Item 1.
Financial Statements (Unaudited)
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Index to Financial Statements
April 30, 2016 and 2015
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Balance Sheets (Unaudited)
As of April 30, 2016 and July 31, 2015
|
|
April 30,
|
|
|
July 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
Current assets
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
2,363,465
|
|
|
$
|
434,217
|
|
Prepaid insurance
|
|
|
70,376
|
|
|
|
33,143
|
|
Total current assets
|
|
|
2,433,841
|
|
|
|
467,360
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Computer equipment (net of accumulated amortization of $158 at April 30, 2016 and $0 at July 31, 2015)
|
|
|
6,370
|
|
|
|
-
|
|
Patents and patent applications (net of accumulated amortization of $8,044 at April 30, 2016 and $7,015 at July 31, 2015)
|
|
|
19,406
|
|
|
|
20,435
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
2,459,617
|
|
|
$
|
487,795
|
|
|
|
|
|
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
206,821
|
|
|
$
|
315,460
|
|
Accrued salaries and wages
|
|
|
3,630,596
|
|
|
|
3,129,060
|
|
Deferred revenue
|
|
|
250,000
|
|
|
|
-
|
|
Due to related parties
|
|
|
-
|
|
|
|
130,000
|
|
Total current liabilities
|
|
|
4,087,417
|
|
|
|
3,574,520
|
|
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
2,083,500
|
|
|
|
5,300,000
|
|
Total liabilities
|
|
|
6,170,917
|
|
|
|
8,874,520
|
|
|
|
|
|
|
|
|
|
|
Stockholders' deficit
|
|
|
|
|
|
|
|
|
Common stock; par value $0.001; 1,000,000,000 shares authorized;
|
|
|
|
|
|
|
|
|
1,981,433 shares issued and outstanding at April 30, 2016 and 1,841,866 shares issued and outstanding at July 31, 2015
|
|
|
1,981
|
|
|
|
1,842
|
|
Additional paid-in capital
|
|
|
56,381,654
|
|
|
|
44,982,519
|
|
Accumulated deficit
|
|
|
(60,094,935
|
)
|
|
|
(53,371,086
|
)
|
Total stockholders' deficit
|
|
|
(3,711,300
|
)
|
|
|
(8,386,725
|
)
|
Total liabilities and stockholders' deficit
|
|
$
|
2,459,617
|
|
|
$
|
487,795
|
|
The accompanying notes are an integral part
of these unaudited financial statements.
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Statements of Operations (Unaudited)
For the three and nine months ended April 30, 2016 and 2015
|
|
For the
|
|
|
For the
|
|
|
|
Three Months Ended
|
|
|
Nine Months Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,605,097
|
|
|
$
|
120,000
|
|
|
$
|
9,585,097
|
|
|
$
|
680,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
1,130,730
|
|
|
|
1,863,512
|
|
|
|
14,407,688
|
|
|
|
4,710,134
|
|
Research and development
|
|
|
1,062,505
|
|
|
|
96,906
|
|
|
|
1,865,014
|
|
|
|
1,340,754
|
|
Total operating expenses
|
|
|
2,193,235
|
|
|
|
1,960,418
|
|
|
|
16,272,702
|
|
|
|
6,050,888
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from operations
|
|
|
411,862
|
|
|
|
(1,840,418
|
)
|
|
|
(6,687,605
|
)
|
|
|
(5,370,888
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income (expense)
|
|
|
-
|
|
|
|
4,102
|
|
|
|
(11,319
|
)
|
|
|
(23,480
|
)
|
Income (loss) on foreign exchange
|
|
|
4,266
|
|
|
|
(14,379
|
)
|
|
|
(24,925
|
)
|
|
|
(7,278
|
)
|
Total other income (expense)
|
|
|
4,266
|
|
|
|
(10,277
|
)
|
|
|
(36,244
|
)
|
|
|
(30,758
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) before provision for income taxes
|
|
|
416,128
|
|
|
|
(1,850,695
|
)
|
|
|
(6,723,849
|
)
|
|
|
(5,401,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
416,128
|
|
|
$
|
(1,850,695
|
)
|
|
$
|
(6,723,849
|
)
|
|
$
|
(5,401,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic income (loss) per common share
|
|
$
|
0.22
|
|
|
$
|
(1.01
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(2.99
|
)
|
Diluted income (loss) per common share
|
|
$
|
0.15
|
|
|
$
|
(1.01
|
)
|
|
$
|
(3.57
|
)
|
|
$
|
(2.99
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic weighted average common shares outstanding
|
|
|
1,916,554
|
|
|
|
1,830,134
|
|
|
|
1,882,088
|
|
|
|
1,803,634
|
|
Diluted weighted average common shares outstanding
|
|
|
2,734,760
|
|
|
|
1,830,134
|
|
|
|
1,882,088
|
|
|
|
1,803,634
|
|
The accompanying notes are an integral part
of these unaudited financial statements.
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Statements of Stockholders' Deficit (Unaudited)
For the nine months ended April 30, 2016
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Paid In
|
|
|
Accumulated
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at July 31, 2015
|
|
|
1,841,866
|
|
|
$
|
1,842
|
|
|
$
|
44,982,519
|
|
|
$
|
(53,371,086
|
)
|
|
$
|
(8,386,725
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued for services
|
|
|
123,852
|
|
|
|
124
|
|
|
|
1,215,595
|
|
|
|
-
|
|
|
|
1,215,719
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock issued upon the exercise of options
|
|
|
15,715
|
|
|
|
15
|
|
|
|
(15
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock based compensation from issuance of stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
10,183,555
|
|
|
|
-
|
|
|
|
10,183,555
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,723,849
|
)
|
|
|
(6,723,849
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at April 30, 2016
|
|
|
1,981,433
|
|
|
$
|
1,981
|
|
|
$
|
56,381,654
|
|
|
$
|
(60,094,935
|
)
|
|
$
|
(3,711,300
|
)
|
The accompanying notes are an integral part
of these unaudited financial statements.
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Statements of Cash Flows (Unaudited)
For the nine months ended April 30, 2016 and 2015
|
|
For the
|
|
|
|
Nine Months Ended
|
|
|
|
April 30,
|
|
|
April 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Cash flows used in operating activities
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(6,723,849
|
)
|
|
$
|
(5,401,646
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Amortization
|
|
|
1,187
|
|
|
|
1,030
|
|
Issuance of common stock for services
|
|
|
1,215,719
|
|
|
|
305,825
|
|
Stock based compensation from issuance of options
|
|
|
10,183,555
|
|
|
|
911,256
|
|
Stock based compensation from issuance of warrants
|
|
|
-
|
|
|
|
409,312
|
|
|
|
|
|
|
|
|
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
Increase in prepaid insurance
|
|
|
(37,233
|
)
|
|
|
(26,903
|
)
|
Decrease in deferred revenue
|
|
|
(4,300,000
|
)
|
|
|
-
|
|
Decrease in accounts payable
|
|
|
(108,639
|
)
|
|
|
(124,558
|
)
|
Increase (decrease) in accrued salaries and wages
|
|
|
501,536
|
|
|
|
841,613
|
|
Net cash provided by (used in) operating activities
|
|
|
732,276
|
|
|
|
(3,084,071
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows used in investing activities
|
|
|
|
|
|
|
|
|
Purchase of equipment
|
|
|
(6,528
|
)
|
|
|
-
|
|
Net cash used in investing activities
|
|
|
(6,528
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by financing activities
|
|
|
|
|
|
|
|
|
Proceeds from related parties notes payable
|
|
|
151,191
|
|
|
|
-
|
|
Payments of related parties notes payable
|
|
|
(281,191
|
)
|
|
|
(220,000
|
)
|
Investment received in exchange for royalty agreement
|
|
|
1,333,500
|
|
|
|
4,388,530
|
|
Net cash provided by financing activities
|
|
|
1,203,500
|
|
|
|
4,168,530
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
1,929,248
|
|
|
|
1,084,459
|
|
Cash and cash equivalents, beginning of period
|
|
|
434,217
|
|
|
|
254,770
|
|
Cash and cash equivalents, end of period
|
|
$
|
2,363,465
|
|
|
$
|
1,339,229
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure
|
|
|
|
|
|
|
|
|
Interest paid during the period
|
|
$
|
78,865
|
|
|
$
|
-
|
|
Taxes paid during the period
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash Transactions
|
|
|
|
|
|
|
|
|
Cashless exercise of options
|
|
$
|
15
|
|
|
$
|
-
|
|
The accompanying notes are an integral part
of these unaudited financial statements.
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.)
Notes to Unaudited Financial Statements
For the nine months ended April 30, 2016 and 2015
1. Organization
and Basis of Presentation
Opiant Pharmaceuticals, Inc.
(formerly Lightlake Therapeutics Inc.) (“Opiant”, “we”, “our”, the “Company”) is
a specialty pharmaceutical company developing pharmacological treatments for substance use, addictive and eating disorders. The
Company changed its name to Opiant on January 28, 2016. The Company also has worked on developing a treatment to reverse opioid
overdoses, now known as NARCAN® (naloxone hydrochloride) Nasal Spray, which was approved by the U.S. Food and Drug Administration
(“FDA”) in November 2015.
The accompanying unaudited financial
statements have been prepared in accordance with generally accepted accounting principles in the United States of America for interim
financial information and with the instructions to Form 10-Q and Regulation S-X. Accordingly, these condensed financial statements
do not include all of the information and footnotes required by generally accepted accounting principles for complete financial
statements. In the opinion of management, all adjustments considered necessary for a fair presentation have been included and such
adjustments are of a normal recurring nature. These financial statements should be read in conjunction with the financial statements
for the year ended July 31, 2015 and notes thereto and other pertinent information contained in the Form 10-K the Company has filed
with the Securities and Exchange Commission (the “SEC”).
