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Bi-Coastal has consented to the assignment of the Co-Promotion Agreement for Aquoral.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">Pursuant to the Asset Purchase Agreement, the Company sold to Apricus all of its rights related to Granisol in all countries and territories outside of the United States. The Company has also agreed that it and its officers and directors will not compete in the field of anti-emetic products in certain areas outside of the United States.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> As consideration for entering into these three Agreements the Company received an initial payment of $325,000 from Apricus. The agreements also provide for the payment to the Company of a royalty that will be calculated based upon Apricus' United States generated net operating income related to Granisol. The Company has recognized revenues of $260,000 associated with the exclusive rights for Apricus to commercialize Granisol in six U.S. states. In addition, the Company has recognized a gain on sale of product rights totaling $64,900 associated with the Asset Purchase Agreement. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> The binding term sheet between the Company and Apricus contemplates, in addition to the transactions reflected in the three agreements described above, a non-binding expression of interest in the merger of the Company with Apricus. The non-binding portion of the term sheet contemplated that the Company would be acquired by Apricus in a merger in exchange for $4,000,000 to be paid in the common stock of Apricus, with $3,600,000 distributed to the shareholders of the Company immediately and $400,000 held back from shares that would be distributed to the Company's Chief Executive Officer and Chief Financial Officer for a period of six months as an indemnity for breaches by the Company of its representations and warranties. Additionally, it contemplated that Apricus would assume certain debt and liabilities of the Company up to $675,000. The side letter referred to above refines the timing with respect to the parties' agreement that Apricus would pay to the Company an additional fee as full consideration for the Co-Promotion Agreement and the Asset Purchase Agreement (in the form of restricted stock of Apricus having a value of $1,000,000) if the two companies did not merge by June 1, 2012, (or such other date as may be mutually agreed to by the Parties) unless, prior to that date, the Company filed for bankruptcy or the Granisol asset was materially impaired. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">On June 27, 2012, the Company entered into a Termination Agreement (the &#8220;Termination Agreement&#8221;) with Apricus Biosciences, Inc. 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The Company has agreed that if it proposes to sell any of the shares on a public market or quotation service, it will only be permitted to sell on any given trading day, such number of shares as does not exceed 5% of the average daily volume of the Apricus&#8217;s common stock traded in the previous five trading days. Due to the sales restrictions, the Company determined the fair value using quoted prices for similar assets in active markets that are directly observable and thus represent a Level 2 fair value measurement. The fair value of the investment in Apricus was $1,000,000 at the effective date of the termination and August 31, 2012. The Company has recognized a loss on sale of investment in its statements of operations totaling $18,517 for the three and nine month period ended November 30, 2012 related to common stock of Apricus sold during the period. The Company determined the fair value of the investment in Apricus to be $704,343 at November 30, 2012. The Company has continued to sell the common stock of Apricus subsequent to November 30, 2012 and does not expect to recover the entire original basis in the common stock. The Company concluded the decline in fair value is other than temporary and has recognized an impairment loss of $153,676 in its statements of operations for the three and nine month period ended November 30, 2012. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">PediatRx intends to utilize the proceeds from the sale of Apricus common stock to pay off certain notes payable and other liabilities and for continuing operations. The Company is investigating other business development and product opportunities and strategic alternatives.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> The Company is a development stage enterprise, as defined in Financial Accounting Standards Board (&#8220;FASB&#8221;) Accounting Standards Codification (&#8220;ASC&#8221;) Topic 915, <i>Development Stage Entities</i> . 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The Company had fully intended to pursue the merger with Apricus. Pursuant to the Termination Agreement, the Company will utilize the proceeds from sales of Apricus common stock to pay certain notes payable and other liabilities and is investigating business development and other strategic alternatives. Although the Company has historically raised capital from sales of equity and from the issuance of promissory notes, there is no assurance that it will be able to continue to do so. If the Company is unable to raise additional capital, secure additional lending in the near future or complete business development activities which leverage remaining Granisol opportunities, or to secure other product opportunities to leverage its infrastructure, management expects that the Company will need to curtail or cease operations. These financial statements do not include any adjustments related to the recoverability and classification of assets or the amounts and classification of liabilities that might be necessary should the Company be unable to continue as a going concern. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">The Company was in the process of transitioning to its new operating business and expects to incur operating losses for the next twelve months as it moves forward with its co-promotion efforts with Apricus for Granisol and explores other product and business development opportunities.</p> 325000 260000 64900 4000000 3600000 400000 675000 1000000 373134 1000000 1000000 1000000 704343 -1996239 -47087 -498667 704343 2 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>3.