ("Pivot"), Pivot Naturals and the members of Pivot Naturals. As consideration for the purchase, we paid US$333,333 in cash on closing and will pay an additional US$333,333 six (6) and twelve (12) months after closing for total cash payment of US$1 million. The payment due six (6) months after closing was paid in September 2018. The payment due twelve (12) months after closing has been extended to May 31, 2019 for an extension fee of 2.5% per month payable in cash and/or shares of common stock. In addition, we also issued 5,000,000 shares of our common stock and will pay royalties on future net sales. Pivot Naturals 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. 24 Table of Contents On August 7, 2018, we entered into a licensing agreement with Formulex Pharma Innovations (formerly Solubest Ltd.) (“Formulex”) 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; and · Milestone payments upon commercialization and aggregate net sales of $5,000,000. On December 17, 2018, we entered into a joint venture arrangement whereby we hold 50% of the issued and outstanding shares of Pivot-Cartagena Joint Venture Inc. (“Pivot-Cartagena JV”). Pivot-Cartagena JV will develop and commercialize cannabis-infused non-alcoholic beverages combining the industry expertise of Licorera del Sur with our patented Solumer™ and RTIC™ powderization technologies. Our principal executive office is located at 1275 West 6th Avenue, Vancouver, B.C. Canada V6H 1A6. Our telephone number is (514) 943-1899. Our Current Business We are a bio-cannabis consumer products company engaged in the commercialization of patented, science-based, premium health and wellness products. We have invested in the acquisition and licensing of patented drug delivery technologies and have developed and tested differentiated cannabis formulations using pharmaceutical grade CBD and THC isolates as active ingredients. Working with our network of pharmaceutical product experts, we have created a catalogue of bioavailable, stable cannabis products. Our products will be manufactured at current Good Manufacturing Practices (“GMP”) accredited facilities in Canada, California, Vermont and Germany. Our products will initially be marketed under our “Pivot Naturals” brand and distributed globally through established wholesale, retail, e-commerce and government partners. Our premium branded product line includes tablets, capsules and soft gels, bulk powder, stick packs, infused beverages, oral solutions, lotions, creams, gels, gums, mints, candies, intimate lubricant and pet supplements. Our strategic priorities are to: 1. Continue to build our industry leading portfolio of patented drug delivery technologies; 2. Commercialize our bio-cannabis product lines; 3. Secure global distribution channels for our product lines; and 4. Establish partnerships with large and specialty pharmaceutical companies and/or biotechnology companies to collaboratively develop and/or commercialize certain products in our portfolio. 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 bio-cannabis nutraceuticals and selling the finished products into markets where regulations permit. We will use contract development and manufacturing organizations on a fee for service basis to perform any research or development that is required. Our Platform Technologies BiPhasix Transdermal Drug Delivery Technology (Topical Platform) We have acquired worldwide rights from Altum Pharmaceuticals Inc. for its patented topical transdermal drug delivery technology platform, or BiPhasix, which we will use for the delivery and commercialization of cannabinoid, CBD and 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. 25 Table of Contents Thrudermic Transdermal Nanotechnology (Topical Platform) We have 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) We will enter into purchase agreements with Solmic GmbH (“Solmic”) for the purchase of Solmic’s oral 1% Micelle solution. Subject to meeting annual minimum order quantities, we will receive worldwide exclusive rights to this product, made with patented Micelle technology. Solumer Drug Delivery Technology (Oral Platform) We have acquired the worldwide rights to Formulex’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. Our Product Development Initiatives In addition to our bio-cannabis nutraceutical product pipeline, we have the opportunity develop a pharmaceutical pipeline in the future, financing permitting. PRODUCT DELIVERY TECHNOLOGY INDICATION GLOBAL MARKET SIZE (1) PGS-N001 Solmic Solubilisate / Oral or RTIC/Solumer Tablet Cancer supportive care (CINV) (chemo-induced nausea and vomiting) >$1B PGS-N002 Solmic Solubilisate / Oral Restless leg syndrome >$2B PGS-N003 Solmic Solubilisate / Oral or RTIC/Solumer Tablet Pain and inflammation (for opioid withdrawal) >$15B PGS-N004 Solmic Solubilisate / Oral Cancer supportive care (mucositis relief) >$12B PGS-N005 BiPhasix/Thrudermic / Topical Female sexual dysfunction (HSDD) (hypoactive sexual desire disorder) >$6B PGS-N006 BiPhasix/Thrudermic / Topical Pain and inflammation (joints/opioid withdrawal) >$20B PGS-N007 BiPhasix/Thrudermic / Topical Dermatology (skin irritation/redness/ itching) >$13B PGS-N008 BiPhasix/Thrudermic / Topical Eye disease (glaucoma, intra-ocular pressure) >$3B PGS-N009 Thrudermic / Topical Pain and inflammation (opioid withdrawal) >$15B PGS-N010 Solmic Solubilisate / Oral or RTIC/Solumer Migraine (nausea, vomiting, dizziness, sensitivity to light, sounds and smells) >$10B ___________ (1) Derived from IMS data 26 Table of Contents We have no plans to initiate any clinical trials of our pharmaceutical pipeline at this time. Results of Operations The following summary of our results of operations should be read in conjunction with our financial statements for the period ended April 30, 2019, which are included herein. Our operating results for the three months ended April 30, 2019 and 2018 are summarized as follows: Three Months Ended April 30, 2019 2018 Revenue $ Nil $ Nil Amortization $ (241,099 ) $ (165,613 ) Due diligence costs $ Nil $ (122,672 ) Foreign exchange gain (loss) $ 16,825 $ (49,249 ) General and administrative $ (506,786 ) $ (955,954 ) Lease expense $ (92,488 ) $ Nil