As
filed with the Securities and Exchange Commission on January 19, 2018
No.
333-
UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
S-1
REGISTRATION
STATEMENT UNDER THE SECURITIES ACT OF 1933
VITALITY
BIOPHARMA, INC.
(Exact
name of registrant as specified in its charter)
Nevada
|
|
8731
|
|
75-3268988
|
(State
or other jurisdiction of
incorporation or organization)
|
|
(Primary
Standard Industrial
Classification Code Number)
|
|
(I.R.S.
Employer
Identification
Number)
|
1901
Avenue of the Stars, 2nd Floor
Los
Angeles, California 90067
(
530)
231-7800
(Address,
including zip code, and telephone number, including
area
code, of registrant’s principal executive offices)
Robert
Brooke
Chief
Executive Officer
1901
Avenue of the Stars, 2nd Floor
Los
Angeles, California 90067
(
530)
231-7800
(Name,
address, including zip code, and telephone number, including
area
code, of agent for service)
With
Copies to:
Mark
C. Lee, Esq.
Greenberg Traurig, LLP
1201
K Street, Suite 1100
Sacramento,
CA 95814
(916) 868.0630
Approximate
date of commencement of proposed sale to the public: As soon as possible after the effective date hereof.
If
any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under
the Securities Act of 1933 check the following box. [X]
If
this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please
check the following box and list the Securities Act registration statement number of the earlier effective registration statement
for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
If
this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list
the Securities Act registration statement number of the earlier effective registration statement for the same offering. [ ]
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” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large
accelerated filer
|
[ ]
|
|
Accelerated
filer
|
[ ]
|
Non-accelerated
filer
|
[ ]
|
(Do
not check if a smaller reporting company)
|
Smaller
reporting company
|
[X]
|
CALCULATION
OF REGISTRATION FEE
Title of Each Class of Securities to be
Registered
|
|
Amount
to be
Registered (1)
|
|
|
Proposed
Maximum
Offering
Price Per
Share (2)
|
|
|
Proposed Maximum
Aggregate Offering
Price
|
|
|
Amount of
Registration
Fee
|
|
Common Stock, par value $0.001
|
|
|
933,332
|
|
|
$
|
2.03
|
|
|
$
|
1,894,663.96
|
|
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$
|
235.89
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|
Warrants to purchase Common Stock
|
|
|
|
|
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|
—
|
|
|
|
|
|
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|
—
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Shares of Common Stock issuable upon exercise of the Warrants
|
|
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466,667
|
|
|
$
|
2.03
|
|
|
$
|
947,334.01
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$
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117.94
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|
Total:
|
|
|
1,399,999
|
|
|
|
|
|
|
$
|
2,841,997.97
|
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$
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353.83
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|
(1)
Pursuant to Rule 416 under the Securities Act of 1933, as amended, there is also being registered hereby such indeterminate number
of additional shares of common stock of Vitality Biopharma, Inc. as may be issued or issuable because of stock splits, stock dividends,
stock distributions, and similar transactions.
(2)
Estimated at $2.03 per share, the average of the high and low prices of the Registrant’s common stock as reported
on the OTCQB Marketplace on January 18, 2018, solely for the purpose of calculating the registration fee in accordance
with Rule 457(c) under the Securities Act.
The
registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until
the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become
effective in accordance with Section 8(a) of the Securities Act of 1933 or until the registration statement shall become effective
on such date as the Commission, acting pursuant to said Section 8(a), may determine.
The
information in this prospectus is not complete and may be changed. These securities may not be sold until the registration statement
filed with the Securities and Exchange Commission is effective. This prospectus is not an offer to sell these securities and it
is not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.
SUBJECT
TO COMPLETION, DATED [____________], 2018
VITALITY
BIOPHARMA, INC.
PROSPECTUS
1,399,999
Shares of Common Stock
This
prospectus relates to the resale by the selling stockholders of Vitality Biopharma, Inc. identified in this prospectus of up to
1,399,999 shares of common stock, par value $0.001 per share. These shares include 466,667 shares of common stock underlying warrants
to purchase our common stock issued to certain of the selling stockholders in connection with a private placement of common stock
and warrants completed on December 15, 2017 (the “Financing”).
The
selling stockholders have advised us that they will sell the shares of common stock from time to time in the open market, on the
OTC Bulletin Board, in privately negotiated transactions or a combination of these methods, at market prices prevailing at the
time of sale, at prices related to the prevailing market prices or at negotiated prices.
We
will not receive any proceeds from the sale of common stock by the selling stockholders except for our receipt of the exercise
price of Warrants.
Our
common stock is traded on the OTC Markets Group Inc.’s OTCQB tier under the symbol “VBIO”. On January 18,
2018 the closing price of our common stock was $2.03 per share.
Investing
in our common stock involves a high degree of risk. Before making any investment in our common stock, you should read and carefully
consider the risks described in this prospectus under “Risk Factors” beginning on page 10 of this prospectus.
You
should rely only on the information contained in this prospectus or any prospectus supplement or amendment thereto. We have not
authorized anyone to provide you with different information.
Neither
the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or
determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.
This
prospectus is dated , 2018
TABLE
OF CONTENTS
About
This Prospectus
You
should rely only on the information that we have provided or incorporated by reference in this prospectus, any applicable prospectus
supplement and any related free writing prospectus that we may authorize to be provided to you. We have not authorized anyone
to provide you with different information. No dealer, salesperson or other person is authorized to give any information or to
represent anything not contained in this prospectus, any applicable prospectus supplement or any related free writing prospectus
that we may authorize to be provided to you. You must not rely on any unauthorized information or representation. This prospectus
is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to
do so. You should assume that the information in this prospectus, any applicable prospectus supplement or any related free writing
prospectus is accurate only as of the date on the front of the document and that any information we have incorporated by reference
is accurate only as of the date of the document incorporated by reference, regardless of the time of delivery of this prospectus,
any applicable prospectus supplement or any related free writing prospectus, or any sale of a security.
This
prospectus contains summaries of certain provisions contained in some of the documents described herein, but reference is made
to the actual documents for complete information. All of the summaries are qualified in their entirety by the actual documents.
Copies of some of the documents referred to herein have been filed, will be filed or will be incorporated by reference as exhibits
to the registration statement of which this prospectus is a part, and you may obtain copies of those documents as described below
under the heading “Where You Can Find Additional Information.”
SUMMARY
This
summary does not contain all of the information that should be considered before investing in our securities. Investors should
read the entire prospectus carefully, including the more detailed information regarding our business, the risks of purchasing
our securities discussed in this prospectus under “Risk Factors” beginning on page 10 of this prospectus and our financial
statements and the accompanying notes beginning on page F-1 of this prospectus.
As
used in this prospectus, unless the context requires otherwise, the “Company”, “we”, “us”,
and “our” refer to Vitality Biopharma, Inc., a Nevada corporation.
Our
Company
In
December 2015, we discovered novel pharmaceutical applications of our glycosylation technology for producing cannabinoid prodrugs.
We had developed this technology originally to modify the taste and enable efficient production of stevia, a high-potency sweetener.
While we continue to pursue commercialization of those products and the underlying glycosylation technology, we have discovered
and filed intellectual property covering a class of cannabinoid prodrug compounds known as cannabosides, and our primary focus
is development of cannabinoid pharmaceuticals.
As
of September 30, 2017, we had an accumulated deficit of $19,740,812. In addition, during the six months ended September 30, 2017
and the fiscal year ended March 31, 2017, we incurred net losses of $2,004,873 and $5,219,380, respectively. As described in more
detail elsewhere in this prospectus, we will need significant additional funding to support our operations and business plans
and we have no commitments for future capital. The continuation of our business is dependent upon our ability to obtain loans
or sell securities to new and existing investors or obtain capital from other alternative sources.
Our
Approach: Cannabinoid Pharmaceutical Development
Vitality
Biopharma is unlocking the power of cannabinoids to treat serious neurological and inflammatory conditions.
Cannabinoids
have emerged as successful therapeutics, evidenced in part by sales of medical cannabis in North America that were estimated at
$5.08 billion in 2016 by Arcview Group, and how 87% of the U.S. population lives in a state where cannabis has been approved for
medical use. This includes states that have so far only approved cannabidiol (CBD), which is a constituent of cannabis that is
not intoxicating and that has demonstrated positive effects for treatment of neurological disorders including pediatric epilepsy.
Pharmaceutical versions of cannabinoids have been marketed in the U.S. for more than a decade, and hold the same therapeutic potential,
yet their sales to date have lagged behind sales of medical cannabis. Sales of synthetic cannabinoid pharmaceuticals in the U.S.
were estimated at only $133 million in 2014 by IMS Health. Many of the cannabinoid pharmaceuticals that are currently approved
or in development by other companies have well known limitations, such as poor oral bioavailability, intoxicating side effects,
or an inability to deliver therapeutic effects that are differentiated from those that can be obtained using medical cannabis.
Vitality
has developed a new class of cannabinoid prodrugs, known as cannabosides, which are designed to overcome certain limitations of
existing cannabinoid pharmaceuticals. For instance, cannaboside prodrugs of Tetrahydrocannabinol (THC) through oral delivery can
enable targeted delivery to the gastrointestinal tract without entry into the bloodstream or brain. Therefore, cannabosides can
enable targeted delivery of large concentrations of cannabinoids while reducing or eliminating altogether drug psychoactivity.
Ultimately, these compounds are intended to enable new cannabinoid drug formulations that physicians are eager to prescribe, and
that will be in demand as specialty pharmaceuticals for treatment of serious neurological and inflammatory conditions, such as
inflammatory bowel disease.
Cannabosides
were discovered in 2015 through application of our proprietary enzymatic taste modification technologies that were originally
developed for stevia sweeteners. Cannabosides are classified as “prodrugs,” which means that they are medications
or compounds that, after administration, are converted within the body into a pharmacologically active drug. 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 often 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.
Cannabosides enable the
passage of cannabinoids through the digestive tract and their eventual release within the large intestine or colon, which enables
targeted delivery of cannabinoids for treatment of gastrointestinal diseases. Because passage of cannabosides through the digestive
tract is likely to occur over several hours or longer, there is a sustained or delayed release of cannabinoids, which can also
provide patients with long-lasting or overnight relief, a desirable attribute that is unavailable with medical cannabis or with
current cannabinoid pharmaceutical formulations.
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, CBD, and
Cannabidivarin
(
CBDV). We aim to develop and approve these proprietary molecules as pharmaceuticals using a low-risk regulatory strategy
that is available for prodrugs, and to ultimately deliver to the market pharmaceuticals that are highly differentiated both from
medical cannabis and from current cannabinoid drugs.
A
key part of our strategy will be to take advantage of a more efficient Food and Drug Administration (FDA) review and approval
process that is available for prodrugs, which may reduce the need for large and expensive clinical trials. This expedited regulatory
process is available for our cannabosides because in the U.S. and internationally there have already been many independent clinical
studies completed using the reference cannabinoid drugs we are studying.
We
are initially developing our cannaboside pharmaceutical products for treatment of inflammatory bowel disease and narcotic bowel
syndrome, a severe form of opiate-induced abdominal pain. We are developing acute treatments of disease, which are designed to
induce remission of active disease, and which may act in part through providing relief of key symptoms, such as abdominal pain
and cramping in inflammatory bowel disease. There is extensive clinical evidence supporting the potential efficacy of cannabinoids
for treatment of inflammatory bowel disease, including through placebo-controlled clinical trials conducted by independent investigators.
We plan to complete preclinical
studies necessary in order to launch clinical trials in 2018 that evaluate the clinical pharmacokinetics of drug formulations
containing cannabosides, including potential to obtain preliminary data about symptomatic relief. We plan to initiate multiple
Phase 2 clinical trials in order to further assess the safety as well as the efficacy of cannaboside drug formulations for treatment
of inflammatory bowel disease, irritable bowel syndrome, and narcotic bowel syndrome. We also intend to obtain preliminary
data about new applications for cannabosides, including the regenerative potential of our drug formulations, both when administered
alone and in combination with other medications.
Our
primary operations are based in Yuba City, California, where we originally developed our proprietary bioprocessing methods. Our
facilities include laboratories and a manufacturing suite for GMP production, which will be used for pharmaceutical-grade production
of products to be tested in clinical trials, and which will be registered with the FDA and the Drug Enforcement Agency (DEA).
The
Financing
On
December 12, 2017, we entered into a Securities Purchase Agreement with 4 purchasers providing for the issuance and sale of an
aggregate of 933,332 shares of our common stock (the “Shares”) and warrants to purchase 466,667 shares of common stock,
for gross proceeds to us of $1,400,000 (the “Financing”). The Financing closed on December 15, 2017. After deducting
for fees and expenses, the aggregate cash net proceeds to us from the sale of the Shares and warrants were approximately $1,395,000.
Under
the terms of the Financing, each of the purchasers was issued shares of the Company’s common stock together with a Warrant.
Each Warrant entitles the purchaser to acquire up to a number of shares of the Company’s common stock equal to 50% of the
Shares purchased by the purchaser under the Securities Purchase Agreement, has an exercise price of $2.00 per share, was immediately
exercisable, and expires on the three year anniversary of the date of issuance. The exercisability of each Warrant may be limited
if, upon exercise, the holder or any of its affiliates would beneficially own more than either 9.99% or 4.99%, at the option of
such holder, of the Company’s common stock.
The
securities sold in the Financing were sold in reliance upon exemptions from registration under Rule 506 of Regulation D under
the Securities Act of 1933 (the “Securities Act”). Each of the purchasers represented to us that it is an accredited
investor as defined in Regulation D and that it was acquiring the securities for investment only and not with a view towards,
or for resale in connection with, the public sale or distribution thereof.
Going
Concern
We
have incurred losses since inception, resulting in an accumulated deficit of $19,740,812 as of September 30, 2017. For the six
months ended September 30, 2017, we recorded a net loss of $2,004,873 and used cash in operations of $1,332,280. For the fiscal
year ended March 31, 2017, we recorded a net loss of $5,219,380 and used cash in operations of $1,384,697. We expect to incur
further losses as we continue to develop our business. These and other factors raise substantial doubt about the Company’s
ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in their
report on the Company’s March 31, 2017 audited financial statements, raised substantial doubt about the Company’s
ability to continue as a going concern. Our ability to continue as a going concern is dependent upon generating profitable operations
in the future and/or obtaining the necessary financing to meet our obligations and pay our liabilities arising from normal business
operations when they come due. We currently expect to have sufficient funds to operate our business over the next 9 months.
However, 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 may prove to be wrong and we could spend our available financial resources
much faster than we currently expect. If we cannot raise the money that we need in order to continue to develop our business,
we will be forced to delay, scale back or eliminate some or all of our proposed operations. If any of these were to occur, there
is a substantial risk that our business would fail.
For
more information regarding our business, see “Management’s Discussion and Analysis of Financial Condition and Results
of Operations” and “Business,” included elsewhere in this prospectus.
Corporate
Information
We
were incorporated under the laws of the State of Nevada on June 29, 2007 as 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 (7) for one (1) 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
increased from 7,350,000 to 51,450,000. 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 was 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.
Our
principal executive offices are located at 1901 Avenue of the Stars, 2
nd
Floor, Los Angeles, CA 90067. The telephone
number at our principal executive office is (530) 231-7800. Our website address is www.vitality.bio. Information contained on
our website is not deemed part of this prospectus.
Trade
names, trademarks and service marks of other companies appearing in this prospectus are the property of the respective holders.
Summary
Financial Data
You
should read the following summary financial data in conjunction with “Management’s Discussion and Analysis of Financial
Condition and Results of Operations” and the financial statements and related notes, all included elsewhere in this prospectus.
The
following summary historical financial information as of September 30, 2017, and for the six months ended September 30, 2017 and
2016, has been derived from our unaudited interim financial statements included elsewhere in this prospectus.
We
derived the balance sheet data as of March 31, 2017 and 2016, and the summary statement of operations data for the years then
ended from our audited financial statements included elsewhere in this prospectus. Our historical results of operations and financial
condition do not purport to be indicative of our results of operations or financial condition as of any future date or for any
future period.
|
|
Six
Months Ended
September
30,
|
|
|
Fiscal
Year Ended
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
(unaudited)
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Statement
of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
58,019
|
|
|
$
|
92,265
|
|
|
$
|
163,363
|
|
|
$
|
248,348
|
|
Cost
of goods sold
|
|
|
37,966
|
|
|
|
46,012
|
|
|
|
108,255
|
|
|
|
149,478
|
|
Gross
profit
|
|
|
20,053
|
|
|
|
46,253
|
|
|
|
55,108
|
|
|
|
98,870
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
1,275,671
|
|
|
|
1,034,483
|
|
|
|
2,605,097
|
|
|
|
2,196,922
|
|
Rent
and other related party costs
|
|
|
15,300
|
|
|
|
13,800
|
|
|
|
27,600
|
|
|
|
30,600
|
|
Research
& development
|
|
|
827,596
|
|
|
|
240,217
|
|
|
|
893,960
|
|
|
|
613,119
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
operating expenses
|
|
|
2,118,567
|
|
|
|
1,288,500
|
|
|
|
3,526,657
|
|
|
|
2,840,641
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(2,098,514
|
)
|
|
|
(1,242,247
|
)
|
|
|
(3,471,549
|
)
|
|
|
(2,741,771
|
)
|
Other
income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
-
|
|
|
|
(716
|
)
|
|
|
(1,010
|
)
|
|
|
(363
|
)
|
Change
in fair value of derivative liability
|
|
|
93,641
|
|
|
|
(342,961
|
)
|
|
|
(1,746,821
|
)
|
|
|
2,600,809
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,004,873
|
)
|
|
$
|
(1,585,924
|
)
|
|
$
|
(5,219,380
|
)
|
|
$
|
(141,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.09
|
)
|
|
$
|
(0.15
|
)
|
|
$
|
(0.38
|
)
|
|
$
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average
shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
22,509,356
|
|
|
|
10,916,841
|
|
|
|
13,591,137
|
|
|
|
7,541,984
|
|
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
|
Balance
Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
815,487
|
|
|
$
|
1,152,766
|
|
|
$
|
95,433
|
|
Total
assets
|
|
|
838,781
|
|
|
|
1,175,022
|
|
|
|
134,799
|
|
Derivative
liability
|
|
|
147,150
|
|
|
|
240,791
|
|
|
|
401,127
|
|
Total
liabilities
|
|
|
581,512
|
|
|
|
800,654
|
|
|
|
652,964
|
|
Total
stockholders’ equity (deficiency)
|
|
$
|
257,269
|
|
|
$
|
374,368
|
|
|
$
|
(518,165
|
)
|
The
Offering
Securities
offered:
|
|
Up
to 933,332 shares of common stock
|
|
|
|
|
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Warrants
to purchase up to 466,667 shares of common stock
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Up
to 466,667 shares of common stock issuable upon exercise of the warrants
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Common
stock outstanding prior to offering:
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23,266,815
(1)(2)
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Common
stock outstanding after the offering:
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24,200,147
(2)(3)
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Use
of Proceeds:
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We
will not receive any proceeds from the sale of common stock by the selling stockholders. However, we will receive proceeds
from the cash exercise of Warrants if they are exercised by the selling stockholder(s). See “Use of Proceeds”
for more information.
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OTCQB
Symbol:
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VBIO
There is no established trading market for the warrants and we do not expect a market to develop.
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Risk
Factors
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You
should read the “Risk Factors” section of this prospectus for a discussion of factors to consider carefully before
deciding to invest in shares of our common stock.
|
(1)
As of January 18, 2018.
(2)
Excludes (i) 532,395 shares of common stock reserved for future issuance under our 2012 Stock Incentive, Plan (the “2012
Plan”), and (ii) 705,755 shares of common stock issuable upon the exercise of outstanding warrants. As of September 30,
2017, there were (a) options to purchase 2,871,710 shares of our common stock outstanding under the 2012 Plan, with a weighted
average exercise price of $1.19 per share and (b) 705,755 shares of common stock issuable upon the exercise of outstanding warrants
with exercise prices ranging from $2.00 to $4.50 per share.
(3)
Assuming the sale of all shares of common stock covered by this prospectus, including 466,667 shares of common stock issued upon
exercise of the warrants sold as part of this offering.
RISK
FACTORS
The
following risk factors should be considered carefully in addition to the other information contained in this prospectus. This
prospectus contains forward-looking statements. Our business, financial condition, results of operations and stock price could
be materially adversely affected by any of these risks.
