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 office 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 lease 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.

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:

Lease expenses were $46,388 and $7,800 during the three months ended September 30, 2019 and September 30, 2018, respectively.

4. ADVANCE

In July 2018, we received a payment from a third party in the amount of $296,653. The purpose of this payment was not specified at the time it was received, and the third party making such payment has failed to respond to our requests for additional information. We have recorded this payment as an advance and, at September 30, 2019, 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. Asprovision and exercise price created a result ofderivative instrument. 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, 2017,2019, the balance of the derivative liabilities was $240,791.$35,710. During the ninesix months ended December 31, 2017,September 30, 2019, the Company recorded a decrease in derivative liability of $38,955.$33,914. At December 31, 2017,September 30, 2019, the balance of the derivative liabilities was $201,836.$1,796.

At December 31, 2017September 30, 2019 and March 31, 2017,2019, 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

Equity Financing

On December 12, 2017, the Company entered into a securities purchase agreement providing for the issuance and sale by the Company of 933,332 shares of the Company’s common stock and warrants to purchase up to 466,667 shares of the Company’s common stock, at a price of $1.50 per share. After deducting for fees and expenses, the net proceeds to the Company from the sale of the shares and warrants were approximately $1,395,000.

On July 26, 2017, the Company entered into a securities purchase agreement providing for the issuance and sale by the Company of 666,667 shares of the Company’s common stock and warrants to purchase up to 333,334 shares of the Company’s common stock, at a price of $1.50 per share. After deducting for fees and expenses, the net proceeds to the Company from the sale of the shares and warrants were approximately $995,000.

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.

At March 31, 2017, the accumulated vested balance of stock awards was $310,710. In December 2017, the Company issued an aggregate of 200,000 shares of its common stock to an officer and a director of the Company, with aggregate fair value of $362,000 at the grant date, which vest over a period of 14 months from the date of the grant. During the nine months ended December 31, 2017, we recorded expense related to the fair value of stock awards that vested of $309,183. At December 31, 2017, the amount of unvested compensation related to these awards is approximately $463,000, 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 services6. STOCK OPTIONS

During the ninesix months ended December 31, 2017, the Company issued a total of 184,968 shares of common stock to three consultants as payment for services and recorded expense of $313,676 based on the fair value of the Company’s common stock at the issuance dates.

4. STOCK OPTIONS

A summary of the Company’s stock option activity during the nine months ended December 31, 2017 is as follows:

A summary of the Company’s stock options outstanding and exercisable as of December 31, 2017 is as follows:

In the nine months ended December 31, 2017,September 30, 2019, the Company granted to directors and employees options to purchase an aggregate of 470,000 options to purchase3,250,000 shares of the Company’s common stock with exercise prices ranging from $1.59of $0.30 to $1.81$0.35 per share, to five employees and two directors, that expire ten years from the date of grant. The options issued to the two directors have a vesting period of one yeargrant, and the options issued to employees all have vesting periods of 24 months. The fair value of each option award was estimated on the date of grant using the Black-ScholesBlack-Scholes-Merton option pricing model based on the following assumptions: (i) volatility rate between 123.13% and 124.88%of 176.50%, (ii) discount rate between 2.33% and 2.265%of 1.73%, (iii) zero expected dividend yield, and (iv) expected life of 6 years, which is the average of the term of the options and their vesting periods. The total fair value of thesethe option grants to employees at their grant dates was approximately $740,000.$1,026,000.

A summary of the Company’s stock option activity during the six months ended September 30, 2019 is as follows:

A summary of the Company’s stock options outstanding and exercisable as of September 30, 2019 is as follows:

During the ninesix months ended December 31, 2017,September 30, 2019, we expensed total stock-based compensation related to stock options of $842,121,$325,272, and the remaining unamortized cost of the outstanding stock-based awards at December 31, 2017September 30, 2019 was approximately $1,497,000. This$926,000. The remaining unamortized cost will be amortized on a straight linestraight-line basis over a weighted average remaining vesting period of 2 years.one year. At December 31, 2017,September 30, 2019, the 3,216,7106,546,710 outstanding stock options had anno intrinsic value of approximately $2,659,000.value.

5.7. WARRANTS

At December 31, 2017,September 30, 2019, warrants to purchase common shares were outstanding as follows:

In conjunction withAt September 30, 2019, the December 2017 Offering (see Note 3), the Company granted to investors warrants to purchase up to 466,667 shares of the Company’s common stock. The warrants were exercisable immediately, have an exercise price of $2.00 per share, and expire on the three year anniversary of the date of issuance. The exercise price of the warrants is subject to adjustment for standard anti-dilution provisions, such as stock dividends and splits, subsequent rights offerings and pro rata distributions to the Company’s common stockholders. The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% or 9.99% of the Company’s common stock.

