UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

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

 

For the Fiscal Year Ended June 30, 2021

 

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

 

Commission file number: 000-55320

 

NEXIEN BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)

 

Delaware   26-2049376

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

4340 East Kentucky Avenue, Suite 206, Glendale, Colorado   80246
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (303) 495-7583

 

Securities registered pursuant to Section 12(b) of the Act: None

 

Title of each class   Trading symbol(s)   Name of each exchange on which registered
         

 

Securities registered pursuant to Section 12(g) of the Act: Common Stock, $0.0001 par value

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No ☒

 

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

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data Fail required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

 

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

 

Large accelerated filer ☐   Accelerated filer ☐
Non-accelerated filer ☐   Smaller reporting company ☒
  Emerging growth company ☒

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Act. ☐

 

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act by the registered public accounting firm that prepared or issued its audit report. ☐

 

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

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was last sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter: $1,660,792 as of December 31, 2020.

 

Indicate the number of shares outstanding of each of the registrant’s classes of common stock, as of the latest practicable date: 55,772,196 shares as of October 12, 2021.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

List hereunder the following documents if incorporated by reference and the Part of the Form 10-K into which the document is incorporated: None

 

 

 

 

 

 

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS

 

This report contains, in addition to historical information, certain information, assumptions and discussions that may constitute forward-looking statements. Such statements are subject to certain risks and uncertainties which could cause actual results to differ materially than those projected or anticipated. Actual results could differ materially from those projected in the forward-looking statements. Although the Company believes its assumptions underlying the forward-looking statements are reasonable, the Company cannot assure a reader that the forward-looking statements set out in this report will prove to be accurate. The Company’s business can be affected by, without limitation, such things as natural disasters, economic trends, international strife or upheavals, consumer demand patterns, labor relations, existing and new competition, consolidation, and growth patterns within the industries in which the Company competes and any deterioration in the economy may individually or in combination impact future results.

 

TABLE OF CONTENTS

 

PART I  
     
Item 1. Business 3
Item 1A. Risk Factors 11
Item 1B. Unresolved Staff Comments 28
Item 2. Properties 28
Item 3. Legal Proceedings 28
Item 4. Mine Safety Disclosures 28
     
PART II    
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 29
Item 6. Selected Financial Data 30
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 30
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 34
Item 8. Financial Statements and Supplementary Data 34
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 35
Item 9A. Controls and Procedures 35
Item 9B. Other Information 35
     
PART III  
     
Item 10. Directors, Executive Officers and Corporate Governance 36
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 40
Item 14. Principal Accounting Fees and Services 41
     
PART IV  
     
Item 15. Exhibits, Financial Statement Schedules 42
Item 16 Form 10-K Summary 42
     

SIGNATURES   43

 

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PART I

 

ITEM 1. BUSINESS.

 

In this report, unless the context requires otherwise, references to the “Company”, “BioPharma”, “we”, “us” and “our” are to Nexien BioPharma, Inc., a Delaware corporation, formerly Intiva BioPharma Inc.

 

Corporate History

 

The Company was incorporated on November 10, 1952 in Michigan as Gantos, Inc. On July 21, 2008, the Company completed its change in domicile to Delaware and subsequently changed its name to Kinder Holding Corp. Since bankruptcy liquidation in June 2000, the Company has not had any operations and adopted “fresh-start” accounting as of June 21, 2000, in accordance with procedures specified by AICPA Statement of Position No. 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.”

 

As of October 13, 2017, the Company completed a reverse acquisition (the “Share Exchange Transaction”) of Intiva BioPharma Inc., a private Colorado corporation (“Colorado BioPharma”). In connection with the completion of the reverse merger the Company changed its name to Intiva BioPharma Inc. on November 8, 2017.

 

Colorado BioPharma was formed under the laws of the State of Colorado in March 2017 as a wholly-owned subsidiary of Kanativa USA Inc. (formerly Intiva USA Inc.) engaged in the business of developing drugs containing cannabinoids for the treatment of various diseases, disorders and medical conditions; the development or licensing of proprietary delivery systems for cannabinoid-based1 pharmaceutical medications; and the investment in companies and the acquisition of technologies or medications, focused on cannabinoid-based science through special purpose vehicles, discussed more fully below. Kanativa USA Inc. is a wholly-owned subsidiary of Kanativa Inc., formerly Intiva Inc., an Ontario, Canada corporation.

 

The Company changed its name to Nexien BioPharma, Inc. in September 2018.

 

On October 26, 2018, we entered into a Limited Liability Company Interest Purchase Agreement (the “Purchase Agreement”) with the members of CRx Bio Holdings LLC, a Delaware limited liability company (“CRx”), to acquire all of the membership interest in CRx in exchange for 11,000,000 restricted shares of our common stock (the “Acquisition”). CRx was engaged in the research and development of advanced cannabinoid formulations and drug delivery systems with a focus on bioavailability and related pharmacokinetics and pharmacodynamics (PK/PD) optimization. The Acquisition transaction was consummated on October 26, 2018. By acquiring CRx as a wholly-owned subsidiary, we acquired all of its assets, which consisted primarily of three U.S. provisional patent applications relating to cannabinoid formulations to treat convulsive disorders, chronic traumatic encephalopathy, and neuropathic pain. At the closing, we issued to the six members of CRx (the “Sellers”) 1,100,000 shares not subject to any forfeiture restrictions and 9,900,000 shares which were to be released from forfeiture restrictions in three equal tranches upon each anniversary of the closing of the Acquisition. Any Seller who was not then providing services to us or any of our subsidiaries on any vesting date, whether through voluntary termination or termination “for cause,” would forfeit his unvested shares, which would be cancelled.

 

Effective December 31, 2018, one of the Sellers resigned from the Company and forfeited 1,732,500 unvested shares previously issued. In May 2019, that Seller returned to the Company an additional 142,500 vested shares issued in accordance with the Purchase Agreement. The fair value of the returned shares was credited to the operations as of June 30, 2019. 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).

 

 

1 A cannabinoid is one of a class of diverse chemical compounds that acts on cannabinoid receptors in cells that alter neurotransmitter release in the brain. Ligands for these receptor proteins include the endocannabinoids (produced naturally in the body by animals), the phytocannabinoids (found in cannabis and some other plants), and synthetic cannabinoids (manufactured artificially). The most notable cannabinoid is the phytocannabinoid tetrahydrocannabinol (THC), the primary psychoactive compound in cannabis. Cannabidiol (CBD) is another major constituent of the plant. There are at least 113 different cannabinoids isolated from cannabis, exhibiting varied effects.

 

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Business Plan

 

The Company’s business objective is to develop and commercialize novel FDA-compliant cannabinoid pharmaceuticals, drug delivery systems, and related technologies for diseases, disorders and medical conditions. The Company is utilizing cannabinoids as the active pharmaceutical ingredients to develop synthetic pharmaceuticals in strict accordance with the U.S. Food and Drug Administration (“FDA”) pre-clinical and clinical pathways.

 

The Company’s current flagship research and development programs are focused on advancing formulations that have the potential to significantly improve the treatment outcomes of certain convulsive disorders and neuromuscular disorders. As of the date of this report, work on these research and development programs has ceased due to the lack of sufficient funding. The Company is currently seeking a business combination opportunity and maintaining the intellectual property assets which management believes have the most potential.

 

Our Drug Development Activities

 

Due to the significant amount of financing needed to develop and commercialize a new drug and the Company’s limited resources, it is focusing its efforts on advancing formulations that have the potential to significantly improve the treatment of epilepsy and myotonic dystrophy.

 

Convulsive Disorders: Epilepsy and Refractory Epilepsy

 

Epilepsy is a neurological disorder marked by sudden recurrent episodes of sensory disturbance, loss of consciousness, or convulsions, associated with abnormal electrical activity in the brain. It is caused by an imbalance in inhibitory and excitatory neurotransmission resulting in synchronous neural activity. Refractory epilepsy occurs when standard of care medicine is not bringing seizures under control. This condition, which may be called by other names, such as uncontrolled, intractable, or drug-resistant epilepsy, is not age specific. Up to one of every three epilepsy patients will develop what is considered refractory epilepsy.

 

Our near-term objective is to secure adequate funding to engage in sponsored research collaboration with a leading Ivy League university medical school in order to develop a pre-clinical proof of concept for the Company’s proposed parenteral-delivered formulations. CRx had entered into discussions and subsequently, into a Master Service Agreement (MSA) with the medical school prior to its acquisition by the Company. The study design involves pre-clinical mouse models in two phases: I – MTD and PK/PD modeling, and II – efficacy modeling in mice bred to be genetically prone to convulsions/seizures, with a primary focus of advancing a rigorous study design and improving new meritorious research and development by continued collaboration with our academic partners.

 

Myotonic Dystrophy

 

Myotonic dystrophy (“DM”) is part of a group of genetic disorders called muscular dystrophies, and is the most common form of muscular dystrophy that begins in adulthood. DM is characterized by progressive muscle wasting and weakness. People with this disorder often have prolonged muscle contractions (myotonia) and are not able to relax certain muscles after use. Also, affected people may have slurred speech or temporary locking of their jaw. Signs and symptoms overlap between DM Type 1 (“DM1”) and Type 2 (“DM2”), although DM2 tends to be milder than DM1. The muscle weakness associated with DM1 particularly affects the lower legs, hands, neck and face, while muscle weakness in DM2 primarily involves the muscles of the neck, shoulders, elbows, and hips. The two types of DM are caused by mutations in different genes.

 

The use of cannabinoid receptor modulators and/or terpenes for clinical symptom relief in DM patients has not been explored. Current scientific knowledge of the effects of cannabis on skeletal muscles or other multiple system symptoms in DM is rather limited. However, some anecdotal reports suggest that cannabis may be supportive in relief of the most common symptoms in both DM1 and DM2. Unfortunately, currently there is no standard treatment for these symptoms.

 

Our patent applications relate to methods and compositions for treating such diseases with the use of cannabinoids and covers the administration of the drug(s) by such delivery systems as topical, oral, nasal, inhalation or a combination thereof. On July 07, 2020, a utility patent was granted (US10702,495) relating to a method for treating the symptoms of myotonia with a therapeutically effective amount of cannabidiol and tetrahydrocannabinol in a subject. Corresponding claims were also submitted in Europe.

 

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In April 2018, the Company retained Dr. Benedikt Schoser, a world-renowned expert in DM, to advise the Company. To elicit further information regarding whether DM patients have had any experience with cannabis and if so whether such experience has resulted in any symptom relief, a questionnaire was sent to a number of DM 1 and DM 2 patients by patient organizations. The results of the questionnaire suggest further exploration is appropriate. The survey was published in the Journal of Neurology, Neurosurgery & Psychiatry.

 

On August 13, 2019 we filed a pre-IND meeting request (the “Request”) to discuss the requirements for submission of an Investigation New Drug Application for a combination of Cannabidiol and THC Sublingual Tablet for muscle relaxation in patients with myotonic dystrophy and for the treatment of myotonia. On October 8, 2019 we received written responses from the FDA to the questions we raised in the pre-IND meeting request. We are presently evaluating the responses as we seek to move our development plan forward.

 

The FDA pathway for the development of drugs for certain of these genetic muscular diseases may fall under the Orphan Drug Act of 1983, which was passed by the U.S. Congress to facilitate the development of orphan drugs. The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals annually in the United States. Such an orphan drug designation may entitle a recipient to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. See risk factor “We may apply for orphan drug status granted by the FDA for some of our drug candidates for the treatment of rare diseases” below.

 

An additional utility patent application (US16/435,756) was filed as a continuation-in-part on June 10, 2019, resulting in the issuance of patent US10,702,495 on July 07, 2020, to incorporate some early formulation concepts that may show use in the relief of these DM symptoms. A corresponding application has been filed at the European Patent Office (EP19179559.0).

 

Our Drug Delivery System Development Activities

 

Accu-Break License Agreement

 

On February 28, 2018, we obtained a worldwide exclusive license from Accu-Break Pharmaceuticals, Inc., a Florida corporation (“Accu-Break”) with respect to a proprietary delivery system for cannabinoid-based medications. We are required to use commercially reasonable efforts to develop and commercialize one or more products utilizing the licensed technology and will be responsible for the costs and efforts associated with the design, manufacturing, preclinical, clinical, and regulatory development activities of these licensed products worldwide.

 

Commencing with the first commercial sale in any country worldwide of any licensed product by the Company or any of its affiliates or sublicensees, the Company shall pay to Accu-Break royalties for licensed products sold, equal to 4% of the Company’s net sales of licensed products or 25% of the total revenue received by the Company for sales of licensed products by sublicensees. Such royalties shall continue so long as the manufacture, use, sale, import or offer for sale of the licensed product infringes a valid claim of Accu-Break’s licensed technology.

 

In addition to the royalty payments described above, and as consideration for entering into the agreement, the Company agreed to pay Accu-Break a license fee of $100,000, which has been paid in full.

 

The Company is also required to pay in cash or, at its option in shares of its Common Stock, milestone payments as follows:

 

  $100,000 upon approval of filing by each regulatory authority of each pharmaceutical licensed product;
  $100,000 upon approval by each regulatory authority of each pharmaceutical licensed product;
  $50,000 upon achievement of $10,000,000 of cumulative net sales for any and all of the licensed products;
  $50,000 upon achievement of $25,000,000 of cumulative net sales for any and all of the licensed products; and
  $50,000 upon achievement of $50,000,000 of cumulative net sales for any and all of the licensed products.

 

The license fee and milestone payments shall be offset against any amounts due to Accu-Break for royalties and sublicensee payments.

 

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The license granted to the Company shall continue on a country by country basis and licensed product by licensed product basis so long as the manufacture, use, sale, import or offer for sale of such licensed product infringes a valid claim of any of Accu-Break’s licensed technology. Upon such expiration, the license, with respect to such country and such licensed product, will be automatically converted to a fully paid-up royalty-free perpetual license.

 

The license may be terminated by Accu-Break only for the Company’s default under the Agreement, which default shall not have been corrected within 60 days of having received notice of such default.

 

Due to the Company’s limited financial and personnel resources ,the Company estimated that it would not be able to recover the $65,000 of costs capitalized under the Accu-Break License Agreement, and 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 both of these license agreements.

 

Patents, Intellectual Property and Proprietary Rights

 

Our current patent applications are related to our drug development projects and their respective drug candidates. We intend to seek patent protection in the U.S. and other countries as appropriate, related to methods and compositions and proprietary technologies for the use of cannabinoids receptor modulators and/or terpenes to treat certain diseases, disorders and medical conditions.

 

To date, we have filed three provisional patent applications all related to our drug development projects, specifically the use of cannabinoid receptor modulators and/or terpenes to treat certain diseases or medical conditions. Assuming the successful completion of clinical trials, of which there can be no assurance, we believe that we will be able to secure patent protection and retain applicable intellectual property rights.

 

The table below depicts the Company’s patent applications:

 

Description of the Patent Application filed with USPTO   Date
Method and Compositions for Treating Dystrophies and Myotonia   Granted July 07, 2020
Method and Compositions for Parenteral Administration of Cannabidiol in the treatment of Convulsive Disorders   July 31, 2020
Method and Compositions for Parenteral Administration of Cannabidiol in the treatment and prevention of Chronic Traumatic Encephalopathy   July 31, 2020
Method and Compositions for the treatment of Neuropathic Pain by Parenteral Administration of Cannabinoids   July 31, 2020

 

In addition, on June 8, 2018, a U.S. Patent Application was filed relating to the use of cannabinoid receptor modulators and/or terpenes to treat extreme health hazards due to exposure to organophosphorus nerve agents and/or organophosphorus insecticides. A continuation was filed on August 01, 2020 relating to a compound disclosed in the patent application with pending applications in Europe and Canada. An Israeli patent (238946) was granted on July 01, 2019 for the Use of Cannabinoids and Terpenes for Treatment of Organophosphate and Carbamate Toxicity based on licensed technology from Kotzker Consulting LLC.

 

Competition

 

The emerging markets for cannabinoid-based drug research and development is and will likely remain competitive. In general, the biotechnology and pharmaceutical industries are characterized by rapidly advancing technologies, intense competition, and a strong emphasis on proprietary drugs.

 

We expect that we will be required to compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as drugs and processes being developed at universities and other research institutions. Our competitors may develop or may already have developed drugs comparable or competitive with our drug candidates. Competitive therapeutic treatments for diseases, disorders and medical conditions that are included in our drug development projects have already been approved and accepted by the medical community and any new treatments that may enter the market would face fierce competition.

 

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We are aware of a number of companies that are engaged in cannabinoid-based drug development. In addition, several other U.S.-based companies are in early stage discovery and preclinical development utilizing synthetic and/or plant-derived CBD and/or THC.

 

Established companies may have a competitive advantage due to their size and experiences, positive cash flows and institutional networks. Many of our competitors may have significantly greater financial, technical and human resources than we do. Due to these factors, our competitors may have a range of competitive advantages and may obtain regulatory approval of their drug candidates before we are able to develop or commercialize our drug candidates. Our competitors may also develop drugs that are safer, more effective, more widely used and less expensive than ours. Furthermore, some of these competitors may make acquisitions or establish collaborative relationships among themselves or with third parties to increase their ability to rapidly gain market share and/or increase their drug line.

 

Mergers and acquisitions in the pharmaceutical and biotechnology industries may result in even more resources being concentrated among a smaller number of competitors. Smaller and other early-stage companies, such as ours, may also prove to be significant competitors, particularly through collaborative arrangements with large and established companies. We compete with large and small companies in recruiting and retaining qualified scientific, management and commercial personnel, establishing clinical trial sites and subject registration for clinical trials, as well as in acquiring technologies complementary to our research projects.

 

Government Laws and Regulations

 

As a development stage company that intends to have its drug candidates approved in the U.S., we are subject to extensive regulation by regulatory agencies. The U.S. Food, Drug, and Cosmetic Act and its implementing regulations set forth, among other things, requirements for the research, testing, development, manufacture, quality control, safety, effectiveness, approval, labeling, storage, record keeping, reporting, distribution, import, export, advertising and promotion of our drugs. Generally, our activities in other countries will be subject to regulations that are similar in nature and scope as those in the United States, although there can be important differences. Additionally, some significant aspects of regulation in the European Union are addressed in a centralized way through the European Medicines Agency (“EMA”) and the European Commission, but country-specific regulation remains essential in many respects. The process of obtaining regulatory marketing approvals and the subsequent compliance with appropriate federal, state, local and foreign statutes and regulations require the expenditure of substantial time and financial resources and we may not be successful.

 

The US Regulatory Framework for the Marijuana Industry

 

On January 4, 2018, United States Attorney General Jeff Sessions and the Department of Justice (“DOJ”) issued a Memorandum for all United States Attorneys entitled “Marijuana Enforcement” (the “Sessions Memo”). The effect of the Sessions Memo has been to rescind the guidance issued on August 29, 2013 relative to medical marijuana enforcement under the Cole Memorandum (the “Cole Memo”).

 

The Sessions Memo instructs federal prosecutors to disregard the previous Obama-era Cole Memo guidance, and instead follow “the well-established principles that govern all federal prosecutions as reflected in chapter 9-27.000 of the U.S. Attorney’s Manual.” The Sessions Memo continues, stating, “[t]hese principles require federal prosecutors deciding which cases to prosecute to weigh all relevant considerations, including federal law enforcement priorities set by the Attorney General, the seriousness of the crime, the deterrent effect of criminal prosecution, and the cumulative impact of particular crimes in the community.”

