(530) 231-7800

Registrant’s telephone number, including area code

Securities registered pursuant to Section 12(b) of the Act:

*The Company’s common stock trades with limited liquidity on the grey market. Grey market stocks are not traded or quoted on an exchange or inter-dealer quotation system, but are reported by broker-dealers to their self-regulatory organization who, in turn, distribute the trade data to market data vendors and financial websites.

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the 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[X]Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [  ]

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

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

As of August 13, 2018,12, 2019, there were 24,350,14752,290,147 shares of the registrant’s common stock outstanding.

VITALITY BIOPHARMA, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended

June 30, 20182019

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED JUNE 30, 20182019 AND 20172018

(Unaudited)

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements.

CONDENSED BALANCE SHEETS

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

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

TheSee accompanying notes are an integral part of theseto the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIENCY)

THREE MONTHS ENDED JUNE 30, 20182019 AND 2017

(Unaudited)2018

TheSee accompanying notes are an integral part of theseto the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

TheSee accompanying notes are an integral part of theseto the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE MONTHS ENDED JUNE 30, 20182019 AND 20172018

(Unaudited)

1. BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Vitality Biopharma, Inc. (the “Company”, “we”, “us” or “our”), was incorporated in the State of Nevada on June 29, 2007. The Company’s fiscal year end is March 31.

In 2015, the Company developed a new class of cannabinoids known as cannabosides, which were discovered through application of the Company’s proprietary enzymatic bioprocessing technologies originally developed for stevia sweeteners.technologies. In 2016, the Company received approvals from the U.S. Drug Enforcement Administration (the “DEA”) and the State of California to initiate studies and manufacturing scale-up at its research and development facilities in order to develop cannabosides.

In May 2016, Currently, we received shareholderdo not have any commercial products and board approval for a name change to Vitality Biopharma, Inc., an exchange of one (1) share of the Company’s common stock for each 10 shares of common stock outstanding or exercisable underhave not yet generated any outstanding warrants or option agreements, and an increase in the number of shares of authorized common stockrevenues from 525,000,000 to 1,000,000,000. These corporate changes became effective on July 20, 2016.our cannabinoid prodrug pharmaceuticals.

Going ConcernLiquidity

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitmentsCompany is engaged in the normal courseresearch and development of business.cannabinoid prodrug pharmaceuticals and since we do not have any commercial products currently available in the marketplace, the Company has not yet generated significant revenues from sales of products or services. As reflected in the accompanying financial statements, forduring the three months ended June 30, 2018,2019, the Company incurred a net loss of $1,135,219$1,591,279 and used $1,308,833 of cash in our operating activitiesactivities. As of $483,253. These factors raise substantial doubt aboutJune 30, 2019, we had $4,673,908 of cash on hand, stockholders’ equity of $3,669,702 and had working capital of $3,531,760.

Our total expenditures for the Company’s abilityyear following June 30, 2019, are expected to continue as a going concern withinbe approximately $4,600,000, which is comprised of approximately $3,100,000 of research and development and general operating expenses, and approximately $1,500,000 of strategic partnership investments. Given that we have discretion over the amount of cash that we will invest in any strategic partnership or investment and based on the funds we had available on June 30, 2019, we believe that we have sufficient capital to fund our anticipated operating expenses and investment activity for at least one year offrom the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its report on the Company’s March 31, 2018 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern within one year after the date that these financial statements are issued. The financial statements do not include any adjustments that might be necessary should the Company be unable to continue as a going concern.

The abilityWhile we believe that our existing cash balances will be sufficient to continue as a going concern is dependent on the Company attainingfund our currently planned level of operations and maintaining profitable operations in the future and/or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when they come due. We estimate that as of June 30, 2018investment activity, we have sufficient funds to operate the business for the next six months. We willmay require additional financing to fund our planned future operations, including the continuation of our ongoing research and development efforts, licensing or acquiring new assets, and researching and developing any potential patents and any further intellectual property that we may acquire.operations. Further, these estimates could differ if we encounter unanticipated difficulties, in which case our current funds may not be sufficient to operate our business for that period. In addition,or if our estimates of the amount of cash necessary to operate our business may prove to be wrong, and we could spenduse our available financial resources much faster than we currently expect.

No assurance can be given that any future financing, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company.

We do not have any firm commitments for future capital. We will need to raise additional funds in order to continue operating our business and pursue and execute our planned research and development and commercial operations. We do not presently have, nor do we expect in the near future to have, sufficient or consistent revenue to fund our business from our operations, and will need to obtain significant funding from external sources. Since inception, we have funded our operations primarily through equity and debt financings, and we expect to continue to rely on these sources of capital in the future. However, if we raise additional funds by issuing equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and obtaining commercial loans would increase our liabilities and future cash commitments. If we pursue capital through alternative sources, such as collaborations or other similar arrangements, we may be forced to relinquish rights to our proprietary technology or other intellectual property that could result in our receipt of only a portion of any revenue that may be generated from a partnered product or business. Further, these or other sources of capital may not be available on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to operate and develop our business, we will be forced to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial risk that our business would fail and our stockholders could lose all of their investment.

Basis of Presentation of Unaudited Condensed Financial Information

The unaudited condensed financial statements of the Company for the three months ended June 30, 20182019 and 20172018 have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) for interim financial information, applied on a consistent basis, and pursuant to the requirements for reporting on Form 10-Q and the requirements of Regulation S-K and Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities Act”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete audited financial statements. However, the information included in these financial statements reflects all adjustments (consisting solely of normal recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be obtained for a full fiscal year or any future annual or interim period. The balance sheet information as of March 31, 20182019 was derived from the Company’s audited financial statements as of and for the year ended March 31, 20182019 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 28, 2018.July 15, 2019. These financial statements should be read in conjunction with that report.

Use of Estimates

The preparation of financial statements in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Significant estimates and assumptions by management include, among others, reserves for accounts receivable, the fair value of equity instruments issued for services, and assumptions used in the valuation of derivative liabilities and the valuation allowance for deferred tax assets, and the accrual of potential liabilities.

Leases

Prior to April 1, 2019, the Company accounted for leases under ASC 840,Accounting for Leases. Effective April 1, 2019, the Company adopted the guidance of ASC 842,Leases, (“ASC 842”) which requires an entity to recognize a right-of-use asset and a lease liability for virtually all leases. The implementation of ASC 842 did not have a material impact on the Company’s consolidated financial statements and did not have a significant impact on our liquidity or on our compliance with our financial covenants associated with our loans. The Company adopted ASC 842 using a modified retrospective approach. As a result, the comparative financial information has not been updated and the required disclosures prior to the date of adoption have not been updated and continue to be reported under the accounting standards in effect for those periods. The adoption of ASC 842 on April 1, 2019 resulted in the recognition of operating lease right-of-use assets of $248,425, lease liabilities for operating leases of $248,425, and a zero cumulative-effect adjustment to accumulated deficit (see Note 3).