The results of operations for
the nine months ended April 30, 2016 are not necessarily indicative of the results for the full fiscal year ending July 31, 2016.
Reverse Stock Split
In December 2014, the Company
effected a one-for-one hundred reverse stock split of its common stock (the “1:100 Reverse Stock Split”). The number
of authorized shares of common stock and preferred stock remained the same following the 1:100 Reverse Stock Split. Unless otherwise
noted, impacted amounts included in the financial statements and notes thereto have been retroactively adjusted for the stock splits
as if such stock splits occurred on the first day of the first period presented. Impacted amounts include but are not limited to
shares of common stock issued and outstanding, stock options, shares reserved, exercise prices of warrants or options, and loss
per share. There was no impact on preferred or common stock authorized resulting from the 1:100 Reverse Stock Split.
2. Going
Concern
The accompanying financial
statements have been prepared assuming the Company will continue as a going concern, which contemplates the realization of
assets and the liquidation of liabilities in the normal course of business. However, the Company has incurred significant
losses, has a working capital deficit as of April 30, 2016 of $1,653,576 and is dependent on generating sufficient revenues
and/or obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to generate
sufficient revenues and/or obtain the necessary funding it could cease operations as a new enterprise. This raises
substantial doubt about the Company’s ability to continue as a going concern. Management’s plans include seeking
additional financing in the form of debt financing and/or equity financing from the sale of the Company’s common stock
and/or in the form of financing from the sale of interests in the Company’s current and/or prospective products. Such
funds may also be derived pursuant to licensing agreements. There is no guarantee that additional capital or debt financing
will be available when and to the extent required, or that if available, it will be on terms acceptable to the Company. These
financial statements do not include any adjustments that might result from this uncertainty.
3. Summary
of Significant Accounting Policies
Basis of Presentation and
Use of Estimates
The Company prepares its financial
statements in conformity with accounting principles generally accepted in the United States of America (“GAAP”), which
require 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 financial statements, and reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates.
Basic and Diluted Net Income
(Loss) Per Share
Earnings (loss) per share is
calculated by dividing the net income (loss) available to common stockholders by the weighted average number of shares outstanding
during the year. Diluted earnings per share reflect the potential dilution of securities that could share in earnings of an entity.
Diluted income per share reflects the potential dilution that would occur if outstanding stock options and warrants were exercised
utilizing the treasury stock method. In a loss year, dilutive common equivalent shares are excluded from the loss per share calculation
as the effect would be anti-dilutive.
A reconciliation of the components
of basic and diluted net income (loss) per common share is presented in the tables below:
|
|
For the Three Months Ended April 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Income
(Loss)
$
|
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
|
Per Share
$
|
|
|
Income
(Loss)
$
|
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
|
Per Share
$
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock
|
|
|
416,128
|
|
|
|
1,916,554
|
|
|
|
0.22
|
|
|
|
(1,850,695
|
)
|
|
|
1,830,134
|
|
|
|
(1.01
|
)
|
Effective of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
–
|
|
|
|
818,206
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock, including assumed conversions
|
|
|
416,128
|
|
|
|
2,734,760
|
|
|
|
0.15
|
|
|
|
(1,850,695
|
)
|
|
|
1,830,134
|
|
|
|
(1.01
|
)
|
|
|
For the Nine Months Ended April 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
Income
(Loss)
$
|
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
|
Per Share
$
|
|
|
Income
(Loss)
$
|
|
|
Weighted
Average
Common
Shares
Outstanding
|
|
|
Per Share
$
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock
|
|
|
(6,723,849
|
)
|
|
|
1,882,088
|
|
|
|
(3.57
|
)
|
|
|
(5,401,646
|
)
|
|
|
1,803,634
|
|
|
|
(2.99
|
)
|
Effective of Dilutive Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options and warrants
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
–
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) attributable to common stock, including assumed conversions
|
|
|
(6,723,849
|
)
|
|
|
1,882,088
|
|
|
|
(3.57
|
)
|
|
|
(5,401,646
|
)
|
|
|
1,803,634
|
|
|
|
(2.99
|
)
|
Recently Issued Accounting Pronouncements
The Company has implemented all
new accounting pronouncements that are in effect and that may impact its financial statements and does not believe that there are
any other new pronouncements that have been issued that might have a material impact on its financial position or results of operations.
4. Related
Party Transactions
At July 31, 2015, the Company
had loans outstanding with each of its three executive officers, all of whom are directors, in the total amount of $130,000. In
December 2014, the agreements were amended to extend the maturity date to April 30, 2016 and increase the annual interest rate
to 14.5%, which includes a penalty rate of 8.5% due to non-payment of the required repayment amounts. The loans were unsecured.
During the nine months ended April 30, 2016, the Company fully repaid the loans and interest payable.
During the nine months ended
April 30, 2016, the Company received loans from each of its three executive officers, all of whom are directors, totaling $151,191.
The loans bore interest at 6% per annum until January 31, 2016. During the nine months ended April 30, 2016, the Company fully
repaid the loans and interest payable.
5. Deferred
Revenue
On May 15, 2014, the Company
entered into an agreement and subsequently received funding from an individual investor in the amount of $300,000 for use by the
Company for any purpose. In exchange for this funding, the Company agreed to provide the investor with a 1.5% interest in the Net
Profit as related to the Company’s treatment to reverse opioid overdoses. Net profit is defined as the pre-tax profit generated
from the product after the deduction of all expenses incurred by and payments made by the Company in connection with the product,
including but not limited to an allocation of Company overhead. The investor also has rights with respect to its 1.5% interest
if the treatment is sold or the Company is sold. If the product is not approved by the FDA within 24 months the investor will have
a 60 day option to receive 37,500 shares of common stock in lieu of the 1.5% interest in the product. The product was approved
by the FDA during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive
shares. During the nine months ended April 30, 2016, the Company recognized $300,000 as revenue because the option to receive the
shares of common stock was removed, and the research and development work related to the product was completed as of April 30,
2016.
On July 22, 2014, the Company
received a $3,000,000 commitment, from which the Company has the right to make capital calls, from a foundation for the research,
development, marketing, commercialization, and any other activities connected to the Company’s treatment to reverse opioid
overdoses, certain operating expenses, and any other purpose consistent with the goals of the foundation. In exchange for funds
invested by the foundation the Company agreed to provide the foundation with pro-rata share up to a 6.0% interest in the Net Profit
as related to the Company’s treatment to reverse opioid overdoses. Net profit is defined as the pre-tax profit generated
from the product after the deduction of all expenses incurred by and payments made by the Company in connection with the product,
including but not limited to an allocation of Company overhead. The foundation also has rights with respect to its 6.0% interest
if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests from the foundation within two
and one half years or after two and a half years of the initial investment at a price of two times or three and a half times, respectively,
the relevant investment amount represented by the interests to be bought back. Such buyback can be for a portion of the interest
rather than for the entire interest. If the product is not approved by the FDA or an equivalent body in Europe for marketing and
is not actually marketed within 24 months the foundation will have a 60 day option to receive shares of the Company’s common
stock in lieu of the interest in the treatment at a rate of 10 shares for every dollar of its investment. On July 28, 2014 the
Company received an initial investment of $111,470 from the foundation in exchange for a 0.22294% interest. On August 13, 2014,
September 8, 2014, November 13, 2014, and February 17, 2015, the Company made capital calls of $422,344, $444,530, $1,033,614,
and $988,043, respectively, from the foundation in exchange for 0.844687%, 0.888906%, 2.067228%, and 1.976085% interests, respectively,
in the Net Profit as related to the Company’s treatment to reverse opioid overdoses. The product was approved by the FDA
during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive shares. During
the nine months ended April 30, 2016, the Company recognized $3,000,000 as revenue because the option to receive the shares of
common stock was removed, and the research and development work related to the product was completed as of April 30, 2016.
On September 9, 2014, the Company
entered into an agreement and subsequently received funding from an individual investor in the amount of $500,000 for use by the
Company for any purpose. In exchange for this funding, the Company agreed to provide the investor with a 0.98% interest in the
Net Profit as related to the Company’s treatment to reverse opioid overdoses. Net Profit includes the pre-tax profit received
by the Company derived from the sale of the product after the deduction of all expenses incurred by and payments made by the Company
in connection with the product, including but not limited to an allocation of Company overhead. The investor also has rights with
respect to its 0.98% interest if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests
from the investor within two and one half years or after two and a half years but no later than four years of the investment at
a price of two times or three and a half times, respectively, the relevant investment amount represented by the interests to be
bought back. Such buyback can be for a portion of the interest rather than for the entire interest. If the product is not introduced
to the market and not approved by the FDA or an equivalent body in Europe and not marketed within 24 months, the investor will
have a 60 day option to receive 50,000 shares of common stock in lieu of the interest in the product. The product was approved
by the FDA during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive
shares. During the nine months ended April 30, 2016, the Company recognized $500,000 as revenue because the option to receive the
shares of common stock was removed, and the research and development work related to the product was completed as of April 30,
2016.