 

The effect of the Cole Memo’s rescission remains to be seen. Since 1980, when chapter 9-27.000 of the U.S. Attorney’s Manual was originally promulgated, the United States has undergone a dramatic shift in both national and state-level marijuana policy. In 1980, there were no states in the U.S. with marijuana decriminalization or legalization statutes. As of June 30, 2021, a majority of the states and the District of Columbia have enacted medical marijuana legislation in some form, with additional states considering similar legalization measures. As a result, the manner in which the factors identified in chapter 9-27.000 of the U.S. Attorney’s Manual (e.g. “seriousness of the crime,” “deterrent effect of criminal prosecution,” and cumulative impact . . . in the community”) are considered and interpreted today as a matter of prosecutorial discretion, will likely be different than the way in which they were considered and interpreted in 1980.

 

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On the same day of the Sessions Memo’s release, numerous government officials, legislators and federal prosecutors in states with medical and recreational marijuana statutes announced their intention to continue the Cole Memo-era status quo despite the DOJ’s decision to rescind it. The impact that this lack of uniformity between state and federal authorities could have on individual state cannabis markets and the businesses that operate within them is unclear and the enforcement of relevant federal laws is a significant risk. Please see disclosure under Item 1A - “Risk Factors” below.

 

The Department of Justice under the current Biden administration has not yet issued an official memorandum on this subject.

 

We intend to conduct some of our research and development relating to our drug candidates in the United States, at which time, our research and development, future manufacturing, distribution and sale of our drugs will become subject to the United States Federal Controlled Substances Act of 1970 and regulations promulgated thereunder. While cannabis is a Schedule I controlled substance, drugs approved for medical use in the United States that contain cannabis or cannabis extracts must be placed in Schedules II-V, since approval by the FDA satisfies the “accepted medical use” requirement. If any of our drug candidates will receive approval by the FDA, it must be listed by the DEA as a Schedule II or III controlled substance to be allowed for commercialization. Consequently, the manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use of our future drugs will be subject to a significant degree of regulation by the DEA. In addition, individual states in the United States have also established controlled substance laws and regulations. Though state-controlled substances laws often mirror federal law, because the states are separate jurisdictions, they may separately schedule our drugs.

 

Regulations Related to the Drug Regulatory Process

 

We operate in a highly controlled regulatory environment. Strict regulations establish requirements relating to analytical, toxicological and clinical standards and protocols in respect to the testing of pharmaceuticals. Regulations also cover research, development, manufacturing and reporting procedures, both pre- and post-approval. Failure to comply with regulations can result in stringent sanctions, including product recalls, withdrawal of approvals, seizure of products and criminal prosecution. Further, many countries have stringent regulations relating to the possession and use of cannabis or drugs derived from cannabis

 

Before obtaining regulatory approvals for the commercial sale of our future drug candidates, we must demonstrate through preclinical studies and clinical trials that our drug candidates are safe and effective. Historically, the results from preclinical studies and early clinical trials often have not accurately predicted results of later clinical trials. In addition, many pharmaceuticals have shown promising results in clinical trials but subsequently failed to establish sufficient safety and efficacy results to obtain necessary regulatory approvals.

 

We expect to incur substantial expense for, and devote a significant amount of time to, preclinical studies and clinical trials. Many factors can delay the commencement and rate of completion of clinical trials, including the inability to recruit patients at the expected rate, the inability to follow patients adequately after treatment, the failure to manufacture sufficient quantities of materials used for clinical trials, and the emergence of unforeseen safety issues and governmental and regulatory delays. If a drug candidate fails to demonstrate safety and efficacy in clinical trials, this failure may delay development of other drug candidates and hinder our ability to conduct related preclinical studies and clinical trials. Additionally, if we have failures, we may also be expected to experience challenges, delays or even the inability to obtain additional financing at acceptable terms and conditions.

 

Governmental authorities in all major markets require that a new drug be approved or exempted from approval before it is marketed, and have established high-standards for technical appraisal, which can result in an expensive and lengthy approval process. The time to obtain approval varies by country and some drugs are never approved. The lengthy process of conducting clinical trials, seeking approval and the subsequent compliance with applicable statutes and regulations, if approval is obtained, are very costly and require the expenditure of substantial resources.

 

In the United States, the Public Health Service Act and the Federal Food, Drug, and Cosmetic Act, as amended, and the regulations promulgated thereunder, and other federal and state statutes and regulations govern, among other things, the safety and effectiveness standards for our drugs and the raw materials and components used in the production of, testing, manufacture, labeling, storage, record keeping, approval, advertising and promotion of drug candidates on a product-by-product basis.

 

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Preclinical tests include in vitro and in vivo evaluation of the drug candidate, its chemistry, formulation and stability, and animal studies to assess potential safety and efficacy. Certain preclinical tests must be conducted in compliance with good laboratory practice regulations. Violations of these regulations can, in some cases, lead to invalidation of the studies, requiring them to be replicated. After laboratory analysis and preclinical testing, testing, a sponsor files an Investigational New Drug Application, or IND, to begin human testing. Typically, a manufacturer conducts a three-phase human clinical testing program which itself is subject to numerous laws and regulatory requirements, including adequate monitoring, reporting, record keeping and informed consent. In Phase I, small clinical trials are conducted to determine the safety and proper dose ranges of drug candidates. In Phase II, clinical trials are conducted to assess safety and gain preliminary evidence of the efficacy of drug candidates. In Phase III, clinical trials are conducted to provide sufficient data for the statistically valid evidence of safety and efficacy. The time and expense that will be required for us to perform this clinical testing can vary and is substantial. We cannot be certain that we will successfully complete Phase I, Phase II or Phase III testing within any specific period, if at all. Furthermore, the FDA, the IRB are responsible for approving and monitoring the clinical trials at a given site, the Data Safety Monitoring Board, where one is used, or we may suspend the clinical trials at any time on various grounds, including a finding that subjects or patients are exposed to unacceptable health risk.

 

If the clinical data from these clinical trials (Phases I, II and III) are deemed to support the safety and effectiveness of the drug candidate for its intended use, then we may proceed to seek to file with the FDA, a New Drug Application, or NDA, seeking approval to market a new drug for one or more specified intended uses. We have not completed our clinical trials for any candidate drug for any intended use and therefore, we cannot ascertain whether the clinical data will support and justify filing an NDA. Nevertheless, if and when we are able to ascertain that the clinical data supports and justifies filing an NDA, we intend to make such appropriate filing.

 

The purpose of the NDA is to provide the FDA with sufficient information so that it can assess whether it should approve the drug candidate for marketing for specific intended uses. The fact that the FDA has designated a drug as an orphan drug for a specific intended use does not mean that the drug has been approved for marketing. Only after an NDA has been approved by the FDA is marketing allowed. A request for orphan drug status must be filed before the NDA is filed. The orphan drug designation, though, provides certain benefits, including a seven-year period of market exclusivity subject to certain exceptions.

 

The NDA normally contains, among other things, sections describing the chemistry, manufacturing, and controls, non-clinical pharmacology and toxicology, human pharmacokinetics and bioavailability, microbiology, the results of the clinical trials, and the proposed labeling which contains, among other things, the intended uses of the candidate drug.

 

We cannot take any action to market any new drug or biologic drug in the United States until our appropriate marketing application has been approved by the FDA. The FDA has substantial discretion over the approval process and may disagree with our interpretation of the data submitted. The process may be significantly extended by requests for additional information or clarification regarding information already provided. As part of this review, the FDA may refer the application to an appropriate advisory committee, typically a panel of clinicians. Satisfaction of these and other regulatory requirements typically takes several years, and the actual time required may vary substantially based upon the type, complexity and novelty of the drug. Government regulation may delay or prevent marketing of potential drugs for a considerable period and impose costly procedures on our activities. We cannot be certain that the FDA or other regulatory agencies will approve any of our drugs on a timely basis, if at all. Success in preclinical or early stage clinical trials does not assure success in later-stage clinical trials. Even if a drug receives regulatory approval, the approval may be significantly limited to specific indications or uses and these limitations may adversely affect the commercial viability of the drug. Delays in obtaining, or failures to obtain regulatory approvals, would have a material adverse effect on our business.

 

Even after we obtain FDA approval, we may be required to conduct further clinical trials (i.e., Phase IV trials) and provide additional data on safety and effectiveness. We are also required to gain separate approval for the use of an approved drug as a treatment for indications other than those initially approved. In addition, side effects or adverse events that are reported during clinical trials can delay, impede or prevent marketing approval. Similarly, adverse events that are reported after marketing approval can result in additional limitations being placed on the drug’s use and, potentially, withdrawal of the drug from the market. Any adverse event, either before or after marketing approval, can result in product liability claims against us.

 

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As an alternate path for FDA approval of new indications or new formulations of previously-approved drugs, a company may file a Section 505(b)(2) NDA, instead of a “stand-alone” or “full” NDA. Section 505(b)(2) of the Food, Drug, and Cosmetic Act was enacted as part of the Drug Price Competition and Patent Term Restoration Act of 1984, otherwise known as the Hatch-Waxman Amendments. Section 505(b)(2) permits the submission of an NDA where at least some of the information required for approval comes from studies not conducted by or for the applicant and for which the applicant has not obtained a right of reference. Some examples of drugs that may be allowed to follow a 505(b)(2) path to approval are drugs that have a new dosage form, strength, route of administration, formulation or indication. The Hatch-Waxman Amendments permit the applicant to rely upon certain published nonclinical or clinical studies conducted for an approved drug or the FDA’s conclusions from prior review of such studies. The FDA may require companies to perform additional studies or measurements to support any changes from the approved drug. The FDA may then approve the new drug for all or some of the labeled indications for which the referenced listed drug has been approved, as well as for any new indication supported by the NDA. While references to nonclinical and clinical data not generated by the applicant or for which the applicant does not have a right of reference are allowed, all development, process, stability, qualification and validation data related to the manufacturing and quality of the new drug must be included in an NDA submitted under Section 505(b)(2).

 

To the extent that the Section 505(b)(2) applicant is relying on the FDA’s conclusions regarding studies conducted for an already approved drug, the applicant is required to certify to the FDA concerning any patents listed for the approved drug in the FDA’s “Orange Book” publication. Specifically, the applicant must certify that: (i) the required patent information has not been filed; (ii) the listed patent has expired; (iii) the listed patent has not expired, but will expire on a particular date and approval is sought after patent expiration; or (iv) the listed patent is invalid or will not be infringed by the new drug. The Section 505(b)(2) application also will not be approved until any non-patent exclusivity, such as exclusivity for obtaining approval of a new chemical entity, listed in the Orange Book for the reference drug has expired. Thus, the Section 505(b)(2) applicant may invest a significant amount of time and expense in the development of its drugs only to be subject to significant delay and patent litigation before its drugs may be commercialized.

 

In addition to regulating and auditing human clinical trials, the FDA regulates and inspects equipment, facilities, laboratories and processes used in the manufacturing and testing of such drugs prior to providing approval to market a drug.

 

Orphan Drug Designation in the U.S.

 

Under the Orphan Drug Act, the FDA may grant orphan drug designation to a drug intended to treat a rare disease or condition, which is a disease or condition that affects fewer than 200,000 individuals in the United States. If the disease or condition affects more than 200,000 individuals in the United States, orphan drug designation may nevertheless be available if there is no reasonable expectation that the cost of developing and making the drug would be recovered from sales in the United States. In the United States, a drug that has received orphan drug designation is eligible for financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. The Orphan Drug Act provides that, if a designated drug is approved for the rare disease or condition for which it was designated, the approved drug will be granted seven years of orphan drug exclusivity, which means the FDA generally will not approve any other application for a drug containing the same active moiety for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the drug with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. In the European Union, orphan drug designation also entitles a party to financial incentives such as a reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the drug is sufficiently profitable not to justify maintenance of market exclusivity.

 

Orphan drug designation must be requested before submission of an application for marketing approval. Products that qualify for orphan designation may also qualify for other FDA programs that are intended to expedite the development and approval process and, as a practical matter, clinical trials for orphan products may be smaller, simply because of the smaller patient population. Nonetheless, the same approval standards apply to orphan-designated products as for other drugs. Orphan drug designation does not convey any advantage in, or shorten the duration of, the regulatory review and approval process.

 

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Employees

 

As of the date of this report, all of our officers are serving without compensation and have no employees. To the extent not covered by the services of our offices, we expect to use third-party firms and individuals for our drug candidate development and management.

 

Our employees are not subject to any collective bargaining agreement.

 

Research and Development Activities

 

We have incurred no costs during the fiscal years ended June 30, 2021 and 2020, on research and development for the Company.

 

ITEM 1A. RISK FACTORS.

 

You should carefully consider the risks, uncertainties and other factors described below because they could materially and adversely affect our business, financial condition, operating results and prospects and could negatively affect the market price of our Common Stock. Also, you should be aware that the risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties that we do not yet know of, or that we currently believe are immaterial, may also impair our business operations and financial results. Our business, financial condition or results of operations could be harmed by any of these risks. The trading price of our Common Stock could decline due to any of these risks, and you may lose all or part of your investment.

 

In assessing these risks, you should also refer to the other information contained in or incorporated by reference to this Annual Report on Form 10-K, including our financial statements and the related notes.

 

Risks Related to Our Financial Position and Capital Requirements

 

Our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern.

 

The audited financial statements of BioPharma included in this Annual Report have been prepared assuming that we will continue as a going concern and do not include any adjustments that might result if we cease to continue as a going concern. The development of pharmaceuticals with the objective of obtaining approval by the FDA and other international regulatory authorities is not a short-term endeavor for any specific drug candidate. It also requires extremely significant amounts of capital funding for clinical trials and other matters. At June 30, 2021, the Company had a working capital deficit of $13,775. The Company will require significant additional capital to fund the implementation and execution of its business plan. This capital, which likely will be millions of dollars for a single drug candidate, will be required for research, regulatory applications, and clinical trials. We have incurred an accumulated deficit of $10,307,101 since our inception. We have funded these losses primarily through the sale of restricted shares of our Common Stock.

 

Based on our financial history, in its report on the financial statements for the year ended June 30, 2021, our independent registered public accounting firm has expressed substantial doubt as to our ability to continue as a going concern. To date, we have not generated any revenues and we do not anticipate generating any significant revenues during the current fiscal year.

 

Notwithstanding BioPharma’s success in raising approximately $2.1 million from the sale of its securities from inception in 2017 through June 2021, there can be no assurance that we will be able to continue to raise equity and/or debt capital from investors on terms and conditions satisfactory to the Company, find strategic or financial partners for a specific drug candidate, or have adequate capital resources required by us to fund our current and future planned operations. If we are unable to obtain adequate capital resources to fund operations, we may be required to delay, scale back or eliminate some or all of our plan of operations, which may have a material adverse effect on our business, results of operations and ability to operate as a going concern.

 

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The Company has negative cash flow for the financial year ended June 30, 2021.

 

The Company had negative operating cash flow for the financial year ended June 30, 2021. To the extent that the Company has negative operating cash flow in future periods, it may need to allocate a portion of its cash reserves to fund such negative cash flow. The Company may also be required to raise additional funds through the issuance of equity or debt securities. There can be no assurance that the Company will be able to generate a positive cash flow from its operations, that additional capital or other types of financing will be available when needed or that these financings will be on terms favorable to the Company.

 

We face many of the risks and difficulties frequently encountered by relatively new companies with respect to our operations.

 

The Company’s business objective is to conduct scientific research and development related to the use of cannabinoid receptor modulators and/or terpenes for medical treatment of certain medical conditions and diseases. We have no operating history as a medical research company engaged in cannabinoid-based research upon which an evaluation of the Company and its prospects could be based. There can be no assurance that our management will be successful in being able to commercially exploit the results, if any, from our drug development research projects or that we will be able to develop drugs and treatments that will enable us to generate sufficient revenues to meet our expenses or to achieve and/or maintain profitability.

 

If we are unable to raise sufficient capital as needed, we may be required to reduce the scope of our planned research and development activities, which could harm our business plans, financial condition and operating results, or cease our operations entirely, in which case, you will lose all your investment.

 

We currently have no revenues and may never become profitable.

 

Our ability to generate revenue and become profitable depends upon our ability to obtain regulatory approval for any of our drug development projects. Even if we are able to successfully achieve regulatory approval for any of our drug candidates, we do not know when any of these drugs will generate revenues, if at all. We have not generated, and do not expect to generate, any product revenue for the foreseeable future, and we expect to continue to incur significant operating losses for the foreseeable future due to the cost of research and development, preclinical studies and clinical trials and the regulatory approval process for our drug candidates. The amount of future losses is uncertain and will depend, in part, on the rate of growth of our research and development expenses as well as other operating expenses. We are unable to predict the timing or amount of these expected increases in operating expenses. If we are able to obtain approval for any of our drug candidates, we will incur significant costs associated with commercializing our drug candidates.

 

We will require additional capital to fund our operations and if we fail to obtain necessary financing, we will not be able to complete any of our drug development projects

 

Our research operations are expected to require significant cash expenditures. We expect to spend substantial and increasing amounts to conduct our planned research and development, including preclinical testing and clinical trials of our drug candidates, to seek regulatory approvals to eventually market and commercialize any of our drug candidates. As of June 30, 2021, we had only $18,041 in cash and cash equivalents. Through June 2021, we have raised approximately $2.1 million in equity under private placement offerings. We believe that current cash is not sufficient to fund our overhead operations through the remainder of calendar 2021. We estimate that we will require additional capital of at least $40,000 for the remainder of calendar 2021 to maintain our existence as a public reporting company. As discussed below, determining a budget is subject to a number of factors. In general, this estimate may higher if our research efforts prove to be successful or lower if the research efforts are not fruitful. Any progress we make in our research efforts is uncertain because it is difficult to predict our budget for our drug development activities due to numerous factors, including, without limitation, the rate of progress of preclinical studies, clinical trials, the results of preclinical studies and clinical trials for such indication and the costs and timing of seeking and obtaining regulatory approvals for clinical trials. 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 anticipated due to changing circumstances beyond our control. Our future capital requirements may depend on a wide range of factors, including, but not limited to:

 

the costs related to initiation, progress, timing, costs and results of preclinical studies and clinical trials for our drug candidates;

 

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any change in the clinical development plans for these drug candidates;
the number and characteristics of drug candidates that we develop;
the terms of any future collaboration agreements we may choose to enter;
the events related to the outcome, timing and cost of meeting regulatory requirements established by the DEA, the FDA, the European Medicines Agency (“EMA”) or other comparable foreign regulatory authorities;
the potential costs of filing, prosecuting, defending and enforcing our patent claims and other intellectual property;
the cost of defending intellectual property disputes; and
the cost of marketing and generating revenues for any of our drug candidates.

 

We cannot be certain that additional funding will be available on acceptable terms, if at all. If we are unable to raise additional capital on terms acceptable to us, we may have to significantly delay, scale back or discontinue one or more of our drug development projects.

 

Raising additional capital may cause dilution to our existing stockholders and restrict our operations.

 

We may seek additional capital through a combination of private and public equity offerings, debt financings, strategic partnerships and alliances, and licensing arrangements. To the extent that we raise additional capital through the sale of equity or convertible debt securities, existing ownership interests will be diluted, and the terms of such financings may include liquidation or other preferences that adversely affect the rights of existing stockholders. Debt financings may be coupled with an equity component, such as warrants to purchase shares, which could also result in dilution of our existing stockholders’ ownership. The incurrence of indebtedness would result in increased fixed payment obligations and could also result in certain restrictive covenants, such as limitations on our ability to incur additional debt, limitations on our ability to acquire or license intellectual property rights and other operating restrictions that could adversely impact our ability to conduct our business and may result in liens being placed on our assets and intellectual property. If we were to default on such indebtedness, we could lose such assets and intellectual property. If we raise additional funds through strategic partnerships and alliances and licensing arrangements with third parties, we may have to relinquish valuable rights to our drug candidates.

 

The Company’s officers and directors may be engaged in a range of business activities resulting in potential conflicts of interest.