In conjunction with the July 2017 Offering (see Note 3), the Company granted to investors warrants to purchase up to 333,334 shares of the Company’s common stock. The warrants were exercisable immediately, have an exercise price of $2.00 per share, and expire on the three year anniversary of the date of issuance. The exercise price of the warrants is subject to adjustment for standard anti-dilution provisions, such as stock dividends and splits, subsequent rights offerings and pro rata distributions to the Company’s common stockholders. The exercisability of the warrants may be limited if, upon exercise, the holder or any of its affiliates would beneficially own more than 4.99% or 9.99% of the Company’s common stock.

At December 31, 2017, the 1,164,4221,135,003 outstanding warrants had no intrinsic value.

6. RELATED PARTY OBLIGATIONS8. COMMITMENTS AND CONTINGENCIES

On April 23, 2012, the Company entered into a lease agreement with One World Ranches, which is jointly-owned by Dr. Avtar Dhillon, the 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 Company 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 nine months ended December 31, 2017 and 2016 were $25,700 and $20,700, respectively.

7. LEGAL AND OTHER PROCEEDINGSSEC Subpoena

On August 19, 2016, we filed a resale registration statement on Form S-1 (“Form S-1”) with the SEC 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 datedOn or about December 10, 2016, statingwe were advised that the SEC staff was conducting (i) a private investigation (a “Private Investigation”) pursuant to Section 20(a) of the SEC was conducting aSecurities Act and Section 21(a) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) and (ii) an examination under Section 8(e) examinationof the Securities Act (a “Section 8(e) Examination”) with respect to this Form S-1 and thatS-1. The Company has been cooperating fully with the staff of the Enforcement Division of Corporate Finance would not take any further action on the Form S-1 while the examination was pending. We received subpoenas to produce documents dated December 14, 2016, and January 23, 2017, and a further subpoena for testimony and any supplemental production of documents dated June 5, 2017. The document requests were primarilySEC in connection with this matter. We have complied with all document requests andthese matters. On or about November 14, 2018, we were advised by the Company’s CEO will provide testimony whenstaff of the SEC schedules such testimony, which we believe will be sometime before the end of September 2018.

As of December 31, 2017, we had accrued approximately $11,000 in legal fees related to the SEC examination.

8. SUBSEQUENT EVENTS

In February 2018, the Company issued a total of 75,000 shares of common stock to one consultant as payment for services and recorded expenses of $144,000Enforcement Division that, based on the fair valueinformation the staff had as of such date, it was terminating the Company’s common stock atSection 8(e) Examination but that the issuance date.Private Investigation would remain open. The Company continues to cooperate in such investigation.

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, 20172019 filed on June 28, 2017,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;ability to have freely-traded stock; 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, 2017.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

We were incorporated inare focused on the Stateadvancement of Nevadapharmaceuticals and innovative technologies that improve the lives of patients. We seek to achieve this objective through the development of novel cannabinoid pharmaceutical prodrugs known as cannabosides. We will conduct our operations using our own personnel and facilities, through subsidiaries established to conduct such operations, and, as appropriate, through strategic partnerships with other early stage companies that we believe are bringing innovative products and services to market but lack the necessary capital or resources to fully capitalize on June 29, 2007 undertheir high growth potential. We may provide assistance to such strategic partners through management assistance, loans of capital or equipment or personnel resources, or other arrangements designed to support the name Legend Mining Inc. On October 10, 2011, we completed a merger with our wholly-owned subsidiary, Stevia First Corp., whereby we changed our name from “Legend Mining Inc.” to “Stevia First Corp.” Also on October 10, 2011, we effected a seven for one forward stock split of authorized, issued and outstanding common stock. As a result, our authorized capital was increased from 75,000,000 shares of common stock with a par value of $0.001 to 525,000,000 shares of common stock with a par value of $0.001, and issued and outstanding shares of common stock increased from 7,350,000 to 51,450,000. In February 2012, we substantially changed our management team, and added other key personnel. In December 2015, we discovered novel pharmaceutical applicationsoperations of our glycosylation technology for producing cannabinoid prodrugs and we have recently changed our operational focus towards pharmaceutical development of the cannabinoid prodrugs. On July 15, 2016, the holders of a majority of our outstanding common stock and our Board of Directors approved 1) a name change whereby our name changed from Stevia First Corp. to Vitality Biopharma, Inc., 2) a reverse split of our outstanding common shares whereby each 10 shares of common stock will be exchanged for 1 share of common stock and 3) an increase in the number of shares of authorized common stock from 525,000,000 to 1,000,000,000. These changes became effective on July 20, 2016.

Plan of OperationsCompany.

Business Overview

Vitality Biopharma is unlocking the power of cannabinoids for the treatment of serious neurological and inflammatory disorders, such as inflammatory bowel disease and narcotic bowel syndrome, a form of severe opiate-induced bowel dysfunction.

Vitality Biopharma has developed a new class of cannabinoid pharmaceuticals known asOur cannabosides are cannabinoid-glycoside prodrugs, which were discovered in 2015 through application of the company’sCompany’s proprietary enzymatic bioprocessing technologies, originally developed for stevia sweeteners. Cannabosides are cannabinoid glycoside “prodrugs,” which means 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, which alreadydrug. Currently, the Company has a long history of clinical investigation and use. A classic prodrug example is Aspirin, acetylsalicylic acid, which was first made by Felix Hoffmann at Bayer in 1897 and is a synthetic prodrug of salicylic acid. Because there already exists independent verification of the active drug’s safety and efficacy, prodrugs may receive marketing approval more quickly than others, and in some cases may receive drug approvals through completion of small clinical studies evaluating bioequivalence or bioavailability. 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.

