UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

(Mark One)

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

 

For the quarterly period ended October 31, 2013

 

or

 

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

 

For the transition period from ______to______.

 

Commission File Number: 333-139915

 

LIGHTLAKE THERAPEUTICS INC.

(Exact name of registrant as specified in its charter)

 

Nevada	N/A
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
86 Gloucester Place, Ground Floor Suite, London, England	W1U 6HP
(Address of principal executive offices)	(Zip Code)

 

44 (0) 203 617 8739

(Registrant’s telephone number, including area code)

 

n/a

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

 

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

 

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

 

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

 

Large Accelerated Filer   o Accelerated Filer   o Non-Accelerated Filer    o (Do not check if a smaller reporting company) Smaller Reporting Company   x

 

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

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock: As of December 12, 2013, there were 175,697,836 shares, $0.001 par value per share, of common stock outstanding.

 

 

LIGHTLAKE THERAPEUTICS INC.

 

Quarterly Report on Form 10-Q for the

Period Ended October 31, 2013

 

TABLE OF CONTENTS

 

PART I— FINANCIAL INFORMATION		3
Item 1.	Financial Statements	3
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	16
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	21
Item 4.	Control and Procedures	21
PART II— OTHER INFORMATION		29
Item 1.	Legal Proceedings	23
Item 1A.	Risk Factors	23
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	23
Item 3.	Defaults Upon Senior Securities	23
Item 4.	Mine Safety Disclosures	23
Item 5.	Other Information	23
Item 6.	Exhibits	24
SIGNATURES		25

 

CAUTIONARY STATEMENT ON FORWARD-LOOKING INFORMATION

 

This Quarterly Report on Form 10-Q (this “Report”) contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).  Forward-looking statements discuss matters that are not historical facts.  Because they discuss future events or conditions, forward-looking statements may include words such as “anticipate,” “believe,” “estimate,” “intend,” “could,” “should,” “would,” “may,” “seek,” “plan,” “might,” “will,” “expect,” “predict,” “project,” “forecast,” “potential,” “continue” negatives thereof or similar expressions.  Forward-looking statements speak only as of the date they are made, are based on various underlying assumptions and current expectations about the future and are not guarantees.  Such statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, level of activity, performance or achievement to be materially different from the results of operations or plans expressed or implied by such forward-looking statements.

 

We cannot predict all of the risks and uncertainties.  Accordingly, such information should not be regarded as representations that the results or conditions described in such statements or that our objectives and plans will be achieved and we do not assume any responsibility for the accuracy or completeness of any of these forward-looking statements.  These forward-looking statements are found at various places throughout this Report and include information concerning possible or assumed future results of our operations, including statements about potential acquisition or merger targets; business strategies; future cash flows; financing plans; plans and objectives of management, any other statements regarding future acquisitions, future cash needs, future operations, business plans and future financial results, and any other statements that are not historical facts.

 

 

These forward-looking statements represent our intentions, plans, expectations, assumptions and beliefs about future events and are subject to risks, uncertainties and other factors.  Many of those factors are outside of our control and could cause actual results to differ materially from the results expressed or implied by those forward-looking statements.  In light of these risks, uncertainties and assumptions, the events described in the forward-looking statements might not occur or might occur to a different extent or at a different time than we have described. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report.  All subsequent written and oral forward-looking statements concerning other matters addressed in this Report and attributable to us or any person acting on our behalf are expressly qualified in their entirety by the cautionary statements contained or referred to in this Report.

 

Except to the extent required by law, we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events, a change in events, conditions, circumstances or assumptions underlying such statements, or otherwise.

 

CERTAIN TERMS USED IN THIS REPORT

 

When this report uses the words “we,” “us,” “our,” “Lightlake,” and the “Company,” they refer to Lightlake Therapeutics Inc.  “SEC” refers to the Securities and Exchange Commission.

 

PART I—FINANCIAL INFORMATION

 

Item 1.       Financial Statements.

 

Lightlake Therapeutics Inc.

(a Development Stage Enterprise)

 

Financial Statements

 

For the Three Months Ended

October 31, 2013 and 2012

And

Year Ended

July 31, 2013

 

	Page
	Number
Financial Statements:
Balance Sheets as of October 31, 2013 and July 31, 2013	4
Statements of Operations for the three months ended October 31, 2013 and 2012 and the period from Inception (July 25, 2005) to October 31, 2013	5
Statement of Shareholders' Deficit for the period from Inception (July 25, 2005) to October 31, 2013	6
Statement of Cash Flows for the three months ended October 31, 2013 and 2012 and the period from Inception (July 25, 2005) to October 31, 2013	7
Notes to Financial Statements	8

 

 

Lightlake Therapeutics Inc.

( a Development Stage Enterprise)

Balance Sheets (Unaudited)

As of October 31 and July 31, 2013

 

		October 31,				July 31,
		2013				2013
Assets
Current assets
Cash and cash equivalents		$	323,709			$	598,623
Prepaid insurance			12,750				21,250
Total current assets			336,459				619,873
Other assets
Patents and patent applications (net of accumulated amortization of $4,689 at October 31, 2013 and $4,270 at July 31, 2013)			22,761				23,180
Total assets		$	359,220			$	643,053
Liabilities and Stockholders' Deficit
Liabilities
Current liabilities
Accounts payable and accrued liabilities		$	24,343			$	40,767
Accrued salaries and wages			532,050				457,636
Due to related party			350,000				350,000
Convertible notes payable			25,000				25,000
Derivative liability			519,400				9,666
Total current liabilities			1,450,793				883,069
Deferred revenue			750,000				750,000
Total liabilities			2,200,793				1,633,069
Stockholders' deficit
Common stock; par value $0.001; 200,000,000 shares authorized; 168,409,106 shares issued and outstanding at October 31, 2013 and 164,699,973 shares issued and outstanding at July 31, 2013			168,409				164,700
Additional paid-in capital			34,554,246				33,695,679
Accumulated deficit during the development stage			(36,564,228	)			(34,850,395	)
Total stockholders' deficit			(1,841,573	)			(990,016	)
Total liabilities and stockholders' deficit		$	359,220			$	643,053

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

Lightlake Therapeutics Inc.

