UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

For the quarterly period ended December 31, 2020June 30, 2021

For the transition period from _____ to _____

Commission File Number: 000-53832

VITALITY BIOPHARMA, INC.

(Exact name of registrant as specified in its charter)

(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] ☒ 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 January 28,August 12, 2021, there were 50,840,147 50,700,147 shares of the registrant’s common stock outstanding.

VITALITY BIOPHARMA, INC.

Quarterly Report on Form 10-Q

For the Quarterly Period Ended

December 31, 2020June 30, 2021

INDEX

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements (unaudited)

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED DECEMBER 31,JUNE 30, 2021 AND 2020 AND 2019

(Unaudited)

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

See accompanying notes to the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTSTATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

THREE AND NINE MONTHS ENDED DECEMBER 31,JUNE 30, 2021 AND 2020 AND 2019

See accompanying notes to the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

See accompanying notes to the condensed consolidated financial statements.

VITALITY BIOPHARMA, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

THREE AND NINE MONTHS ENDED DECEMBER 31,JUNE 30, 2021 AND 2020 AND 2019

(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.

TheIn 2015, the Company is engaged in the research and developmentdeveloped a new class of cannabinoid prodrug pharmaceuticals,cannabinoids known as cannabosides, which we refer to as cannabosides. Wewere discovered these cannabosides through application of the Company’s proprietary enzymatic bioprocessing 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.

Liquidity

Since Currently, we do not have any commercial products currently availableand have not yet generated any revenues from our cannabinoid prodrug pharmaceuticals.

Going Concern

The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the settlement of liabilities and commitments in the marketplace, the Company does not generate any revenues.normal course of business. As reflected in the accompanying financial statements, during the ninethree months ended December 31, 2020,June 30, 2021, the Company incurred a net loss of $520,220$612,235 and used $1,047,742$562,701 of cash in our operating activities. As of December 31, 2020, we had $1,441,471 of cash on hand, stockholders’ equity of $1,111,715 and had working capital of $1,062,741.

Our total expenditures forThese factors raise substantial doubt about the twelve months following December 31, 2020, are expectedCompany’s ability to be approximately $1,000,000, which is comprised of research and development and general operating expenses. Based on the funds we had available on December 31, 2020, we believe that we have sufficient capital to fund our anticipated operating expenses for at leastcontinue as a going concern within one year fromof the date that the financial statements in this report 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.

On November 7, 2018, the SEC suspended the trading of our common stock. Our common stock resumed trading with limited liquidityThe ability to continue as a going concern is dependent on the grey market on November 21, 2018. Grey market stocks are not traded Company attaining and maintaining profitable operations in the future and/or quoted on an exchange or inter-dealer quotation system, but are reported by broker-dealersraising additional capital to their self-regulatory organization (“SRO”)meet its obligations and repay its liabilities arising from normal business operations when they come due. We estimate as of June 30, 2021, we will have sufficient funds to operate the SRO distributesbusiness for the trade data to market data vendors and financial websites.next three months. 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 resumption of ordinary course trading status on the OTCQB.

In September 2020, we retained DelMorgan & Co., an internationally recognized investment banking firm, to advise us on our strategic alternatives, including potential financings, asset divestitures or strategic partnerships. The Company is continuing to work closely with DelMorgan in support of their retention.

While we believe that our existing cash balances willare estimated to be sufficientinsufficient to fund our currently planned level of operations, we may requirewill need additional financing or other sources of capital to fund our planned future operations. We do not have any firm commitments for future capital and until the Company’s securities resume ordinary course trading on the OTCQB (or are listed on 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 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 may 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.

Further, these estimates could differ if we encounter unanticipated difficulties, or if our estimates of the amount of cash necessary to operate our business prove to be wrong, and we use our available financial resources faster than we currently expect. No assurance can be given that any future financing or capital, if needed, will be available or, if available, that it will be on terms that are satisfactory to the Company.

COVID-19 Considerations

The global outbreak of COVID-19 has led to significant disruptionsWe do not presently have, nor do we expect in the global economy, includingnear future to have, significant revenue to fund our business from our operations, and will need to obtain most of our necessary funding from external sources in the curtailmentnear term. Since inception, the Company has experienced recurring operating losses and negative operating cash flows, and we have funded our operations primarily through equity and debt financings, and we expect to continue to rely on these sources of activitiescapital in the future. If we raise additional funds by businessesissuing equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and consumersobtaining commercial loans would increase our liabilities and future cash commitments. If we cannot raise the money that we need in muchorder to continue to develop our business, we will be forced to delay, scale back or eliminate some or all of our proposed operations.