 

The Company may be subject to various potential conflicts of interest because some of its officers and directors may be engaged in a range of business activities. In addition, the Company’s executive officers and directors may devote time to their outside business interests, so long as such activities do not materially or adversely interfere with their duties to the Company. In some cases, the Company’s executive officers and directors may have fiduciary obligations associated with these business interests that interfere with their ability to devote time to the Company’s business and affairs and that could adversely affect the Company’s operations. These business interests could require significant time and attention of the Company’s executive officers and directors.

 

In addition, the Company may also become involved in other transactions which conflict with the interests of its directors and the officers who may from time to time deal with persons, firms, institutions or companies with which the Company may be dealing, or which may be seeking investments similar to those desired by it. The interests of these persons could conflict with those of the Company. In addition, from time to time, these persons may be competing with the Company for available investment opportunities. Conflicts of interest, if any, will be subject to the procedures and remedies provided under applicable laws. In particular, if such a conflict of interest arises at a meeting of the Company’s directors, a director who has such a conflict will abstain from voting for or against the approval of such participation or such terms. In accordance with applicable laws, the directors of the Company are required to act honestly, in good faith and in the best interests of the Company.

 

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The Company is subject to uncertainty regarding legal and regulatory status and changes.

 

Achievement of the Company’s business objectives is also contingent, in part, upon compliance with other regulatory requirements enacted by governmental authorities and obtaining other required regulatory approvals. The regulatory regime applicable to the cannabis business in the U.S. is currently undergoing significant proposed changes and the Company cannot predict the impact of the regime on its business once the structure of the regime is finalized. Similarly, the Company cannot predict the timeline required to secure all appropriate regulatory approvals for its products, or the extent of testing and documentation that may be required by governmental authorities. Any delays in obtaining, or failing to obtain, required regulatory approvals may significantly delay or impact the development of markets, products and sales initiatives and could have a material adverse effect on the business, results of operations and financial condition of the Company. The Company will incur ongoing costs and obligations related to regulatory compliance. Failure to comply with regulations may result in additional costs for corrective measures, penalties or in restrictions on the Company’s operations. In addition, changes in regulations, more vigorous enforcement thereof or other unanticipated events could require extensive changes to the Company’s operations, increased compliance costs or give rise to material liabilities, which could have a material adverse effect on the business, results of operations and financial condition of the Company.

 

Risks Relating to Our Drug Development Projects

 

Our future success will largely depend on the success of our drug candidates, which development will require significant capital resources and years of clinical development effort.

 

We currently have no drug products on the market, and none of our drug development projects has reached preclinical study or clinical trial status. Our business depends almost entirely on the successful clinical development, regulatory approval and commercialization of our drug candidates. Investors need to be aware that substantial additional investments including clinical development and regulatory approval efforts will be required before we are permitted to market and commercialize our drug candidates, if ever. It may be several years before we can commence clinical trials, if ever. Any clinical trial will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States, the European Union, and other jurisdictions where we intend, if approved, to market our drug candidates. Before obtaining regulatory approvals for any of our drug candidates, we must demonstrate through preclinical testing and clinical trials that the drug candidate is safe and effective for its specific application. This process can take many years and may include post-marketing studies and surveillance, which would require the expenditure of substantial resources. Of the large number of drugs in development for approval in the United States and the European Union, only a small percentage will successfully complete the FDA regulatory approval process or be granted authorization to be marketed in the European Commission or the other competent authorities in the European Union (“EU”) Member States. Accordingly, even if we obtain the sufficient financing to fund our planned research, development and clinical programs, we cannot assure you that any of our drug candidates will be successfully developed or commercialized.

 

We may be unable to formulate or scale-up any or all of our drug candidates. There is no guarantee that any of the drug candidates will be or are able to be produced in a manner to meet the FDA’s criteria for product stability, content uniformity and all other criteria necessary for product approval in the United States and other markets. Any of our drug candidates may fail to achieve their specified endpoints in clinical trials. Furthermore, drug candidates may not be approved even if they achieve their specified endpoints in clinical trials. The FDA may disagree with our trial design and our interpretation of data from clinical trials, or may change the requirements for approval even after it has reviewed and commented on the design for our clinical trials. The FDA may also approve a drug for fewer or more limited indications than we request, or may grant approval contingent on the performance of costly post-approval clinical trials (i.e., Phase IV trials). In addition, the FDA may not approve the labeling claims that we believe are necessary or desirable for the successful commercialization of our drug candidates.

 

If we are unable to expand our pipeline and obtain regulatory approval for our drug candidates on the timelines we anticipate, we will not be able to execute our business strategy effectively and our ability to substantially grow our revenues will be limited, which would have a material adverse impact on our long-term business, results of operations, financial condition, and prospects.

 

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Our drug development projects, if approved, may be unable to achieve the expected market acceptance and, consequently, limit our ability to generate revenue.

 

Even when drug development is successful and regulatory approval has been obtained, our ability to generate significant revenue depends on the acceptance of our drug candidates by physicians and patients. We cannot assure you that any of our drug candidates will achieve the expected market acceptance and revenue, if and when we obtain the regulatory approvals. The market acceptance of any drug depends on a number of factors, including the indication statement and warnings approved by regulatory authorities for the drug label, continued demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the drug, reimbursement from third-party payers such as government health care systems and insurance companies, the price of the drug, the nature of any post-approval risk management plans mandated by regulatory authorities, competition, and marketing and distribution support. Any factors preventing or limiting the market acceptance of our drugs could have a material adverse effect on our business, results of operations and financial condition.

 

Results of preclinical studies and earlier clinical trials are not necessarily predictive indicators of future results.

 

Any positive results from future preclinical testing of our drug candidates and potential clinical trials may not necessarily be predictive of the results from Phase 1, Phase 2 or Phase 3 clinical trials. In addition, our interpretation of results derived from clinical data or our conclusions based on our preclinical data may prove inaccurate. Frequently, pharmaceutical and biotechnology companies have suffered significant setbacks in clinical trials after achieving positive results in preclinical testing and early clinical trials, and we cannot be certain that we will not face similar setbacks. These setbacks may be caused by the fact that preclinical and clinical data can be susceptible to varying interpretations and analyses. Furthermore, certain drug candidates may perform satisfactorily in preclinical studies and clinical trials, but nonetheless fail to obtain FDA approval, a marketing authorization granted by the European Commission, or appropriate approvals by government authorities in other countries. If we fail to produce positive results in our clinical trials for our drug candidates, the development timeline and regulatory approval and commercialization prospects for them and as a result our business and financial prospects, would be materially adversely affected.

 

The regulatory approval processes with the FDA, the EMA and other comparable foreign regulatory authorities is lengthy and inherently unpredictable.

 

We are not permitted to market our drug candidates in the United States or the European Union until we receive approval of a New Drug Application (“NDA”) from the FDA or a Marketing Authorization Application (“MAA”) from the European Commission, respectively, or in any foreign countries until we receive the approval from the regulatory authorities of such countries. Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our drug candidates we will need to have completed our preclinical studies and clinical trials. Successfully completing any clinical program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may delay, limit or deny approval of drug candidates for many reasons, including, among others, because:

 

an inability to demonstrate that our drug candidates are safe and effective in treating patients to the satisfaction of the FDA or EMA;
results of clinical trials that may not meet the level of statistical or clinical significance required by the FDA or EMA;
disagreements with the FDA or EMA with respect to the number, design, size, conduct or implementation of clinical trials;
requirements by the FDA and EMA to conduct additional clinical trials;
disapproval by the FDA or EMA or other applicable foreign regulatory authorities of certain formulations, labeling or specifications of drug candidates;
findings by the FDA or EMA that the data from preclinical studies and clinical trials are insufficient;
the FDA or EMA may disagree with the interpretation of data from preclinical studies and clinical trials; and
the FDA, European Commission or other applicable foreign regulatory agencies may change their approval policies or adopt new regulations.

 

Any of these factors, many of which are beyond our control, could increase development costs or jeopardize our ability to obtain regulatory approval for our drug candidates.

 

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We may apply for orphan drug status granted by the FDA for some of our drug candidates for the treatment of rare diseases.

 

Regulatory authorities in some jurisdictions, including the United States and the European Union, may designate drugs for relatively small patient populations as orphan drugs. The FDA may grant orphan drug designation to drugs intended to treat a rare disease or condition that affects fewer than 200,000 individuals annually in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products grants orphan drug designation to promote the development of drugs that are intended for the diagnosis, prevention or treatment of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union. Additionally, such designation is granted for drugs intended for the diagnosis, prevention or treatment of a life-threatening, seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in the European Union would be sufficient to justify the necessary investment in developing the drug.

 

In the United States, orphan drug designation entitles a party to financial incentives, such as opportunities for grant funding towards clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a drug receives the first FDA approval for the drug and indication for which it has orphan drug designation, the drug is entitled to seven years of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the drug with orphan drug exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition, or the same drug for a different disease or condition. In the European Union, orphan drug designation also entitles a party to financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This period may be reduced to six years if the orphan drug designation criteria are no longer met, including where it is shown that the drug is sufficiently profitable so that market exclusivity is no longer justified.

 

Our drug candidates may become subject to controlled substance laws and regulations in the U.S.

 

While cannabis is a controlled substance under the CSA in the United States, we plan to initially focus our drug development projects using cannabinoids that are synthetically produced. Some of these synthetics, such as dronabinol, have been approved by the FDA for various medical research and conditions. While plant-derived cannabinoids are categorized as Schedule I substances under the CSA, dronabinol, which is synthetic tetrahydrocannabinol, or THC is a Schedule III substance in capsule form, although it is a Schedule I substance in bulk form. Even though dronabinol is still a controlled substance, research based on Schedule III substances, including trials in the United States, are substantially less restrictive.

 

However, if we decide to proceed with clinical trials using plant-derived cannabinoids, and are conducting those trials in the United States, we will become subject to the CSA laws and regulation in addition to FDA regulations. Currently the Company does not intend to proceed with clinical trials using cannabis-derived cannabinoids in the U.S. If the Company decides to proceed with plant-derived cannabinoids, it will evaluate where to conduct its research and preclinical trials.

 

At present we have no guaranteed or reliable source of synthetic cannabinoids at an economically feasible price – even though we intend to focus on the utilization of synthetic cannabinoids

 

Our primary objective is to focus our initial drug development utilizing synthetic cannabinoids. While we currently have arrangements with sources from which we are obtaining synthetic cannabinoids, without any guarantees of supply, there is no assurance that we will be able to access synthetic cannabinoids in the future, or at an economically feasible price for a reasonable period of time that would enable us to implement and execute our business plan.

 

Laws and regulations affecting therapeutic uses of cannabis are constantly evolving.

 

The potential ongoing evolution of laws and regulations affecting the research and development of cannabinoid-based medical drugs and treatments could detrimentally affect our business. Laws and regulations related to the therapeutic uses of cannabis and cannabinoid-based drugs may be subject to changing interpretations. These changes may require us to incur substantial costs associated with legal and compliance fees and may ultimately require us to alter our business plan. Furthermore, violations or alleged violation of these laws could disrupt our business and result in a material adverse effect on our operations. In addition, we cannot predict the nature of any future laws, regulations, interpretations or applications of laws and regulations and it is possible that new laws and regulations may be enacted in the future that will be directly applicable to our business.

 

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Our research activities in the cannabinoid drug industry may make it difficult to obtain insurance coverage.

 

In the event that we decide to commence research based on plant-derived cannabinoids in the U.S., obtaining and maintaining necessary insurance coverage, for such things as workers compensation, general liability, product liability and directors and officers liability insurance, may be more difficult and/or expensive for us to find because of our research directions utilizing synthetic and/or plant-derived cannabinoids. There can be no assurance that we will be able to find such insurance, if needed, or that the cost of coverage will be affordable or cost-effective. If, either because of unavailability or cost prohibitive reasons, we are compelled to operate without insurance coverage, we may be prevented from entering certain business sectors, experience inhibited growth potential and/or expose us to additional risks and financial liabilities.

 

We face a potentially highly competitive market.

 

Demand for cannabinoid-derived drugs will likely be dependent on a number of social, political and economic factors that are beyond our control. While we believe that there will be a demand for such drugs, and that the demand will grow, there is no assurance that such demand will happen, that we will benefit from any demand or that our business, in fact, will ever generate revenues from our drug development activities or become profitable.

 

The emerging markets for cannabinoid-derived drugs and medical research and development is and will likely remain competitive. The development and commercialization of drugs is highly competitive. We compete with a variety of multinational pharmaceutical companies and specialized biotechnology companies, as well as products and processes being developed by universities and other research institutions. Many of our competitors have developed, are developing, or will develop drugs and processes competitive with our drug candidates. Competitive therapeutic treatments include those that have already been approved and accepted by the medical community and any new treatments that may enter the market. For some of our drug development directions, other treatment options are currently available, under development, and may become commercially available in the future. If any of our drug candidates is approved for the diseases and conditions we are currently pursuing, they may compete with a range of therapeutic treatments that are either in development or currently marketed.

 

Our failure to comply with existing and potential future laws and regulations relating to drug development could harm our plan of operations.

 

Our business is, and will be, subject to wide-ranging existing federal and state laws and regulations and other governmental bodies in each of the countries we may develop and/or market our drug candidates. We must comply with all regulatory requirements if we expect to be successful.

 

If any of our cannabinoid-derived drug candidates are approved in the United States, they will be subject to ongoing regulatory requirements including federal and state requirements. As a result, we and our collaborators and/or joint venture partners must continue to expend time, money and effort in all areas of regulatory compliance, including, if applicable, manufacturing, production, quality control and assurance and, of upmost importance, clinical trials. We will also be required to report certain adverse reactions and production problems, if any and applicable, to the FDA, and to comply with advertising and promotion requirements for our cannabinoid-derived drug candidates.

 

Any failure to comply with ongoing regulatory requirements may significantly and adversely affect our ability to conduct clinical trials which are prerequisites to our ability to commercialize our cannabinoid-based drugs and related treatments. If regulatory sanctions are applied or if regulatory approval, once obtained, is for any reason withdrawn, the value of our business and our operating results could be materially adversely affected.

 

Changes in legislation or regulation in the health care systems in the United States and foreign jurisdictions may affect us.

 

Our ability to successfully commercialize our drugs may depend on how the U.S. and other governments and/or health administrations provide coverage and/or reimbursements for any drugs that we are successful in developing. The ongoing efforts of governments, insurance companies, and other participants in the health care services industry to trim health care costs may adversely affect our ability to achieve profitability.

 

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In certain foreign markets, including countries in the European Union, pricing of prescription pharmaceuticals is subject to governmental control. Price negotiations with governmental authorities may range from 6 to 12 months or longer after the receipt of regulatory marketing approval for a drug. Our business could be detrimentally affected if reimbursements of our drugs is unavailable or limited, if pricing is set at unacceptable levels.

 

We will need to increase the size of our organization and may experience difficulties in managing growth.

 

At present, we are a very small company. We expect to experience a period of expansion in headcount, infrastructure and overhead and anticipate that further expansion will be required to address potential growth and market opportunities. Future growth will impose significant added responsibilities on members of management, including the need to identify, recruit, maintain and integrate new members of our management team, employees including researchers, and consultants. Our future financial performance and our ability to compete effectively will depend, in part, on our ability to manage any future growth effectively.

 

We may not be able to successfully expand our business through acquisitions.

 

We may review corporate and product acquisition candidates as a part of our growth strategy. If we decide to undertake an acquisition to obtain, what we view as promising drug candidates, we may not be able to successfully integrate it in order to realize the full benefit of such acquisition. Factors which may affect our ability to grow successfully through acquisitions include:

 

inability to identify suitable targets given the relatively narrow scope of our drug candidates;
difficulties and expenses in connection with integrating the acquired companies and achieving the expected benefits;
diversion of management’s attention from current operations;
the possibility that we may be adversely affected by risk factors facing the acquired companies;
possible dilution of earnings, or in the case of acquisitions made through the issuance of our common shares to the stockholders of the acquired company, dilution in the percentage of ownership of our existing stockholders;
potential losses resulting from undiscovered liabilities of acquired companies not covered by the indemnification we may obtain from the seller; and
loss of key employees of the acquired companies.

 

Risks Related to Collaboration with Third Parties and Intellectual Property Rights

 

We will depend on third parties to conduct our research activities.

 

We will rely on third parties such as clinical data management organizations and consultants to design, conduct, supervise and monitor our preclinical studies and clinical trials (the “Third Parties”). We and the Third Parties are required to comply with various regulations and guidelines from regulatory authorities to ensure that the health, safety and rights of patients are protected in clinical development and clinical trials, and that trial data integrity is assured. Relying on Third Parties does not relieve us of certain responsibilities and requirements. If we or any of the Third Parties fail to comply with applicable requirements, the clinical data generated in our clinical trials may be deemed unreliable and the FDA, the EMA or other comparable foreign regulatory authorities may require us to perform additional clinical trials before approving our marketing applications. There is no assurance that upon inspection by a given regulatory authority, such regulatory authority will determine that any of our clinical trials comply with such requirements. Failure to comply with these regulations may require us to repeat preclinical studies and clinical trials, which would delay the regulatory approval process.

 

The Third Parties will not be designated as our employees. We therefore cannot control whether they devote sufficient time and resources to our ongoing clinical and preclinical programs. If the Third Parties do not successfully carry out their contractual duties or if the quality or accuracy of the clinical data they obtain is compromised due to their failure to adhere to clinical protocols and/or regulatory requirements, our clinical trials may be extended, delayed or terminated and we may not be able to obtain regulatory approval for, or successfully commercialize our drug candidates. As a result, our commercial prospects for our drug candidates would be harmed, our costs could increase and our ability to generate revenue could be delayed or reduced.

 

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Clinical trials are very expensive, time consuming and difficult to design and implement. Our drug candidates are in preclinical development, which is an extremely preliminary stage of development that includes no regulatory input. We estimate that clinical trials for these drug candidates, if and when initiated, may continue for several years and may take significantly longer than expected to complete. In addition, we, the FDA, an institutional review board (IRB), or other regulatory authorities, including state and local authorities, may suspend, delay or terminate our clinical trials at any time, or the DEA could suspend or terminate the registrations and quota allotments we require in order to procure and handle controlled substances, for various reasons, including:

 

Lack of effectiveness of any product candidate during clinical trials;
Discovery of serious or unexpected toxicities or side effects experienced by study participants or other safety issues;
Slower than expected rates of subject recruitment and enrollment rates in clinical trials;
Difficulty in retaining subjects who have initiated a clinical trial but who may withdraw at any time due to adverse side effects from the therapy, insufficient efficacy, fatigue with the clinical trial process, or for any other reason;
Delays or inability in manufacturing or obtaining sufficient quantities of materials for use in clinical trials, in particular, obtaining sufficient quantities of synthetic or plant-derived cannabinoids due to regulatory and manufacturing constraints.
Inadequacy of or changes in our manufacturing process or product formulation;
Delays in obtaining regulatory authorization to commence a study, or “clinical holds” or delays requiring suspension or termination of a study by a regulatory agency, including by the FDA, before or after a study is commenced;
DEA-related recordkeeping, reporting, or security violations at a clinical site, leading the DEA or state authorities to suspend or revoke the site’s controlled substance license and causing a delay or termination of planned or ongoing studies;
Changes in applicable regulatory policies and regulations;
Delays or failure in reaching agreement(s) on acceptable terms in clinical trial contracts or protocols with prospective clinical trial sites;
Uncertainty regarding proper dosing;
Unfavorable results from ongoing clinical trials and preclinical studies;
Failure of the Third Parties or other third-party contractors to comply with all contractual and regulatory requirements or to perform their services in a timely or acceptable manner;
Failure by us, our employees, our consultants, the Third Parties, or their employees to comply with all applicable FDA, DEA or other regulatory requirements relating to the conduct of clinical trials or the handling, storage, security and recordkeeping for controlled substances;
Scheduling conflicts with participating clinicians and clinical institutions;
Failure to design appropriate clinical trial protocols;
Insufficient data to support regulatory approval;
Inability or unwillingness of medical investigators to follow our clinical protocols;
Difficulty in maintaining contact with subjects during or after treatment, which may result in incomplete data; or
Regulatory concerns with cannabinoid-derived drugs generally and the potential for abuse of the drugs.