(a Development Stage Enterprise)

Statements of Operations (Unaudited)

For the three months ended October 31, 2013 and 2012 and the period

from inception (June 21, 2005) to October 31, 2013

 

		For the								From Inception
		Three Months Ended								(June 21, 2005)
		October 31,								to October 31,
		2013				2012				2013
Revenues		$	-			$	-			$	-
Operating expenses
General and administrative			1,481,983				683,916				35,091,286
Research and development			57,590				49,129				846,429
Mineral interests			-				-				39,015
Total operating expenses			1,539,573				733,045				35,976,730
Loss from operations			(1,539,573	)			(733,045	)			(35,976,730	)
Other income (expense)
Interest expense			(125,547	)			(145,421	)			(739,981	)
Change in derivative			(48,713	)			21,152				109,320
Debt forgiveness			-				-				43,163
Total other income (expense)			(174,260	)			(124,269	)			(587,498	)
Loss before provision for income taxes			(1,713,833	)			(857,314	)			(36,564,228	)
Provision for income taxes			-				-				-
Net loss		$	(1,713,833	)		$	(857,314	)		$	(36,564,228	)
Loss per common share:
Basic and diluted		$	(0.01	)		$	(0.01	)
Weighted average common shares outstanding
Basic and diluted			166,210,611				128,120,714

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

Lightlake Therapeutics Inc.

( a Development Stage Enterprise)

Statements of Stockholders' Deficit (Unaudited)

For the period from Inception (June 21, 2005)

to October 31, 2013

 

														Deficit
										Additional				During the
		Common Stock								Paid In				Development
		Shares				Amount				Capital				Stage				Total
Balance at June 21, 2005			-				-				-				-				-
Balance at July 31, 2005			-				-				-				-				-
Common shares issued for cash
March 2006 at $0.001 per share			5,000,000				5,000				-				-				5,000
March 2006 at $0.01 per share			1,300,000				1,300				11,700				-				13,000
April 2006 at $0.01 per share			75,000				75				7,425				-				7,500
May 2006 at $0.01 per share			150,000				150				29,850				-				30,000
Net loss			-				-				-				(32,125	)			(32,125	)
Balance at July 31, 2006			6,525,000			$	6,525			$	48,975			$	(32,125	)		$	23,375
Net loss															(33,605	)			(33,605	)
Balance at July 31, 2007			6,525,000			$	6,525			$	48,975			$	(65,730	)		$	(10,230	)
Net loss			-				-				-				(17,924	)			(17,924	)
Balance at July 31, 2008			6,525,000			$	6,525			$	48,975			$	(83,654	)		$	(28,154	)
Net income			-				-				-				28,444				28,444
Balance at July 31, 2009			6,525,000			$	6,525			$	48,975			$	(55,210	)		$	290
Forward Stock Split : 20 for 1			130,500,000				130,500				(130,500	)			-				-
Stock issued for acquisition of patent			20,333,333				20,333				-				-				20,333
Cancellation of shares			(100,000,000	)			(100,000	)			100,000				-				-
Stock issued for services			4,150,000				4,150				1,354,650				-				1,358,800
Net loss			-				-				-				(2,016,710	)			(2,016,710	)
Balance at July 31, 2010			61,508,333			$	61,508			$	1,373,125			$	(2,071,920	)		$	(637,287	)
Warrants issued for acquisition of patent			-				-				7,117				-				7,117
Sales of common stock			5,640,000				5,640				3,072,380				-				3,078,020
Stock issued for services			9,828,000				9,828				6,108,342				-				6,118,170
Stock based compensation from issuance of stock options			-				-				2,550,000				-				2,550,000
Net loss			-				-				-				(11,454,537	)			(11,454,537	)
Balance at July 31, 2011			76,976,333			$	76,976			$	13,110,964			$	(13,526,457	)		$	(338,517	)
Sales of common stock			8,438,572				8,439				794,490				-				802,929
Stock issued for services			37,555,668				37,556				10,011,301				-				10,048,857
Conversion of Convertible Notes Payable to Common Stock			3,332,843				3,332				96,668				-				100,000
Cancellation of shares			(220,000	)			(220	)			220				-				-
Stock based compensation from issuance of stock options			-				-				752,760				-				752,760
Stock based compensation from issuance of stock warrants			-				-				161,700				-				161,700
Net loss			-				-				-				(12,146,447	)			(12,146,447	)
Balance at July 31, 2012			126,083,416			$	126,083			$	24,928,103			$	(25,672,904	)		$	(618,718	)
Sales of common stock			916,666				917				54,083				-				55,000
Stock issued for services			12,265,568				12,266				925,087				-				937,353
Conversion of Convertible Notes Payable to Common Stock			25,334,323				25,334				777,078				-				802,412
Issuance of Common Stock as Deferred Financing Cost			100,000				100				13,400				-				13,500
Stock based compensation from issuance of stock options			-				-				3,610,362				-				3,610,362
Stock based compensation from issuance of warrants			-				-				3,261,000				-				3,261,000
Forgiveness of debt by related party											126,566								126,566
Net loss			-				-				-				(9,177,491	)			(9,177,491	)
Balance at July 31, 2013			164,699,973			$	164,700			$	33,695,679			$	(34,850,395	)		$	(990,016	)
Derivative liability			-				-				(337,413	)			-				(337,413	)
Settlement of derivative liability			-				-				8,820				-				8,820
Stock issued for services			2,185,467				2,185				108,483				-				110,668
Stock issued due to exercise of warrants			1,523,666				1,524				(1,524	)			-				-
Stock based compensation from issuance of stock options			-				-				1,080,201				-				1,080,201
Net loss			-				-				-				(1,713,833	)			(1,713,833	)
Balance at October 31, 2013			168,409,106			$	168,409			$	34,554,246			$	(36,564,228	)		$	(1,841,573	)

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

Lightlake Therapeutics Inc.