COVID-19

The Company is subject to risks and uncertainties of the world as governmentsCOVID-19 pandemic that could adversely impact our business, our liquidity and others seekaccess to limitcapital markets and our business development activities. The Company has implemented additional health and safety precautions and protocols in response to the spread of the disease. pandemic and government guidelines.

The extent of the impact of the COVID-19 pandemic has had and will continue to have on ourthe Company is highly uncertain and difficult to predict and quantify. The full extent to which the COVID-19 pandemic will directly or indirectly impact the Company’s business, results of operations and financial resultscondition will depend largely on future developments including the duration and severity of the outbreak, the length of restrictions and business closures imposed by domestic and foreign governments, the impact on capital and financial markets, all of whichthat are highly uncertain, including as a result of new information that may emerge concerning COVID-19 and cannot be predicted. In the quarter ended December 31, 2020,actions taken to contain or treat it, including vaccination efforts, as well as the COVID-19 pandemic did not have a material neteconomic impact on our operating results. We have also not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic. While it is not possible at this time to estimate the full impact that COVID-19 will have on our business, restrictions resulting from COVID-19 on general economic conditions could, among other things, impair our ability to raise capital when needed. This situation is changing rapidly,local, regional, national and additional impacts may arise that we are not aware of currently.international markets.

Basis of Presentation of Unaudited Condensed Financial Information

The unaudited condensedconsolidated financial statements include the accounts of the Company for the three and nine months ended December 31, 2020its wholly owned subsidiary, Vitality Healthtech, Inc. (dissolved in May 2021), and 2019 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,America. Intercompany balances 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 includedtransactions have been eliminated 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 theconsolidation. 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 asend is December 31.

Use of March 31, 2020 was derived from the Company’s audited financial statements as of and for the year ended March 31, 2020 included in the Company’s Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 29, 2020. These financial statements should be read in conjunction with that report.Estimates

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted accounting principles in the United States of America 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. SignificantThe more significant estimates and assumptions by management include, among others, the fair value ofassumptions used in reserves for accounts receivable, assumptions used in valuing 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 ofaccruals for potential liabilities. Actual results could differ from those estimates.

Cash and Cash Equivalents

Financial Assets and Liabilities Measured at Fair Value

The Company uses various inputs in determiningconsiders all highly liquid investments with an original maturity of three months or less at the fair valuedate of its investments and measures these assets on a recurring basis. Financial assets recorded at fair value inacquisition to be cash equivalents. From time to time, the balance sheets are categorizedCompany’s cash account balances exceed the balances covered by the level of objectivity associated with the inputs usedFederal Deposit Insurance System. The Company has never suffered a loss due 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:such excess balances.

The carrying amounts of financial assets and liabilities, such as cash and cash equivalents, accounts payable, notes payable and advance, approximate their fair values because of the short maturity of these instruments.

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 Option Pricing model to value the derivative instruments at inception and on subsequent valuation dates. 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.

Income Taxes

The Company follows the asset and liability method of accounting for income taxes. Under this method, deferred income tax assets and liabilities are recognized for the estimated tax consequences attributable to differences between the financial statement carrying values and their respective income tax basis (temporary differences). The effect on deferred income tax assets and liabilities of a change in tax rates is recognized as income (loss) in the period that includes the enactment date.

Share-Based PaymentsLeases

The Company determines whether a contract is, or contains, a lease at inception. Right-of-use assets represent the Company’s right to use an underlying asset during the lease term, and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Right-of-use assets and lease liabilities are recognized at lease commencement based upon the estimated present value of unpaid lease payments over the lease term. The Company uses its incremental borrowing rate based on the information available at lease commencement in determining the present value of unpaid lease payments. The Company had no lease commitments for longer than one year as of June 30, 2021. The laboratory space lease in Rocklin, California ends on March 31, 2022.