 

Generally, there is a high rate of failure for drug candidates proceeding through clinical trials. We may suffer significant setbacks in our clinical trials similar to the experience of many other companies in the pharmaceutical and biotechnology industries, even after receiving promising results in early trials. Further, even if we view the results of a clinical trial to be positive, the FDA or other regulatory authorities may disagree with our interpretation of the data. In the event that we abandon or are delayed in our clinical development efforts related to our drug candidates, we may not be able to execute on our business plan effectively, we may not be able to generate revenues from our drug development activities, become profitable, resulting in our reputation in the industry and in the investment community likely becoming significantly damaged and this could adversely affect the price of our shares.

 

We intend to rely upon Third Parties to formulate and produce our drug candidates in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s good clinical practice regulations and current good manufacturing practices and DEA and state regulations governing the handling, storage, security and recordkeeping for controlled substances. These Third Parties are anticipated to play a significant role in the formulation process and the development of our drug candidates. We intend to likely rely on these Third Parties for the formulation and development of the products to be utilized in our clinical and preclinical studies, and we will likely control minimally certain aspects of their activities.

 

We intend to rely on Third Parties to conduct and oversee our clinical trials. If these Third Parties do not meet our deadlines or otherwise conduct the trials as required, we may not be able to obtain regulatory approval for or commercialize our drug candidates when expected or at all.

 

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We may also rely upon various medical institutions, clinical investigators and contract laboratories to conduct our trials in accordance with our clinical protocols and all applicable regulatory requirements, including the FDA’s good clinical practice regulations and DEA and state regulations governing the handling, storage, security and recordkeeping for controlled substances. These Third Parties are anticipated to play a significant role in the conduct of these trials and the subsequent collection and analysis of data from the clinical trials. We intend to rely heavily on these parties for the execution of our clinical and preclinical studies, and control only certain aspects of their activities.

 

If any of our clinical trial sites terminate their involvement in one of our clinical trials for any reason, we may experience the loss of follow-up information on patients enrolled in our ongoing clinical trials unless we are able to transfer the care of those patients to another qualified clinical trial site. In addition, principal investigators for our clinical trials may serve as scientific advisors or consultants to us from time to time and receive cash or equity compensation in connection with their services. If these relationships and any related compensation result in perceived or actual conflicts of interest, the integrity of the data generated at the applicable clinical trial site may be questioned by the FDA.

 

If we are unable to protect our intellectual property rights or if our intellectual property rights are inadequate for our drug candidates, our competitive position could be harmed.

 

Our commercial success will depend in large part on our ability to obtain and maintain patent and other intellectual property protection in the U.S. and other countries with respect to our proprietary technology and drug candidates. We will rely on trade secret, patent, copyright and trademark laws, and confidentiality and other agreements with employees and third parties, all of which offer only limited protection. We are seeking to protect our proprietary positions by filing patent applications in the United States and abroad related to our novel technologies and drugs that are important to our business.

 

We do not know whether any of the pending patent applications for any of our drug candidates will result in the issuance of patents. The patent positions of biotechnology and pharmaceutical companies generally are highly uncertain, involve complex legal and factual questions and have often been the subject of litigation. As a result, the issuance, scope, validity, enforceability and commercial value of any of our potential future patents are highly uncertain. The steps we will take to protect our proprietary rights may not be adequate to preclude misappropriation of our proprietary information or infringement of our intellectual property rights, both inside and outside the United States. Patent examination processes may require us to narrow the claims for our pending patent applications, which may limit the scope of patent protection that may be obtained if the patents are granted. The rights to be granted under future patents issued to us may not provide us with the proprietary protection or competitive advantages we seek. If we are unable to obtain and maintain patent protection for our technology and drugs, or if the scope of the patent protection obtained is not sufficient, our competitors could develop and commercialize technology and drugs similar or superior to ours, and our ability to successfully commercialize our technology and drugs may be adversely affected.

 

The issuance of a patent may not always be conclusive as to its inventorship, scope, validity or enforceability. Our issued patents may be challenged in the courts or patent offices in the U.S. and abroad. Such challenges may result in the loss of patent protection, the narrowing of claims in such patents or the invalidity or unenforceability of such patents, which could limit our ability to stop others from using or commercializing similar or identical technology and drugs, or limit the duration of the patent protection for our technology and drugs.

 

Costly litigation may be necessary to protect our intellectual property rights and we may be subject to claims alleging the violation of the intellectual property rights of others.

 

We may face significant expense and liability due to litigation or other proceedings relating to patents and other intellectual property rights of others. If another party has also filed a patent application or been issued a patent relating to an invention or technology claimed by us in pending applications, we may be required to participate in an interference proceeding declared by the U.S. Patent and Trademark Office to determine priority of invention, which could result in substantial uncertainties and costs for us, even if the eventual outcome were favorable to us. We, or our licensors, also could be required to participate in interference proceedings involving issued patents and pending applications of another entity. An adverse outcome in an interference proceeding could require us to cease using the technology or to license rights from prevailing third parties.

 

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The cost to us of any patent application or patent litigation, even if resolved in our favor, could be substantial. Our ability to enforce our patent protection could be limited by our financial resources, and may be subject to lengthy delays.

 

A third party may claim that we use inventions claimed by their patents and may go to court to stop us from engaging in research, development and/or the sale of any of our future drugs. Such lawsuits are expensive and would consume time and other resources. There is a risk that the court will decide that we are infringing on the third party’s patents and will order us to stop the activities claimed by the patents. In addition, there is a risk that a court will order us to pay the other party damages for having infringed their patents.

 

Moreover, there is no guarantee that any prevailing patent owner would offer us a license so that we could continue to engage in activities claimed by the patent, or that such a license, if made available to us, could be acquired on commercially acceptable terms. In addition, third parties may in the future, assert other intellectual property infringement claims against us with respect to our drug candidates, technologies or other matters.

 

We will rely on confidentiality agreements that could be breached and may be difficult to enforce, which could result in third parties using our intellectual property to compete against us.

 

We will take reasonable steps to protect our intellectual property, including the use of agreements relating to the non-disclosure of confidential information to third parties, as well as agreements that purport to require the disclosure and assignment to us of the rights to the ideas, developments, discoveries and inventions of our employees and consultants while we employ them. These agreements may be difficult and costly to enforce. Although we will seek to obtain these types of agreements from these Third Parties, to the extent that employees and consultants utilize or independently develop intellectual property in connection with any of our projects, disputes may arise as to the intellectual property rights associated with our drug candidates. If a dispute arises, a court may determine that the right belongs to a third party. Enforcement of our rights can be costly and unpredictable. Despite the protective measures we intent to employ, we will still face the risk that:

 

these agreements may be breached;
these agreements may not provide adequate remedies for the applicable type of breach;
our trade secrets or proprietary know-how will otherwise become known; or
our competitors will independently develop similar technology or proprietary information.

 

Intellectual property rights may not necessarily address all potential threats to our competitive advantage.

 

The degree of future protection afforded by our intellectual property rights may be uncertain because intellectual property rights have limitations, and may not adequately protect us to enable us to maintain any competitive advantage. The following factors may weaken our protection:

 

compounds may be made by others that are the same or similar to our drug candidates, but are not covered by our patent claims;
inventions covered by our future patents or pending patent may have been discovered by others previously;
independently developed similar or alternative technologies may duplicate any of our technologies without infringing our intellectual property rights;
pending patents may not lead to issued patents;
our future issued patents may not provide us with any competitive advantages, or may be held invalid or unenforceable as a result of legal challenges;
our competitors might conduct research and development activities in the United States and other countries that provide a safe harbor from patent infringement claims for certain research and development activities, as well as in countries where we do not have patent rights; and
the patents of others may have an adverse effect on our business.

 

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Risks Related to Our Common Stock

 

There can be no assurance of a liquid public trading market for our Common Stock or whether investors will be able to readily be able to sell their shares of Common Stock.

 

At present, our Common Stock is subject to quotation on the OTCQB under the symbol “NXEN”. There is only a limited and non-liquid public trading market for our Common Stock and there can be no assurance that a more liquid market will ever develop or be sustained. Market liquidity will depend on the perception of our business and any steps that our management might take to bring public awareness of our business to the investing public within the parameters of the federal securities laws. We can provide no assurance that there will be any awareness generated or sustained. Consequently, investors may not be able to liquidate their investment or liquidate it at a price paid by investors equal to or greater than their initial investment in our Common Stock. As a result, holders of our Common Stock may not find purchasers for their shares should they to decide to sell the Common Stock held by them at any specific time, if ever. Consequently, our Common Stock should be purchased only by investors who have no immediate need for liquidity from their investment and who can hold our Common Stock potentially for a prolonged period of time.

 

In the event an active trading market develops for our Common Stock, the market price may, from time-to-time, be volatile.

 

In the event an active trading market develops for our Common Stock, the market price of our Common Stock may be highly volatile. Some of the factors that may materially affect the market price of our Common Stock are beyond our control, such as changes in conditions or trends in the industry in which we operate, general market and economic conditions both in the United States and globally, as well as the number of our shares of Common Stock being purchased and sold at any particular time. These factors may materially adversely affect the market price of our Common Stock, regardless of our historic business performance or future business prospects. In addition, the public stock markets have experienced and may be expected to experience extreme price and trading volume volatility. These market fluctuations may adversely affect the market price of our Common Stock.

 

A large number of additional shares will be available for resale into the public market pursuant to Rule 144, which may cause the market price of our Common Stock to decline significantly.

 

Sales of a substantial number of shares of our Common Stock in the public market will become available pursuant to Rule 144 promulgated by the SEC under the Act, and could adversely affect the market price of our Common Stock. As of October 12, 2021, we have 55,772,196 shares of Common Stock outstanding, of which 44,367,782 are restricted due to applicable federal securities laws. As restrictions on the resale of shares of Common Stock expire, pursuant to the provisions of Rule 144 or otherwise, the market price could drop significantly if the holders of these restricted shares sell them or are perceived by the market as intending to sell them at any given date or over any particular period of time.

 

If holders of restricted securities sell a large number of shares pursuant to Rule 144, they could adversely affect the market price for our Common Stock, over which we will likely have no control.

 

You may experience dilution of your ownership interest because of the potential of future issuance of additional shares of our Common Stock or our preferred stock.

 

In the future, we may issue our authorized but previously unissued equity securities, including shares of our Common Stock, resulting in the dilution of the ownership interests of our present stockholders. We are authorized to issue an aggregate of 200,000,000 shares of Common Stock, par value $0.0001 per share, of which 55,772,196 shares of Common Stock are outstanding as of October 12, 2021.

 

We may also issue additional shares of our Common Stock, warrants or other securities that are convertible into or exercisable for the purchase of shares of our Common Stock in connection with hiring and/or retaining employees or consultants, future acquisitions, future sales of our securities for capital raising purposes, or for other business purposes. The future issuance of any such additional shares of our Common Stock or other securities, for any reason including those stated above, may have a negative impact on the market price of our Common Stock. There can be no assurance that the issuance of any additional shares of Common Stock, warrants or other convertible securities may not be at a price (or exercise prices) below the then prevailing price at which shares of our Common Stock will be quoted in the U.S. over-the-counter market.

 

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We may never pay any dividends to our stockholders.

 

We currently intend to retain any future earnings for use in the operation and expansion of our business. Accordingly, we do not expect to pay any dividends in the foreseeable future, but will review this policy as circumstances dictate. The declaration and payment of all future dividends, if any, will be at the sole discretion of our board of directors, which retains the right to change our dividend policy at any time. Consequently, stockholders must rely on sales of their Common Stock after price appreciation, which may never occur, as the only way to realize any future gains on their investment.

 

Insiders will continue to have substantial control over us and will be able to influence corporate matters.

 

As of October 12, 2021, our directors and executive officers and stockholders holding more than 5% of our Common Stock own of record and beneficially, in the aggregate, approximately 74% of our outstanding Common Stock. As a result, if these stockholders were to choose to act together, they would be able to exercise considerable influence over all matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions, such as a merger or other sale of our Company or all or a significant percentage of our assets. This concentration of ownership could limit your ability to influence corporate matters and may have the effect of delaying or preventing a third party from acquiring control over us. For information regarding the ownership of our outstanding stock by our executive officers and directors and their affiliates, see the disclosure under Item 12 - “Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters.”

 

We cannot assure you that the interests of our management and affiliated persons will coincide with the interests of other stockholders. As long as our management and affiliated persons collectively control a substantial portion of our Common Stock, these individuals and/or entities controlled by them, including Kanativa USA Inc., will continue to collectively be able to strongly influence or effectively control our decisions.

 

Our Common Stock is thinly traded, so stockholders may be unable to sell at or near ask prices, or at all, if they need to sell shares to raise money or otherwise desire to liquidate their shares.

 

Our Common Stock is “thinly-traded,” meaning that the number of persons interested in purchasing our Common Stock at or near ask prices at any given time may be relatively small or non-existent. This situation is attributable to a number of factors, including the fact that we are a small company that is relatively unknown to stock analysts, stock brokers, institutional investors and others in the investment community that generate or influence sales volume, and that even if we came to the attention of such persons, they tend to be risk-averse and would be reluctant to follow an unproven company such as ours, or purchase or recommend the purchase of our shares until such time as we become more seasoned and viable. As a consequence, there may be periods of several days or longer when trading activity in our Common Stock is minimal or non-existent, as compared to a seasoned issuer which has a large and steady volume of trading activity that will generally support continuous sales without an adverse effect on its share price. We cannot give stockholders any assurance that a broader or more active public trading market for our Common Stock will develop or be sustained, or that current trading levels will be sustained.

 

Anti-takeover provisions of the Delaware General Corporation Law may discourage or prevent a change of control, even if an acquisition would be beneficial to our stockholders, which could reduce our stock price.

 

We are subject to the provisions of Section 203 of the Delaware General Corporation Law, which may prohibit certain business combinations with stockholders owning 15% or more of our outstanding voting stock. These and other provisions in our certificate of incorporation, bylaws and Delaware law could make it more difficult for stockholders or potential acquirers to obtain control of our board of directors or initiate actions that are opposed by our then-current board of directors, including a merger, tender offer or proxy contest involving our Company. Any delay or prevention of a change of control transaction or changes in our board of directors could cause the market price of our Common Stock to decline.

 

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State Blue Sky registration and potential limitations on resale of our Common Stock.

 

The holders of our shares of Common Stock and those persons who desire to purchase our Common Stock in any trading market, should be aware that there may be state blue-sky law restrictions upon the ability of investors to resell our securities. Accordingly, investors should consider the secondary market our securities to be a limited one.

 

Our Common Stock is considered a Penny Stock, which may be subject to restrictions on marketability, so you may not be able to sell your shares.

 

We are subject to the Penny Stock rules since our shares of Common Stock sell below $5.00 per share. Penny stocks generally are equity securities with a price of less than $5.00. The penny stock rules require broker-dealers to deliver a standardized risk disclosure document prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer must also provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson, and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information must be given to the customer orally or in writing prior to completing the transaction and must be given to the customer in writing before or with the customer’s confirmation.

 

In addition, the penny stock rules require that prior to a transaction, the broker dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. The penny stock rules are burdensome and may reduce purchases of any offerings and reduce the trading activity for shares of our Common Stock. As long as our shares of Common Stock are subject to the penny stock rules, the holders of such shares of Common Stock may find it more difficult to sell their securities.

 

The control deficiencies in our internal control over financial reporting may until remedied cause errors in our financial statements or cause our filings with the SEC to not be timely.

 

There may be errors in our financial statements that could require a restatement, or our filings may not be timely made with the SEC. Based on the work undertaken and performed by us, however, we believe the financial statements contained in our reports filed with the SEC are fairly stated in all material respects in accordance with generally accepted accounting principles (“GAAP”) for each of the periods presented.

 

At present, our internal control over financial reporting or disclosure controls and procedures are not effective. We identified material weaknesses including lack of sufficient internal accounting personnel in order to ensure complete documentation of complex transactions and adequate financial reporting during the years ended June 30, 2021 and 2020.

 

We intend to implement additional corporate governance and control measures to strengthen our control environment as we are able, but we may not achieve our desired objectives. We may identify material weaknesses and control deficiencies in our internal control over financial reporting in the future that may require remediation and could lead investors losing confidence in our reported financial information, which could lead to a decline in our stock price.

 

Reporting requirements under the Exchange Act and compliance with the Sarbanes-Oxley Act of 2002 (SOX), including establishing and maintaining acceptable internal controls over financial reporting, are costly and may increase substantially.

 

The rules and regulations of the SEC require a public company to prepare and file periodic reports under the Securities Exchange Act of 1934 (the “Exchange Act”), which will require that the Company engage legal, accounting, auditing and other professional service providers. The engagement of such services is costly and continuing. Additionally, SOX requires, among other things, that we design, implement and maintain adequate internal controls and procedures over financial reporting. The costs of complying with SOX and the limited technically qualified personnel we have may make it difficult for us to design, implement and maintain adequate internal controls over financial reporting. We expect these costs to be approximately $40,000 per year or perhaps more as our operations increase in scope and magnitude. If we fail to maintain an effective system of internal controls or discover material weaknesses in our internal controls, we may not be able to produce reliable financial reports and/or discover and report fraud, which may harm our overall financial condition and result in loss of investor confidence and a decline in our share price.

 

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Our by-laws provide for indemnification of our directors and the purchase of D&O insurance at our expense and limit their potential or actual liability which may result in a significant cost to us and damage the interests of our stockholders.

 

The Company’s By-Laws include provisions that eliminate the personal liability of the directors of the Company for monetary damages to the fullest extent possible under the laws of the State of Delaware as well as other applicable laws. These provisions eliminate the liability of directors to the Company and its stockholders for monetary damages arising out of any violation of a director of his fiduciary duty of due care. Under Delaware law, however, such provisions do not eliminate the personal liability of a director for: (i) breach of the director’s duty of loyalty; (ii) acts or omissions not in good faith or involving intentional misconduct or knowing violation of law; (iii) payment of dividends or repurchases of stock other than from lawfully available funds; or (iv) any transaction from which the director derived an improper benefit. These provisions do not affect a director’s liabilities under the federal securities laws or the recovery of damages by third parties.

 

Financial Industry Regulatory Authority, Inc. (FINRA) sales practice requirements may limit a stockholder’s ability to buy and sell our Common Stock.

 

In addition to the “penny stock” rules described above, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our Common Stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

If we fail to maintain effective internal controls over financial reporting, the price of our Common Stock may be adversely affected.

 

Our internal control over financial reporting may have weaknesses and conditions that could require correction or remediation, the disclosure of which may have an adverse impact on the price of our Common Stock. We are required to establish and maintain appropriate internal controls over financial reporting. Failure to establish those controls, or any failure of those controls once established, could adversely affect our public disclosures regarding our business, prospects, financial condition or results of operations. In addition, management’s assessment of internal controls over financial reporting may identify weaknesses and conditions that need to be addressed or other matters that may raise concerns for investors. Any actual or perceived weaknesses and conditions that need to be addressed in our internal control over financial reporting or disclosure of management’s assessment of our internal controls over financial reporting may have an adverse impact on the price of our Common Stock.

 

We are required to comply with certain provisions of Section 404 of SOX and if we fail to comply in a timely manner, our business could be harmed and our stock price could decline.