( a Development Stage Enterprise)

Statements of Cash Flows (Unaudited)

For the three months ended October 31, 2013 and 2012 and the period

From inception (June 21, 2005) to October 31, 2013

 

		For the								From Inception
		Three Months Ended								(June 21, 2005)
		October 31,								to October 31,
		2013				2012				2013
Cash Flows Provided (Used) By Operating Activities
Net loss		$	(1,713,833	)		$	(857,314	)		$	(36,564,228	)
Adjustments to reconcile net loss to net cash used by operating activities:
Amortization			419				343				4,689
Issuance of common stock for services			110,668				546,821				18,573,848
Issuance of common stock as deferred financing costs			-				-				13,500
Stock based compensation from issuance of options			1,080,201				27,174				7,993,323
Stock based compensation from issuance of warrants			-				-				3,422,700
Accreted interest on debt discounts			132,428				102,609				613,193
Change in derivative			48,713				(21,152	)			(109,320	)
Changes in assets and liabilities:
(Increase) in prepaid insurance			8,500				-				(12,750	)
Increase (decrease) in accounts payable			(16,424	)			3,272				24,343
Increase in accrued salaries and wages			74,414				(7,500	)			532,050
Net cash used by operating activities			(274,914	)			(205,747	)			(5,508,652	)
Cash Flows Provided (Used) By Investing Activities			-				-				-
Cash Flows Provided (Used) By Financing Activities
Borrowings from related parties			-				-				922,587
Borrowings on convertible notes payable			-				187,500				604,500
Payments to related parties on notes payable			-				-				(436,175	)
Investment received in exchange for royalty agreement			-				-				750,000
Issuance of common stock for cash			-				-				3,991,449
Net cash provided from financing activities			-				187,500				5,832,361
Net increase (decrease) in cash and cash equivalents			(274,914	)			(18,247	)			323,709
Cash and cash equivalents, beginning of period			598,623				20,423				-
Cash and cash equivalents, end of period		$	323,709			$	2,176			$	323,709
Supplemental disclosure
Interest paid during the period		$	125,547			$	6,726			$	390,027
Taxes paid during the period		$	-			$	-			$	-
Non-Cash Transactions
Conversion of debt to equity		$	-			$	25,000			$	370,844
Debt discounts attributable to derivative valuation		$	132,428			$	-			$	452,205
Settlement of derivative liability		$	8,820			$	-			$	8,820
Cashless exercise of warrants		$	1,524			$	-			$	1,524
Derivative liability		$	337,413			$	-			$	337,413

 

The accompanying notes are an integral part of these unaudited financial statements.

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements (Unaudited)

 

 

1.

Organization, Description of Business, and Basis of Presentation

 

Business Organization

Lightlake Therapeutics Inc., (formerly known as Madrona Ventures, Inc.) (the “Company”), was originally incorporated in the State of Nevada on June 21, 2005. On September 16, 2009, the Company changed its name to Lightlake Therapeutics Inc. The Company’s fiscal year end is July 31.

 

Development Stage Entity

The Company is a development stage company as defined by ASC 915, Development Stage Entities.  The Company is still devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced.  All losses accumulated since inception have been considered as part of the Company's development stage activities.

 

Basis of Presentation

 

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, 2013 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 three months ended October 31, 2013 are not necessarily indicative of the results for the full fiscal year ending July 31, 2014.

 

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 and is dependent on obtaining adequate capital to fund operating losses until it becomes profitable. If the Company is unable to 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. These financial statements do not include any adjustments that might result from this uncertainty

 

3.

Summary of Significant Accounting Policies

 

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.

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

 

Fair Value of Financial Instruments

FASB Accounting Standards Codification (ASC) 820 “Fair Value Measurements and Disclosures” (ASC 820) defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy that distinguishes between (1) market participant assumptions developed based on market data obtained from independent sources (observable inputs) and (2) an entity’s own assumptions about market participant assumptions developed based on the best information available in the circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3).

 

The three levels of the fair value hierarchy are described below:

 

Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities.

 

Level 2 - Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

Level 3 - Inputs that are both significant to the fair value measurement and unobservable.

 

The carrying value of certain on-balance-sheet financial instruments approximated their fair values due to the short-term nature of these instruments. These financial instruments include accounts receivable, other current assets, accounts payable, accrued compensation and accrued expenses. The fair value of the Company’s notes payable is estimated based on current rates that would be available for debt of similar terms which is not significantly different from its stated value.

 

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of October 31, 2013:

 

		Amount				Level 1				Level 2				Level 3
Embedded conversion derivative liability		$	36,735			$	-			$	-			$	36,735
Warrant derivative liabilities			482,665				-				-				482,665
Total		$	519,400			$	-			$	-			$	519,400

 

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of July 31, 2013:

 

		Amount				Level 1				Level 2				Level 3
Embedded conversion derivative liability		$	9,666			$	-			$	-			$	9,666
Warrant derivative liabilities			-				-				-				-
Total		$	9,666			$	-			$	-			$	9,666

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

  

The following table provides a summary of the changes in fair value, including net transfers in and/or out, of the derivative financial instruments, measured at fair value on a recurring basis using significant unobservable inputs:

 

Balance at July 31, 2013		$	9,666
Fair value of warrant derivative liabilities at issuance			469,841
Settlement of derivative liability			(8,820	)
Unrealized derivative loss included in other expense			48,713
Balance at October 31, 2013		$	519,400

 

The fair value of the derivative liabilities are calculated at inception and the Company records a derivative liability for the calculated value. Changes in the fair value of the derivative liabilities are recorded in other income (expense) in the statements of operations.

 

As of October 31, 2013, there were a total of 14,420,452 derivative warrants outstanding which were valued using the Black Scholes option pricing model using the following assumptions:

 

		October 31, 2013				July 31, 2013
Market value of stock on measurement date		$	0.042			$	0.0289
Risk-free interest rate			0.57 - 0.94	%			0.11	%
Dividend yield			0	%			0	%
Volatility factor			199 - 454	%			76.9	%
Term			3.0 – 3.9 years				0.493 years

 

Reclassification

Certain amounts in the prior period financial statements have been reclassified to conform to the current period presentation. These reclassifications had no effect on reported losses.

 

Recently Issued 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.

 

4.

