UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the quarterly period ended October 31, 2017

 

or

 

o TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from ____________ to ____________

 

Commission File Number 333-161157

 

PIVOT PHARMACEUTICALS INC.

(Exact name of registrant as specified in its charter)

 

British Columbia		N/A
(State or other jurisdiction of incorporation or organization)		(IRS Employer Identification No.)
1275 West 6th Avenue, Vancouver, British Columbia, Canada		V6H 1A6
(Address of principal executive offices)		(Zip Code)

 

(604) 805-7783

(Registrant’s telephone number, including area code)

 

N/A

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x YES    o NO

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). x YES    o NO

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer	o		Accelerated filer	o
Non-accelerated filer	o	(Do not check if a smaller reporting company)	Smaller reporting company	x

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) o YES    x NO

 

APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS

 

Check whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Exchange Act after the distribution of securities under a plan confirmed by a court. x YES    o NO

 

APPLICABLE ONLY TO CORPORATE ISSUERS

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

82,223,323 common shares issued and outstanding as of December 15, 2017.

 

 

TABLE OF CONTENTS

 

PART I – FINANCIAL INFORMATION.
Item 1.	Financial Statements.		3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations.		17
Item 3.	Quantitative and Qualitative Disclosure About Market Risk.		27
Item 4.	Controls and Procedures.		27
PART II – OTHER INFORMATION.
Item 1.	Legal Proceedings.		28
Item 1A.	Risk Factors.		28
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds.		28
Item 3.	Defaults Upon Senior Securities.		28
Item 4.	Mine Safety Disclosures.		28
Item 5.	Other Information.		28
Item 6.	Exhibits.		29
SIGNATURES.			31

 

2

 

PART I – FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our unaudited interim condensed consolidated financial statements for the period ended October 31, 2017 form part of this quarterly report. All currency references in this report are to U.S. dollars unless otherwise noted. This financial information, in the opinion of management, includes all adjustments consisting of normal recurring entries necessary for the fair presentation of such data. The results of operations for the three and nine month periods ended October 31, 2017 are not necessarily indicative of results to be expected for any subsequent period.

 

3

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PIVOT PHARMACEUTICALS INC.

 

Condensed Consolidated Financial Statements

 

(Expressed in U.S. dollars)

 

Period ended October 31, 2017 (unaudited) and January 31, 2017

 

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PIVOT PHARMACEUTICALS INC.

Condensed Consolidated Balance Sheets

(Expressed in U.S. dollars)

 

		October 31, 2017 $				January 31, 2017 $
		(unaudited)
Assets
Current assets
Cash			250,386				112,421
Prepaid and other current assets			45,526				17,337
Total current assets			295,912				129,758
Security deposit			–				2,900
Intangible asset (Notes 4(a) and 5)			239,247				–
Total assets			535,159				132,658
Liabilities and Stockholders’ Equity (Deficit)
Current liabilities
Accounts payable and accrued liabilities			145,481				996,853
Due to related parties (Note 13)			4,544				22,574
Convertible debenture, net of discount (Note 6)			–				275,011
Derivative liability (Note 7)			–				312,541
Total current liabilities			150,025				1,606,979
Promissory note (Note 8)			202,197				–
Total liabilities			352,222				1,606,979
Stockholders’ Equity (Deficit)
Common stock: Unlimited shares authorized, without par value, 79,600,925 and 75,647,114 shares issued and outstanding, respectively (Note 9)			7,896,165				7,327,588
Subscriptions payable (Note 9)			327,298				–
Additional paid-in capital			11,766,274				11,211,031
Accumulated other comprehensive income			585,533				584,813
Accumulated deficit			(20,392,333	)			(20,597,753	)
Total stockholders’ equity (deficit)			182,937				(1,474,321	)
Total liabilities and stockholders’ equity (deficit)			535,159				132,658

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

5

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PIVOT PHARMACEUTICALS INC.

Condensed Consolidated Statements of Operations and Comprehensive Income

(Expressed in U.S. dollars)

 

		Three Months Ended October 31, 2017 $				Three Months Ended October 31, 2016 $				Nine Months Ended October 31, 2017 $				Nine Months Ended October 31, 2016 $
		(unaudited)				(unaudited)				(unaudited)				(unaudited)
Revenue			–				–				–				–
Expenses
Amortization of intangible asset (Note 5)			8,309				–				8,309				–
Foreign exchange (gain) loss			38,762				60,658				101,324				138,017
General and administrative			50,480				71,301				179,410				1,045,722
Management fees			31,941				548,407				301,714				3,917,354
Professional fees			55,166				9,938				128,174				100,421
Total expenses			184,658				690,304				718,931				5,201,514
Loss from operations			(184,658	)			(690,304	)			(718,931	)			(5,201,514	)
Other income (expense)
Amortization of discount on convertible debenture			–				(48,672	)			(105,392	)			(48,672	)
Loss (gain) on change in fair value of derivative liabilities			33,260				(212,354	)			204,711				(212,354	)
Gain on disposal of asset (Note 3)			609,311				–				609,311				–
Gain on settlement of debts			80,144				–				240,144				–
Interest expense			(7,331	)			(3,612	)			(24,481	)			(3,612	)
Total other income (expense)			715,384				(264,638	)			924,293				(264,638	)
Net income (loss)			530,726				(954,942	)			205,362				(5,466,152	)
Other comprehensive income (loss)
Foreign currency translation adjustment			(63,201	)			(40,569	)			(728	)			109,597
Net comprehensive income (loss)			428,224				(995,511	)			204,634				(5,356,555	)
Net income (loss) per share, basic			0.01				(0.01	)			0.00				(0.07	)
Net income (loss) per share, diluted			0.01				(0.01	)			0.00				(0.07	)
Weighted average shares outstanding – basic			76,761,576				75,613,498				76,055,298				75,212,555
Weighted average shares outstanding – diluted			81,596,692				75,613,498				78,877,344				75,212,555

