Note 2. Liquidity and Financial Condition

The Company had net income of $6,580,613 for the year ended July 31, 2017 and has an accumulated deficit of $54,604,729 at July 31, 2017 from having incurred losses, with the exception of the year ended July 31, 2017, since its inception. The Company has $6,620,493 of working capital at July 31, 2017 and provided $5,556,162 of cash in its operating activities during the year ended July 31, 2017. The Company has financed its operations primarily through non-equity cash investments by a number of investors, in exchange for an interest in any pre-tax profits received by the Company that was derived from the sale of the Opioid Overdose Reversal Treatment Product less any and all expenses incurred by and payments made by the Company in connection with the Opioid Overdose Reversal Treatment Product (see Note 7 – Deferred Revenue).

In December 2014, the Company and Adapt entered into a license agreement (the “Adapt Agreement”). The Adapt Agreement has no set duration but may be terminated, among other ways, by Adapt in its sole discretion, either in its entirety or in respect of one or more countries, at any time by providing 60 days prior notice to the Company. Pursuant to the Adapt Agreement, Adapt received from the Company a global license to develop and commercialize the Company’s intranasal naloxone Opioid Overdose Reversal Treatment Product. In exchange for licensing its treatment to Adapt, the Company could receive total potential regulatory and sales milestone payments of more than $20 million, plus up to double-digit percentage royalties on net sales.

On December 13, 2016, the Company entered into a Purchase and Sale Agreement (the “SWK Purchase Agreement”) with SWK Funding LLC (“SWK”) pursuant to which the Company sold, and SWK purchased, the Company’s right to receive, commencing on October 1, 2016, all Royalties (as defined in the SWK Purchase Agreement) arising from the sale by Adapt of NARCAN® or any other Product, up to (i) $20,625,000 and then the Residual Royalty thereafter or (ii) $26,250,000, if Adapt has received in excess of $25,000,000 of cumulative Net Sales for any two consecutive fiscal quarters during the period from October 1, 2016 through September 30, 2017 from the sale of NARCAN® (the “Earn Out Milestone”), and then the Residual Royalty thereafter. The Residual Royalty is defined in the SWK Purchase Agreement as follows: (i) if the Earn Out Milestone is paid, then SWK shall receive 10% of all Royalties; provided, however, if no generic version of NARCAN® is commercialized prior to the sixth anniversary of the SWK Closing Date, then SWK shall receive 5% of all Royalties after such date, and (ii) if the Earn Out Milestone is not paid, then SWK shall receive 7.86% of all Royalties; provided, however, that if no generic version of NARCAN® is commercialized prior to the sixth anniversary of the SWK Closing Date, then SWK shall receive 3.93% of all Royalties after such date. Under the SWK Purchase Agreement, the Company received an upfront purchase price of $13,750,000 less $40,000 of legal fees on the SWK Closing Date, and received an additional $3,750,000 from SWK on August 10, 2017 after the Earn Out Milestone was achieved during the first two calendar quarters in 2017.

For the year ended July 31, 2016, the Company concluded that there was substantial doubt about the Company’s ability to continue as a going concern. During the year ended July 31, 2017, the Company received $17,460,000 in milestone and royalty payments. These payments have increased liquidity in order to provide sufficient working capital for the Company to continue the advancement of its programs. In addition, the royalties and milestones from the Adapt Agreement could generate meaningful revenue and corresponding cash. Lastly, with the uplisitng to NASDAQ, the Company will have access to capital resources through possible public or private equity offerings, debt financings, corporate collaborations or other means. The Company believes that in totality these factors have resolved the substantial doubt regarding the Company’s ability to continue as a going concern.

The Company believes that it has sufficient capital resources to sustain operations through at least the next twelve months from the date of this filing.