On October 31, 2014, the Company
entered into an agreement and subsequently received funding from an individual investor in the amount of $500,000 for use by the
Company for any purpose. In exchange for this funding, the Company agreed to provide the investor with a 0.98% interest in the
Net Profit as related to the Company’s treatment to reverse opioid overdoses. Net Profit includes the pre-tax profit received
by the Company derived from the sale of the product after the deduction of all expenses incurred by and payments made by the Company
in connection with the product, including but not limited to an allocation of Company overhead. The investor also has rights with
respect to its 0.98% interest if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests
from the investor within two and one half years or after two and a half years but no later than four years of the investment at
a price of two times or three and a half times, respectively, the relevant investment amount represented by the interests to be
bought back. Such buyback can be for a portion of the interest rather than for the entire interest. If the product is not introduced
to the market and not approved by the FDA or an equivalent body in Europe and not marketed within 24 months, the investor will
have a 60 day option to receive 50,000 shares of common stock in lieu of the interest in the product. The product was approved
by the FDA during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive
shares. During the nine months ended April 30, 2016, the Company recognized $500,000 as revenue because the option to receive the
shares of common stock was removed, and the research and development work related to the product was completed as of April 30,
2016.
On September 22, 2015, the Company
received a $1,600,000 commitment from a foundation, from which the Company has the right to make capital calls, for the research,
development, any other activities connected to the Company’s opioid antagonist treatments for addictions and related disorders
that materially rely on certain studies funded by the foundation’s investment, certain operating expenses, and any other
purpose consistent with the goals of the foundation. In exchange for funds invested by the foundation the Company agreed to provide
the foundation with pro-rata share up to a 2.1333% interest in the Net Profit as related to the Company’s opioid antagonist
treatments for addictions and related disorders that materially rely on certain studies funded by the foundation’s investment.
Net profit is defined as any pre-tax revenue received by the Company that was derived from the sale of the products less any and
all expenses incurred by and payments made by the Company in connection with the products, including but not limited to an allocation
of Company overhead. The foundation also has rights with respect to its 2.1333% interest if the products are sold or the Company
is sold. Additionally, the Company may buyback interests from the foundation within two and one half years or after two and a half
years of the initial investment at a price of two times or three and a half times, respectively, the relevant investment amount
represented by the interests to be bought back. Such buyback can be for a portion of the interest rather than for the entire interest.
If a product is not introduced to the market within 36 months the foundation will have a 60 day option to receive shares of the
Company’s common stock in lieu of the interest in the product at a rate of one-tenth of a share for every dollar of its investment.
On October 6, 2015, the Company received an initial investment of $618,000 from the foundation in exchange for a 0.824% interest
in the Company’s treatments covered by the commitment agreement. On December 23, 2015, the Company made a capital call
of $715,500 from the foundation in exchange for a 0.954% interest in the Company’s treatments covered by the commitment agreement.
On December 8, 2015, the Company
entered into an agreement with an individual investor to receive $500,000 for use by the Company for any purpose, which $500,000
was to be invested by December 18, 2015. In exchange for this funding, the Company has agreed to provide the investor with a 0.75%
interest in the Net Profit as related to the Company’s treatment to reverse opioid overdoses. Net Profit includes the pre-tax
profit received by the Company derived from the sale of the product after the deduction of all expenses incurred by and payments
made by the Company in connection with the product, including but not limited to an allocation of Company overhead. The investor
also has rights with respect to its 0.75% interest if the treatment is sold or the Company is sold. Additionally, the Company
may buyback interests from the investor within two and one half years or after two and a half years but no later than four years
of the initial investment at a price of two times or three and a half times, respectively, the relevant investment amount represented
by the interests to be bought back. Such buyback can be for a portion of the interest rather than for the entire interest. The
investor also had an option to invest an additional $1,000,000 by February 29, 2016 for use by the Company for any purpose in
exchange for a 1.50% interest in the Net Profit as related to the Company’s treatment to reverse opioid overdoses. If such
investment were made, then the investor also would have rights with respect to its 1.50% interest if the treatment were sold or
the Company were sold. Additionally, the Company would be able to buyback interests from the investor within two and one half
years or after two and a half years but no later than four years of the initial investment at a price of two times or three and
a half times, respectively, the relevant investment amount represented by the interests to be bought back. Such buyback could
be for a portion of the interest rather than for the entire interest. This option expired unexercised. During the nine months
ended April 30, 2016, the Company recognized $500,000 as revenue because the investment did not contain an option to receive shares,
and the research and development work related to the product was completed as of April 30, 2016.
6. Stockholders’
Equity
Common Stock
Pursuant to an agreement dated
September 1, 2015, the Company issued 10,000 shares in exchange for services rendered by a consultant. The shares issued in this
transaction were valued using the stock price at issuance date and amounted to $80,500.
On October 6, 2015, the Company
issued 13,697 shares of the Company’s common stock pursuant to the agreement described in Note 7. The shares issued in this
transaction were using the stock price at issuance date and amounted to $106,152.
On November 19, 2015, the Company
issued 14,327 shares of common stock upon the execution of a binding letter of intent to agree to negotiate and enter into an exclusive
license agreement and collaboration agreement with a pharmaceutical company with certain desirable proprietary information. The
shares issued in this transaction were valued using the stock price at issuance date and amounted to $120,347. Pursuant to the
letter of intent, the Company is obligated to issue up to an additional 92,634 common shares upon the occurrence of various milestones.
On December 16, 2015, the Company
entered into a services agreement with a term of one year. Pursuant to the agreement, the Company issued 7,000 shares of common
stock on December 18, 2015 and 9,000 shares of common stock on March 21, 2016 in exchange for services rendered by a consultant.
The shares issued in this transaction were valued using the stock price at issuance date and amounted to $64,050 and $94,500 respectively.
In addition, the Company agreed to issue 11,000 shares of common stock by June 30, 2016 and 13,000 shares of common stock by September
30, 2016. At April 30, 2016, the Company had recorded $121,760 of stock-based compensation for the additional 24,000 shares to
be issued by September 30, 2016.
On February 1, 2016, the Company
issued 5,500 shares of the Company’s common stock to a consultant for consulting services. The shares issued in this transaction
were valued using the stock price at issuance date and amounted to $57,750.
On February 8, 2016, the Company
issued 10,746 shares of the Company’s common stock pursuant to the agreement described in Note 7. The shares issued in this
transaction were valued using the stock price at issuance date and amounted to $106,385.
On March 8, 2016, the Company
issued 3,582 shares of common stock to a consultant as a result of the first commercial sale of NARCAN® Nasal Spray by Adapt
Pharma Operations Limited in the U.S. The shares issued in this transaction were valued using the stock price at issuance date
and amounted to $32,775.
On March 25, 2016, the Company
issued 15,715 shares of common stock as a result of the cashless exercise of 30,000 options.
On April 26, 2016, the Company
issued 50,000 shares of common stock pursuant to the agreement described in Note 7. The shares issued in this transaction were
valued using the stock price at issuance date and amounted to $431,500.
Stock Options
As required by the Stock Compensation
Topic, ASC 718, the Company measures and recognizes compensation expense for all share based payment awards made to the officers
and directors based on estimated fair values at the grant date and over the requisite service period.
On October 27, 2015, the Company
granted 1,437,500 cashless stock options to the board of directors and a senior executive of the Company. These options have an
exercise price of $7.25, a term of 10 years and vested immediately. Each stock option is fully vested on the date of grant, but
may only be exercised between the following dates: (i) the first to occur of: (A) the commencement of three trials on or subsequent
to October 23, 2015; or (B) (1) the approval by the FDA of the New Drug Application with respect to the opioid overdose reversal
treatment, and (2) the commencement of two trials on or subsequent to October 23, 2015; and (ii) the expiration date. As of
April 30, 2016, the conditions for exercisability were met and the options were fully exercisable. The Company has valued these
options using the Black-Scholes option pricing model which resulted in a fair market value of $10,062,500 which have been fully
recognized as expense for the nine months ended April 30, 2016.
The Company also recognized stock
based compensation expense of $121,055 in connection with vested options granted in prior periods.
The assumptions used in the valuation
for all of the options granted for the nine months ended April 30, 2016 were as follows:
Market value of stock on measurement date
|
|
$
|
7.00
|
|
Risk-free interest rate
|
|
|
2.05
|
%
|
Dividend yield
|
|
|
0
|
%
|
Volatility factor
|
|
|
373
|
%
|
Term
|
|
|
10 years
|
|
Stock option activity for nine months
ended April 30, 2016 is presented in the table below:
|
|
Number of
Shares
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term
(years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 31, 2015
|
|
|
3,157,500
|
|
|
$
|
9.42
|
|
|
$
|
7.58
|
|
|
|
|
|
Granted
|
|
|
1,437,500
|
|
|
|
7.25
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(30,000
|
)
|
|
|
5.00
|
|
|
|
|
|
|
|
|
|
Outstanding at April 30, 2016
|
|
|
4,565,000
|
|
|
$
|
8.77
|
|
|
$
|
7.68
|
|
|
$
|
5,969,725
|
|
Exercisable at April 30, 2016
|
|
|
4,277,500
|
|
|
$
|
8.37
|
|
|
$
|
8.07
|
|
|
$
|
5,969,725
|
|
A summary of the status of the Company’s non-vested
options as of April 30, 2016 and changes during the nine months ended April 30, 2016 are presented below:
Non-vested options
|
|
Number of
Options
|
|
|
Weighted Average
Grant Date
Fair Value
|
|
|
|
|
|
|
|
|
Non-vested at July 31, 2015
|
|
|
37,500
|
|
|
$
|
3.85
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,437,500
|
|
|
|
7.00
|
|
Vested
|
|
|
(1,450,000
|
)
|
|
|
7.01
|
|
|
|
|
|
|
|
|
|
|
Non-vested at April 30, 2016
|
|
|
25,000
|
|
|
$
|
3.85
|
|
At April 30, 2016, there was
$44,352 of unrecognized compensation costs related to non-vested stock options.