Lease liability expense $ (47,433 ) $ Nil Licensing fees $ (39,963 ) $ Nil Professional fees $ (181,649 ) $ (226,169 ) Research and development $ (59,487 ) $ (108,801 ) Salaries and wages $ (505,056 ) $ (240,514 ) Sales and marketing $ Nil $ (8,929 ) Write-off of equipment $ (3,901 ) $ Nil Total Other Income (Expenses) $ (213,086 ) $ (226,975 ) Net Income (Loss) $ (1,874,123 ) $ (2,104,876 ) For the three months ended April 30, 2019, our net loss decreased by $230,753. Net loss decreased primarily from decreases in due diligence costs, general and administrative, professional fees and research and development, offset by increases amortization, licensing fees, rent and salaries and wages. During the three months ended April 30, 2018, we completed the acquisitions of the Thrudermic Transdermal Nanotechnology and Pivot Naturals, LLC (formerly ERS Holdings, LLC) and its RTIC patents, which increased due diligence costs, consulting fees within general and administrative costs, professional fees and research and development. Research and development work performed during the three months ended April 30, 2018 included development of CBD topical and oral formulations, including permeability studies. During the three months ended April 30, 2019, we conducted animal dermal studies using CBD formulations developed. Increases in expenses during the three months ended April 30, 2019 were due to the following. For the 2019 quarter, we paid licensing fees to Formulex pursuant to a licensing agreement on the Solumer technology entered into in August 2018. We also made lease payments on our facilities in Quebec, Canada and California, USA, both of which were entered into in July 2018. Salaries and wages increased by $264,542 for the three months ended April 30, 2019. For the three months ended April 30, 2018, salaries paid on employment contracts entered into pursuant to the acquisitions of Thrudermic and RTIC patents began in March 2018 and were not paid for the full interim period. Salaries and wages were higher for the three months ended April 30, 2019 due to the following: 1) We paid salaries to two (2) additional administrative staff in Pivot Naturals, who were hired in June 2018, and 2) Pursuant to the termination of three (3) employees in Pivot Naturals, California wage penalties of approximately $56,100 were incurred. 27 Table of Contents Revenue We have not earned any revenues since our inception. We anticipate earning revenues from sales of micellized CBD Solutions beginning the second or third quarter of fiscal 2020. Liquidity and Financial Condition Working Capital At At April 30, January 31, 2019 2019 Current Assets $ 193,847 $ 241,874 Current Liabilities $ 5,316,836 $ 5,086,227 Working Capital (Deficit) $ (5,122,989 ) $ (4,844,353 ) Our total current assets as of April 30, 2019 were $193,847 as compared to $241,874 as of January 31, 2019. We received gross proceeds of $1,250,000 from issuance of units, consisting of a common stock and a share purchase warrant, and $300,000 from a promissory note. These proceeds were used to repay $750,000 of our outstanding convertible debentures, as well as extend the remaining maturity of the convertible debentures to June 2, 2019 for an extension fee of $250,000. The remainder of the proceeds, plus cash on hand from January 31, 2019, were used to fund key working capital requirements, resulting in an overall decrease in cash. Current liabilities increased from January 31, 2019 due primarily to the issuance of a promissory note totaling $300,000, recording of a current lease liability of $249,082 pursuant to the adoption of a new accounting standard, ASC 872 Leases, and continuing accruals from services provided by our service providers during the quarter. This increase was offset by the repayment of $750,000 of our convertible debentures. Cash Flows Three Months Ended April 30, 2019 2018 Net Cash Used In Operating Activities $ (567,811 ) $ (2,419,215 ) Net Cash Used In Investing Activities $ Nil $ (426,159 ) Net Cash Provided By Financing Activities $ 526,000 $ 4,676,745 Effects of Exchange Rate Changes on Cash $ 12,425 $ 13,113 Increase (Decrease) in Cash During the Period $ (29,386 ) $ 1,844,484 Operating Activities During the three months ended April 30, 2019, our cash used by operating activities decreased by $1,851,404 when compared to cash used in operating activities during the three months ended April 30, 2019. During the prior period, 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 salaries and wages. Also, during prior period, we acquired Pivot Naturals and the Thrudermic Transdermal Nanotechnology, which resulted in increase in other operating activities, such as due diligence, general and administrative, professional services. 28 Table of Contents Investing Activities During the three months ended April 30, 2018, we acquired Pivot Naturals through the issuance of 5,000,000 shares of our common stock and a payment of $428,438 (US$333,333). We did not have any investing activities during the three months ended April 30, 2019. Financing Activities During the three months ended April 30, 2019, our cash provided by financing activities decreased by $4,150,745. During the three months ended April 30, 2019, we received net proceeds of $1,250,000 from issuance of units, consisting of common stock and share purchase warrant, and $276,000 from a promissory note. We also repaid $750,000 of our convertible debentures and paid $250,000 for extension of the maturity of the convertible debentures. During the three months ended April 30, 2018, we received net proceeds of $4,939,975 from convertible debentures and $502,464 from promissory note. We repaid loan payable and promissory notes totaling $15,925 and $749,769, respectively. We have estimated our expenses and working capital requirements for the next 12 months to be as follows: Estimated Expenses Product manufacture $ 4,990,000 U.S. facility capital expenditures 2,000,000 Patent maintenance 455,000 Regulatory 250,000 Sales and marketing 400,000 General and administrative 4,155,000 Total: $ 12,250,000 In May 2019, we closed on non-brokered private placements totaling $15 million, a portion of which were used to settle $2.5 million of our convertible debentures and outstanding obligations. The remainder of the proceeds will fund our estimated expenses and working capital requirements for the next 12 months. Although we are anticipating commercialization to commence on some of our product initiatives over the next 12 months, anticipated revenues may not be initially sufficient to finance our business plan. In addition, if our estimated expenses and working capital requirements for the next 12 months are higher than estimated, additional funds will also be required to fund our business plans. If required, 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. In the absence of such financing, we will not be able to carry out our planned development activities. 