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used to measure their fair value. Authoritative guidance provided by FASB defines the following levels directly related to the amount of subjectivity associated with the inputs to fair valuation of these financial assets:

The fair value of the derivative liabilities of $170,435 and $153,042 at June 30, 2018 and March 31, 2018, respectively, were valued using Level 2 inputs.

The carrying value of cash and accounts payable and accrued liabilities approximates their fair value because of the short maturity of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant interest, currency or credit risks arising from these financial instruments.

As of June 30, 2019 and March 31, 2019, the Company’s balance sheet includes Level 3 liabilities comprised of the fair value of derivative liabilities of $11,162 and $35,710, respectively (see Note 5). These derivatives result in Level 3 classification because one or more of the significant inputs are not observable in the market or cannot be derived principally from, or corroborated by, observable market data. The following table sets forth a summary of the changes in the estimated fair value of our derivative liabilities during the three-month periods ended June 30, 2019 and 2018:

Derivative Financial Instruments

The Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the June 30, 2018,2019, reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period.

Stock-Based CompensationShare-Based Payments

The Company periodically issues stock options and warrants, shares of common stock, and equity interests as share-based compensation to employees and non-employees in non-capital raising transactions, for services and for financing costs.non-employees. The Company accounts for its share-based payments under the guidance as set forth in the Share-Based Payment Topic of the FASB Accounting Standards Codification (“ASC”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees officers, directors, and consultants, including employee stock options,in accordance with FASB ASC 718,Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using a Black-Scholes-Merton option-pricing model, and the value of the portion of the award, that is ultimately expected to vestand is recognized as expense over the requiredrequisite service period inperiod.

In prior periods up to March 31, 2019, the Company’s statements of operations. The Company accountsaccounted for stock option and warrant grantsshare-based compensation issued and vesting to non-employees and consultants in accordance with the authoritative guidance whereasprovisions of FASB ASC 505-50,Equity - Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the stock compensationshare-based payment transaction is based upon the measurement date as determined at either a) the date at whichperformance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

In June 2018, the FASB issued ASU No. 2018-07,Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a performance commitment is reached, or b)result, nonemployee share-based transactions will be measured by estimating the date at which the necessary performance to earnfair value of the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the timegrant date, taking into consideration the probability of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.

satisfying performance conditions. The Company periodically issues unvested (“restricted”) shares of its common stock to employees as equity incentives.adopted ASU 2018-07 on April 1, 2019. The Company’s restricted stock vests upon the satisfaction of a recipient’s service condition, which is satisfied over a period of number of years. The restricted shares vest over certain period and remain subject to forfeiture if vesting conditions are not met. The Company values the shares based on the price per shareadoption of the Company’s shares atstandard did not have a material impact on our financial statements for the date of grant and recognizesthree months ended June 30, 2019 or the value as compensation expense ratably over the vesting period.previously reported financial statements.

Basic and Diluted Loss Per Share

Basic loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding common shares during the period. Diluted loss per share is computed by dividing net loss applicable to common stockholders by the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding if all dilutive potential common shares had been issued. Diluted loss per share excludes all potential common shares if their effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings per share as their inclusion would be anti-dilutive:

Research and Development

Research and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates. Research and development costs are expensed as incurred.

Recent Accounting Pronouncements

In FebruaryJune 2016, the FASB issued ASU No. 2016-02,2016-13,LeasesMeasurement of Credit Losses on Financial Instruments (Topic 326). This update will require, which replaces the incurred-loss impairment methodology and requires immediate recognition of a right-of-use asset and a corresponding lease liability, initially measured at the present value of the lease payments,estimated credit losses expected to occur for all leasesmost financial assets, including trade receivables. Credit losses on available-for-sale debt securities with terms longer than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liabilityunrealized losses will be recognized separately fromas allowances for credit losses limited to the amortization of the right-of-use asset in the statement of comprehensive income and the repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component will be included in the operating section of the statement of cash flows.amount by which fair value is below amortized cost. ASU 2016-022016-13 is effective for annualthe Company beginning January 1, 2020 and interim reporting periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured at the beginning of the earliest period presented using a modified retrospective approach. The Company will adopt ASU 2016-02 on April 1, 2019, and does not believe the adoption of ASU 2016-02 will have a material impact on its financial statements and related disclosures.

In July 2017, the FASB issued ASU 2017-11,Earnings Per Share (Topic 260) and Derivatives and Hedging (Topic 815) - Accounting for Certain Financial Instruments with Down Round Features. ASU 2017-11 allows companies to exclude a down round feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU 2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The Company plans to adopt ASU 2017-11 on April 1, 2019. The adoption of ASU 2017-11 is not expected to have an impact on the Company’s financial statements and related disclosures because the conversion feature of the Company’s warrants have features other than down round provisions that require the current accounting treatment and classification.

In June 2018, the FASB issued ASU 2018-07,“Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting.” The ASU expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The ASU also clarifies that Topic 718 does not apply to share-based payments used to effectively provide (1) financing to the issuer or (2) awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Revenue from Contracts with Customers (Topic 606). The guidance is effective for fiscal years beginning after December 15, 2018, including interim periods within that fiscal year. Earlyearly adoption is permitted. The Company is currently assessingdoes not believe the effect thatpotential impact of the ASUnew guidance and related codification improvements will have on ourbe material to its financial position, results of operations and disclosures.

cash flows.

Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future financial statements.

2. DISCONTINUED OPERATIONS

In October 2018, the Company acquired Summit Healthtech, Inc. (renamed Vitality Healthtech, Inc.), a specialty healthcare clinic. In addition to Summit Healthcare, the Company sold research diagnostic testing kits (collectively, the Company’s clinical and test kit operations). In May 2019 the Company decided to close its clinical and test kit operations. The clinical and test kit operations meet the discontinued operations criteria and are reported as such in all periods presented on the accompanying condensed consolidated financial statements.

The following table presents the summarized components of loss from discontinued operations for the clinical and test kit operations:

3. OPERATING LEASE

The Company has an operating lease agreement for its office space with a remaining lease term of 20 months. Leases with an initial term of 12 months or less are not recorded on the balance sheet. The Company accounts for the lease and non-lease components of its lease as a single lease component. Lease expense is recognized on a straight-line basis over the lease term.

Under ASC 842, an operating lease right-of-use (“ROU”) asset and liability is recognized at commencement date based on the present value of lease payments over the lease term. ROU assets represent our right to use an underlying asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Generally, the implicit rate of interest in arrangements is not readily determinable and the Company utilizes its incremental borrowing rate in determining the present value of lease payments. The Company’s incremental borrowing rate is a hypothetical rate based on its understanding of what its credit rating would be. The operating lease ROU asset includes any lease payments made and excludes lease incentives. The adoption of ASC 842 did not have a significant impact on our liquidity or on our compliance with our financial covenants associated with our loans.

The components of lease expense and supplemental cash flow information related to leases for the period are as follows:

The supplemental balance sheet information related to leases for the period is as follows:

Maturities of the Company’s lease liabilities are as follows (in thousands):

Lease expenses were $34,965 and $7,800 during the three months ended June 30, 2019 and June 30, 2018, respectively.