Warrants
Warrant activity for the nine months ended April 30,
2016 is presented in the table below:
|
|
Number of
Shares
|
|
|
Weighted-
average
Exercise
Price
|
|
|
Weighted-
average
Remaining
Contractual
Term (years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Outstanding at July 31, 2015
|
|
|
1,338,552
|
|
|
$
|
19.53
|
|
|
|
3.55
|
|
|
$
|
–
|
|
Issued
|
|
|
–
|
|
|
|
|
|
|
|
–
|
|
|
|
–
|
|
Expired
|
|
|
(119,767
|
)
|
|
|
35.14
|
|
|
|
–
|
|
|
|
–
|
|
Outstanding at April 30, 2016
|
|
|
1,218,785
|
|
|
$
|
17.99
|
|
|
|
3.11
|
|
|
$
|
34,144
|
|
Exercisable at April 30, 2016
|
|
|
493,785
|
|
|
$
|
22.39
|
|
|
|
5.22
|
|
|
$
|
34,144
|
|
7. Licensing Agreement
On October 6, 2015, the Company
entered into an amendment to an agreement to use certain technology owned by Aegis Therapeutics, LLC (“Aegis’ Technology”).
This amendment had an effective date of May 19, 2015 and allowed the Company to evaluate Aegis’ Technology until August 17,
2015. The amendment also provided an opportunity for the Company to elect to further extend the period of time during which the
Company could evaluate Aegis’ Technology until February 13, 2016. In exchange for electing to further extend this period
of time, the Company paid Aegis $75,000 and issued 13,697 shares of the Company’s common stock. The shares issued in this
transaction were using the stock price at issuance date and amounted to $106,152.
During February 2016, the Company
elected to further extend the period of time during which the Company could evaluate Aegis’ Technology until August 11, 2016.
The Company paid Aegis $75,000 and issued 10,746 shares of the Company’s common stock. The shares issued in this transaction
were using the stock price at issuance date and amounted to $106,385.
On April
26, 2016 (the “Amendment Date”), the Company and Aegis entered into the Amended and Restated Material Transfer, Option
and Research License Agreement (the “Restated License Agreement”) which amends and restates in its entirety the Material
Transfer, Option and Research License Agreement, dated as of December 1, 2014, by and between the Company and Aegis. Under the
Restated License Agreement, the Company has been granted an exclusive royalty-free research license, for a period of time (the
“Compound Research Period”) to Aegis’ proprietary delivery enhancement and stabilization agents, including,
but not limited to, Aegis’ ProTek® and Intravail® technologies (collectively, the “Technology”) to enable
the Company to conduct a feasibility study of opioid antagonists when used with the Technology (the “Study”) and evaluate
the Company’s interest in licensing the Technology through use of the Compound in additional studies.
The Company agreed to pay
Aegis (i) an aggregate of $300,000, of which the Company may elect to pay up to 50% by issuing shares of the Company’s
common stock, par value $0.001 per share, to Aegis, with the number of shares to be issued equal to 75% of the average
closing price of the Company’s common stock over the 20 trading days preceding the date of payment as consideration for
extending the Compound Research Period pursuant to two separate extension payments of $150,000 each, and (ii) 50,000 shares
of common stock as partial consideration for entering into the Restated License Agreement. The shares issued in this
transaction were valued using the stock price at issuance date and amounted to $431,500. The Company exercised such
extensions through payment of the first and second extension fees prior to October 13, 2015 and prior to February 13, 2016,
respectively. The Restated License Agreement shall expire on the earlier of (i) the expiration of the “Opiant
Negotiation Periods” (as defined in the Restated License Agreement) and (ii) on 30 days prior written notice by the
Company; provided, however, that Aegis shall have the right to terminate the license granted in the event the Company does
not pursue commercially reasonable efforts to exploit a “Product”, defined as (i) pharmaceutical formulations
containing the Compound as an active ingredient and (ii) Aegis’s proprietary chemically synthesizable
excipient(s), including without limitation the Intravail® excipients.
During the term of the Restated License Agreement, the Company has a right of first refusal and option
to add any, or all of the “Additional Compounds” (as defined in the Restated License Agreement), which the Company
may exercise at any time upon written notice to Aegis. The Company has granted Aegis a co-exclusive license with the Company to
use the data from the Company’s Studies under the Restated License Agreement for certain purposes. Pursuant to the Restated
License Agreement, Aegis granted the Company an exclusive option (the “Opiant Option”) to obtain an exclusive, worldwide,
royalty-bearing license (with the right to grant sublicenses through multiple tiers) under Aegis’s interests in the Technology
and any “Joint Invention” (as such term is defined in the Restated License Agreement) to the Technology to research,
develop, make, have made, use, sell, offer for sale, and import products containing the “Compound” (as defined in the
Restated License Agreement) or an Additional Compound. The Company may exercise such Opiant Option with respect to the Compounds
by written notice to Aegis within 90 days of the completion of the Study for (i) the Compounds or (ii) the Additional Compounds.
In the event the Company exercises the Opiant Option, the parties have 120 days to negotiate and execute a definitive license agreement.
8.
Subsequent Events
On May 17, 2016, the Company
granted 70,000 cashless stock options to two new members of the board of directors of the Company. These options have an exercise
price of $10.00, and a term of 5 years. The options vest as follows: 23,334 vest upon the uplisting of the Company to the NASDAQ
Stock Market; 23,334 vest upon the cumulative funding of the Company of or in excess of $5,000,000 by institutional investors;
and 23,332 vest upon the first submission of a new drug application to the FDA.
On May 18, 2016, the Company made a capital call of
$266,500 from the foundation in exchange for a 0.355% interest in the Company’s treatments covered by the September 22, 2015
commitment described in Note 5.
Item 2. Management’s
Discussion and Analysis of Financial Condition and Results of Operations
The following discussion and analysis
of the results of operations and financial condition for the three and nine months ended April 30, 2016 and 2015 and should be
read in conjunction with our financial statements, and the notes to those financial statements that are included elsewhere in this
Report.
Overview
Opiant Pharmaceuticals, Inc. (“Opiant”
or the “Company”) is a specialty pharmaceutical company developing pharmacological treatments for substance use, addictive
and eating disorders. The Company was incorporated in the State of Nevada on June 21, 2005, as Madrona Ventures, Inc. and on September
16, 2009, the Company changed its name to Lightlake Therapeutics Inc. On January 28, 2016, the Company changed its name to Opiant
Pharmaceuticals, Inc. The Company’s fiscal year end is July 31.
The Company’s strategy is to develop
pharmacological treatments for substance use, addictive and eating disorders based on the Company’s expertise using opioid
antagonists. The Company has worked on developing a treatment for reversing opioid overdoses in collaboration with the National
Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health (“NIH”). This treatment, now
known as NARCAN® (naloxone hydrochloride) Nasal Spray, was approved by the U.S. Food and Drug Administration (“FDA”)
in November 2015, and is marketed by Adapt Pharma Limited.
In December 2014, the Company effected
a one-for-one hundred reverse stock split of its common stock (the “1:100 Reverse Stock Split”) which decreased the
number of common shares issued and outstanding from approximately 191 million shares to approximately 1.91 million shares as of
March 30, 2016. Unless otherwise noted, all shares amounts listed in this Report been retroactively adjusted for the 1:100 Reverse
Stock Split as if such stock splits occurred prior to the issuance of such shares.
The Company has been focused on developing:
(i) a treatment to reverse opioid overdoses, (ii) a treatment for overweight and obese patients with Binge Eating Disorder (“BED”),
and (iii) a treatment for Cocaine Use Disorder.
Principal Products or Services and Markets
Opioid Overdose Reversal
Naloxone is a medicine that can reverse
the overdose of prescription and illicit opioids and that historically has been available through injection. The Company’s
intranasal delivery system of naloxone could widely expand its availability and use in preventing opioid overdose deaths.
On March 14, 2014, the Company filed U.S.
Provisional Application No. 61/953,379. This application addresses delivery devices and methods of treating opioid overdoses through
the administration of intranasal naloxone.
On May 15, 2014, the Company entered into
an agreement and subsequently received funding from an individual investor in the amount of $300,000 for use by the Company for
any purpose. In exchange for this funding, the Company agreed to provide the investor with a 1.5% interest in the net profit as
related to the Company’s treatment to reverse opioid overdoses. Net profit is defined as the pre-tax profit generated from
the product after the deduction of all expenses incurred by and payments made by the Company in connection with the product, including
but not limited to an allocation of Company overhead. The investor also has rights with respect to its 1.5% interest if the treatment
is sold or the Company is sold. If the product is not introduced to the market and not approved for marketing within 24 months,
the investor will have a 60 day option to receive 37,500 shares of common stock in lieu of the 1.5% interest in the product.
The product was approved by the FDA during the nine month period ended April 30, 2016 and as result the investor will not receive
the option to receive shares. During the nine months ended April 30, 2016, specifically, during the Company’s second fiscal
quarter that ended on January 31, 2016, the Company recognized $300,000 as revenue because the option to receive the shares of
common stock was removed, and the research and development work related to the product was completed.
On July 9, 2014, the Company filed U.S.
Provisional Application No. 62/022,268 with respect to the Company’s treating opioid overdoses through the administration
of intranasal naloxone.
