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 six months ended December 31, 2020 and 2019. This MD&A should be read in
conjunction with our audited financial statements as of June 30, 2020 and 2019.
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 $60,000 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 December 31, 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. The Company has
had to cease research and development activities due to the lack of sufficient
working capital. While management continues its efforts to raise capital for the
Company, it is also seeking merger or other business combination or
restructuring opportunities.
17
Results of Operations for the three months ended December 31, 2020 as compared
to December 31, 2019
Net loss for the three months ended December 31, 2020 was $828,031, an increase
of $131,757 from the net loss of $696,274 for the three months ended December
31, 2019.
General and administrative costs for the three months ended December 31, 2020
include a non-cash charge of $521,051 for the fair value of the shares issued
for the acquisition of CRX Bio Holdings LLC, as well as non-cash stock-based
compensation costs for the period of $33,972 for the fair value of options
granted and $252,104 for the fair value of warrants issued in conjunction with
convertible debt financing during the 2020 period. In comparison, general and
administrative costs of $687,209 incurred during the three months ended December
31, 2019 includes a non-cash charge of $625,513 for the fair value of the shares
issued for the acquisition of CRX Bio Holdings LLC, as well as non-cash
stock-based compensation costs for the period of $15,539. General and
administrative expenses, exclusive of non-cash stock-based compensation costs,
were consistent during the 2020 and 2019 periods, consisting predominately of
costs and expenses associated the Company's maintaining its public company
status.
During the three months ended December 31, 2020, the Company incurred $1,833 for
interest and amortization of discount related to the convertible debt
financings.
There were no research and development costs for the periods ended December 31,
2020 and 2019.
Professional fees of $7,400 for the three months ended December 31, 2020
decreased by $1,665 from $9,065 for the period ended December 31, 2019. Fees for
the 2020 and 2019 periods consisted of legal fees for securities related matters
and fees for auditor quarterly review and other required tax and regulatory
filings.
Results of Operations for the six months ended December 31, 2020 as compared to
December 31, 2019
Net loss for the six months ended December 31, 2020 was $1,889,451, an increase
of $451,275 from the net loss of $1,438,176 for the six months ended December
31, 2019.
General and administrative costs for the six months ended December 31, 2020
include a non-cash charge of $1,308,049 for the fair value of the shares issued
for the acquisition of CRX Bio Holdings LLC, as well as non-cash stock-based
compensation costs for the period of $282,116 for the fair value of options
granted and $252,104 for the fair value of warrants issued in conjunction with
convertible debt financing during the 2020 period. In comparison, general and
administrative costs of $1,370,175 incurred during the six months ended December
31, 2019 includes a non-cash charge of $1,204,459 for the fair value of the
shares issued for the acquisition of CRX Bio Holdings LLC, as well as non-cash
stock-based compensation costs for the period of $52,137. General and
administrative expenses, exclusive of non-cash stock-based compensation costs,
were consistent during the 2020 and 2019 periods, consisting predominately of
costs and expenses associated the Company's maintaining its public company
status.
During the six months ended December 31, 2020, the Company incurred $1,961 for
interest and amortization of discount related to the convertible debt
financings.
During the six months ended December 31, 2020, 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.
Professional fees of $22,990 for the six months ended December 31, 2020
decreased by $10,101 from $33,001 for the six months ended December 31, 2019.
Fees for both the 2020 and 2019 periods consisted of legal fees for securities
related matters and fees for annual audit and other required regulatory filings.
There were no research and development costs for the periods ended December 31,
2020 and 2019.
During the six months ended December 31, 2019, the Company paid $35,000 in
shares of our Common Stock with respect to a proprietary delivery system for
cannabinoid-based medications.
18
Liquidity and Capital Resources
At December 31, 2020, we had a working capital of $51,420 and cash of $48,134,
as compared to a working capital deficit of $6,365 and cash of $10,786 at June
30, 2020. The increase in both working capital and cash was due primarily to
funds received from the Company's issuance of convertible notes. We used $40,652
of cash for operating activities, and had an increase in liquidity from
financing of $78,000 from issuances of convertible debt during the six months
ended December 31, 2020.
The unsecured convertible promissory notes 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 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.
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 December 31, 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 $60,000 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 $60,000 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 December 31, 2020 and June 30, 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 was anticipated that the drug candidate would 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 was to be based on one or more
synthetic cannabinoids. We paid $75,000 to the contract manufacturer upon
signing the contract, which further provided 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 had been agreed to upon completion of Phase 2
and Phase 3 development stage and the contract may be terminated by either
party. In December 2020, we elected to terminate this agreement and issued
150,000 restricted shares of our common stock as a final payment for consulting
fees owed.
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 December 31, 2020 and are included elsewhere in this report.
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NEXIEN BIOPHARMA, INC. 