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

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PIVOT PHARMACEUTICALS INC.

Condensed Consolidated Statements of Cash Flows

(Expressed in U.S. dollars)

 

		Nine Months Ended October 31, 2017 $				Nine Months Ended October 31, 2016 $
		(unaudited)				(unaudited)
Operating activities
Net income (loss)			205,362				(5,466,152	)
Adjustments to reconcile net loss to net cash used in operating activities:
Amortization			8,309				–
Amortization of discount on convertible debenture			105,392				48,672
Fair value of stock options vested			1,057				4,300,354
(Gain) loss on change in fair value of derivative liabilities			(204,711	)			212,354
Gain on disposal of assets			(609,311	)			–
Gain on settlement of debts			(240,144	)			–
Stock issued for services			24,531				256,382
Changes in operating assets and liabilities:
Prepaids and other current assets			35,589				5,938
Due to related parties			4,510				16,500
Accounts payable and accrued liabilities			457,439				366,124
Other liabilities			12,266				–
Net cash used in operating activities			(199,711	)			(259,828	)
Financing activities
Proceeds from convertible debenture			–				381,350
Proceeds from debenture			36,500				–
Proceeds from issuance of common stock			31,799				–
Proceeds from issuance of common stock subscriptions			264,326				–
Net cash provided by financing activities			332,625				381,350
Effects of exchange rate changes on cash			5,051				13,414
Increase in cash			137,965				134,936
Cash – beginning of period			112,421				71,639
Cash – end of period			250,386				206,575

 

Supplemental cash flow disclosures (Note 12)

 

(The accompanying notes are an integral part of these condensed consolidated financial statements)

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

1. Nature of Operations and Continuance of Business

 

Pivot Pharmaceuticals Inc. (the “Company”) was incorporated in British Columbia under the Business Corporations Act on June 10, 2002. On April 7, 2015, the Company changed its name from Neurokine Pharmaceuticals Inc. to Pivot Pharmaceuticals Inc. The Company is in the business of developing and commercializing therapeutic pharmaceutical products, focused on the strategy of identifying new therapeutic treatments to address unmet medical needs in women’s health.

 

These consolidated financial statements have been prepared on the going concern basis, which assumes that the Company will be able to realize its assets and discharge its liabilities in the normal course of business. As of October 31, 2017, the Company has not earned any revenue, has a working capital of $145,887 and an accumulated deficit of $20,392,333. The continued operations of the Company are dependent on its ability to generate future cash flows or obtain additional financing. These factors raise substantial doubt about the Company’s ability to continue as a going concern. These consolidated financial statements do not include any adjustments to the recorded assets or liabilities that might be necessary should the Company be unable to continue as a going concern.

 

2. Significant Accounting Policies

 

(a) Basis of Presentation

 

The consolidated financial statements and the related notes of the Company are prepared in accordance with generally accepted accounting principles in the United States and are expressed in U.S. dollars. The Company’s fiscal year-end is January 31.

 

(b) Use of Estimates

 

The preparation of these consolidated financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. The Company regularly evaluates estimates and assumptions related to the useful life and recoverability of long-lived assets, assumptions used to determine the fair values of stock-based compensation and derivative liabilities and deferred income tax asset valuation allowances. The Company bases its estimates and assumptions on current facts, historical experience and various other factors that it believes to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities and the accrual of costs and expenses that are not readily apparent from other sources. The actual results experienced by the Company may differ materially and adversely from the Company’s estimates. To the extent there are material differences between the estimates and the actual results, future results of operations will be affected.