Stock-Based Compensation

The Company periodically issues stock options warrants, and shares of commonrestricted stock as share-based compensationawards to employees and non-employees in non-capital raising transactions for services and for financing costs.services. The Company accounts for such grants issued and vesting based on FASB ASC 718, Compensation-Stock Compensation, – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the Company’s stock options and warrants areis estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods.

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. Shares of restricted stock are included in the basic weighted average number of common shares outstanding from the time they vest. 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. Shares of restricted stock are included in the diluted weighted average number of common shares outstanding from the date they are granted unless they are antidilutive. 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:

SCHEDULE OF ANTIDILUTIVE SECURITIES EXCLUDED FROM COMPUTATION OF EARNINGS PER SHARE

Patents and Patent Application Costs

Although the Company believes that its patents and underlying technology have continuing value, the amount of future benefits to be derived from the patents is uncertain. Accordingly, patent costs are expensed as incurred.

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.

Segments

The Company operates in one segment for the development of pharmaceuticals products. In accordance with the “Segment Reporting” Topic of the ASC, the Company’s chief operating decision maker has been identified as the Chief Executive Officer, who reviews operating results to make decisions about allocating resources and assessing performance for the entire Company. Existing guidance, which is based on a management approach to segment reporting, establishes requirements to report selected segment information quarterly and to report annually entity-wide disclosures about products and services, major customers, and the countries in which the entity holds material assets and reports revenue. All material operating units qualify for aggregation under “Segment Reporting” due to their similar customer base and similarities in: economic characteristics; nature of products and services; and procurement, manufacturing, and distribution processes. Since the Company operates in one segment, all financial information required by “Segment Reporting” can be found in the accompanying financial statements.

Recent Accounting Pronouncements

In June 2016, the FASB issued ASU No. 2016-13, Credit Losses - Measurement of Credit Losses on Financial Instruments (“ASC 326”). ASU 2016-13 requires entities to use a forward-looking approach based on current expected credit losses (“CECL”) to estimate credit losses on certain types of financial instruments, including trade receivables. This may result in the earlier recognition of allowances for losses. ASU 2016-13 is effective for the Company beginning April 1, 2023, and early adoption is permitted. The Company does not believe the potential impact of the new guidance and related codification improvements will be material to its financial position, results of operations and cash flows.

In August 2020, the FASB issued ASU No. 2020-06 (“ASU 2020-06”) Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity. ASU 2020-06 will simplify the accounting for convertible instruments by reducing the number of accounting models for convertible debt instruments and convertible preferred stock. Limiting the accounting models will result in fewer embedded conversion features being separately recognized from the host contract as compared with current GAAP. Convertible instruments that continue to be subject to separation models are (1) those with embedded conversion features that are not clearly and closely related to the host contract, that meet the definition of a derivative, and that do not qualify for a scope exception from derivative accounting and (2) convertible debt instruments issued with substantial premiums for which the premiums are recorded as paid-in capital. ASU 2020-06 also amends the guidance for the derivatives scope exception for contracts in an entity’s own equity to reduce form-over-substance-based accounting conclusions. ASU 2020-06 will be effective January 1, 2024, for the Company. Early adoption is permitted, but no earlier than January 1, 2021, including interim periods within that year. Management is currently evaluating the effect of the adoption of ASU 2020-06 on the consolidated financial statements, but currently does not believe ASU 2020-06 will have a significant impact on the Company’s accounting for its convertible debt instruments. The effect will largely depend on the composition and terms of the financial instruments at the time of adoption.

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. OPERATING LEASE

At December 31, 2020, the Company’s wholly-owned subsidiary, The Control Center, Inc., (“TCC”) has an operating lease agreement for office space that began in December 2012, and was amended in December 2015 and December 2019, and expires February 28, 2021. In addition, at December 31, 2020, TCC has a sublease agreement in place for the office space that began in September 2019 and expires February 28, 2021. TCC remains the primary obligor on the office space lease agreement. Sublease income was not significant during the three and nine months ended December 31, 2020 and 2019.