 

Rules adopted by the SEC pursuant to Section 404 of SOX require an annual assessment of internal controls over financial reporting, and for certain issuers an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal control over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In addition, although attestation requirements by our independent registered public accounting firm are not presently applicable to us, we could become subject to these requirements in the future and we may encounter problems or delays in completing the implementation of any resulting changes to internal controls over financial reporting. If our Chief Executive Officer or Chief Financial Officer determines that our internal controls over financial reporting are not effective as defined under Section 404, we cannot predict how the market prices of our shares will be affected; however, we believe that there is a risk that investor confidence and share value may be negatively affected.

 

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Our share price could be volatile and our trading volume may fluctuate substantially.

 

The price of our common shares has been and may in the future continue to be extremely volatile, with the sale price fluctuating from a low of pennies per share to a high of $0.44 during the two most recently completed fiscal years. Many factors could have a significant impact on the future price of our common shares, including:

 

our inability to raise additional capital to fund our operations, whether through the issuance of equity securities or debt;
our failure to successfully implement our business objectives and strategic growth plans;
compliance with ongoing regulatory requirements;
market acceptance of our drug candidates, once approved for sale;
changes in government regulations;
general economic conditions and other external factors; and
actual or anticipated fluctuations in our quarterly financial and operating results; and
the degree of trading liquidity in our common shares.

 

Our annual and quarterly results may fluctuate greatly, which may cause substantial fluctuations in our Common Stock price.

 

Our annual and quarterly operating results may in the future fluctuate significantly depending on a number of factors. Any unfavorable change in these or other factors could have a material adverse effect on our operating results for a particular quarter or year, which may cause downward pressure on our Common Stock price. We expect quarterly and annual fluctuations to continue for the foreseeable future.

 

Risks Related to the Regulation of Cannabis in the United States

 

While cannabis is legal in many U.S. state jurisdictions, it continues to be a controlled substance under the United States CSA.

 

In the United States, cannabis is largely regulated at the state level. To the Company’s knowledge, a majority of the states, plus the District of Columbia, Puerto Rico and Guam, that have legalized cannabis in some form. Notwithstanding the permissible regulatory environment of medical cannabis at the state level, cannabis continues to be categorized as a controlled substance under the CSA and as such, violates federal law in the United States.

 

Violations of federal laws and regulations could result in significant fines, penalties, administrative sanctions, convictions or settlements arising from civil proceedings conducted by either the federal government or private citizens, or criminal charges, including, but not limited to, disgorgement of profits, cessation of business activities or divestiture. This could have a material adverse effect on the Company, including its reputation and ability to conduct business, the listing of its securities on various stock exchanges, its financial position, operating results, profitability or liquidity or the market price of its publicly traded shares. In addition, it is difficult for the Company to estimate the time or resources that would be needed for the investigation of any such matters or its final resolution because, in part, the time and resources that may be needed are dependent on the nature and extent of any information requested by the applicable authorities involved, and such time or resources could be substantial.

 

Currently the Company does not intend to proceed with clinical trials using cannabis-derived cannabinoids in the U.S. If the Company decides to proceed with plant-derived cannabinoids, it could become subject to risks relating to the characterization of cannabis as a controlled substance.

 

The approach to the enforcement of cannabis laws may be subject to change or may not proceed as previously outlined.

 

As a result of the conflicting views between state legislatures and the federal government regarding cannabis, involvement in the cannabis industry in the United States is subject to inconsistent legislation and regulation. If we decide to proceed with clinical trials using plant-derived cannabinoids, and are conducting those trials in the United States, we could be subject to risks relating to the enforcement of cannabis laws.

 

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Regulatory scrutiny of the Company’s industry may negatively impact its ability to raise additional capital.

 

The Company’s business activities rely on newly established and/or developing laws and regulations in multiple jurisdictions. These laws and regulations are rapidly evolving and subject to change with minimal notice. Regulatory changes may adversely affect the Company’s potential for profitability or cause it to cease operations entirely. The cannabis industry may come under scrutiny by the U.S. FDA, the SEC, the DOJ, the Financial Industry Regulatory Authority or other federal or other applicable state or nongovernmental regulatory authorities or self-regulatory organizations that supervise or regulate the production, distribution, sale or use of cannabis for medical or non-medical purposes in the U.S. It is impossible to determine the extent of the impact of any new laws, regulations or initiatives that may be proposed, or whether any proposals will become law. The regulatory uncertainty surrounding the Company’s industry may adversely affect the business and operations of the Company, including without limitation, the costs to remain compliant with applicable laws and the impairment of its ability to raise additional capital, create a public trading market in the U.S. or elsewhere for securities of the Company, which could reduce, delay or eliminate any return on investment in the Company.

 

State and local laws and regulations may heavily regulate brands and forms of cannabis products and there is no guarantee that the Company’s proposed products and brands will be approved for sale and distribution in any state.

 

States generally only allow the manufacture, sale and distribution of cannabis products that are grown in that state and may require advance approval of such products. Certain states and local jurisdictions have promulgated certain requirements for approved cannabis products based on the form of the product and the concentration of the various cannabinoids in the product. If the Company produces products that are derived from plant-based (rather than synthetic) cannabinoids, the Company intends to follow the guidelines and regulations of each applicable state and local jurisdiction in preparing products for sale and distribution, there is no guarantee that such products will be approved to the extent necessary. If the products are approved, there is a risk that any state or local jurisdiction may revoke its approval for such products based on changes in laws or regulations or based on its discretion or otherwise.

 

We may have difficulties accessing the services of banks in the United States due to the nature of our business.

 

The use, sale, or possession of all forms of cannabis in the United States is illegal under federal law. As a Schedule I drug under the federal Controlled Substances Act of 1970, cannabis is considered to have “no accepted medical use” and have a high potential for abuse and physical or psychological dependence. As a result, historically many banks have not accepted for deposit funds from persons/entities that are engaged in cannabis-related businesses, including those engaged in developing drugs containing cannabinoids such as our Company. As described above, on February 14, 2014, the Financial Crimes Enforcement Network (“FinCEN”) released guidance to banks “clarifying Bank Secrecy Act expectations for financial institutions seeking to provide services to cannabis-related businesses.” In addition, U.S. Rep. Jared Polis (D-CO) has stated he will seek an amendment to banking regulations and laws in order to allow banks to transact business with state-authorized medical marijuana treatment programs. While these are positive developments, there can be no assurance this legislation will be successful, or that, even with the FinCEN guidance, banks will decide to do business with corporations that are in the business of developing drugs containing cannabinoids, or that, in the absence of actual legislation, state and federal banking regulators will not strictly enforce current prohibitions on banks handling funds generated from an activity that is illegal under federal law. While the Company has not, to date, experienced any difficulty in opening accounts and otherwise using the services of banks, any changes in this regard could materially harm our business.

 

Due to the classification of cannabis as a Schedule I controlled substance under the CSA, banks and other financial institutions which service the cannabis industry are at risk of violating certain financial laws, including anti-money laundering statutes.

 

Because the manufacture, distribution, and dispensation of cannabis remains illegal under the CSA, banks and other financial institutions providing services to cannabis-related businesses risk violation of federal anti-money laundering statutes (18 U.S.C. §§ 1956 and 1957), the unlicensed money-remitter statute (18 U.S.C. § 1960) and the U.S. Bank Secrecy Act. These statutes can impose criminal liability for engaging in certain financial and monetary transactions with the proceeds of a “specified unlawful activity” such as distributing controlled substances which are illegal under federal law, including cannabis, and for failing to identify or report financial transactions that involve the proceeds of cannabis-related violations of the CSA. The Company may also be exposed to the foregoing risks if it produces drugs derived from plant-based (rather than synthetic) cannabinoids.

 

  27  

 

 

Any re-classification of cannabis or changes in U.S. controlled substance laws and regulations may affect the Company’s business.

 

If cannabis and/or CBD is re-categorized as a Schedule II or lower controlled substance, the ability to conduct research on the medical benefits of cannabis would most likely be simpler and more accessible; however, if cannabis is re-categorized as a Schedule II or other controlled substance, the resulting re-classification would result in the requirement for FDA approval if medical claims were made for any of the Company’s products, such as medical cannabis. As a result, the manufacture, importation, exportation, domestic distribution, storage, sale and use of such products may be subject to a significant degree of regulation by the DEA. In that case, the Company may be required to be registered (licensed) to perform these activities and have the security, control, recordkeeping, reporting and inventory mechanisms required by the DEA to prevent drug loss and diversion. Obtaining the necessary registrations may result in delay of the manufacturing or distribution of the Company’s anticipated products. The DEA conducts periodic inspections of certain registered establishments that handle controlled substances. Failure to maintain compliance could have a material adverse effect on the Company’s business, financial condition and results of operations. The DEA may seek civil penalties, refuse to renew necessary registrations, or initiate proceedings to restrict, suspend or revoke those registrations. In certain circumstances, violations could lead to criminal proceedings. Furthermore, if the FDA, DEA, or any other regulatory authority determines that the Company’s products may have potential for abuse, it may require the Company to generate more clinical or other data than the Company currently anticipates establishing whether or to what extent the substance has an abuse potential, which could increase the cost and/or delay the launch of that product.

 

CBD is classified as Schedule I controlled substance. The DEA recently published a final rule in the Federal Register creating a new drug code for “marijuana extracts”.

 

In connection with the new drug code, the DEA has determined that all CBD products, regardless of origin, shall be considered Schedule I controlled substances. The Company is unable to determine what the impact of this will be on its business.

 

U.S. federal trademark and patent protection may not be available for the intellectual property of the Company due to the current classification of cannabis as a Schedule I controlled substance.

 

As long as cannabis remains illegal under U.S. federal law as a Schedule I controlled substance pursuant to the CSA, the benefit of certain federal laws and protections which may be available to most businesses, such as federal trademark and patent protection regarding the intellectual property of a business, may not be available to the Company if it determines to produce drugs using cannabis. As a result, the Company’s intellectual property may never be adequately or sufficiently protected against the use or misappropriation by third-parties. In addition, since the regulatory framework of the cannabis industry is in a constant state of flux, the Company can provide no assurance that it will ever obtain any protection of its intellectual property, whether on a federal, state or local level.

 

The Company’s contracts may not be legally enforceable in the United States.

 

If, in the future, the Company enters into contracts that involve cannabis and/or other activities that are not legal under U.S. federal law and in some jurisdictions, the Company may face difficulties in enforcing its contracts in U.S. federal and certain state courts.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS.

 

Not Applicable.

 

ITEM 2. PROPERTIES

 

Our principal office is located at 4340 East Kentucky Avenue, Suite 206, Glendale, Colorado 80246. Our telephone number is (303) 495-7583. Our offices consist of approximately 300 square feet of executive offices and we believe that these facilities will be sufficient for the next twelve months.

 

ITEM 3. LEGAL PROCEEDINGS.

 

There are no pending legal proceedings to which the Company is a party, and the Company’s property is not the subject of any pending legal proceedings.

 

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not Applicable.

 

  28  

 

 

PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market Price Information

 

Our Common Stock is currently quoted on the OTCQB Market under the symbol NXEN. For the periods indicated, the following table sets forth the high and low bid prices per share of Common Stock. The below prices represent inter-dealer quotations without retail markup, markdown, or commission and may not necessarily represent actual transactions.

 

    Price Range
Period   High   Low
Year Ended June 30, 2020:        
First Quarter   $ 0.10     $ 0.0443  
Second Quarter   $ 0.0915     $ 0.035  
Third Quarter   $ 0.0659     $ 0.031  
Fourth Quarter   $ 0.074     $ 0.0092  
Year Ended June 30, 2021:                
First Quarter   $ 0.445     $ 0.0394  
Second Quarter   $ 0.12     $ 0.028  
Third Quarter   $ 0.2585     $ 0.0635  
Fourth Quarter   $ 0.22     $ 0.0605  

 

As of October 5, 2021, the closing price for the Common Stock was $0.078 per share.

 

As of September 29, 2021, our shares of Common Stock were held by 701 stockholders of record. The transfer agent of our Common Stock is Standard Registrar and Transfer Company, Inc., whose telephone number is: (801) 571-8844.

 

Dividends

 

Holders of Common Stock are entitled to dividends when, as, and if declared by the Board of Directors, out of funds legally available therefor. We have never declared cash dividends on our Common Stock and our Board of Directors does not anticipate paying cash dividends in the foreseeable future as it intends to retain future earnings to finance the growth of our businesses. There are no restrictions in our certificate of incorporation or bylaws that restrict us from declaring dividends.

 

Securities Authorized for Issuance Under Equity Compensation Plans

 

Equity Compensation Plan Information as of June 30, 2021

 

Plan category   Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a))
Equity compensation plans approved by security holders     7,995,000     $ 0.26       3,331,000  
Equity compensation plans not approved by security holders     -0-       —         -0-  
Total     7,995,000               3,331,000  

 

  29  

 

 

On August 10, 2017, BioPharma adopted its 2017 Stock Incentive Plan under which the board of directors is authorized the grant up to 7,200,000 shares of its common stock. An aggregate of 6,400,000 shares of Common Stock to five officers and directors of the Company, valued at $800,000 ($0.125 per share) were granted. On July 25, 2018, the Company accelerated the vesting of 1,083,342 unvested shares of Common Stock previously granted to its former Chief Executive Officer and Chief Financial Officer. As of June 30, 2021, all 5,233,333 shares issued have been vested.

 

On March 30, 2018, the Company’s board of directors approved and recommended for adoption by the stockholders of the Company a 2018 Equity Incentive Plan and reserved 8,000,000 shares of Common Stock for issuance under the terms of that Plan. The total number of shares reserved and available for grant and issuance under the 2018 Plan is 8,000,000 shares, plus any reserved shares not issued or subject to outstanding grants under the 2017 Stock Plan and shares that cease to be subject to awards under the 2017 Stock Plan because of forfeiture. In addition, the number of shares available for grant and issuance under the 2018 Plan will be increased on July 1 of each of the next ten calendar years by the lesser of (a) 15% of the number of shares issued during the most recently completed fiscal year or (b) such number of shares determined by the board of directors. The 2018 Plan permits the board to grant a variety of incentive awards: stock options, restricted stock awards, stock bonus awards, and stock appreciation rights. Stockholder approval was obtained on March 29, 2019. As of June 30, 2021, 7,995,000 stock options were granted and exercisable.

 

Recent Sales of Unregistered Securities

 

During the quarter ended June 30, 2021, we issued 2,250,000 shares of common stock as compensation to our officers and directors.

 

Issuer Purchases of Securities

 

None.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

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.

 

  31  

 

 

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.

 

  32  

 

 

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.

 

  33  

 

 

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.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As a “smaller reporting company”, we are not required to provide this information.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Consolidated Financial Statements

 

Nexien BioPharma, Inc.

 

For the years ended June 30, 2021 and 2020

 

Table of contents

 

Report of Independent Registered Public Accounting Firm   F-1
     
Consolidated Balance Sheets   F-2
     
Consolidated Statements of Operations   F-3
     
Consolidated Statements of Stockholders’ (Deficit)   F-4
     
Consolidated Statements of Cash Flows   F-5
     
Notes to Consolidated Financial Statements   F-6 - F-17

 

  34  

 

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders of Nexien BioPharma, Inc.

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Nexien BioPharma, Inc. (the Company) as of June 30, 2021 and 2020, and the related consolidated statements of operations, stockholders’ deficit, and cash flows for each of the two-year periods ended June 30, 2021 and 2020, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of June 30, 2021 and 2020, and the results of its operations and its cash flows for each of the years in the two-year period ended June 30, 2021 and 2020 in conformity with accounting principles generally accepted in the United States of America.

 

Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the financial statements, the Company has suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management’s plans regarding those matters are discussed in Note 2. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and the significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe our audits provide a reasonable basis for our opinion.

 

Critical Audit Matters

 

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

 

Going Concern

 

As discussed in Note 2 to the financial statements, the Company had a going concern due to a negative working capital and losses from operations.

 

Auditing management’s evaluation of a going concern can be a significant judgment given the fact that the Company uses management estimates on future revenues and expenses which are not able to be substantiated.

 

To evaluate the appropriateness of the going concern, we examined and evaluate the financial information that was the initial cause along with managements’ plans to mitigate the going concern and managements’ disclosure on going concern.

 

/s/ M&K CPAS, PLLC  
   
We have served as the Company’s auditor since 2017  
   
Houston, TX  
   
October 12, 2021  

 

  F- 1  

 

 

Nexien BioPharma, Inc.

Consolidated Balance Sheets

June 30, 2021 and 2020

 

    2021     2020  
             
Assets                
                 
Current Assets                
Cash   $ 18,041     $ 10,786  
Prepaid - other     7,500       12,000  
                 
Total current assets     25,541       22,786  
                 
Total Assets   $ 25,541     $ 22,786  
                 
Liabilities and Stockholders’ (Deficit)                
                 
Current Liabilities                
Accounts payable and accrued expenses   $ 6,375     $ 17,151  
Due to officer     20,000       -  
Convertible note payable - related party, net of discount of $52,059 at June 30, 2021     12,941       12,000  
                 
Total current liabilities     39,316       29,151  
                 
Commitments and Contingencies                
                 
Stockholders’ (Deficit)                
Preferred stock - $.0001 par value; 10,000,000 authorized; none issued-     -          
Common stock - $.0001 par value; 200,000,000 shares authorized; 55,772,196 shares issued and outstanding -June 30, 2021; 53,984,004 shares issued and outstanding -June 30, 2020     5,577       5,398  
Additional paid in capital     10,476,004       11,583,159  
Stock payable     35,000       -  
Common stock subject to forfeiture     (223,255 )     (3,147,763 )
Accumulated deficit     (10,307,101 )     (8,447,159 )
                 
Total Stockholders’ Equity (Deficit)     (13,775 )     (6,365 )
                 
Total Liabilities and Stockholders’ (Deficit)   $ 25,541     $ 22,786  

 

The accompanying notes area an integral part of these consolidated financial statements.

 

  F- 2  

 

 

Nexien BioPharma, Inc.

Consolidated Statements of Operations

Years Ended June 30, 2021 and 2020

 

    2021     2020  
             
Revenue   $ -     $ -  
                 
Operating expenses                
Professional fees     43,710       50,531  
General and administrative     1,800,057       2,495,386  
Impairment of license fees     -       35,000  
Management fees-related     -       90,667  
Total operating expenses     1,843,767       2,671,584  
                 
Other income (expense)                
Interest expense - related     (3,234 )     (33 )
Amortization of discount on convertible notes     (12,941 )     -  
Total other income (expense)     (16,175 )     (33 )
                 
Net loss   $ (1,859,942 )   $ (2,671,617 )
                 
Loss per share - basic and diluted   $ (0.03 )   $ (0.05 )
                 
Weighted average shares outstanding -                
basic and diluted     55,399,643       53,912,852  

 

The accompanying notes area an integral part of these consolidated financial statements.

 

  F- 3  

 

 

Nexien BioPharma, Inc.

