NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
1 – Nature of Business and Basis of Presentation
Nexien
BioPharma, Inc. (the “Company” or “Nexien”) was incorporated in the State of Michigan on November 10, 1952 as
Gantos, Inc., and reincorporated in the State of Delaware in 2008, changing its name to Kinder Holding Corp. In October 2017, the Company
completed a reverse acquisition of Intiva BioPharma Inc., a Colorado corporation (“BioPharma”), incorporated on March 27,
2017, through an exchange of shares (the “Share Exchange Transaction”) and changed its name to Intiva BioPharma Inc. In September
2018, the Company changed its name to Nexien BioPharma, Inc.
As
further described in Note 4, 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.
BioPharma
was incorporated 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.
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 $11,028,332. 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 September 30, 2022, the Company had a working capital deficit of
$160,604. 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.
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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 September 30, 2022 and June 30, 2022.
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 September 30, 2022 and June 30, 2022, 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. |
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
3 – Summary of Significant Accounting Policies (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 liabilities 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 September 30, 2022 and June 30, 2022, there were no significant transfers of financial assets or financial liabilities between
the hierarchy levels.
As
at September 30, 2022 and June 30, 2022, 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. At September 30, 2022, there were potentially dilutive securities
convertible into shares of common stock comprised of (i) stock options – convertible into 7,995,000 shares, (ii) warrants –
convertible into 5,529,409 shares and (iii) promissory notes – convertible into 6,597,414 shares.
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.
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.
Research
and Development Expenses
Research
and development expenses are charged to operations as incurred.
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
3 – Summary of Significant Accounting Policies (continued)
Advertising
Expenses
Advertising
expenses are charged to operations as incurred. There were no advertising expenses incurred during the three months ended September 30,
2022 and 2021.
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.
Reclassifications
Certain
amounts in the consolidated financial statements for prior year periods have been reclassified to conform with the current period 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 September 30, 2022 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).
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
5 – License Agreements
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), whose President was an affiliate of the Company as of the date of the agreement.
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 had 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 Accu-Break license agreement.
Note
6– Stockholders’ Equity
Common
stock
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, and authorized the issuance of a total of 1,000,000 shares of common stock of
the Company to its Chief Operating Officer with 250,000 of such shares to be issued to each of them every quarter beginning July 1, 2022
and continuing every three months through April 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 September 30, 2022, the Company has included as stock
payable the $50,750 fair value of the aggregate 750,000 shares due to the officers.
During
the three months ended September 30, 2022, the Company issued shares of its common stock as follows:
|
● |
750,000
shares (250,000 to each of the Company’s Chief Executive Officer, Chief Financial Officer and Chief Operating Officer) as consideration
for their services to the Company. The shares were valued at $50,750 based on the closing trading price of the Company’s common
stock as of the date of Board authorization for the issuance. |
Options
A
summary of option activity during the three months ended September 30, 2022 is presented below:
Schedule
of Stock Option Activity
| |
Shares | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Life (Years) | |
| |
| | |
| | |
| |
Outstanding and exercisable – June 30, 2022 | |
| 7,995,000 | | |
$ | 0.26 | | |
| 3.7 | |
Granted | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | |
Expired/Canceled | |
| - | | |
| | | |
| | |
Outstanding and exercisable -September 30, 2022 | |
| 7,995,000 | | |
$ | 0.26 | | |
| 3.5 | |
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
6– Stockholders’ Equity (continued)
Warrants
A
summary of warrant activity during the three months ended September 30, 2022 is presented below:
Summary of Warrant Activity
| |
Shares | | |
Weighted
Average
Exercise
Price | | |
Weighted
Average
Remaining
Contractual
Life (Years) | |
| |
| | |
| | |
| |
Outstanding and exercisable – June 30, 2022 | |
| 5,529,409 | | |
$ | 0.0429 | | |
| 3.36 | |
Granted | |
| - | | |
| | | |
| | |
Exercised | |
| - | | |
| | | |
| | |
Expired/Canceled | |
| - | | |
| | | |
| | |
Outstanding and exercisable – September 30, 2022 | |
| 5,529,409 | | |
$ | 0.0429 | | |
| 3.10 | |
Note
7 – Convertible Notes Payable
Convertible
note purchase agreement
On
January 18, 2022, the Company entered into a note purchase agreement with Quick Capital pursuant to which the Company issued Quick Capital
a twelve-month convertible promissory note, due January 18, 2023, in the principal amount of $170,454 (the “Note”). The Company
received net proceeds of $146,750 from the note, after Quick Capital’s legal fees of $3,250, and an original issuance discount
of 12% ($23,704). In connection with the Note issuance, Quick Capital was also issued 500,000 restricted shares of the Company’s
common stock and a three-year warrant (the “Warrant”) to purchase up to an aggregate of 347,512 restricted shares of the
Company’s common stock at an exercise price of $0.075 per share). These issuances were valued and then using the relative fair
value method on the cash received on the note began with an unamortized discount totaling $27,383. At September 30, 2022 and June 30,
2022, the balance due on the Note is $154,916 (net of unamortized discount of $15,538) and $142,180 (net of unamortized discount of $28,274),
respectively.
