NEUROPATHIX, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS. (form 10-K)

You should read the following discussion and analysis of our financial condition
and operating results together with our consolidated financial statements and
related notes included elsewhere in this Annual Report on Form 10-K. This
discussion and analysis and other parts of this Annual Report on Form 10-K
contain forward-looking statements based upon current beliefs, plans and
expectations that involve risks, uncertainties and assumptions. Our actual
results may differ materially from those anticipated in these forward-looking
statements as a result of various factors, including those set forth under "Risk
Factors" or in other parts of this annual report. The last day of our fiscal
year is December 31. Our fiscal quarters end on March 31, June 30, September 30,
and December 31, and our current fiscal year ended on December 31, 2021.

Business Developments

The Company was originally incorporated in the State of Delaware on March 25,
2013 under the name TYG Solutions Corp. Our original business plan was to
develop iPhone and Android smartphone apps for companies who need an app for
their internal and external operations. We subsequently expanded our operations
to offering corporate website design services.

On July 25, 2018, the Company entered into a Share Exchange Agreement with
Kannalife Sciences, Inc., a Delaware corporation ("Kannalife Sciences"), and
certain stockholders of Kannalife Sciences (the "Kannalife Sciences
Stockholders"). Pursuant to the terms of the Share Exchange Agreement, the
Company acquired substantially all of the issued and outstanding shares of
Kannalife Sciences by means of a share exchange with the Kannalife Sciences
Stockholders in exchange for newly issued shares of the common stock of the
Company (the "Share Exchange"). As a result of the Share Exchange, Kannalife
Sciences became a 99.7% owned subsidiary of the Company. The business operations
of the Company regarding iPhone and Android smartphone apps was reduced
significantly to focus efforts on target therapeutics and drug discovery, and
accordingly, by virtue of the Share Exchange, the Company acquired the business
of Kannalife Sciences including all of its assets. The Share Exchange was
accounted for as a reverse acquisition and change in reporting entity, whereby
Kannalife Sciences was the accounting acquirer.

Kannalife Sciences was incorporated in the State of Delaware on August 11, 2010.
Kannalife Sciences is a developmental stage phyto-medical/pharmaceutical and
drug discovery company that specializes in the research, development of
cannabinoid and cannabinoid-based therapeutic products derived from synthetic
and botanical sources, including the Cannabis "taxa" (the word "taxa" is the
plural of "taxon," which defines a group of one or more populations of an
organism or organisms to form a unit). On November 9, 2018, the Company filed an
amendment to its certificate of incorporation with the Delaware Secretary of
State to change its name to Kannalife, Inc. The Company concurrently submitted a
request to FINRA for approval of the name change as well as a ticker symbol
change to "KLFE," and such action went effective on January 17, 2019.  Kannalife
Sciences remains a wholly owned operational subsidiary of the Company.

On November 9, 2018, the Company filed an amendment to its certificate of incorporation with the Delaware Secretary of State to change its name to Kannalife, Inc. The Company concurrently submitted a request to FINRA for approval of the name change as well as a ticker symbol change to "KLFE" and such action went effective on January 17, 2019.

On November 4, 2020, the Company filed an amendment to its certificate of
incorporation with the Delaware Secretary of State to change its name to
"Neuropathix, Inc." The Company concurrently submitted a request to FINRA for
approval of the name change as well as a ticker symbol change from "KLFE" to
"NPTX." The Company's name change and ticker symbol change was reviewed and
processed by FINRA, and went effective November 6, 2020.

On August 16, 2021, the Company established and incorporated a new wholly owned
subsidiary named Dermique Incorporated ("Dermique"). Dermique was established by
the Company to hold, operate and commercialize all intellectual property
associated with Kannalife Sciences' previous research and development efforts to
create and commercialize novel therapeutic topical over-the-counter
cosmeceutical compounds to treat a variety of skin disorders, including but

not
limited to atopic dermatitis.

  87




Business Overview

As a result of the Share Exchange, our core businesses are comprised of the following:

• A drug development company focused on the research and development (R&D) of

synthetic and phyto-medical products from:

• naturally recurring sources, including but not limited to cannabis, hemp, and other similar species of plantae;

• semi-synthetic sources; and

• synthetic and bio-synthetic sources.

• Drug discovery platform to evaluate and potentially treat neurological and

oxidative stress related disorders such as OHE, CTE and CIPN with high quality

assured, quality controlled cGMP pharmaceutical grade semi-synthetic and

synthetic cannabinoids, CBD, and CBD-like molecules.

• Topical skincare pre-clinical program designed to some of our patented,

proprietary CBD-derived NCEs, for use as topical solutions, ointments, and

creams for disorders such as diabetic neuropathies, diabetic ulcers, and for

   use as an anti-pruritic. Anti-pruritics are known as anti-itch drugs and
   medications that inhibit the itching often associated with a variety of
   disorders and diseases.