 

(c) Interim Financial Statements

 

These interim unaudited condensed consolidated financial statements have been prepared on the same basis as the annual consolidated financial statements and in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company’s condensed consolidated financial position, results of operations and cash flows for the periods shown. The condensed consolidated results of operations for such periods are not necessarily indicative of the results expected for a full year or for any future period. Certain disclosures and financial information have been condensed in accordance with generally accepted accounting principles in the United States.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

2. Significant Accounting Policies (continued)

 

(d) Basis of Consolidation

 

The consolidated financial statements incorporate the financial statements of the Company and entities controlled by the Company. Control is achieved where the Company has the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities. The consolidating entities include:

 

		% of ownership				Jurisdiction
Pivot Pharmaceuticals Inc.			Parent			Canada
Pivot Green Stream Health Solutions Inc.			100	%		Canada

 

(e) Loss Per Share

 

The Company computes net loss per share in accordance with ASC 260, Earnings Per Share. ASC 260 requires presentation of both basic and diluted earnings per share (“EPS”) on the face of the consolidated statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method for all exercisable options and warrants and the if-converted method for all outstanding convertible debentures. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti dilutive. As at October 31, 2017, the Company had 2,822,046 (January 31, 2017 – 9,692,748) potentially dilutive shares.

 

(f) Financial Instruments and Fair Value Measures

 

ASC 820, Fair Value Measurements, requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 establishes a fair value hierarchy based on the level of independent, objective evidence surrounding the inputs used to measure fair value. A financial instrument’s categorization within the fair value hierarchy is based upon the lowest level of input that is significant to the fair value measurement. ASC 820 prioritizes the inputs into three levels that may be used to measure fair value:

 

Level 1: Level 1 applies to assets or liabilities for which there are quoted prices in active markets for identical assets or liabilities.

 

Level 2: Level 2 applies to assets or liabilities for which there are inputs other than quoted prices that are observable for the asset or liability such as quoted prices for similar assets or liabilities in active markets; quoted prices for identical assets or liabilities in markets with insufficient volume or infrequent transactions (less active markets); or model-derived valuations in which significant inputs are observable or can be derived principally from, or corroborated by, observable market data.

 

Level 3: Level 3 applies to assets or liabilities for which there are unobservable inputs to the valuation methodology that are significant to the measurement of the fair value of the assets or liabilities.

 

The Company’s financial instruments consist principally of cash, amounts receivable, accounts payable and accrued liabilities, due to related parties and 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. The recorded values of all other financial instruments approximate their current fair values because of their nature and respective maturity dates or durations.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

2. Significant Accounting Policies (continued)

 

(g) Recent Accounting Pronouncements

 

The Company has implemented all new accounting pronouncements that are in effect and that may impact its consolidated financial statements and does not believe that there are any other new accounting pronouncements that have been issued that might have a material impact on its consolidated financial position or results of operations.

 

3. 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(a)). 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.

 

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.

 

4. Asset Acquisitions

 

(a) BiPhasix License

 

On September 12, 2017, the Company entered into a licensing agreement with Altum Pharmaceuticals Inc. (“Altum”) 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 (Notes 5 and 9(b));
	2)	Issuance of 2,500,000 shares of common stock of Pivot upon Health Canada Natural Product Number approval;
	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.

 

(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.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

5. Intangible Asset

 

Cost		BiPhasix License $
Balance, January 31, 2017			–
License agreement (Note 4(a))			247,556
Balance, October 31, 2017			247,556

Accumulated Amortization
Balance, January 31, 2017			–
Amortization			8,309
Balance, October 31, 2017			8,309
Net book value, October 31, 2017			239,247
Net book value, January 31, 2017			–

 

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).

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

6. Convertible Debenture (continued)

 

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(c)) 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 condensed consolidated statements of operations and comprehensive income. As of October 31, 2017, 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 October 31, 2017, 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).

 

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 October 31, 2017 and January 31, 2017 is as follows:

 

		October 31, 2017 $				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

 

		October 31, 2017 $				January 31, 2017 $
Principal (Note 8(a))			200,000				–
Accrued interest (Note 8(a))			2,197				–
			202,197				–

 

(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.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

8. Promissory Note (continued)

 

(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 October 31, 2017. As part of the promissory note, 100,000 shares of our common stock were issued (Note 9(d)).

 

9. Common Stock

 

	(a)	On September 11, 2017, 3,800,000 shares of common stock were acquired and cancelled pursuant to the share exchange agreement (Note 3).
	(b)	On September 12, 2017, 2,500,000 shares of common stock were issued pursuant to the Altum licensing agreement (Note 4(a)).
	(c)	On September 18, 2017, 4,623,825 shares of common stock were issued upon conversion of convertible debenture (Note 6).
	(d)	On October 26, 2017, 100,000 shares of common stock were issued pursuant to a promissory note issued (Note 8(b)).
	(e)	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. 330,000 shares of common stock were issued on October 30 and 1,900,000 shares of common stock were issuable as of October 31, 2017. As of October 31, 2017 200,000 shares of common stock were issuable related to share issue costs on this private placement. The 1,900,000 shares of common stock related to the private placement and the 200,000 shares of common stock related to share issue costs were issued on November 2, 2017.
	(f)	In October 2017, the Company received proceeds totaling $76,000 pursuant to private placements for the issuance of 380,000 units, consisting of one common stock and one half of one share purchase warrant. Each share purchase warrant entitles the holder to purchase a common share at $0.35 for 18 months. These units were issuable as of October 31, 2017. On November 30, 2017, 380,000 shares of common stock and 190,000 share purchase warrants were issued in full satisfaction of the stock subscription payable.
	(g)	On October 31, 2017, the Company settled $35,152 of accounts payable through the issuance of 92,384 shares of common stock (Note 13), which were issued on November 2, 2017.

