Forward-Looking Statements
The following plan of operation provides information which management believes
is relevant to an assessment and understanding of our results of operations and
financial condition. The discussion should be read along with our financial
statements and notes thereto. This section includes a number of forward-looking
statements that reflect our current views with respect to future events and
financial performance. Certain statements that the Company may make from time to
time, including all statements contained in this report that are not statements
of historical fact, constitute "forward-looking statements". Forward-looking
statements may be identified by words such as "plans," "expects," "believes,"
"anticipates," "estimates," "projects," "will," "should," and other words of
similar meaning used in conjunction with, among other things, discussions of
future operations, financial performance, product development and new product
launches, market position and expenditures. You should not place undue certainty
on these forward-looking statements. These forward-looking statements are
subject to certain risks and uncertainties that could cause actual results to
differ materially from our predictions.
The following Management's Discussion and Analysis of Financial Condition and
Results of Operations ("MD&A") is intended to help you understand our historical
results of operations during the periods presented and our financial condition
for the years ended June 30, 2021 and 2020. This MD&A should be read in
conjunction with our financial statements as of June 30, 2021 and 2020. See
section entitled "Forward-Looking Statements" above.
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Overview
We are engaged in pursuing pre-clinical and drug development activities for
certain pharmaceutical formulations that include cannabinoids. We have filed
three provisional patent applications, and acquired a license covering certain
intellectual property related to a drug delivery system. In October 2018, we
acquired all of the membership interest in CRx Bio Holdings LLC, which also
engaged in the research and development of advanced cannabinoid formulations and
drug delivery systems, by issuing 11,000,000 shares of our common stock. As part
of the CRx acquisition, we also acquired three additional patent applications.
CRx had an agreement with a major university to perform pre-clinical research
related to the parenteral administration of cannabinoid formulations. As this
research was common to both the CRx programs and the Nexien programs, we
consolidated this research for the purposes of the Nexien capital expenditure
budget. In March 2021, four of the Sellers terminated their relationships with
the Company and forfeited their remaining 2,409,000 unvested shares, valued at
the original issuance price of $1,830,840 ($0.76 per share).
As a relatively new business engaged in start-up operations and activities, we
will require substantial additional funding to successfully complete any of our
drug development programs. At present, we cannot estimate the substantial
capital requirements needed to secure regulatory approvals for our drug
candidates. We estimate that we will need to raise at a minimum $40,000 just to
maintain our existence as a public company for the remainder of the current
calendar year.
We are a start-up company with no revenues from operations. Notwithstanding our
successful raise of $2,076,158, net of offering costs, in equity capital since
inception to June 30, 2021 there is substantial doubt that we can continue as an
on-going business for the next twelve months without a significant infusion of
capital or entering into a business combination transaction. We do not
anticipate that Nexien BioPharma will generate revenues from its research and
development activities related to its drug development projects in the near
future, due to the protracted revenue model of pursuing pharmaceutical drug
development in accordance with the pathway set forth by the FDA.
Results of Operations
Net loss for the year ended June 30, 2021 was $1,859,942 as compared to the net
loss for the year ended June 30, 2020 of $2,671,617, a decrease of $811,675. As
explained below, most of the loss is attributable to significant stock-based
compensation costs, the fair value of common stock issued for the CRx
acquisition, and the impairment charge related to license fees.
The Company incurred professional fees of $43,710 for the year ended June 30,
2021, a decrease of $6,821 from $50,531 for the year ended June 30, 2020. Fees
for 2021 and 2020 were for SEC regulatory and statutory filings, audit fees,
filings with the U.S. Patent Office and the FDA, and patent related filing fees
in Canada and Europe.
General and administrative costs of $1,800,057 incurred for the year ended June
30, 2021 includes $306,250 of non-cash stock-based compensation costs for common
shares issued to officers and directors and the fair value of vested stock
options granted of $348,953.,. Also included in general and administrative
expenses for 2021 is a non-cash charge of $1,093,667 for the vesting of shares
issued to CRx subject to forfeiture. General and administrative costs for the
year ended June 30, 2020 of,$2,495,386 includes $52,137 of non-cash stock-based
compensation costs for: vesting of common shares previously issued to management
valued at $18,750; and the fair value of vested stock options granted of
$33,387. Also included in general and administrative expenses for 2020 is a
non-cash charge of $2,303,195 for the vesting of shares issued to CRx subject to
forfeiture.