Phyto cannabinoids are a class of molecules derived from cannabis plants. The
two primary cannabinoids contained in Cannabis are CBD and
D9-tetrahydrocannabinol, or THC. Clinical and preclinical data suggest that CBD
has positive effects on treating refractory epilepsy, FXS and arthritis, and THC
has positive effects on treating pain. Interest in cannabinoid therapeutics has
increased significantly over the past several years as preclinical and clinical
data has emerged highlighting the potential efficacy and safety benefits of
cannabinoid therapeutics. The cannabinoid therapeutics market is expected to
grow significantly due to the potential benefits these products may provide over
existing therapies.

KLS-13019's advanced formulation is designed to improve on some of the
limitations associated with CBD, including but not limited to CBD's low
bioavailability and limited drug like properties. However, KLS-13019 has not
been reviewed or approved for patient use by the FDA or any other healthcare
authority in the world. Our pre-clinical studies suggest increased
bioavailability, consistent plasma levels and the avoidance of first-pass liver
metabolism. In addition, an in vitro study performed by us demonstrated that CBD
is degraded to THC in an acidic environment such as the stomach.

In the past three years, our most recent research and development efforts have
been centered on the use of KLS-13019 as a neuroprotectant and therapeutic agent
to treat chronic and neuropathic pain. There is currently no FDA approved drug
to treat CIPN. Our preclinical efforts in the research and development of
treating CIPN with our lead compound KLS-13019 have been fostered by a
successful study grant from NIH-NIDA that compared KLS-13019 to CBD in the
prevention and reversal of neuropathic pain in animal models. As a result of the
outcome of this and other preclinical studies, we believe there is strong
evidence to support the use of KLS-13019 as a non-opioid solution to chronic and
neuropathic pain in human clinical trials.

We intend to study KLS-13019 in patients with chemotherapy induced neuropathic
pain, and we intend to study KLS-13023 in patients with mild traumatic brain
injury. We believe that the claims made in the Pat. 9,611,213 and Pat.
10,004,722 sufficiently cover the use of the novel molecule KLS-13019 in the
treatment of neuropathic pain, which is broadly defined and includes
chemotherapy induced neuropathic pain (a/k/a: chemotherapy induced peripheral
neuropathy).

  88




To date, we have synthesized, pre-clinically tested and patented our proprietary
CBD like NCEs, including KLS-13019, and also formulated a new CBD based
molecule, KLS-13023. KLS-13023 is a target drug candidate that includes a
synthetic CBD formulated in a gel capsule designed for potential use in humans,
which is intended to enable more effective delivery of CBD. The formulation of
this product is proprietary and currently held as a trade secret of the Company.
CBD is the primary non-psychoactive component of cannabis. KLS-13023 has
undergone a manufacturing feasibility study to improve some of the limitations
associated with CBD, including but not limited to CBD's low bioavailability and
limited drug like properties and improvement of the delivery of CBD through the
first pass in the gut and into the circulatory system. In our preclinical animal
studies, KLS-13023 demonstrated effective intervention of neurodegeneration in
the OHE disease state. We intend to study KLS-13023 in patients with mild
traumatic brain injury. In our preclinical animal studies, KLS-13023
demonstrated effective intervention of neurodegeneration in the OHE disease
state.

We believe these product candidates will provide new treatment options for patients, as well as additional treatment options for patients not currently receiving adequate relief from current treatment regimens.

We are still conducting pre-clinical studies and have not yet commenced our
clinical program or tested KLS-13019 or KLS-13023 in humans. For KLS-13019, we
plan to conduct Phase 1, and possibly Phase 2, clinical trials in either the
United States or Australia, subject to applicable regulatory approval. We plan
to conduct our Phase 1 clinical trials for KLS-13023 in either the United States
or Australia, subject to applicable regulatory approval. We plan to submit NDAs
for KLS-13019 and KLS-13023 to the FDA upon completion of all requisite clinical
trials. We expect to initiate clinical trials for KLS-13019 and KLS-13023 in the
first half of 2021.

We plan to conduct our Phase 1, and possibly Phase 2, clinical trials for
KLS-13019 in the U.S. or Australia, subject to applicable regulatory approval,
and do not expect at this time to file an investigational new drug application,
or IND, with the U.S. Food and Drug Administration, or the FDA, prior to the
commencement of those clinical trials. We must file an IND with the FDA and
receive approval from the U.S. Drug Enforcement Agency, or DEA, prior to
commencement of any clinical trials in the United States.

 Pharmacokinetic and Pharmacodynamic Comparison Between KLS-13019 and CBD

Results from PK and PD studies performed in evaluating CBD versus KLS-13019 have
shown KLS-13019 to be superior in aqueous solubility (potential for drug
absorption after oral administration); Log P (ratio which measures difference in
solubility in two phases); bioavailability (proportion of the drug that enters
the circulation); and C max at 10 mg/kg, p.o. (peak serum concentration).

                               [[Image Removed]]

Results from our pre-clinical efforts in the potential treatment of OHE and the
potential treatment of CIPN have shown a marked improvement over 99.7% pure
pharmaceutical grade synthetic CBD in side by side pre-clinical comparison. In a
pre-clinical comparison for neuroprotection between CBD and KLS-13019, results
indicated increased potency for the new molecule (KLS-13019) as determined by
six assays, while both molecules exhibited efficacy in preventing oxidative
stress-related toxicities back to control values.