Risks
Related to Our Business
We
are not profitable and may never become profitable. The Company’s independent registered public accounting firm has issued
a report questioning our ability to continue as a going concern.
We
have incurred losses since inception, resulting in an accumulated deficit of $19,740,812 as of September 30, 2017. For the six
months ended September 30, 2017, we recorded a net loss of $2,004,873 and used cash in operations of $1,332,280. For the fiscal
year ended March 31, 2017, we recorded a net loss of $5,219,380 and used cash in operations of $1,384,697. We expect to incur
further losses as we continue to develop our business. These and other factors raise substantial doubt about the Company’s
ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in their
report on the Company’s March 31, 2017 audited financial statements, raised substantial doubt about the Company’s
ability to continue as a going concern.
We
expect to incur substantial losses for the near future, and we may never achieve or maintain profitability. Even if we succeed
in obtaining regulatory approval to market our products, we may still incur losses for the foreseeable future. We also expect
to experience negative cash flow for the near future, as we plan to use all available resources to fund our operations and make
significant capital expenditures. As a result, we would need to generate significant revenues if we are to achieve and maintain
profitability. We may not be able to generate these revenues or achieve profitability. Our failure to achieve or maintain profitability
could negatively impact the value of our common stock and you could lose some or all of your investment.
We
will need to raise substantial additional capital to operate our business. If we cannot obtain the capital we need to continue
our operations, our business could fail.
We
will likely need to raise additional funds in order to continue operating our business. Since inception, we have primarily funded
our operations through equity and debt financings, such as our issuance and sale of 666,667 shares of common stock and 333,334
warrants to purchase common stock that we completed on July 28, 2017, for net proceeds of approximately $995,000, and the issuance
and sale of 1,500,000 shares of common stock that we completed on March 9, 2017, for net proceeds to us of approximately $1,500,000.
We expect to continue to fund our operations primarily through equity and debt financings in the foreseeable future. If we issue
equity or convertible debt securities to raise additional funds, our existing stockholders 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 available, 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 compounds, technology or other intellectual property or
marketing rights, which could result in our receipt of only a portion of any revenue that may be generated from a partnered product
or business. Moreover, regardless of the manner in which we seek to raise capital, we may incur substantial costs in those pursuits,
including investment banking fees, legal fees, accounting fees, printing and distribution expenses and other related costs.
We
expect our total expenditures over the 12 months following September 30, 2017, to be approximately $2,400,000. However,
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 may prove to be wrong and we could spend our available financial resources much
faster than we currently expect. Further, we expect that our operational expenses will increase substantially during our current
fiscal year if we pursue our current operational goals, continuing our research and development activities, and otherwise seek
to ramping-up our business. If we cannot raise the money that we need in order to continue to develop our business, we will be
forced to delay, scale back or eliminate some or all of our proposed operations and/or forego other attractive business opportunities
that may arise. If any of these were to occur, there is a substantial risk that our business would fail. Sources of additional
funds may not be available on acceptable terms or at all. Weak economic and capital markets conditions could result in increased
difficulties in raising capital for our operations. We may not be able to raise money through the sale of our equity securities
or through borrowing funds on terms we find acceptable, or at all. If we cannot raise the funds that we need, we will be unable
to continue our operations, and our stockholders could lose their entire investment in our company.
We
currently face, and will continue to face, significant competition.
Our
major competitors for the development of pharmaceutical products related to cannabinoids, and related to neurological and inflammatory
disorders includes major pharmaceutical companies, smaller companies, and academic research groups that are devoted to biological
or pharmaceutical research either independently or by providing contract research services. A number of multinational pharmaceutical
companies are developing products in similar therapeutic areas, including but not limited to Biogen, Teva Neuroscience, Pfizer,
Otsuka Pharmaceuticals, Purdue Pharma, Endo Pharmaceuticals, Genzyme, Novartis, Bayer Healthcare, and additional companies such
as GW Pharmaceuticals, Insys Therapeutics, and Zynerba Pharmaceuticals are developing cannabinoid pharmaceuticals for treatment
of various clinical indications. See “Competition” in this report for a further discussion.
Our
limited operating experience could make our operations inefficient or ineffective.
We
are an early-stage company with only a limited operating history upon which to base an evaluation of our current business and
future prospects and how we will respond to competitive, financial or technological challenges. We only recently commenced operations
in the development of pharmaceutical products, our primary business focus. As a result, we have limited experience with these
activities and the revenue and income potential of our business is unproven. In addition, because of our limited operating history,
we have limited insight into trends that may emerge and affect our business, and limited experience responding to such trends.
We may make errors in predicting and reacting to relevant business trends and we will be subject to the risks, uncertainties and
difficulties frequently encountered by early-stage companies in evolving markets. We may not be able to successfully address any
or all of these risks and uncertainties. Failure to adequately do so could cause our business, results of operations and financial
condition to suffer or fail.
We
may not be able to manage our expansion of operations effectively.
Our
success will depend upon the expansion of our operations and the effective management of any growth we may experience, which will
place a significant strain on our management and on our administrative, operational and financial resources. To manage this growth,
we must expand our facilities, augment our operational, financial and management systems and hire and train qualified personnel.
Our management will also be required to develop relationships with customers, suppliers and other third parties. Our current and
planned operations, personnel, systems, and internal procedures and controls may not be adequate to support our future growth.
If we are unable to manage our growth effectively, we may not be able to take advantage of market opportunities, execute our business
strategies or respond to competitive pressures.
If
we are unable to hire and retain qualified personnel we may not be able to implement our business plan.
As
of January 18, 2018, we had seven full-time employees, including five dedicated to research and development. Attracting
and retaining qualified scientific, management and other personnel will be critical to our success. There is intense competition
for qualified personnel in our area of activities, and we may not be able to attract and retain the qualified personnel necessary
for the development of our business. In addition, we may have difficulty recruiting necessary personnel as a result of our limited
operating history. The loss of key personnel or the failure to recruit necessary additional personnel could impede the achievement
of our business objectives.
We
may choose to hire part-time employees or use consultants. As a result, certain of our employees, officers, directors and consultants
may from time to time serve as officers, directors and consultants of other companies. These other companies may have interests
in conflict with ours. In addition, we expect to rely on independent organizations, advisors and consultants to provide certain
services, including product testing and construction. The services of these independent organizations, advisors and consultants
may not be available to us on a timely basis when needed or on acceptable terms, and if they are not available, we may not be
able to find qualified replacements. If we are unable to retain the services of qualified personnel, independent organizations,
advisors and consultants, we may not be able to implement our business plan.
If
we are unable to market and distribute our products effectively, we may be unable to generate significant revenue.
We
currently have limited sales, marketing or distribution capabilities. We intend to build these capabilities internally and also
to pursue collaborative arrangements regarding the sales and marketing of our products, including steps necessary to commercialize
our pharmaceutical products and our legacy stevia products and technologies. However, we may be unable to establish or maintain
any such collaborative arrangements, or if able to do so, they may not provide us with the sales and marketing benefits we expect.
To the extent that we decide not to, or are unable to, enter into successful collaborative arrangements with respect to the sale
and marketing of our proposed stevia products, significant capital expenditures, management resources and time will be required
to establish and develop an in-house marketing and sales force with appropriate expertise. We may not be able to establish or
maintain relationships with third party collaborators or develop in-house sales and distribution capabilities. To the extent that
we depend on third parties for marketing and distribution, any revenues we receive will depend upon the efforts of such third
parties and there can be no assurance that such third parties will establish adequate sales and distribution capabilities or be
successful in gaining market acceptance of any approved product. If we are not successful in commercializing any product approved
in the future, either on our own or through third parties, our business, financial condition and results of operations could be
materially adversely affected.
We
are largely dependent on the success of our products, which are still in preclinical development and will require significant
capital resources and years of clinical development effort.
We
currently have no pharmaceutical products on the market, and our product candidates are still in preclinical development. Our
business depends almost entirely on the successful clinical development, regulatory approval and commercialization of our product
candidates, and additional preclinical testing and substantial clinical development and regulatory approval efforts will be required
before we are permitted to commence commercialization, if ever. The clinical trials and manufacturing and marketing of product
candidates will be subject to extensive and rigorous review and regulation by numerous government authorities in the United States
and other jurisdictions where we intend to test and, if approved, market our product candidates. Before obtaining regulatory approvals
for the commercial sale of any product candidate, we must demonstrate through preclinical testing and clinical trials that the
product candidate is safe and effective for use in each target indication, and potentially in specific patient populations. This
process can take many years and may include post-marketing studies and surveillance, which would require the expenditure of substantial
resources beyond our current resources. Of the large number of drugs in development for approval in the United States and the
European Union, only a small percentage successfully complete the FDA or EMA regulatory approval processes, as applicable, and
are commercialized. Accordingly, even if we are able to obtain the requisite financing to continue to fund our research, development
and clinical programs, we cannot assure you that any of our product candidates will be successfully developed or commercialized.
Because
the results of preclinical testing are not necessarily predictive of future results, our products may not have favorable results
in our planned clinical trials.
Any
positive results from our preclinical testing of our products may not necessarily be predictive of the results from our planned
clinical trials in humans. Many companies in the pharmaceutical and biotechnology industries have suffered significant setbacks
in clinical trials after achieving positive results in preclinical development, and we cannot be certain that we will not face
similar setbacks. These setbacks have been caused by, among other things, preclinical findings made while clinical trials were
underway or safety or efficacy observations made in clinical trials, including adverse events. Moreover, preclinical and clinical
data are often susceptible to varying interpretations and analyses, and many companies that believed their product candidates
performed satisfactorily in preclinical studies and clinical trials nonetheless failed to obtain FDA or EMA approval. If we fail
to produce positive results in our clinical trials, the development timeline and regulatory approval and commercialization prospects
for our products, and, correspondingly, our business and financial prospects, would be materially adversely affected.
Failures
or delays in the completion of our preclinical studies or the commencement and completion of our clinical trials could result
in increased costs to us and could delay, prevent or limit our ability to generate revenue and continue our business.
To
date, we have not commenced any clinical trials. Successful completion of such clinical trials is a prerequisite to submitting
an NDA to the FDA or a marketing authorization application (MAA) to the EMA. Clinical trials are expensive, difficult to design
and implement, can take many years to complete and are uncertain as to outcome. A product candidate can unexpectedly fail at any
stage of clinical development. The historic failure rate for product candidates is high due to scientific feasibility, safety,
efficacy, changing standards of medical care and other variables. The commencement and completion of clinical trials can be delayed
or prevented for a number of reasons, including, among others:
●
delays in reaching or failing to reach agreement on acceptable terms with prospective clinical trial sites, the terms of which
can be subject to extensive negotiation and may vary significantly among different clinical trial sites;
●
delays or inability in manufacturing or obtaining sufficient quantity or quality of a product candidate or other materials necessary
to conduct clinical trials due to regulatory and manufacturing constraints, including delays or an inability to hire appropriate
staff or consultants with requisite expertise in chemistry and manufacturing controls for pharmaceutical products;
●
difficulties obtaining IRB, DEA or comparable foreign regulatory authority, or ethics committee approval to conduct a clinical
trial at a prospective site or sites;
●
challenges in recruiting and enrolling patients to participate in clinical trials, including the size and nature of the patient
population, the proximity of patients to clinical trial sites, eligibility criteria for the clinical trial, the nature of the
clinical trial protocol, the availability of approved effective treatments for the relevant indication and competition from other
clinical trial programs for similar indications;
●
severe or unexpected toxicities or drug-related side effects experienced by patients in our clinical trials or by individuals
using drugs similar to our product candidates;
●
DEA or comparable foreign regulatory authority-related recordkeeping, reporting or security violations at a clinical trial site,
leading the DEA, state authorities or comparable foreign regulatory authorities to suspend or revoke the site’s controlled
substance license and causing a delay or termination of planned or ongoing clinical trials;
●
regulatory concerns with cannabinoid products generally and the potential for abuse of those products;
●
difficulties retaining patients who have enrolled in a clinical trial who may withdraw due to lack of efficacy, side effects,
personal issues or loss of interest;
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ambiguous or negative interim results; or
●
lack of adequate funding to continue the clinical trial.
In
addition, a clinical trial may be suspended or terminated by us, the FDA, IRBs, ethics committees, data safety monitoring board
or other foreign regulatory authorities overseeing the clinical trial at issue or other regulatory authorities due to a number
of factors, including, among others:
●
failure to conduct the clinical trial in accordance with regulatory requirements or our clinical trial protocols;
●
inspection of the clinical trial operations or clinical trial sites, or drug manufacturingfacilitis by the FDA, the DEA, the EMA
or other foreign regulatory authorities that reveals deficiencies or violations that require us to undertake corrective action,
including the imposition of a clinical hold;
●
unforeseen safety issues, including any safety issues that could be identified in our ongoing toxicology studies;
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adverse side effects or lack of effectiveness; and
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changes in government regulations or administrative actions.
We
intend to focus on prodrugs for certain indications, and may fail to capitalize on other product candidates or other indications
that may be more profitable or for which there is a greater likelihood of success.
Because
we have limited financial and managerial resources, we are focusing on research programs relating to our proprietary products
for certain indications, which concentrates the risk of product failure in the event the products prove to be unsafe or ineffective
or inadequate for clinical development or commercialization. As a result, we may forego or delay pursuit of opportunities with
other product candidates or for other indications that could later prove to have greater commercial potential. Our resource allocation
decisions may cause us to fail to capitalize on viable commercial products or profitable market opportunities. Our spending on
proprietary research and development programs relating to our products may not yield any commercially viable products. If we do
not accurately evaluate the commercial potential or target market for our products, we may relinquish valuable rights to our products
through collaboration, licensing or other royalty arrangements in cases in which it would have been more advantageous for us to
retain sole development and commercialization rights to our products.
The
regulatory approval processes of the FDA, the EMA and other comparable foreign regulatory authorities are lengthy, time-consuming
and inherently unpredictable, and if we are ultimately unable to obtain regulatory approval for our product candidates, our business
will be substantially harmed.
We
are not permitted to market our product candidates in the United States or the European Union until we receive approval of an
NDA from the FDA or an MAA from the EMA, respectively, or in any foreign countries until we receive the requisite approval from
such countries. Prior to submitting an NDA to the FDA or an MAA to the EMA for approval of our product candidates we will need
to complete our ongoing preclinical studies, as well as Phase 1, Phase 2 and Phase 3 clinical trials. We are still conducting
preclinical studies and have not yet commenced our clinical program or tested any product in humans. We plan to submit NDAs for
our products to the FDA upon completion of all requisite clinical trials. Successfully initiating and completing our clinical
program and obtaining approval of an NDA or MAA is a complex, lengthy, expensive and uncertain process, and the FDA or EMA may
delay, limit or deny approval of our product candidates for many reasons, including, among others, because:
●
we may not be able to demonstrate that our product candidates are safe and effective in treating patients to the satisfaction
of the FDA or EMA;
●
the results of our clinical trials may not meet the level of statistical or clinical significance required by the FDA or EMA for
marketing approval;
●
the FDA or EMA may disagree with the number, design, size, conduct or implementation of our clinical trials;
●
the FDA or EMA may require that we conduct additional clinical trials;
●the
FDA or EMA or other applicable foreign regulatory authorities may not approve the formulation, labeling or specifications of our
product candidates;
●
the contract research organizations, or CROs, and other contractors that we may retain to conduct our clinical trials may take
actions outside of our control that materially adversely impact our clinical trials;
●
the FDA or EMA may find the data from preclinical studies and clinical trials insufficient to demonstrate that our products’
clinical and other benefits outweigh their safety risks;
●
the FDA or EMA may disagree with our interpretation of data from our preclinical studies and clinical trials;
●
the FDA or EMA may not accept data generated at our clinical trial sites or may disagree with us over whether to accept efficacy
results from clinical trial sites outside the United States where the standard of care is potentially different from that in the
United States;
●
if and when our NDAs or MAAs are submitted to the FDA or EMA, as applicable, the regulatory agency may have difficulties scheduling
the necessary review meetings in a timely manner, may recommend against approval of our application or may recommend or require,
as a condition of approval, additional preclinical studies or clinical trials, limitations on approved labeling or distribution
and use restrictions;
●
the FDA may require development of a Risk Evaluation and Mitigation Strategy, or REMS, which would use risk minimization strategies
beyond the professional labeling to ensure that the benefits of certain prescription drugs outweigh their risks, as a condition
of approval or post-approval, and the EMA may grant only conditional approval or impose specific obligations as a condition for
marketing authorization, or may require us to conduct post-authorization safety studies;
●
the FDA, EMA, DEA or other applicable foreign regulatory agencies may not approve the manufacturing processes or facilities of
third-party manufacturers with which we contract or DEA or other applicable foreign regulatory agency quotas may limit the quantities
of controlled substances available to our manufacturers; or
●
the FDA or EMA may change their approval policies or adopt new regulations.
Any
of these factors, many of which are beyond our control, could jeopardize our ability to obtain regulatory approval for and successfully
market our products.
Even
if our products receive regulatory approval, they may still face future development and regulatory difficulties.
If
we obtain regulatory approval for our products, such approval would be subject to extensive ongoing requirements by the DEA, FDA,
EMA and other foreign regulatory authorities related to the manufacture, quality control, further development, labeling, packaging,
storage, distribution, safety surveillance, import, export, advertising, promotion, recordkeeping and reporting of safety and
other post-market information. The safety profile of any product will continue to be closely monitored by the FDA, EMA and other
comparable foreign regulatory authorities. If the FDA, EMA or any other comparable foreign regulatory authority becomes aware
of new safety information after approval of any of our product candidates, these regulatory authorities may require labeling changes
or establishment of a REMS, impose significant restrictions on a product’s indicated uses or marketing, impose ongoing requirements
for potentially costly post-approval studies or post-market surveillance or impose a recall.
In
addition, manufacturers of therapeutic products and their facilities are subject to continual review and periodic inspections
by the FDA, the EMA and other comparable foreign regulatory authorities for compliance with current good manufacturing practices,
or cGMP, regulations. Our current facilities and full-time staff have never undergone such inspection, and we currently rely upon
outside consultants and advisors to provide guidance on chemistry and manufacturing controls for pharmaceutical products. Further,
manufacturers of controlled substances must obtain and maintain necessary DEA and state registrations and registrations with applicable
foreign regulatory authorities, and must establish and maintain processes to ensure compliance with DEA and state requirements
and requirements of applicable foreign regulatory authorities governing, among other things, the storage, handling, security,
recordkeeping and reporting for controlled substances. If we or a regulatory agency discover previously unknown problems with
a product, such as adverse events of unanticipated severity or frequency, or problems with the facility where the product is manufactured,
a regulatory agency may impose restrictions on that product, the manufacturing facility or us, including requiring recall or withdrawal
of the product from the market or suspension of manufacturing. If we, our product candidates or the manufacturing facilities for
our product candidates fail to comply with applicable regulatory requirements, a regulatory agency may, among other things:
●
issue untitled letters or warning letters;
●
mandate modifications to promotional materials or require us to provide corrective information to healthcare practitioners;
●
require us to enter into a consent decree, which can include imposition of various fines, reimbursements for inspection costs,
required due dates for specific actions and penalties for noncompliance;
●
seek an injunction or impose civil or criminal penalties or monetary fines;
●
suspend or withdraw regulatory approval;
●
suspend any ongoing clinical trials;
●
refuse to approve pending applications or supplements to applications filed by us; or
●
require us to initiate a product recall.
The
occurrence of any event or penalty described above may inhibit our ability to commercialize our product candidates and may otherwise
have a material adverse effect on our business, financial condition and results of operations.
Our
products will be subject to controlled substance laws and regulations; failure to receive necessary approvals may delay the launch
of our products and failure to comply with these laws and regulations may adversely affect the results of our business operations.
Our
products will contain controlled substances as defined in the federal Controlled Substances Act of 1970 ( CSA). Controlled substances
that are pharmaceutical products are subject to a high degree of regulation under the CSA, which establishes, among other things,
certain registration, manufacturing quotas, security, recordkeeping, reporting, import, export and other requirements administered
by the DEA. The DEA classifies controlled substances into five schedules: Schedule I, II, III, IV or V substances. Schedule I
substances by definition have a high potential for abuse, have no currently “accepted medical use” in the United States,
lack accepted safety for use under medical supervision, and may not be prescribed, marketed or sold in the United States. Pharmaceutical
products approved for use in the United States may be listed as Schedule II, III, IV or V, with Schedule II substances considered
to present the highest potential for abuse or dependence and Schedule V substances the lowest relative risk of abuse among such
substances. Schedule I and II drugs are subject to the strictest controls under the CSA, including manufacturing and procurement
quotas, security requirements and criteria for importation. In addition, dispensing of Schedule II drugs is further restricted.