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;margin:inherit;"> <b>Net Loss Per Common Share</b> </p> </td> </tr> </table> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> The Company computes net income or loss per share in accordance with ASC 260, <i>Earnings per Share</i> ("ASC 260 "). 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For the nine month period ended November 30, 2011 there were 515,000 warrants and 1,152,000 options which have been excluded from the calculation because their effect would be anti-dilutive. </p> 515000 1152000 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>4.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;margin:inherit;"> <b>The Granisol Acquisition</b> </p> </td> </tr> </table> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> On July 23, 2010 (the &#8220;Closing Date&#8221;), the Granisol product line was acquired by the Company&#8217;s wholly owned subsidiary PediatRx Inc. for cash consideration totaling $1 million. All inventories and intangibles associated with the Granisol product line were included in the purchase. The related inventory was received in October 2010. The Company is amortizing the product rights and know-how over the estimated useful life of ten years on a straight line basis, beginning with August 2010. Operations of the Granisol product line are included in the Company&#8217;s statement of operations since the Closing Date. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">As part of the closing and transfer of assets to PediatRx Inc. on July 23, 2010, PediatRx Inc. assumed a single product manufacturing and supply agreement with Therapex, a division of E-Z-EM Canada, Inc. to enable the manufacturing of the Granisol product line. Under the terms of the agreement, Therapex will manufacture the product in compliance with current Good Manufacturing Practice (cGMP) and oversee all quality control and packaging through to finished product to meet PediatRx's requirements for Granisol.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> The purchase price for the Granisol product line was allocated in accordance with the acquisition method of accounting. 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This promissory note was amended effective May 23, 2011 and July 25, 2012, whereby the maturity date of the note was extended until December 31, 2012 and the interest rate was increased from the original 5% to 12% per annum effective July 25, 2012, calculated monthly in arrears and payable at maturity. 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Effective April 19, 2012 this promissory note was amended on April 19, 2012 and again on July 25, 2012, whereby the maturity date of the note was extended until December 31, 2012 and the interest rate was increased from the original 5% to 12% per annum effective July 25, 2012, calculated monthly in arrears and payable at maturity. 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This promissory note was amended effective on May 18, 2011, April 19, 2012 and July 25, 2012, whereby the maturity date of the note was extended until December 31, 2012 and the interest rate was increased from the original 5% to 12% per annum effective July 25, 2012, calculated monthly in arrears and payable at maturity. 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This promissory note was amended effective May 23, 2011 and July 25, 2012, whereby the maturity date of the note was extended until December 31, 2012 and the interest rate was increased from the original 5% to 12% per annum effective July 25, 2012, calculated monthly in arrears and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six month anniversary. </td> <td align="left" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> 200,000 </td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> 200,000 </td> </tr> <tr valign="top"> <td align="left" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid"> Issued on May 6, 2011 this unsecured promissory note, bearing simple interest at five percent (5% per annum on the principal balance of $250,000, was originally due on May 6, 2012. Effective April 19, 2012 this promissory note was amended on April 19, 2012 and again on July 25, 2012, whereby the maturity date of the note was extended until December 31, 2012 and the interest rate was increased from the original 5% to 12% per annum effective July 25, 2012, calculated monthly in arrears and payable at maturity. When not in default, the unsecured promissory note and any accrued interest can be repaid in whole or in part without notice or penalty with a minimum of six months interest due if repaid prior to the six month anniversary. </td> <td align="left" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> 250,000 </td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> 250,000 </td> </tr> <tr valign="top"> <td align="left" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid"> <b>Total Promissory Notes</b> </td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> <b> $500,000 </b> </td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="5%">&#160;</td> <td align="right" style="BORDER-BOTTOM: #000000 1px solid; BORDER-LEFT: #000000 1px solid; BORDER-TOP: #000000 1px solid; BORDER-RIGHT: #000000 1px solid" valign="bottom" width="13%"> <b> $500,000 </b> </td> </tr> </table> 0.05 50000 0.12 50000 50000 0.05 200000 0.12 200000 200000 0.05 250000 0.12 250000 250000 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>6.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;margin:inherit;"> <b>Related Party Transactions</b> </p> </td> </tr> </table> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">Effective May 28, 2010, PediatRx entered into a consulting agreement with Dr. Cameron Durrant, a shareholder of the Company, to assist management in the identification of opportunities available to the Company in the healthcare industry and to recommend terms of potential acquisitions. Dr. Durrant's agreement with the Company dated May 28, 2010 was terminated in lieu of a new agreement on September 24, 2010.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">On September 24, 2010, with retroactive effect to July 1, 2010, the Company entered into a second consulting agreement with Dr. Cameron Durrant. Pursuant to the consulting agreement, Dr. Durrant agreed to perform such duties as are regularly and customarily performed by the Chief Executive Officer of a corporation. The term of the consulting agreement is one year from July 1, 2010, unless both parties agree to extend. On July 1, 2011, the agreement was extended for an additional two year period. On January 1, 2012, Dr. Durrant agreed to forgo any further consulting fees.