  89




Treatment with KLS-13019 alone, however, was 5-fold less toxic than CBD.
Previous studies suggested that CBD targeted the Na+ Ca2+ (sodium-calcium)
exchanger in mitochondria to regulate intracellular calcium levels, an important
determinant of neuronal survival. After treatment with an inhibitor, the mNCX
inhibitor ("CGP-37157"), no detectable neuroprotection from ethanol toxicity was
observed for either CBD or KLS-13019. Furthermore, AM630 (a CB2 antagonist)
significantly attenuated CBD-mediated neuroprotection, while having no
detectable effect on KLS-13019 neuroprotection. Our studies indicated KLS-13019
was more potent and less toxic than CBD. Both molecules can act through mNCX.
Based on these results, amongst other things, we believe that KLS-13019 may
provide an alternative to CBD as a therapeutic candidate to treat disease
associated with oxidative stress.

                               [[Image Removed]]

  90






                               [[Image Removed]]

As previously noted, comparisons between CBD and KLS-13019 have been published
in peer reviewed articles in ACS Medicinal Chemistry Letters (2016, 7, 424-428)
and Journal of Molecular Neuroscience (14 August 2018).

Additional follow on studies recently published on May 10, 2019 in the Journal
of Molecular Neuroscience have further advanced our studies on the mechanism of
action for CBD and KLS-13019 in pre-clinical testing for the treatment of
CIPN. The mechanism of action for CBD-and KLS-13019-mediated protection now has
been explored with dissociated dorsal root ganglion ("DRG") cultures using small
interfering RNA (siRNA) to the mitochondrial Na+ Ca2+ exchanger-1 ("mNCX-1").
Treatment with this siRNA produced a 50-55% decrease in the immunoreactive
("IR") area for mNCX-1 in neuronal cell bodies and a 72-80% decrease in neuritic
IR area as determined with high-content image analysis. After treatment with 100
nM KLS-13019 and siRNA, DRG cultures exhibited a 75 ±5% decrease in protection
from paclitaxel-induced toxicity, whereas siRNA studies with 10 ?M CBD produced
a 74± 3% decrease in protection. Treatment with mNCX-1 siRNA alone did not
produce toxicity. The protective action of cannabidiol and KLS-13019 against
paclitaxel-induced toxicity during a 5-h test period was significantly
attenuated after a 4-day knockdown of mNCX-1 that was not attributable to
toxicity. This data indicates that decreases in neuritic mNCX-1 corresponded
closely with decreased protection after siRNA treatment. Pharmacological
blockade of mNCX-1 with CGP-37157 produced complete inhibition of
cannabinoid-mediated protection from paclitaxel in DRG cultures, supporting the
observed siRNA effects on mechanism.

 Sodium-Calcium Exchanger ("NCX") (often denoted Na+/Ca2+ exchanger, NCX, or
exchange protein) is an antiporter membrane protein that removes calcium from
cells. The exchanger exists in many different cell types and animal species. The
NCX is considered to be one of the most important cellular mechanisms for
removing Ca2+ (calcium ions) from cells. The exchanger is usually found in the
plasma membranes and the mitochondria and endoplasmic reticulum of excitable
cells.

Mitochondria is a double-membrane-bound organelle found in
most eukaryotic organisms. Mitochondria generate most of the cell's supply
of adenosine triphosphate ("ATP"), used as a source of chemical energy. ATP is a
complex organic chemical that provides energy to drive many processes in living
cells, including muscle contractions, nerve impulse propagation and chemical
synthesis.

According to Fallon, et al. in the March/April 2006 edition of Clinical
Medicine, pain is uncontrolled with opioid treatments in approximately 20% of
patients with advanced cancer, or 420,000 people in the United States. There are
currently no FDA approved non-opioid treatments for patients who do not respond
to, or experience negative side effects with, opioid medications. We believe
that KLS-13019 has the potential to address a significant unmet need in this
large market by treating patients with a product that employs a differentiated
non-opioid mechanism of action, and offers the prospect of pain relief without
increasing opioid-related adverse side effects.

  91




In addition to the ACS publication, our research and development efforts with
KLS-13019 were also the subject of peer reviewed, preclinical studies published
in April 2021 in the British Journal of Pharmacology, "Behavioural and
Pharmacological Effects of Cannabidiol (CBD) and the Cannabidiol Analogue
KLS-13019 in Mouse Models of Pain and Reinforcement" reported the following key
results:

• Like CBD, KLS-13019 prevented the development of mechanical sensitivity

associated with paclitaxel administration.

• In contrast to CBD, KLS-13019 was also effective at reversing established

mechanical sensitivity.

• KLS-13019 significantly attenuated acetic acid-induced stretching and produced

modest effects in the hot plate assay.