Consolidated Statements of Stockholders’ (Deficit)

Years ended June 30, 2020 and 2021

 

    Shares     Common Stock     Additional Paid in Capital     Stock Payable     Comon Stock Subject to Forfeiture     Accumulated Deficit     Total
Stockholders’
(Deficit)
 
                                           
Balance, June 30, 2019     53,510,718     $ 5,351     $ 11,505,819     $ -     $ (5,469,708 )   $ (5,775,542 )   $ 265,920  
                                                         
Issuance of stock for accounts  payable at $0.09 per share     16,667       1       1,499       -       -       -       1,500  
Issuance of stock for license at $0.09 per share     381,619       38       34,962       -       -       -       35,000  
Issuance of stock for services at $0.10 per share     75,000       8       7,492       -       -       -       7,500  
Vesting of management shares subject  to forfeiture     -       -       -       -       18,750       -       18,750  
Amortization of CRx shares     -       -       -       -       2,303,195       -       2,303,195  
 Fair value of options and warrants issued for services     -       -       33,387       -       -       -       33,387  
Net loss     -       -       -       -       -       (2,671,617 )     (2,671,617 )
                                                         
Balance, June 30, 2020     53,984,004       5,398       11,583,159       -       (3,147,763 )     (8,447,159 )     (6,365 )
                                                         
Issuance of stock for conversion of related party  note payable and interest at $0.014 per share     1,797,192       180       24,981       -       -       -       25,161  
Issuance of stock for accounts payable at $0.09 per share     150,000       15       13,485       -       -       -       13,500  
Issuance of common stock to officers & director     2,250,000       225       271,025       -       -       -       271,250  
Amortization of CRx shares     -       -       -       -       1,093,668       -       1,093,668  
Fair value of options granted     -       -       348,953       -       -       -       348,953  
Discount on convertible debt     -       -       65,000       -       -       -       65,000  
Common stock issuable to officers                             35,000                       35,000  
Cancellation of unvested CRx shares     (2,409,000 )     (241 )     (1,830,599 )     -       1,830,840       -       -  
Net loss     -       -       -       -       -       (1,859,942 )     (1,859,942 )
                                                         
Balance, June 30, 2021     55,772,196     $ 5,577     $ 10,476,004     $ 35,000     $ (223,255 )   $ (10,307,101 )   $ (13,775 )

 

The accompanying notes area an integral part of these consolidated financial statements.

 

  F- 4  

 

 

Nexien BioPharma, Inc.

Consolidated Statements of Cash Flows

Years Ended June 30, 2021 and 2020

 

    2021     2020  
             
Cash flows from operating activities                
Net loss   $ (1,859,942 )   $ (2,671,617 )
Adjustments to reconcile net loss to net cash used in operating activities                
Stock based compensation     348,953       52,137  
Fair value of shares issued for CRx Acquisition     1,093,668       2,303,195  
Stock issued for services and license fee     -       42,500  
Stock issued to officers and director     271,250       -  
Stock issuable to officers     35,000       -  
Discount on convertible debt     12,941       -  
Management fees - related party     -       90,667  
Changes is assets and liabilities                
Decrease in prepaids     4,500       61,647  
Increase (decrease) in accounts payable and accrued expenses     2,885       (26,099 )
Cash used in operating activities     (90,745 )     (147,570 )
                 
Cash flows from investing activities                
Cash used in investing activities     -       -  
                 
Cash flows from financing activities                
Cash proceeds from convertible note payable - related     78,000       12,000  
Advance from officer     20,000       -  
Cash provided by financing activities     98,000       12,000  
                 
Net increase in cash and cash equivalents     7,255       (135,570 )
Cash and cash equivalents, beginning of period     10,786       146,356  
Cash and cash equivalents, end of period   $ 18,041     $ 10,786  
                 
Supplemental disclosure of non-cash investing and financing activities                
                 
Shares issued for settlement of accounts payable   $ 13,500     $ 1,500  
Shares issued for conversion of related party note and interest   $ 25,161     $ -  

 

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

 

  F- 5  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 1 – Nature of Business and Basis of Presentation

 

The Company was incorporated on November 10, 1952 in Michigan as Gantos, Inc. On July 21, 2008, the Company completed its change in domicile to Delaware and subsequently changed its name to Kinder Holding Corp. (the “Company”). As of October 13, 2017, the Company completed a reverse acquisition of Intiva BioPharma Inc., a Colorado corporation (“BioPharma”) through an exchange of shares (the “Share Exchange Transaction”). In connection with the Share Exchange Transaction, the Company changed its name to Intiva BioPharma Inc. on November 8, 2017 and, in September 2018, the Company changed its name to Nexien BioPharma, Inc.

 

As further described in Note 3, BioPharma became a wholly-owned subsidiary of the Company. Since this transaction resulted in the existing shareholders of BioPharma acquiring control of the Company, for financial reporting purposes, the business combination has been accounted for as an additional capitalization of the Company (a reverse acquisition with BioPharma as the accounting acquirer). The operations of BioPharma were the only continuing operations of the Company. The accompanying financial statements as of June 30, 2021 and 2020 and for the years then ended present the historical financial information of BioPharma.

 

BioPharma was incorporated under the laws of the State of Colorado on March 27, 2017 to pursue pre-clinical and drug development activities, in accordance with U.S. Food and Drug Administration (“FDA”) protocols, for certain pharmaceutical formulations that include cannabinoids. It is pursuing the formulation and development of drugs containing cannabinoids for the treatment of various diseases, disorders and medical conditions, and owns a license covering certain intellectual property, including certain patent applications, and has filed three of its own provisional patent applications for other drugs that include cannabinoids and other substances, including terpenes, that are intended to be developed with the objective of treating certain medical conditions and disorders. It was formed as a corporate subsidiary of the Colorado corporation Kanativa USA Inc. (“Kanativa USA”), which is a subsidiary of the Ontario, Canada corporation, Kanativa Inc.

 

Principles of Consolidation

 

The accompanying consolidated financial statements include BioPharma and its wholly owned subsidiaries: Intiva BioPharma Inc. (a Colorado corporation), NexN Inc. (“NexN”) and NexDM Inc. (collectively the “Company”), and were prepared from the accounts of the Company in accordance with accounting principles generally accepted in the United States of America (US GAAP). All significant intercompany transactions and balances have been eliminated on consolidation.

 

All share and per share amounts have been adjusted in the footnotes and accompanying financial statements to give effect to the Share Exchange Transaction. (See Note 4).

 

Note 2 - Going Concern Uncertainty

 

The accompanying financial statements have been prepared in conformity with US GAAP, which contemplates continuation of the Company as a going concern. The Company has not established any source of revenue to cover its operating costs, and as such, has incurred an operating loss since inception of $10,307,101. The development of pharmaceuticals with the objective of obtaining approval by the FDA and other international regulatory authorities is not a short-term endeavor for any specific drug candidate. It also requires extremely significant amounts of capital funding for clinical trials and other matters. At June 30, 2021, the Company had a working capital deficit of $13,775. The Company will require significant additional capital to fund the implementation and execution of its business plan. This capital, which likely will be millions of dollars for a single drug candidate, will be required for research, regulatory applications, and clinical trials. At the present time, the Company does not have any commitments or known sources for this level of funding. These and other factors raise substantial doubt about the Company’s ability to continue as a going concern. The accompanying financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the possible inability of the Company to continue as a going concern.

 

  F- 6  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 3 – Summary of Significant Accounting Policies

 

Use of Estimates

 

The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statement and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from the estimates.

 

Cash and Cash Equivalents

 

For financial statement presentation purposes, the Company considers those short-term, highly liquid investments with original maturities of three months or less to be cash or cash equivalents. There were no cash equivalents at June 30, 2021 and 2020.

 

Valuation of Long-Lived Assets

 

The Company reviews the recoverability of its long-lived assets including equipment, goodwill and other intangible assets, when events or changes in circumstances occur that indicate that the carrying value of the asset may not be recoverable. The assessment of possible impairment is based on the Company’s ability to recover the carrying value of the asset from the expected future pre-tax cash flows (undiscounted and without interest charges) of the related operations. If these cash flows are less than the carrying value of such asset, an impairment loss is recognized for the difference between estimated fair value and carrying value. The Company’s primary measure of fair value is based on discounted cash flows. The measurement of impairment requires management to make estimates of these cash flows related to long-lived assets, as well as other fair value determinations.

 

Fair Value of Financial Instruments

 

FASB ASC 825, “Financial Instruments,” requires entities to disclose the fair value of financial instruments, both assets and liabilities recognized and not recognized on the balance sheet, for which it is practicable to estimate fair value. FASB ASC 825 defines fair value of a financial instrument as the amount at which the instrument could be exchanged in a current transaction between willing parties. At June 30, 2020 and 2019, the carrying value of certain financial instruments (cash and cash equivalents, accounts payable and accrued expenses.) approximates fair value due to the short-term nature of the instruments or interest rates, which are comparable with current rates.

 

Fair Value Measurements

 

The Company measures fair value under a framework that utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurements) and the lowest priority to unobservable inputs (level 3 measurements). The three levels of inputs which prioritize the inputs used in measuring fair value are:

 

Level 1: Inputs to the valuation methodology are unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access.

 

Level 2: Inputs to the valuation methodology include:

 

  Quoted prices for similar assets or liabilities in active markets;
     
  Quoted prices for identical or similar assets or liabilities in inactive markets;
     
  Inputs other than quoted prices that are observable for the asset or liability;
     
  Inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

  F- 7  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 3 – Summary of Significant Accounting Policies (continued)

 

Fair Value Measurements (continued)

 

If the asset or liability has a specified (contractual) term, the level 2 input must be observable for substantially the full term of the asset or liability.

 

Level 3: Inputs to the valuation methodology are unobservable and significant to the fair value measurement.

 

The assets or liability’s fair value measurement level within the fair value hierarchy is based on the lowest level of any input that is significant to the fair value measurement. Valuation techniques used need to maximize the use of observable inputs and minimize the use of unobservable inputs.

 

When the Company changes its valuation inputs for measuring financial assets and liabilities at fair value, either due to changes in current market conditions or other factors, it may need to transfer those assets or liabilities to another level in the hierarchy based on the new inputs used. The Company recognizes these transfers at the end of the reporting period that the transfers occur. For the periods ended June 30, 2021 and 2020, there were no significant transfers of financial assets or financial liabilities between the hierarchy levels.

 

As of June 30, 2021, no assets or liabilities were required to be measured at fair value on a recurring basis.

 

Earnings per Common Share

 

The Company computes net income (loss) per share in accordance with ASC 260, Earning per Share. ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period using the treasury stock method and convertible preferred stock using the if-converted method. In computing Diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential shares if their effect is anti-dilutive.

 

Income Taxes

 

The Company has adopted ASC 740, Accounting for Income Taxes. Pursuant to ASC 740, the Company is required to compute tax asset benefits for net operating losses carried forward. The potential benefits of net operating losses have not been recognized in these financial statements because the Company cannot be assured it is more likely than not it will utilize the net operating losses carried forward in future years.

 

Certain estimates and judgments must be made in determining income tax expense for financial statement purposes. These estimates and judgments occur in the calculation of certain tax assets and liabilities, which arise from differences in the timing of recognition of revenue and expense for tax and financial statement purposes.

 

Deferred tax assets and liabilities are determined based on the differences between financial reporting and the tax basis of assets and liabilities using the tax rates and laws in effect when the differences are expected to reverse. ASC 740 provides for the recognition of deferred tax assets if realization of such assets is more likely than not to occur. Realization of the Company’s net deferred tax assets is dependent upon generating sufficient taxable income in future years in appropriate tax jurisdictions to realize benefit from the reversal of temporary differences and from net operating loss, or NOL, carryforwards. Management has determined it more likely than not that these timing differences will not materialize and has provided a valuation allowance against substantially all the Company’s net deferred tax assets.

 

Management will continue to evaluate the realization of the deferred tax assets and its related valuation allowance. If assessment of the deferred tax assets or the corresponding valuation allowance were to change, the Company would record the related adjustment to income during the period in which the determination is made.

 

  F- 8  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 3 – Summary of Significant Accounting Policies (continued)

 

Income Taxes (continued)

 

In addition, the calculation of the Company’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations. Liabilities for anticipated tax audit issues in the U.S. are recognized based on the estimate of whether, and to the extent to which, additional taxes will be due. If it is ultimately determined that payment of these amounts is unnecessary, the liability will be reversed and a tax benefit will be recognized during the period in which it is determined that the liability is no longer necessary. The Company will record an additional charge to the provision for taxes in the period in which it is determined that the recorded tax liability is less than the Company expects the ultimate assessment to be.

 

ASC 740 which requires recognition of estimated income taxes payable or refundable on income tax returns for the current year and for the estimated future tax effect attributable to temporary differences and carry-forwards. Measurement of deferred income tax is based on enacted tax laws including tax rates, with the measurement of deferred income tax assets being reduced by available tax benefits not expected to be realized.

 

Revenue Recognition

 

The Company has adopted ASC 606 — Revenue from Contracts with Customers. Under ASC 606, the Company recognizes revenue from the commercial sales of products, licensing agreements and contracts to perform pilot studies by applying the following steps: (1) identify the contract with a customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to each performance obligation in the contract; and (5) recognize revenue when each performance obligation is satisfied.

 

There was no impact on the Company’s financial statements as a result of adopting Topic 606 for years ended June 30, 2021 and 2020.

 

Research and Development Expenses

 

Research and development expenses are charged to operations as incurred.

 

Concentrations of Credit Risk

 

Financial instruments that potentially subject the Company to concentrations of credit risk consist primarily of cash and cash equivalents. Cash and cash equivalents are deposited with major banks in the United States of America. Management believes that such financial institutions are financially sound and, accordingly, minimal credit risk exists with respect to these financial instruments. The Company does not have any significant off-balance-sheet concentration of credit risk.

 

Stock-based compensation

 

Pursuant to FASB ASC 718, all share-based payments to employees, including grants of employee stock options, are recognized in the statement of operations based on their fair values.

 

Issuance of shares for non-cash consideration

 

The Company accounts for the issuance of equity instruments to acquire goods and/or services based on the fair value of the goods and services or the fair value of the equity instrument at the time of issuance, whichever is more reliably determinable. The Company’s accounting policy for equity instruments issued to consultants and vendors in exchange for goods and services follows the provisions of the standards issued by the FASB. The measurement date for the fair value of the equity instruments issued is determined as the earlier of (i) the date at which a commitment for performance by the consultant or vendor is reached or (ii) the date at which the consultant or vendor’s performance is complete. In the case of equity instruments issued to consultants, the fair value of the equity instrument is recognized over the term of the consulting agreement.

 

  F- 9  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 3 – Summary of Significant Accounting Policies (continued)

 

Reclassifications

 

Certain amounts in the consolidated financial statements for prior year periods have been reclassified to conform with the current year periods presentation.

 

Recent Accounting Pronouncements

 

Although there are several other new accounting pronouncements issued or proposed by the FASB, which the Company has adopted or will adopt, as applicable, the Company does not believe any of these accounting pronouncements has had or will have a material impact on its consolidated financial position or results of operations. Management has evaluated accounting standards and interpretations issued but not yet effective as of June 30, 2021 and does not expect such pronouncements to have a material impact on the Company’s financial position, operations, or cash flows.

 

Note 4 – Share Exchange Agreement

 

On August 8, 2017, the Company entered into a Share Exchange Agreement, as amended and restated on October 13, 2017, (the “Agreement”), with BioPharma. Pursuant to the terms of the Agreement, the Company agreed to issue to the shareholders of BioPharma 42,642,712 post-reverse stock-split shares of the Company’s common stock, par value $0.0001 (“Common Stock”), in exchange for all of the issued and outstanding shares of BioPharma capital stock, thereby making BioPharma a wholly-owned subsidiary of the Company. As part of the Closing of the Agreement, the 20,000,000 pre-reverse split shares of the Company’s Common Stock previously purchased by Kanativa USA, effective on June 26, 2017 in a change in control transaction from the Company’s control shareholders, were canceled. Since this transaction resulted in the existing shareholders of BioPharma acquiring control of the Company, for financial reporting purposes, the business combination has been accounted for as an additional capitalization of the Company (a reverse acquisition with BioPharma as the accounting acquirer).

 

Note 5 – License Agreements

 

Kotzker License Agreement

 

In March 2017, the Company licensed certain intellectual property from Kotzker Consulting LLC (“Kotzker Consulting”), an unrelated entity. The licensed intellectual property includes patent applications relating to the use of cannabinoid receptor modulators and terpenes in the acute treatment during exposure to organophosphorus nerve agents and/or organophosphorus insecticides. Under terms of the agreement, the Company shall use its commercially reasonable efforts to develop and commercialize the licensed products, and, in particular, will be responsible for the design, manufacturing, preclinical, clinical, and regulatory development activities of the licensed products and shall bear the costs of such activities. As consideration for entering into the agreement, the Company agreed to: (i) pay Kotzker Consulting $180,000, (ii) pay patent prosecution costs incurred as of the date of the agreement of $15,000 and (iii) issue to Kotzker Consulting 31,550 shares of Kanativa Inc.’s common stock valued at $78,875 ($2.50 per share based on recent private placement to third parties of Kanativa Inc.’s common stock). The Company has also capitalized legal fees of $29,040 incurred in conjunction with acquiring the license agreement. The license agreement terminates, on a country by country basis, upon the expiration of the licensed patent for the licensed intellectual property, or when a competitor generic product utilizing the licensed technology is marketed in the particular country.

 

In September 2017, the Company entered into a contract with a contract manufacturing organization to develop an injectable formulation of a drug product to be submitted to the FDA. It is anticipated that the product will be developed utilizing the new drug application 505(b) (2) regulatory pathway for use in the treatment during and immediately following exposure to organophosphorous nerve agents. The drug product is to consist of a synthetic cannabinoid and a blend of terpenes in an injectable vehicle.

 

  F- 10  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 5 – License Agreements (continued)

 

Kotzker License Agreement (continued)

 

The Company has estimated that it may not be able to recover the $302,915 carrying value of costs capitalized under the Kotzker License Agreement and, in December 2020, the Company elected to terminate this agreement, assigned the licensed intellectual property back to Kotzker and issued 150,000 restricted shares of common stock, valued at $13,500 ($0.09 per share) as a final payment for consulting fees owed.

 

Accu-Break License Agreement

 

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 estimated 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 both of these license agreements.

 

Note 6 - Stockholders’ Equity

 

Common stock

 

During the year ended June 30, 2021, the Company issued shares of its common stock as follows:

 

  1,000,000 shares to each of the Company’s Chief Executive Officer and Chief Financial Officer as consideration for their services to the Company.
     
  250,000 shares to the independent member of the Board of Directors for services rendered. The shares were valued at $0.09 per share, the closing trading price of the Company’s common stock as of the date of issuance.
     
  1,797,192 shares, at $0.014 per share, to its CEO for conversion of a note payable in the principal amount of $25,000 and accrued interest of $161.
     
  150,000 shares valued at $13,500, $0.09 per share, as consideration for consulting services under the Kotzker License Agreement (Note 5).

 

In May 2021, the Board of Directors authorized the issuance of a total of 2,500,000 shares of common stock of the Company to each of its Chief Executive Officer and Chief Financial Officer, with 250,000 of such shares to be issued to each of them every quarter beginning July 1, 2021 and continuing every three months through October 1, 2023, it being the intent of the Board that the issuance of these shares represents compensation for services rendered for the then completed calendar quarter (See Note 8).

 

During the year ended June 30, 2020 the Company issued 473,286 shares of its common stock as follows:

 

  16,667 shares, valued at $1,500 ($0.09 per share), as consideration for consulting services rendered.
     
  75,000 shares, valued at $7,500 ($0.10 per share), as partial consideration for entering into an investor relations contract.
     
  381,619 shares, valued at $35,000 ($0.092 per share), for final payment on the license agreement with respect to a proprietary delivery system for cannabinoid-based medications (See Note 5).