Cannaboside prodrugs are intended to reduce or eliminate the psychoactivity of cannabinoids while providing amplified therapeutic effects. Upon oral delivery, cannaboside prodrugs pass through the digestive tract and release active cannabinoids within the large intestine or colon. This could enable cannabinoids such as tetrahydrocannabinol (THC) to be restricted to the gastrointestinal tract, minimizing entry into the bloodstream or brain, and enabling targeted delivery for the treatment of gastrointestinal disorders. Targeted delivery of cannabinoids with limited psychoactivity may be especially useful for treatment of pediatric conditions. Cannaboside prodrugs are also more stable and far more water soluble than cannabinoids, which enables them to be readily formulated within a pill or capsule.

We have produced more than 25 novel cannabosides, so far and have patent applications that include composition of matter claims for prodrugs of cannabinoids that have been studied extensively in clinical trials worldwide, including THC,glycosylated tetrahydrocannabinol (THC), cannabidiol (CBD), cannabidivarin (CBDV) and cannabinol (CBN), and other phytocannabinoids and endocannabinoids. Upon successful patent prosecution, protection would extend until 2035 and be available in all major markets worldwide. In addition, we have filedthat are covered by worldwide patent applications for composition of matter, method 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 seekrequire capital and resources to protect claimsdrive 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 our strategic partners and shareholders.

Our corporate headquarters is located in Los Angeles, California. As of November 13, 2019, we employed six full-time employees, including four research professionals working in our office and laboratory space in Yuba City, California. We also have engaged the novel vanilloid glycoside compoundsservices of scientific and regulatory consultants to assist in our research and development activities, which is an approach that target the TRPV receptors for mediating pain relief, methods of use for TRPV1 agonistsprovides us with flexible and highly-experienced resources to effect neural repair, and based on findings in early 2017, for methods to use cannabinoids to treat gut dysbiosis and drug-resistantC.difficile infections, which colonize the large intestine. We aim to develop and approveadvance our proprietary molecules as pharmaceuticals usingclinical efforts while maintaining a low-risk regulatory strategy that is available for prodrugs, and to amplify the benefits that have been seen in independent clinical trials describing the use of cannabinoids for treatment of neurological and inflammatory conditions.relatively lower overhead cost structure.

Cannaboside Prodrugs

A key part of our strategy will be to take advantage of a more efficient U.S. Food and 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 the reference cannabinoid drugs we are studying, and so existing clinical data may be submitted to drug regulatory agencies as supporting evidence of our compounds’ safety and efficacy.

We are initially developing our cannabosides drug formulations for treatment of gastrointestinal disorders, including inflammatory bowel disease, irritable bowel syndrome, and narcotic bowel syndrome, a severe form of opiate-induced abdominal pain.

For inflammatory bowel disease (IBD), there have been independently-conducted preclinical and clinical studies that have demonstrated the benefit of cannabinoids, and many U.S. states now permit the use of medical marijuana for IBD, including for treatment of Crohn’s disease or ulcerative colitis patients. 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 through only 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 traditional front-line and second-line IBD therapies, such as corticosteroids, immunomodulators, and biologic TNF-alpha inhibitors.

In early 2017, we obtained new data about the anti-cancer and anti-microbial properties of cannabinoids, including evidence that cannabinoids provide cytotoxicity against cell lines of colorectal cancer andC.difficile, a drug-resistant microbial infection that colonizes the large intestine. Both colorectal cancer andC.difficile infections are more prevalent in IBD patients than in the general population.

Narcotic bowel syndrome (NBS)prodrug is a severe form of opiate-induced abdominal pain. In studies, more than half (58%) of opiate users have reported chronic abdominal pain. When opiate-induced abdominal paincompound that, after administration, is overlooked or misdiagnosed, potentially due to common gastrointestinal side effects like opiate-induced constipation, it may lead to a vicious cycle of dose escalation. While seeking pain relief, increasing the dose of opiate medications could lead both to worsening abdominal pain and to more severe drug addiction. Studies have reported that approximately 6% of opiate users have NBS, and that patients afflicted with this disorder report a quality-of-life that is worse than patients with quadriplegia. Independent preclinical studies have reported that endogenous opioid peptides may play a role within the intestinal tract in the development of inflammation, and that they act in a synergistic manner to cannabinoids for pain relief, meaning that cannabinoids could enable opiate dose reduction without sacrificing pain relief. Independent clinical studies have confirmed this effect, where it was reported that cannabis provides additional pain relief to patients taking stable doses of opiates for chronic pain management. Independent clinical studies have also found that treatment regimens for narcotic bowel syndrome are ineffective, as 45.8% of patients were shown to return to using narcotics within only three months following treatment.