For example, they may not be refilled without a new prescription.
While
cannabis is a Schedule I controlled substance, products approved for medical use in the United States that contain cannabis or
cannabis extracts must be placed in Schedules II - V, since approval by the FDA satisfies the “accepted medical use”
requirement. If and when our products receive FDA approval, the DEA will make a scheduling determination and place them in a schedule
other than Schedule I in order for it to be prescribed to patients in the United States. If approved by the FDA, we expect the
finished dosage forms of our products to be listed by the DEA as a Schedule II or III controlled substance. Consequently, their
manufacture, importation, exportation, domestic distribution, storage, sale and legitimate use will be subject to a significant
degree of regulation by the DEA. The scheduling process may take one or more years beyond FDA approval, thereby significantly
delaying the launch of our products. Furthermore, if the FDA, DEA or any foreign regulatory authority determines that our products
may have potential for abuse, it may require us to generate more clinical data than that which is currently anticipated, which
could increase the cost and/or delay the launch of our products.
Because
our products will contain active ingredients of
Cannabis
, which are Schedule I substances, to conduct preclinical studies
and clinical trials with our products in the United States prior to approval, each of our research sites must submit a research
protocol to the DEA and obtain and maintain a DEA researcher registration that will allow those sites to procure necessary materials
from suppliers, and to handle and dispense our products. If the DEA delays or denies the grant of a research registration to one
or more research sites, the preclinical studies or clinical trials could be significantly delayed, and we could lose and be required
to replace clinical trial sites, resulting in additional costs.
We
will also need to identify wholesale distributors with the appropriate DEA registrations and authority to distribute our products
to pharmacies and other healthcare providers, and these distributors would need to obtain Schedule II or III distribution registrations.
The failure to obtain, or delay in obtaining, or the loss of any of those registrations could result in increased costs to us.
If our products are Schedule II drugs, pharmacies would have to maintain enhanced security with alarms and monitoring systems
and they must adhere to recordkeeping and inventory requirements. This may discourage some pharmacies from carrying the product.
Furthermore, state and federal enforcement actions, regulatory requirements, and legislation intended to reduce prescription drug
abuse, such as the requirement that physicians consult a state prescription drug monitoring program, may make physicians less
willing to prescribe, and pharmacies to dispense, Schedule II products.
We
may manufacture the commercial supply of our products, or necessary raw materials, outside of the United States. If our products
are approved by the FDA and classified as a Schedule II or III substance, an importer can import for commercial purposes if it
obtains from the DEA an importer registration and files an application with the DEA for an import permit for each import. The
DEA provides annual assessments/estimates to the International Narcotics Control Board which guides the DEA in the amounts of
controlled substances that the DEA authorizes to be imported. The failure to identify an importer or obtain the necessary import
authority, including specific quantities, could affect the availability of our products and have a material adverse effect on
our business, results of operations and financial condition. In addition, an application for a Schedule II importer registration
must be published in the Federal Register, and there is a waiting period for third party comments to be submitted.
Individual
states have also established controlled substance laws and regulations. Though state-controlled substance laws often mirror federal
law, because the states are separate jurisdictions, they may separately schedule our product candidates as well. While some states
automatically schedule a drug based on federal action, other states schedule drugs through rulemaking or a legislative action.
State scheduling may delay commercial sale of any product for which we obtain federal regulatory approval and adverse scheduling
could have a material adverse effect on the commercial attractiveness of such product. We or our partners must also obtain separate
state registrations, permits or licenses in order to be able to obtain, handle, and distribute controlled substances for clinical
trials or commercial sale, and failure to meet applicable regulatory requirements could lead to enforcement and sanctions by the
states in addition to those from the DEA or otherwise arising under federal law.
Product
shipment delays could have a material adverse effect on our business, results of operations and financial condition.
The
shipment, import and export of our products and raw materials may require import and export licenses. In the United States, the
FDA, U.S. Customs and Border Protection and in other countries, similar regulatory authorities, regulate the import and export
of pharmaceutical products that contain controlled substances. Specifically, the import and export process requires the issuance
of import and export licenses by the relevant controlled substance authority in both the importing and exporting country. We may
not be granted, or if granted, maintain, such licenses from the authorities in certain countries. Even if we obtain the relevant
licenses, shipments of our products and materials may be held up in transit, which could cause significant delays and may lead
to product batches being stored outside required temperature ranges. Inappropriate storage may damage the product shipment resulting
in delays in clinical trials or, upon commercialization, a partial or total loss of revenue from one or more shipments of our
products. A delay in a clinical trial or, upon commercialization, a partial or total loss of revenue from one or more shipments
of our products could have a material adverse effect on our business, results of operations and financial condition.
Failure
to obtain regulatory approval in jurisdictions outside the United States and the European Union would prevent our product candidates
from being marketed in those jurisdictions.
In
order to market and sell our products in jurisdictions other than the United States and the European Union, we must obtain separate
marketing approvals and comply with numerous and varying regulatory requirements. The regulatory approval process outside the
United States and the European Union generally includes all of the risks associated with obtaining FDA and EMA approval, but can
involve additional testing. We may need to partner with third parties in order to obtain approvals outside the United States and
the European Union. In addition, in many countries worldwide, it is required that the product be approved for reimbursement before
the product can be approved for sale in that country. We may not obtain approvals from regulatory authorities outside the United
States and the European Union on a timely basis, if at all. Even if we were to receive approval in the United States or the European
Union, approval by the FDA or the EMA does not ensure approval by regulatory authorities in other countries or jurisdictions.
Similarly, approval by one regulatory authority outside the United States and the European Union would not ensure approval by
regulatory authorities in other countries or jurisdictions or by the FDA or the EMA. We may not be able to file for marketing
approvals and may not receive necessary approvals to commercialize our products in any market. If we are unable to obtain approval
of our product candidates by regulatory authorities in other foreign jurisdictions, the commercial prospects of those product
candidates may be significantly diminished and our business prospects could decline.
Healthcare
legislation, including potentially unfavorable pricing regulations or other healthcare reform initiatives, may increase the difficulty
and cost for us to obtain marketing approval of and commercialize our product candidates.
In
the United States there have been a number of legislative and regulatory changes and proposed changes regarding the healthcare
system that could prevent or delay marketing approval of our product candidates, restrict or regulate post-approval activities
or affect our ability to profitably sell any product candidates for which we obtain marketing approval.
The
Patient Protection and Affordable Care Act, as amended by the Health Care and Education Reconciliation Act, or Affordable Care
Act, among other things, imposes a significant annual fee on companies that manufacture or import branded prescription drug products.
It also contains substantial provisions intended to broaden access to health insurance, reduce or constrain the growth of healthcare
spending, enhance remedies against healthcare fraud and abuse, add new transparency requirements for the healthcare and health
insurance industries, impose new taxes and fees on pharmaceutical and medical device manufacturers, and impose additional health
policy reforms, any of which could negatively impact our business. A significant number of provisions are not yet, or have only
recently become effective, but the Affordable Care Act is likely to continue the downward pressure on pharmaceutical and medical
device pricing, especially under the Medicare program, and may also increase our regulatory burdens and operating costs.
In
addition, other legislative changes have been proposed and adopted since passage of the Affordable Care Act. The Budget Control
Act of 2011, among other things, created the Joint Select Committee on Deficit Reduction to recommend to Congress proposals in
spending reductions. The Joint Select Committee did not achieve a targeted deficit reduction of an amount greater than $1.2 trillion
for the fiscal years 2012 through 2021, triggering the legislation’s automatic reduction to several government programs.
This included aggregate reductions to Medicare payments to healthcare providers of up to 2.0% per fiscal year, which went into
effect on April 1, 2013, and due to subsequent legislative amendments to the statute, will remain in effect through 2025 unless
additional Congressional action is taken. In January 2013, President Obama signed into law the American Taxpayer Relief Act of
2012, which, among other things, reduced Medicare payments to several categories of healthcare providers and increased the statute
of limitations period for the government to recover overpayments to providers from three to five years. If we ever obtain regulatory
approval and successfully commercialize our products, these new laws may result in additional reductions in Medicare and other
healthcare funding, which could have a material adverse effect on our customers and accordingly, our financial operations.
We
expect that the Affordable Care Act, as well as other healthcare reform measures that have been and may be adopted in the future,
may result in more rigorous coverage criteria and in additional downward pressure on the price that we receive for any approved
product, and could seriously harm our future revenues. Any reduction in reimbursement from Medicare or other government programs
may result in a similar reduction in payments from private payors. The implementation of cost containment measures or other healthcare
reforms may compromise our ability to generate revenue, attain profitability or commercialize our products.
We
may seek orphan drug status for our products for the treatment of certain diseases or conditions, but we may be unable to obtain
such designation or to maintain the benefits associated orphan drug status, including market exclusivity, which may cause our
revenue, if any, to be reduced.
Regulatory
authorities in some jurisdictions, including the United States and European Union, may designate drugs for relatively small patient
populations as orphan drugs. The FDA may grant Orphan Drug Designation to drugs intended to treat a rare disease or condition
that affects fewer than 200,000 individuals annually in the United States, or, if the disease or condition affects more than 200,000
individuals annually in the United States, if there is no reasonable expectation that the cost of developing and making the drug
would be recovered from sales in the United States. In the European Union, the EMA’s Committee for Orphan Medicinal Products
grants Orphan Drug Designation to promote the development of products that are intended for the diagnosis, prevention or treatment
of life-threatening or chronically debilitating conditions affecting not more than five in 10,000 persons in the European Union
community. Additionally, designation is granted for products intended for the diagnosis, prevention or treatment of a life-threatening,
seriously debilitating or serious and chronic condition and when, without incentives, it is unlikely that sales of the drug in
the European Union would be sufficient to justify the necessary investment in developing the drug.
In
the United States, Orphan Drug Designation entitles a party to financial incentives, such as opportunities for grant funding towards
clinical trial costs, tax credits for certain research and user fee waivers under certain circumstances. In addition, if a product
receives the first FDA approval for the indication for which it has orphan designation, the product is entitled to seven years
of market exclusivity, which means the FDA may not approve any other application for the same drug for the same indication for
a period of seven years, except in limited circumstances, such as a showing of clinical superiority over the product with orphan
exclusivity. Orphan drug exclusivity does not prevent the FDA from approving a different drug for the same disease or condition,
or the same drug for a different disease or condition. In the European Union, Orphan Drug Designation also entitles a party to
financial incentives such as reduction of fees or fee waivers and ten years of market exclusivity following drug approval. This
period may be reduced to six years if the Orphan Drug Designation criteria are no longer met, including where it is shown that
the product is sufficiently profitable so that market exclusivity is no longer justified.
As
a result, even if our products receive orphan exclusivity, the FDA or EMA can still approve other drugs that have a different
active ingredient for use in treating the same indication. Furthermore, the FDA can waive orphan exclusivity if we are unable
to manufacture sufficient supply of our products or the EMA could reduce the term of exclusivity if our products are sufficiently
profitable.
We
may seek orphan drug designation for our products, but exclusive marketing rights in the United States may be limited if we seek
approval for an indication broader than the orphan designated indication and may be lost if the FDA or EMA later determines that
the request for designation was materially defective or if the manufacturer is unable to assure sufficient quantities of the product
to meet the needs of patients with the rare disease or condition. In addition, although we may seek orphan drug designation for
our products, we may never receive such designation, or there may be a delay in receiving such designation that would impact our
expected timeframe for clinical development.
Even
if we are able to commercialize our products, the products may not receive coverage and adequate reimbursement from third-party
payors, which could harm our business.
The
availability of reimbursement by governmental and private payors is essential for most patients to be able to afford expensive
treatments. Sales of our products, if approved, will depend substantially on the extent to which the costs of these products will
be paid by health maintenance, managed care, pharmacy benefit and similar healthcare management organizations, or reimbursed by
government health administration authorities, private health coverage insurers and other third-party payors. If reimbursement
is not available, or is available only to limited levels, we may not be able to successfully commercialize our products. Even
if coverage is provided, the approved reimbursement amount may not be high enough to allow us to establish or maintain pricing
sufficient to realize a sufficient return on our investment.
In
the United States, the Medicare Prescription Drug, Improvement, and Modernization Act of 2003, or Medicare Modernization Act,
established the Medicare Part D program and provided authority for limiting the number of drugs that will be covered in any therapeutic
class thereunder. The Medicare Modernization Act, including its cost reduction initiatives, could decrease the coverage and reimbursement
rate that we receive for any of our approved products. Furthermore, private payors often follow Medicare coverage policies and
payment limitations in setting their own reimbursement rates. Therefore, any reduction in reimbursement that results from the
Medicare Modernization Act may result in a similar reduction in payments from private payors.
There
is significant uncertainty related to the insurance coverage and reimbursement of newly approved products. In the United States,
the principal decisions about reimbursement for new medicines are typically made by the Centers for Medicare & Medicaid Services,
or CMS, an agency within the U.S. Department of Health and Human Services, or HHS, as CMS decides whether and to what extent a
new medicine will be covered and reimbursed under Medicare. Private payors tend to follow CMS to a substantial degree.
The
intended use of a drug product by a physician can also affect pricing. For example, CMS could initiate a National Coverage Determination
administrative procedure, by which the agency determines which uses of a therapeutic product would and would not be reimbursable
under Medicare. This determination process can be lengthy, thereby creating a long period during which the future reimbursement
for a particular product may be uncertain.
Outside
the United States, particularly in member states of the European Union, the pricing of prescription drugs is subject to governmental
control. In these countries, pricing negotiations or the successful completion of health technology assessment procedures with
governmental authorities can take considerable time after receipt of marketing approval for a product. In addition, there can
be considerable pressure by governments and other stakeholders on prices and reimbursement levels, including as part of cost containment
measures. Certain countries allow companies to fix their own prices for medicines, but monitor and control company profits. Political,
economic and regulatory developments may further complicate pricing negotiations, and pricing negotiations may continue after
reimbursement has been obtained. Reference pricing used by various European Union member states and parallel distribution, or
arbitrage between low-priced and high-priced member states, can further reduce prices. In some countries, we or our collaborators
may be required to conduct a clinical trial or other studies that compare the cost-effectiveness of our product candidates to
other available therapies in order to obtain or maintain reimbursement or pricing approval. Publication of discounts by third-party
payors or authorities may lead to further pressure on the prices or reimbursement levels within the country of publication and
other countries. If reimbursement of any product candidate approved for marketing is unavailable or limited in scope or amount,
or if pricing is set at unsatisfactory levels, our business, financial condition, results of operations or prospects could be
adversely affected.
Our
relationships with customers and third-party payors will be subject to applicable anti-kickback, fraud and abuse and other healthcare
laws and regulations, which could expose us to criminal sanctions, civil penalties, contractual damages, reputational harm and
diminished profits and future earnings.
Healthcare
providers, physicians and third-party payors play a primary role in the recommendation and prescription of any product candidates
for which we obtain marketing approval. Our future arrangements with third-party payors and customers may expose us to broadly
applicable fraud and abuse and other healthcare laws and regulations that may constrain the business or financial arrangements
and relationships through which we market, sell and distribute our products for which we obtain marketing approval. As a pharmaceutical
company, even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or
other third-party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients’
rights are and will be applicable to our business. Restrictions under applicable federal and state healthcare laws and regulations
that may affect our ability to operate include the following:
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the U.S. federal healthcare Anti-Kickback Statute impacts our marketing practices, educational programs, pricing policies and
relationships with healthcare providers or other entities, by prohibiting, among other things, persons from knowingly and willfully
soliciting, offering, receiving or providing remuneration, directly or indirectly, in cash or in kind, to induce or reward, or
in return for, either the referral of an individual for, or the purchase, order or recommendation of, any good or service, for
which payment may be made under a federal healthcare program such as Medicare and Medicaid;
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federal civil and criminal false claims laws and civil monetary penalty laws impose criminal and civil penalties, including through
civil whistleblower or qui tam actions, against individuals or entities for knowingly presenting, or causing to be presented,
to the federal government, including the Medicare and Medicaid programs, claims for payment that are false or fraudulent (including
through impermissible promotion of our products for off-label uses) or making a false statement or record to avoid, decrease or
conceal an obligation to pay money to the federal government;
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the U.S. federal Health Insurance Portability and Accountability Act of 1996, or HIPAA, imposes criminal and civil liability for
executing a scheme to defraud any healthcare benefit program and also created federal criminal laws that prohibit knowingly and
willfully falsifying, concealing or covering up a material fact or making any materially false statements in connection with the
delivery of or payment for healthcare benefits, items or services;
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HIPAA, and the rules and regulations promulgated thereunder, establish federal standards for maintaining the privacy and security
of certain patient health information known as Protected Health Information, or PHI. As amended by the Health Information Technology
for Economic and Clinical Health Act, or HITECH, HIPAA establishes federal standards for administrative, technical and physical
safeguards relevant to the electronic transmission of PHI and imposes notification obligations in the event of a breach of the
privacy or security of PHI. In addition to adhering to the requirements of HIPAA, entities considered “covered entities”
under HIPAA (such as health plans, healthcare clearinghouses, and certain healthcare providers) are required to obtain assurances
in the form of a written contract from certain business associates to which they transmit PHI (or who create, receive, transmit
or maintain PHI on the covered entity’s behalf) to ensure that the privacy and security of such information is maintained
in accordance with HIPAA requirements. HITECH made changes to HIPAA including extending the reach of HIPAA beyond HIPAA covered
entities to business associates, increased the maximum civil monetary penalties for violations of HIPAA, and granted enforcement
authority to state attorneys general. Failure to comply with HIPAA/HITECH can result in civil and criminal liability, including
civil monetary penalties, fines and imprisonment;
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the U.S. federal physician payment transparency requirements under the Affordable Care Act require applicable manufacturers of
covered drugs, devices, biologics and medical supplies to report annually to HHS information related to payments and other transfers
of value to physicians, certain other healthcare providers, and teaching hospitals, and ownership and investment interests held
by physicians and certain other healthcare providers and their immediate family members and applicable group purchasing organizations;
and
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analogous state laws and regulations, such as state anti-kickback and false claims laws, may apply to sales or marketing arrangements
and claims involving healthcare items or services reimbursed by non-governmental third-party payors, including private insurers.
Some state laws require pharmaceutical companies to comply with the pharmaceutical industry’s voluntary compliance guidelines
and the relevant compliance guidance promulgated by the federal government and may require drug manufacturers to report information
related to payments and other transfers of value to physicians and certain other healthcare providers or marketing expenditures.
Additionally, state and foreign laws govern the privacy and security of health information in certain circumstances, many of which
differ from each other in significant ways and often are not preempted by HIPAA/HITECH, thus complicating compliance efforts.
Comparable
laws and regulations exist in the countries within the European Economic Area, or EEA. Although such laws are partially based
upon European Union law, they may vary from country to country. Healthcare specific, as well as general European Union and national
laws, regulations and industry codes constrain, for example, our interactions with government officials and healthcare practitioners,
and the handling of healthcare data. Non-compliance with any of these laws or regulations could lead to criminal or civil liability.
Efforts
to ensure that our business arrangements with third parties will comply with applicable healthcare laws and regulations will involve
substantial costs. It is possible that governmental authorities will conclude that our business practices may not comply with
current or future statutes, regulations or case law involving applicable fraud and abuse or other healthcare laws and regulations.
If our operations are found to be in violation of any of these laws or any other governmental regulations that may apply to us,
we may be subject to significant civil, criminal and administrative penalties, damages, fines, imprisonment, exclusion from government
funded healthcare programs, such as Medicare and Medicaid, and the curtailment or restructuring of our operations. If any physicians
or other healthcare providers or entities with whom we expect to do business are found to not be in compliance with applicable
laws, they may be subject to criminal, civil or administrative sanctions, including exclusions from government funded healthcare
programs.
Also,
the U.S. Foreign Corrupt Practices Act and similar worldwide anti-bribery laws generally prohibit companies and their intermediaries
from making improper payments to non-U.S. officials for the purpose of obtaining or retaining business. Our internal control policies
and procedures may not protect us from reckless or negligent acts committed by our employees, future distributors, licensees or
agents. Violations of these laws, or allegations of such violations, could result in fines, penalties or prosecution and have
a negative impact on our business, results of operations and reputation.