 

  F- 11  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 6 - Stockholders’ Equity (continued)

 

CRX Limited Liability Company Interest Purchase Agreement

 

On October 26, 2018, Company entered into a Limited Liability Company Interest Purchase Agreement (the “Purchase Agreement”) with the members of CRx Bio Holdings LLC, a Delaware limited liability company (“CRx”), to acquire all of the membership interest in CRx in exchange for 11,000,000 restricted shares of the Company’s common stock (the “Acquisition”), valued at $0.76 per share. The transaction has been accounted for as an asset acquisition, and not a business combination, and has been valued at the fair value of the common stock issued by the Company, as CRx’s cost basis was $0 in the assets. CRx was engaged in the research and development of advanced cannabinoid formulations and drug delivery systems with a focus on bioavailability and related pharmacokinetics and pharmacodynamics (PK/PD) enhancement. The Acquisition transaction was consummated on October 26, 2018. By acquiring CRx as a wholly-owned subsidiary, the Company acquired all of its assets, which consist primarily of three U.S. provisional patent applications relating to cannabinoid formulations to treat convulsive disorders, chronic traumatic encephalopathy, and neuropathic pain. At the closing, the Company issued to the six members of CRx (the “Sellers”) 1,100,000 shares not subject to any forfeiture restrictions and 9,900,000 shares which were to be released from forfeiture restrictions in three equal tranches upon each anniversary of the closing of the Acquisition. Any Seller who was not then providing services to the Company or any of its subsidiaries on any vesting date, whether through voluntary termination or termination “for cause,” would forfeit his unvested shares, which would be cancelled.

 

The transaction was valued at $8,360,000, based on the fair value of the 11,000,000 shares issued of $0.76 per share, as per the closing market price of the Company’s common stock on the date of the agreement. The $836,000 fair value of the 1,100,000 shares issued not subject to any forfeiture restrictions was charged to operations during the six months ended December 31, 2018. The $7,524,000 fair value of the 9,900,000 shares subject to forfeiture was charged to stockholders’ equity as a contra equity account, and was being amortized over the vesting periods. The net amount charged to stockholder’s equity was $0 on the date of the acquisition.

 

Effective December 31, 2018, one of the Sellers resigned from the Company and forfeited 1,732,500 unvested shares previously issued. In May 2019, that Seller returned to the Company an additional 142,500 vested shares issued in accordance with the Purchase Agreement. The fair value of the returned shares was credited to the operations as of June 30, 2019. 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 at June 30, 2021 and June 30, 2020, an aggregate $4,880,904 and $3,787,237, respectively, was charged to operations for the value of vested shares issued and the amortization of the unvested CRX shares.

 

2017 Stock Incentive Plan

 

On August 10, 2017, the Company adopted the “2017 Stock Incentive Plan” and granted an aggregate of 6,400,000 shares of Common Stock to five officers and directors of the Company, valued at $800,000 ($0.125 per share). In March 2018, 1,166,667 unvested shares (valued at $145,833) previously issued to the Company’s former Chief Executive Officer were canceled. On July 25, 2018, the Company accelerated the vesting of 1,083,342 unvested shares of Common Stock previously granted to its former Chief Executive Officer and Chief Financial Officer. As of June 30, 2020, all 5,233,333 shares issued (valued at $654,167) have been vested, of which 150,000 shares, valued at $18,750, were vested during the year ended June 30, 2020.

 

2018 Equity Incentive Plan

 

(i) On March 30, 2018, the Company’s board of directors approved and recommended for adoption by the stockholders of the Company a 2018 Equity Incentive Plan and has reserved 8,000,000 shares of Common Stock for issuance under the terms of that Plan.

 

  F- 12  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 6 - Stockholders’ Equity (continued)

 

In July 2018, 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.

 

In August 2018, the Board of Directors granted 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.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

 

Average risk-free interest rates 2.3% - 2.8%
Average expected life (in years) 4.0 to 7.0
Volatility 160% to 296%

 

The fair value of the options granted at June 30, 2020 is $867,715, including $33,307 for the fair value of options vested in 2020. All options granted have been fully vested as of June 30, 2020.

 

(ii) On October 17, 2018, the Board of Directors granted options to purchase an aggregate 800,000 shares of Common Stock, exercisable for a period of seven years, to officers/directors of the Company at an exercise price of $0.655 per share and confirmed a grant of options made as of October 1, 2018, to purchase 500,000 shares of Common Stock, exercisable for a period of seven years, to an officer and director of the Company at an exercise price $0.48. All of the options were fully vested as of the date of grant

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

 

Average risk-free interest rates 2.88% - 2.93%
Average expected life (in years) 4.0
Volatility 171% to 172%

 

(iii) On August 19, 2020, the Board of Directors authorized the issuance of an aggregate 5,000,000 options to three officers of the Company, exercisable at $0.08 per share for a seven-year period from the date of grant. As of the date of grant, 3,333,334 options were fully vested and the balance of 1,666,666 options will vest quarterly over the next four calendar quarters beginning September 30, 2020.

 

The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

 

Average risk-free interest rates .23%
Average expected life (in years) 4.0
Volatility 152%

 

The fair value of the vested options granted of $348,953 was charged to operations during the year ended June 30, 2021. As of June 30, 2021, all options granted were fully vested.

 

  F- 13  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 6 - Stockholders’ Equity (continued)

 

A summary of option activity during the year ended June 30, 2021 is presented below:

 

    Shares     Weighted
Average
Exercise Price
    Weighted
Average Remaining Contractual
Life (Years)
                 
Outstanding and exercisable – June 30, 2020     2,995,000     $ 0.55      
Granted     5,000,000     $ 0.08      
Exercised     -              
Expired/Canceled     -              
Outstanding and exercisable – June 30, 2021     7,995,000     $ 0.26     4.5

 

Warrants

 

On November 24, 2020, the Company issued warrants for the acquisition of common shares as partial consideration for the issuance of convertible notes (Note 7).

 

The following table summarizes information about warrants outstanding at June 30, 2021:

 

    Number     Exercise Price     Expires
Class A     1,727,299     $ 0.040265     November 24, 2025
Class B     1,727,299     $ 0.043276     November 24, 2025
Class C     1,727,299     $ 0.045157     November 24, 2025

 

The fair value of the warrants granted is estimated on the date of grant using the Black-Scholes option pricing model with the following weighted-average assumptions used for grants under the fixed option plan:

 

Average risk-free interest rates .39%
Average expected life (in years) 2.5
Volatility 153%

 

A summary of warrant activity during the year ended June 30, 2021 is presented below:

 

    Shares     Weighted
Average
Exercise Price
    Weighted
Average Remaining Contractual
Life (Years)
                 
Outstanding and exercisable – June 30, 2020     -              
Granted     5,181,897     $ 0.0429      
Exercised     -              
Expired/Canceled     -              
Outstanding and exercisable – June 30, 2021     5,181,897     $ 0.0429     4.4

 

  F- 14  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 7 – Convertible Notes Payable -Related

 

On June 11, 2020, the Company entered into a financing arrangement with its CEO under which he agreed to lend the Company up to $25,000. The note bears interest at 5% per annum and is due upon demand. At the option of the lender, the unpaid principal and interest may be converted, in whole or in part, into shares of the Company’s common stock at the lesser of (i) $0.014, being the closing price of the Company’s common stock as of the date of the note, or (ii) the volume-weighted average price (VWAP) of the Company’s common stock over the ten trading days immediately preceding the Company’s receipt of Notice of Conversion from the lender. As the market price of the Company’s common stock and the VWAP were the same as of the date of the note, no discount for beneficial conversion feature has been recorded. As of June 30, 2020, the lender had advanced $12,000 under the arrangement; and accrued interest of $33 is included in accounts payable and accrued expenses at June 30, 2020. On July 10, 2020, the Company’s CEO loaned the Company an additional $13,000 pursuant to the financing arrangement. On August 12, 2020, the CEO sent notice to the Company that he was electing to convert the outstanding principal of $25,000 and accrued interest of $161 to 1,797,192 shares of common stock at the contractual conversion price of $0.014 per share. No gain or loss was recognized on conversion as the conversion was made under the terms of the note agreement.

 

On November 24, 2020, the Company entered into financing agreements with two individuals, its CEO and a shareholder. Under the agreements, the Company issued unsecured convertible promissory notes due in three years (November 24, 2023) with accrued 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 notes were 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 (Note 6).

 

The Company has recorded the conversion feature as a Beneficial Conversion Feature. The fair value of $65,000 for the expense portion of the notes is being amortized over the term of the notes. As the warrants exceeded the value of the notes themselves, the discount is the entire amount of the notes. This fair value has been determined based on the current trading prices of the Company’s common stock. Management has determined that this treatment is appropriate given the uncertain nature of the value of the Company and its stock, and there will be no revaluations until the note is paid or redeemed for stock. The note holders have agreed not to convert the loans unless sufficient shares of common stock are available for conversion.

 

During the year ended June 30, 2021, $12,941 was charged to operations for amortization during the period of the Beneficial Conversion Feature.

 

Note 8– Related Party Transactions

 

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.

 

During the year ended June 30, 2021, the Board of Directors authorized the issuance of a total of 2,500,000 shares of common stock of the Company to each of its Chief Executive Officer and Chief Financial Officer, with 250,000 of such shares to be issued to each of them every quarter beginning July 1, 2021 and continuing every three months through October 1, 2023. At June 30, 2021, the Company has recorded as a component of stockholders’ equity the $35,000 fair value of the 250,000 shares to be issued each quarter to each of the individuals effective July 1, 2021.

 

The Board of Directors also authorized the issuance of 250,00 shares to its independent member. These shares were valued at $22,500 ($0.09 per share), based on the closing trading price of the Company’s common stock as of the date of issuance.

 

  F- 15  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

Note 8– Related Party Transactions (continued)

 

As discussed in Note 7, in November 2020, the Company entered into convertible debt financing agreements with two individuals, its CEO and a shareholder, for aggregate borrowings of $65,000.

 

BioPharma was formed as a subsidiary of Kanativa USA, which is a subsidiary of Kanativa Inc. Kanativa USA was issued 24,000,000 shares of BioPharma’s common stock as consideration for its contribution of 100% of the ownership of NexN, and costs and expenses incurred on behalf of BioPharma and capitalized license agreement costs comprised of (i) the value of Kanativa Inc. common stock issued to Kotzker Consulting of $78,875 and (ii) payments to Kotzker Consulting and legal costs in the aggregate of NexN in the amount of $201,228. Included in the consideration for the issuance of the common stock is $172,915 of $94,040 (See Note 5).

 

At June 30, 2017, BioPharma was owed $141,329 from Kanativa USA for advances made by BioPharma on behalf of Kanativa USA in conjunction with the Share Exchange Agreement (See Note 3). As of June 30, 2020, an aggregate $50,662 was repaid by Kanativa USA, including $15,000 and $9,000 during the years ended June 30, 2019 and June 30, 2020, respectively. The remaining balance of $90,667 was due on March 1, 2020. On May 1, 2020, BioPharma and Kanativa USA entered into an agreement extending the due date for payment of the remaining balance to June 30, 2020. Effective June 30, 2020, Kanativa USA determined that it would be unable to pay the remaining balance of the advance. Accordingly, the Company wrote-off the remaining balance of $90,667 as a charge to operations during the period ended June 30, 2020.

 

On August 10, 2017, the Company granted an aggregate of 6,400,000 shares of Common Stock to five officers and directors of the Company, valued at $800,000 ($0.125 per share), under the Company’s 2017 Stock Incentive Plan. One-third of each grant vested as of the initial date of grant (August 10, 2017), and 8-1/3% upon the end of each calendar quarter beginning December 31, 2017. In March 2018, the Company cancelled 1,166,667 unvested shares previously issued to its former CEO. As of June 30, 2020, all granted shares, valued at $654,167, were fully vested.

 

The members of the Company’s Board of Directors, its Chief Executive Office and its Chief Financial Officer are also directors and officers of Kanativa Inc., and other subsidiaries and affiliated entities of Kanativa Inc.

 

Note 9 – Income Taxes

 

The Company accounts for income taxes in accordance with standards of disclosure propounded by the FASB, and any related interpretations of those standards sanctioned by the FASB. Accordingly, deferred tax assets and liabilities are determined based on differences between the financial statement and tax bases of assets and liabilities, as well as a consideration of net operating loss and credit carry forwards, using enacted tax rates in effect for the period in which the differences are expected to impact taxable income. A valuation allowance is established, when necessary, to reduce deferred tax assets to the amount that is more likely than not to be realized. On December 22, 2017, the 2017 Tax Cuts and Jobs Act (the Tax Act) was enacted into law and the new legislation contains several key tax provisions that affected us, including a reduction of the corporate income tax rate to 21% effective January 1, 2018.

 

No provision for income taxes has been recorded due to the net operating loss carryforwards totaling approximately $2,818,000 as of June 30, 2021 that will be offset against future taxable income. The available net operating loss carry forwards expire in various years through 2041. No tax benefit has been reported in the financial statements because the Company believes there is a 50% or greater chance the carry forwards will expire unused. There were no uncertain tax positions taken by the Company.

 

  F- 16  

 

 

NEXIEN BIOPHARMA, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Years Ended June 30, 2021 and 2020

 

The deferred tax asset and valuation account is as follows at June 30:

 

    2021     2020  
Deferred tax asset                
Net operating loss carryforward (at combined 24% statutory rate of 21% Federal and 3% State)   $ 677,977     $ 564,973  
Valuation allowance     (677,977 )     (564,973 )
Total   $ -     $ -  

 

The components of income tax expense are as follows for the years ended June 30:

 

    2021     2020  
             
Change in net operating loss benefit   $ (113,004 )   $ (94,745 )
Change in valuation allowance     113,004       94,745  
Total   $ -     $ -  

 

Note 10- Commitments and Contingencies

 

At June 30, 2021, there were no legal proceedings against the Company.

 

Note 11 – Subsequent Events

 

In October 2021, the Company’s Chief Executive Officer advanced $10,000 to the Company for working capital and operating purposes. The advance is non-interest bearing and is repayable on demand.

 

The Company has analyzed its operations subsequent June 30, 2021 through the date these financial statements were issued, and has determined that it does not have any additional material subsequent events to disclose.

 

  F- 17  

 

 

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

Not applicable.

 

ITEM 9A. CONTROLS AND PROCEDURES.

 

Evaluation of Disclosure Controls and Procedures

 

We have carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) as of June 30, 2021. Based on such evaluation, we have concluded that, as of such date, our disclosure controls and procedures were not effective to ensure that information required to be disclosed by us in our Exchange Act reports is recorded, processed, summarized and reported within the time periods specified in applicable SEC rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely discussions regarding required disclosure.

 

Management’s Report on Internal Control over Financial Reporting

 

Our management is responsible for establishing and maintaining internal control over financial reporting for our internal control system was designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Internal control over our financial reporting includes those policies and procedures that:

 

(1) pertain to the maintenance of records that in reasonable detail accurately and fairy reflect our transactions.
   
(2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorization of our management and directors; and
   
(3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our financial statements.

 

All internal control systems, no matter how well designed, have inherent limitations, including the possibility of human error or circumvention through collusion of improper overriding of controls. Therefore, even those internal control systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation. Further, because of changes in conditions, the effectiveness of internal control may vary over time.

 

Our management assessed the effectiveness of our internal control over financial reporting as of June 30, 2021. In making its assessment of internal control over financial reporting, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal-Control-Integrated Framework - 2013 and implemented a process to monitor and assess both the design and operating effectiveness of our internal controls. Based on this assessment, management believes that as of June 30, 2021, our internal control over financial reporting was not effective.

 

As of June 30, 2021, we did not establish a formal written policy for the approval, identification, and authorization of related party transactions.

 

Changes in Internal Control Over Financial Reporting

 

Our management has evaluated, with the participation of our Chief Executive Officer/Chief Financial Officer, changes in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the fourth quarter of fiscal 2021. In connection with such evaluation, there have been no changes to our internal control over financial reporting that occurred during fiscal year ended June 30, 2021 that have materially affected, or are reasonably likely to materially affect our internal control over financial reporting. While there have been no changes, we have assessed our internal controls as being deficient and will be taking steps beginning in 2021 to remedy such deficiencies.

 

ITEM 9B. OTHER INFORMATION.

 

There are no further disclosures.

 

  35  

 

 

PART III

 

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

 

Our directors were elected to serve until the next annual meeting of shareholders and until their respective successors will have been elected and will have qualified. The following table sets forth the name, age and position held with respect to our present executive officers and directors:

 

Name   Age   Title
Richard Greenberg   72   Chief Executive Officer and Chairman of the Board of Directors
Evan Wasoff   74   Chief Financial Officer
Robert I. Goldfarb   66   Chief Operating Officer
Lindy Snider   59   Director

 

Richard Greenberg, 72, Chief Executive Officer and Director, has been a director since its inception in March 2017 and the Chief Executive Officer since March 2020. He has also served as Executive Vice President and a Director of Kanativa Inc. (formerly Intiva Inc). and Kanativa USA since their inception in February 2014 and August 2014, respectively. Mr. Greenberg has over 30 years of legal, consulting, and regulatory compliance experience. Mr. Greenberg has served as a Subcommittee Counsel for the U.S. House of Representatives, and as a Senior Enforcement Attorney for the U.S. Environmental Protection Agency. Mr. Greenberg was a founder of TechLaw, Inc., a national consulting firm serving both the federal government and industry clients. Previous management roles include Director of Environmental Management Consulting Services for PricewaterhouseCoopers. Mr. Greenberg received a B.A. degree from City University of New York – Queens College and a J.D. degree from Rutgers University School of Law.

 

Evan Wasoff, 74, Chief Financial Officer, has over 40 years of experience as a certified public accountant. Mr. Wasoff also serves as CFO of Kanativa Inc. (formerly Intiva Inc.) From 2005 to 2012, Mr. Wasoff served as the Chief Financial Officer and compliance officer at Falcon Oil and Gas Ltd., a Canadian oil and gas exploration company with activities in Hungary, Australia, Canada and the United States. Since 2012, he has been the principal of AZCO Financial Management, LLC, located in Boulder Colorado, providing business advisory and consulting services and outsourced CFO and controllership services to publicly-reporting and private companies. Mr. Wasoff holds a Certified Public Accounting license in Colorado. He received a B.S. degree in accounting from the State University of New York at Albany, and an MBA in Finance from the University of Colorado.

 

Robert Goldfarb, 66, Chief Operating Officer, has over 37 years of legal experience, with much of that focused on the pharmaceutical industry. Since 2007, Mr. Goldfarb has been President and general counsel for privately-held Accu-Break Pharmaceuticals, Inc. Since 2011, he has been a director of privately-held Sustained Nano Systems LLC. Mr. Goldfarb obtained his bachelor’s degree from the University of Connecticut and his J.D. from the University of Florida. He is a member of the Florida Bar.

 

Lindy Snider, 59, Director, is an active entrepreneur, philanthropist and advocate for the benefits of medical cannabis. In 2003, Ms. Snider founded and created the Pennsylvania-based Lindi Skin, the first-ever skincare collection dedicated to help relieve the often-debilitating skin side-effects of individuals undergoing cancer therapies including chemotherapy and radiation. Lindi Skin represents an entirely new niche in dermatology and oncology, providing cancer patients with skin care products that bring a sense of wellness and control as they deal with the side effects of their chemotherapy and radiation treatment, which include widely known conditions of hair loss and nausea, among other side-effects. Lindi Skin helps patients address the lesser known skin side-effects of sores, rashes, burns, flaky skin and loss of skin elasticity that often result.

 

Ms. Snider, as an active and dedicated philanthropist, is also an active board member of many Philadelphia and national charitable and other philanthropic organization, which include: Cancer Forward; PSPCA; National Museum of American Jewish History; Shoah Foundation’s Next Generation Council; Philadelphia Orchestra; Fox Chase Cancer Foundation; and the Snider Foundation. Ms. Snider is a founder and director of Athletes for Care, an organization dedicated to creating a community where former professional athlete can find support, opportunity and purpose in life after a career in sports. The organization is a strong advocate of the use of medical cannabis, as well as a director of Stem Holdings Inc., which owns and leases real estate to the marijuana industry. The common stock of Stem Holdings is registered under the Securities Exchange Act of 1934 and trades on the OTCQB under the symbol “STMH”. Ms. Snider is chair of the Entrepreneurship and Social Impact Initiative of The Lambert Center for the Study of Medicinal Cannabis and Hemp at Thomas Jefferson University in Philadelphia and is also an associate fellow of the Institute of Emerging Health Professions, Thomas Jefferson University.