Revision of Prior Period Amounts

 

In preparing the Company’s financial statements for the quarter ended October 31, 2013, the Company discovered and corrected errors related to the accounting of stock options issued to officers and a director in prior years which were either fully vested at the date of grant or with a vesting term ranging up to 9 years. The prior year financial statements amortized these costs over the contractual term as opposed to the vesting period. This error resulted in misstatements in stock based compensation expense and additional paid in capital for the following fiscal years:

 

		Over (under) statement
July 31, 2011		$	(2,018,750	)
July 31, 2012			274,741
July 31, 2013			(2,181,461	)
Net understatement		$	(3,925,470	)

 

Additionally, 72,500,000 in warrants were issued to officers on December 31, 2012 as part of their employment agreements. These warrants vested on that date and were determined to have a fair value of $3,261,000. During the fiscal year ended July 31, 2013, the Company recognized an expense related to these warrants of $920,463. Therefore, there was a net understatement in stock-based compensation expense of $2,340,537 in the prior year.

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

  

In accordance with SEC Staff Accounting Bulletin Nos. 99 and 108 (“SAB 99 and SAB 108”), the Company evaluated these errors and, based on an analysis of quantitative and qualitative factors, determined that they were immaterial to each of the reporting periods affected and, therefore, amendment of previously filed reports with the Securities and Exchange Commission was not required. However, if the adjustments to correct the cumulative effect of the aforementioned errors had been recorded in the three months ended October 31, 2013, the Company believes the impact would have been significant to the current quarter and would impact comparisons to prior periods. Therefore, as permitted by SAB 108, the Company revised in the current filing the previously reported balance sheet as of July 31, 2013 and quarterly results during the three months ended October 31, 2012.

 

These errors did not impact total stockholders’ deficit but impacted additional paid in capital and accumulated deficit reported on the balance sheet at July 31, 2013, as follows:

 

		As previously reported				Adjustments				As revised
Additional paid in capital		$	27,429,672			$	6,266,007			$	33,695,679
Accumulated deficit during the development stage			(28,584,388	)		$	(6,266,007	)			(34,850,395	)

 

The impact of the above errors to the statement of operations for the three months ended October 31, 2012 is as follows:

 

		As previously reported				Adjustments				As revised
Revenues
Operating expenses
General and administrative			922,575				(238,659	)			683,916
Research and development			49,129				-				49,129
Mineral interests			-				-				-
Total operating expenses			971,704				(238,659	)			733,045
Other income (expense)
Interest expense			(145,421	)			-				(145,421	)
Change in derivative			21,152				-				21,152
Debt forgiveness			-				-				-
Total other income (expense)			(124,269	)			-				(124,269	)
Income (loss) before provision for income taxes			(1,095,973	)			(238,659	)			(857,314	)
Provision for income taxes			-				-				-
Net loss			(1,095,973	)			(238,659	)			(857,314	)
Loss per common share:
Basic and diluted		$	(0.01	)			-			$	(0.01	)
Weighted average common shares outstanding
Basic and diluted			128,120,714				-				128,120,714

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

 

The errors impacted additional paid in capital and accumulated deficit during the development stage reported in the statements of stockholders’ deficit as follows:

 

		As previously reported				Adjustments				As revised
Balance at July 31, 2011
Additional paid in capital		$	11,092,214			$	2,018,750			$	13,110,964
Accumulated deficit during the development stage			(11,507,707	)			(2,018,750	)			(13,526,457	)
Balance at July 31, 2012
Additional paid in capital			23,184,094				1,744,009				24,928,103
Accumulated deficit during the development stage			(23,928,895	)			(1,744,009	)			(25,672,904	)
Balance at July 31, 2013
Additional paid in capital			27,429,672				6,266,007				33,695,679
Accumulated deficit during the development stage			(28,584,388	)			(6,266,007	)			(34,850,395	)

 

The above errors did not impact previously reported amounts of net cash used in operating activities, investing activities and financing activities as reported in the statements of cash flows for the three months ended October 31, 2012.

 

5.

Concentrations of Credit Risk Arising from Cash Deposits in Excess of Insured Limits

 

The Company maintains its cash balances at one financial institution in several accounts. This bank is located in London, England (United Kingdom) and is insured by the Financial Services Compensation Scheme (United Kingdom equivalent of the Federal Deposit Insurance Corporation) and is insured up to $136,417 or 85,000 GBP. At October 31 and July 31, 2013 the Company had uninsured cash balances of $206,664 and $469,624, respectively.

 

6.

Related Party Transactions

 

At October 31 and July 31, 2013, the Company had loans outstanding with its three officers and a director in the amount of $350,000. During December 2012, funds were advanced in the amount of $350,000 to cover the short-term cash needs of the Company. These loans accrue interest at a rate of 6.0% per annum until their maturity dates.

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

 

7.

Stockholders’ Equity

 

Common Stock

 

On August 12, 2013, the Company issued 375,000 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $15,000.

 

On August 28, 2013, the Company issued 500,000 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $35,000.

 

On September 18, 2013, the Company issued 375,000 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $22,500.

 

On October 21, 2013, the Company issued 225,895 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $9,036.

 

On October 25, 2013, the Company issued 334,572 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $13,382.

 

On October 31, 2013, the Company issued 375,000 shares in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $15,750.

 

During the three months ended October 31, 2013, the Company issued 1,523,666 shares as a result of the cashless exercise of 168,000 warrants.

 

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. Stock based compensation expense recognized in the Statement of Operations for the three months ended October 31, 2013 and 2012 was $1,080,201 and $27,174, respectively.

 

On August 1, 2013 the Company granted its executive officers cashless stock options to purchase a total of 37,500,000 shares of its common stock at exercise prices ranging from $0.10 to $0.20 per share. These options vested immediately and expire in ten years on July 31, 2023. The Company has valued these options using the Black Scholes option pricing model which resulted in a fair market value of $1,068,750 which has been fully recognized as expense for the three months ended, October 31, 2013. The assumptions used in the valuation were as follows:

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

 

Market value of stock on measurement date		$	0.0285
Risk-free interest rate			2.74	%
Dividend yield			0	%
Volatility factor			459	%
Term			10 years

 

Stock option activity for three months ended October 31, 2013 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, 2013			76,250,000			$	0.18				5.56			$	-
Granted			37,500,000			$	0.16				-			$	-
Forfeited			-			$	-				-			$	-
Outstanding at May 31, 2013			113,750,000			$	0.17				6.78			$	-
Exercisable at May 31, 2013			75,625,000			$	0.20				7.28			$	-

 

At October 31, 2013, unrecognized stock-based compensation cost amounted to $14,927 which is expected to be recognized over a period of 1.25 years.