Our
products, if approved, may be unable to achieve broad market acceptance and, consequently, limit our ability to generate revenue
from new products.
Even
when product development is successful and regulatory approval has been obtained, our ability to generate significant revenue
depends on the acceptance of our products by physicians and patients. The market acceptance of any product depends on a number
of factors, including the indication statement and warnings approved by regulatory authorities in the product label, continued
demonstration of efficacy and safety in commercial use, physicians’ willingness to prescribe the product, reimbursement
from third-party payors such as government healthcare systems and insurance companies, the price of the product, the nature of
any post-approval risk management plans mandated by regulatory authorities, competition, and marketing and distribution support.
Any factors preventing or limiting the market acceptance of our product candidates could have a material adverse effect on our
business, results of operations and financial condition.
If
we receive regulatory approvals, we intend to market our products in multiple jurisdictions where we have limited or no operating
experience and may be subject to increased business and economic risks that could affect our financial results.
If
we receive regulatory approvals, we plan to market our products in jurisdictions where we have limited or no experience in marketing,
developing and distributing our products. Certain markets have substantial legal and regulatory complexities that we may not have
experience navigating. We are subject to a variety of risks inherent in doing business internationally, including risks related
to the legal and regulatory environment in non-U.S. jurisdictions, including with respect to privacy and data security, trade
control laws and unexpected changes in laws, regulatory requirements and enforcement, as well as risks related to fluctuations
in currency exchange rates and political, social and economic instability in foreign countries. If we are unable to manage our
international operations successfully, our financial results could be adversely affected.
In
addition, controlled substance legislation may differ in other jurisdictions and could restrict our ability to market our products
internationally. Most countries are parties to the Single Convention on Narcotic Drugs 1961, which governs international trade
and domestic control of narcotic substances, including
Cannabis
extracts. Countries may interpret and implement their treaty
obligations in a way that creates a legal obstacle to us obtaining marketing approval for our products in those countries. These
countries may not be willing or able to amend or otherwise modify their laws and regulations to permit our products to be marketed,
or achieving such amendments to the laws and regulations may take a prolonged period of time. We would be unable to market our
products in countries with such obstacles in the near future or perhaps at all without modification to laws and regulations.
Our
products will contain controlled substances, the use of which may generate public controversy.
Since
our products will contain controlled substances, their regulatory approval may generate public controversy. Political and social
pressures and adverse publicity could lead to delays in approval of, and increased expenses for, our products. These pressures
could also limit or restrict the introduction and marketing of our products. Adverse publicity from
Cannabis
misuse or
adverse side effects from
Cannabis
or other cannabinoid products may adversely affect the commercial success or market
penetration achievable by our products. The nature of our business attracts a high level of public and media interest, and in
the event of any resultant adverse publicity, our reputation may be harmed.
If
we fail to protect or enforce our intellectual property rights or secure rights to the intellectual property of others, the value
of our intellectual property rights would diminish.
We
expect to continue to develop our intellectual property portfolio as we increase our research and development efforts. We may
be unable to obtain patents or other protection for any technologies we develop, because such technologies are not coverable by
patents or other forms of registered intellectual property, because third parties file patents covering the same claims earlier
than we do, or for other reasons. If we are able to obtain issued patents, we cannot predict the degree and range of protection
any patents will afford us against competitors, including whether third parties will find ways to invalidate or otherwise circumvent
our patents. Others may obtain patents claiming aspects similar to those covered by our patents and patent applications, which
may limit the efficacy of the protections afforded by any patents we may obtain.
Our
success will also depend upon the skills, knowledge and experience of our personnel, our consultants and advisors as well as our
licensors and contractors. To help protect any proprietary know-how we develop and any inventions for which patents may be unobtainable
or difficult to obtain, we expect to rely on trade secret protection and confidentiality agreements. To this end, we expect to
require our employees, consultants, advisors and contractors to enter into agreements which prohibit the disclosure of confidential
information and, where applicable, require disclosure and assignment to us of the ideas, developments, discoveries and inventions
important to our business. These agreements may not provide adequate protection for our trade secrets, know-how or other proprietary
information in the event of any unauthorized use or disclosure or the lawful development by others of such information. If any
of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade secrets, know-how and other
proprietary rights would be significantly impaired and our business and competitive position would suffer.
If
we infringe the rights of third parties we could be prevented from selling products and forced to pay damages or defend against
litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs. In that case, we could be required to:
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obtain
licenses from such third parties, which may not be available on commercially reasonable terms, if at all;
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redesign
our products or processes to avoid infringement, which may not be feasible;
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stop
using the subject matter claimed in the patents held by others;
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pay
damages; and/or
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defend
litigation or administrative proceedings, which may be costly whether we win or lose, and which could result in a substantial
diversion of our valuable management resources.
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Any
of these outcomes could divert management attention and other resources and could significantly harm our operations and financial
condition.
We
use hazardous materials in our business. Any claims relating to improper handling, storage or disposal of these materials could
be time consuming and costly.
Our
research and development efforts and our manufacturing and agricultural processes may involve the controlled storage, use and
disposal of certain hazardous materials and waste products. We and our suppliers and other collaborators are subject to federal,
state and local regulations governing the use, manufacture, storage, handling and disposal of materials and waste products. Even
if we and these suppliers and collaborators comply with the standards prescribed by law and regulation, the risk of accidental
contamination or injury from hazardous materials cannot be eliminated. We may not be able to obtain and maintain insurance on
acceptable terms, or at all, to cover costs associated with any such accidental contamination. In the event of such an accident,
we could be held liable for any damages that result, and any liability could exceed the limits or fall outside the coverage of
any insurance we may obtain and exceed our financial resources. We may incur significant costs to comply with current or future
environmental laws and regulations.
We
may incur substantial liabilities and may be required to limit commercialization of our products in response to product liability
lawsuits.
If
we are able to develop and commercialize our proposed products, we could become subject to product liability claims. If we are
not able to successfully defend against such claims, we may incur substantial liabilities or be required to limit commercialization
of our proposed products. If we are unable to obtain sufficient product liability insurance at an acceptable cost to protect against
potential product liability, claims could prevent or inhibit the commercialization of products we develop, alone or with corporate
collaborators. Even if our agreements with any future corporate collaborators entitle us to indemnification against losses, such
indemnification may not be available or adequate should any claim arise.
Government
regulation of our products could increase our costs, prevent us from offering certain products or cause us to recall products.
The
processing, formulation, manufacturing, packaging, labeling, advertising and distribution of our products is subject to regulation
by one or more federal agencies, and various agencies of the states and localities in which our products are manufactured and
sold. These government regulatory agencies may attempt to regulate any of our products that fall within their jurisdiction. Such
regulatory agencies may not accept the evidence of safety for any new ingredients that we may want to market, may determine that
a particular product or product ingredient presents an unacceptable health risk, may determine that a particular statement of
nutritional support that we want to use is an unacceptable drug claim or an unauthorized version of a food “health claim,”
may determine that a particular product is an unapproved new drug, or may determine that particular claims are not adequately
supported by available scientific evidence. Such a determination would prevent us from marketing particular products or using
certain statements of nutritional support on our products. We also may be unable to disseminate third-party literature that supports
our products if the third-party literature fails to satisfy certain requirements.
In
addition, a government regulatory agency could require us to remove a particular product from the market. Any product recall or
removal would result in additional costs to us, including lost revenues from any products that we are required to remove from
the market, any of which could be material. Any such product recalls or removals could lead to liability, substantial costs and
reduced growth prospects.
If
any of our products contain plants, herbs or other substances not recognized as safe by a government regulatory agency, we may
not be able to market or sell such products in that jurisdiction. Any such prohibition could materially adversely affect our results
of operations and financial condition. Further, if more stringent statutes are enacted, or if more stringent regulations are promulgated,
we may not be able to comply with such statutes or regulations without incurring substantial expense, or at all.
We
are not able to predict the nature of future laws, regulations, repeals or interpretations or to predict the effect additional
governmental regulation, if and when it occurs, would have on our business in the future. Such developments could, however, require
reformulation of certain products to meet new standards, recalls or discontinuance of certain products not able to be reformulated,
additional record-keeping requirements, increased documentation of the properties of certain products, additional or different
labeling, additional scientific substantiation, or other new requirements. Any such developments could involve substantial additional
costs to us, which we may not be able to fund, and could have a material adverse effect on our business operations and financial
condition.
We
have material weaknesses in our internal control over financial reporting. If we fail to create effective controls and procedures
and an effective system of internal control over financial reporting, we may not be able to accurately report our financial results
or prevent fraud.
We
have material weakness in our internal control over financial reporting and ineffective disclosure controls and procedures, related
to insufficient segregation of duties in our finance and accounting functions due to limited personnel and insufficient corporate
governance policies. These material weakness result in ineffective oversight in the establishment and monitoring of required financial
and other controls and procedures.
Currently,
one person often performs all aspects of our financial reporting process, including, but not limited to, preparing underlying
accounting records and systems, posting and recording journal entries and preparing our financial statements. As a result, there
is often no review of our financial reporting process, which could 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. These control deficiencies
could result in a material misstatement of our interim or annual financial statements that may not be prevented or detected.
Our
Board of Directors is currently comprised of three directors, Mr. Robert Brooke, our Chief Executive Officer, Dr. Avtar Dhillon,
and Dr. Anthony Maida III. Our Board of Directors has designated Dr. Maida as a designated audit committee financial expert, and
we have established an audit committee that is currently comprised solely of Dr. Maida. Neither Mr. Brooke nor Dr. Dhillon would
be considered independent for purposes of membership on an audit committee pursuant to Nasdaq Listing Rules. Further, Mr. Brooke,
who currently serves as our principal financial officer and principal accounting officer, has some professional experience in
finance and accounting but does not have professional credentials. We expect to appoint additional independent directors with
experience in finance and accounting and hire additional dedicated finance and accounting staff as we increase our operations,
as resources permit and as we identify and recruit qualified candidates for those positions. However, until we have done so, we
may be unable to establish or maintain effective internal control over financial reporting. As a result, we may discover additional
material weaknesses in our internal control over financial reporting and/or disclosure controls and procedures, which we may not
successfully remediate on a timely basis or at all. Any failure to remediate our reported or any future material weaknesses, implement
required new or improved controls, or further difficulties encountered in their implementation, could cause us to fail to meet
our reporting obligations or result in material misstatements in our financial statements. Inadequate internal controls could
also cause investors to lose confidence in our reported financial information, which could have a negative impact on the trading
price of our common stock. Moreover, as we continue and aim to expand our operations we will be required to expend significant
resources to design, implement and maintain a system of internal controls that is adequate to satisfy our reporting obligations
as a public company. The costs associated with external consultants and internal resources to accomplish this are significant
and difficult to predict.
Risks
Related to our Common Stock
Our
common stock is illiquid and the price of our common stock may be negatively impacted by any negative operational results and
factors unrelated to our operations.
Our
common stock is quoted on the OTCQB and has limited trading history. Trading on the OTCQB is frequently highly volatile, with
low trading volume. We have experienced significant fluctuations in the price and trading volume of our common stock, which may
be caused by factors relating to our business and operational results and/or factors unrelated to our company, including general
market conditions. A sufficient market for our common stock may never develop, in which case it could be difficult for stockholders
to sell their stock. The market price of our common stock could continue to fluctuate substantially.
We
have received subpoenas in the Securities and Exchange Commission Section 8(e) examination, the consequences of which are unknown.
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 the 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
are unaware of the scope or timing of the SEC’s examination. As a result, we do not know how the SEC examination is proceeding,
when the investigation will be concluded, or if we will become involved to a greater extent than providing documents and testimony
to the SEC. We also are unable to predict what action, if any, might be taken in the future by the SEC or its staff as a result
of the matters that are the subject to its investigation or what impact, if any, the cost of continuing to respond to subpoenas
might have on our financial position, results of operations, or cash flows. We have not established any provision for losses in
respect of this matter. In addition, complying with any such future requests by the SEC for documents or testimony could distract
the time and attention of our officers and directors or divert our resources away from ongoing business matters. Furthermore,
it is possible that we currently are, or may hereafter become a target of the SEC’s investigation. Any such investigation
could result in significant legal expenses, the diversion of management’s attention from our business, damage to our business
and reputation, and could subject us to a wide range of remedies, including an SEC enforcement action. There can be no assurance
that any final resolution of this and any similar matters will not have a material adverse effect on our financial condition or
results of operations.
Trading
of our stock is restricted by the SEC’s “penny stock” regulations and certain FINRA rules, which may limit a
stockholder’s ability to buy and sell our common stock.
Our
securities are covered by certain “penny stock” rules, which impose additional sales practice requirements on broker-dealers
who sell low-priced securities to persons other than established customers and accredited investors. For transactions covered
by these rules, a broker-dealer must make a special suitability determination for the purchaser and have received the purchaser’s
written consent to the transaction prior to sale, among other things. These rules may affect the ability of broker-dealers and
holders to sell our common stock and may negatively impact the level of trading activity for our common stock. To the extent our
common stock remains subject to the penny stock regulations, such regulations may discourage investor interest in and adversely
affect the market liquidity of our common stock.
The
Financial Industry Regulatory Authority (known as “FINRA”) has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low priced securities to their non-institutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other
information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low priced
securities will not be suitable for at least some customers. FINRA requirements make it more difficult for broker-dealers to recommend
that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on
the market for our shares.
If
we issue and sell additional shares of our common stock in the future, our existing stockholders will be diluted and our stock
price could fall.
Our
articles of incorporation authorize the issuance of up to 1,000,000,000 shares of common stock, of which, as of January 18,
2018, 24,200,147 were outstanding and 532,395 were reserved for issuance under our stock incentive plan or outstanding options,
warrants or other convertible securities. As a result, we have a large number of shares of common stock that are authorized for
issuance and are not outstanding or otherwise reserved, and could be issued at the discretion of our Board of Directors. We expect
to seek additional financing in the future in order to fund our operations, and if we issue additional shares of common stock
or securities convertible into common stock, our existing stockholders will be diluted. Our Board of Directors may also choose
to issue shares of our common stock or securities convertible into or exercisable for our common stock to acquire assets or companies,
for compensation to employees, officers, directors, consultants and advisors, or to fund capital expenditures. Additionally, shares
of common stock could be issued for anti-takeover purposes or to delay or prevent changes in control or management of the Company.
Our Board of Directors may determine to issue shares of our common stock on terms that our stockholders do not deem, that may
not enhance stockholder value, or that may ultimately have an adverse effect on our business or the trading price of our common
stock. Further, the issuance of any such shares will cause further dilution to the ownership interest of our current stockholders,
reduce the book value per share of our common stock and may contribute to a reduction in the market price for our common stock.
Our
directors and officers control a portion of our outstanding common stock, which may delay or prevent a change of control of our
company or adversely affect our stock price.
As
of the date of this prospectus, Dr. Avtar Dhillon, a director of the Company, beneficially owns approximately 6.9% of our
outstanding common stock and director and the Chief Executive Officer of the Company beneficially owns approximately 5.7%
of our outstanding common stock. As a result, they are able to exercise a degree of control over matters requiring stockholder
approval, such as the election of directors and the approval of significant corporate transactions. These types of transactions
include transactions involving an actual or potential change of control of our company or other transactions that non-controlling
stockholders may not deem to be in their best interests and which could result in such stockholders receiving a premium for their
shares.
We
are subject to the reporting requirements of federal securities laws, compliance with which involves significant time, expense
and expertise.
We
are a public reporting company in the United States, and, accordingly, are subject to the information and reporting requirements
of the Exchange Act and other federal securities laws, including the obligations imposed by the Sarbanes-Oxley Act of 2002. The
ongoing costs associated with preparing and filing annual, quarterly and current reports, proxy statements and other information
with the SEC in the ordinary course, as well as preparing and filing audited financial statements, are significant and may cause
unexpected increases in operational expenses. Our present management team is relatively small and may be unable to manage the
ongoing costs and compliance effectively. It may be time consuming, difficult and costly for us to hire additional financial reporting,
accounting and other finance staff in order to build and retain a management team with adequate expertise and experience in operating
a public company.
We
have never paid dividends on our capital stock, and we do not anticipate paying any cash dividends in the foreseeable future.
The
continued operation and expansion of our business will require substantial funding. Investors seeking cash dividends in the foreseeable
future should not purchase our common stock. We have paid no cash dividends on any of our capital stock to date and we currently
intend to retain our available cash to fund the development and growth of our business. Any determination to pay dividends in
the future will be at the discretion of our Board of Directors and will depend upon results of operations, financial condition,
contractual restrictions, restrictions imposed by applicable law and other factors our Board of Directors deems relevant. We do
not anticipate paying any cash dividends on our common stock in the foreseeable future. Any return to stockholders will therefore
be limited to the appreciation of their stock, which may never occur.
SPECIAL
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Information
contained in this prospectus may contain forward-looking statements. Except for the historical information contained in this discussion
of the business and the discussion and analysis of financial condition and results of operations, the matters discussed herein
are forward looking statements. This information may involve known and unknown risks, uncertainties and other factors which may
cause our actual results, performance or achievements to be materially different from future results, performance or achievements
expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe our
future plans, strategies and expectations, are generally identifiable by use of the words “may,” “will,”
“should,” “expect,” “anticipate,” “estimate,” “believe,” “intend”
or “project” or the negative of these words or other variations on these words or comparable terminology. In addition
to the risks and uncertainties described in “Risk Factors” above and elsewhere in this prospectus, these risks and
uncertainties may include risks related to:
General
economic and business conditions;
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Our
ability to continue as a going concern;
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Our
ability to obtain financing necessary to operate our business;
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Our
limited operating history;
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Our
ability to recruit and retain qualified personnel;
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Our
ability to manage future growth;
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Our
ability to research and successfully develop our planned products;
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Our
ability to successfully complete potential acquisitions and collaborative arrangements; and
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Other
factors discussed under the section entitled “Risk Factors”.
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Forward-looking
statements are based on assumptions that may be incorrect, and there can be no assurance that any projections or other expectations
included in any forward-looking statements will come to pass. Our actual results could differ materially from those expressed
or implied by the forward-looking statements as a result of various factors. Except as required by applicable laws, we undertake
no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other
events occur in the future.
SELLING
STOCKHOLDERS
This
prospectus covers the resale from time to time by the selling stockholders identified in the table below of:
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Up
to 933,332 shares of our common stock;
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Up
to 466,667 shares of our common stock currently issuable upon exercise of warrants sold to investors in the Financing; and
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The
selling stockholders identified in the table below may from time to time offer and sell under this prospectus any or all of the
shares of common stock described under the column “Shares of Common Stock Being Offered in this Offering” in the table
below. The table below has been prepared based upon the information furnished to us by the selling stockholders. The selling stockholders
identified below may have sold, transferred or otherwise disposed of some or all of their shares since the date on which the information
in the following table is presented in transactions exempt from or not subject to the registration requirements of the Securities
Act. Information concerning the selling stockholders may change from time to time and, if necessary, we will amend or supplement
this prospectus accordingly.
We
have been advised that each of these selling stockholders acquired our warrants in the ordinary course of business, not for resale,
and that none of these selling stockholders had, at the time of purchase, any agreements or understandings, directly or indirectly,
with any person to distribute the related common stock.
The
following table and disclosure following the table sets forth the name of each selling stockholder, the nature of any position,
office or other material relationship, if any, which the selling stockholder has had, within the past three years, with us or
with any of our predecessors or affiliates, and the number of shares of our common stock beneficially owned by the stockholder
before this offering. The number of shares owned are those beneficially owned, as determined under the rules of the Securities
and Exchange Commission, and the information is not necessarily indicative of beneficial ownership for any other purpose. Under
these rules, beneficial ownership includes any shares of common stock as to which a person has sole or shared voting power or
investment power and any shares of common stock which the person has the right to acquire within 60 days through the exercise
of any option, warrant or right, through conversion of any security or pursuant to the automatic termination of a power of attorney
or revocation of a trust, discretionary account or similar arrangement. Unless otherwise indicated in the footnotes to this table
and subject to community property laws where applicable, we believe that each of the selling stockholders named in this table
has sole voting and investment power with respect to the shares indicated as beneficially owned.