 

10. 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:

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

10. Stock Options (continued)

 

Number of Options

Weighted Average Exercise Price (US$)

Weighted Average Remaining Contractual Life (years)

Aggregate Intrinsic Value (US$)

Outstanding, January 31, 2017

15,520,833

0.38

4.2

68,599

Granted

–

–

–

–

Forfeited

–

–

–

–

Outstanding, October 31, 2017

15,520,833

0.38

3.47

2,285,100

 

The fair value of stock-based compensation expense was estimated using the Black-Scholes option pricing model and the following assumptions:

 

		Expected Volatility				Risk-free Interest Rate				Expected Dividend Yield				Expected Life (in years)
29,000 options expiring on May 2, 2021			377	%			1.73	%			0	%			3.5

 

Additional information regarding stock options as of October 31, 2017, is as follows:

 

Options Outstanding				Options Exercisable				Exercise Price $				Expiry Date
	200,000				200,000				0.25			November 30, 2020
	4,000,000				4,000,000				0.10			December 14, 2020
	7,250,000				7,250,000				0.70			February 22, 2021
	29,000				28,000				0.34			May 2, 2021
	4,000,000				4,000,000				0.10			December 14, 2021
	41,833				41,833				0.05			January 23, 2022
	15,520,833				15,519,833

 

$60 of stock-based compensation have yet to be recognized and will be recognized in future periods.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

11. Share Purchase Warrant

 

The following table summarizes the continuity of share purchase warrant:

 

		Number of Warrants				Weighted Average Exercise Price $
Balance, January 31, 2017			434,622				0.10
Expired			(434,622	)			(0.10	)
Balance, October 31, 2017			–				–

 

As at October 31, 2017, there are no share purchase warrants outstanding. On November 30, 2017, 190,000 share purchase warrants, entitling the holder to purchase a common share at $0.35 for 18 months, were issued (Note 9(f)).

 

12. Supplemental Cash Flow Information

 

		Nine Months Ended October 31, 2017				Nine Months Ended October 31, 2016
Supplemental disclosures:
Interest paid			–				–
Income tax paid			–				–
Non-cash investing and financing activities:
Capital contribution through forgiveness of debt			531,310				–
Common stock issued for settlement of accounts payable			35,152				–
Common stock issued for settlement of convertible debenture			601,097				–
Common stock issued for prepaid assets			72,924				–
Common stock issued for intangible asset			262,500				–
Common stock subscriptions issued for services			21,207				–
Debt discounts on convertible debt			–				284,184
Promissory note issued for settlement of accrued salaries			200,000				–
Treasury stock returned and retired in disposition of assets			380,000				–

 

13. Related Party Transactions

 

As at October 31, 2017, the Company owed $4,544 (January 31, 2017 - $4,154) to a director of the Company, which is unsecured, non-interest bearing, and due on demand.

 

During the nine months ended October 31, 2017, $552,889 of accrued management fees to the Company’s Chief Financial Officer and Chief Business Officer were forgiven. In addition, $35,152 of accounts payable due to a company controlled by the Company’s Chief Financial Officer were settled for 92,384 shares of common stock.

 

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PIVOT PHARMACEUTICALS INC.

Notes to the Condensed Consolidated Financial Statements (Unaudited)

Period ended October 31, 2017

(Expressed in U.S. dollars)

 

14. Fair Value Measurements

 

The Company’s financial liabilities carried at fair value measured on a recurring basis as of October 31, 2017 and January 31, 2017, consisted of the following:

 

Total fair value at October 31, 2017

Quoted prices in active markets (Level 1)

Significant other observable inputs (Level 2)

Significant unobservable inputs (Level 3)

Derivative liability (1)

$

-

$

-

$

-

$

-

 

		Total fair value at January 31, 2017				Quoted prices in active markets (Level 1)				Significant other observable inputs (Level 2)				Significant unobservable inputs (Level 3)
Derivative liability (1)		$	312,541			$	-			$	312,541			$	-

____________

(1)	Derivative liability amounts are due to the embedded derivatives of convertible debenture issued by the Company and are calculated using the binomial option pricing model (Note 6).

 

The Company has no financial assets carried at fair value.

 

15. Subsequent Events

 

	(a)	On November 7, 2017, 50,000 shares of common stock were issued to a service provider for services rendered.
	(b)	On November 15, 2017, the Company entered into scientific advisory board agreements whereby 100,000 options to purchase shares of common stock with the following terms were granted:

 

	·	Exercise price of $0.39;
	·	25% vesting on each of the following dates: November 15, 2017, May 15, 2018, November 15, 2018 and May 15, 2019;
	·	Expiry on November 14, 2022.

 

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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 a development 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.