 

Warrants

 

Warrant activity for three months ended October 31, 2013 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, 2013			102,363,691			$	0.23				4.02			$	-
Granted			-			$	-				-			$	-
Exercised			168,000			$	0.50				-			$	-
Outstanding at May 31, 2013			102,195,691			$	0.23				3.77			$	-
Exercisable at May 31, 2013			29,695,691			$	0.42				2.81			$	-

 

 

Lightlake Therapeutics Inc.

 (a Development Stage Enterprise)

Notes to Financial Statements

 

 

8.

Subsequent Events

 

On December 3, 2013, Lightlake announced that the initial findings of its clinical trial with the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health, supports Lightlake’s intranasal delivery of naloxone as a promising innovative treatment for reversing opioid overdoses. Initial data from the study shows that the Company’s naloxone nasal spray potentially can be delivered into the blood stream at least as quickly as the injection process currently used by hospitals, first responders, and others treating opioid overdoses. Naloxone is a medicine currently available through injection that can rapidly reverse the overdose of prescription and illicit opioids. The Company, in partnership with NIDA, had commenced this two-week clinical trial on September 23rd, 2013.

 

 

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 period ended October 31, 2013 and 2012 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

 

Lightlake Therapeutics Inc. is an early stage biopharmaceutical company using its expertise in opioid antagonists to develop innovative treatments for common addictions and related 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.  The Company’s fiscal year end is July 31 and is a Development Stage Company.  The Company is an early stage biopharmaceutical company, currently developing a new approach for the treatment of overweight and obese patients with Binge Eating Disorder.  The Company’s strategy is to develop treatments to addictions and related disorders based on its expertise using opioid antagonists.

 

Currently, Lightlake is focused on developing (i) a treatment for overweight and obese patients with Binge Eating Disorder, which is thought to be the most common eating disorder in the United States today, (ii) a treatment for patients with Bulimia Nervosa, which is a condition estimated to be affecting five million people in the United States at this time, and (iii) a treatment to reverse opioid overdoses.

 

To date, Lightlake has carried out operations to utilize the patent and patent applications, including European Patent EP1681057B1 and US Patent Application 11/031,534, which were acquired on August 24, 2009 from Dr. David Sinclair.  The Company was informed on October 15, 2010, that the US Patent application was approved. These patents are related to a method for treating eating disorders by repeatedly administering naloxone in a dosage sufficient to block the effects of opiate agonists to a subject suffering from an eating disorder caused by one or more related problem responses (the “Sinclair Method”). The Sinclair Method was developed by Dr. David Sinclair original intended for the treatment of alcohol dependency.  In 1990, Dr. Sinclair discovered that the opioid antagonist naltrexone, when used correctly in the presence of drinking alcohol, resulted in a 78% success rate, with patients abstaining from alcohol or consuming it at safe levels.  In 1989, Dr. Sinclair patented his "Method for Treating Alcohol Drinking Responses,” also known as the “Sinclair Method,” and in 1994, the FDA approved the use of naltrexone as a treatment for alcohol dependency.  Since then, this form of treatment has been used by medical practices around the globe as an effective treatment for alcoholism. As stated above, the Company continues to explore various medical applications of this method due different medical conditions.

 

Product Development and Testing

   

Binge Eating Disorder

 

Lightlake is developing a treatment for Binge Eating Disorder derived from the “Sinclair Method.”

 

Patients suffering from Binge Eating Disorder typically exhibit a lack of control eating foods typically high in sugar, fat, or salt, and are able to override the feeling of fullness.  When these patients eat foods with high levels of sugar, salt, or fat, the opioidergic system is activated, which causes the firing of the neurons that release endorphins.  The endorphins then bind to opioid receptors on other neurons and activate these opioid receptors, which reinforces addictive behavior.  By blocking these opioid receptors with an opioid antagonist, the effect these endorphins have each time these foods are eaten is counteracted.

 

 

Lightlake considers naloxone the optimal opioid antagonist to address Binge Eating Disorder as naloxone remains in the brain for two hours, which is the duration of a typical binge.  Long-lasting opioid antagonists like naltrexone and nalmefene are sufficient for treating alcoholism and drug addiction, but the short-acting opioid antagonist naloxone, however works to selectively remove only unhealthy eating responses.  Moreover, the Company believes that its treatment is well-suited for treating Binge Eating Disorder as it is unlikely to be used in a truly chronic manner.  The Company expects that patients will only administer the treatment when they have the urge to binge eat, and the Company expects that they will require less of the spray over time as they regain control of their eating habits.

 

In 2011, Lightlake commenced a randomized double-blind placebo controlled Phase II trial investigating the use of naloxone intra-nasally as a treatment for Binge Eating Disorder.  The Company randomly selected 138 patients meeting the criteria for Binge Eating Disorder from over 900 applicants and 127 patients enrolled in the trial.  While each patient was randomized to take either intranasal naloxone or a placebo nasal spray, all of the patients participated in an exercise program—a behavior that the Company believes can be reinforced through this approach.  Some of the patients carried the A118G, which is a genetic variant for the Mu Opioid receptor, and the Company planned to determine whether their response to treatment differed.  The Company contracted the Phase II trial operations to Lightlake Sinclair of Helsinki, Finland.

 

In April 2012, Lightlake completed a Phase II clinical trial in Helsinki, Finland to investigate the use of the opioid antagonist naloxone delivered intra-nasally as a treatment for Binge Eating Disorder.  The Company’s approach was unique, through using a single agent with known safety, delivered intra-nasally, in response to behavioral stimuli, and selectively addressing a subset of obese and overweight patients which was thought to represent up to 25% of this total patient cohort.  The Company believed that its approach could deliver successful outcomes in a challenging area that recently encountered several failures.