2.4. ADVANCE

In July 2018, we received an advance from a third party for $296,653. The nature of the advance was not specified at the time and the third party has failed to respond to our requests for additional information on the advance. At June 30, 2019, the Company has recorded this as an advance and it is included in current liabilities on the accompanying financial statements.

5. DERIVATIVE LIABILITY

In May 2015, the Company issued certain warrants which included a fundamental transaction provision that could give rise to an obligation to pay cash to the warrant holder. In addition, the warrants contained an anti-dilution provision that allows for the automatic reset of the exercise price of the warrants upon future sale of the Company’s common stock, warrants, options, convertible debt or any other equity-linked securities at an issuance, exercise or conversion price below the current exercise price of the warrants. In addition,As such the Company determined that the warrants can be settled for cash at the holders’ option in a futurewarrant fundamental transaction as defined. Asclause and exercise price created a result ofderivative. In accordance with the anti-dilution and fundamental transaction provisions,FASB authoritative guidance, the Company determined that the conversion featurefair value of the warrants should be separated from the host contract, bewas recognized as a derivative liability,instrument and is re-measured at the end of each reporting period with the change in value reported in the statement of operations.

At March 31, 2018,2019, the balance of the derivative liabilities was $153,042.$35,710. During the three months ended June 30, 2018,2019, the Company recorded an increasea decrease in derivative liability of $17,393.$24,548. At June 30, 2018,2019, the balance of the derivative liabilities was $170,435.$11,162.

At June 30, 20182019 and March 31, 2018,2019, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton pricing model with the following assumptions:

The risk-free interest rate was based on rates established by the Federal Reserve Bank. The Company uses the historical volatility of its common stock to estimate the future volatility for its common stock. The expected life of the warrants was determined by the expiration date of the warrants. The expected dividend yield was based on the fact that the Company has not paid dividends to its common stockholders in the past and does not expect to pay dividends to its common stockholders in the future.

3. STOCKHOLDERS’ EQUITY (DEFICIENCY)

Common stock issued to employees with vesting terms

The Company has issued shares of common stock to employees and directors that vest over time. The fair value of these stock awards are based on the market price of the Company’s common stock on the dates granted, and are amortized over vesting terms ranging up to three years.

During the three months ended June 30, 2018, we recorded expense related to the fair value of stock awards that vested of $106,881. At June 30, 2018, the amount of unvested compensation related to these awards is approximately $240,000, and will be recorded as expense over 1 year.

Shares of restricted stock granted above are subject to forfeiture to the Company or other restrictions that will lapse in accordance with a vesting schedule determined by our Board. In the event a recipient’s employment or service with the Company terminates, any or all of the shares of common stock held by such recipient that have not vested as of the date of termination under the terms of the restricted stock agreement are forfeited to the Company in accordance with such restricted grant agreement.

The following table summarizes restricted common stock activity:

Common stock issued for services

During the three months ended June 30, 2018, the Company issued a total of 37,500 shares of common stock to one consultant as payment for services and recorded expenses of $49,125 based on the fair value of the Company’s common stock at the issuance date.

4.6. STOCK OPTIONS

A summary of the Company’s stock option activity during the three months ended June 30, 20182019 is as follows:

A summary of the Company’s stock options outstanding and exercisable as of June 30, 20172019 is as follows:

During the three months ended June 30, 2018,2019, we expensed total stock-based compensation related to stock options of $321,420,$239,905, and the remaining unamortized cost of the outstanding stock-based awards at June 30, 20182019 was approximately $934,000.$1,010,000. The remaining unamortized cost will be amortized on a straight linestraight-line basis over a weighted average remaining vesting period of one year. At June 30, 2018,2019, the 3,306,7106,556,710 outstanding stock options had anno intrinsic value of approximately $2,400,000.

value.

5.7. WARRANTS

At June 30, 2018,2019, warrants to purchase common shares were outstanding as follows:

At June 30, 2018,2019, the 1,135,003 outstanding warrants had no intrinsic value.

6.8. RELATED PARTY OBLIGATIONSTRANSACTION

On April 23, 2012, the Company entered into a lease agreement with One World Ranches, which is jointly-owned by Dr. Avtar Dhillon, the former Chairman of the Company’s Board of Directors, and his wife, to rent the space being used as the Company’s principal office and laboratory facility. The original term of the lease was from May 1, 2012 to May 1, 2017. In May 2017 the Companyand has been extended the lease through May 1, 2020. Our rent payments thereunder were $2,300 per month until May 1, 2017 and increased to $2,600 per month on May 1, 2017. Aggregate payments under the lease for the three months ended June 30, 2019 and 2018 were $7,800 and 2017 were $7,800]and $7,500,$7,800, respectively.

7.SUBSEQUENT EVENTS9. COMMITMENTS AND CONTINGENCIES

SEC Subpoena

InOn August 2018,19, 2016, we filed a resale registration statement on Form S-1 (“Form S-1”) with the Company issued a total of 37,500SEC to register 2,650,000 shares of our common stock and 7,950,000 shares of our common stock issuable upon exercise of certain warrants. We received a letter from the Washington D.C. office of the SEC dated December 10, 2016, stating that the staff of the SEC was conducting a Section 8(e) examination with respect to one consultant as payment for servicesthis Form S-1 and recorded expensesthat the Division of $64,125 basedCorporate Finance would not take any further action on the fair valueForm S-1 while the examination was pending. We received subpoenas to produce documents dated December 14, 2016, and January 23, 2017, and additional subpoenas for testimony and any supplemental production of documents dated June 5, 2017 and November 14, 2018. The document requests were primarily in connection with this matter. We have complied with all document requests and the Company’s common stock at the issuance date.former CEO provided testimony in April 2019.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

As used in this discussion and analysis and elsewhere in this Quarterly Report, the “Company”, “we”, “us” or “our” refer to Vitality Biopharma, Inc., a Nevada corporation.

Cautionary Statement

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our Unaudited Condensed Financial Statements and the related notes thereto contained in Part I, Item 1 of this Quarterly Report. The information contained in this Quarterly Report on Form 10-Q is not a complete description of our business or the risks associated with an investment in our common stock. We urge you to carefully review and consider the various disclosures made by us in this Quarterly Report and in our other reports filed with the Securities and Exchange Commission (the “SEC”), including our Annual Report on Form 10-K for the fiscal year ended March 31, 20182019 filed on June 28, 2018,July 15, 2019, and the related audited financial statements and notes included therein.