 

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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 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 will acquire 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 November 7, 2017, we signed a letter of intent to enter into a licensing agreement with Thrudermic LLC (“Thrudermic”) by January 18, 2018, whereby we will acquire worldwide rights for the development and commercialization of the Thrudermic Nano Technology (“TNT”) for all cannabinoids. Consideration will include:

 

	·	Royalties on annual gross sales upon commercialization of a product;
	·	For natural health products, milestone payments payable upon approval of Health Canada NPN approval and after achievement of $5 million in net 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

 

Our principal executive office is located at 1275 West 6th Avenue, Vancouver, B.C. Canada V6H 1A6. Our telephone number is (604) 805-7783.

 

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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. We have in-licensed a patented topical transdermal drug delivery technology platform, BiPhasix, and an oral drug delivery technology, Solmic Micelle, for delivery of cannabinoids.

 

Our fully-owned subsidiary, Pivot Green Stream Health Solutions Inc. (“PGS”), focuses 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.

 

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;

 

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	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.

 

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.

 

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Our Product Candidates

 

PGS-N005 (Female Sexual Dysfunction CBD Topical Cream)

 

Using our BiPhasix platform technology, we will develop and commercialize a topical cream containing CBDs (“PGS-N005”) for perimenopausal, menopausal and post-menopausal women who have noticed a decline in sexual desire and response, known as hypoactive sexual desire disorder. Up to 63% of sexually active women in the U.S. might be affected by female sexual dysfunction (“FSD”). While erectile dysfunction in men has been extensively researched, very little has been completed on FSD which can involve reduced sex drive, difficulty becoming aroused, vaginal dryness, lack of orgasm and decreased sexual satisfaction. The FSD market in the U.S. is estimated to exceed $4 billion with over 50 million potential sufferers.¹

 

PGS-N007 (Psoriasis BiPhasix CBD Topical Cream)

 

Using our BiPhasix platform technology, we will develop and commercialize a topical cream containing CBDs (“PGS-N007”) for psoriasis. Preclinical research has shown that CBD has potent anti-inflammatory properties suggesting that cannabinoids may be helpful for inflammation-related skin conditions like psoriasis and eczema. CBD, THC and other cannabinoids are anti-psoriasis agents. Under a psoriasis condition, skin cells are replaced every three to five days rather than the normal 30 days. This excessive and rapid growth of the epidermal layer of the skin generates red, itchy and scaly patches, which may be localized or completely cover the body.²

 

Psoriasis is generally considered an autoimmune and genetic disease triggered by environmental factors. Cold, medications, infections, traumas, body and psychological stress may play a role in starting the disease. Psoriasis is not contagious and there is no current cure for it. However, various treatments can control the symptoms. Psoriasis is associated with an increased risk of psoriatic arthritis, lymphomas, cardiovascular disease, Crohn’s disease and depression. Psoriatic arthritis affects up to 30% of individuals with psoriasis.

 

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, 2017, which are included herein.

 

Our operating results for the three and nine months ended October 31, 2017 and 2016 are summarized as follows:

 

		Three Months Ended								Nine Months Ended
		October 31,								October 31,
		2017				2016				2017				2016
Revenue		$	Nil			$	Nil			$	Nil			$	Nil
Amortization		$	(8,309	)		$	Nil			$	(8,309	)		$	Nil
Foreign exchange (gain) loss		$	(38,762	)		$	(60,658	)		$	(101,324	)		$	(138,017	)
General and administrative		$	(50,480	)		$	(71,301	)		$	(179,410	)		$	(1,045,722	)
Management fees		$	(31,941	)		$	(548,407	)		$	(301,714	)		$	(3,917,354	)
Professional fees		$	(55,166	)		$	(9,938	)		$	(128,174	)		$	(100,421	)
Total Other Income (Expenses)		$	715,384			$	(264,638	)		$	924,293			$	(264,638	)
Net Income (Loss)		$	530,726			$	(954,942	)		$	205,362			$	(5,466,152	)

 

For the three months ended October 31, 2017, our net income increased by $1,485,668 as compared to the three months ended October 31, 2016. During the three months ended October 31, 2016, $432,658 of share-based compensation was recognized related to vesting of stock options granted to management, directors, consultants and advisors compared to $1,605 for the three months ended October 31, 2017. During the three months ended October 31, 2017, we recognized $80,144 of gain on settlements of debts related to 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. In addition, we disposed of IndUS during the three months ended October 31, 2017, which resulted in a gain on disposal of asset of $609,311.

______________

1	https://www.researchgate.net/publication/7977139_Female_sexual_dysfunction
2	https://www.royalqueenseeds.com/blog-cbd-can-relieve-psoriasis-by-balancing-immune-systems-response-n423

 

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For the nine months ended October 31, 2017, our net income increased by $5,671,514 as compared to the nine months ended October 31, 2016. During the nine months ended October 31, 2016, $4,467,039 of share-based compensation was recognized related to vesting of stock options granted to management, directors, consultants and advisors compared to $2,355 for the nine months ended October 31, 2017. During the nine months ended October 31, 2017, we recognized $240,144 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. In addition, we disposed of IndUS during the nine months ended October 31, 2017, which resulted in a gain on disposal of asset of $609,311.