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 cannabosides for clinical trials. These facilities have been registered with and approved by the DEA as well as the State of California.

Product Pipeline

Our pipeline includes drug formulations of cannabosides, which are cannabinoid glycosides that we are developing as small molecule pharmaceutical products. Prodrugs are medications or compounds metabolized by the body into a pharmacologically active drug. WeProdrugs 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 patents pending for more than 25unique commercial applications and patentable compositions of these novel pharmaceutical compositions including prodrugs of THC, CBD, and CBDV,matter, which are cannabinoids that are either marketedseparate and approved as pharmaceutical products today,distinct from ordinary cannabinoids. The advantages of cannabosides may include: (i) administration in a convenient oral formulation, (ii) targeted delivery with release in the colon or that are currently under investigation in independent clinical trials. Prodrugs can optimize the marketability of alarge intestine, (iii) improved stability with limited degradation or drug because they can be patentedmetabolism, and proprietary,(iv) delayed release enabling longer-lasting effects and yet still be approved through an abbreviated regulatory pathway.fewer administrations by patients.

Cannaboside

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 designedgenerally 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 deliver a variety of benefits including:

VITA-100 is an oral cannabinoid formulation containing THC-glycosides that is being developed for acute treatment of inflammatory bowel disease (inducing disease remission), irritable bowel syndrome, and narcotic bowel syndrome. VITA-210 is an oral cannabinoid formulation containing cannabosides being investigated in preclinical studies for chronic (long-term) administration, and which is being developed for chronic treatment of inflammatory bowel disease (maintaining disease remission), irritable bowel syndrome, opiate-induced bowel dysfunction,C. difficile infections, and colorectal cancer. The company is developing additional cannabinoid product formulations, and these development efforts will be guidedencounter glycoside hydrolase enzymes secreted by the results of observational clinical studieshuman intestinal microbiota that will be conducted bycleave the company or through company collaborators. These observational studies will be designed to treat serious neurological conditions including treatment of complex, refractory, or neuropathic pain (cannabis substitution therapy for opioid painkillers).

Our Operations

For each of the pharmaceutical products in our pipeline,polar glucose residues and release the active cannabinoid pharmaceutical agents have either been independently approved by regulatory bodies,compound primarily in the large intestine or are now in late-stage clinical trials, 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.

Short Term Development Targetscolon.

We planhave 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 complete all necessary preclinicalprovide substantial anti-inflammatory benefits on the human body, among other benefits, but is limited as a pharmaceutical option given its psychoactive and intoxicating properties. However, by glycosylating THC, we have learned through initial animal studies for VITA-100that the binding of glucose and THC molecules restricts the release of THC into the body’s digestive system until the prodrug reaches the large intestine, at which point the glycoside hydrolase enzymes cleave the glucose from the prodrug and the THC is released in a 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 conduct a Phase 1a/1b clinical trialachieve physiologically beneficial results, serves as an anti-inflammatory agent in the first halflower gastrointestinal tract and minimizes the amount of 2018. This first-in-man clinical study will focus primarily on evaluatingTHC absorbed into the clinical pharmacokinetics, safety,blood stream, therefore lessening the psychoactive and tolerabilityintoxicating properties that hinder the broader pharmaceutical use of cannabosides, and it will also provide a preliminary evaluation of effects on pain, cramping, and gastrointestinal motility. We plan to conduct additional preclinical studies on our proprietary cannaboside drug formulations also, which are designed to evaluate and further explore their utility for treatment of additional conditions, such as colorectal cancer.THC.

We are also developing additional cannabinoid formulations geared towards treatment of complex or refractory pain, for use within cannabis substitution therapy for opioid painkillers, andour THC-glycoside prodrugs for the treatment of serious neurological conditions.gastrointestinal diseases, including inflammatory bowel disease (IBD) and irritable bowel syndrome (IBS) because of the targeted release described previously. IBD is a frequently chronic inflammatory condition where parts of the digestive system become inflamed from an overactive immune response. The cannabinoid formulationsdisease can lead to irreversible damage to the gastrointestinal tract and existing cannabinoidmay require surgery to remove affected areas of the intestine. Two major forms of the disease are Crohn’s disease, which can affect any part of the 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 disorder that commonly affects the large intestine and is characterized by abdominal cramping, diarrhea, constipation, and pain. Currently, patients suffering from IBD are frequently prescribed anti-inflammatory drugs such as steroids, biologics and immunosuppressants, and patients suffering from IBS are prescribed antibiotics, antidepressants and gastrointestinal motility compounds, all of which often result in unwanted side effects.

Our most promising THC-glycoside (VBX-100) is being developed as an oral prodrug for the treatment of IBD and IBS. VBX-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 with a third party providing the Company with additional capital or research and development resources. After our satisfactory 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 trial, subject to the Company securing sufficient additional funding or entering into a strategic partnership described above.

In 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 process greatly improves the water solubility of the CBD molecule.

Enzymatic Processing Methods

The Company originally developed its proprietary enzymatic bioprocessing technologies to attach glucose molecules to the molecules of stevia as part of our activities in the stevia processing industry. We then expanded the application of this proprietary technology to attach glucose molecules to cannabinoids, including THC and CBD. We may pursue additional opportunities to develop new products thator license this technology.