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> In addition, of the 4,250,000 shares of the Company's common stock owned by Dr. Durrant, 2,833,333 shares are subject to a lockup agreement between the Company and Dr. Durrant, which lockup agreement became effective February 9, 2011. Pursuant to the terms of the lockup agreement, Dr. Durrant agreed not to sell, assign or convey or otherwise dispose of any shares subject to the lockup agreement until December 31, 2015. The lockup agreement expires on December 31, 2015. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> During the nine month period ended November 30, 2012, the Company incurred consulting fees of $0 (November 30, 2011 - $187,500, cumulative &#8211; $449,500) in connection with Dr. Durrant's consulting agreements. The Company has recorded a payable to Dr. Durrant of $170,253 related to consulting fees. Of that, $286 has been paid to Dr. Durrant, leaving a payable of $169,697 as of November 30, 2012. In addition, the Company has recorded a payable to Dr. Durrant of $51,342 related to business establishment expenses incurred by Dr. Durrant. Of that, $49,714 has been paid to Dr. Durrant, leaving a payable of $1,628 as of November 30, 2012. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">On September 14, 2010, with retroactive effect to July 1, 2010, the Company entered into an employment agreement with Mr. David Tousley, Chief Financial Officer, Treasurer and Secretary of PediatRx. Pursuant to the employment agreement, Mr. Tousley agreed to perform such duties as are regularly and customarily performed by the Chief Financial Officer of a Corporation. Mr. Tousley is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">As of March 1, 2012, the Company gave notice to Mr. Tousley, that it will be terminating the employment agreement between Mr. Tousley and the Company pursuant to Section 6.3(b) of Mr. Tousley's Employment Agreement. As a result, Mr. Tousley's employment agreement was terminated effective October 31, 2012.</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> In addition, of the 400,000 shares of the Company's common stock owned by Mr. Tousley, 266,666 shares are subject to a lockup agreement between the Company and Mr. Tousley, which lockup agreement became effective February 9, 2011. Pursuant to the terms of the lockup agreement, Mr. Tousley agreed not to sell, assign, convey, or otherwise dispose of any shares subject to the lockup agreement until December 31, 2015. The lockup agreement expires on December 31, 2015. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;">On September 14, 2010, with retroactive effect to July 1, 2010, the Company entered into an employment agreement with Mr. Jorge Rodriguez, Chief Commercial Officer of PediatRx. Pursuant to the employment agreement, Mr. Rodriguez agreed to perform such duties as are regularly and customarily performed by the Chief Commercial Officer of a corporation. Mr. Rodriguez is also eligible to receive an annual bonus and an annual stock option award at the end of each year at the discretion of the Board of Directors of PediatRx. The term of the employment agreement is two years from July 1, 2010, unless both parties agree to extend. On December 15, 2011, Mr. Rodriguez, resigned from all positions with the Company and the Company entered into an agreement with Mr. Rodriguez pursuant to which it terminated his employment agreement and amended his stock option agreement (dated March 4, 2011) in order to terminate all unvested</p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> options effective immediately and to extend the exercise period for his 105,000 vested options to December 15, 2012. In connection with the termination, the Company paid Mr. Rodriguez the amount of $19,500. </p> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> On November 3, 2010, 3,700,000 shares of the Company owned by Opex Energy Corp., which corporation is controlled by Joseph Carusone, a director of PediatRx Inc., were returned to the Company for no cash or other consideration. These shares were cancelled. </p> 4250000 2833333 0 187500 449500 170253 286 169697 51342 49714 1628 400000 266666 105000 19500 3700000 <table border="0" cellpadding="0" cellspacing="0" style="border-color: black; border-collapse: collapse; font-size: 10pt; font-family: times new roman,times,serif;" width="100%"> <tr> <td valign="top" width="5%"> <b>7.</b> </td> <td> <p align="justify" style="font-family: times new roman,times,serif; font-size: 10pt;margin:inherit;"> <b>Stock Options</b> </p> </td> </tr> </table> <p align="justify" style="margin-left: 5%; font-family: times new roman,times,serif; font-size: 10pt;"> Effective February 18, 2011, the Board of Directors adopted and approved the 2011 stock option plan. 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During the nine months ended November 30, 2012, unrecognized compensation costs was reduced by approximately $178,000 for estimated forfeitures of unvested stock options a result of notice provided to Mr. Tousley of termination of his employment agreement effective October 31, 2012. On May 23, 2012, the Company agreed with all option holders to cancel any and all options outstanding as of that date. As a result, the Company expensed all unrecognized compensation costs as of the cancelation date. Total stock-based compensation expense for the nine months ended November 30, 2012 and 2011 was $132,138 and $173,516, respectively. The weighted average fair value of stock options granted during the nine months ended November 30, 2011 was $0.60. 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The expected term of the options granted to employees is derived from the simplified method as prescribed by SEC Staff Accounting Bulletin Topic 14, &#8220;Share-Based Payments&#8221; (&#8220;Topic 14 &#8221;), given that the Company has no historical experience with the exercise of options for which to base an estimate of the expected term of options granted. Under the simplified method, the Company determined the expected life of the options based on an average of the graded vesting period and original contractual term. 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We are currently evaluating the impact of this decision by Apricus on the Company&#8217;s future operations.</p>