 

Revenue

 

We have not earned any revenues since our inception and we do not anticipate earning revenues in the upcoming quarter.

 

Liquidity and Financial Condition

 

Working Capital

 

		At				At
		October 31,				January 31,
		2017				2017
Current Assets		$	295,912			$	129,758
Current Liabilities		$	150,025			$	1,606,979
Working Capital (Deficit)		$	145,887			$	(1,477,221	)

 

Our total current assets as of October 31, 2017 were $295,912 as compared to total current assets of $129,758 as of January 31, 2017. The increase was primarily due to private placements of $223,000 made during the period. Our total current liabilities as of October 31, 2017 were $150,025 as compared to total current liabilities of $1,606,979 as of January 31, 2017. The decrease in current liabilities was primarily attributed to forgiveness of accrued management and consulting fees, accounts payable settled through issuance of shares of our common stock and conversion of convertible debts into shares of our common stock during the nine months ended October 31, 2017.

 

Cash Flows

 

		Nine Months Ended
		October 31,
		2017				2016
Net Cash Used In Operating Activities		$	(199,711	)		$	(259,828	)
Net Cash Provided By Financing Activities		$	332,625			$	381,350
Effects of Exchange Rate Changes on Cash		$	5,051			$	13,414
Increase (Decrease) in Cash During the Period		$	137,965			$	134,936

 

Operating Activities

 

During the nine months ended October 31, 2017, our cash used by operating activities decreased by $60,117 when compared to cash used in operating activities during the nine months ended October 31, 2016. The decrease in cash used for operating activities was a result of our company’s efforts at minimizing cash outlays.

 

Investing Activities

 

During the nine months ended October 31, 2017, we acquired a license for worldwide rights to the BiPhasix Technology for the delivery and commercialization of cannabinoids, CBD, and THC based products by issuing 2,500,000 shares of our common stock valued at $250,000. We did not have any investing activities during the nine months ended October 31, 2016.

 

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Financing Activities

 

During the nine months ended October 31, 2017, we received $332,625 (2016 - $381,350) in cash from financing activities.

 

In order for our company to expand its operations, we will require additional funds. The required additional 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 have negative cash flows from operating activities and may continue to be unprofitable. We will need to raise additional funds in the immediate future in order to proceed with our expanded operations. We have negative cash flows from operating activities. If we cannot generate sufficient revenues to operate with positive cash flows from operating activities or are unable to raise additional funds, we may suspend or cease our operations.

 

In order for the Company to expand its operations and pursue its business plans related to development of its product candidates, we will require additional funds. Specifically, we estimate our operating expenses and working capital requirements for the next 12 months for our expanded operations to be as follows:

 

Available Funds / Use of Proceeds (Description)		Estimated Expenses (C$)				Estimated Expenses (C$)				Estimated Expenses (C$)
Research and Development Costs		Months 1 to 12				Months 12 to 18				Months 18 to 24
Studies of active pharmaceutical ingredient			17,500				-				-
Stage 1 – BiPhasix cream development without active pharmaceutical ingredient			35,750				-				-
Stage 2 – BiPhasix cream development with active pharmaceutical ingredient			-				145,000				-
Scientific data			-				66,500				-
Supply of active pharmaceutical ingredient			-				40,000				40,000
Regulatory			-				-				115,000
Market commercialization			-				-				215,000
Sales and Marketing Costs
Entertainment and promotion			-				5,000				15,000
Investor relations			-				30,000				30,000
Travel			-				30,000				30,000
Operating Expenses
Insurance			10,000				15,000				15,000
Professional fees			60,000				30,000				30,000
Public company expenses			65,000				32,500				32,500
Salaries and benefits 1			-				400,000				400,000
Telephone and internet			6,000				3,000				3,000
Vehicles and transportation			6,000				3,000				3,000
Total:			200,250				800,000				928,500

_______________

1	The Company’s management team has agreed to defer salaries and benefits and prioritize the allocation of financing to the development budget until sufficient financing is obtained.

 

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Based on our planned expenditures, we will require approximately C$200,250 to proceed with the Stage 1 of our business plan over the next 12 months, which is the development of BiPhasix cream without active pharmaceutical ingredients.

 

The objectives that we expect to accomplish are as follows:

 

	·	Development of topical creams using our BiPhasix technology platform to treat women experiencing HSDD (PGS-N005) and to treat inflammation-related skin conditions, such as psoriasis and eczema (PGS-N007).
	·	Obtain classification of and commercialize such topical creams as natural health products.