Certain statements made in this Quarterly Report on Form 10-Q constitute “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 (the “Exchange Act”). Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “will,” “should,” “intend,” “expect,” “plan,” “anticipate,” “believe,” “estimate,” “predict,” “potential,” or “continue” or the negative of these terms or other comparable terminology. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, which may cause our or our industry’s actual results, levels of activity or performance to be materially different from any future results, levels of activity or performance expressed or implied by these forward-looking statements. These risks and uncertainties include: general economic and financial market conditions; our ability to obtain additional financing as necessary; our ability to continue operating as a going concern; any adverse occurrence with respect to our business or; results of our research and development activities that are less positive than we expect ; our ability to bring our intended products to market; market demand for our intended products; shifts in industry capacity; product development or other initiatives by our competitors; fluctuations in the availability of raw materials and costs associated with growing raw materials for our intended products; poor growing conditions for the stevia plant; other factors beyond our control; and the other risks described under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on June 28, 2018.July 15, 2019.

Although we believe that the expectations and assumptions reflected in the forward-looking statements we make are reasonable, we cannot guarantee future results, levels of activity or performance. In addition, we cannot assess the impact of each factor on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those expressed by any forward-looking statements. As a result, readers should not place undue reliance on any of the forward-looking statements we make in this report. Forward-looking statements speak only as of the date on which they are made. Except as required by law, we undertake no obligation to revise or update publicly any forward-looking statements for any reason.

Company Overview

Vitality Biopharma is unlockinga company focused on the poweradvancement of cannabinoids forpharmaceuticals and innovative technologies that improve the treatmentlives of serious neurological and inflammatory disorders.

patients. We hold exclusive worldwide intellectual property and commercialization rightsseek to a new classachieve this objective through the development of novel cannabinoid pharmaceutical candidatesprodrugs known as cannabosides. This classWe will conduct our operations using our own personnel and facilities, through subsidiaries established to conduct such operations, and through strategic partnerships with promising early stage companies that are bringing innovative products and services to market but lack the necessary capital or resources to fully capitalize on their high growth potential. We may provide assistance to such strategic partners through management assistance, loans of compounds includes VBX-100, a prodrugcapital or equipment or personnel resources, or other arrangements designed to support the operations of tetrahydrocannabinol (THC), which enables targeted delivery of THC to the gastrointestinal tract without any resulting drug psychoactivity or intoxication.our Company.

CannabosidesOur cannabosides are cannabinoid glycoside “prodrugs,”cannabinoid-glycoside prodrugs, which meanswere discovered through application of the Company’s proprietary enzymatic bioprocessing technologies, that they are medications or compounds that, after administration, are converted within the body after administration from an inactive molecule into a pharmacologically active drug. Because there often already exists independent verification ofCurrently, the active drug’s safety and efficacy, as is the case with THC, whichCompany has been FDA-approved as a pharmaceutical since 1985, prodrugs may receive regulatory and marketing approvals more quickly than others. At the same time, a prodrug can have many commercial advantages, including that they can be proprietary and patentable compositions of matter, unlike cannabinoids themselves, or older pharmaceutical formulations where patent protection has already expired.

Our most advanced drug candidate, VBX-100, is a prodrug of THC, which was first approved as a pharmaceutical by the FDA in 1985 under the brand name MARINOL^TM and that is known by the generic drug name of dronabinol. VBX-100 enables targeting or restriction of THC to the gastrointestinal tract, thereby eliminating or avoiding the psychoactive or intoxicating effects that occur when THC enters the bloodstream and brain. VBX-100 may enable more widespread use of THC for treatment of gastrointestinal conditions as well as its use in many patient populations for whom treatment today with THC is not generally recommended, including children, patients who are pregnant or breastfeeding, and patients with a history or high risk of mental illness.

VBX-100 is being developed for treatment of inflammatory bowel disease (IBD),C. difficile-associated diarrhea and colitis (CDAC), irritable bowel syndrome (IBS), and narcotic bowel syndrome (NBS), a severe form of opiate-induced abdominal pain.

For IBD, which includes Crohn’s disease and ulcerative colitis, there have been independently-conducted preclinical and clinical studies that have demonstrated the benefit of cannabinoids. Independently-run retrospective clinical studies have found that in 56 patients who used cannabinoids with IBD that 83.9% of patients reported improvement in abdominal pain, and 76.8% of patients reported improvement in abdominal cramping. In addition, in a prospective trial that was independently-managed and placebo-controlled, it was found that 45% of Crohn’s disease patients achieved remission after 8 weeks of treatment. Patients reported improvements in sleep and appetite with no significant side effects and some patients were able to eliminate use of corticosteroids and opiate pain medications. Patients experienced benefits with cannabis treatment despite being non-responders to conventional therapies, such as corticosteroids, immunomodulators, and TNF-alpha inhibitors. VBX-100 may enable treatment of drug-resistant forms of IBD without any psychoactivity and also without the adverse effects of alternative IBD therapies, many of which today suppress the immune system throughout the body and can increase the risk of infections or cancer.

A key part of our strategy will be to take advantage of a more efficient Food & Drug Administration (FDA) review and approval process that is available for prodrugs, which reduces the need for large and expensive clinical trials. Expedited regulatory processes may be available for our cannabosides because in the U.S. and internationally there have already been many independent preclinical and clinical studies completed using THC, and so existing clinical data may be submitted to drug regulatory agencies as supporting evidence of our compounds’ safety.

We aim to develop and approve our pharmaceutical candidates using a low-risk regulatory strategy that is available for prodrugs, and to amplify the benefits that have been seen in independent, early-stage clinical trials and preclinical studies describing the use of cannabinoids for treatment of neurological and inflammatory conditions. Our focus is especially on eliminating well known side effects of existing therapies, and on treating conditions known to involve the endocannabinoid system and the gastrointestinal tract.

Our primary operations are based in Yuba City, California, where we originally developed our proprietary bioprocessing methods. The Company’s research and development facilities include laboratories and a manufacturing suite that will be used for pharmaceutical-grade production of drug material for clinical trials. These facilities and the company’s operations involving handling and use of controlled substances have been registered with and authorized by the Drug Enforcement Administration (DEA) as well as the Research Advisory Panel of California, a part of the State of California’s Department of Justice.

Product Pipeline

We have produced more than 25 novel cannabosides, so farincluding glycosylated tetrahydrocannabinol (THC), cannabidiol (CBD), cannabidivarin (CBDV) and havecannabinol (CBN), that are covered by worldwide patent applications that includefor composition of matter, claimsmethod of production and method of use.

As a complementary strategy, the Company plans to leverage its research and managerial expertise to enter into strategic partnerships with early-stage businesses that require capital and resources to drive innovation and bring new medicines, services and technologies to market to advance the health of patients. We plan to focus our energies on companies approaching key value inflection points where our unique capabilities can accelerate growth and provide solutions-oriented strategies to drive better performance and create value for prodrugsour strategic partners and shareholders.

Our corporate headquarters is located in Los Angeles, California. As of cannabinoidsAugust 12, 2019, we employed seven full-time employees, including five research professionals working in our office and laboratory space in Yuba City, California. We also have engaged the services of scientific and regulatory consultants to assist in our research and development activities, which is an approach that have been studied extensively inprovides us with flexible and highly-experienced resources to advance our clinical trials worldwide, including THC and cannabidiol (CBD). Upon successful patent prosecution, protection would extend until 2035 and be available in all major markets worldwide. In addition, we have filed patent applications that seek to protect more broad claims on novel vanilloid glycoside compounds that target TRPV receptors for mediating pain relief, methods of use for TRPV1 agonists to effect neural repair, and based on findings in early 2017, for drug compositions and methods to use cannabinoids to treat gut dysbiosis and drug-resistantC.difficileinfections, which colonize the large intestine.efforts while maintaining a relatively lower overhead cost structure.