Strategic Partnerships

As a complement to our capital intensive and longer duration drug development business, we plan to study may eventually be developed internally either as standaloneexpand 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 necessary capital or usedresources to fully realize their high-growth potential. Given the rapid advancements in combinationscience and technology, there are many early-stage life science companies that are approaching key value inflection points but lack the necessary managerial expertise, personnel, patents, funding or equipment to advance their efforts or to bring their medicines, services and technologies to market. Our strategy is to opportunistically fill those unmet needs, including by providing funding and, equally important, to provide our strategic partners with our cannaboside drug formulations. We plan to initiate observational studies in the 1^sthalf of 2018 in order to assess the benefits of existing cannabinoid products for one or more treatment indications, including complex, refractory, or neuropathic pain (substitution therapy for opioid painkillers), opiate-induced bowel dysfunction, Huntington’s disease, Guillain-Barré syndrome, or multiple sclerosis. The results from these observational studies on existing cannabinoid products will be used to guide selection of appropriate treatment indications for our proprietary cannaboside pharmaceutical formulations,necessary resources and value-added support to help develop additional internal intellectual property relatedtransform and improve their businesses.

Strategic partnerships may enable us to the useexpand our network of cannabinoids for treatmentresearchers, clinicians, and medical professionals and provide us with an opportunity to allocate our cash, personnel, equipment, proprietary information and other resources into a diversified collection of these conditions. In these observational studies, which may be coordinated by Vitality as well as through company collaborators, we intend to evaluate use of cannabinoids both as standalone agents as well as examine their use in combination with other therapies in order to help identify treatment regimensassets that strengthen and complement our drug development initiatives. We will target strategic partnerships that provide maximal benefit to patients.

Short-term development targets include:

We believe that our long-term commercial success and profit potential depends in large part on our ability to develop and advance proprietary cannabinoid prodrugsunique technological or human capital attributes that are strongly differentiated from both medical cannabis and existing cannabinoid drugs, andwell-positioned to do thisprovide us with a more quickly, efficiently and effectively thandiversified cash flow profile that complements 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 continuedcapital-intensive drug development and protection of our intellectual property portfolio.

In September and October 2015, the Company filed two U.S. patent applications, 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 the prodrugs of delta-9-tetrahydrocannabinol, the primary psychoactive component of medical cannabis, as well as the non-psychotropic compounds cannabidiol and cannabidivarin.

Additional Operations

Our glycosylation technology in the past was applied primarily to production of better tasting varieties of stevia through enzyme bioprocessing, which was developed in concert with additional technologies designed to improve the taste and yield of stevia sweetener derived from the stevia plant. We have an intellectual property portfolio related to stevia, as well as commercial operations related to the manufacture and sale of research products that commenced in 2014. We intend to sustain these operations and technologies in a manner that is cash-flow neutral or better and to commercialize them primarily through new out-licensing arrangements or strategic partnerships.operations.

Results of Operations

Three Months Ended December 31, 2017September 30, 2019 and December 31, 2016September 30, 2018

Our net loss during the three months ended December 31, 2017September 30, 2019 was $1,241,973$1,227,450 compared to a net loss of $2,499,974$1,220,797 for the three months ended December 31, 2016. DuringSeptember 30, 2018. Included in net loss during the three months ended December 31, 2017, we generated $19,305 in revenue and $2,329 in gross profit,September 30, 2019, our discontinued operations incurred a loss of $216,031, compared to $39,682 in revenue and $19,752 in gross profit for the 2016 period.Our revenue in eacha loss of the periods presented is earned from the sale of research diagnostic testing `kits and chemicals. In May 2014, we purchased the assets of a Percipio Biosciences, Inc., which produced and sold these products, and which we continue to sell under their existing brand names. These products are sold primarily to research universities and companies$32,726 in the United States and through a network of research product distributors internationally. The tests enable measurement by life science researchers of biomarkers of inflammation and oxidative signaling and stress. The kits and products include antibodies, enzymes, as well as specialty chemicals.2018 period. We expect such sales to continue at approximatelyhad no revenue from continuing operations during either the rate during the 20172019 or 2018 period.

During the three months ended December 31, 2017,September 30, 2019, we incurred general and administrative expenses in the aggregate amount of $619,312$726,881 compared to $669,574$643,274 incurred during the three months ended December 31, 2016 (a decreaseSeptember 30, 2018 (an increase of $50,262)$83,607). 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 stock-based compensation costslegal fees, most of which decreasedwere related to $182,087the Private Investigation and Section 8(e) Examination, which increased to $290,523 in the period ending December 31, 2017,September 30, 2019, as compared to $294,646$30,193 in the period ending December 31, 2016 (a decrease of $112,559), offset by professional fees which increased to $160,000 in the period ending December 31, 2017, as compared to $72,375 in the period ending December 31, 2016 (an increase of $87,625).InSeptember 30, 2018.