We
have assumed all shares of common stock reflected on the table will be sold from time to time in the offering covered by this
prospectus. We cannot provide an estimate as to the number of shares of common stock that will be held by the selling stockholders
upon termination of the offering covered by this prospectus because the selling stockholders may offer some or all of their shares
of common stock under this prospectus, and because we may not be required to issue any or all of the additional shares of common
stock upon the adjustment of the conversion price of the convertible debentures.
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Shares
of
Common Stock
Beneficially Owned
Before this Offering
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Shares
Offered in
this
Offering
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Shares
of Common Stock
Beneficially Owned Upon
Completion of this Offering
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Selling
Stockholder
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Number
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Percent
(1)
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Number
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Number
(2)
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Percent
(1)(2)
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Riverfall
Group Ltd. (3)
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6
50,000
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2.7
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%
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350,000
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300,00
0
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1.2
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%
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Varese
Capital Inc. (4)
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5
50,001
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2.3
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%
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250,001
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300,00
0
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1.2
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%
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Intracoastal
Capital, LLC (5)
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517,919
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2.1
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%
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399,999
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117,92
0
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*
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Anson
Investment Master Fund, LLP (6)
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466,666
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1.9
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%
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399,999
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66,667
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*
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(1)
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Beneficial
ownership is determined in accordance with Rule 13d-3 of the Exchange Act. In computing
the number of shares beneficially owned by a person and the percentage ownership of that
person, securities that are currently convertible or exercisable into shares of our common
stock, or convertible or exercisable into shares of our common stock within 60 days of
the date hereof are deemed outstanding. Such shares, however, are not deemed outstanding
for the purpose of computing the percentage ownership of any other person. Except as
indicated in the other footnotes to the table, each stockholder named in the table has
sole voting and investment power with respect to the shares set forth opposite such stockholder’s
name. The percentage of beneficial ownership is based on 24,200,147 shares of common
stock outstanding as of the date of this prospectus.
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(2)
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Assumes
that all of the shares of common stock to be registered on the registration statement of which this prospectus is a part,
including all shares of common stock underlying warrants held by the applicable selling stockholder, are sold in the offering,
and such selling stockholder does not acquire additional shares of our common stock after the date of this prospectus and
prior to completion of the offering.
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(3)
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Includes
233,333 shares of common stock purchased on December 15, 2017, and 116,667 issuable under the warrant dated December 15,
2017 as well as 200,000 shares of common stock purchased on July 28, 2017, and 100,000 issuable under the warrant dated July
28, 2017, held by Riverfall Group Ltd. The business address of Riverfall Group Ltd. is Trust Company Complex, Ajeltake
Road, Ajeltake Island, Majuro, Marshall Islands. Riverfall Group Ltd’s principal business is that of a private investment
firm. We have been advised that J.P. Jones has power to vote or to direct the vote and power to dispose or to direct the disposition
of all securities owned directly by Riverfall Group Ltd. We have been advised that Riverfall Group is not a member of the
Financial Industry Regulatory Authority, or FINRA, or an independent broker-dealer, and that neither Riverfall Group nor any
of its affiliates is an affiliate or an associated person of any FINRA member or independent broker-dealer.
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(4)
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Includes
166,667 shares of common stock purchased on December 15, 2017, and 83,334 issuable under the warrant dated December 15,
2017 as well as 200,000 shares of common stock purchased on July 28, 2017, and 100,000 issuable under the warrant dated July
28, 2017, held by Varese Capital Inc. The business address of Varese Capital is Route Du Village, 1925 Finhaut, Switzerland.
Varese Capital’s principal business is that of a private investment firm. We have been advised that Shamal Singh has
power to vote or to direct the vote and power to dispose or to direct the disposition of all securities owned directly by
Varese Capital. We have been advised that Varese Capital is not a member of the Financial Industry Regulatory Authority, or
FINRA, or an independent broker-dealer, and that neither Varese Capital nor any of its affiliates is an affiliate or an associated
person of any FINRA member or independent broker-dealer.
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(5)
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Includes
266,666 shares of common stock purchased on December 15, 2017, and 133,333 issuable under the warrant dated December 15,
2017 as well as 51,253 shares of common stock purchased on July 28, 2017, and 66,667 issuable under the warrant dated July
28, 2017, held by Intracoastal Capital, LLC (“Intracoastal”). The business address of Intracoastal is 245
Palm Trail, Delray Beach, Florida. We have been advised that Mitchell P. Kopin and Daniel B. Asher, each of whom is a
manager of Intracoastal, have shared voting control and investment discretion over the securities reported herein that are
held by Intracoastal. As a result, each of Mr. Kopin and Mr. Asher may be deemed to have beneficial ownership of the securities
reported herein that are held by Intracoastal. Mr. Asher, who is a manager of Intracoastal, is also a control person of a
broker-dealer. As a result of such common control, Intracoastal may be deemed to be an affiliate of a broker-dealer. Intracoastal
acquired the Common Shares being registered hereunder in the ordinary course of business, and at the time of the acquisition
of the Common Shares and Warrants described herein, Intracoastal did not have any arrangements or understandings with any
person to distribute such securities.
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(6)
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Includes
266,666 shares of common stock purchased on December 15, 2017, and 133,333 issuable under the warrant dated December 15,
2017 as well as 66,667 issuable under the warrant dated July 28, 2017, held by Anson Investment Master Fund LLP. Anson
Advisors Inc. and Anson Funds Management LP, the Co-Investment Advisers of Anson Investments Master Fund LP (“Anson”),
hold voting and dispositive power over the Common Shares held by Anson, Bruce Winson is the managing member of Anson Management
GP LLC, which is the general partner of Anson Funds Management LP. Moez Kassam and Adam Spears are directors of Anson Advisors
Inc. Mr. Winson, Mr, Kassam and Mr. Spears each disclaim beneficial ownership of these Common Shares excepe to the extent
of their pecuniary interest therein. The principal business address of Anson is 190 Elgin Avenue, George Town, Grand Cayman.
We have been advised that Anson Investment Master Fund is not a member of the Financial Industry Regulatory Authority, or
FINRA, or an independent broker-dealer, and that neither Anson Investment Master Fund nor any of its affiliates is an affiliate
or an associated person of any FINRA member or independent broker-dealer.
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Other
than as described in the above table and accompanying footnotes or as further described below, (a) we have not made, and are not
required to make, any potential payments to any selling stockholder, any affiliate of a selling stockholder, or any person with
whom any selling stockholder has a contractual relationship regarding the Financing and (b) other than in connection with the
Financing, the selling stockholders have not had, and do not have, any material relationship with us except for their ownership
of our common stock.
The
holders of the warrants issued in the Financing have ongoing rights to exercise the warrants. We have disclosed the material terms
of the warrants elsewhere in this prospectus.
DETERMINATION
OF OFFERING PRICE
The
selling stockholders will determine at what price they may sell the shares of common stock offered by this prospectus, and such
sales may be made at prevailing market prices, at prices related to prevailing market prices or at privately negotiated prices.
PLAN
OF DISTRIBUTION
Each
Selling Stockholder (the “
Selling Stockholders
”) of the securities and any of their pledgees, assignees and
successors-in-interest may, from time to time, sell any or all of their securities covered hereby on the principal Trading Market
or any other stock exchange, market or trading facility on which the securities are traded or in private transactions. These sales
may be at fixed or negotiated prices. A Selling Stockholder may use any one or more of the following methods when selling securities:
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ordinary
brokerage transactions and transactions in which the broker-dealer solicits purchasers;
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block
trades in which the broker-dealer will attempt to sell the securities as agent but may position and resell a portion of the
block as principal to facilitate the transaction;
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purchases
by a broker-dealer as principal and resale by the broker-dealer for its account;
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an
exchange distribution in accordance with the rules of the applicable exchange;
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privately
negotiated transactions;
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settlement
of short sales;
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in
transactions through broker-dealers that agree with the Selling Stockholders to sell a specified number of such securities
at a stipulated price per security;
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through
the writing or settlement of options or other hedging transactions, whether through an options exchange or otherwise;
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a
combination of any such methods of sale; or
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any
other method permitted pursuant to applicable law.
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The
Selling Stockholders may also sell securities under Rule 144 under the Securities Act of 1933, as amended (the “
Securities
Act
”), if available, rather than under this prospectus.
Broker-dealers
engaged by the Selling Stockholders may arrange for other brokers-dealers to participate in sales. Broker-dealers may receive
commissions or discounts from the Selling Stockholders (or, if any broker-dealer acts as agent for the purchaser of securities,
from the purchaser) in amounts to be negotiated, but, except as set forth in a supplement to this Prospectus, in the case of an
agency transaction not in excess of a customary brokerage commission in compliance with FINRA Rule 2440; and in the case of a
principal transaction a markup or markdown in compliance with FINRA IM-2440.
In
connection with the sale of the securities or interests therein, the Selling Stockholders may enter into hedging transactions
with broker-dealers or other financial institutions, which may in turn engage in short sales of the securities in the course of
hedging the positions they assume. The Selling Stockholders may also sell securities short and deliver these securities to close
out their short positions, or loan or pledge the securities to broker-dealers that in turn may sell these securities. The Selling
Stockholders may also enter into option or other transactions with broker-dealers or other financial institutions or create one
or more derivative securities which require the delivery to such broker-dealer or other financial institution of securities offered
by this prospectus, which securities such broker-dealer or other financial institution may resell pursuant to this prospectus
(as supplemented or amended to reflect such transaction).
The
Selling Stockholders and any broker-dealers or agents that are involved in selling the securities may be deemed to be “underwriters”
within the meaning of the Securities Act in connection with such sales. In such event, any commissions received by such broker-dealers
or agents and any profit on the resale of the securities purchased by them may be deemed to be underwriting commissions or discounts
under the Securities Act. Each Selling Stockholder has informed the Company that it does not have any written or oral agreement
or understanding, directly or indirectly, with any person to distribute the securities.
The
Company is required to pay certain fees and expenses incurred by the Company incident to the registration of the securities. The
Company has agreed to indemnify the Selling Stockholders against certain losses, claims, damages and liabilities, including liabilities
under the Securities Act.
We
agreed to keep this prospectus effective until the earlier of (i) the date on which the securities may be resold by the Selling
Stockholders without registration and without regard to any volume or manner-of-sale limitations by reason of Rule 144, without
the requirement for the Company to be in compliance with the current public information under Rule 144 under the Securities Act
or any other rule of similar effect or (ii) all of the securities have been sold pursuant to this prospectus or Rule 144 under
the Securities Act or any other rule of similar effect. The resale securities will be sold only through registered or licensed
brokers or dealers if required under applicable state securities laws. In addition, in certain states, the resale securities covered
hereby may not be sold unless they have been registered or qualified for sale in the applicable state or an exemption from the
registration or qualification requirement is available and is complied with.
Under
applicable rules and regulations under the Exchange Act, any person engaged in the distribution of the resale securities may not
simultaneously engage in market making activities with respect to the common stock for the applicable restricted period, as defined
in Regulation M, prior to the commencement of the distribution. In addition, the Selling Stockholders will be subject to applicable
provisions of the Exchange Act and the rules and regulations thereunder, including Regulation M, which may limit the timing of
purchases and sales of the common stock by the Selling Stockholders or any other person. We will make copies of this prospectus
available to the Selling Stockholders and have informed them of the need to deliver a copy of this prospectus to each purchaser
at or prior to the time of the sale (including by compliance with Rule 172 under the Securities Act).
USE
OF PROCEEDS
We
will not receive proceeds from the sale of common stock under this prospectus. We would, however, receive approximately $933,334
from the selling stockholders if they exercise their warrants in full on a cash basis, which we will use primarily for working
capital purposes. The warrant holders may exercise their warrants at any time in accordance with the terms thereof until their
expiration, as further described under “Description of Securities.” If there is no effective registration statement
registering the resale of the common stock underlying the warrants as of certain time periods (as provided in the warrants), the
warrant holders may choose to exercise their warrants on a “cashless exercise” or “net exercise” basis.
If they do so, we will not receive any proceeds from the exercise of the warrants. Because the warrant holders may exercise the
warrants largely in their own discretion, if at all, we cannot plan on specific uses of proceeds beyond application of proceeds
to the purposes herein described. We have agreed to bear the expenses (other than any underwriting discounts or commissions or
agent’s commissions) in connection with the registration of the common stock being offered hereby by the selling stockholders.
DESCRIPTION
OF SECURITIES TO BE REGISTERED
Authorized
Capital Stock
Effective
October 10, 2011, we effected a seven (7) for one (1) forward stock split of our authorized, issued and outstanding common stock.
As a result, our authorized capital 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. Effective July 20, 2016, we exchanged one (1) share of our authorized, issued
and outstanding common stock for each 10 shares of common stock then outstanding or exercisable under any outstanding warrants
or option agreements and we increased the number of shares of authorized common stock from 525,000,000 to 1,000,000,000. Our articles
of incorporation do not provide for the issuance of preferred stock.
Securities
Issued and Outstanding
As
of January 18, 2018, excluding the shares to be offered hereunder, there were issued and outstanding (i) 23,266,815 shares
of common stock, (ii) warrants to purchase up to 705,755 shares of our common stock at exercise prices ranging from $2.00 to $3.75
per share, and (iii) options to purchase 3,241,710 shares of our common stock outstanding under the 2012 Plan.
Common
Stock
The
holders of our common stock are entitled to one vote per share on all matters submitted to a vote of the stockholders, including
the election of directors. Our articles of incorporation do not provide for cumulative voting in the election of directors. The
holders of our common stock will be entitled to cash dividends as may be declared, if any, by our Board of Directors from funds
available. Upon liquidation, dissolution or winding up of our company, the holders of our common stock will be entitled to receive
pro rata all assets available for distribution to the holders.
Warrants
to Purchase Common Stock
The
warrants, whose underlying common stock is being registered by this prospectus, were issued and sold in the Financing. These warrants
have an exercise price of $2.00 per share and expire on December 12, 2020. Each warrant was exercisable immediately upon issuance.
The exercise of the warrants is subject to certain exercise limitations, such that the holder may not exercise the warrants if
such exercise results in the holder becoming the beneficial owner of more than 9.99% of the number of shares of common stock outstanding
immediately after giving effect to such exercise.
The
warrants provide for the adjustment of the exercise price and number of shares issuable upon exercise of the warrants in connection
with stock dividends and splits, such that the number of shares issuable upon exercise of the warrant is adjusted in proportion
to the change in the number of shares outstanding and the aggregate exercise price of the warrant remains unchanged. The warrants
do not contain anti-dilution provisions.
Upon
the reclassification, reorganization or recapitalization of our common stock, our merger or consolidation with or into another
entity, the consummation of a stock purchase agreement whereby more than 50% of the outstanding shares of the common stock are
acquired by another person or entity, or a sale or other disposition of substantially all of our assets, the holder of each of
the warrants is entitled to receive the number of shares of our common stock or the common stock of our successor or acquirer
that such holder would have been entitled to receive immediately prior to such transaction, and the exercise price for such shares
shall be adjusted based on the amount of any alternate consideration receivable as a result of such transaction by a holder of
the number of shares of common stock for which the warrant is exercisable immediately prior to such transaction. The holder of
the warrant may also require us or any successor entity to purchase the warrant from the holder by paying to the holder an amount
of cash equal to the Black Scholes value of the remaining unexercised portion of the warrant on the date of the consummation of
the transaction.
Registration
Rights Agreement
In
connection with the Financing, we entered into a registration rights agreement with the selling stockholders (the “Registration
Rights Agreement”) pursuant to which we agreed to use our best efforts for to cause such Registration Statement to become
effective prior to April 14, 2018 (or, in the event of a “full review” by the SEC, by May 14, 2018).
Transfer
Agent
Our
shares of common stock are issued in certificated form. The transfer agent and registrar for our common stock is Island Stock
Transfer, Inc., 15500 Roosevelt Blvd., Suite 301, Clearwater, Florida 33760.
Anti-Takeover
Provisions of Nevada State Law
Some
features of the Nevada Revised Statutes, which are further described below, may have the effect of deterring third parties from
making takeover bids for control of us or may be used to hinder or delay a takeover bid. This would decrease the chance that our
stockholders would realize a premium over market price for their shares of common stock as a result of a takeover bid.
Acquisition
of Controlling Interest
The
Nevada Revised Statutes contain provisions governing acquisition of a controlling interest of a Nevada corporation. These provisions
provide generally that any person or entity that acquires a certain percentage of the outstanding voting shares of a Nevada corporation
may be denied voting rights with respect to the acquired shares, unless the holders of a majority of the voting power of the corporation,
excluding shares as to which any of such acquiring person or entity, an officer or a director of the corporation, and an employee
of the corporation exercises voting rights, elect to restore such voting rights in whole or in part. These provisions apply whenever
a person or entity acquires shares that, but for the operation of these provisions, would bring voting power of such person or
entity in the election of directors within any of the following three ranges:
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20%
or more but less than 33 1/3%;
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33
1/3% or more but less than or equal to 50%; or
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more
than 50%.
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The
stockholders or board of directors of a corporation may elect to exempt the stock of the corporation from these provisions through
adoption of a provision to that effect in the articles of incorporation or bylaws of the corporation. Our articles of incorporation
and bylaws do not exempt our common stock from these provisions.
These
provisions are applicable only to a Nevada corporation that:
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has
200 or more stockholders of record, at least 100 of whom have addresses in Nevada appearing on the stock ledger of the corporation;
and
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does
business in Nevada directly or through an affiliated corporation.
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These
provisions may discourage companies or persons interested in acquiring a significant interest in or control of our company, regardless
of whether such acquisition may be in the interest of our stockholders.
Combination
with Interested Stockholder
The
Nevada Revised Statutes contain provisions governing combination of a Nevada corporation that has 200 or more stockholders of
record with an interested stockholder. A corporation affected by these provisions may not engage in a combination within three
years after the interested stockholder acquires his, her or its shares unless the combination or purchase is approved by the board
of directors before the interested stockholder acquired such shares. Generally, if approval is not obtained, then after the expiration
of the three-year period, the business combination may be consummated with the approval of the board of directors before the person
became an interested stockholder or a majority of the voting power held by disinterested stockholders, or if the consideration
to be received per share by disinterested stockholders is at least equal to the highest of:
|
●
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the
highest price per share paid by the interested stockholder within the three years immediately preceding the date of the announcement
of the combination or within three years immediately before, or in, the transaction in which he, she or it became an interested
stockholder, whichever is higher;
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|
|
|
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●
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the
market value per share on the date of announcement of the combination or the date the person became an interested stockholder,
whichever is higher; or
|
|
|
|
|
●
|
if
higher for the holders of preferred stock, the highest liquidation value of the preferred stock, if any.
|
Generally,
these provisions define an interested stockholder as a person who is the beneficial owner, directly or indirectly of 10% or more
of the voting power of the outstanding voting shares of a corporation, and define combination to include any merger or consolidation
with an interested stockholder, or any sale, lease, exchange, mortgage, pledge, transfer or other disposition, in one transaction
or a series of transactions with an interested stockholder of assets of the corporation having:
|
●
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an
aggregate market value equal to 5% or more of the aggregate market value of the assets of the corporation;
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|
|
|
●
|
an
aggregate market value equal to 5% or more of the aggregate market value of all outstanding shares of the corporation; or
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|
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●
|
representing
10% or more of the earning power or net income of the corporation.
|
Liability
and Indemnification of Directors and Officers
We
have not entered into separate indemnification agreements with any of our directors or officers. The Nevada Revised Statutes provide
us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself
in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action,
the director or officer must not have had reasonable cause to believe his/her conduct was unlawful.
Under
applicable sections of the Nevada Revised Statutes, advances for expenses may be made by agreement if the director or officer
affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined
the officer or director did not meet the standards.
Our
Bylaws include certain indemnification provisions under which we are required to indemnify any of our current or former directors
or officers against all costs, charges and expenses, including an amount paid to settle an action or satisfy a judgment, actually
and reasonably incurred by him or them including an amount paid to settle an action or satisfy a judgment inactive criminal or
administrative action or proceeding to which he is or they are made a party by reason of his or her being or having been a director
of the Company. In addition, our Articles of Incorporation provide that the no director or officer of the Company shall be personally
liable to the Company or any of its stockholders for damages for breach of fiduciary duty as a director or officer involving any
act or omission of any such director or officer; provided, however, that these provisions do not eliminate or limit the liability
of a director or officer (i) for acts or omissions which involve intentional misconduct, fraud or knowing violation of the law,
or (ii) the payment of dividends in violation of Section 78.300 of the Nevada Revised Statutes. In addition, if Section 2115 of
the California Corporations Code is applicable to us, certain laws of California relating to the indemnification of directors,
officer and others also will govern.