Cannaboside Prodrugs

CannabosideA prodrug is a compound that, after administration, is metabolized into a pharmacologically active drug. Prodrugs are often designed to improve drug properties and reduce known or expected toxicities and adverse side effects. By using our proprietary enzymatic bioprocessing technologies, our clinical research team has developed a novel family of prodrugs by combining cannabinoid and glucose molecules. The resulting compounds, known as cannabosides, have unique commercial applications and patentable compositions of matter, which are separate and distinct from ordinary cannabinoids. The advantages of cannabosides may deliverinclude: (i) administration in a variety of benefits over existing cannabinoid therapies, including:convenient oral formulation, (ii) targeted delivery with release in the colon or large intestine, (iii) improved stability with limited degradation or drug metabolism, and (iv) delayed release enabling longer-lasting effects and fewer administrations by patients.

Our proprietary glycosylation process, which results in adding one or more glucose molecules to compounds, may enable our new cannabosides to act as prodrugs that achieve targeted delivery of the bioactive compounds of cannabinoids to the gastrointestinal tract. Glycosylated compounds are generally more stable and are water soluble, so upon ingestion, we believe they will remain intact and transit through the esophagus, stomach and upper intestine with limited absorption or degradation from stomach acids. However, once the glycosylated compounds reach the lower intestine, we expect them to encounter glycoside hydrolase enzymes secreted by the human intestinal microbiota that will cleave the polar glucose residues and release the active cannabinoid compound primarily in the large intestine or colon.

VBX-100We have focused our research and development activities on the glycosylation of cannabinoids given their well-known positive effects on the human endocannabinoid system. Our research and development activities originally focused on the glycosylation of CBD and then later expanded into the glycosylation of THC. The use of the cannabinoid THC has been shown to provide substantial anti-inflammatory benefits on the human body, among other benefits, but is an oral cannabosidelimited as a pharmaceutical option given its psychoactive and a prodrugintoxicating properties. However, by glycosylating THC, we have learned through initial animal studies that the binding of glucose and THC molecules restricts the release of THC or dronabinol,into the body’s digestive system until the prodrug reaches the large intestine, at which was first approved bypoint the US FDAglycoside hydrolase enzymes cleave the glucose from the prodrug and the THC is released in 1985. MARINOL^TM isa targeted and restricted manner. Further, we have learned through our initial animal studies that this targeted release of THC, which could be provided in very low doses to achieve physiologically beneficial results, serves as an approved versionanti-inflammatory agent in the lower gastrointestinal tract and minimizes the amount of dronabinolTHC absorbed into the blood stream, therefore avoiding the psychoactive and intoxicating properties that is indicatedhinder the broader pharmaceutical use of THC.

We are developing our THC-glycoside prodrugs for the treatment of anorexiagastrointestinal diseases, including inflammatory bowel disease (IBD) and chemotherapy-induced nausea and vomiting. VBX-100irritable bowel syndrome (IBS) because of the targeted release described previously. IBD is targeted or restricteda frequently chronic inflammatory condition where parts of the digestive system become inflamed from an overactive immune response. The disease can lead to irreversible damage to the gastrointestinal tract so it could eliminateand may require surgery to remove affected areas of the psychoactive effectsintestine. Two major forms of THC,the disease are Crohn’s disease, which may enable widespread adult usecan affect any part of THC for treatmentthe digestive system, and ulcerative colitis, which often affects the colon or large intestine. The disease is often unpredictable with periods of painful and debilitating symptoms followed by periods of remission with limited symptoms. IBS has similar symptoms to IBD, including abdominal pain, but the underlying disease process is quite different. IBS is a functional gastrointestinal conditions as well as use in patient populations where use of THCdisorder that commonly affects the large intestine and is currently limited or avoided, including for treatment of pediatric conditions or for treatment ofcharacterized by abdominal cramping, diarrhea, constipation, and pain. Currently, patients with a history of mental illness. VBX-100 is intended primarily for acute or short-term use,suffering from IBD are frequently prescribed anti-inflammatory drugs such as for treatment regimens to induce remissionsteroids, biologics and immunosuppressants, and patients suffering from IBS are prescribed antibiotics, antidepressants and gastrointestinal motility compounds, all of disease flares that occurwhich often result in pediatric Crohn’s disease or ulcerative colitis, or for use to relieve severe abdominal pain while narcotic bowel syndrome patients reduce or eliminate use of opioid painkillers.unwanted side effects.

VBX-210Our most promising THC-glycoside (VBX-100) is being developed as an oral cannaboside formulation being investigated in preclinical studiesprodrug for treatment of gastrointestinal conditions. VBX-210 is intended primarily for chronic or long-term use (greater than 6 months per year), including long-term management of irritable bowel syndrome, chronic pain, prevention of colorectal cancer, or maintaining remission of inflammatory bowel disease. We are developing additional cannabinoid product formulations that are intended to provide relief of refractory pain in patients using cannabinoids as an alternative to opioid painkillers, as well as formulations intended to improve the symptoms of autism spectrum disorder.

For each of the pharmaceutical candidates in our pipeline, the active cannabinoid pharmaceutical agents have been independently approved by regulatory bodies and there is extensive clinical data already available related to drug safety and effectiveness. Because of this, we will in general benefit from the increased familiarity of clinical investigators and regulators with these compounds, which may enable abbreviated paths towards clinical testing and eventual approval of our pharmaceutical products.

Our Operations

We believe that our long-term commercial success and profit potential depends in large part on our ability to develop and advance proprietary cannabinoid prodrugs that are strongly differentiated from both medical cannabis and existing cannabinoid drugs, and to do this more quickly, efficiently and effectively than our competitors. Another critical factor that will determine our success is our ability to obtain and enforce patents, maintain protection of trade secrets, and operate our business without infringing the proprietary rights of third parties. As a result, we are dedicated to the continued development and protection of our intellectual property portfolio.

We developed internally and hold exclusive worldwide intellectual property rights related to two U.S. patent applications filed in September and October 2015, titled “Cannabinoid Glycoside Prodrugs and Methods of Synthesis.” In September 2016, an expanded international application was filed under the Patent Cooperation Treaty system, which includes 79 patent claims to almost 200 individual compounds, including but not limited to prodrugs of THC and CBD. In March and April 2018, applications were filed for national and regional prosecution in major pharmaceutical markets worldwide including the U.S., Europe, Japan, Canada, Mexico, Australia, New Zealand, China, and Brazil. For more information, see the “Intellectual Property” section below.