• KLS-13019 was devoid of activity at ?-, ?- or ?-opioid receptors. Lastly,

KLS-13019, but not CBD, attenuated the reinforcing effects of palatable food or

morphine.

The following chart indicates opioid inhibition percentages for both CBD and KLS-13019

                               [[Image Removed]]

The study also reported the following conclusions and Implications:

KLS-13019 like CBD, prevented the development of CIPN, while KLS-13019 uniquely
attenuated established CIPN. Because KLS-13019 binds to fewer biological
targets, this will help to identifying molecular mechanisms shared by these two
compounds and those unique to KLS-13019. Lastly, KLS-13019 may possess the
ability to attenuate reinforced behaviour, an effect not observed in the present
study with CBD. Clinical Timelines

As a result of the unprecedented effects of COVID-19, we have updated our
clinical timelines to give effect to the significant interruption to business
and financial operations worldwide as a result of the COVID-19 crisis. We will
continue to monitor the progress of the shutdowns currently in effect, and
revise our clinical timelines accordingly.

                                                                        Current
                                                                      Development

Product Candidate Target Indication Delivery Method Status Expected Next Steps KLS-13019

           Chemotherapy Induced           Oral Gel Capsule   

Preclinical 2Q24: Initiate Phase 1

                    Peripheral Neuropathy
                    Mild Traumatic Brain Injury    Oral Gel Capsule   Preclinical   1Q25: Initiate Phase 1
KLS-13023           Overt Hepatic Encephalopathy   Oral Gel Capsule   

Preclinical 3Q24: Initiate Phase 1

                    Mild Traumatic Brain Injury    Oral Gel Capsule   

Preclinical 1Q25: Initiate Phase 1

With respect to certain other proprietary compounds underlying Pat. 9,611,213,
we plan on pursuing topical solutions as potential relief creams and/or
ointments for neuropathic pain, anti-inflammation, anti-pruritic and skin
ulcers. We are considering commercialization routes that include, but are not
limited to, filing and FDA Monograph and have already pursued and completed a
commercialization path to the marketplace having received INCI certification and
registration with the PCPC for LEAÔ.

  92




In preclinical testing, certain molecules under Pat. 9,611,213 were screened for
neuroprotection and may have the potential mechanism of action for reducing
inflammation and neuropathic pain. These molecules indicate that they are more
soluble than CBD, also deemed a neuroprotectant with potential anti-inflammatory
properties. A molecule that is potentially more water soluble than CBD in this
regard may be good candidate(s) for use in topical applications.

We believe that we will be able to raise sufficient capital to proceed forth
with a Phase 1a human safety trial for the treatment of Chemotherapy Induced
Peripheral Neuropathy. All preclinical work in this indication, including animal
toxicity studies, are expected to be completed before the end of the third
quarter 2023. We plan on entering into clinical trials sometime in the second
quarter 2024.

Additionally, we believe that we will be able to raise sufficient capital to
proceed forth with a Phase 1a human safety trial for the treatment of Overt
Hepatic Encephalopathy. All preclinical work in this indication, including
animal toxicity studies, are expected to be completed before the end of the
first quarter 2024. We plan on entering into clinical trials sometime in the
third quarter 2024.

We intend to seek additional capital to proceed with our business plan regarding additional drug pipeline opportunities.

Components of Results of Operations

For the year ended December 31, 2021, our loss from operations was $2,940,636
and our net loss was $3,557,786. For the year ended December 31, 2020, our loss
from operations was $4,473,728 and our net loss was $4,537,275. We expect to
incur losses for the foreseeable future, and we expect these losses to increase
as we continue our development of, and seek regulatory approvals for, our
product candidates. Because of the numerous risks and uncertainties associated
with product development, we are unable to predict the timing or amount of
increased expenses or when, or if, we will be able to achieve or maintain
profitability.

Financial Operations Overview

The following discussion sets forth certain components of our statements of operations as well as factors that impact those items.

Revenues

Our revenues consist of state and federal research grants and fees received from
research services for third-party product development. These revenues are
recognized when persuasive evidence of an arrangement exists, delivery has
occurred or services have been rendered, the price is fixed or determinable and
collectability is reasonably assured.

Research and Development Expenses

Our research and development expenses consist of expenses incurred in development and preclinical studies relating to our product candidates, including:

• expenses associated with preclinical development;

• personnel-related expenses, such as salaries, benefits, travel and other

related expenses, including stock-based compensation;

• payments to third-party contract research organizations, or CROs, contractor

laboratories and independent contractors; and

• depreciation, maintenance and other facility-related expenses.

  93




We expense all research and development costs as incurred. Preclinical
development expenses for our product candidates are a significant component of
our current research and development expenses. Product candidates in later stage
clinical development generally have higher research and development expenses
than those in earlier stages of development, primarily due to increased size and
duration of the clinical trials. We track and record information regarding
external research and development expenses for each grant, study or trial that
we conduct. From time to time, we intend to use third-party CROs, and have used
contractor laboratories and independent contractors in preclinical studies. We
recognize the expenses associated with third parties performing these services
for us in our preclinical studies based on the percentage of each study
completed at the end of each reporting period.