At
present, there is no pending litigation or proceeding involving any of our directors or officers regarding which indemnification
is sought, nor are we aware of any threatened litigation that may result in claims for indemnification. We also maintain insurance
policies that indemnify our directors and officers against various liabilities, including liabilities arising under the Securities
Act, which might be incurred by any director or officer in his or her capacity as such.
Insofar
as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling
persons pursuant to the foregoing provisions, or otherwise, we have been informed that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event a claim for indemnification against such liabilities (other than payment by us for expenses incurred or paid by a
director, officer or controlling person of ours in successful defense of any action, suit, or proceeding) is asserted by a director,
officer or controlling person in connection with the securities being registered, we will, unless in the opinion of our counsel
the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction, the question of whether such
indemnification by it is against public policy in the Securities Act and will be governed by the final adjudication of such issue.
MARKET
PRICE OF AND DIVIDENDS ON COMMON STOCK AND RELATED MATTERS
Market
Information
Our
common stock has been quoted through various over-the-counter quotation systems at various times since 2009. Our common stock
is currently quoted on the OTCQB under the symbol “VBIO”, but there is a limited public trading market for our common
stock. The liquidity of our shares on the OTCQB is extremely limited, and prices quoted may not be a reliable indication of the
value of our common stock.
The
following table sets forth the range of reported high and low closing bid quotations for our common stock for the fiscal quarters
indicated as reported by the OTCBB or the OTCQB, as applicable
(as adjusted, for periods
prior to July 20, 2016, for the 10-to-1 reverse stock split we completed on such date)
.
The
quotations reflect inter-dealer prices, without retail mark-up, mark-down or commission and may not represent actual transactions.
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High
|
|
|
Low
|
|
|
|
|
|
|
|
|
Fiscal 2016
|
|
|
|
|
|
|
|
|
First
Quarter ended June 30, 2015
|
|
|
3.60
|
|
|
|
1.70
|
|
Second Quarter
ended September 30, 2015
|
|
|
2.10
|
|
|
|
0.90
|
|
Third Quarter
ended December 31, 2015
|
|
|
1.10
|
|
|
|
0.30
|
|
Fourth Quarter
ending March 31, 2016
|
|
|
1.40
|
|
|
|
0.30
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2017
|
|
|
|
|
|
|
|
|
First Quarter
ended June 30, 2016
|
|
|
1.00
|
|
|
|
0.50
|
|
Second Quarter
ended September 30, 2016
|
|
|
1.08
|
|
|
|
0.50
|
|
Third Quarter
ended December 31, 2016
|
|
|
0.95
|
|
|
|
4.09
|
|
Fourth Quarter
ended March 31, 2017
|
|
|
3.10
|
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2018
|
|
|
|
|
|
|
|
|
First Quarter
ended June 30, 2017
|
|
|
2.10
|
|
|
|
1.50
|
|
Second Quarter
ended September 30, 2017
|
|
|
1.42
|
|
|
|
2.15
|
|
Third Quarter
ended December 31, 2017
|
|
|
1.32
|
|
|
|
2.25
|
|
Fourth Quarter
ended March 31, 2018 (through January 18, 2018)
|
|
|
1.87
|
|
|
|
2.17
|
|
Transfer
Agent
The
transfer agent and registrar for our common stock is Island Stock Transfer, Inc., 15500 Roosevelt Blvd., Suite 301, Clearwater,
Florida 33760.
Holders
of Common Stock
As
of January 18, 2018, there were 28 holders of record of our common stock, not including an indeterminable number
of stockholders whose shares are held in street or “nominee” name. As of such date, excluding the shares to be registered
hereunder, 23,266,815 shares of common stock were issued and outstanding.
Dividends
We
have never declared or paid any cash dividends or distributions on our capital stock. We currently intend to retain our future
earnings, if any, to support operations and to finance expansion and we do not anticipate paying any cash dividends on our common
stock in the foreseeable future.
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The
following discussion should be read in conjunction with the financial statements and the related notes contained elsewhere in
this prospectus. In addition to historical information, the following discussion contains forward looking statements based upon
current expectations that are subject to risks and uncertainties. Actual results may differ substantially from those referred
to herein due to a number of factors, including but not limited to risks described in the section entitled “Risk Factors”
and elsewhere in this prospectus.
Company
Overview
We
were incorporated in the State of Nevada on June 29, 2007 and commenced operations as a mineral exploration company. 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.” In February 2012, we substantially changed our management team, and began
pursuing an agricultural biotechnology business plan.
In
May 2016, we received shareholder and board approval for a name change to Vitality Biopharma, Inc., an exchange of one (1) share
of the Company’s common stock for each 10 shares of common stock outstanding or exercisable under any outstanding warrants
or option agreements and an increase in the number of shares of authorized common stock from 525,000,000 to 1,000,000,000. These
corporate changes became effective on July 20, 2016.
Our
common stock is currently quoted on the OTC Markets Group’s OTCQB tier under the symbol “VBIO.” There is only
a limited trading market for our common stock.
Plan
of Operations
For
the six months ended September 30, 2017, we reported revenue of $58,019, recorded a net loss of $2,004,873, used cash in operations
of $1,332,280, and as of September 30, 2017 we had an accumulated deficit of $19,740,812. For the fiscal year ended March 31,
2017, we reported revenue of $163,363, recorded a net loss of $5,219,380, and used cash in operations of $1,384,697. We do not
expect to generate significant amounts of cash from our operations for the foreseeable future. As described further under the
heading “Liquidity and Capital Resources” below, we will need significant additional funding to support our operations
and business plans and we have no commitments for future capital. The continuation of our business is dependent upon our ability
to obtain loans or sell securities to new and existing investors or obtain capital from other alternative sources. The Company’s
independent registered public accounting firm, in their report on the Company’s March 31, 2017 audited financial statements,
raised substantial doubt about the Company’s ability to continue as a going concern.
Our
present operations consist mainly of developing cannaboside pharmaceutical products for treatment of inflammatory bowel disease
and narcotic bowel syndrome, a severe form of opiate-induced abdominal pain. We are developing acute treatments of disease, which
are designed to induce remission of active disease, and which may act in part through providing relief of key symptoms, such as
abdominal pain and cramping in inflammatory bowel disease. There is extensive clinical evidence supporting the potential efficacy
of cannabinoids for treatment of inflammatory bowel disease, including through placebo-controlled clinical trials conducted by
independent investigators.
We
plan to complete preclinical studies necessary in order to launch clinical trials in 2018, which we currently estimate will cost
approximately $1 million, and that will include testing of efficacy, toxicology, and drug manufacturing in order to enable first-in-man
clinical testing. Additional preclinical testing of approximately $500,000 will be conducted to explore new therapeutic indications
for cannabosides, including for treatment of cancer, and to obtain data about the regenerative potential of our drug formulations,
both alone and in combination with other medications.
Phase
1 clinical trials are expected to test the clinical pharmacokinetics of multiple cannaboside drug formulations containing cannabosides,
as well as to test the pharmacokinetics in diseased patient populations, and are expected to commence in 2018 and cost
approximately $1.5 million. If able to conduct a Phase 1b clinical trial, the Company may also obtain preliminary data about the
efficacy of cannaboside in diseased patient populations. We plan to later initiate one or more Phase 2 clinical trials in order
to further assess the safety as well as the efficacy of cannaboside drug formulations for treatment of conditions including but
not limited to inflammatory bowel disease, narcotic bowel syndrome,
Clostridium difficile
infections, irritable bowel syndrome,
and colorectal cancer. We currently expect such trials may cost $2 million each, or more, and would be designed to demonstrate
clinical proof-of-concept on the use of cannabosides. We may also include additional trial endpoints at a total cost of approximately
$500,000 intended to demonstrate functional recovery.
Our
primary research and development operations are based in Yuba City, California, where we originally developed our proprietary
bioprocessing methods. The Company’s facilities include laboratories and a manufacturing suite for GMP production, which
will be used for pharmaceutical-grade production of products to be tested in clinical trials, and which will be registered with
the U.S. FDA and DEA.
Critical
Accounting Policies
Our
financial statements and accompanying notes have been prepared in accordance with United States generally accepted accounting
principles applied on a consistent basis. The preparation of financial statements in conformity with U.S. generally accepted accounting
principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, 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 those estimates made by
management.
We
believe the following critical accounting policies require us to make significant judgments and estimates in the preparation of
our financial statements.
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
Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions, for
services and for financing costs. The Company accounts for 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, based on 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 vest is recognized as expense over the required service period in the
Company’s statements of operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees
in accordance with the authoritative guidance whereas the value of the stock compensation is based upon the measurement date as
determined at either (a) the date at which a performance commitment is reached, or (b) the date at which the necessary performance
to earn 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 time of grant and revised, as necessary, in subsequent periods if
actual forfeitures differ from those estimates.
Derivative
Financial Instruments
We
evaluate our financial instruments to determine if such instruments are derivatives or contain features that qualify as embedded
derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially
recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported in the statements
of operations. For stock-based derivative financial instruments, we use a probability weighted average Black-Scholes-Merton model
to value the derivative instruments at inception and on subsequent valuation dates through the June 30, 2017 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.
Results
of Operations
Six
Months Ended September 30, 2017 and September 30, 2016
Our
net loss during the six months ended September 30, 2017 was $2,004,873 compared to a net loss of $1,585,924 for the six months
ended September 30, 2016. During the six months ended September 30, 2017, we generated $58,019 in revenue and $20,053 in gross
profit from sales of
certain research products, compared to
$92,265 in revenue and
$46,253 in gross profit from sales of
certain research products during the six months ended
September 30, 2017
.
Our revenue in each 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 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
this rate.
During
the six months ended September 30, 2017, we incurred general and administrative expenses in the aggregate amount of $1,275,671
compared to $1,034,483 incurred during the six months ended September 30, 2016 (an increase of $241,188). 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 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 general and administrative expenses included stock-based compensation of $323,468 during the six months
ended September 30, 2017, as compared to stock-based compensation of $283,970 during the six months ended September 30, 2016 (an
increase of $39,498) and legal fees of $67,495 during the six months ended September 30, 2017, as compared to legal fees of $7,569
during the six months ended September 30, 2016 (an increase of $59,926).
In
addition, during the six months ended September 30, 2017, we incurred research and development costs of $827,596 relating to research
and development, compared to research and development costs of $240,217 during the six months ended September 30, 2016 (an increase
of $587,379). The increase resulted primarily from increased 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 2017 compared to 2016.
During
the six months ended September 30, 2017, we incurred related party rent and other costs totaling $15,300 compared to $13,800 incurred
during the six months ended September 30, 2016 (an increase of $1,500). This resulted from an increase in the monthly office rent
during the 2017 period.
This
resulted in a loss from operations of $2,098,514 during the six months ended September 30, 2017 compared to a loss from operations
of $1,242,247 during the six months ended September 30, 2016.
During
the six months ended September 30, 2017, we recorded total other income (expense) in the amount of $93,641, compared to total
other income (expense) recorded during the six months ended September 30, 2016 in the amount of $(343,677). During the six months
ended September 30, 2017, we recorded a gain related to the change in fair value of derivative liabilities of $93,641, compared
to a loss of $342,961 during the six months ended September 30, 2016.
Fiscal
Years Ended March 31, 2017 and March 31, 2016
The
following table sets forth our results of operations for the years ended March 31, 2017 and 2016.
|
|
Year Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
163,363
|
|
|
$
|
248,348
|
|
Cost
of goods sold
|
|
|
108,255
|
|
|
|
149,478
|
|
Gross
profit
|
|
|
55,108
|
|
|
|
98,870
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
2,605,097
|
|
|
|
2,196,922
|
|
Rent
and other related party costs
|
|
|
27,600
|
|
|
|
30,600
|
|
Research
& development
|
|
|
893,960
|
|
|
|
613,119
|
|
Loss
from operations
|
|
|
(3,471,549
|
)
|
|
|
(2,741,771
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Cost
to induce exercise of warrants
|
|
|
-
|
|
|
|
-
|
|
Interest
expense
|
|
|
(1,010
|
)
|
|
|
(363
|
)
|
Change
in fair value of derivative liability
|
|
|
(1,746,821
|
)
|
|
|
2,600,809
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,219,380
|
)
|
|
$
|
(141,325
|
)
|
On
May 16, 2014, we entered into an Asset Purchase Agreement with Percipio to purchase certain assets of Percipio for $50,000, which
was allocated based upon the fair value of the acquired assets, as determined by management. As a result of the acquisition, the
results of our operations utilizing those assets were included in the Company’s financial statements since May 17, 2014.
During
the fiscal year ended March 31, 2017, we generated $163,363 in revenue, compared to sales of $248,348 during the year ended March
31, 2016. Our cost of goods sold were $108,255 and $149,478, resulting in gross profit of $55,108 and $98,870 for the year ended
March 31, 2017 and 2016, respectively.
Our
net loss during the fiscal year ended March 31, 2017 was $5,219,380 compared to a net loss of $141,325 for the fiscal year ended
March 31, 2016 (an increase in net loss of $5,078,055).
During
the fiscal year ended March 31, 2017, we incurred general and administrative expenses in the aggregate amount of $2,605,097 compared
to $2,196,922 incurred during the fiscal year ended March 31, 2016 (an increase of $408,175). 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.
In addition, during the fiscal year ended March 31, 2017, we incurred research and development costs of $893,960 compared to $613,119
incurred during the fiscal year ended March 31, 2016 (an increase of $280,841). During the fiscal year ended March 31, 2017, we
incurred related party rent and other costs totaling $27,600 compared to $30,600 incurred during the fiscal year ended March 31,
2016 (a decrease of $3,000). Also during the fiscal year ended March 31, 2017, we incurred stock-based compensation totaling $1,762,725
compared to $906,256 incurred during the fiscal year ended March 31, 2016 (an increase of $856,469), which are allocated between
general and administrative expenses and research & development expenses during the years ended March 31, 2017 and 2016.
This
resulted in a loss from operations of $3,471,549 during the fiscal year ended March 31, 2017 compared to a loss from operations
of $2,741,771 during the fiscal year ended March 31, 2016, (an increase of $729,778).
During
the fiscal year ended March 31, 2017, we recorded total net other expense in the amount of $1,747,831, compared to total net other
income recorded during the fiscal year ended March 31, 2016 in the amount of $2,600,446. During the fiscal year ended March 31,
2017, we incurred interest expense of $1,010 compared to $363 incurred during the fiscal year ended March 31, 2016 (an increase
of $647). We recorded a loss related to the change in fair value of derivatives of $1,746,821 during the fiscal year ended March
31, 2017, compared to a gain of $2,600,809 during the fiscal year ended March 31, 2016. This resulted in a net loss of $5,219,380
during the fiscal year ended March 31, 2017 compared to a net loss of $141,325 during the fiscal year ended March 31, 2016 (an
increase of $5,078,055).
The
increase in net loss during the fiscal year ended March 31, 2017 compared to the fiscal year ended March 31, 2016 is attributable
to loss related to the change in fair value of derivatives and higher general and administrative and research and development
expenses.
Liquidity
and Capital Resources
As
of September 30, 2017, we had total current assets of $838,781, which was comprised mainly of cash of $815,487. Our total current
liabilities as of September 30, 2017 were $581,512 and consisted of accounts payable and accrued liabilities of $280,095, accrued
compensation owed to officers and directors of $151,667 and accounts payable to a related party of $2,600, and derivative liability
of $147,150. The derivative liability is a non-cash item related to certain of our outstanding warrants as of September 30, 2017.
As a result, on September 30, 2017, we had working capital of $257,269.
We
have not yet received significant revenues from sales of products or services, and have recurring losses from operations. 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 six months
ended September 30, 2017, the Company incurred a net loss of $2,004,873 and used cash in operating activities of $1,332,280. 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 report on the Company’s
March 31, 2017 financial statements, has raised substantial doubt about the Company’s ability to continue as a going concern.
The continuation of our Company as a going concern is dependent upon our Company attaining and maintaining profitable operations
and raising additional capital. The financial statements included in this report do not include any adjustments relating to the
recovery and classification of recorded asset amounts or the amount and classification of liabilities that might be necessary
should our Company discontinue operations.
We
estimate that we will have sufficient funds to operate the business for the six months after September 30, 2017. 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 additional financing will 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.
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 “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 July 28, 2017. The aggregate proceeds to the Company from the sale of the Shares and
Warrants was approximately $995,000.
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 in 2018.
Net
Cash Used in Operating Activities
We
have not generated positive cash flows from operating activities. For the six months ended September 30, 2017, net cash used in
operating activities was $1,332,280 compared to net cash used in operating activities of $578,800 for the six months ended September
30, 2016. This increase was primarily attributable to increased net loss during the current period ended September 30, 2017. Net
cash used in operating activities during the six months ended September 30, 2017 consisted primarily of a net loss of $2,004,873
offset by $892,773 in aggregate stock compensation from vested options and common stock, shares of stock issued to consultants.
Net cash used in operating activities during the six months ended September 30, 2016 consisted primarily of a net loss of $1,585,924
offset by a change in fair value of derivative liability of $342,961, and $586,328 in aggregate stock compensation from vested
options, warrants and commonstock, shares of stock issued to consultants.
Net
Cash Used in Investing Activities
During
the six months ended September 30, 2017 and September 30, 2016, no net cash was used in or provided by investing activities.
Net
Cash Provided By Financing Activities
During
the six months ended September 30, 2017, net cash provided by financing activities was $995,001 compared to net cash provided
by financing activities of $517,031 for the six months ended September 30, 2016. Net cash provided by financing activities during
the six months ended September 30, 2017 was attributable to the net proceeds from sale of stock and warrants of $995,001. Net
cash provided by financing activities during the six months ended September 30, 2016 was attributable to $165,030 from the sale
of common stock and warrants and $352,001 provided by the exercise of warrants.
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.
Going
Concern
We
have incurred losses since inception, resulting in an accumulated deficit of $19,740,812 as of September 30, 2017. For the six
months ended September 30, 2017, we recorded a net loss of $2,004,873 and used cash in operations of $1,332,280. For the fiscal
year ended March 31, 2017, we recorded a net loss of $5,219,380 and used cash in operations of $1,384,697. We expect to incur
further losses as we continue to develop our business. These and other factors raise substantial doubt about the Company’s
ability to continue as a going concern. In addition, the Company’s independent registered public accounting firm, in their
report on the Company’s March 31, 2017 audited financial statements, raised substantial doubt about the Company’s
ability to continue as a going concern.
The
ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future
and/or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when
they come due. We estimate that we will have sufficient funds to operate the business for the 12 months after September 30, 2017.
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 additional financing will be required to fund our planned principal
operations in the near term and in future periods, including research and development activities relating to stevia extract production,
developing and seeking regulatory approval for any of our stevia product candidates, 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, sufficient or consistent revenue to fund our business from our operations, and will need to obtain
significant funding from external sources. Since inception, we have funded our operations primarily through equity and debt financings,
and we expect to continue to rely on these sources of capital in the future. However, if we raise additional funds by issuing
equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and obtaining commercial loans
would increase our liabilities and future cash commitments. If we pursue capital through alternative sources, such as collaborations
or other similar arrangements, we may be forced to relinquish rights to our proprietary technology or other intellectual property
that could result in our receipt of only a portion of any revenue that may be generated from a partnered product or business.
Further, these or other sources of capital may not be available on commercially reasonable or acceptable terms when needed, or
at all. If we cannot raise the money that we need in order to continue to operate and develop our business, we will be forced
to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial risk that
our business would fail and our stockholders could lose all of their investment.
DESCRIPTION
OF THE BUSINESS
We
were incorporated under the laws of the State of Nevada on June 29, 2007 as 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 affected a seven (7) for one (1) 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
increased from 7,350,000 to 51,450,000. 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 was 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.
Our
Current Business
Company
Overview
We
were incorporated in the State of Nevada on June 29, 2007 and commenced operations as a mineral exploration company. 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.”. In February 2012, we substantially changed our management team, and began
pursuing an agricultural biotechnology business plan. On July 15, 2016, we changed our operational focus towards the pharmaceutical
development of the cannabinoid prodrugs and changed our name from Stevia First Corp. to Vitality Biopharma, Inc.