Short Term Development Targets

We plan to complete all necessary preclinical studies for VBX-100 and to initiate a Phase 1 clinical trial in the second half of 2018. This first-in-man clinical study will focus primarily on evaluating the clinical pharmacokinetics, safety, and tolerability of VBX-100 in healthy volunteers. Additional endpoints may be analyzed to examine the effects of VBX-100 on GI motility, intestinal permeability, and on the human microbiome. The Phase 1 first-in-human trial is intended to provide safety data sufficient for us to initiate multiple Phase 2 proof-of-concept clinical studies in 2019, including for treatment of IBD and IBS. We plan to conduct additionalVBX-100 was selected from our THC-glycoside portfolio for compatibility with commercial production techniques and the optimal prodrug delivery profile that maximizes intestinal anti-inflammatory properties while minimizing psychoactive or intoxicating effects. Initial preclinical studies on the efficacy of VBX-100 in animal models have shown favorable outcomes, including reduced inflammation of the gastrointestinal tract and no measurable systemic THC found in tissue examined using highly-sensitive testing equipment. Our preclinical development plan, which includes dose range finding studies, GLP toxicology studies, pharmacokinetic studies and other preclinical research, is anticipated to be completed during the 2^nd half of calendar year 2020, subject to the Company securing sufficient additional funding or entering into a strategic partnership. After our other pharmaceutical candidates, as well as sponsor observationalsatisfactory completion of all of the prerequisite preclinicalin vitroandin vivo studies, an Investigational New Drug (IND) application would be filed with the FDA and, upon receiving FDA approval, we would initiate our Phase 1 clinical studies of cannabinoids for new treatment indications including prevention of colorectal cancer, treatment of refractory pain (opioid substitution therapy), and treatment of autism spectrum disorder.

Short-term development targets include:

Additional Operationstrial, subject to the Company securing sufficient additional funding or entering into a strategic partnership.

OurIn addition to our research and development activities related to our THC-glycoside compounds, we are expanding and diversifying our research and development activities to include the potential safety, efficacy and commercialization of our patented CBD-glycoside compounds. CBD has well-known anti-anxiety, anti-inflammatory and anti-microbial properties, but unlike THC, CBD is non-psychoactive and non-intoxicating. By glycosylating CBD, we can create CBD-glucose compounds that may enable a targeted and concentrated delivery of CBD in the gastrointestinal tract. Currently we are evaluating the optimal CBD-glycoside delivery mechanism, which may include an aqueous drink formulation since our glycosylation technology wasprocess greatly improves the water solubility of the CBD molecule.

Enzymatic Processing Methods

The Company originally developed in orderits proprietary enzymatic bioprocessing technologies to improveattach glucose molecules to the taste and yieldmolecules of stevia sweeteners derived fromas part of our activities in the stevia plant.processing industry. We have an intellectual property portfolio relatedthen expanded the application of this proprietary technology to stevia, as well as commercial operations relatedattach glucose molecules to cannabinoids, including THC and CBD. We may pursue additional opportunities to develop new products or license this technology.

Strategic Partnerships

As a complement to our capital intensive and longer duration drug development business, we plan to expand and diversify our corporate strategy to include strategic partnerships with promising early-stage companies that are bringing innovative products and services to market but lack the manufacturenecessary capital or resources to fully realize their high-growth potential. Given the rapid advancements in science and sale of research productstechnology, there are many early-stage life science companies that commenced in 2014. We intendare approaching key value inflection points but lack the necessary managerial expertise, personnel, patents, funding or equipment to sustain these operationsadvance their efforts or to bring their medicines, services and technologies into market. Our strategy is to opportunistically fill those unmet needs, including funding and, equally important, to provide our strategic partners with the necessary resources and value-added support to help transform and improve their businesses.

Strategic partnerships may enable us to expand our network of researchers, clinicians, and medical professionals and provide us with an opportunity to allocate our cash, personnel, equipment, proprietary information and other resources into a mannerdiversified collection of assets that is cash-flow neutralstrengthen and complement our drug development initiatives. We will target strategic partnerships that provide unique technological or better andhuman capital attributes that are well-positioned to commercialize the primarily through new out-licensing arrangements or strategic partnerships.

provide us with a more diversified cash flow profile that complements our capital-intensive drug development operations.

Results of Operations

Three Months Ended June 30, 20182019 and June 30, 20172018

Our net loss during the three months ended June 30, 20182019 was $1,135,219$1,591,279 compared to a net loss of $1,106,353$1,135,219 for the three months ended June 30, 2017. During2018. Included in net loss during the three months ended June 30, 2018, we generated $26,328 in revenue and $580 in gross profit,2019, our discontinued operations incurred a loss of $450,027, compared to $27,043a loss of $55,695 in revenue and $6,557 in gross profit for the 2017 period.Our revenue in each of the periods presented was earned from the sale of research diagnostic testing kits and chemicals.We expect such sales to continue at approximately the rate during the 2018 period. We had no revenue from continuing operations during either the 2019 or 2018 period.

During the three months ended June 30, 2018,2019, we incurred general and administrative expenses in the aggregate amount of $523,184$852,419 compared to $673,789$480,701 incurred during the three months ended June 30, 2017 (a decrease2018 (an increase of $150,605)$371,718). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. A significant portion of these costs are related to the development of our organizational capabilities as a biotechnology company, including costs such as legal and advisory fees related to intellectual property development. The majority of the decreaseincrease in general and administrative costs in the period relates to professionallegal fees which decreasedincreased to $43,135$270,875 in the period ending June 30, 2018,2019, as compared to $129,254$82,943 in the period ending June 30, 2017.2018.

In addition, during the three months ended June 30, 2018,2019, we incurred research and development costs of $587,422,$328,488, compared to $407,009$573,630 during the three months ended June 30, 2017 (an increase2018 (a decrease of $180,413)$245,142). This increasedecrease resulted from increased laboratory anddecreased consulting expenses during the 2019 period.

Our discontinued operations incurred a loss of $450,027 during the three months ended June 30, 2019, compared to a loss of $55,695 incurred during the three months ended June 30, 2018 (an increase of $394,332). This increase was attributable to the losses incurred by the Company’s clinical operations in the 2019 period.

During the three months ended June 30, 2019 and June 30, 2018, we incurred related party rent and other costs totaling $7,800 compared to $7,500 incurred during the three months ended June 30, 2017.

This resulted in a loss from operations of $1,117,826 during the three months ended June 30, 2018 compared to a loss from operations of $1,081,741 during the three months ended June 30, 2017.$7,800.

During the three months ended June 30, 2018,2019, we recorded total net other expenseincome in the amount of $17,393,$47,455, compared to total net other expense recorded during the three months ended June 30, 20172018 in the amount of $24,612.$17,393. During the three months ended June 30, 2018,2019, we recorded an expensea gain related to the change in fair value of derivatives of $17,393,$24,548, compared to an expense of $24,612$17,393 during the 20172018 quarter. During the three months ended June 30, 2019, we also recorded other income of $22,907.

This resulted in a net loss of $1,591,279 during the three months ended June 30, 2019 compared to a net loss of $1,135,219 during the three months ended June 30, 2018 compared to a net loss of $1,106,353 during the three months ended June 30, 2017.2018.