We incurred research and development expenses of $451,779 and $1,095,405 for the years ended December 31, 2021 and 2020, respectively.

We expect that our research and development expenses in 2022 and for the next
several years will be higher than in 2021 as a result of the work needed for our
expected initiation of our Phase 1 clinical trials of KLS-13019 and KLS-13023.
These expenditures are subject to numerous uncertainties regarding timing and
cost to completion. Completion of our preclinical development and clinical
trials may take several years or more and the length of time generally varies
according to the type, complexity, novelty and intended use of a product
candidate. The cost of clinical trials may vary significantly over the life of a
project as a result of differences arising during clinical development,
including, among others:

• the number of sites included in the clinical trials;

• the length of time required to enroll suitable patients;

• the size of patient populations participating in the clinical trials;

• the duration of patient follow-ups;

• the development stage of the product candidates; and

• the efficacy and safety profile of the product candidates.

Due to the early stages of our research and development, we are unable to
determine the duration or completion costs of our development of KLS-13019 and
KLS-13023. As a result of the difficulties of forecasting research and
development costs of KLS-13019 and KLS-13023 as well as the other uncertainties
discussed above, we are unable to determine when and to what extent we will
generate revenues from the commercialization and sale of an approved product
candidate.

General and Administrative Expenses

General and administrative expenses consist primarily of salaries, benefits and
other related costs, including stock-based compensation, for personnel serving
in our executive, finance, accounting, legal and human resource functions. Our
general and administrative expenses also include facility and related costs not
included in research and development expenses, professional fees for legal
services, including patent-related expenses, consulting, tax and accounting
services, insurance and general corporate expenses. We expect that our general
and administrative expenses will increase with the continued development and
potential commercialization of our product candidates.

We expect that our general and administrative expenses in 2022 and for the next
several years will be higher than in 2021 as we increase our headcount. We also
anticipate increased expenses relating to our operations as a public company,
including increased costs for the hiring of additional personnel, and for
payment to outside consultants, including lawyers and accountants, to comply
with additional regulations, corporate governance, internal control and similar
requirements applicable to public companies, as well as increased costs for
insurance.

Interest Income (Expense), net

Interest income consists primarily of interest earned on our money market bank account. Interest expense consists of interest expense on our notes payable.

  94




Income Taxes

As of December 31, 2021, we had approximately $8.8 million of federal operating
loss carryforwards. These operating loss carryforwards will begin to expire in
2033. The Tax Reform Act of 1986, or the Act, provides for limitation on the use
of net operating loss and research and development tax credit carryforwards
following certain ownership changes (as defined by the Act) that could limit our
ability to utilize these carryforwards. We may have experienced various
ownership changes, as defined by the Act, as a result of past financings.
Accordingly, our ability to utilize the aforementioned carryforwards may be
limited. Additionally, U.S. tax laws limit the time during which these
carryforwards may be applied against future taxes; therefore, we may not be able
to take full advantage of these carryforwards for federal income tax purposes.

The closing of the Share Exchange transaction, together with private placements
and other transactions that have occurred since our inception, may trigger, or
may have already triggered, an "ownership change" pursuant to Section 382 of the
Internal Revenue Code of 1986. If an ownership change is triggered, it will
limit our ability to use some of our net operating loss carryforwards. In
addition, since we will need to raise substantial additional funding to finance
our operations, we may undergo further ownership changes in the future, which
could further limit our ability to use net operating loss carryforwards. As a
result, if we generate taxable income, our ability to use some of our net
operating loss carryforwards to offset U.S. federal taxable income may be
subject to limitations, which could result in increased future tax liability to
us.

Critical Accounting Policies and Use of Estimates

We have based our management's discussion and analysis of financial condition
and results of operations on our consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in the
United States. The preparation of these consolidated financial statements
requires us to make estimates that affect the reported amounts of assets and
liabilities and the disclosure of contingent assets and liabilities at the date
of the consolidated financial statements as well as the reported revenues and
expenses during the reporting periods. On an ongoing basis, we evaluate our
estimates and judgments, including those related to preclinical development
expenses, stock-based compensation, convertible debt and derivative liabilities.
We base our estimates on historical experience and on various other factors that
we believe to be appropriate under the circumstances. Actual results may differ
from these estimates under different assumptions or conditions.

While our significant accounting policies are more fully discussed in note 2 to
our audited consolidated financial statements appearing at the end of this
annual report, we believe that the following accounting policies are critical to
the process of making significant judgments and estimates in the preparation of
our consolidated financial statements.

Research and Development Expenses

We rely on third parties to conduct our preclinical studies and to provide
services, including data management, statistical analysis and electronic
compilation. Once our clinical trials begin, at the end of each reporting
period, we will compare the payments made to each service provider to the
estimated progress towards completion of the related project. Factors that we
will consider in preparing these estimates include the number of patients
enrolled in studies, milestones achieved and other criteria related to the
efforts of our vendors. These estimates will be subject to change as additional
information becomes available. Depending on the timing of payments to vendors
and estimated services provided, we will record net prepaid or accrued expenses
related to these costs.