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 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 may require additional financing in order to enable us to proceed with our plan of operations, as discussed above, 29 Table of Contents We anticipate revenues on some of our product initiatives to commence over the next 12 months, beginning with sales of micellized CBD Solutions in the European Union, where regulations permit. Should anticipated revenues be less than estimated, we will need 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. Except as disclosed above regarding the closing of non-brokered private placements totaling $15 million, 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 condensed 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. 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 and assumptions used to determine the fair values of stock-based compensation, warrants and warrants issued with shares units. Estimates and assumptions have also been made on the recoverable amount of intangible assets, fair value of debentures for the purpose of evaluating modification versus extinguishments, fair value of convertible debentures and deferred income tax asset. 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 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. 30 Table of Contents Foreign Currency Translation The functional currency of the parent entity, Pivot Pharmaceuticals Inc., and the wholly-owned subsidiaries, Pivot Green Stream Health Solutions Inc. and Thrudermic, LLC, is the Canadian dollar. The functional currency of the wholly-owned subsidiary, Pivot Naturals, LLC, is the US dollar. Monetary assets and liabilities denominated in currencies other than the functional currency are translated into the functional currency at the rates of exchange in place at the balance sheet date. Transactions in currencies other than the functional currency during the year are converted into the functional currency at the applicable rates of exchange prevailing when the transactions occurred. Transaction gains and losses are recognized in the consolidated statement of operations and comprehensive loss. Assets and liabilities of the companies are translated from their respective functional currencies to the reporting currency at the exchange rates at the balance sheet dates, equity accounts are translated at historical exchange rates and revenues and expenses are translated at the average exchange rates in effect during the reporting period. The resulting foreign currency translation adjustment are recorded in other comprehensive loss. 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 financial instruments consist principally of cash, accounts payable and accrued liabilities, due to related parties, convertible debentures, promissory note and acquisition obligation. Pursuant to ASC 820, the fair value of our cash is determined based on “Level 1” inputs, which consist of quoted prices in active markets for identical assets. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations. Equipment Equipment are recorded at cost less accumulated depreciation and accumulated impairment losses. Depreciation is recorded using the straight-line method to depreciate the cost of equipment over its estimated useful life of six years. 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. 31 Table of Contents Intangible Assets Intangible assets consists of costs incurred to acquire license, patents and unpatented technology. 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 intangible assets over their estimated useful lives: License 5 years Patents 10 years Unpatented technology 10 years Impairment of Intangible Assets When facts and circumstances indicate that the carrying value of definite-lived intangible assets may not be recoverable, management assesses the recoverability of the carrying value by preparing estimates of sales and the resulting profit and cash flows expected to result from the use of the asset or asset group and its eventual disposition. If the sum of the expected future cash flows (undiscounted and without interest charges) is less than the carrying amount, we recognize an impairment loss. The impairment loss recognized is the amount by which the carrying amount of the asset or asset group exceeds the fair value. We use a variety of valuation methodologies to determine the fair value of these assets, including discounted cash flow models. Stock-Based Compensation The Company records stock-based compensation in accordance with ASC 718, Compensation – Stock-Based Compensation to determine the fair value of share options and account for stock-based compensation expenses using an estimated forfeiture rate at the time of grant and revising the rate, if necessary, in subsequent periods if actual forfeitures differ from initial estimates. Stock-based compensation expenses are recorded net of estimated forfeitures such that expenses are recorded only for those share-based awards that are expected to vest. 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. 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 April 30, 2019 and January 31, 2019, 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 three months ended April 30, 2019 and 2018, there were no charges for interest or penalties. 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. 32 Table of Contents 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.