The net loss during the three months ended June 30, 2018 compared to the net loss for the three months ended June 30, 2017 is attributable primarily to the higher research and development costs in the 2018 period.

Liquidity and Capital Resources

As of June 30, 2018, we had total current assets of $182,706, which was comprised mainly of cash of $173,037. Our total current liabilities as of June 30, 2018 were $518,225 and consisted of accounts payable and accrued liabilities of $347,790 and derivative liability of $170,435. The derivative liability is a non-cash item related to certain of our outstanding warrants as of June 30, 2018. As a result, on June 30, 2018, we had working capital deficit of $335,519.

We have not yet received significant revenues from sales of products or services, and have recurring losses from operations. We have incurred losses since inception resulting in stockholders’an accumulated deficit of $335,519$43,772,782 as of June 30, 2018,2019, and further losses are anticipated in the development of our business. These factors raise substantial doubt about

As of June 30, 2019, we had total current assets of $4,676,960. Our total current assets as of June 30, 2019 were comprised primarily of cash in the amount of $4,673,908. Our total current liabilities as of June 30, 2019 were $1,145,200, represented primarily by accounts payable and accrued liabilities of $721,488, an advance of $296,653, and derivative liability of $11,162. The derivative liability is a non-cash item related to our abilityoutstanding warrants, as described in Note 5 to continue asour financial statements. As a going concern. In addition,result, on June 30, 2019, we had a working capital of $3,531,760.

On November 7, 2018, the Company’s independent registered public accounting firm, in its reportSEC suspended the trading of our common stock. Our common stock resumed trading with limited liquidity on the Company’s March 31, 2018grey market on November 21, 2018. Grey market stocks are not traded or quoted on an exchange or inter-dealer quotation system, but are reported by broker-dealers to their self-regulatory organization (“SRO”) and the SRO distributes the trade data to market data vendors and financial statements, has raised substantial doubt aboutwebsites. Since grey market securities are not traded or quoted on an exchange or inter-dealer quotation system, investor’s bids and offers are not collected in a central spot, so market transparency is diminished and execution of orders is difficult. We are actively pursuing the Company’s ability to continue asresumption of ordinary course trading status on the OTCQB or a going concern within one year after the date that these financial statements are issued. Our financial statements included in this report have been prepared on a going concern basis, which assumes that we will be able to realize our assets and discharge our liabilities in the normal course of business for the foreseeable future. national exchange.

The continuation of our Company as a going concernbusiness is dependent upon our Companyus raising additional capital and eventually attaining and maintaining profitable operations and raising additional capital. The financial statements included in this report do not include any adjustments relating to the recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary should our Company discontinue operations.

We estimate that we will have sufficient funds to operate the business for the six months after June 30, 2018. These estimates could differ if we encounter unanticipated difficulties, in which case our current funds may not be sufficient to operate our business for that period. In addition, our estimates of the amount of cash necessary to operate our business may prove to be wrong, and we could spend our available financial resources much faster than we currently expect.

We do not have any firm commitments for future capital. Significant additionalcapital and until the Company resumes ordinary course trading status on the OTCQB or a national exchange it will be difficult to obtain financing on commercially reasonable or acceptable terms. We do not presently have, nor do we expect in the near future to have, material revenue to fund our business from our operations, and we will need to obtain all of our necessary funding from external sources in the near term. Additional financing may be required to fund our planned operations in future periods, including research and development activities relating to our principal product candidate, seeking regulatory approval of that or any other product candidate we may choose to develop, commercializing any product candidate for which we are able to obtain regulatory approval or certification, seeking to license or acquire new assets or businesses, and maintaining our intellectual property rights and pursuing rights to new technologies. We do not presently have, nor do we expect in the near future to have, revenue to fund our business from our operations, and will need to obtain significant funding from external sources. We may seek to raise such funding from a variety of sources. If we raise additional funds by issuing equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and obtaining commercial loans would increase our liabilities and future cash commitments. If we pursue capital through alternative sources, such as collaborations or other similar arrangements, we may be forced to relinquish rights to our proprietary technology or other intellectual property that could result in our receipt of only a portion of any revenue that may be generated from a partnered product or business. Further, we may not be able to obtain additional financing from any of these sources on commercially reasonable or acceptable terms when needed, or at all. If we cannot raise the money that we need in order to continue to operate and develop our business, we will be forced to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial risk that our business would fail and our stockholders could lose all of their investment.

Net Cash Used in Operating Activities

We have not generated positive cash flows from operating activities. For the three months ended June 30, 2018,2019, net cash used in operating activitiesactivities-continuing operations was $483,253$858,750 compared to net cash used in operating activitiesactivities-continuing operations of $622,164$434,790 for the three months ended June 30, 2017.2018. This decreaseincrease was primarily attributable to an increase in accounts payable.personnel costs and a decrease in the expenses recorded for stock-based compensation related to stock options. Net cash used in operating activitiesactivities-continuing operations during the three months ended June 30, 2019 consisted primarily of a net loss of $1,141,252, offset by $239,905 related to stock-based compensation and an increase in accounts payable of $36,987. Net cash used in operating activities-continuing operations during the three months ended June 30, 2018 consisted primarily of a net loss of $1,135,219,$1,079,524, offset by $474,426$477,426 related to stock-based compensation and changean increase in fair valueaccounts payable of derivative liability of $17,393. Net cash used in operating activities during$147,315. For the three months ended June 30, 2017 consisted primarily2019, net cash used in operating activities-discontinued operations was $450,083 compared to net cash used in operating activities-discontinued operations of a net loss of $1,106,353, offset$48,463 for the three months ended June 30, 2018. This difference was caused by $545,124 related to stock-based compensation and change in fair value of derivative liability of $24,612.the losses incurred by the Company’s clinical operations.

Net Cash Used in Investing Activities

During the three months ended June 30, 20182019 and June 30, 2017,2018, no net cash was used in or provided by investing activities.

Net Cash Provided By Financing Activities

During the three months ended June 30, 20182019 and June 30, 2017,2018, no net cash was used in or provided by financing activities.

Off-Balance Sheet Arrangements

We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that would be material to stockholders.

Critical Accounting Policies

Our financial statements and accompanying notes included in this report have been prepared in accordance with United States generally accepted accounting principles (“U.S. GAAP”) applied on a consistent basis. The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting periods.

We regularly evaluate the accounting policies and estimates that we use to prepare our financial statements. In general, management’s estimates are based on historical experience, on information from third party professionals, and on various other assumptions that are believed to be reasonable under the facts and circumstances. Actual results could differ from the estimates made by management.

We believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of our consolidated financial statements included in this report:

Use of Estimates and Assumptions

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. The more significant estimates and assumption by management include, among others, the fair value of shares issued for services, the fair value of options and warrants, and assumptions used in the valuation of our outstanding derivative liabilities.