Fair Value of Common Stock and Stock-Based Compensation

We account for grants of stock options and restricted stock to employees based
on their grant date fair value and recognize compensation expense over the
vesting periods. We estimate the fair value of stock options as of the date of
grant using the Black-Scholes option pricing model, and we estimate the fair
value of restricted stock based on the fair value of the underlying common stock
as determined by our board of directors or the value of the services provided,
whichever is more readily determinable. We account for stock options and
restricted stock awards to non-employees using the fair value approach. Stock
options and restricted stock awards to non-employees are subject to periodic
revaluation over their vesting terms.

  95




In the absence of a public trading market for our common stock, on each grant
date, we develop an estimate of the fair value of our common stock for the
option and restricted stock grants based in part on input from an independent
third-party valuation firm. We determined the fair value of our common stock
using methodologies, approaches and assumptions consistent with the AICPA
Practice Guide, Valuation of Privately-Held Company Equity Securities Issued as
Compensation. In addition, our board of directors considered various objective
and subjective factors, along with input from management and an independent
third-party valuation firm, to estimate the fair value of our common stock,
including external market conditions affecting the pharmaceutical industry,
trends within the pharmaceutical industry, the prices at which we sold shares of
our different series of preferred stock, the superior rights and preferences of
each series of preferred stock relative to our common stock at the time of each
grant, our results of operations and financial position, the status of our
research and development efforts and progress of our preclinical programs, our
stage of development and business strategy, the lack of an active public market
for our common and our preferred stock, and the likelihood of achieving a
liquidity event.

Derivative liabilities



FASB ASC 815, Derivatives and Hedging, requires all derivatives to be recorded
on the consolidated balance sheet at fair value. As a result, certain derivative
warrant liabilities (namely those with a price protection feature) are
separately valued and accounted for on our balance sheet, with any changes in
fair value recorded in earnings. On our consolidated balance sheets as of
December 31, 2021 and 2020, we engaged a specialist who used the Monte Carlo
model to estimate the fair value of these warrants. Key assumptions of the Monte
Carlo model include the market price of our stock, the exercise price of the
warrants, applicable volatility rates, risk-free interest rates, expected
dividends and the instrument's remaining term. These assumptions require
significant management judgment. In addition, changes in any of these variables
during a period can result in material changes in the fair value (and resultant
gains or losses) of this derivative instrument.

Equity Purchase Agreement with Cross & Company

On September 18, 2020, the Company entered into an Equity Purchase Agreement
with Cross and Company. We have the right to "put," or sell, up to 8,108,108
shares of our common stock to Cross. Unless terminated earlier, Cross's purchase
commitment will automatically terminate on the earlier of the date on which
Cross shall have purchased shares pursuant to the Equity Purchase Agreement for
an aggregate purchase price of $6,000,000 or September 18, 2023. The purchase
price per share is calculated at a fifteen percent discount of the lowest
trading price of the Company's common stock during the ten days after Cross

and
Co. receives the shares.

  97




Results of Operations

Comparison of the Years Ended December 31, 2021 and 2020

Revenues

Revenues for the year ended December 31, 2021, was $183,477 compared to $0 for
the year ended December 31, 2020. Revenues in 2021 was entirely related to work
performed in connection with grants received.

Research and Development Expenses

Research and development expenses decreased by $643,626 or 59%, to $451,779 for
the year ended December 31, 2021, from $1,095,405 for the twelve months ended
December 31, 2020. The decrease was primarily due to large stock-based
compensation related to option granted in the prior year.

General and Administrative Expenses

General and administrative expenses decreased by $705,989 or 21%, to $2,672,334
for the year ended December 31, 2021, from $3,378,323 for the twelve months
ended December 31, 2020. This decrease was primarily due to decrease in funds
during the year

Liquidity and Capital Resources

Since our inception in 2010, we have devoted most of our cash resources to
research and development and general and administrative activities. We have
financed our operations primarily with the proceeds from the sale of preferred
stock and convertible promissory notes, state and federal grants and research
services. To date, we have not generated any revenues from the sale of products,
and we do not anticipate generating any revenues from the sales of products for
the foreseeable future. We have incurred losses and generated negative cash
flows from operations since inception. As of December 31, 2021, our principal
sources of liquidity were our cash and cash equivalents, which totaled $15,677.
Our working capital deficit was $2,844,637 at December 31, 2021.

Our sources of liquidity and cash flows are used to fund ongoing operations and
research and development projects for our product candidates. In addition, as
part of our business strategy, we occasionally evaluate potential acquisitions
of businesses, products and technologies, and minority equity investments.
Accordingly, a portion of our available cash may be used at any time for the
acquisition of complementary products or businesses or minority equity
investments. Such potential transactions may require substantial capital
resources, which may require us to seek additional debt or equity financing. We
cannot assure you that we will be able to successfully identify suitable
acquisition or investment candidates, complete acquisitions or investments,
integrate acquired businesses into our current operations, or expand into new
markets. Furthermore, we cannot provide assurances that additional financing
will be available to us in any required time frame and on commercially
reasonable terms, if at all.