On July 22, 2014,
the Company received a $3,000,000 commitment, from which the Company has the right to make capital calls, from a foundation for
the research, development, marketing, commercialization, and any other activities connected to the Company’s treatment to
reverse opioid overdoses, certain operating expenses, and any other purpose consistent with the goals of the foundation. In exchange
for funds invested by the foundation the Company agreed to provide the foundation with pro-rata share up to a 6.0% interest in
the net profit as related to the Company’s treatment to reverse opioid overdoses. Net profit is defined as the pre-tax profit
generated from the product after the deduction of all expenses incurred by and payments made by the Company in connection with
the product, including but not limited to an allocation of Company overhead. The foundation also has rights with respect to its
up to 6.0% interest if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests from the
foundation within two and one half years or after two and a half years of the initial investment at a price of two times or three
and a half times, respectively, the relevant investment amount represented by the interests to be bought back. Such buyback can
be for a portion of the interest rather than for the entire interest. If the product is not approved by the U.S. Food and Drug
Administration or an equivalent body in Europe for marketing and is not actually marketed within 24 months the foundation will
have a 60 day option to receive shares of the Company’s common stock in lieu of the interest in the treatment at a rate
of 10 shares for every dollar of its investment. On July 28, 2014 the Company received an initial investment of $111,470 from
the foundation in exchange for a 0.22294% interest. On August 13, 2014, September 8, 2014, November 13, 2014, and February 17,
2015, the Company made capital calls of $422,344, $444,530, $1,033,614, and $988,043, respectively, from the foundation in exchange
for 0.844687%, 0.888906%, 2.067228%, and 1.976085% interests, respectively, in the net profit as related to the Company’s
treatment to reverse opioid overdoses. The product was approved by the FDA during the nine month period ended April 30, 2016 and
as result the investor will not receive the option to receive shares. During the nine months ended April 30, 2016, specifically,
during the Company’s second fiscal quarter that ended on January 31, 2016, the Company recognized $3,000,000 as revenue
because the option to receive the shares of common stock was removed, and the research and development work related to the product
was completed.
On September 9, 2014, the Company entered
into an agreement and subsequently received funding from an individual investor in the amount of $500,000 for use by the Company
for any purpose. In exchange for this funding, the Company agreed to provide the investor with a 0.98% interest in the net profit
as related to the Company’s treatment to reverse opioid overdoses. Net profit includes the pre-tax profit received by the
Company derived from the sale of the product after the deduction of all expenses incurred by and payments made by the Company in
connection with the product, including but not limited to an allocation of Company overhead. The investor also has rights with
respect to its 0.98% interest if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests
from the investor within two and one half years or after two and a half years but no later than four years of the initial investment
at a price of two times or three and a half times, respectively, the relevant investment amount represented by the interests to
be bought back. Such buyback can be for a portion of the interest rather than for the entire interest. If the product is not introduced
to the market and not approved by the FDA or an equivalent body in Europe and not marketed within 24 months the investor will have
a 60 day option to receive 50,000 shares of common stock in lieu of the interest in the product. The product was approved by the
FDA during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive shares.
During the nine months ended April 30, 2016, specifically, during the Company’s second fiscal quarter that ended on January
31, 2016, the Company recognized $500,000 as revenue because the option to receive the shares of common stock was removed, and
the research and development work related to the product was completed.
On October 31, 2014, the Company entered
into an agreement and subsequently received funding from an individual investor in the amount of $500,000 for use by the Company
for any purpose. In exchange for this funding, the Company agreed to provide the investor with a 0.98% interest in the net profit
as related to the Company’s treatment to reverse opioid overdoses. Net profit includes the pre-tax profit received by the
Company derived from the sale of the product after the deduction of all expenses incurred by and payments made by the Company in
connection with the product, including but not limited to an allocation of Company overhead. The investor also has rights with
respect to its 0.98% interest if the treatment is sold or the Company is sold. Additionally, the Company may buyback interests
from the investor within two and one half years or after two and a half years but no later than four years of the initial investment
at a price of two times or three and a half times, respectively, the relevant investment amount represented by the interests to
be bought back. Such buyback can be for a portion of the interest rather than for the entire interest. If the product is not introduced
to the market and not approved by the FDA or an equivalent body in Europe and not marketed within 24 months the investor will have
a 60 day option to receive 50,000 shares of common stock in lieu of the interest in the product. The product was approved by the
FDA during the nine month period ended April 30, 2016 and as result the investor will not receive the option to receive shares.
During the nine months ended April 30, 2016, specifically, during the Company’s second fiscal quarter that ended on January
31, 2016, the Company recognized $500,000 as revenue because the option to receive the shares of common stock was removed, and
the research and development work related to the product was completed.
On December 15, 2014, the Company and Adapt
Pharma Operations Limited, a wholly owned subsidiary of Adapt Pharma Limited (“Adapt”), an Ireland-based pharmaceutical
company, entered into a license agreement (the “Adapt Agreement”). Pursuant to the agreement Adapt has received from
the Company a global license to develop and commercialize the Company’s intranasal naloxone opioid overdose reversal treatment.
In exchange for licensing its treatment to Adapt, the Company could receive total potential regulatory and sales milestone payments
of more than $55 million, plus up to double-digit percentage royalties on net sales. The Adapt Agreement provided for an upfront
and nonrefundable payment of $500,000, and monthly payments for up to one year for participation in joint development committee
calls and the production and submission of an initial development plan. The Adapt Agreement also required the Company to contribute
$2,500,000 of development, regulatory, and commercialization costs, some of which was credited for costs incurred by the Company
prior to the execution of the Adapt Agreement. The Company fulfilled its requirement to contribute $2,500,000 during the three
months ended October 31, 2015.
On February 17, 2015, the Company announced
that Adapt received Fast Track designation by the FDA.
On April 22, 2015, the Company announced
that Adapt successfully completed a pharmacokinetic study of intranasal naloxone. This study had been designed and conducted by
the Company in collaboration with NIDA. The pharmacokinetic study compared intranasal naloxone with an injectable formulation of
naloxone. The study met its objectives and demonstrated the intranasal formulation of naloxone delivered the targeted naloxone
dose as expected.
On June 3, 2015, the Company announced
that Adapt commenced a rolling submission of a New Drug Application (“NDA”) to the FDA for a nasal spray formulation
of naloxone. A rolling submission allows completed portions of the NDA to be submitted and reviewed by the FDA on an ongoing
basis.
On July 29, 2015, the Company announced
that Adapt submitted a NDA to the FDA for NARCAN® (naloxone hydrochloride) Nasal Spray, an investigational drug intended
to treat opioid overdose.
On November 18, 2015, the FDA approved
NARCAN® (naloxone hydrochloride) Nasal Spray for the emergency treatment of known or suspected opioid overdose, to be marketed
by Adapt.
On December 8, 2015,
the Company entered into an agreement with an individual investor to receive $500,000 for use by the Company for any purpose,
which $500,000 shall be invested by December 18, 2015. In exchange for this funding, the Company has agreed to provide the investor
with a 0.75% interest in the Net Profit as related to the Company’s treatment to reverse opioid overdoses. Net Profit includes
the pre-tax profit received by the Company derived from the sale of the product after the deduction of all expenses incurred by
and payments made by the Company in connection with the product, including but not limited to an allocation of Company overhead.
The investor also has rights with respect to its 0.75% interest if the treatment is sold or the Company is sold. Additionally,
the Company may buyback interests from the investor within two and one half years or after two and a half years but no later than
four years of the initial investment at a price of two times or three and a half times, respectively, the relevant investment
amount represented by the interests to be bought back. Such buyback can be for a portion of the interest rather than for the entire
interest. The investor also had an option to invest an additional $1,000,000 by February 29, 2016 for use by the Company for any
purpose in exchange for a 1.50% interest in the Net Profit as related to the Company’s treatment to reverse opioid overdoses.
If such investment were made, then the investor also would have rights with respect to its 1.50% interest if the treatment were
sold or the Company were sold. Additionally, the Company would be able to buyback interests from the investor within two and one
half years or after two and a half years but no later than four years of the initial investment at a price of two times or three
and a half times, respectively, the relevant investment amount represented by the interests to be bought back. Such buyback could
be for a portion of the interest rather than for the entire interest. This option expired unexercised. During the nine months
ended April 30, 2016, specifically, during the Company’s second fiscal quarter that ended on January 31, 2016, the Company
recognized $500,000 as revenue because the investment did not contain an option to receive shares, and the research and development
work related to the product was completed.
On December 15, 2015, the Company announced that it received
a $2 million milestone payment from Adapt. This milestone payment was triggered by the FDA approval of NARCAN® (naloxone hydrochloride)
Nasal Spray.
On January 19, 2016, the Company announced
that Adapt announced that it reached an agreement to facilitate the purchase of NARCAN® (naloxone hydrochloride) Nasal
Spray by offering its discounted public interest price to 62,000 agencies in state and local government and the non-profit sector.
Adapt, in partnership with the National Association of Counties, National Governors Association, National League of Cities, and
United States Conference of Mayors, will offer NARCAN® (naloxone hydrochloride) Nasal Spray at a discounted public interest
price of $37.50 per dose ($75 for a 2 pack carton) through the U.S. Communities Purchasing Alliance and Premier, Inc. Adapt’s
discounted public interest price has been available to qualifying group purchasers, such as law enforcement, firefighters, first
responders, departments of health, local school districts, colleges and universities, and community-based organizations.