Stock-Based CompensationShare-Based Payments

The Company periodically issues stock options and warrants, shares of common stock, and equity interests as share-based compensation to employees and non-employees in non-capital raising transactions, for services and for financing costs.non-employees. The Company accounts for its share-based payments under the guidance as set forth in the Share-Based Payment Topic of the Financial Accounting Standards Board (FASB”) Accounting Standards Codification (“ASC”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees officers, directors, and consultants, including employee stock options,in accordance with FASB ASC 718,Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair values. The Company estimates the fair value of share-based payment awards to employees and directors on the date of grant using an option-pricing model, and the value of the portion of the award, that is ultimately expected to vestand is recognized as expense over the requiredrequisite service period inperiod.

In prior periods up to March 31, 2019, the Company’s statements of operations. The Company accountsaccounted for stock option and warrant grantsshare-based compensation issued and vesting to non-employees and consultants in accordance with the authoritative guidance whereasprovisions of FASB ASC 505-50,Equity - Based Payments to Non-Employees. Measurement of share-based payment transactions with non-employees is based on the fair value of whichever is more reliably measurable: (a) the goods or services received; or (b) the equity instruments issued. The final fair value of the stock compensationshare-based payment transaction is based upon the measurement date as determined at either (a) the date at whichperformance completion date. For interim periods, the fair value is estimated, and the percentage of completion is applied to that estimate to determine the cumulative expense recorded.

In June 2018, the FASB issued ASU No. 2018-07,Compensation - Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. The guidance was issued to simplify the accounting for share-based transactions by expanding the scope of Topic 718 from only being applicable to share-based payments to employees to also include share-based payment transactions for acquiring goods and services from nonemployees. As a performance commitment is reached, or (b)result, nonemployee share-based transactions will be measured by estimating the date at which the necessary performance to earnfair value of the equity instruments is complete. Stock-based compensation is based on awards ultimately expected to vest and is reduced for estimated forfeitures. Forfeitures are estimated at the timegrant date, taking into consideration the probability of grant and revised, as necessary, in subsequent periods if actual forfeitures differ from those estimates.satisfying performance conditions. The Company adopted ASU 2018-07 on April 1, 2019. The adoption of the standard did not have a material impact on our financial statements for the three months ended June 30, 2019 or the previously reported financial statements.

Derivative Financial Instruments

We evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements of operations. For stock-based derivative financial instruments, we use a probability weighted average Black-Scholes-Merton model to value the derivative instruments at inception and on subsequent valuation dates through the June 30, 20182019 reporting date. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.

Recent Accounting Pronouncements

Please refer to Footnote 1 of the accompanying financial statements for management’s discussion of recent accounting pronouncements

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our principal executive officer and our principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”), as of the end of the period covered by this report. Based on this evaluation, our principal executive officer and our principal financial officer concluded that as of June 30, 2018,2019, these disclosure controls and procedures were not effective to ensure that the information required to be disclosed by our Company in reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the Securities and Exchange Commission (“SEC”), including that such information is accumulated and communicated to our management, including our principal executive officer and our principal financial officer, as appropriate to allow timely decisions regarding required disclosures ..disclosures. The conclusion that our disclosure controls and procedures were not effective was due to the presence of material weaknesses in our internal control over financial reporting, as that term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act, as previously disclosed in Item 9A of our Annual Report on Form 10-K for the fiscal year ended March 31, 2018.2019. In light of the material weaknesses identified by management, we performed additional analyses and procedures in order to conclude that our condensed financial statements for the interim period ended June 30, 20182019 are fairly presented, in all material respects, in accordance with GAAP.

Description of Material Weaknesses and Management’s Remediation Initiatives

As of the date of this report, our remediation efforts continue related to each of the material weaknesses that we have identified in our internal control over financial reporting and additional time and resources will be required in order to fully address these material weaknesses. We have not been able to complete all actions necessary and test the remediated controls in a manner that would enable us to conclude that such controls are effective. We are committed to implementing the necessary controls to remediate the material weaknesses described below, as and when resources permit. These material weaknesses will not be considered remediated until (1) the new processes are designed, appropriately controlled and implemented for a sufficient period of time and (2) we have sufficient evidence that the new processes and related controls are operating effectively. The following is a list of the material weaknesses identified by management as of June 30, 2018:2019:

Insufficient segregation of duties in our finance and accounting functions due to limited personnel.personnel. We do not have sufficient segregation of duties within accounting functions. During the three monthsyear ended June 30, 2018,March 31, 2019, we internallyhad limited personnel that performed nearly all aspects of our financial reporting process, including, but not limited to, access to the underlying accounting records and systems, the ability to post and record journal entries and responsibility for the preparation of the financial statements. Due to the fact that these duties were often performed by the same person, there wasthis creates a lack of review over the financial reporting process that mightwould likely result in a failure to detect errors in spreadsheets, calculations, or assumptions used to compile the financial statements and related disclosures as filed with the SEC. ThisThese control deficiencies could result in a material misstatement to our interim or annual financial statements that would not be prevented or detected.

Lack of written documentation of the Company’s key internal control policies and procedures over financial reporting. The Company is required under Section 404 of the Sarbanes-Oxley Act to have written documentation of key internal controls over financial reporting.

Lack of documented policies and procedures for maintaining legal documents. The Company did not maintain effective controls over certain transactions during the fiscal year as they were not supported by fully executed legal documents.

Changes in Internal Control over Financial Reporting

In June 2018, we determined that Dr. Dhillon was an independent director within the meaning of applicable Nasdaq Listing Rules, resulting in a majority of our board of directors being independent directors.

We are currently considering adding additional independent members to our board of directors and adding accounting personnel to our staff in connection with the ongoing efforts to remediate the material weaknesses described above, but no specific progress has been made on these goals or other remediation efforts during the three months ended June 30, 2018.2019. As a result, other than the change described here and the ongoing remediation efforts identified above, there were no changes in our internal control over financial reporting during the three months ended June 30, 2018,2019, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

Inherent Limitations on Internal Control

A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of simple errors. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. The design of any system of controls is also based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. In addition, projections of any evaluation of effectiveness to future periods are subject to risks that controls that are effective at one date may subsequently become inadequate because of changes in conditions or because the degree of compliance with the policies or procedures may deteriorate.

PART II - OTHER INFORMATION

Item 1. Legal Proceedings

From time to time, we may become involved in various lawsuits and legal proceedings which arise in the ordinary course of business. The impact and outcome of litigation, if any, is subject to inherent uncertainties, and an adverse result in these or other matters may arise from time to time that may harm our business. We are not currently a party to and our properties are not currently the subject of any material pending legal proceedings the adverse outcome of which, individually or in the aggregate, would be expected to have a material adverse effect on our financial position or results of operations.

Item 1A. Risk Factors

Please refer to the risks described under the heading “Risk Factors” in our Annual Report on Form 10-K filed with the SEC on June 28, 2018.July 15, 2019.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 6. Exhibits

† Furnished herewith.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX

† Furnished herewith.

SIGNATURES

Pursuant to the requirements 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.

EXHIBIT INDEX

† Furnished herewith.