Equity Financings

For the year ended December 31, 2021, we received net proceeds of $833,727 for
the sale of common stock and $125,000 for the sale of convertible notes payable.
For the year ended December 31, 2020, we received net proceeds of $852,150,
respectively, from the sale of convertible notes and promissory notes.

Debt Financings

On July 26, 2021, the Company entered into a promissory note purchase agreement,
with Cross & Company pursuant to which the purchaser agreed to purchase a
promissory note in the principal amount of $100,000. The note matures on July
26, 2023. The note bears interest at 0.25% per annum. The note holds a right of
offset for the holder of the note, whereby the holder shall have the right to
offset any proceeds due to the Debtor for "Puts" delivered to Holder pursuant to
a Equity Purchase Agreement by and between Holder and Debtor dated September 16,
2020. On July 26, 2021, Cross & Company exercised its right of offset under the
promissory note agreement with the Company and the Company put 250,000 shares of
its common stock to Cross & Company with net proceeds of $8,288. On August 10,
2021, Cross & Company exercised its right of offset under the promissory note
agreement with the Company and the Company put 172,701 shares of its common
stock to Cross & Company with net proceeds of $8,803. On October 1, 2021, the
Company put 598,385 shares of common stock as part of a put agreement. An
advance of $25,000 was received for the shares to be issued to the put holder
Cross & Co. After the effect on the offsets, the promissory note has a remaining
balance of $107,910 as of December 31, 2021.

  99




Future Capital Requirements

We have not yet achieved profitability and anticipate that we will continue to
incur net losses for the foreseeable future. As discussed in further detail
below, we expect that our expenses will continue to grow and, as a result, we
will need to generate significant product revenues to achieve profitability. We
may never achieve profitability. As such, we are dependent on obtaining, and are
continuing to pursue, the necessary funding from outside sources, including
obtaining additional funding from the sale of securities in order to continue
our operations. Without adequate funding, we may not be able to meet our
obligations. We believe these conditions raise substantial doubt about our
ability to continue as a going concern.

We are currently raising capital and we anticipate raising funds sufficient to
commence a Phase 1a and 1b clinical trials for KLS-13019 for patients with
chemotherapy induced peripheral neuropathy. We anticipate, based on current
estimates, that costs associated Phase 1a and 1b clinical trials for KLS-13019
will be approximately $2.30 million.

Management of the Company believes that it will need to seek additional sources
of capital to facilitate and carry out its business plan of proceeding forth
with commencing a Phase 2a clinical trial for KLS-13019 for patients with
chemotherapy induced peripheral neuropathy; commencing a Phase 1a clinical trial
for KLS-13019 for patients suffering from the effects of mild traumatic brain
injury; and commencing a Phase 1a clinical trial for KLS-13023 for patients
suffering with overt hepatic encephalopathy. The cost of commencing and
conducting these trials will likely be in the tens of millions of dollars.

Furthermore, it is difficult to predict our spending for our product candidates
prior to obtaining FDA approval. Moreover, changing circumstances may cause us
to expend cash significantly faster than we currently anticipate, and we may
need to spend more cash than currently expected because of circumstances beyond
our control.

Our expectations regarding future cash requirements do not reflect the potential impact of any future acquisitions, mergers, dispositions, joint ventures or investments that we make in the future. We have no current understandings, agreements or commitments for any material acquisitions or licenses of any products, businesses or technologies. We may need to raise substantial additional capital in order to engage in any of these types of transactions.

We expect to continue to incur substantial additional operating losses for at
least the next several years as we continue to develop our product candidates
and seek marketing approval and, subject to obtaining such approval, the
eventual commercialization of our product candidates. If we obtain marketing
approval for either of our product candidates, we will incur significant sales,
marketing and outsourced manufacturing expenses. In addition, we expect to incur
additional expenses to add operational, financial and information systems and
personnel, including personnel to support our planned product commercialization
efforts. We also expect to incur significant costs to comply with corporate
governance, internal controls and similar requirements applicable to us as a
public company.

Our future use of operating cash and capital requirements will depend on many forward-looking factors, including, without limitation, the following:

• the initiation, progress, timing, costs and results of preclinical studies and

clinical trials for our product candidates;

• the clinical development plans we establish for these product candidates;

• the number and characteristics of product candidates that we develop or may

in-license;

•  the terms of any collaboration agreements we may choose to execute;

• the outcome, timing and cost of meeting regulatory requirements established by

the DEA, the FDA, the EMA or other comparable foreign regulatory authorities;

• the cost of filing, prosecuting, defending and enforcing our patent claims and

other intellectual property rights;

• the cost of defending intellectual property disputes, including patent

infringement actions brought by third parties against us;

• costs and timing of the implementation of commercial scale manufacturing

activities; and

• the cost of establishing, or outsourcing, sales, marketing and distribution

capabilities for any product candidates for which we may receive regulatory

approval in regions where we choose to commercialize our products on our own.