On January 27, 2016, the Company announced
that Adapt announced two national programs at the Clinton Health Matters Initiative Activation Summit to assist in efforts to
address the growing risk of opioid overdose among American high school students. Adapt offered a free carton of NARCAN® (naloxone
hydrochloride) Nasal Spray to all high schools in the U.S. through the state departments of education. This program will collaborate
with the Clinton Health Matters Initiative, an initiative of the Clinton Foundation, as part of its work to scale naloxone access
efforts nationally. In addition, Adapt provided a grant to the National Association of School Nurses (NASN) to support their educational
efforts concerning opioid overdose education materials.
On March 7, 2016, the Company announced
the receipt of a $2.5 million milestone payment from Adapt. This milestone payment was triggered by the first commercial sale of
NARCAN® (naloxone hydrochloride) Nasal Spray in the U.S.
On April 29, 2016, the Company received $105,097 in royalty payments due from Adapt from commercial sales
of NARCAN® (naloxone hydrochloride) Nasal Spray in the U.S during the first calendar quarter of 2016.
On May 6, 2016, the Company announced that
Adapt submitted a new drug submission (NDS) for NARCAN® (naloxone hydrochloride) Nasal Spray to Health Canada.
Binge Eating Disorder
The Company has been developing a treatment for BED. The Company considers naloxone to be a potentially
compelling drug for the pharmacological treatment of BED. It has a well-known safety profile and has the potential to block the
reward that patients experience from bingeing.
On May 23, 2013, the Company presented
the results of the Company’s Phase II clinical trial of its nasal spray treatment for BED at the American Psychiatric Association
(“APA”) Annual Meeting in San Francisco. BED has been added to the fifth edition of the APA’s Diagnostic and
Statistical Manual of Mental Disorders (“DSM-5”), which was launched at the APA Annual Meeting. DSM-5 is used by clinicians
and researchers to diagnose and classify mental disorders in order to improve diagnoses, treatment, and research. BED is defined
in the DSM-5 chapter on Feeding and Eating Disorders as a diagnosis for individuals who experience persistent, recurrent episodes
of overeating, marked by loss of control and significant clinical distress.
On December 17, 2013, the Company entered
into an agreement and subsequently received additional funding totaling $250,000 for use by the Company for any purpose. In exchange
for this funding, the Company agreed to provide the investor with a 0.5% interest in the net profit as related to the Company’s
BED treatment. Net profit is defined as the pre-tax profit generated from the product after the deduction of all expenses incurred
by and payments made by the Company in connection with the product, including but not limited to an allocation of Company overhead.
The investor also has rights with respect to its 0.5% interest if the treatment is sold or the Company is sold. If the product
is not approved by the U.S. Food and Drug Administration within 36 months the investor will have a 60 day option to receive 31,250
shares of common stock in lieu of the 0.5% interest in the product.
On September 17, 2014, the Company entered
into an agreement and subsequently received funding totaling $500,000 for use by the Company for any purpose. In exchange for this
funding, the Company agreed to provide the investor with a 1.0% interest in the Company’s BED treatment product and pay the
investor 1.0% of the net profit generated from this treatment in perpetuity. Net profit is defined as the pre-tax profit generated
from the product after the deduction of all expenses incurred by and payments made by the Company in connection with the product,
including but not limited to an allocation of Company overhead. If the product is not approved by the FDA within 36 months the
investor will have a sixty day option to receive 62,500 shares of common stock in lieu of the 1.0% interest in the product.
On July 20, 2015, the Company entered into
an agreement and subsequently received additional funding totaling $250,000 for use by the Company for any purpose. In exchange
for this funding, the Company agreed to provide the investor with a 0.5% interest in the Company’s BED treatment product
and pay the investor 0.5% of the net profit generated from this treatment in perpetuity. Net profit is defined as the pre-tax profit
generated from the product after the deduction of all expenses incurred by and payments made by the Company in connection with
the product, including but not limited to an allocation of Company overhead. If the product is not approved by the FDA within 36
months the investor will have a sixty day option to receive 25,000 shares of common stock in lieu of the 0.5% interest in the product.
The Company now aims to collaborate with
other parties and progress its drug development program for BED.
Cocaine Use Disorder
The Company is developing a treatment for
Cocaine Use Disorder (“CocUD”). There are approximately 1.5 million current cocaine users in the U.S., as reported
by The Substance Abuse and Mental Health Services Administration (SAMHSA).
Cocaine is often used in a binge pattern.
Taking the drug repeatedly within a relatively short period of time, at increasingly higher doses, can easily lead to addiction,
a chronic relapsing disease caused by changes in the brain and characterized by uncontrollable drug-seeking no matter the consequences.
Cocaine is a strong central nervous system stimulant that increases levels of the neurotransmitter dopamine in brain circuits regulating
pleasure and movement, with the opioid system strongly linked to the dopamine reward circuitry.
Any route of administration can lead to
absorption of toxic amounts of cocaine. Most seriously, in the short-term cocaine users can suffer from heart attacks, strokes,
and convulsions, which can result in sudden death. Repeated use of cocaine can lead to long-term harmful changes in the brain and
other parts of the body, including decreases in appetite, weight loss, and malnourishment. Snorting cocaine can lead to loss of
sense of smell and difficulty in swallowing, ingesting cocaine can cause severe bowel gangrene due to reduced blood flow, and injecting
cocaine can lead to puncture marks called “tracks” and possible allergic reactions. Cocaine users are also at high
risk of contracting HIV and viral hepatitis from sharing contaminated needles and engaging in risky sexual behaviors.
The extraordinary cost of cocaine addiction,
financially, medically and socially, is directly related to the stubborn clinical problem of relapse. Relapse rates have remained
discouragingly high for decades: up to 80% of addicted individuals relapse within six months of treatment. Finding effective interventions,
psychosocial or pharmacologic, has proven difficult.
On December 23, 2015, the Company announced
that an opioid antagonist drug will be tested in patients with CocUD at the University of Pennsylvania. The study will be conducted
by the Department of Psychiatry at the Perelman School of Medicine at the University of Pennsylvania, and began recruitment in
December 2015. Funded by a Medications Development Centers of Excellence Cooperative (U54) Program from NIDA, the study plans
to use functional Magnetic Resonance Imaging (fMRI) to better understand the impact of an opioid antagonist drug in the brain
of patients with CocUD. The study plans to test its impact on brain networks related to addiction-relevant processes, such as
reward and inhibition.
Other Activities
On December 1, 2014, the Company and Aegis Therapeutics, LLC
(“Aegis”), entered into a Material Transfer, Option and Research License Agreement (the “Initial Aegis Agreement”)
that provides the Company with an exclusive royalty-free research license for a period of time to Aegis’ proprietary delivery
enhancement and stabilization agents, including Aegis’ ProTek® and Intravail® technologies (collectively, the “Technology”)
to enable the Company to conduct a feasibility study of opioid antagonists when used with the Technology (the “Study”).
During this period of time, the Company may also evaluate its interest in having an exclusive license to the Technology for use
with opioid antagonists to treat, diagnose, predict, detect or prevent any disease, disorder, state, condition or malady in humans
(the “Possible License”). Aegis has granted the Company an exclusive option to obtain the Possible License for a certain
period after the study is completed. In consideration of the license granted to the Company pursuant to the Initial Aegis Agreement,
the Company is required to pay to Aegis a nonrefundable study fee.
On October 6, 2015, the Company entered
into an amendment to the Initial Aegis Agreement. This amendment had an effective date of May 19, 2015 and allowed the Company
to evaluate Aegis’ Technology until August 17, 2015. The amendment also provided an opportunity for the Company to elect
to further extend the period of time during which the Company could evaluate the Technology until February 13, 2016. The Company
elected to further extend the period during which the Company could evaluate the Technology through August 11, 2016.
On September 22, 2015, the Company received
a $1,600,000 commitment from a foundation, from which the Company has the right to make capital calls, for the research, development,
any other activities connected to the Company’s opioid antagonist treatments for addictions and related disorders that materially
rely on certain studies funded by the foundation’s investment, certain operating expenses, and any other purpose consistent
with the goals of the foundation. In exchange for funds invested by the foundation the Company agreed to provide the foundation
with pro-rata share up to a 2.1333% interest in the Net Profit as related to the Company’s opioid antagonist treatments for
addictions and related disorders that materially rely on certain studies funded by the foundation’s investment. Net profit
is defined as any pre-tax revenue received by the Company that was derived from the sale of the products less any and all expenses
incurred by and payments made by the Company in connection with the products, including but not limited to an allocation of Company
overhead. The foundation also has rights with respect to its up to 2.1333% interest if the products are sold or the Company is
sold. Additionally, the Company may buyback interests from the foundation within two and one half years or after two and a half
years of the initial investment at a price of two times or three and a half times, respectively, the relevant investment amount
represented by the interests to be bought back. Such buyback can be for a portion of the interest rather than for the entire interest.
If a product is not introduced to the market within 36 months the foundation will have a 60 day option to receive shares of the
Company’s common stock in lieu of the interest in the product at a rate of one-tenth of a share for every dollar of its investment.
On October 6, 2015, December 23, 2015, and May 18, 2016, the Company received $618,000, $715,500, and $266,500 from the foundation
in exchange for a 0.824%, 0.954%, and 0.355% interests, respectively, in the Company’s treatments covered by the commitment
agreement. The Company will defer recording revenue until such time as the option expires or milestones are achieved that
eliminates the investor’s right to exercise the option. Upon expiration of the exercise option, the deliverables of the arrangement
will be reviewed and evaluated under ASC 605. In the event the investor chooses to convert interests into shares of common stock,
that transaction will be accounted for similar to a sale of shares of common stock for cash.