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

6. STOCK OPTIONS

A summary of the Company’s stock option activity during the ninethree months ended December 31, 2020June 30, 2021 is as follows:

SUMMARY OF STOCK OPTION ACTIVITY

A summary of the Company’s stock options outstanding and exercisable as of December 31, 2020June 30, 2021 is as follows:

SCHEDULE OF STOCK OPTIONS OUTSTANDING AND EXERCISABLE

During the ninethree months ended December 31, 2020,June 30, 2021, we expensed total stock-based compensation related to stock options of $349,546, and the$46,539. There is 0 remaining unamortized cost of the outstanding stock-based awards at December 31, 2020 was approximately $160,000. The remaining unamortized cost will be amortized on a straight-line basis over a weighted average remaining vesting period of one year.June 30, 2021. At December 31, 2020,June 30, 2021, the 5,997,0445,997,544 outstanding stock options had no0 intrinsic value.

7. 3. WARRANTS

A summary of warrants to purchase the Company’s common stock during the ninethree months ended December 31, 2020June 30, 2021 is as follows:

SUMMARY OF WARRANTS ACTIVITY

At December 31, 2020,June 30, 2021, the 146,668 outstanding stock warrants had no0 intrinsic value.

8. 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:

9. 4. COMMITMENTS AND CONTINGENCIES

SEC Investigation

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. WeThe Company received a letter in February 2021 from counsel for the Washington D.C. officeCompany’s previous director and officer insurance carrier (the “insurer”) demanding that the Company reimburse the insurer for sums advanced by the insurer without the Company’s knowledge or consent to a former director of the SEC dated December 10, 2016, stating thatCompany as defense costs in connection with a claim purportedly arising under a previous director and officer liability insurance policy. The Company believes it has no liability for this claim on the staffbasis of, among other things, Nevada law, the Company’s governing documents and the language of the SEC was conducting a Section 8(e) examination with respect to this Form S-1 and that the Divisionpolicy. Accordingly, as of Corporate Finance would not take any further action on the Form S-1 while the examination was pending. On May 12, 2020, our outside legal counsel received a letter from the staff of the SEC’s Enforcement Division stating that itJune 30, 2021, no contingent liability has concluded the investigation as to the Company, and that it did not intend to recommend an enforcement action by the SEC against the Company. While certain former officers and directors may request the Company to reimburse them for legal fees related to this matter, at December 31, 2020, management has determined thatbeen recorded in the Company’s liabilityconsolidated statements of financial condition for those fees is not probable and we could not reasonably estimate those fees.this matter.

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, 20202021 filed on June 29, 2020,May 19, 2021, 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: our ability to continue operating as a going concern; 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 and costs of raw materials and costs associated with growing raw materials forrequired in our intended products;drug development process; 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 29, 2020.May 19, 2021.

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

Unless otherwise provided in this Quarterly Report, references to the “Company,” “we,” “us”, and “our” refer to Vitality Biopharma, Inc., a Nevada corporation formed on June 29, 2007 as Legend Mining Inc., and its consolidated subsidiaries. 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.” On July 15, 2016, our Board of Directors and shareholders approved a name change to “Vitality Biopharma, Inc.”

Vitality Biopharma is a company focused on the advancement of pharmaceuticals and innovative technologies that improve the lives of patients. We seek to achieve this objective through the development of novel cannabinoid pharmaceutical prodrugs which we refer toknown as cannabosides. We conduct our operations using our own personnel and facilities with the support of third-party resources as necessary to advance our drug development programs.

Our cannabosides are cannabinoid-glycoside prodrugs, which we refer to as cannabosides, were discovered through application of the Company’s proprietary enzymatic bioprocessing technologies, that are converted within the body after administration from an inactive molecule into a pharmacologically active drug. Currently, the Company has produced more than 25100 novel cannabosides, including glycosylated tetrahydrocannabinol (THC), cannabidiol (CBD), cannabidivarin (CBDV) and cannabinol (CBN), that are covered by worldwide patent applications in the United States and various other countries for composition of matter, method of production and method of use.

Additionally, the Company is evaluating the expansion of its corporate strategy to create long-term sustainable value for its shareholders by building a more diversified portfolio of assets through organic growth and strategic acquisitions. Specifically, the Company is considering special situation opportunities in a variety of industries, including without limitation, businesses that utilize innovative technologies to address the unfavorable environmental impacts of climate change.

Our corporate headquarters is located in Los Angeles, California. As of January 28,August 12, 2021, we employed three full-time employees, including one research professional working in our office and laboratory space in Rocklin, California. InWe also have, in the past, we have engaged the services of outside scientific and regulatory consultants to assist in our research and development activities, which is an approach that provides us with flexible and highly-experienced resources to advance our clinical efforts while maintaining a relatively lower overhead cost structure.