 

On August 8, 2012, Lightlake announced the final data from the Phase II trial investigating the use of naloxone intra-nasally as a treatment for Binge Eating Disorder.  Results from this study have been very encouraging, whereby patients receiving naloxone demonstrated a significant reduction over placebo in reducing bingeing.  In addition, the patients receiving the naloxone nasal spray lost weight in the second half of the study and it would appear that patients with the highest BMI tended to reduce their bingeing the most.

 

On May 23, 2013, Lightlake presented the results of the Company’s Phase II clinical trial of its nasal spray treatment for Binge Eating Disorder at the American Psychiatric Association (“APA”) Annual Meeting in San Francisco. Binge Eating Disorder 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. This manual is the product of more than 10 years of effort by hundreds of international experts in all aspects of mental health. DSM-5 diagnostic criteria are concise and explicit, intended to facilitate an objective assessment of symptom presentations in a variety of clinical settings from inpatient to primary care. Binge Eating Disorder 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. The chapter also includes changes in the requirements for diagnosis of Anorexia Nervosa and Bulimia Nervosa, two potential additional indications for the Company’s treatment.

  

Lightlake now aims to collaborate with other parties to progress its drug development program for Binge Eating Disorder.  The Company has identified suitable centers in the United States and has plans for Imperial College London, United Kingdom, to be a major site for the European Union.  The Company currently has agreements to collaborate with Celesio AG and Lloyds Pharmacy, and the Company plans to pursue relationships to provide funding and strategic relationships that would help the Company reach key milestones.  The Company aims to broaden its product pipeline, and anticipates commencing further trials based on its existing, as well as potential patents that relate to the use of opioid antagonists.  

 

 

Bulimia Nervosa

 

Lightlake anticipates launching Phase II trials to investigate the application of the Company’s technology as a treatment for Bulimia Nervosa, and the Company is seeking funding to facilitate the launch of these trials.  The Company has made arrangements with King’s College London, UK, to conduct these trials at the institution.  In working with King’s College, which has an internationally renowned eating disorder unit, the Company believes that it will considerably strengthen the Company’s already distinguished research and development team.  Professor Janet Treasure, head of the Eating Disorders Unit at the South London and Maudsley NHS Trust and author of several well-regarded books on eating disorders, and Professor Ulrike Schmidt, a consultant psychiatrist for the Eating Disorders Service and a fellow of the Academy for Eating Disorders, would serve as tremendous guides for these Phase II trials.  The Company also is considering other trials leveraging off of its patent portfolio.

 

Opioid Overdose Reversal

 

On April 24, 2013, Lightlake announced that it had signed a collaboration agreement with the Division of Pharmacotherapies and Medical Consequences of Drug Abuse (“DPMCDA”) of the National Institute on Drug Abuse (“NIDA”), part of the National Institutes of Health (“NIH”), to co-develop a treatment for the reversal of opioid overdoses. Under the terms of the agreement, the DPMCDA of NIDA agreed to sponsor a Phase I clinical study designed to evaluate the pharmacokinetic properties of the Company’s product candidate in 14 healthy volunteer subjects. Assuming successful completion of this study, NIDA plans to file an IND for a final larger study. The goal of the collaboration was to establish a clinical development plan and regulatory pathway that would potentially result in FDA approval and commercialization of a new pharmaceutical treatment that effectively reverses opioid overdoses within 18 months.

 

With respect to Lightlake’s potential treatment for reversing opioid overdoses, on April 16, 2013 and May 30, 2013, the Company entered into agreements and subsequently received funding from one investor in the amounts of $600,000 and $150,000, respectively, for the research, development, marketing and commercialization of the Company’s aforementioned treatment. In exchange for these investments, the Company agreed to pay the investor 6.0% and 1.5%, respectively, of the net profit generated from the product used for this treatment 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 introduced to the market and not approved for marketing within 24 months of the dates of investment, the investor will have a sixty day option to receive 7,500,000 and 1,875,000 shares of common stock in lieu of the 6.0% and 1.5% interests in the product, respectively. This investment was accounted for as an equity investment and increased paid in capital.

 

On September 23, 2013, Lightlake commenced a two-week patient trial for the treatment to reverse opioid overdoses in collaboration with NIDA, part of the NIH. This study was designed to evaluate the pharmacokinetic properties of the Company's intranasal naloxone application for the novel intranasal naloxone application. Naloxone is a medicine currently available through injection that can rapidly reverse the overdose of prescription and illicit opioids. The Company’s new intranasal delivery system of naloxone could widely expand its availability and use in preventing opioid overdose deaths. NIDA plans to file an IND for a larger study. The expected goal of the Company’s partnership with NIDA is to have an FDA approved intranasal naloxone solution for the reversal of opioid overdoses that can be brought to market within 12 to 18 months.

 

Recent Development in Opioid Overdose Reversal Clinical Trial

 

On December 3, 2013, Lightlake announced that the initial findings of its clinical trial with NIDA, part of the NIH, supports Lightlake’s intranasal delivery of naloxone as a promising innovative treatment for reversing opioid overdoses. Initial data from the study shows that the Company’s naloxone nasal spray potentially can be delivered into the blood stream at least as quickly as the injection process currently used by hospitals, first responders, and others treating opioid overdoses.

 

 

Results of Operations

 

The following compares Lightlake’s operations for the three months ended October 31, 2013 to the same period at October 31, 2012.

 

Revenues

Lightlake did not have any revenues during the three months ended October 31, 2013 or 2012, and has generated no revenues since inception, as the Company is devoting substantially all of its efforts on establishing the business and its planned principal operations have not commenced.  All losses accumulated since inception have been considered as part of the Company's development stage activities.

 

General and Administrative Expenses

Operating expenses were incurred in the amount of $1,539,573 and $733,045 for the three months ended October 31, 2013 and 2012, respectively.  The difference in the year over year change of $806,528 included stock based compensation issued to officers and outside consultants to incentive and retain their services, which were in the amounts of $1,080,201 and $110,668, respectively.