In addition, during the three months ended December 31, 2017,September 30, 2019, we incurred research and development costs of $562,504,$294,521, compared to $255,334$492,041 during the three months ended December 31, 2016 (an increaseSeptember 30, 2018 (a decrease of $307,170)$197,520). This increasedecrease resulted from increased laboratory anddecreased consulting expenses during the 2017 period as we focus on preparation for2019 period.

Our discontinued operations incurred a loss of $216,031 during the three months ended September 30, 2019, compared to a loss of $32,726 incurred during the three months ended September 30, 2018 (an increase of $183,305). This increase was attributable to the losses incurred by the Company’s clinical trials.operations in the 2019 period.

During the three months ended December 31, 2017,September 30, 2018, we incurred related party rent and other costs totaling $7,800 compared to $6,900 incurred during the three months ended December 31, 2016 (an increase of $900). This resulted from an increase$7,800. We did not incur any related party rent in the monthly office rent during the 20172019 period.

This resulted in a loss from operations of $1,187,287 during the three months ended December 31, 2017 compared to a loss from operations of $912,056 during the three months ended December 31, 2016.

During the three months ended December 31, 2017,September 30, 2019, we recorded total net other expensesincome in the amount of $54,686,$9,983, compared to total net other expensesexpense recorded during the three months ended December 31, 2016September 30, 2018 in the amount of $1,587,918.$44,956. During the three months ended December 31, 2017,September 30, 2019, we recorded a lossgain related to the change in fair value of derivatives of $54,686,$9,366, compared to a lossan expense of $1,587,854$44,956 during the 20162018 quarter. During the three months ended September 30, 2019, we also recorded other income of $617.

This resulted in a net loss of $1,241,973$1,227,450 during the three months ended December 31, 2017,September 30, 2019 compared to a net loss of $2,499,974$1,220,797 during the three months ended December 31, 2016.September 30, 2018.

The decrease in netSix Months Ended September 30, 2019 and September 30, 2018

Our loss during the threesix months ended December 31, 2017 compared to the net loss for the three months ended December 31, 2016 is attributable primarily to the larger loss related to the change in fair value of derivatives recorded during the 2016 quarter.

Nine Months Ended December 31, 2017 and December 31, 2016

Our net loss during the nine months ended December 31, 2017September 30, 2019 was $3,246,847$2,818,729 compared to a net loss of $4,105,232$2,356,016 for the ninesix months ended December 31, 2016. DuringSeptember 30, 2018. Included in net loss during the ninesix months ended December 31, 2017, we generated $77,324September 30, 2019, our discontinued operations incurred a loss of $666,058, compared to a loss of $88,421 in revenue and $22,382 in gross profit from sales ofcertain research products, compared to$131,947 in revenue and $66,005 in gross profit from sales ofcertain research products during the nine months ended December 31, 2016.Our revenue in each2018 period as result of the periods presented is earnedshutting down of the Company’s clinical and test kit operations. We had no revenue from continuing operations during either the sale of research diagnostic testing kits and chemicals. In May 2014, we purchased the assets of a Percipio Biosciences, Inc., which produced and sold these products, and which we continue to sell under their existing brand names. These products are sold primarily to research universities and companies in the United States and through a network of research product distributors internationally. The tests enable measurement by life science researchers of biomarkers of inflammation and oxidative signaling and stress. The kits and products include antibodies, enzymes, as well as specialty chemicals.We expect such sales to continue at approximately the 2017 rate.2019 or 2018 period.

During the ninesix months ended December 31, 2017,September 30, 2019, we incurred general and administrative expenses in the aggregate amount of $1,894,984$1,587,100 compared to $1,685,527$1,123,975 incurred during the ninesix months ended December 31, 2016September 30, 2018 (an increase of $209,457)$463,125). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, costs of financial and administrative contracted services, marketing, and consulting costs and travel expenses. A significant portionThe majority of thesethe increase in general and administrative costs arein the period relates to legal fees, most of which were related to the development of our organizational capabilities as a biotechnology company, including costs such as legalPrivate Investigation and advisory fees relatedSection 8(e) Examination, which increased to intellectual property development. The general and administrative expenses included stock-based compensation of $505,555 during$563,944 in the nine months ended December 31, 2017,period ending September 30, 2019, as compared to $113,135 in the period ending September 30, 2018 offset by stock-based compensation of $659,611 duringcosts which increased to $350,272 in the nine months ended December 31, 2016 (a decrease of $154,056), professional fees of $475,929 during the nine months ended December 31, 2017,period ending September 30, 2019, as compared to professional fees of $313,424 during$997,431 in the nine months ended December 31, 2016 (an increase of $162,505), and legal fees of $82,839 during the nine months ended December 31, 2017, as compared to legal fees of $35,240 during the nine months ended December 31, 2016 (an increase of $47,599).period ending September 30, 2018. 