 

  36  

 

 

Our directors, officers or affiliates have not, within the past five years, filed any bankruptcy petition, been convicted in or been the subject of any pending criminal proceedings, or is any such person the subject or any order, judgment or decree involving the violation of any state or federal securities laws.

 

Audit Committee, Compensation Committee and Nominations Committee

 

We do not have any of the above-mentioned standing committees because our corporate financial affairs and corporate governance are simple in nature at this stage of development and each financial transaction is approved by our entire board of directors.

 

Code of Ethics

 

We do not currently have a Code of Ethics applicable to our principal executive officers; however, the Company plans to implement such a code in the near future.

 

Potential Conflicts of Interest

 

Since we do not have a compensation committee comprised of independent Directors, the functions that would have been performed by such committee are performed by our Board of Directors. Thus, there is a potential conflict of interest in that our Directors have the authority to determine issues concerning management compensation, in essence their own. There is also a potential conflict in that Messrs. Greenberg and Wasoff are either officers and/or directors of Kanativa USA Inc., and its parent, Kanativa Inc. which owns approximately 34.1% of outstanding shares of the Company.

 

We are not aware of any other conflicts of interest with any of our Executives or Directors.

 

Board’s Role in Risk Oversight

 

The Board assesses on an ongoing basis the risks faced by the Company. These risks include financial, technological, competitive, and operational risks. The Board’s Audit Committee is responsible for the assessment and oversight of the Company’s financial risk exposures.

 

Involvement in Certain Legal Proceedings

 

We are not aware of any material legal proceedings that have occurred within the past ten years concerning any Director or control person which involved a criminal conviction, a pending criminal proceeding, a pending or concluded administrative or civil proceeding limiting one’s participation in the securities or banking industries, or a finding of securities or commodities law violations.

 

Delinquent Section 16(a) Reports

 

Section 16(a) of the Exchange Act requires our Company’s officers, directors and persons who beneficially own more than 10% of a registered class of our Company’s equity securities to file reports of ownership and changes in ownership with the SEC, and to furnish to our Company copies of such reports.

 

Based solely on the review of Forms 3 and 4 received by our Company during the June 30, 2021 fiscal year, as required under Section 16(a)(2) of the Exchange Act, we do not believe that any Section 16(a) reports were delinquent.

 

  37  

 

 

ITEM 11. EXECUTIVE COMPENSATION

 

The following table sets forth information about the remuneration of our principal executive officer for services rendered during our fiscal years ended June 30, 2021 and 2020, and our other executive officers that had total compensation of $100,000 or more for our last completed full fiscal year (the “Named Officers”). Certain tables and columns have been omitted as no information was required to be disclosed under those tables or columns.

 

SUMMARY COMPENSATION TABLE

 

Name and principal position   Fiscal year     Salary ($)    

Stock awards

($)(1)

   

Option awards

($)(2)

   

All other compensation

($)

   

Total

($)

 
Richard Greenberg (Chief Executive Officer) (2)    

2021

2020

     

-0-

-0-

      124,000
-0-
      174,477
-0-
      -0-
-0-
     

298,477

-0-

 
Alex Wasyl (Chief Executive Officer) (3)     2020       -0-       -0-       -0-       -0-       -0-  
Evan Wasoff (Chief Financial Officer    

2021

2020

     

-0-

-0-

      124,000
-0-
      104,686
-0-
      -0-
-0-
     

228,686

-0-

 

 

  (1) The shares were valued at $0.124 per share, the closing trading price of the Company’s common stock as of the date of issuance.
  (2) The fair value was determined using the Black-Scholes option pricing model with the following assumptions: volatility at 152%; risk free interest rate of 0.23%; expected life of 4 years; and expected dividend rate of 0%.
  (3) Mr. Greenberg has served in this capacity since March 31, 2020.
  (4) Mr. Wasyl has served in this capacity from October 26, 2018 to March 31, 2020.

 

Due to the Company’s limited cash resources, no cash compensation is being paid to the Company’s three officers. On August 19, 2020, the Board of Directors authorized the grant of options to purchase an aggregate of 5,000,000 shares of common stock at a price of $0.08 per share. The options are exercisable for a period of seven years. Two-thirds of the options (3,333,334) vested immediately, as such options represented compensation for services rendered through June 30, 2020. The remaining 1,666,666 options vested quarterly over the next four calendar quarters beginning September 30, 2020, and are now fully vested.

 

The following table sets forth information with respect to stock awards for the Named Officers.

 

OUTSTANDING EQUITY AWARDS AT FISCAL YEAR-END

 

    Option Awards
Name   Number of securities underlying unexercised options (#) exercisable  

Number of

securities

underlying unexercised

options (#) unexercisable

 

Equity incentive

plan awards: Number of securities underlying unexercised unearned options

(#)

  Option exercise price ($)   Option expiration date
Richard Greenberg  

150,000

100,000

2,500,000

 

-0-

-0-

-0-

 

-0-

-0-

-0-

 

0.54

0.655

0.08

 

7/25/2025

10/26/2025

8/19/2027

Alex Wasyl   -0-   -0-   -0-    
Evan Wasoff  

420,000

200,000

1,500,000

 

-0-

-0-

-0-

 

-0-

-0-

-0-

 

0.54

0.655

0.08

 

7/25/2025

10/26/2025

8/19/2027

 

  38  

 

 

Employment Contracts and Termination of Employment and Change-in-Control Arrangements

 

None of our executive officers or directors are parties to any employment contracts. No retirement, pension, profit sharing, or insurance programs or other similar programs have been adopted by the Company for the benefit of the Company’s employees.

 

Director Compensation

 

We currently do not compensate our directors in cash for acting as such. We reimburse our directors for reasonable expenses incurred in connection with their service as directors. We issued Lindy Snider, our sole non-officer director, 250,000 shares as compensation for serving as a director for the fiscal year ended June 30, 2021. The shares were valued at $0.09 per share, the closing trading price of the Company’s common stock as of the date of issuance.

 

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

 

The following table sets forth information regarding the beneficial ownership of our shares of Common Stock as of October 12, 2021. The information in this table provides the ownership information for: each person known by us to be the beneficial owner of more than 5% of our common stock; each of our directors; each of our executive officers; and our executive officers and directors as a group.

 

Name of Beneficial Owner (1)  

Common Stock

Beneficially Owned (2)

   

Percentage of Common

Stock Owned (2)

 
Kanativa USA Inc. (3)     19,000,000       34.1 %
Richard Greenberg, Chief Executive Officer and Director (4)     10,937,004       18.7 %
Vyta USA Inc.     5,000,000       9.0 %
Evan Wasoff, Chief Financial Officer (5)     4,370,000       7.6 %
Alex Wasyl     3,811,500       6.8 %
Robert Goldfarb, Chief Operating Officer (6)     2,028,800       3.6 %
Lindy Snider, Director (7)     830,000       1.5 %
All Officers and Directors (4 persons) (8)     18,165,804       29.4 %

 

  (1) The address of each beneficial owner is 4340 E. Kentucky Avenue, Suite 206, Denver, Colorado 80246.
  (2) Applicable percentage ownership is based on 55,772,196 Shares of Common Stock outstanding as of October 12, 2021. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission and generally includes voting or investment power with respect to securities. Shares of common stock that are currently exercisable or exercisable within 60 days of October 12, 2021 are deemed to be beneficially owned by the person holding such securities for the purpose of computing the percentage of ownership of such person, but are not treated as outstanding for the purpose of computing the percentage ownership of any other person.
  (3) Kanativa USA, Inc. is a Colorado corporation that is a wholly-owned subsidiary of Kanativa Inc., a Canadian corporation.
  (4) Includes 2,750,000 shares purchasable under immediately exercisable stock options, 3,188,859 shares purchasable under exercisable warrants, 1,062,958 shares issuable upon the conversion of a promissory note, and 250,000 shares issuable as of October 1, 2021 for compensation.
  (5) Includes 2,120,000 shares purchasable under immediately exercisable stock options and 250,000 shares issuable as of October 1, 2021 for compensation.
  (6) Includes 1,000,000 shares purchasable under immediately exercisable stock options.
  (7) Includes 100,000 shares purchasable under immediately exercisable stock options.
  (8) Includes 5,970,000 shares purchasable under immediately exercisable stock options, 3,188,859 shares purchasable under exercisable warrants, 1,062,958 shares issuable upon the conversion of a promissory note, and 500,000 shares issuable as of October 1, 2021 for compensation.

 

To the knowledge of the Company, there are no arrangements, the operation of which may at a subsequent date result in a change in control of the Company.

 

  39  

 

 

Long-Term Incentive Plan (“LTIP”) and Awards

 

2017 Stock Incentive Plan

 

On August 10, 2017, BioPharma adopted the “2017 Stock Incentive Plan” under which the board of directors is authorized to grant up to 7,200,000 shares of its common stock. An aggregate of 6,400,000 shares of Common Stock to five officers and directors of the Company, valued at $800,000 ($0.125 per share) were granted. In March 2018, 1,166,667 unvested shares (valued at $145,833) previously issued to the Company’s former Chief Executive Officer were canceled. As of June 30, 2021, all of the remaining 5,233,333 shares issued (valued at $654,167) have been vested.

 

2018 Equity Incentive Plan

 

On March 30, 2018, the Company’s board of directors approved and recommended for adoption by the stockholders of the Company a 2018 Equity Incentive Plan and reserved 8,000,000 shares of Common Stock for issuance under the terms of that Plan. The total number of shares reserved and available for grant and issuance under the 2018 Plan is 8,000,000 shares, plus any reserved shares not issued or subject to outstanding grants under the 2017 Stock Plan and shares that cease to be subject to awards under the 2017 Stock Plan because of forfeiture. In addition, the number of shares available for grant and issuance under the 2018 Plan will be increased on July 1 of each of the next ten calendar years by the lesser of (a) 15% of the number of shares issued during the most recently completed fiscal year or (b) such number of shares determined by the board of directors. The 2018 Plan permits the board to grant a variety of incentive awards: stock options, restricted stock awards, stock bonus awards, and stock appreciation rights. Stockholder approval was obtained on March 29, 2019. As of June 30, 2021, 7,995,000 stock options granted under the 2018 Plan are outstanding.

 

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

 

Certain Related Party Transactions

 

The Company’s wholly-owned subsidiary, Intiva BioPharma Inc., a Colorado corporation (“Colorado BioPharma”) was formed as a subsidiary of Kanativa USA, Inc. (formerly Intiva USA, Inc.) in March 2017. At June 30, 2017, Colorado BioPharma was owed $141,329 from Kanativa USA for advances made by Colorado BioPharma on behalf of Kanativa USA in conjunction with the Share Exchange Transaction. As of March 31, 2020, an aggregate $50,662 was repaid by Kanativa USA, including $15,000 and $9,000 during the year ended June 30, 2019 and nine months ended March 31, 2020, respectively. The remaining balance of $90,667 was due on March 1, 2020. On May 1, 2020, Colorado BioPharma and Kanativa USA entered into an agreement extending the due date for payment of the remaining balance to June 30, 2020. Effective June 30, 2020, Kanativa USA determined that it would be unable to pay the remaining balance of the advance. Accordingly, the Company wrote-off the remaining balance of $90,667 as a charge to operations.

 

On June 11, 2020, Richard Greenberg, the Company’s Chief Executive Officer agreed to loan the Company up to $25,000 under a promissory note that bore interest at 5% per annum and was due on demand. At the option of Mr. Greenberg, the unpaid principal and interest could be converted into shares of the Company’s common stock at the lesser of (1) $0.014, being the closing price of the Company’s common stock as of the date of the note, or (2) the volume-weighted average price of the Company’s common stock over the ten trading days immediately preceding the date of conversion. Mr. Greenberg advanced $12,000 on June 11, 2020 and $13,000 on July 10, 2020. Accrued interest on the note at June 30, 2020 was $33. On August 12, 2020, Mr. Greenberg notified the Company of his election to convert all of the $25,000 in outstanding principal and $161 in accrued interest into a total of 1,797,192 shares at the conversion price of $0.014 per share.

 

  40  

 

 

On November 24, 2020, the Company entered into financing agreements with two individuals, Mr. Greenberg and a stockholder. Under the agreements, the Company issued unsecured convertible promissory notes due in three years (November 24, 2023) with accrued 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 notes were funded. Mr. Greenberg 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.

 

In May 2021, the Board of Directors authorized the issuance of a total of 2,500,000 shares of common stock of the Company to each of its Chief Executive Officer and Chief Financial Officer, with 250,000 of such shares to be issued to each of them every quarter beginning July 1, 2021 and continuing every three months through October 1, 2023, it being the intent of the Board that the issuance of these shares represents compensation for services rendered for the then completed calendar quarter. At June 30, 2021, accounts payable includes $35,000 for the fair value of the 250,000 shares to be issued to each of the individuals effective July 1, 2021. The Board of Directors also authorized the issuance of 250,00 shares to its independent member. These shares were valued at $22,500 ($0.09 per share), based on the closing trading price of the Company’s common stock as of the date of issuance.

 

In June 2021 and October 2021, the Company’s Chief Executive Officer advanced $20,000 and $10,000, respectively, to the Company for working capital and operating purposes. The advances are non-interest bearing and are repayable on demand.

 

Our two directors, Richard Greenberg and Lindy Snider, are two of Kanativa’s six-person board of directors. Evan Wasoff, the Company’s Chief Financial Officer, and Richard Greenberg are also officers of Kanativa and serve in similar positions with other subsidiaries and affiliated entities of Kanativa.

 

Indebtedness of Management

 

No officer, director or security holder known to us to own of record or beneficially more than 5% of our Common Stock or any member of the immediate family or sharing the household (other than a tenant or employee) of any of the foregoing persons is indebted to us in the year 2021 and to date.

 

Director Independence

 

NASDAQ Rule 5605, which sets forth several tests to determine whether a director of a listed Company is independent, provides that a director would not be considered independent if the director or an immediate family member accepted any compensation from the listed Company in excess of $120,000 during any period of 12 consecutive months within the three years preceding the determination of independence (excluding compensation for board or board committee service, compensation paid to an immediate family member as a non-executive employee, benefits paid under a tax-qualified retirement plan and non-discretionary compensation).

 

In determining whether our directors are considered independent, the Company used the definition of independence as defined in NASDAQ Rule 4200. Based on that definition we believe that Lindy Snider and Courtney Clark are our independent directors.

 

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

 

The following table is a summary of the fees billed to us by M&K CPAS for professional services for the fiscal years as disclosed in the table below:

 

Fee Category   Fees Billed for
Fiscal 2021
    Fees Billed for
Fiscal 2020
 
             
Audit Fees (1)   $ 16,550     $ 15,500  
Audit-Related Fees (2)     -       -  
Tax Fees            
All Other Fees            
Total Fees   $ 16,550     $ 15,500  

 

  (1) Includes audit of annual financial statements and review of unaudited quarterly financial statements.
     
  (2) Includes review of our registration statement.

 

Audit Committee Pre-Approval Policies and Procedures

 

According to the Audit Committee Charter, the Audit Committee is to review and preapprove both audit and non-audit services to be provided by the independent auditor. The authority to grant preapprovals may be delegated to one or more designated members of the audit committee, whose decisions will be presented to the full audit committee at its next regularly scheduled meeting.

 

  41  

 

 

PART IV

 

ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.

 

The following exhibits are filed as part of this Form 10-K:

 

Exhibit Number   Description   Incorporated by Reference to:
2.1   Limited Liability Company Interest Purchase Agreement by and among the Members of CRX Bio Holdings LLC and Nexien BioPharma, Inc. dated October 26, 2018   Exhibit 2.1 to the registrant’s current report on form 8-K filed October 30, 2018
3.1   Certificate of Incorporation   Exhibit 3.1 to the registrant’s registration statement on Form 10 filed November 14, 2014
3.2   Certificate of Merger   Exhibit 3.1(i) to the registrant’s registration statement on Form 10 filed November 14, 2014
3.3   Certificate of Amendment to Certificate of Incorporation   Exhibit 3.1(ii) to the registrant’s registration statement on Form 10 filed November 14, 2014
3.4   Certificate of Amendment to Certificate of Incorporation   Exhibit 3.4 to the registrant’s quarterly report on Form 10-Q filed May 15, 2018
3.5   Certificate of Amendment to Certificate of Incorporation   Exhibit 3.4 to the registrant’s annual report on Form 10-K filed October 1, 2018
3.6   Bylaws   Exhibit 3.2 to the registrant’s Form 10 registration statement filed November 14, 2014
10.1#   2017 Stock Incentive Plan   Exhibit 10.1 to the registrant’s quarterly report on Form 10-Q filed May 15, 2018
10.2   Licensing Agreement between the Company and Kotzker Consulting LLC   Exhibit 10.2 to the registrant’s quarterly report on Form 10-Q filed May 15, 2018
10.3   Exclusive License Agreement between the Company and Accu-Break Pharmaceuticals, Inc.   Exhibit 10.3 to the registrant’s quarterly report on Form 10-Q filed May 15, 2018
10.4#   2018 Equity Incentive Plan   Exhibit 10.4 to the registrant’s quarterly report on Form 10-Q filed May 15, 2018
10.5   First Amendment to Exclusive License Agreement between the Company and Accu-Break Pharmaceuticals, Inc. dated September 18, 2018   Exhibit 10.6 to the registrant’s annual report on Form 10-K filed October 1, 2018
10.6   Demand Convertible Promissory Note dated June 11, 2020 to Richard Greenberg   Exhibit 10.6 to the registrant’s annual report on Form 10-K filed September 28, 2020
10.7   Convertible Promissory Note and Warrants dated November 24, 2020 to Richard Greenberg   Exhibit 10.7 to the registrant’s quarterly report on Form 10-Q filed February 11, 2021
21.1   Subsidiaries of the Registrant   Exhibit 21.1 to the registration statement on Form S-1 (File No. 333-225477) filed June 7, 2018
31.1   Rule 13a-14(a) Certification of Richard Greenberg    
31.2   Rule 13a-14(a) Certification of Evan Wasoff    
32.1   Certification of Richard Greenberg Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
32.2   Certification of Evan Wasoff Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002    
101*   Financial statements from the Annual Report on Form 10-K of Nexien BioPharma, Inc. for the fiscal year ended June 30, 2021, formatted in XBRL: (i) the Balance Sheets; (ii) the Statements of Operations; (iii) the Statements of Stockholders’ Deficit; (iv) the Statements of Cash Flows; and (v) the Notes to Financial Statements.    

 

# Indicates a management contract or compensatory plan or arrangement.
* In accordance with Rule 406T of Regulation S-T, the information in these exhibits shall not be deemed to be “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to liability under that section, and shall not be incorporated by reference into any registration statement or other document filed under the Securities Act of 1933, as amended, except as expressly set forth by specific reference in such filing.

 

ITEM 16. FORM 10-K SUMMARY.

 

Not applicable.

 

  42  

 

 

SIGNATURES

 

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

  NEXIEN BIOPHARMA, INC.
     
Dated: October 12, 2021 By: /s/ Richard Greenberg
    Richard Greenberg, Chief Executive Officer

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

 

Signature   Title   Date
         
/s/ Richard Greenberg   Chief Executive Officer (Principal Executive Officer) and Director  

October 12, 2021

Richard Greenberg        
         

/s/ Evan Wasoff

  Chief Financial Officer (Principal Financial and Principal Accounting Officer)  

 

October 12, 2021

Evan Wasoff        
         
/s/ Lindy Snider   Director   October 12, 2021
Lindy Snider        

 

  43  

 

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