 

Research and Development Expenses

Lightlake spent $57,590 and $49,129 during the three months ended October 31, 2013 and 2012, respectively. The increase of $8,461 was due to expenses entailed with respect to the collaboration with NIDA during the three months ended October 31, 2013. The Company does not anticipate any decreases in expenditures related to research and development; however, the Company’s research and development initiatives and processes are dependent on the ability of the Company to raise capital.

 

Interest Expense

During the three months ended, October 31, 2013, interest expense decreased by $19,874 to $125,547 as compared to the three months ended October 31, 2012. This decrease was due to a reduction in obligations connected to outstanding convertible debt as compared to the three months ended October 31, 2012.

 

Net Loss 

The comparable net loss for the three months ended October 31, 2013 and since inception was $1,713,833, and $36,564,228, respectively, as compared to the net loss for the three months ended October 31, 2012 and since inception to October 31, 2012 of $857,314 and $26,530,218, respectively. Included in these net losses was the recognition of interest expense derived from the issuance of convertible notes payable and the issuance of stock based compensation to officers in the amount of $1,080,201 during the three months ended October 31, 2013 as compared to $27,174 during the same period in 2012, and the issuance of common stock to outside consultants for services rendered in the amount of $110,668 during the three months ended October 31, 2013 as compared to $546,821 during the same period in 2012. Additionally, Lightlake has recognized debt discounts and beneficial conversion features of the Company’s derivative debt contracts arising out of the Company’s convertible notes payable.  

 

Liquidity and Capital Resources

 

Lightlake’s cash position of $323,709 at October 31, 2013 is not sufficient to meet the Company’s obligations for the next twelve-month period. As a result, the Company will need to seek additional funding. The Company currently does not have a specific plan of how the Company will obtain such funding; however, the Company anticipates that additional funding will be in the form of debt financing and/or equity financing from the sale of the Company’s common stock or in the form of financing from the sale of interests in the Company’s prospective products.  At this time, the Company cannot provide investors with any assurance that the Company will be able to obtain sufficient funding to meet the Company’s obligations over the next twelve months. The Company does not have any arrangements in place for any future financing and may seek to obtain additional short-term loans from its officers and directors to meet its short-term funding needs. .However, during the third and fourth quarters of the fiscal year ended July 31, 2013, the Company received funding of $600,000 and $150,000, respectively, which increased the cash position of the Company. As stated above, we expect that we will continue to issue debt and/or equity to sustain the implementation of our business plan.

  

The financial position of Lightlake at October 31, 2013 and the year ended July 31, 2013 showed a decrease in assets from the year ended July 31, 2013 of $283,833 to $359,220. This was due to a decrease in the Company’s cash position, which was due to Company’s funding the operations during the first quarter. The liabilities at October 31, 2013 increased $567,724 to $2,200,793. This increase included an increase in the derivative liability of $509,734 related to the convertible debt outstanding and certain warrants that qualify for derivative accounting.

 

 

Going Concern

 

Lightlake is a Development Stage Company.  The Company has not attained profitable operations and is dependent upon obtaining financing to pursue additional clinical trials with respect to Binge Eating Disorder and to develop the other parts of the Company’s pipeline.  In their report on the Company’s financial statements at October 31, 2013 and July 31, 2013, the Company’s auditors raised substantial doubt about the Company’s ability to continue as a going concern.

 

Plan Of Operation

 

During the next year, Lightlake aims to broaden the Company’s product pipeline, and anticipates commencing further trials based on the Company’s existing as well as potential patents. 

 

Lightlake aims to collaborate with other parties to progress the Company’s drug development program for Binge Eating Disorder.  The Company has identified suitable centers in the United States and has plans for Imperial College London, United Kingdom, to be a major site for the European Union.  The Company currently has agreements to collaborate with Celesio AG and Lloyds Pharmacy, and the Company plans to pursue relationships to provide funding and strategic relationships that would help the Company reach key milestones. The Company also is looking to commence Phase II trials to investigate an opioid antagonist-based treatment for Bulimia Nervosa at King’s College London, UK, as the Company is confident that it can apply the same science to develop a solution for this condition. In working with King’s College, which has an internationally renowned eating disorder unit, the Company believes that it will considerably strengthen the Company’s already distinguished research and development team.  Professor Janet Treasure, head of the Eating Disorders Unit at the South London and Maudsley NHS Trust and author of several well-regarded books on eating disorders, and Professor Ulrike Schmidt, a consultant psychiatrist for the Eating Disorders Service and a fellow of the Academy for Eating Disorders, would serve as tremendous guides for these Phase II trials.

  

As a result of the NIDA initial data announced on December 3, 2013, Lightlake aims to further develop a treatment for the reversal of opioid overdose. The goal is to establish a clinical development plan and regulatory pathway that will potentially result in FDA approval and commercialization within 12 to 18 months of a new pharmaceutical treatment that can rapidly reverse the overdose of prescription and illicit opioids.

 

At this time, Lightlake cannot provide investors with any assurance that the Company will be able to obtain sufficient funding from debt financing or the sale of the Company’s common stock to meet the Company’s obligations over the next twelve months.  The Company does not have any arrangements in place for any future equity financing.  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.  The Company has no material commitments for capital expenditures as of October 31, 2013. 

 

Critical Accounting Policies and Estimates

 

Lightlake believes that the following critical policies affect the Company’s more significant judgments and estimates used in preparation of the Company’s financial statements.

 

Lightlake 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 Board of Directors; however, actual results could differ from those estimates.

 

 

Lightlake 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.

 

Lightlake 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, Lightlake 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 receivable, accounts payable, and accrued expenses. 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. The fair value of Lightlake’s notes payable is estimated based upon the quoted market prices for the same or similar issues or on the current rates offered to the Company for debt of the same remaining maturities.

 

Off-Balance Sheet Arrangements

 

Lightlake has no off-balance sheet arrangements as of October 31, 2013 and July 31, 2013.

 

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.

 

Item 3.       Quantitative and Qualitative Disclosures About Market Risk

 

Smaller reporting companies are not required to provide the information required by this item.