In addition, during the ninesix months ended December 31, 2017,September 30, 2019, we incurred research and development costs of $1,390,100 relating to research and development,$623,009, compared to research and development costs of $483,638$1,065,671 during the ninesix months ended December 31, 2016 (an increaseSeptember 30, 2018 (a decrease of $906,462)$442,662). The increaseThis decrease resulted primarily from increaseddecreased laboratory and consulting expenses during the 2017 period as we focus on preparation for clinical trials as well as increase in stock compensation expense in 20172019 period.

Our discontinued operations incurred a loss of $666,058 during the six months ended September 30, 2019, compared to 2016.a loss of $88,421 incurred during the six months ended September 30, 2018 (an increase of $577,637). This increase was attributable to the losses incurred by the Company’s clinical operations in the 2019 period.

During the ninesix months ended December 31, 2017,September 30, 2018, we incurred related party rent and other costs totaling $23,100 compared to $20,700 incurred during the nine months ended December 31, 2016 (an increase of $2,400). This resulted from an increase$15,600. We did not incur any related party rent in the monthly office rent during the 20172019 period.

This resulted in a loss from operations of $3,285,802 during the nine months ended December 31, 2017 compared to a loss from operations of $2,123,860 during the nine months ended December 31, 2016.

During the ninesix months ended December 31, 2017,September 30, 2019, we recorded total net other income (expense) in the amount of $38,955,$57,438, compared to total net other income (expense)expense recorded during the ninesix months ended December 31, 2016September 30, 2018 in the amount of $(1,981,372).$62,349. During the ninesix months ended December 31, 2017,September 30, 2019, we recorded a gain related to the change in fair value of derivative liabilitiesderivatives of $38,955,$33,914, compared to an expense of $62,349 during the 2018 period. This resulted in a net loss of $2,818,729 during the six months ended September 30, 2019 compared to a net loss of $1,980,592$2,356,016 during the ninesix months ended December 31, 2016.September 30, 2018.

The net loss during the six months ended September 30, 2019 compared to the net loss for the six months ended September 30, 2018 is attributable primarily to the higher legal fees offset by lower stock-based compensation costs in the 2019 period.

Liquidity and Capital Resources

We have incurred losses since inception resulting in an accumulated deficit of $45,000,232 as of September 30, 2019, and further losses are anticipated in the development of our business.

As of December 31, 2017,September 30, 2019, we had total current assets of $1,381,828, which was$3,977,553. Our total current assets as of September 30, 2019 were comprised mainlyprimarily of cash in the amount of $1,362,710.$3,958,464. Our total current liabilities as of December 31, 2017September 30, 2019 were $399,328 and consisted of$1,575,195, represented primarily by accounts payable and accrued liabilities of $197,492$1,157,914, and derivative liabilitythe June 2018 payment of $201,836. The derivative liability is a non-cash item related to certain of our outstanding warrants$296,653 recorded as of December 31, 2017. As a result, on December 31, 2017,an advance in that period. On September 30, 2019, we had working capital of $982,500.$2,402,358.

We have not yet received significant revenues from salesOn November 7, 2018, the SEC suspended the trading of products or services, and have recurring losses from operations.our common stock. 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. For the nine months ended December 31, 2017, the Company incurred a net loss of $3,246,847 and used cash in operating activities of $2,180,055. These factors raise substantial doubt about our ability to continue as a going concern within one year of the date that the financial statements are issued. In addition, the Company’s independent registered public accounting firm, in its reportcommon stock resumed trading with limited liquidity on the Company’s March 31, 2017grey 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. 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 nine months after December 31, 2017. In December 2017, the Company issued an aggregate of 933,332 shares of our common stock and warrants to purchase 466,667 of our common stock to certain investors for net proceeds of approximately $1,395,000 and in July 2017, the Company issued an aggregate of 666,667 shares of our common stock and warrants to purchase 333,334 of our common stock to certain investors for net proceeds of approximately $995,000. We will require additional financing to fund our planned long-term operations. 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.

Sources of Capital

On December 12, 2017, the Company entered into a Securities Purchase Agreement with the purchasers identified therein providing for the issuance and sale by the Company to the purchasers, of an aggregate of 933,332 shares of the Company’s common stock (collectively, the “Shares”) and Warrants to purchase up to an aggregate of 466,667 shares of the Company’s common stock (the “Warrants”), at a price of $1.50 per share (the “Offering”). The Warrants have an exercise price of $2.00 per share, are exercisable immediately, expire on the three year anniversary of the date of issuance, and may be exercised on a cashless basis. The Offering closed on December 15, 2017. The aggregate proceeds to the Company from the sale of the Shares and Warrants was approximately $1,395,000.Pursuant to the terms of the Offering, we filed a registration statement on Form S-1 to register the resale of the Shares and the Warrants.

On July 26, 2017, the Company entered into a Securities Purchase Agreement with the purchasers identified therein providing for the issuance and sale by the Company to the purchasers, of an aggregate of 666,667 shares of the Company’s common stock (collectively, the “Shares”) and Warrants to purchase up to an aggregate of 333,334 shares of the Company’s common stock (the “Warrants”), at a price of $1.50 per share (the “July Offering”). The Warrants have an exercise price of $2.00 per share, are exercisable immediately, expire on the three year anniversary of the date of issuance, and may be exercised on a cashless basis. The July Offering closed on July 28, 2017. The aggregate proceeds to the Company from the sale of the Shares and Warrants was approximately $995,000.Pursuant to the terms of the July Offering, we filed a registration statement on Form S-1 to register the resale of the Shares and the Warrants. The registration statement on Form S-1 was declared effective on October 13, 2017.