Exclusive of stock-based compensation costs, general and administrative costs
for the year ended June 30, 2021 were $94,895 a decrease of $45,162 from the
June 30, 2020 comparable costs of $140,057. The decrease of $45,162 was
attributable to cost containment efforts instituted by the Company during the
2020 fiscal year to preserve capital. During the year ended June 30, 2020, the
Company charged to operations $90,667 for management fees to a related party
which were classified as prepaid expenses at June 30, 2019.
During the year ended June 30, 2021, the Board of Directors granted options to
purchase a total of 5,000,000 shares of common stock to officers of the Company,
exercisable for a period of seven years at an exercise price of $0.08 per share.
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There were no research and development costs incurred for the years ended June
30, 2021 and 2020, due to the Company's limited financial resources and
availability of research personnel.
The Company has previously estimated that it may not be able to recover the
$302,915 carrying value of costs capitalized under the Kotzker License Agreement
and recognized an impairment of the $302,915 at June 30, 2019. In December 2020,
the Company elected to terminate the agreement with Kotzker, and assigned the
licensed intellectual property back to Kotzker, issuing 150,000 restricted
shares of common stock, valued at $13,500 ($0.09 per share) as a final payment
for consulting fees owed.
On February 28, 2018, the Company obtained a worldwide exclusive license with
respect to a proprietary delivery system for cannabinoid-based medications from
Accu-Break Pharmaceuticals Inc (Accu-Break). Upon execution of the agreement, as
amended September 18, 2018, $35,000 was paid to the licensor; an additional
$30,000 was paid in cash during the year ended June 30, 2019; and a final
payment of $35,000 was paid in common stock of the Company during the year ended
June 30, 2020. The Company is required to pay milestone payments upon obtaining
regulatory approval of pharmaceutical licensed products and royalties based upon
sales of licensed products. The Company may grant sublicenses under the terms of
the agreement. The Company has previously estimated that it may not be able to
recover the $65,000 of costs capitalized under the Accu-Break License Agreement,
and recognized an impairment of $65,000 for the license at June 30, 2019. The
$35,000 value of common stock issued in the year ended June 30, 2020 was charged
to operations. Although the Company has recognized an impairment under Generally
Accepted Accounting Principles, it retains its rights under the AccuBreak
license agreement.
The Company incurred interest expense of $3,234 and $33, respectively, during
the years ended June 30, 2021 and 2020 for interest on debt offerings during the
periods. At June 30, 2021 and 2020, the Company had outstanding notes in the
principal amounts of $65,000 and $12,000, respectively.
During the year ended June 30, 2021, the Company incurred $12,941 for interest
and amortization of discount related to the convertible debt financings.
Liquidity and Capital Resources
At June 30, 2021, we had a working capital deficit of $13,775 and cash of
$18,041 as compared to a working capital deficit of $6,365 and cash of $10,786
at June 30, 2020. The increase in working capital was due primarily to the
Company's utilization of existing funds for operating activities. We used
$90,745 of cash for operating activities, and had increase in liquidity from
financing of $98,000 from a convertible debt loan from our CEO and a major
shareholder and a $20,000 advance for operating activities from our CEO during
the year ended June 30, 2021. Operating and investing activities utilized cash
of $147,570 during fiscal 2020, with cash provided from financing activities of
$12,000 from a loan from our CEO.
The unsecured convertible promissory notes issued during the fiscal year ended
June 30, 2021 are due in three years (November 24, 2023) and accrue interest at
the rate of 8% per annum, compounded annually. The notes and accrued interest
are convertible at the option of the holders at any time into restricted shares
of the Company's common stock at a price of $0.037631, being the volume-weighted
average price of the common stock over the 10 trading days immediately preceding
the date the Note was funded. The CEO was issued a note in the principal amount
of $40,000, which included a $15,000 advance made in October 2020 and an
additional loan of $25,000. A stockholder of the Company loaned $25,000 on these
same terms. Both lenders were also issued three types of warrants, exercisable
for a five-year period, at prices of $0.040265, $0.043276, and $0.045157, to
purchase a total of 5,181,897 shares. In June 2021, the Company's CEO advanced
$20,000 to the Company for operating capital purposes.
In June 2021, the Company's Chief Executive Officer advanced $20,000 to the
Company for working capital and operating purposes. The advance is non-interest
bearing and is repayable on demand.
While management of the Company believes that the Company will be successful in
its current and planned activities, there can be no assurance that the Company
will be successful in its drug development activities, and raise sufficient
equity, debt capital or strategic relationships to sustain the operations of the
Company.