 

Item 4.       Controls and Procedures

 

Disclosure Controls and Procedures

 

Evaluation of Disclosure Controls and Procedures

 

Under the supervision and with the participation of our management, including our Chief Executive Officer and our Chief Financial Officer, we carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures as defined in Rules 13a-15(f) and 15d-15(f)) under the Exchange Act.  Management conducted its evaluation based on the framework in Internal Control – Integrated Framework issued by the Committee on Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our Chief Executive Officer and our Chief Financial Officer have concluded that, as of October 31, 2013, our internal control over financial reporting was not effective due to material weaknesses in the system of internal control.  A material weakness is a deficiency, or combination of deficiencies, that creates a reasonable possibility that a material misstatement of the annual or interim financial statements will not be prevented or detected in a timely manner.

 

  

Disclosure controls and procedures are controls and other procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms.  Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, or persons performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.

 

The material weaknesses assessed by our management were (1) we have not implemented measures that would prevent the chief executive officer and the chief financial officer from overriding the internal control system; (2) we do not have an audit committee; (3) we have a lack of outside directors on the board of directors; and (4) we did not design or maintain effective controls over the completeness and accuracy of our calculation of stock-based compensation expense. We do not believe that these material weaknesses have resulted in deficient financial reporting because both the chief executive officer and the chief financial officer are aware of their responsibilities under the SEC’s reporting requirements and they both personally certify our financial reports.

 

Accordingly, while we have identified material weaknesses in our system of internal control over financial reporting, we believe we have taken reasonable steps to ascertain that the financial information contained in this report is in accordance with generally accepted accounting principles. Our management has determined that current resources would be appropriately applied elsewhere and when resources permit, it will address and remediate material weaknesses through implementing various controls or changes to controls. At such time, as we have additional financial resources available to us, we intend to enhance our controls and procedures. We will not be able to assess whether the steps we intend to take will fully remedy the material weakness in our internal control over financial reporting until we have fully implemented them and sufficient time passes in order to evaluate their effectiveness.

  

Limitations on the Effectiveness of Controls

 

Our disclosure controls and procedures are designed to provide reasonable, not absolute, assurance that the objectives of our disclosure control system are met.  Because of inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues, if any, within a company have been detected. Based on their evaluation as of the end of the period covered by this report, management concluded that our disclosure controls and procedures were sufficiently effective to provide reasonable assurance that the objectives of our disclosure control system were met.

 

Changes in Internal Control over Financial Reporting

 

There have been no changes in our internal controls over financial reporting identified in connection with the evaluation required by paragraph (d) of Securities Exchange Act Rule 13a-15 or Rule 15d-15 that occurred in the nine months ended October 31, 2013 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

 

PART II— OTHER INFORMATION

 

Item 1.       Legal Proceedings.

 

None.

 

Item 1A.    Risk Factors.

 

Smaller reporting companies are not required to provide the information required by this item. 

 

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

 

On August 12, 2013, the Company issued 375,000 shares to a consultant in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $15,000.

 

On August 28, 2013, the Company issued 500,000 shares to three consultants in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $35,000.

 

On September 18, 2013, the Company issued 375,000 shares to the same consultant issued shares on August 12, 2013, in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $22,500.

 

On October 21, 2013, the Company issued 225,895 shares to a law firm in exchange for legal services rendered. The shares issued in this transaction were valued at market and amounted to $9,036.

 

On October 25, 2013, the Company issued 334,572 shares to a consultant in exchange for services rendered connected to investor relations. The shares issued in this transaction were valued at market and amounted to $13,382.

 

On October 31, 2013, the Company issued 375,000 shares the same consultant issued shares on August 12, 2013 and September 18, 2013 in exchange for services rendered. The shares issued in this transaction were valued at market and amounted to $15,750.

 

These shares were issued in reliance on the exemption under Section 4(2) of the Securities Act. These shares of our common stock qualified for exemption under Section 4(2) since the issuance shares by us did not involve a public offering. The offering was not a “public offering” as defined in Section 4(2) due to the insubstantial number of persons involved in the deal, size of the offering, manner of the offering and number of shares offered. We did not undertake an offering in which we sold a high number of shares to a high number of investors. In addition, the investors had the necessary investment intent as required by Section 4(2) since they agreed to and received share certificates bearing a legend stating that such shares are restricted pursuant to Rule 144 of the Act. This restriction ensures that these shares would not be immediately redistributed into the market and therefore not be part of a “public offering.” Based on an analysis of the above factors, we have met the requirements to qualify for exemption under Section 4(2) of the Securities Act for this transaction.

 

Item 3.       Defaults Upon Senior Securities.

 

None.

 

Item 4.       Mine Safety Disclosures.

 

Not applicable.

  

Item 5.       Other Information.

 

None.

 

 

Item 6.       Exhibits

 

Exhibit Number		Exhibit Title
3(i)		Articles of Incorporation filed June 21, 2005(1).
3(ii)		Bylaws(1)
10.6**		US Patent Application.
10.7**		European Patent.
10.8		Sinclair Employment Agreement.(2)
10.9		Crystal Employment Agreement.(2)
10.10		Pollack Employment Agreement.(2)
10.11		Wolf Agreement.(2)
31.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1		Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2		Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
101.INS		XBRL Instance Document
101.SCH		XBRL Taxonomy Schema
101.CAL		XBRL Taxonomy Calculation Linkbase
101.DEF		XBRL Taxonomy Definition Linkbase
101.LAB		XBRL Taxonomy Label Linkbase
101.PRE		XBRL Taxonomy Presentation Linkbase

 

In accordance with SEC Release 33-8238, Exhibit 32.1 and 32.2 are being furnished and not filed.

 

(1)

Incorporated by reference to Lightlake’s SB-2 Registration Statement filed on 1/11/07.

(2)

Incorporated by reference to Lightlake’s Annual Report on Form 10-K filed on 10/29/13.

** Previously filed.

 

   

SIGNATURES

 

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

 

	LIGHTLAKES THERAPUETICS INC.
Date: December 16, 2013	By:	/s/ Dr. Roger Crystal
		Name:  Dr. Roger Crystal
		Title: Chief Executive Officer, President and Director
		(Principal Executive Officer)

 

Date: December 16, 2013	By:	/s/ Kevin Pollack
		Name: Kevin Pollack
		Title: Chief Financial Officer and Director
		(Principal Financial and Accounting Officer)