 

The following are significant milestones we expect to accomplish:

 

	1)	Stage 1 – Development of BiPhasix cream without active pharmaceutical ingredient: Successful completion of the base cream preparation will involve the cream, loaded with water, meeting manufacturing specifications. Stage 1 milestone will be met if, upon examination of the cream, spherical balls form under a microscope and the product has a semi-solid cream viscosity.
	2)	Stage 2 – Development of BiPhasix cream with active pharmaceutical ingredient: Proceeding to the Stage 2 milestone, the semi-solid cream will be mixed with an active pharmaceutical ingredient with health benefits to humans. The Company will establish, under a microscope, that the active ingredients form spherical balls containing active ingredients suspended in the semi-solid cream. The product will then be stress-tested under light, heat and cold conditions to ensure stability. After a six month accelerated shelf condition, the product will be considered ready to be released for consumer use.
	3)	Regulatory approval: In order to support health-related claims, the Company has to meet certain criteria established by Health Canada to obtain a NHP number or designation. Health Canada regulations require steps to be complied with by the Company in order for the topical creams to be sold as NHP approved products. The regulatory milestone will be considered accomplished upon the Company obtaining NHP numbers for its topical creams.

 

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 PGS-N005 and PGS-N007, funds permitting for PGS-N007, at a GMP-certified, high potency drug manufacturing facility; 2) development and manufacture of formulation of PGS-N005 and PGS-N007, funds permitting for PGS-N007, 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.

 

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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.

 

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.

 

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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.

 

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., is the Canadian dollar and the functional currency of our subsidiary 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.

 

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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.

 

Item 4. Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934 (the “Exchange Act”), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission’s rules and forms and that such information is accumulated and communicated to our management, including our chief executive officer (our principal executive officer) and our chief financial officer (principal financial officer and principal accounting officer), as appropriate to allow timely decisions regarding required disclosure.

 

We carried out an evaluation, under the supervision and with the participation of our management, including our chief executive officer (our principal executive officer) and our chief financial officer (principal financial officer and principal accounting officer), of the effectiveness of the design and operation of our disclosure controls and procedures as of quarter covered by this report. Based on the evaluation of these disclosure controls and procedures our chief executive officer (our principal executive officer) and our chief financial officer (principal financial officer and principal accounting officer) concluded that our disclosure controls and procedures were not effective.

 

Changes in Internal Controls

 

During the quarter covered by this report there were no changes in our internal control over financial reporting that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

  

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PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We know of no material, existing or pending legal proceedings against us, nor are we involved as a plaintiff in any material proceeding or pending litigation. There are no proceedings in which any of our directors, officers or affiliates, or any registered or beneficial shareholder, is an adverse party or has a material interest adverse to our company.

 

Item 1A. Risk Factors

 

As a “small reporting company”, we are not required to provide the information required by this Item.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

None.

 

Item 3. Defaults Upon Senior Securities

 

None.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

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Item 6. Exhibits

 

Exhibit Number		Description
(3)		Articles of Incorporation and Bylaws
3.1		Articles of Incorporation 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.2		“Company Act” Memorandum of 649186 B.C. Ltd. Certificate of Amendment (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.3		Certificate of Filing of 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.4		Certificate of Incorporation of 649186 B.C. Ltd. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.5		Certificate of Name Change of 649186 B.C. Ltd. to Xerxes Health Corp. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.6		Transition Application of Xerxes Health Corp. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.7		Certificate of Name Change of Xerxes Health Corp. to Neurokine Pharmaceuticals Inc. (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.8		Notice of Alteration to Authorized Share Structure (incorporated by reference from our Registration Statement on Form S-1 filed on August 7, 2009)
3.9		Notice of Alteration to Authorized Share Structure (incorporated by reference from our Current Report on Form 8-K filed on June 4, 2014)
3.10		Form 11 Notice of Alteration (incorporated by reference from our Current Report on Form 8-K filed on October 9, 2014)
3.11		Articles (incorporated by reference from our Current Report on Form 8-K filed on October 9, 2014)
3.12		Notice of Alteration changing name to Pivot Pharmaceuticals Inc. (incorporated by reference to our Current Report on Form 8-K filed on April 17, 2015)
3.13		Certificate of Name Change of Neurokine Pharmaceuticals Inc. to Pivot Pharmaceuticals Inc. (filed on June 17, 2015 with our Annual Report on Form 10K/A)

(10)		Material Contracts
10.1		Non-Exclusive License Agreement with Globe Laboratories Inc. dated June 17, 2008 (incorporated by reference to our Registration Statement on Form S-1/A filed on December 3, 2009)
10.2		Clinical Trial Services Agreement with Virtus Clinical Development (Pty) Limited dated March 1, 2009 (incorporated by reference to our Registration Statement on Form S-1/A filed on March 4, 2010)
10.3		Master Service Agreement with Northern Lipids Inc. dated October 2, 2007 (incorporated by reference to our Registration Statement on Form S-1/A filed on December 3, 2009)
10.4		Assignment of Invention (NK-001) dated January 30, 2008 (incorporated by reference to our Registration Statement on Form S-1/A filed on December 3, 2009)
10.5		Assignment of Invention (NK-002) dated April 18, 2008 (incorporated by reference to our Registration Statement on Form S-1/A filed on December 3, 2009)
10.6		Subscription Agreement with Ahmad Doroudian (incorporated by reference to our Form 8-K filed on August 12, 2010)
10.7		Debt Settlement Subscription Agreement dated September 26, 2013 with Ahmad Doroudian (incorporated by reference to our Quarterly Report on Form 10-Q filed on December 16, 2013)