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Our ability to create sufficient working capital to sustain us over the next
twelve-month period, and beyond, is dependent on our raising additional equity
or debt capital, or entering into strategic arrangements with one or more third
parties.
There can be no assurance that sufficient capital will be available to us. We
currently have no agreements, arrangements or understandings with any person to
obtain funds through bank loans, lines of credit or any other sources.
Availability of Additional Capital
Notwithstanding our success in raising gross proceeds of $2.1 million from the
private sale of equity securities through June 30, 2021, there can be no
assurance that we will continue to be successful in raising equity capital and
have adequate capital resources to fund our operations or that any additional
funds will be available to us on favorable terms or in amounts required by us.
We estimate that we will need to raise at a minimum $40,000 just to maintain our
existence as a public company for the remainder of the current calendar year.
Any additional equity financing may be dilutive to our stockholders, new equity
securities may have rights, preferences or privileges senior to those of
existing holders of our shares of Common Stock. Debt or equity financing may
subject us to restrictive covenants and significant interest costs.
Capital Expenditure Plan During the Next Twelve Months
To date, we raised approximately $2.1 million, in equity capital (including
exercised warrants) and we may be expected to require a minimum of $40,000 in
capital during the remainder of the current calendar year to continue our
existence as a public company. There can be no assurance that we will continue
to be successful in raising capital in sufficient amounts and/or at terms and
conditions satisfactory to the Company. Our revenues are expected to come from
our drug development projects. As a result, we will continue to incur operating
losses unless and until we have obtained regulatory approval with respect to one
of our drug development projects and commence to generate sufficient cash flow
to meet our operating expenses. There can be no assurance that we will obtain
regulatory approval and the market will adopt our future drugs. In the event
that we are not able to successfully: (i) raise equity capital and/or debt
financing; or (ii) market our drugs after obtaining regulatory approval, our
financial condition and results of operations will be materially and adversely
affected.
Going Concern Consideration
Our registered independent auditors have issued an opinion on our financial
statements as of June 30, 2021 which includes a statement describing our going
concern status. This means that there is substantial doubt that we can continue
as an on-going business for the next twelve months unless we obtain additional
capital to pay our bills and meet our other financial obligations. This is
because we have not generated any revenues and no revenues are anticipated until
we begin marketing any drugs that we successfully develop. Accordingly, we must
raise capital from sources other than the actual sale from any drugs that we
develop. We must raise capital to continue our drug development activities and
stay in business.
Off-Balance Sheet Arrangements
At June 30, 2021 and 2020, we did not have any off-balance sheet arrangements as
defined in Item 303(a)(4)(ii) of Regulation S-K promulgated under the Securities
Act of 1934.
Contractual Obligations and Commitments
On September 19, 2017, we entered into an agreement with a contract manufacturer
with significant expertise in pre-clinical and clinical trial development and
regulatory approvals to develop an injectable formulation for our drug candidate
in the Kotzker Development Project with the objective of applying for FDA
approval. It is anticipated that the drug candidate will be developed utilizing
the new drug application 505(b)(2) regulatory pathway for use in the treatment
during and immediately following exposure to organophosphorus nerve agents. The
formulation of the drug candidate will be based on one or more synthetic
cannabinoids. We paid $75,000 to the contract manufacturer upon signing the
contract, which further provides that we pay an additional $20,000 upon
completion of the drug formulation and $20,000 upon completion of Phase 1
development. No payment schedule has yet been agreed to upon completion of Phase
2 and Phase 3 development stage and the contract may be terminated by either
party.
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On February 28, 2018, we obtained a worldwide exclusive license with respect to
a proprietary delivery system for cannabinoid-based medications. Upon execution
of the agreement, as amended September 18, 2018, $35,000 was paid to the
licensor. An additional $10,000 was paid on November 1, 2018, $20,000 was paid
on February 28, 2019 and a final payment, in cash or stock at the option of the
Company, of $35,000, due August 31, 2019, was paid in shares of our common
stock. We are required to pay milestone payments upon obtaining regulatory
approval of pharmaceutical licensed products and royalties based upon sales of
licensed products. We may grant sublicenses under the terms of the agreement.
The Company determined that it may not be able to recover the $65,000 of costs
capitalized under the Accu-Break License Agreement, and has recognized an
impairment of $65,000 at June 30, 2019. The $35,000 value of common stock issued
in the year ended June 30, 2020 was charged to operations. Although the Company
has recognized an impairment under Generally Accepted Accounting Principles, it
retains its rights under the Accu-Break License Agreement.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial
statements as of June 30, 2021 and 2020 and are included elsewhere in this
report.
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