On August 19, 2016, we filed a resale registration statement on Form S-1 (“Form S-1”) with the SEC 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 this Form S-1 and that the Division of Corporate Finance would not take any further action on the Form S-1 while the examination was pending. We received subpoenas to produce documents dated December 14, 2016, and January 23, 2017, and a further subpoena for testimony and any supplemental production of documents dated June 5, 2017. We have complied with all document requests and the Company’s CEO will provide testimony when the SEC schedules such testimony, which we believe will be sometime before the end of September 2018.

Net Cash Used in Operating Activities

We have not generated positive cash flows from operating activities. For the ninesix months ended December 31, 2017,September 30, 2019, net cash used in operating activitiesactivities-continuing operations was $2,180,055$1,358,163 compared to net cash used in operating activitiesactivities-continuing operations of $883,627$974,967 for the ninesix months ended December 31, 2016.September 30, 2018. This increase was primarily attributable to increased net loss duringan increase in personnel costs and a decrease in the current period ended December 31, 2017.expenses recorded for stock-based compensation related to stock options. Net cash used in operating activitiesactivities-continuing operations during the ninesix months ended December 31, 2017September 30, 2019 consisted primarily of a net loss of $3,246,847$2,818,729, offset by $1,151,304$350,272 related to stock-based compensation and an increase in aggregate stock compensation from vested stock options and common stock, and $313,676accounts payable of shares of stock issued for services.$473,413. Net cash used in operating activitiesactivities-continuing operations during the ninesix months ended December 31, 2016September 30, 2018 consisted primarily of a net loss of $4,105,232$2,356,016, offset by a change in fair value of derivative liability of $1,980,592, $817,009 in aggregate$997,431 related to stock-based compensation and an increase in accounts payable of $114,198. For the six months ended September 30, 2019, net cash used in operating activities-discontinued operations was $666,114 compared to net cash used in operating activities-discontinued operations of $94,643 for vested stock options and common stock, and $276,000 for stock issued in exchange for services.the six months ended September 30, 2018. This difference was caused by the losses incurred by the Company’s clinical operations.

Net Cash Used in Investing Activities

During the ninesix months ended December 31, 2017September 30, 2019 and December 31, 2016,September 30, 2018, no net cash was used in or provided by investing activities.

Net Cash Provided By Financing Activities

During the ninesix months ended December 31, 2017,September 30, 2019, no net cash was used in or provided by financing activities. During the six months ended September 30, 2018, net cash provided by financing activities was $2,389,999 compared to net cash provided by financing activities$750,000, consisting of $942,030 for the nine months ended December 31, 2016. Net cash provided by financing activities during the nine months ended December 31, 2017 was attributable to the net$500,000 in proceeds from sale of stock and warrants of $2,389,999. Net cash provided by financing activities during the nine months ended December 31, 2016 was attributable to $165,030 from the sale of common stock and warrants and $777,000 provided by the exercise of warrants.$250,000 from an advance from an unrelated party.

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 September 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 December 31, 2017September 30, 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. 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 December 31, 2017,September 30, 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”),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, 2017.2019. 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 December 31, 2017September 30, 2019 are fairly presented, in all material respects, in accordance with U.S. 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 December 31, 2017:September 30, 2019:

(1) 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 nine monthsyear ended DecemberMarch 31, 2017,2019, 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.

(2) Insufficient corporate governance policies.Lack of written documentation of the Company’s key internal control policies and procedures over financial reporting. The Company does notis required under Section 404 of the Sarbanes-Oxley Act to have a majoritywritten documentation of independent members on our board of directors, resulting in ineffective oversight in the establishment and monitoring of requiredkey internal controls over financial reporting.

Lack of documented policies and procedures.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

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 December 31, 2017.September 30, 2019. As a result, other than the ongoing remediation efforts identified above, there were no changes in our internal control over financial reporting during the ninethree months ended December 31, 2017,September 30, 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 Registration StatementAnnual Report on Form S-110-K filed with the SEC on January 19, 2018.July 15, 2019.

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

In October 2017, we issued a total of 82,468 shares of our common stock to one consultant as compensation for services valued at $150,000. The issuance of this common stock, has not been registered under the Securities Act and the shares of common stock were issued in reliance on exemptions from the registration requirements of the Securities Act afforded by Section 4(a)(2) thereof and Rule 506 of Regulation D thereunder based on the following facts: the consultant has represented that it is an accredited investor as defined in Regulation D and that it is acquiring the shares of common stock for its own account and not with a view to or for distributing or reselling the shares of common stock and that it has sufficient investment experience to evaluate the risks of the investment; the shares of commons stock were issued as restricted securities.None.

Item 6. Exhibits

* Filed herewith.

† 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