On April 26, 2016 (the “Amendment
Date”), the Company and Aegis entered into the Amended and Restated Material Transfer, Option and Research License Agreement
(the “Restated License Agreement”) which amends and restates in its entirety the Initial Aegis Agreement. Under the
Restated License Agreement, the Company has been granted an exclusive royalty-free research license to Aegis’ Technology,
for a period of time (the “Compound Research Period”), to enable the Company to conduct the Study and evaluate the
Company’s interest in licensing the Technology through use of the Compound in additional studies.
The Company agreed to pay Aegis (i) an aggregate of $300,000,
of which the Company may elect to pay up to 50% by issuing shares of the Company’s common stock, par value $0.001 per share,
to Aegis, with the number of shares to be issued equal to 75% of the average closing price of the Company’s common stock
over the 20 trading days preceding the date of payment as consideration for extending the Compound Research Period pursuant to
two separate extension payments of $150,000 each, and (ii) 50,000 shares of common stock as partial consideration for entering
into the Restated License Agreement. The Company exercised such extensions through payment of the first and second extension fees
prior to October 13, 2015 and prior to February 13, 2016, respectively. The Restated License Agreement shall expire on the earlier
of (i) the expiration of the “Opiant Negotiation Periods” (as defined in the Restated License Agreement) and (ii)
on 30 days prior written notice by the Company;
provided
,
however
, that Aegis shall have the right to terminate
the license granted in the event the Company does not pursue commercially reasonable efforts to exploit a “Product”,
defined as pharmaceutical formulations containing certain ingredients of Aegis’ proprietary technology.
The Company agreed to pay Aegis (i)
an aggregate of $300,000, of which the Company may elect to pay up to 50% by issuing shares of the Company’s common
stock, par value $0.001 per share, to Aegis, with the number of shares to be issued equal to 75% of the average closing price
of the Company’s common stock over the 20 trading days preceding the date of payment as consideration for extending the
Compound Research Period pursuant to two separate extension payments of $150,000 each, and (ii) 50,000 shares of common stock
as partial consideration for entering into the Restated License Agreement. The Company exercised such extensions through
payment of the first and second extension fees prior to October 13, 2015 and prior to February 13, 2016, respectively. The
Restated License Agreement shall expire on the earlier of (i) the expiration of the “Opiant Negotiation Periods”
(as defined in the Restated License Agreement) and (ii) on 30 days prior written notice by the Company;
provided
,
however
,
that Aegis shall have the right to terminate the license granted in the event the Company does not pursue commercially
reasonable efforts to exploit a “Product”, defined as (i) pharmaceutical formulations containing the Compound as
an active ingredient and (ii) Aegis’s proprietary chemically synthesizable excipient(s), including without limitation
the Intravail® excipients pharmaceutical formulations containing certain ingredients of Aegis’ proprietary
technology.
During the term of the Restated License
Agreement, the Company has a right of first refusal and option to add any, or all of the “Additional Compounds” (as
defined in the Restated License Agreement), which the Company may exercise at any time upon written notice to Aegis. The Company
has granted Aegis a co-exclusive license with the Company to use the data from the Company’s Studies under the Restated License
Agreement for certain purposes. Pursuant to the Restated License Agreement, Aegis granted the Company an exclusive option (the
“Opiant Option”) to obtain an exclusive, worldwide, royalty-bearing license (with the right to grant sublicenses through
multiple tiers) under Aegis’s interests in the Technology and any “Joint Invention” (as such term is defined
in the Restated License Agreement) to the Technology to research, develop, make, have made, use, sell, offer for sale, and import
products containing the “Compound” (as defined in the Restated License Agreement) or an Additional Compound. The Company
may exercise such Opiant Option with respect to the Compounds by written notice to Aegis within 90 days of the completion of the
Study for (i) the Compounds or (ii) the Additional Compounds. In the event the Company exercises the Opiant Option, the parties
have 120 days to negotiate and execute a definitive license agreement. The terms of such license agreement have been contemplated
and agreed upon by the parties under a letter agreement (the “Letter Agreement”). As partial consideration for exercising
the Option, the Company shall pay Aegis a nonrefundable and noncreditable license issuance fee of $300,000 as of the effective
date of the license agreement entered into by Company and Aegis, of which the Company may elect to pay up to 50% by issuing shares
of the Company’s common stock to Aegis, with the number of shares to be issued equal to 75% of the average closing price
of the Company’s stock over the prior 20 trading days. In the event the Company exercises the Opiant Option specific to the
“Opioid Field” (as defined in Exhibit 1 to the Letter Agreement), the Company shall pay Aegis an additional $100,000
fee and any such products in the Opioid Field shall be subject to the same milestones, royalties and other monetary obligations
set forth in the Letter Agreement and summarized below.
Under the Letter Agreement containing the terms of such license,
the Company will pay Aegis upon the achievement of each development milestone for a particular Compound or Additional Compound,
ranging from $250,000 to $4,000,000 per achievement. Additionally, the Company is required to make minimum quarterly nonrefundable
payments to Aegis in the amount of $25,000 (the “Quarterly Payments”), which Quarterly Payments are fully creditable
and treated as a prepayment against future milestones or royalties. During the “Royalty Term” (as defined in Exhibit
1 to the Letter Agreement), the Company shall pay Aegis royalties (the “Royalties”) on annual net sales of (i) pharmaceutical
formulations containing the Compound as an active ingredient and (ii) Aegis’s proprietary chemically synthesizable excipient(s),
including without limitation the Intravail® excipients ((i) and (ii) together, the “Products”), ranging from (A)
low single digits for Products with an aggregate annual “Net Sales” (as defined in Exhibit 1 to the Letter Agreement)
during a calendar year of $50 million or less to (B) mid-single digits for Products with Net Sales of greater than $1 billion.
Such Royalties are subject to reduction as provided in Exhibit 1 to the Restated Agreement but shall not be reduced by more than
50% of the regularly scheduled royalty payment.
The foregoing description of the Restated
License Agreement and the Letter Agreement is qualified in its entirety by reference to the complete text of the Restated License
Agreement and the Letter Agreement which are filed as exhibits to this Report. The Company is seeking confidential treatment for
certain terms and provisions of the Restated License Agreement and the Letter Agreement.
On February 17, 2016, the Company announced
the first convening of its medical advisory board in 2016 to discuss its development programs in substance use, addictive and eating
disorders.
Results of Operations
The following compares Opiant’s
operations for the three months ended April 30, 2016 to the same period at April 30, 2015.
Revenues
Opiant had revenue of $2,605,097 and $120,000
during the three months ended April 30, 2016 and 2015, respectively. The increase in revenue during the three month period ended
April 30, 2016 was the result of revenue derived from the Adapt Agreement during the period ended April 30, 2016, which included
$2,500,000 received as a result of the first commercial sale of NARCAN® (naloxone hydrochloride) Nasal Spray in the U.S., one
of the milestones set forth in the Adapt Agreement.
General and Administrative Expenses
General and administrative expenses were
incurred in the amount of $1,130,730 and $1,863,512 for the three months ended April 30, 2016 and 2015, respectively. The decrease
in expenses as compared to the same period in the prior year was primarily due to additional stock-based compensation expense recorded
during the three months ended April 30, 2015 related to the grant of options and warrants during the period.
Research and Development Expenses
Opiant spent $1,062,505 and $96,906 during
the three months ended April 30, 2016 and 2015, respectively. The increase was primarily due to additional stock-based compensation
for research and development services during the 2016 period.
Interest Expense
During the three months ended April 30,
2016, interest expense decreased to $0 as compared to $4,102 at April 30, 2015. The decrease was due to a reduction in obligations
connected to outstanding debt.
Net Income
Opiant had net income for the three months
ended April 30, 2016 of $416,128 as compared to a net loss of $1,850,695 for the three months ended April 30, 2015. The increase
in net income was due primarily to the increase in revenues during the period ended April 30, 2016 compared to the period ended
April 30, 2015 and a decrease in general and administrative expenses during the period ended April 30, 2016 compared to the period
ended April 30, 2015. The increase in net income was offset by an increase in research and development expenses during the period
ended April 30, 2016 compared to the period ended April 30, 2015.
The following compares Opiant’s
operations for the nine months ended April 30, 2016 to the same period at April 30, 2015.
Revenues
Opiant had revenue of $9,585,097 and $680,000
of revenue during the nine months ended April 30, 2016 and 2015 respectively. The increase in revenue during the nine month period
ended April 30, 2016 was partially the result of recognizing $4,800,000 of revenue from the sale of net profit interests in the
Company’s treatment to reverse opioid overdoses. The revenue from these sales was recognized during the nine months ended
April 30, 2016, because either the investment did not contain an option to exchange net profit interests for shares or the product
was approved by the FDA and marketed, which negated the investor’s option to exchange net profit interests for shares, and
the research and development work related to the product was completed as of April 30, 2016. The Company also recognized $4,785,097
of revenue derived from the Adapt Agreement during the period ended April 30, 2016, which included $2,000,000 received as a result
of the FDA’s approval of NARCAN® (naloxone hydrochloride) Nasal Spray for the emergency treatment of known or suspected
opioid overdose, and $2,500,000 received as a result of the first commercial sale of NARCAN® (naloxone hydrochloride) Nasal
Spray, two of the milestones set forth in the Adapt Agreement.