Quick
Capital is entitled to a cash payment of $20,000 as liquidated damages for any failure to include all shares issuable upon the conversion
of the Note (the “Conversion Shares”) and the Warrant Shares on any registration statement filed with the Securities and
Exchange Commission. For twelve months following the issuance of the Quick Note, Quick Capital will have the right of first refusal to
participate in future financings proposed to the Company by bonafide third parties on the same terms as such third parties and participation
rights to purchase up to $1,000,000 of securities in other offerings, subject to certain exceptions.
The
Note is convertible into shares of common stock at a conversion price of $0.035 per share. The Note may be prepaid at any time within
the first six months at 130% of face value. Thereafter, the Note can only be prepaid at Quick Capital’s discretion.
If
an event of default (as described in the Note) occurs, the Note will become immediately due and payable in an amount equal to 150% of
the then outstanding principal amount of the Note plus any interest or amounts owing to Quick Capital.
The
Note may not be converted and the Warrant may not be exercised if after giving effect to such conversion or exercise, as the case may
be, Quick Capital and its affiliates would beneficially own more than 9.99% of the outstanding common stock of the Company. On or after
May 7, 2022 and upon the mutual agreement of the Company and
Quick Capital, Quick Capital may purchase additional note(s) in an aggregate amount not to exceed $350,000 on similar terms.
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
7 – Convertible Notes Payable (continued)
The
Company has recorded the original issue discount, legal fees, financing shares and warrants of the notes, aggregating $51,087 as a discount
to the note. The fair value for the expense portion of the note is being amortized over the term of the note. 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. During the three months ended September 30, 2022, $12,736 was charged to operations for amortization of the
recorded discount.
Convertible
notes payable - related
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 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.
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.
At
September 30, 2022 and June 30, 2022, $39,950 (net of discount of $25,050) and $34,548 (net of discount of $30,452), respectively, was
due under the financing agreements. During the three months ended September 30, 2022 and 2021, $5,402 and $5,461, respectively, was charged
to operations for amortization of the Beneficial Conversion Feature.
Note
8 – Related Party Transactions
As
of September 30, 2022 and June 30, 2022, the Company’s Chief Executive Officer had advanced an aggregate $45,000 to the Company
for working capital and operating purposes. The advances are non-interest bearing and are repayable on demand. At September 30, 2022
and June 30, 2022, the Company has recorded a current liability to the officer of $45,000. The Company has recorded imputed interest
on the advances at a rate of 10% for the three months ended September 30, 2022 in the amount of $1,125.
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. In June 2022, the Board of Directors authorized the
issuance of a total of 1,000,000 shares of common stock to its Chief Operating Officer with 250,000 of such shares to be issued to each
of them every quarter beginning July 1, 2022 and continuing every three months through April 1, 2023. During the three months ended September
30, 2022, the Company issued 750,000 shares of common stock, valued at $50,750, to the officers.
NEXIEN
BIOPHARMA, INC.
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note
8 – Related Party Transactions (continued)
As
discussed in Note 7, the Company entered into convertible debt financing agreements with two individuals, its CEO and a shareholder,
for aggregate borrowings $65,000. At September 30, 2022 and June 30, 2022, $39,950 (net of discount of $25,050) and $34,548 (net of discount
of $30,452), respectively, was due under the financing agreements.
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.
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- Commitments and Contingencies
At
September 30, 2022 there were no legal proceedings against the Company.
Note
10 – Subsequent Events
In
October 2022, the Company issued an aggregate 750,000 shares of common stock, valued at $50,750, to its officers, for services rendered
pursuant to Board of Directors authorization.
The
Company has analyzed its operations subsequent to September 30, 2022 through the date these financial statements were issued, and has
determined that it does not have any additional material subsequent events to disclose.