Cannaboside Prodrugs

A 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 include: (i) administration in a 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 lowerlarge 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.

We 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 limited as a pharmaceutical option given its psychoactive and intoxicating 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 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 achieve physiologically beneficial results, serves as an anti-inflammatory agent in the lower gastrointestinal tract and minimizes the amount of THC absorbed into the blood stream, therebytherefore avoiding the psychoactive and intoxicating properties that hinder the broader pharmaceutical use of THC.

We are developing our THC-glycoside prodrugs for the treatment of gastrointestinal diseases, including inflammatory bowel disease (IBD) and irritable bowel syndrome (IBS) because of the targeted release described above.previously. IBD is a 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 and may 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 due to itsfor compatibility with commercial production techniques and the optimal prodrug delivery profile that maximizes intestinal anti-inflammatory properties while minimizing psychoactive or intoxicating effects. Initial pre-clinical 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 pre-clinical development plan, which includes dose range finding studies, GLP toxicology studies, pharmacokinetic studies and other pre-clinical research, is anticipated to be completed during the 1st2^nd half of calendar year 2022, subject to the Company securing sufficient additional funding or entering into a strategic research and development partnership. After our satisfactory completion of all of the prerequisite pre-clinical in vitro and in vivo studies, an Investigational New Drug (IND) application would be filed with the FDAU.S. Food and Drug Administration (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 the above-referenceda strategic partnership.

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 significantly 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 or licenseutilizing this proprietary technology.

Orphan Drug Designation

In January 2018, we filed a request with the FDA’s Office of Orphan Products Development (OOPD) for an Orphan Drug Designation of our VBX-100 prodrug for the treatment of pediatric ulcerative colitis. In March 2018, the OOPD denied our request based, in part, on the FDA’s decision to no longer grant Orphan Drug Designation status to drugs for pediatric subpopulations of common diseases (i.e., diseases or conditions with an overall prevalence of over 200,000), unless the use of the drug in the pediatric subpopulation meets the regulatory criteria for an orphan subset, or the disease in the pediatric subpopulation is considered a different disease from the disease in the adult population.

However, in December 2019, we received a letter from the OOPD informing us that the FDA determined that the Company may be eligible for pediatric-subpopulation designation because we submitted our original request for an Orphan Drug Designation before the guidance Clarification of Orphan Designation of Drugs and Biologics for Pediatric Subpopulations of Common Diseases was finalized in July 2018.

As a result, in May 2020, we filed a response letter with the OOPD addressing the other deficiencies noted in the Company’s original submission in January 2018, which included, among other things (1) support for the prevalence of pediatric ulcerative colitis; (2) our scientific rationale for the specific animal models used in our pre-clinical animal studies; and (3) more comprehensive supporting documentation for the use of VBX-100 in pediatric patients with ulcerative colitis. In August 2020, we received a letter from the OOPD informing us that it was unable to grant our request for an Orphan Drug Designation status because our VBX-100 prodrug was administered before and after colitis was induced in our in vivo mouse studies, which resulted in the need for more scientific data to support the efficacy of our VBX-100 prodrug in a treatment-only setting. As a result, we were advised to perform a second in vivo mouse study in which our VBX-100 prodrug would be administered only after colitis was induced in order to provide a clear indication that the active drug was released only after ulcerative colitis was present. In May 2021, we completed the treatment-only in vivo mouse study and filed a supplemental response letter with the OOPD providing the requested in vivo treatment-only mouse study results in support of our position that VBX-100 may be effective as a treatment for pediatric ulcerative colitis.

On August 9, 2021, we received a letter from the OOPD stating that we have been granted Orphan Drug Designation for our glycosylated cannabinoid VBX-100 for the treatment of pediatric ulcerative colitis.

Results of Operations

Three Months Ended December 31,June 30, 2021 and June 30, 2020 and December 31, 2019

Our net income during the three months ended December 31, 2020, was $692,950 compared to a net loss of $795,295 for the three months ended December 31, 2019. This change was primarily attributable to a gain from a settlement of a vendor dispute. Included in net loss during the three months ended December 31, 2019,June 30, 2021 was our$612,235 compared to a net loss from discontinued operations of $48,769. There was no such loss recorded in$740,238 for the corresponding 2020 period.three months ended June 30, 2020. We had no revenue from continuing operations during either the 2021 or 2020 or 2019 period.