  100






To the extent that our capital resources are insufficient to meet our future
operating and capital requirements, we will need to finance our cash needs
through public or private equity offerings, debt financings, collaboration and
licensing arrangements or other financing alternatives. We have no committed
external sources of funds. Additional equity or debt financing or collaboration
and licensing arrangements may not be available on acceptable terms, if at all.

If we raise additional funds by issuing equity securities, our stockholders will
experience dilution. Debt financing, if available, would result in increased
fixed payment obligations and may involve agreements that include covenants
limiting or restricting our ability to take specific actions, such as incurring
additional debt, making capital expenditures or declaring dividends. Any debt
financing or additional equity that we raise may contain terms, such as
liquidation and other preferences that are not favorable to us or our
stockholders. If we raise additional funds through collaboration and licensing
arrangements with third parties, it may be necessary to relinquish valuable
rights to our technologies, future revenue streams or product candidates or to
grant licenses on terms that may not be favorable to us.

Cash Flows

The following table summarizes our cash flows from operating, investing and financing activities for the years ended December 31, 2021, and 2020.

                                                Years Ended
                                               December 31,
                                            2021           2020
Statement of Cash Flows Data:
Total net cash provided by (used in):
Operating activities                    $ (889,637 )   $ (944,198 )
Investing activities                        (6,522 )           -
Financing activities                       889,962        844,617
Decrease in cash                        $   (6,197 )   $  (99,581 )


Operating Activities

Net cash used in operating activities for the year ended December 31, 2021 was
$889,637, including $1,940,518 of net non-cash expenses and a $727,631 net
change in operating assets and liabilities. The net noncash expenses were
predominantly related to the stock-based compensation of $1,351,751,
amortization of debt discount of $279,845 and change in fair value of derivative
liabilities of $182,561. The change in operating assets and liabilities was
primarily due to a $253,414 decrease in accounts payable and accrued expenses, a
$330,948 increase in payroll and related liabilities and a $38,687 decrease in
due to related party and prepaid expenses.

  101

Net cash used in operating activities for the year ended December 31, 2020 was
$944,198, including $2,990,990 of net non-cash expenses and a $602,087 net
change in operating assets and liabilities. The net noncash expenses were
predominantly related to the stock-based compensation of $1,722,600, non-cash
interest expense of $432,170, amortization of debt discount of $376,661 and
change in fair value of derivative liabilities of $752,495. The change in
operating assets and liabilities was primarily due to a $338,145 increase in
accounts payable and accrued expenses, a $136,033 increase in payroll and
related liabilities and a $29,909 increase in due to related party and prepaid
expenses.

Investing Activities

Net cash used in investing activities for the year ended December 31, 2021 was $6,522. Cash was used for purchase of equipment.

There were no investing activities for the year ended December 31, 2020.

Financing Activities

For the year ended December 31, 2021, cash provided by financing activities was
$889,962 compared to $844,617 for the year ended December 31, 2020. This was due
to a significant increase of proceeds from common stock, convertible notes and
repayment of convertible notes payable in 2021 from 2020.

Inflation

We have not been affected materially by inflation during the periods presented, and no material effect is expected in the near future.

Known Trends or Uncertainties

We have seen some consolidation in our industry during economic downturns. These
consolidations have not had a negative effect on us to date; however, should
consolidations and downsizing in the industry continue to occur, those events
could adversely impact our future revenues and earnings, if any.

As discussed in this Annual Report on Form 10-K, the world has been affected due
to the COVID-19 pandemic. Until the pandemic has passed, there remains
uncertainty as to the effect of COVID-19 on our business in both the short and
long-term.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements, except for operating leases,
or relationships with unconsolidated entities or financial partnerships, such as
entities often referred to as structured finance or special purpose entities.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU 2016-13, "Financial Instruments - Credit
Losses" to improve information on credit losses for financial assets and net
investment in leases that are not accounted for at fair value through net
income. ASU 2016-13 replaces the current incurred loss impairment methodology
with a methodology that reflects expected credit losses. In April 2019 and May
2019, the FASB issued ASU No. 2019-04, "Codification Improvements to Topic 326,
Financial Instruments-Credit Losses, Topic 815, Derivatives and Hedging, and
Topic 825, Financial Instruments" and ASU No. 2019-05, "Financial
Instruments-Credit Losses (Topic 326): Targeted Transition Relief" which
provided additional implementation guidance on the previously issued ASU. In
November 2019, the FASB issued ASU 2019-10, "Financial Instruments - Credit Loss
(Topic 326), Derivatives and Hedging (Topic 815), and Leases (Topic 842)," which
defers the effective date for public filers that are considered small reporting
companies ("SRC") as defined by the Securities and Exchange Commission to fiscal
years beginning after December 15, 2022, including interim periods within those
fiscal years. Since the Company is an SRC, implementation is not needed until
January 1, 2023. The Company will continue to evaluate the effect of adopting
ASU 2016-13 will have on the Company's consolidated financial statements.

102

© Edgar Online, source Glimpses