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 as cannabosides, which were discovered in 2015 through
application of our 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 into a pharmacologically active drug, which already 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, cannabidiol (CBD), cannabidivarin
(CBDV), 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 filed patent applications that seek to protect claims on
the novel vanilloid glycoside compounds that target the TRPV receptors for mediating pain relief, methods of use for TRPV1 agonists
to effect neural repair, and based on findings in early 2017, for methods to use cannabinoids to treat gut dysbiosis and drug-resistant
C.difficile
infections, which colonize the large intestine. We aim to develop and approve our proprietary molecules as
pharmaceuticals using 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.
A
key part of our strategy will be to take advantage of a more efficient Federal Drug Enforcement (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 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
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 and
C.difficile,
a drug-resistant microbial infection
that colonizes the large intestine. Both colorectal cancer and
C.difficile
infections are more prevalent in IBD patients
than in the general population.
Narcotic
bowel syndrome (NBS) 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 pain 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. We
have patents pending for more than 25 of these novel pharmaceutical compositions including prodrugs of THC, CBD, and CBDV, which
are cannabinoids that are either marketed and approved as pharmaceutical products today, or that are currently under investigation
in independent clinical trials currently. Prodrugs can optimize the marketability of a drug because they can be patented and proprietary,
and yet still be approved through an abbreviated regulatory pathway.
Cannaboside
prodrugs are designed to deliver a variety of benefits, including:
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1.
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Administration
of cannabinoids in a convenient oral formulation;
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2.
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Targeted
delivery of cannabinoids without any psychoactivity or intoxication, which can be achieved through gut-restricted prodrugs
that are released in the colon or large intestine and that avoid entry into the bloodstream or brain;
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3.
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Improved
solubility, leading to oral formulations that are easy to manufacture and that improve the tolerability of cannabinoid products
through reduction or removal of harsh organic solvents;
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4.
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Improved
stability, preventing conversion of CBD to unwanted byproducts including THC in the acidic stomach environment, or preventing
other forms of unwanted degradation or drug metabolism, therefore enabling higher doses of cannabinoids to be administered
orally; and
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5.
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Delayed
release, enabling long-lasting and overnight relief for patients, rather than having to administer treatment repeatedly throughout
the day and requiring additional sleep aids.
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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 guided by the results of observational clinical studies that will be conducted
by 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).
Products
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Treatment
Indications
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Status
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Cannabosides
- VITA-100
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Inflammatory
Bowel Disease (inducing remission), Irritable Bowel Syndrome, Narcotic Bowel Syndrome
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Phase
1a/1b Trial to be completed in 1
st
Half of 2018
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Cannabosides
- VITA-210
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Inflammatory
Bowel Disease (maintaining remission), Irritable Bowel Syndrome, Opiate-induced Bowel Dysfunction,
C. difficile
Infections,
Colorectal Cancer
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Preclinical
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Additional
Cannabinoid Formulations
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Complex/Refractory
or Neuropathic Pain (Substitution therapy for opioid painkillers), Huntington’s disease, Multiple Sclerosis & Rare
White Matter Disorders, Guillain-Barré
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Observational
clinical studies to initiate in 1
st
Half of 2018
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Our
Operations
For
each of the pharmaceutical products in our pipeline, the active cannabinoid pharmaceutical agents have either been independently
approved by regulatory bodies, 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 Targets
We
plan to complete all necessary preclinical studies for VITA-100 and to conduct a Phase 1a/1b clinical trial in the first half
of 2018. This first-in-man clinical study will focus primarily on evaluating the clinical pharmacokinetics, safety, and tolerability
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.
We
are also developing additional cannabinoid formulations geared towards treatment of complex or refractory pain, for use within
cannabis substitution therapy for opioid painkillers, and for the treatment of serious neurological conditions. The cannabinoid
formulations and existing cannabinoid products that we plan to study may eventually be developed internally either as standalone
products or used in combination with our cannaboside drug formulations. We plan to initiate observational studies in the 1
st
half 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,
and to help develop additional internal intellectual property related to the use of cannabinoids for treatment 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 regimens that provide maximal benefit to patients.
Short-term
development targets include:
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Complete
remaining preclinical efficacy and toxicology studies to support clinical development of cannabosides
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Obtain
regulatory approval for and initiate a Phase 1a/1b first-in-man clinical trial of VITA-100, a cannaboside prodrug containing
THC-glycosides
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Complete
additional preclinical efficacy and pharmacology studies of cannabosides and cannaboside drug formulations that support lead
drug indications as well as novel therapeutic applications
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Obtain
regulatory approval for and initiate observational clinical studies of existing cannabinoid therapies, focused on cannabis
substitution therapy for opioid painkillers in chronic pain and treatment of serious neurological conditions
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We
believe that our long-term commercial success and profit potential depends in large part on our ability to develop and advance
proprietary cannabinoid prodrugs that are strongly differentiated from both medical cannabis and existing cannabinoid drugs, and
to do this more quickly, efficiently and effectively than our competitors. Another critical factor that will determine our success
is our ability to obtain and enforce patents, maintain protection of trade secrets, and operate our business without infringing
the proprietary rights of third parties. As a result, we are dedicated to the continued development and protection of our intellectual
property portfolio.
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 the primarily through new out-licensing arrangements or strategic
partnerships.
Glycodiversification
Technology for Prodrug Development
The
biosynthetic process of adding additional glucose molecules to compounds is called glycosylation, and we originally developed
related production technologies in order to modify the taste and enable low-cost and reliable industrial production of steviol
glycosides. These molecules are better known as stevia, a zero-calorie, high-potency sweetener that is derived from the stevia
plant, and that has been adopted widely within the food and beverage industry. It has recently become appreciated within the pharmaceutical
industry that glycosylation can act to generate novel natural product libraries with improved drug properties. It is generally
accepted that attaching a glyosidic moiety, a glucose or sugar molecule, to a compound that is typically found without one, known
as an aglycone, will make the product more water-soluble. This increase in water solubility influences the pharmacokinetic parameters
of the respective compounds, including modification of their bioavailability within certain tissues and body fluids.
The
process for modifying natural products through glycosylation to provide libraries of new molecules that may have more desirable
attributes is called glycorandomization, or glycodiversification. Reliable production of glycosylated natural products must be
done in a directed way to enable production of purified individual compounds, after selection of those with the most desirable
commercial attributes. Synthesis is typically performed either using chemical or enzymatic methods. Production of chemical intermediates
known as cofactors, which enable the glycosylation reaction to occur, has historically been expensive and has made it challenging
to produce diverse natural product libraries, or to enable their economical industrial production. We have developed multi-step
enzymatic biosynthesis methods to recycle cofactors and to reduce the overall costs of glycoside production. These methods have
most recently been applied to production of cannabinoid glycosides (“cannabosides”), which are metabolized differently
from cannabinoids and can enable their use as pharmaceutical prodrugs.
A
prodrug is a medication or compound that, after administration, is metabolized (i.e., converted within the body) into a pharmacologically
active drug. Prodrugs are often designed to improve bioavailability of a drug, or to improve how selectively the drug interacts
with cells or tissues that are not its intended target. In general, prodrugs are often used to make a drug better tolerated by
patients and to reduce any of its adverse or unintended effects.
Cannabinoids
prodrugs are designed to overcome challenges that may be necessary in order to ensure cannabinoid pharmaceuticals can be effectively
marketed and commercialized, including overcoming including problems with the taste and tolerability of formulations, improving
their bioavailability, extending their duration of action, and also strengthening the intellectual property protection of follow-on
pharmaceutical cannabinoid formulations. Many of the most commonly accepted barriers that prodrugs may overcome include: insufficient
chemical stability, poor aqueous stability, offensive taste or odor, irritation or pain, low oral absorption or systemic exposure,
marked presystemic metabolism, a short duration of action, unfavorable distribution in the body, inadequate site specificity,
drug toxicity, or drug patent life expiration.
Upon
ingestion, delivery of bioactive compounds is known to occur naturally through liberation of aglycone compounds from poorly absorbed
plant glycosides. Many of these glycosides pass through the stomach and upper intestine without appreciable loss due to absorption
or degradation by stomach acids. Once a prodrug reaches the lower intestine, or colon, the polar sugar residue is released by
the hydrolytic activity of glycosidase enzymes that are produced by gut bacteria, enabling site-specific delivery of the active
pharmaceutical ingredient in the large intestine. In addition, some glycoside compounds have been found to undergo active carrier-mediated
transport across membranes and into specific tissues, such as the brain. Such technology could also more broadly enable site-specific
delivery of prodrugs through use of mechanisms that are typically used by the body to increase absorption of glucose as an energy
source to various tissues.
Commonly
known and ingested compounds that are glycosides include many flavonoids, or polyphenols, present in fruit and vegetables. Flavonols
are the most ubiquitous flavonoids found in foods, and these compounds are typically present in glycosylated form. Fruit often
contains 5 or 10 different flavonol glycosides. A single glass of orange juice may contain between 40 and 140 mg of flavanone
glycosides. In leafy vegetables such as lettuce and cabbage, the glycoside concentration is more than 10 times higher in the green
outer leaves as in the lighter, inner leaves. There are also FDA-approved drugs that are glycosylated, including sennosides, or
Ex-Lax, an over-the-counter drug that has been sold in the United States since 1906. Sennosides are on the World Health Organization’s
List of Essential Medicines, the most important medications needed in a basic health system, and exert their effects through targeted
delivery of the active pharmaceutical ingredient to the colon over the course of six to 12 hours.
Pharmaceutical
Use of Cannabinoids
The
legal cannabis market in North America was projected to be $6.9 billion in 2016 and to rise by more than 34% since 2015, according
to Arcview Market Research. Cannabis is one of the most popular recreational drugs, where worldwide an estimated 178 million people
used it at least once in 2012. Cannabis was included as a controlled drug in the United Nations’ Single Convention on Narcotic
Drugs, and its use is illegal in most countries.
As
of 2016, more than 20 U.S. states representing 87% of the U.S. population have enacted medical marijuana laws to permit access
to cannabis for treatment of a variety of medical conditions, including use of cannabidiol, with the approved conditions in certain
states including chronic pain, epilepsy, inflammatory bowel disease, wasting disorders, multiple sclerosis and muscle spasticity
disorders, glaucoma, cirrhosis, Alzheimer’s disease, nausea, traumatic brain injury, Parkinson’s disease, HIV/AIDS,
Huntington’s disease, and more. A concern with the increasing use of medical cannabis is that patients and physicians are
unable to know the precise chemical profile of these products, and that they desire a safe, well-tested pharmaceutical product
that can be treated as any other medicine, which includes a list of ingredients, effects, and side effects. Regulatory approval
of pharmaceutical cannabinoid products could dramatically increase the chance that health insurance companies would pay for them,
and their use could be further legitimized through approval by governments, insurance companies, and physicians.
There
are already several approved cannabinoid drugs internationally, including dronabinol, nabilone, and nabiximols. In 1985, the FDA
approved both dronabinol and nabilone, which are synthetic forms of THC, and a THC analog, respectively, which are approved for
management of chemotherapy-induced nausea and vomiting and for wasting conditions related to AIDS and cancer. Sales of these drugs
are currently relatively weak, with dronabinol capsules in 2014 estimated to be only $133 million in the United States, according
to IMS Health. Data from more than 40 clinical trials of cannabinoids have been published, including evaluations of their use
for treatment of chronic pain, neuropathic pain, epilepsy, and muscle spasticity associated with multiple sclerosis. As of March
2015, there were:
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Six
(6) trials that examined chronic pain including 325 patients;
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Six
(6) trials that examined neuropathic pain including 396 patients;
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Twelve
(12) trials that examined multiple sclerosis including 1,600 patients; and
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Multiple
small clinical trials that examined use of CBD for treatment of rare forms of childhood epilepsy.
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Several
of these trials had positive results indicating that the drugs could be effective.
The
American Academy of Neurology published evidence-based guidelines that recommend oral cannabis extract as having the highest level
of empirical support for reducing patient-reported symptoms of spasticity and pain associated with multiple sclerosis, an autoimmune
disorder where the immune system attacks the myelin and glial cells of the nervous system. As of 2014, nabiximols, which is the
world’s first prescription medicine made from cannabis extracts, was approved for use in multiple sclerosis in more than
20 countries, including the United Kingdom, Canada, France, Germany, Italy, and Australia. The American Academy of Neurology also
published a systematic review suggesting that nabiximols, a spray that contains both THC and CBD, as probably effective in treating
spasticity, central pain, and urinary dysfunction associated with multiple sclerosis.
The
main non-psychotropic component of cannabis is CBD, which has established antianxiety and antipsychotic effects, acting to mitigate
the high from THC, as well as neuroprotective and anti-inflammatory properties. Cannabidiol has demonstrated therapeutic effects
in clinical trials for serious neurological conditions including rare seizure disorders in children, and the FDA has granted orphan
drug designation to an oral liquid formulation of plant-derived CBD for a clinical trial investigating its effectiveness in Dravet
syndrome, Lennox-Gastaut syndrome, and neonatal hypoxic-ischemic encephalopathy. An open-label trial found that CBD reduced seizure
frequencies in doses up to 25 mg/kg in multiple drug-resistant forms of epilepsy and seizure disorders and independent results
of a placebo-controlled trial were announced in 2016 that found cannabidiol was effective in treating a rare form of childhood
epilepsy called Dravet syndrome. The average age of trial participants was 10 years old and the treatment group that included
use of CBD achieved a median reduction in monthly convulsive seizures of nearly 40%, compared to 13% with a placebo, achieving
a highly statistically significant effect that was sustained during the treatment period. CBD was generally well tolerated in
the study, however, somnolence or drowsiness was reported, and historically is present in nearly 20% of these patients, which
may be as a result of degradation or conversion of CBD to THC within the acidic stomach environment.
Treatment
of Gastrointestinal Disorders, Including Pediatric Inflammatory Bowel Disease
Inflammatory
bowel disease (“IBD”) is a progressive inflammatory condition where parts of the digestive system become sore and
inflamed. The disease can lead to currently irreversible damage to the gastrointestinal tract and require surgical removal of
the intestine and affected areas. 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 rectum and the colon or the large intestine. IBD is a chronic condition,
meaning that it is ongoing and typically lasts throughout life in those that are afflicted. As with multiple sclerosis, the disease
is often unpredictable, and there are periods of remission where there are few or no symptoms, which alternate with periods where
symptoms are very active and debilitating. The peak incidence of onset of IBD occurs between the ages of 15 and 30 years. Clinicians
caring for children and adolescents afflicted with pediatric IBD must treat the underlying disease while also monitoring growth,
puberty, cognitive development, while minimizing hospitalization time.
Different
classes of drugs are used to treat IBD, including anti-inflammatory drugs such as steroids, biologics, and immunosuppressants,
antibiotics that treat or help prevent bacterial infections that result from gastrointestinal disturbances, and also drugs that
relieve the symptoms of the disease such as diarrhea, constipation, and pain. A market research report by Visiongain predicts
that in 2017 drug revenues for treatment of IBD will reach $9.6 billion. The ultimate goal of clinical treatment of IBD is to
obtain complete disease control and to stop disease progression. This includes remission of disease without use of steroids, normalization
of inflammatory markers in the blood, and also healing of the mucosal lining of the gastrointestinal tract, which typically leads
to better clinical outcomes, reduced healthcare costs, and an improved quality of life.
In
gastroenterology, cannabis extracts are known for their anti-vomiting, appetite-stimulating, and anti-diarrheal effects, which
are thought to be useful for symptomatic relief of IBS and IBD. In a recent survey, more than half of patients with IBD in the
U.S. use or have used cannabis (51.3%), and 16.4% of patients had used Cannabis to treat IBD-related symptoms such as abdominal
pain, nausea, loss of appetite, and diarrhea. In an independent observational study of patients with IBD, 83.9% of the 56 patients
using cannabis reported improvement in abdominal pain, 76.8% reported improvement in abdominal cramping, and 48.2% reported improvement
of joint pain. In a Canadian population in 2011, chronic abdominal pain was reported as the primary reason for self-medication
with Cannabis, including in patients with a history of abdominal surgery. In a 2013 clinical trial of use of Cannabis in Crohn’s
disease, complete remission was achieved in 5 out of 11 subjects (classified as Crohn’s Disease Activity Index < 150).
There were considerable clinical benefits including patients reporting improvements in sleep and appetite, with no significant
side effects reported, and certain patients were able to wean themselves off use of corticosteroids and opioid pain medications.
Patients
with IBD are at an increased risk of colorectal cancer and opportunistic infections such as
C. difficile
, often due to
the side effects of immunosuppressive therapies used as frontline medications. In 2017, the American Cancer Society estimates
that 50,260 deaths will occur due to colorectal cancer, making it the 3
rd
leading caue of cancer-related death for
women, and the 2
nd
leading cause of cancer-related death for men. The most common type of colorectal cancer is adenocarcinoma,
which accounts for more than 95% of all cases, and arises from epithelial cells that line the colon and rectum.
Clostridium
difficile
was estimated by the U.S. Center for Disease Control (CDC) to infect almost 500,000 Americans in 2015, and to be
directly responsible for 15,000 deaths.
C. difficile
infections are also linked to sepsis (which some call “blood
poisoning”). Sepsis is a disorder where some researchers have now hypothesized the gut plays a central role, where a failure
of the integrity of the gut barrier leads to infections throughout the body and can lead to septic shock and multi-organ failure.
Each year, sepsis affects more than 750,000 Americans and is responsible for more than 210,000 deaths. Up to 50% of all hospital
deaths have been linked to sepsis. It is the most expensive reason for hospitalization in the U.S., where in 2011 the U.S. spent
more than $55 million each day in direct healthcare costs treating it. Prevention methods are being developed, which include treatments
that may help prevent sepsis altogether, or prevent patient deterioration from sepsis to severe sepsis, or from severe sepsis
to septic shock. Independent preclinical studies have already found that a lack of cannabinoid receptors leads to increased incidence
of multi-organ failure, and that treatment with cannabidiol can lead to a significant reduction of mortality.
Studies
have shown that activation of cannabinoid receptors can decrease inflammation, gastric acid secretion, and modulate intestinal
motility, which are disrupted in a wide variety of digestive disorders. Internal studies have shown that cannabinoids have direct
anticancer and antimicrobial effects, including against cell lines of colorectal cancer and
C. difficile
. In addition,
independent studies have also shown that cannabinoids may have potential to reverse the disordered intestinal permeability that
is associated with intestinal inflammation, which may indicate that cannabinoids can promote effective mucosal healing or wound
repair following intestinal inflammation and injury.
Cannabinoids
for Neuroprotection, and for Treatment of Central and Enteric Nervous System Disorders
Cannabidiol
is one of the key cannabinoid constituents of the Cannabis sativa plant and may often account for up to 40% of cannabis extracts.
Contrary to THC, which has some therapeutic benefits but also important adverse effects, CBD is not psychoactive. It is well-tolerated
and exhibits a broad spectrum of therapeutic properties, which have been studied at both the molecular and clinical level extensively.
CBD is often used alone or in combination with other phytocannabinoids, and has noted anti-inflammatory effects, making it useful
for neuroinflammatory disorders. Independent studies have already confirmed its effectiveness in treatment of multiple sclerosis
in preclinical studies. Based on its anticonvulsant properties, CBD has also been proposed for treatment of epilepsy and sleep
disorders. Moreover, CBD may also serve as an antipsychotic making it a promising compound for the treatment of schizophrenia,
as well as for treatment of anxiety and depression.
Due
to its anti-inflammatory and anti-oxidant properties, CBD has an established neuroprotective role, and therefore may have broad
spectrum utility in neurological disorders affecting the central nervous system such as multiple sclerosis, epilepsy, and schizophrenia,
including indications such as neonatal ischemia or Huntington’s disease. For the same reasons, CBD and other cannabinoids
may also benefit disorders that involve the peripheral nervous system and enteric nervous system, which governs the function of
the gastrointestinal tract. Conditions that have been linked to disruption of the peripheral and enteric nervous systems include
multiple sclerosis, neuropathic pain, irritable bowel syndrome, and narcotic bowel syndrome, a severe form of opiate-induced abdominal
pain.