During the three months ended December 31, 2020,June 30, 2021, we incurred general and administrative expenses in the aggregate amount of $394,567$514,437, compared to $506,926$573,253 incurred during the three months ended December 31, 2019June 30, 2020 (a decrease of $112,359). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. The decrease in general and administrative costs in the period is primarily attributable to a decrease in employee benefits expense of approximately $37,000, as well as a decrease in travel expenses of approximately $21,000.

In addition, during the three months ended December 31, 2020, we incurred research and development costs of $71,975, compared to $241,840 during the three months ended December 31, 2019 (a decrease of $169,865). This decrease resulted from a reduction in staff in the 2020 period and corresponding decrease in research and development activities.

During the three months ended December 31, 2020, we recorded total net other income in the amount of $1,159,492, compared to total net other income recorded during the three months ended December 31, 2019 in the amount of $2,240. During the three months ended December 31, 2020, we recorded a gain from a settlement of a vendor dispute in the amount of $1,062,405 and a gain related to the forgiveness of our PPP loan of $97,516.

Nine Months Ended December 31, 2020 and December 31, 2019

Our net loss during the nine months ended December 31, 2020 was $520,220 compared to a net loss of $3,614,024 for the nine months ended December 31, 2019. The decrease in net loss of $3,093,804 during the 2020 period is attributable primarily to operating expenses reduced by $1,278,497, elimination of loss from discontinued operations of $714,827, gain on settlement of $1,062,405 and the gain related to the forgiveness of our PPP loan of $97,516. Included in net loss during the nine months ended December 31, 2019, was our loss from discontinued operations of $714,827. There was no loss from discontinued operations recorded in the 2020 period. We had no revenue from continuing operations during either the 2020 or 2019 period.

During the nine months ended December 31, 2020, we incurred general and administrative expenses in the aggregate amount of $1,342,110 compared to $2,094,026 incurred during the nine months ended December 31, 2019 (a decrease of $751,916)$58,816). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. The majority of the decrease in general and administrative costs in the period is attributablerelates to a decreasestock-based compensation which decreased to $39,456 in the period ending June 30, 2021, as compared to $108,122 in the period ending June 30, 2020, and audit fees, which decreased to $17,000 in the period ending June 30, 2021, as compared to $47,062 in the period ending June 30, 2020, offset by an increase in legal fees, most of which were incurredincreased to $99,919 in connection with the Private Investigation and Section 8(e) Examination, which decreased by approximately $500,000 fromperiod ending June 30, 2021, as compared to $39,757 in the previous nine-month period as well as a decrease in wages of approximately $152,000 from the previous nine-month period.ending June 30, 2020.

In addition, during the ninethree months ended December 31, 2020,June 30, 2021, we incurred research and development costs of $338,268,$97,812, compared to $864,849$167,464 during the ninethree months ended December 31, 2019June 30, 2020 (a decrease of $526,581)$69,652). This decrease resulted from a reductiondecrease in staff during the 2020 period and corresponding decrease inwages related to research and development, activities.which decreased to $48,443 in the period ending June 30, 2021, as compared to $82,604 in the period ending June 30, 2020.

Our discontinued operations incurred a loss of $714,827 duringDuring the ninethree months ended December 31, 2019. No loss from discontinued operations was incurred during the nine months ended December 31, 2020.

During the nine months ended December 31, 2020,June 30, 2021, we recorded total net other income in the amount of $1,160,158$14, compared to total net other income recorded during the ninethree months ended December 31, 2019June 30, 2020 in the amount of $59,678. During$479, all of which represented interest income.

This resulted in a net loss of $612,235 during the ninethree months ended December 31, 2020, we recordedJune 30, 2021 compared to a gain from a settlementnet loss of a vendor dispute in$740,238 during the amount of $1,062,405 and a gain related to the forgiveness of our PPP loan of $97,516.three months ended June 30, 2020.

Liquidity and Capital Resources

We have incurred losses since inception resulting in an accumulated deficit of $47,067,078$48,039,944 as of December 31, 2020,June 30, 2021, and further losses are anticipated in the development of our business.