General and Administrative Expenses
General and administrative expenses were
incurred in the amount of $14,407,688 and $4,710,134 for the nine months ended April 30, 2016 and 2015, respectively. The increase
in expenses as compared to the same period in the prior year was primarily due to an increase in stock-based compensation recorded
during the nine months ended April 30, 2016 as compared to the nine months ended April 30, 2015.
Research and Development Expenses
Opiant incurred $1,865,014 and $1,340,754
of research and development expenses during the nine months ended April 30, 2016 and 2015, respectively. The increase was primarily
due to an increase in stock-based compensation recorded during the nine months ended April 30, 2016 as compared to the nine months
ended April 30, 2015.
Interest Expense
During the nine months ended April 30,
2016, interest expense decreased to $11,319 as compared to $23,480 at April 30, 2015. This decrease was due to a reduction in obligations
connected to outstanding debt.
Net Loss
The comparable net loss for the nine months
ended April 30, 2016 was $6,723,849 as compared to the net loss of $5,401,646 for the nine months ended April 30, 2015. This increased
net loss was due primarily to the increase in general and administrative and research and development expenses, particularly stock-based
compensation. This increase was offset by an increase in revenues during the nine months ended April 30, 2016.
Liquidity and Capital Resources
Opiant’s cash balance at April 30, 2016, was $2,363,465 together with $6,170,917 of outstanding
liabilities. The Company’s management believes that the Company’s current cash balance will not be sufficient to fund
the Company’s operations for the next twelve months. As a result, the Company will need to generate sufficient revenues and/or
seek additional funding in the near future. The Company currently does not have a specific plan of how it will obtain such funding,
however, the Company anticipates that additional funding will come in the form of debt financing and/or equity financing from the
sale of the Company’s common stock. During the nine months ended April 30, 2016, Opiant received $4,785,097 of revenue pursuant
to the Adapt Agreement and $1,833,500 in funding in exchange for interests in the Company’s treatments covered by commitment
agreements. In addition to debt financing and/or equity financing and similar to the funding received during the nine months ended
April 30, 2016, funding of the Company may come in the form of financing from the sale of interests in the Company’s current
and/or prospective products and/or from revenue received pursuant to the terms of the Adapt Agreement.
The financial position of Opiant at April
30, 2016 showed an increase of $1,971,822 in assets from July 31, 2015 of $487,795 to $2,459,617. This was due to an increase in
the Company’s cash position of $1,929,248, which was due to the Company receiving funding of its operations in exchange for
interests in the Company’s treatments covered by commitment agreements and the Company receiving payments pursuant to the
Adapt Agreement. The liabilities decreased from $8,874,520 at July 31, 2015 to $6,170,917 at April 30, 2016. This decrease was
a result of a decrease in accounts payable and accrued liabilities of $108,639, a decrease in amounts due to related parties and
a decrease in deferred revenue of $2,966,500. This decrease was offset by an increase in the accrual of officer salaries of $501,536.
Going
Concern
The Company has not attained profitable
operations and is dependent upon obtaining financing and revenues to develop the Company’s pipeline. In their report
on the Company’s financial statements at April 30, 2016 and July 31, 2015, the Company’s auditors raised substantial
doubt about the Company’s ability to continue as a going concern.
The Company has incurred significant losses, a working capital deficit as of April 30, 2016 of $1,653,576
and is dependent on generating sufficient revenues and/or obtaining adequate capital to fund operating losses until it becomes
profitable. If the Company is unable to generate sufficient revenues and/or obtain the necessary funding it could cease operations
as a new enterprise. This raises substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans include seeking additional financing in the form of debt financing and/or equity financing from the sale of the Company’s
common stock and/or in the form of financing from the sale of interests in the Company’s current and/or prospective products.
Such funds may also be derived pursuant to licensing agreements. There is no guarantee that additional capital or debt financing
will be available when and to the extent required, or that if available, it will be on terms acceptable to us. These financial
statements do not include any adjustments that might result from this uncertainty.
Plan of Operation
During the next year, the Company aims
to broaden the Company’s product pipeline, and anticipates commencing further trials based on the Company’s existing
as well as potential patents.
At this time, the Company cannot provide investors with any assurance that the Company will be able to
generate sufficient revenues and/or obtain sufficient funding to meet the Company’s obligations over the next twelve months.
The Company anticipates that if revenues are not sufficient then additional funding will be required in the form of debt financing
and/or equity financing from the sale of the Company’s common stock and/or in the form of financing from the sale of interests
in the Company’s current and/or prospective products. The Company does not have any arrangements in place for any future
funding. The Company may also seek to obtain short-term loans from the Company’s officers and directors to meet the Company’s
short-term funding needs.
Notwithstanding the
foregoing, NARCAN® (naloxone hydrochloride) Nasal Spray for the emergency treatment of known or suspected opioid overdose
is currently being marketed by Adapt and the Company expects to continue to receive funds pursuant to the terms of the Adapt Agreement.
Critical Accounting Policies and Estimates
The Company believes that the following
critical policies affect the Company’s more significant judgments and estimates used in preparation of the Company’s
financial statements.
The Company prepares its financial statements
in conformity with generally accepted accounting principles in the United States of America. These principals require 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 financial statements and the reported amounts of revenues and expenses during the reporting
period. Management believes that these estimates are reasonable and have been discussed with the Company’s board of directors;
however, actual results could differ from those estimates.
The Company issues restricted stock to
consultants for various services and employees for compensation. Cost for these transactions are measured at the fair value of
the consideration received or the fair value of the equity instruments issued, whichever is measurable more reliably measurable.
The value of the common stock is measured at the earlier of: (i) the date at which a firm commitment for performance by the counterparty
to earn the equity instruments is reached or (ii) the date at which the counterparty’s performance is complete.
The Company issues options and warrants
to consultants, directors, and officers as compensation for services. These options and warrants are valued using the Black-Scholes
model, which focuses on the current stock price and the volatility of moves to predict the likelihood of future stock moves. This
method of valuation is typically used to accurately price stock options and warrants based on the price of the underlying stock.
Long-lived assets such as property, equipment
and identifiable intangibles are reviewed for impairment whenever facts and circumstances indicate that the carrying value may
not be recoverable. When required impairment losses on assets to be held and used are recognized based on the fair value of the
asset. The fair value is determined based on estimates of future cash flows, market value of similar assets, if available, or independent
appraisals, if required. If the carrying amount of the long-lived asset is not recoverable from its undiscounted cash flows, an
impairment loss is recognized for the difference between the carrying amount and fair value of the asset. When fair values are
not available, the Company estimates fair value using the expected future cash flows discounted at a rate commensurate with the
risk associated with the recovery of the assets. The Company did not recognize any impairment losses for any periods presented.
Fair value estimates used in preparation
of the financial statements are based upon certain market assumptions and pertinent information available to management. The respective
carrying value of certain on-balance-sheet financial instruments approximated their fair values. These financial instruments include
cash, accounts payable and due to related parties. Fair values were assumed to approximate carrying values for these financial
instruments since they are short-term in nature and their carrying amounts approximate fair values or they are receivable or payable
on demand.
Revenue Recognition
The Company recognizes revenues from nonrefundable,
up-front license fees related to collaboration agreements, on a straight-line basis over the contracted or estimated period of
performance. The period of performance over which the revenues are recognized is typically the period over which the research and/or
development is expected to occur or manufacturing services are expected to be provided. When the period of performance is based
on the period over which research and/or development is expected to occur, the Company is required to make estimates regarding
drug development and commercialization timelines. Because of the many risks and uncertainties associated with the development of
drug candidates, these estimates regarding the period of performance may change.
In addition, the Company evaluates each
arrangement to determine whether or not it qualifies as a multiple-deliverable revenue arrangement under ASC 605-25. If one or
more of the deliverables have a standalone value, then the arrangement would be separated into multiple units of accounting. This
normally occurs when the research and development services could contractually and feasibly be provided by other vendors or if
the customer could perform the remaining research and development itself, and when the Company has no further obligations and the
right has been conveyed. When the deliverables cannot be separated, any initial payment received is treated like an advance payment
for the services and recognized over the performance period, as determined based on all of the items in the arrangement. This period
is usually the expected research and development period.
Licensing Agreements
The Company has received
payments upon Adapt reaching various regulatory and sales milestones as well as royalty payments and the Company could receive
additional sales and regulatory milestone payments, and royalties, in the future. In addition, pursuant to the Adapt Agreement,
the Company was required to contribute $2,500,000 of development, regulatory, and commercialization costs, some of which was credited
for costs incurred by the Company prior to the execution of the Adapt Agreement. The Company fulfilled its requirement to contribute
$2,500,000 during the three months ended October 31, 2015.
The
Company recognized revenue for fees related to participation in the initial development plan and joint development committee calls
as revenue once the fee is received and the Company has performed the required services for the period.
Treatment Investments
With respect to investments in interests
in the Company’s treatments, if an agreement provides an option that allows the investor in the treatment to convert an interest
in a treatment into shares of common stock of the Company, then revenue is deferred until such time that the option expires or
milestones are achieved that eliminate the investor’s right to exercise the option. Upon expiration of the exercise option,
the deliverables of the arrangement are reviewed and evaluated under ASC 605. In the event the investor chooses to convert interests
into shares of common stock, that transaction will be accounted for similar to a sale of shares of common stock for cash.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements
as of April 30, 2016 and July 31, 2015.
Recent Accounting
Pronouncements
From time to time,
new accounting pronouncements are issued by the FASB or other standard setting bodies that are adopted by the Company as of the
specified effective date. The Company believes that the impact of recently issued standards that are not yet effective will not
have a material impact on the Company’s financial position or results of operations upon adoption.