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, 2020 and 2019. This MD&A should be read in
conjunction with our financial statements as of June 30, 2020 and 2019. See
section entitled "Forward-Looking Statements" above.
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.
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, 2020, 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.
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Results of Operations
Net loss for the year ended June 30, 2020 was $2,671,617 as compared to
$4,300,913 for the year ended June 30, 2019, a decrease of $1,629,296. 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.
General and administrative costs of $2,495,386 incurred during the year ended
June 30, 2020 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. General and
administrative costs of $3,668,841 incurred during the year ended June 30, 2019
includes $1,897,755 of non-cash stock-based compensation costs for: vesting of
common shares previously issued to management valued at $210,418; the fair value
of vested stock options granted of $1,531,403 and the fair value of warrants
issued of $155,934. Also included in general and administrative expenses for
2019 is a non-cash charge of $1,484,042 for (i) the $727,700 fair value of the
957,500 vested shares issued for the acquisition of CRX Bio Holdings LLC and
(ii) $756,342 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, 2020 were $140,057, a decrease of $146,987 from
comparable costs for 2019 of $287,044. The decrease of $146,987 was attributable
to cost containment efforts instituted by the Company during the 2020 fiscal
year to preserve capital. Major components of the decrease from 2019 to 2020
were: directors and officer's insurance decreased to $52,282 from $86,795;
consulting fees decreased to $25,550 from $82,400; SEC related filing fees and
services decreased to $17,114 from $30,910; and investor relations decreased to
$24,410 from $65,118. During the year ended June 30, 2020, the Company incurred
interest expense of $33 for a convertible note payable from a related party, and
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, 2019, the Board of Directors granted options to
purchase a total of 1,810,000 shares of Common Stock, exercisable for a period
of seven years, to officers/directors/consultants of the Company at an exercise
price of $0.54 per share; options to purchase a total of 150,000 shares of
Common Stock, exercisable for a period of seven years, to two individuals, (i) a
director and (ii) a consultant of the Company, at an exercise price of $0.38 per
share; options to purchase 500,000 shares of Common Stock to an officer/director
at an exercise price of $0.48 per share for a period of seven years; and options
to purchase 800,000 shares of Common Stock to three officers/directors at an
exercise price of $0.655 per share for a period of seven years.
Research and development costs were $0 and $63,858 for the years ended June 30,
2020 and 2019, respectively. Research and development costs for the year ended
June 30, 2019 were for continuation of activities under our 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 (see "Contractual Obligations and Commitments" below).
and payment to a major university under a research agreement. Due to limited
resources, the Company did not expend any funds on research and development
activities during the year ended June 30, 2020, but has not given up any of its
rights for its research projects.
Professional fees of $50,531 for the year ended June 30, 2020 decreased by
$149,768 from $200,299 for the year ended June 30, 2019. Fees for 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. Fees
for the 2019 year consisted of legal fees to external counsels and our chief
operating officer for patent and FDA related regulatory matters, legal fees for
securities related matters, and fees for annual audit and other required
regulatory filings. The decrease is due, in part, to a reduction in legal fees
to external counsel for patent and FDA related regulatory matters subsequent to
the CRx transaction wherein external counsel expenditures were now being
performed by in-house counsel, and no longer incurring fees paid to our chief
operating officer.
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At June 30, 2019, The Company had estimated that it may not be able to recover
the $302,915 carrying value of costs capitalized under the Kotzker License
Agreement, or the $65,000 of costs capitalized under the worldwide exclusive
license with respect to a proprietary delivery system for cannabinoid-based
medications with Accu-Break, and has recognized an impairment of $367,915 for
both licenses for the year ended June 30, 2019. During the year ended June 30,
2020 the Company issued common stock to Accu-Break valued at $35,000 as the
final payment under the agreement with Accu-Break. This issuance was charged to
operations as an impairment as of June 30, 2020. Although the Company has
recognized an impairment under Generally Accepted Accounting Principles, this
accounting action does not negatively impact the Company's rights under both of
these license agreements, and it intends to monetize these assets to the extent
that it can in light of its currently limited financial and personnel resources.
Liquidity and Capital Resources
At June 30, 2020, we had a working capital deficit of $6,365 and cash of
$10,786, as compared to working capital of $265,920 and cash of $146,356 at June
30, 2019. The decrease in both working capital and cash was due primarily to the
Company's utilization of existing funds for operating activities. We used
$147,570 of cash for operating activities, and had increase in liquidity from
financing of $12,000 from a loan from our CEO during the year ended June 30,
2020. Operating and investing activities utilized cash of $673,383 during fiscal
2019, with no cash provided from financing activities.
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.
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, 2020, 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
As the result of the acquisition of CRx Bio ("CRx"), we were able to eliminate
the salary of one officer of the Company. All other officers, including the new
management team from CRx, are not being paid any cash compensation. In addition,
by bringing on an in-house legal counsel with extensive patent experience, we
were able to bring all Intellectual Property ("IP") legal expenses in house.
This has substantially reduced most legal expenses, which is a significant
percentage of cash expenses. Finally, as CRx had been exploring similar research
for alternative delivery systems as Nexien, we will be able to consolidate this
research and maintain the original Nexien capital expenditure budget.
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.
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Going Concern Consideration
Our registered independent auditors have issued an opinion on our financial
statements as of June 30, 2020 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, 2020 and 2019, 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.
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.
Critical Accounting Policies
Our significant accounting policies are described in the notes to our financial
statements as of June 30, 2020 and 2019 and are included elsewhere in this
report.
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NEXIEN BIOPHARMA, INC. 