As of December 31, 2020,June 30, 2021, we had total current assets of $1,454,666,$331,138. Our total current assets as of June 30, 2021 were comprised primarily of cash in the amount of $1,441,471.$321,436. Our total current liabilities as of December 31, 2020June 30, 2021 were $391,925,$33,440, represented primarilyentirely by accounts payablea lease payment attributable to our wholly-owned subsidiary, The Control Center, Inc., which was dissolved in May 2021, and accrued liabilities of $72,078 and an advance of $296,653.for which Vitality Biopharma, Inc. is not responsible. As a result, on December 31, 2020,June 30, 2021, we had working capital of $1,062,741.$297,698. We had no long-term liabilities as of June 30, 2021.

On November 7, 2018, the SEC suspended the tradingSources of our common stock. Our common stock resumed trading with limited liquidity on the grey 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 websites. 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 resumption of ordinary course trading status on the OTCQB or a national exchange.Capital

In September 2020, we retained DelMorgan & Co., an internationally recognized investment banking firm, to advise us on our strategic alternatives, including potential financings, asset divestitures or strategic partnerships. The Company is continuing to work closely with DelMorgan in support of their retention.

While we believe that our existing cash balances will be sufficient to fund our currently planned level of operations, we may require additional financing to fund our planned future operations. We do not haveexpect to generate any firm commitments for future capital 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 expectrevenue in the near term. We currently have no commitments for any future funding. As of June 30, 2021, we had cash in the amount of $321,436. Based on our current corporate strategy, our total expenditures for the 12 months following June 30, 2021, are expected to be approximately $1,500,000, which is comprised of research and development and general operating expenses. Based on our cash balance of $321,436 on June 30, 2021, and our estimated total expenditures of approximately $1,500,000 for the 12-month period ending June 30, 2022, we do not expect to have material revenuesufficient funds to operate our business over the next 12 months. Furthermore, our estimate of total expenditures could increase if we encounter unanticipated difficulties. In addition, our estimates of the amount of cash necessary to fund our business from our operations,may prove to be too low, and we could spend our available financial resources much faster than we currently expect. If we cannot raise the capital necessary to continue to develop our business, we will needbe forced to obtaindelay, scale back or eliminate some or all of our necessary funding from external sources in the near term. Additional financing may be requiredproposed operations. If any of these were to occur, there is a substantial risk that our business would fail.

Since inception, we have primarily funded our operations through equity and debt financings. We expect to continue to fund our planned operations primarily through equity and debt financings in future periods, including research and development activities relating to our principal product candidate, seeking regulatory approvalthe foreseeable future. However, sources of thatadditional funds may not be available when needed, on acceptable terms, 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 may seek to raise such funding from a variety of sources.at all. If we raise additional funds by issuingissue equity or convertible debt securities to raise additional funds, our existing stockholders’ ownership willstockholders may experience substantial dilution, and the new equity or debt securities may have rights, preferences and privileges senior to those of our existing stockholders. If we incur additional debt, it may increase our leverage relative to our earnings or to our equity capitalization, requiring us to pay additional interest expenses. Obtaining commercial loans, assuming those loans would be diluted, and obtaining commercial loansavailable, 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 thatand which could result in our receipt of only a portion of any revenue that may be generated from a partnered product or business. Further,Moreover, regardless of the manner in which we seek to raise capital, 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 needincur substantial costs in order to continue to operatethose pursuits, including investment banking fees, legal fees, accounting fees, printing 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 faildistribution expenses and our stockholders could lose all of their investment.other related costs.