10.8		Director Services Agreement dated February 25, 2015 with Barbara-Jean Bormann-Kennedy (incorporated by reference to our Current Report on Form 8-K filed on March 26, 2015)
10.9		Director Services Agreement dated February 25, 2015 with Dr. Patrick Frankham (incorporated by reference to our Current Report on Form 8-K filed on March 26, 2015)
10.10		Director Services Agreement dated February 26, 2015 with Dr. Wolfgang Renz (incorporated by reference to our Current Report on Form 8-K filed on March 26, 2015)
10.11		Consulting Services Agreement dated February 25, 2015 with Dr. Giora Davidai (incorporated by reference to our Current Report on Form 8-K filed on March 26, 2015)
10.12		Director Services Agreement dated November 19, 2015 with Dr. Patrick Frankham (incorporated by reference to our Quarterly Report on Form 10 Q filed on December 15, 2015)
10.13		Director Services Agreement dated November 19, 2015 with Dr. Wolfgang Renz (incorporated by reference to our Quarterly Report on Form 10 Q filed on December 15, 2015)
10.14		Consulting Services Agreement dated November 19, 2015 with Dr. Giora Davidai (incorporated by reference to our Quarterly Report on Form 10‑Q filed on December 15, 2015)

 

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10.15		Plan of Merger and Acquisition Agreement between our company and IndUS Pharmaceuticals, Inc., dated November 4, 2015 (incorporated by reference to our Current Report on Form 8‑K filed on November 23, 2015 and our Current Report on Form 8‑K/A filed on February 3, 2016)
10.16		Employment Agreement dated November 20, 2015 with Dr. Pravin Chaturvedi (incorporated by reference to our Quarterly Report on Form 10‑Q filed on December 15, 2015)
10.17		Employment Agreement dated February 1, 2016 with Dr. Ahmad Doroudian (filed on April 29, 2016 with our Annual Report on Form 10-K)
10.18		Employment Agreement dated February 1, 2016 with Moira Ong (filed on April 29, 2016 with our Annual Report on Form 10-K)
10.19		Consulting Services Agreement dated February 1, 2016 with Soho Capital Inc. (filed on April 29, 2016 with our Annual Report on Form 10-K)
10.20		Convertible debenture agreement dated September 29, 2016 with Avro Capital Partners Inc.
10.21		Exchange Agreement between our company, IndUS Pharmaceuticals, Inc. and Pravin Chaturvedi, dated September 11, 2017 (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2017)
10.22		Licensing Agreement between our company and Altum Pharmaceuticals Inc. dated September 12, 2017 (incorporated by reference to our Current Report on Form 8-K filed on September 12, 2017)
10.23		Debt Forgiveness Agreement dated July 31, 2017 between our company and Dr. Ahmad Doroudian (filed on September 15, 2017 with our Quarterly Report on Form 10-Q)
10.24		Debt Forgiveness Agreement dated July 31, 2017 between our company and Moira Ong (filed on September 15, 2017 with our Quarterly Report on Form 10-Q)
10.25		Debt Forgiveness Agreement dated July 31, 2017 between our company and Soho Capital Inc. (filed on September 15, 2017 with our Quarterly Report on Form 10-Q)
10.26*		Debt Settlement Agreement dated September 18, 2017 between our company and Avro Capital Partners, Inc.
10.27*		Collaboration and License Agreement dated September 23, 2017 between our company and SolMic GmbH
10.28*		Letter of Intent dated November 7, 2017 between our company and Thrudermic LLC

(31)		Rule 13a-14(d)/15d-14(d) Certifications
31.1*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of Principal Executive Officer
31.2*		Section 302 Certification under the Sarbanes-Oxley Act of 2002 of Principal Financial Officer
(32)		Section 1350 Certifications
32.1*		Section 906 Certification under the Sarbanes-Oxley Act of 2002 of Principal Executive Officer
32.2*		Section 906 Certification under the Sarbanes-Oxley Act of 2002 of Principal Financial Officer
99		Additional Exhibits
99.1		Audit Committee Charter (filed on June 17, 2015 with our Annual Report on Form 10K/A)
99.2		Stock Option Plan (filed on November 25, 2015 with our Definitive Proxy Statement on Schedule 14A)
101*		Interactive Data Files
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Extension Schema Document
101.CAL		XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF		XBRL Taxonomy Extension Definition Linkbase Document
101.LAB		XBRL Taxonomy Extension Label Linkbase Document
101.PRE		XBRL Taxonomy Extension Presentation Linkbase Document

___________

* Filed herewith

 

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SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

	PIVOT PHARMACEUTICALS INC.
	(Registrant)
Dated: December 15, 2017	/s/ Patrick Frankham
	Dr. Patrick Frankham
	Chief Executive Officer and Director
	(Principal Executive Officer)
Dated: December 15, 2017	/s/ Moira Ong
	Moira Ong
	Chief Financial Officer
	(Principal Financial Officer and Principal Accounting Officer)

 

 

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