Net Cash Used in Operating Activities

We have not generated positive cash flows from operating activities. For the ninethree months ended December 31, 2020,June 30, 2021, net cash used in operating activities-continuing operations was $1,047,742$562,701 compared to net cash used in operating activities-continuing operations of $2,144,458$719,276 for the ninethree months ended December 31, 2019.June 30, 2020. This decrease was primarily attributable to a decrease in accounts payable, partially offset by a decrease in the expenses recorded for stock-based compensation related to stock options. Net cash used in operating activities-continuing operations during the ninethree months ended December 31, 2020June 30, 2021 consisted primarily of a net loss of $520,220, and a decrease in accounts payable of $178,045$612,235, offset by $349,546$46,539 related to stock-based compensation and gain on settlement of $612,405 net of the cash received.compensation. Net cash used in operating activities-continuing operations during the ninethree months ended December 31, 2019June 30, 2020 consisted primarily of a net loss of $3,614,024, offset by $492,554 related to stock-based compensation$740,238, and an increasea decrease in accounts payable of $292,521. For the nine months ended December 30, 2019, net cash used in operating activities-discontinued operations was $714,883. No cash was used in operating activities-discontinued operations for the nine months ended December 31, 2020. The losses incurred in the 2019 period were attributed$106,017 offset by $124,927 related to the losses incurred by the Company’s clinical operations.stock-based compensation.

Net Cash Used in Investing Activities

During the ninethree months ended December 31,June 30, 2021 and June 30, 2020, and December 31, 2019, no net cash was used in or provided by investing activities.

Net Cash Provided By Financing Activities

During the ninethree months ended December 31,June 30, 2020, net cash provided from financing activities was $96,988, from the issuance of a note payable. During the ninethree months ended December 31, 2019,June 30, 2021, 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.

Share-Based Payments

The Company periodically issues stock options, warrants, and shares of common stock as share-based compensation to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on FASB ASC 718, Compensation – Stock Compensation (Topic 718) whereby the value of the award is measured on the date of grant and recognized as compensation expense on thea straight-line basis over the vesting period. The Company recognizes the fair value of stock-based compensation within its Statements of Operations with classification depending on the nature of the services rendered.

The fair value of the Company’s stock options and warrants are estimated using the Black-Scholes-Merton Option Pricing model, which uses certain assumptions related to risk-free interest rates, expected volatility, expected life of the stock options or restricted stock, and future dividends. Compensation expense is recorded based upon the value derived from the Black-Scholes-Merton Option Pricing model and based on actual experience. The assumptions used in the Black-Scholes-Merton Option Pricing model could materially affect compensation expense recorded in future periods. The Company issues stock options and warrants, shares of common stock, and equity interests as share-based compensation to employees and non-employees. The Company accounts for its share-based compensation to employees in accordance with FASB ASC 718, Compensation – Stock Compensation. Stock-based compensation cost is measured at the grant date, based on the estimated fair value of the award, and is recognized as expense over the requisite service period.

In June 2021, the Company’s Board of Directors approved the Company’s 2021 Stock Incentive Plan (the “2021 Plan”) and reserved 10,000,000 shares of the Company’s common stock for issuance pursuant to the 2021 Plan. The shareholders of the Company approved the 2021 Plan on August 12, 2021, at the Company’s annual stockholder meeting. All of the outstanding options as of June 30, 2021, were issued under the Company’s 2012 Stock Incentive Plan, which will expire on February 3, 2022.

Recent Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

Not Applicable.

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We have established disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports filed or submitted under the Exchange Act, is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that information relating to the Company is accumulated and communicated to management, including our principal officers, as appropriate to allow timely decisions regarding required disclosure. Our Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of our disclosure controls and procedures as of December 31, 2020,June 30, 2021, and have concluded that our disclosure controls and procedures were effective as of December 31, 2020.June 30, 2021.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarter ended December 31, 2020June 30, 2021, that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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 29, 2020.May 19, 2021.

COVID-19 Considerations

The global outbreak of COVID-19 has led to significant disruptions in the global economy, including the curtailment of activities by businesses and consumers in much of the world as governments and others seek to limit the spread of the disease. The extent of the impact of the pandemic on our business and financial results will depend largely on future developments, including the duration and severity of the outbreak, the length of restrictions and business closures imposed by domestic and foreign governments, the impact on capital and financial markets, all of which are highly uncertain and cannot be predicted. In the quarter ended December 31, 2020,June 30, 2021, the COVID-19 pandemic did not have a material net impact on our operating results. We have also not observed any material impairments of our assets or a significant change in the fair value of our assets due to the COVID-19 pandemic. While it is not possible at this time to estimate the full impact that COVID-19 will have on our business, restrictions resulting from COVID-19 on general economic conditions could, among other things, impair our ability to raise capital when needed. This situation is changing rapidly, and additional impacts may arise that we are not aware of currently.

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

EXHIBIT INDEX