The
therapeutic value of CBD, either given alone or in combination with THC, may be due to it providing neuroprotection through multiple
mechanisms of action at the molecular level, making it a rare compound. Its combination of anti-glutamatergic, anti-inflammatory,
and anti-oxidant effects cover nearly all aspects of neurotoxicity that are present in neurodegenerative diseases, including inflammatory
responses, excitotoxicity, and oxidative injury. The therapeutic properties of CBD do not appear to be exerted by the activation
of key known molecular targets of the endocannabinoid systems such as the CB1 or CB2 receptors. CBD has negligible activity at
these cannabinoid receptors, and so is likely to exert effects through other mechanisms. In almost all clinical studies performed,
CBD has enhanced the effects of THC however, and so at least some of its biological and clinical activity is linked to enhancement
of the endocannabinoid and related cellular signaling systems.
Multiple
sclerosis (MS) is a chronic autoimmune condition affecting the body’s nervous system and that afflicts more than two million
people worldwide, approximately 450,000 in the United States.MS involves degenerative changes characterized by inflammation and
demyelination of the central nervous system (CNS). Most people with MS experience relapses and remissions of their symptoms, particularly
early in the course of the disease, and symptoms are typically associated with areas of CNS inflammation. Typically over time,
the disease will gradually worsen, independent of acute inflammatory attacks, and progressive or degenerative changes occur. People
with MS have many debilitating symptoms that vary over time, including muscle spasticity, impaired mobility, mood and cognitive
changes, pain and sensory problems, fatigue, visual disturbances, and therefore there is a significant impact on quality of life
for patients and their families. MS typically makes it difficult to live an independent and autonomous life, and often young adults
that are diagnosed are then faced with needing to adapt their life to an unpredictable disease that requires frequent healthcare
visits, extensive laboratory testing, and costly medications. Compared to patients with other chronic diseases, those diagnosed
with MS experience limitations in social roles, and have diminished ratings in physical function, health, and vitality.
Muscle
spasticity, or muscle stiffness, is one of the more common symptoms of multiple sclerosis and affects approximately 80 percent
of patients. Sales of muscle relaxants that have effects similar to spasticity medications were estimated at roughly $780 million
annually from 2000-2007, and were part of the broader market for pain medications that had total annual sales of $17.8 billion
annually during this period. Spastic colon is another name for irritable bowel syndrome (IBS), a gastrointestinal disorder that
is characterized by abdominal cramping, diarrhea, constipation, and abdominal pain. The term of “spastic colon” refers
to the contraction of muscles in the small and large intestines that are often associated with the disorder. IBS has similar symptoms
to IBD, but the underlying disease process is quite different. IBD is characterized by inflammatory attack and destruction of
the gastrointestinal wall. IBS is typically a gastrointestinal disorder where no apparent cause can be found, and is very common,
with up to 25% of the U.S. population reporting symptoms of IBS.
Another
condition believed to largely be neurological is narcotic bowel syndrome (NBS), a severe form of opiate-induced abdominal pain.
It is believed to be linked to central sensitivity disorders, potentially involving both the enteric and central nervous systems.
More than half (58%) of opiate users have reported chronic abdominal pain in independently-conducted clinical studies. NBS is
the most severe form of this disorder, where abdominal pain paradoxically increases despite continued administration of narcotics
to treat the pain. When undiagnosed, patients or physicians continue to escalate dosages, which temporarily relieves pain, but
leads to addiction and also worsens the abdominal pain. Narcotic bowel syndrome has dire consequences for opiate users, as their
quality-of-life has been reported to be worse than patients with quadriplegia. The primary management system today for treatment
of NBS is a structured opiate withdrawal program involving a wide variety of medications that act on the central nervous system,
peripheral nervous system, as well as the gastrointestinal tract. These medications include centrally acting agents for pain,
anxiety, depression, and prevention of withdrawal effects, and additional drugs to treat constipation and other GI disorders.
Current structured withdrawal or detoxification methods are considered grossly inadequate, as evidenced by independent clinical
trials where it has been shown that nearly 50% of patients return to narcotic use within only three months.
Competition
The
biotechnology and pharmaceutical industries are highly active and dynamic, where many companies compete with a strong focus on
advancing new technologies and developing proprietary products. We believe our product candidates, technology, scientific acumen,
facilities, and additional capabilities provide us with a significant and sustainable competitive advantage, but competition exists
today, and new competitors may arise from multiple sources, including especially from major pharmaceutical and biotechnology companies,
researchers at non-profit institutions, and government-sponsored researchers. Successfully commercialized products must compete
not only with existing therapies, but also with new agents that are currently in development or that may become available in the
future.
Cannabinoid
pharmaceuticals are approved and marketed currently, with more in development, from companies such as GW Pharmaceuticals PLC (“GW
Pharma”), Insys Therapeutics Inc. (“Insys”), Zynerba Pharmaceuticals, Inc. (“Zynerba”), and others.
GW Pharma is developing botanical extracts including THC, CBD, CBDV, and blends of these compounds, including the current development
and marketing of nabiximols, branded as Sativex®, which is approved in more than 20 countries internationally. GW Pharma is
also developing cannabidiol, branded as Epidiolex®, for use primarily with epilepsy and rare seizure disorders, and that is
being developed in a liquid spray formulation that must be administered multiple times daily. A similar synthetic CBD product
is being developed by Insys. Zynerba is developing synthetic forms of THC and CBD, or related prodrugs, which are being developed
for use within formulations to be used as a topical gel or transdermal patch, rather than by oral delivery. There is additional
competition from companies that supply alternative synthetic cannabinoids, which may influence cannabinoid signaling, as well
as from medical marijuana and botanical extracts that are increasingly available to physicians and patients.
The
global market for drugs treating IBD is predicted by Visiongain to reach $9.6 billion in annual revenues in 2017. The main types
of drugs used commonly in IBD include anti-inflammatory drugs, drugs that provide symptomatic relief, and also antibiotics. Drugs
used in IBD come in different forms, and may be administered in different ways, including orally, through topical treatments,
and also through injectables or infusions in order to obtain an immediate response to a severe inflammatory attack. Primary drugs
used in treatment of IBD include aminosalicylic acids, corticosteroids, immunosuppressants such as methotrexate, cyclosporine,
and tacrolimus, and newer biologics such as infliximab (Remicade®) or adalimumab (Humira®) that target TNF-alpha, a mediator
of inflammation. There are a variety of drugs available for treatment of common symptoms such as pain, diarrhea, and constipation.
Current drugs that reduce painful abdominal cramps or spasms by relaxing the intestinal muscles are medications such as mebeverine,
hyoscine butylbromide, and alverine citrate, which are often recommended for symptomatic relief of IBS but may also be helpful
for IBD.
The
global market for multiple sclerosis drugs is currently estimated at $17.2 billion in 2014 according to GlobalData, with drugs
marketed and in development from major pharmaceutical companies including Biogen, Teva Neuroscience, Genzyme, Novartis, Pfizer,
Bayer Healthcare, as well as smaller development-stage pharmaceutical and biotechnology companies. Disease-modifying medications
appear to slow down the accumulation of disability, and can reduce the frequency and severity of relapses or clinical attacks,
as well as reduce the accumulation of lesions, which is damage to the brain and spinal cord as seen on magnetic resonance imaging
scans. None of these currently-marketed medications is a cure or will prevent recurring symptoms of the disease, although agents
that effect functional repair of the nervous system are in development by various companies, including Biogen that is developing
a first-in-class remyelinating drug that is a monoclonal antibody and is administered intravenously. Muscle spasticity is a common
symptom of multiple sclerosis for which there is no cure either, but symptomatic relief can be obtained through use of medications
such as baclofen, tizanidine, and through use of less common alternative such as diazepam (Valium®), nerve blocking agents,
and botulinum toxin (Botox®).
Government
Regulation
Due
to our development of pharmaceutical products, we are subject to extensive regulation by the FDA, and other federal, state, and
local regulatory agencies. Although most regulation described within this document focuses on the United States, the largest market
in the world for pharmaceutical products, we anticipate seeking approval for, and marketing of, our products in other countries
as well. Generally, our activities in other countries will be subject to regulation that is similar in nature and scope, although
there can be meaningful differences.
The
FDA is the main regulatory body that controls pharmaceutical and biologic drugs in the United States and the Federal Food, Drug,
and Cosmetic Act (“FDC Act”) governs most of the requirements for the development and marketing of our products. Pharmaceutical
products are also subject to other federal, state and local statutes. A failure to comply explicitly with any requirements during
the product development, approval, or post-approval periods, may lead to administrative or judicial sanctions. These sanctions
could include the imposition by the FDA or an institutional review board, or IRB, of a hold on clinical trials, refusal to approve
pending marketing applications or supplements, withdrawal of approval, warning letters, product recalls, product seizures, total
or partial suspension of production or distribution, injunctions, fines, or even civil penalties or criminal prosecution. The
FDA also inspects manufacturing facilities periodically in order to ensure adequate compliance with Good Manufacturing Practices
(“GMP”), which may require substantial record keeping requirements and equipment maintenance.
Drug
Approval Process by the U.S. Food & Drug Administration
The
steps required before a new drug may be marketed in the United States generally include: completion of preclinical studies of
drug safety and efficacy, as well as chemistry, manufacturing, and controls studies to characterize the production of the drug;
submission to the FDA of an Investigational New Drug (“IND”) to support human clinical testing in the United States;
approval by an independent research panel before each clinical trial may be initiated; performance of well-controlled clinical
trials to establish the safety and efficacy of the drug for each proposed clinical use; submission of an New Drug Application
(“NDA”) to the FDA; satisfaction of any periodic reviews or inspections; and FDA review and approval of the NDA. After
regulatory approval of a drug is obtained, a company is required to comply with a number of post-approval requirements, which
may include ongoing testing, additional clinical trials, and surveillance of the drug’s clinical use in order to continue
assess tis overall safety and efficacy profile. In addition, companies with marketed drugs are required to report adverse reactions
and manufacturing issues to the FDA, and to comply with requirements concerning advertising and promotional labeling for any of
its products.
The
FDA and other federal agencies closely regulate the marketing and promotion of drugs through, among other things, standards and
regulations for direct-to-consumer advertising, communications regarding unapproved uses, industry-sponsored scientific and educational
activities, and promotional activities conducted online. A pharmaceutical product cannot be commercially marketed before it is
approved by the FDA. After approval, product promotion can include only those claims relating to its safety and effectiveness
that are consistent with the product labeling approved in advance by the FDA. Physicians and other healthcare providers are permitted
to prescribe drugs for “off-label” uses, which deviate from the specific use described on the product labeling, because
the FDA does not regulate the practice of medicine. However, FDA regulations impose stringent restrictions on drug manufacturers
regarding the ability to market or promote such off-label use.
Beyond
seeking approval for a drug through an NDA, applicants may apply for an abbreviated new drug application (“ANDA”),
and also through an abbreviated 505(b)(2) application. An ANDA provides for marketing of a generic drug product that has the same
active ingredients, same strengths and dosage form, as a listed drug and has been shown through PK testing to be bioequivalent
to the listed drug. Other than the requirement for bioequivalence testing, ANDA applicants are generally not required to conduct,
or submit results of, preclinical studies or clinical tests to prove the safety or effectiveness of their drug product. 505(b)(2)
applications provide for marketing of a drug product that may have the same active ingredients as the listed drug and contains
full safety and effectiveness data as an NDA, but at least some of this information comes from studies that were not conducted
by or for the applicant. Upon approval, depending on the type of drug approved, and the indication it was approved for, it may
receive additional periods of marketing exclusivity during which the FDA cannot approve any alternative versions of the drugs.
In addition, the FDA may grant three years of marketing exclusivity for a 505(b)(2) application if the NDA includes reports of
clinical studies beyond bioequivalence testing.
Additional
special programs are available through acts of the FDA, including use of patent term extensions, which can extend the life of
a patent as compensation for lost time during the FDA review and approval process, as well as alternative regulatory paths. This
includes the Orphan Drug Act of 1983 and the FDA Safety and Innovation Act of 2012, which for example provides for a Breakthrough
Therapy Designation. Through obtaining a Breakthrough Therapy Designation, a Company may be able to obtain accelerated approval
for one or more drugs if they meet the qualifying criteria, which includes treatment of a serious or life threatening disease
or condition, and having preliminary clinical evidence that the treatment will provide a substantial improvement over existing
therapies.
Drug
Coverage and Reimbursement by Third-Party Payors
Upon
marketing approval, there still remains extensive uncertainty over the ability for any drug to obtain insurance coverage and reimbursement
for use of any products from third-party payers within the healthcare system in the United States and internationally. Sales of
any products depend upon their acceptance and use by physicians and other healthcare providers, but also their availability from
wholesalers and agreement to provide reimbursement from third-party payers, including private health insurance firms, managed
care providers, and government health administrative agencies. Any or all of these groups may limit coverage to specific drug
products on an approved list, or formulary, which might not include all of the FDA approved drugs for a particular indication.
In addition, third-party payers are increasingly challenging the price and examining the medical necessity and cost-effectiveness
of medical products and services, in addition to their safety and efficacy.
Alternative
pricing and drug reimbursement mechanisms exist in other countries. Some jurisdictions may not allow marketing of a drug until
market prices have been established. To obtain reimbursement or pricing approval, some of these countries may require the completion
of clinical trials that compare the cost-effectiveness of a particular product candidate to currently available therapies. Countries
of the European Union are permitted to restrict the range of medicinal products for which their national health insurance systems
provide reimbursement and to control the prices of medicinal products for human use.
The
marketability of any products for which we receive regulatory approval for commercial sale may suffer if the government and third-party
payers fail to provide adequate coverage and reimbursement. In addition, an increasing emphasis on managed care in the United
States has increased and will continue to increase the pressure on providing cost-effective pharmaceutical treatments. Coverage
policies and third-party reimbursement rates may change at any time.
Controlled
Substance Regulations
We
are developing and performing research on compounds that have been classified as “controlled substances” within the
Controlled Substances Act, and that are monitored in the United States by the Drug Enforcement Administration (“DEA”).
The DEA actively monitors and helps establish procedures that are in accordance with the Controlled Substances Act, and this involves
a company having to register itself, and to adhere to certain reporting and security practices in order to prevent and mitigate
any loss or mishandling of controlled substances used on the premises. The State of California has similar requirements, and we
must maintain registration with a panel with disclosure of planned studies and our practices in order to conduct our operations.
The
DEA regulates controlled substances using different schedules, where Schedule I substances by definition have high potential for
abuse, no currently accepted medical use in the United States and lack accepted safety for use under medical supervision. Schedule
I and Schedule II substances are considered to present the highest risk of abuse, and Schedule V substances the lowest risk. THC,
CBD, and purified synthetic forms are listed by the DEA as Schedule I substances, although some FDA-approved pharmaceutical versions
of these products are now listed as Schedule III substances.
A
quota system controls and limits the availability and production of controlled substances in Schedule I or II. This includes manufacturing
of pharmaceutical products. The DEA establishes annually an aggregate quota for how much product may be produced in the United
States based on the DEA’s estimate of the quantity needed to meet legitimate scientific and medicinal needs. This limited
aggregate amount is allocated among individual companies, who must submit applications annually to the DEA for individual manufacturing
and procurement quotas.
DEA
registration is required for any facility that performs research, manufactures, distributes, dispenses, imports or exports any
controlled substance. The registration is specific to the particular location, activity and controlled substance schedule. The
DEA typically inspects facilities to review the premises in advance of issuing a formal registration, in order to assess the adequacy
of their security and internal controls. Security measures differ based on the specific type of application and controlled substance,
but generally include physical control of inventory, surveillance cameras, and ensuring there is no diversion or loss of material
through record-keeping and inventory monitoring. Reports must be provided to the DEA on the use of materials, as well as immediate
reports of theft, loss, or suspicious activity.
Research
and Development
During
the fiscal years ended March 31, 2017 and 2016, we incurred $893,960 and $613,119 in expenses that were allocated to research
and development activities.
Intellectual
Property
In
September 2015, October 2015 and July 2016, we filed three U.S. patent applications, titled “Cannabinoid Glycoside Prodrugs
and Methods of Synthesis”, including an initial filing and two expanded filings. In September 2016, we filed an international
Patent Cooperation Treaty (“PCT”) patent application covering these applications, which describe more than 25 cannabinoid
glycoside prodrugs, or cannabosides, which are designed to overcome the deficiencies of existing cannabinoid pharmaceuticals.
The patent applications include, but are not limited to, prodrugs of delta-9-tetrahydrocannabinol, the primary psychoactive component
of medical marijuana, as well as the non-psychotropic compounds cannabidiol and cannabidivarin. The patent application also includes
description of its glycosylation platform, which enables the efficient manufacture through of cannabosides and other glycosylated
small molecule compounds through enzymatic biosynthesis.
In
June 2015, we filed a U.S. patent application titled “Method for Production and Recycling of UDPG”, which describes
methods for recycling and economical production of a key cofactor necessary for biotransformation of steviol and cannabinoids
through glycosylation. We previously licensed rights to a U.S. patent application titled, “Compositions and methods for
producing steviol and steviol glycosides”, which was related to microbial production of stevia, and terminated this license
in May 2016 in favor of pursuing internally developed methods.
In
March 2016, we were assigned rights to a U.S. provisional patent application titled “Methods for Treatment of Multiple Sclerosis
and Demyelinating Disorders” from the Myelin Repair Foundation, which described methods for treating multiple sclerosis
and other demyelinating diseases through use of FDA-approved drugs that can be repurposed for their utility in effecting remeylination,
a form of nervous system repair or regeneration. In March 2017, we converted this patent application to an international PCT patent
application focused on use of TRPV1 agonists for treatment of demyelinating disorders. These drugs along with others including
our cannabinoid glycoside prodrugs may be administered in oral or injectable forms.
In
May 2017, we filed a U.S. patent application titled “Antimicrobial Compositions Comprising Cannabinoids and Methods of Using,”
which described compositions and methods of use involving cannabinoids that are able to provide antimicrobial activity including
against
Clostridium difficile
and methicillin-resistant
Staphylococcus aureus
(MRSA) infections.
Our
internally developed patents now include multiple non-provisional international PCT patent applications covering novel compositions
of matter for cannabinoid prodrugs known as cannabosides, compositions and methods of use for cannabinoids to treat microbial
infections, methods for biosynthesis and medical applications of cannabinoid prodrugs, biosynthesis methods for steviol glycosides,
and methods for efficient biosynthesis through glycosylation. If successful in prosecuting patent claims, we would obtain patent
protection through 2035 or beyond, and which may be extended through patent term adjustments.
Employees
As
of January 18, 2018, we had seven full-time employees, including five dedicated to research and development. We also utilize
the services of a network of consultants that contribute on a part-time basis, which gives us access to additional scientists,
and engineers that focus on research and development activities. We expect to increase the number of our employees and contractors
as we expand our operations, and the number of employees dedicated to marketing, and sales support as we begin to commercialize
additional products and intensify our sales efforts.
General
Information
We
maintain a corporate website at www.vitality.bio. Information contained on our website is not incorporated by reference in this
prospectus. We file reports with the Securities and Exchange Commission (“SEC”) and make available, free of charge,
on or through our website, our annual reports, quarterly reports, current reports, proxy and information statements and amendments
to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the
“Exchange Act”).
Properties
We
currently lease office and laboratory space at 5225 Carlson Rd., Yuba City, California 95993. Our current lease agreement for
that space, which supersedes and replaces the commercial lease agreement we previously entered for space at the same location,
expires on May 1, 2020 and our rent payments thereunder are $2,600 per month.
We
believe that our current facilities will be adequate for our needs for the next 6 months, although we may lease additional property
for additional research and development space.
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Set
forth below is certain information regarding our directors and executive officers as of March 31, 2017:
Name
|
|
Position
|
|
Age
|
|
Director/Executive
Officer Since
|
Dr.
Avtar Dhillon (2)(3)(4)
|
|
Chairman
of the Board of Directors
|
|
55
|
|
August
2011
|
Dr.
Anthony Maida III (1)(2)(3)
|
|
Director
|
|
65
|
|
March
2012
|
Robert
Brooke (5)
|
|
Chief
Executive Officer and Director
|
|
37
|
|
January
2012
|
(1)
Member of Audit Committee
(2)
Member of Compensation Committee
(3)
Member of Nominating and Corporate Governance Committee
(4)
Member of Financing Committee
(5)
Currently serves as our only executive officer.
Business
Experience
The
following is a brief account of the education and business experience of our current directors and executive officers:
Dr.
Avtar Dhillon
has served as the Chairman of our Board of Directors since January 31, 2012 and has served as a director since
August 17, 2011. Dr. Dhillon also served as our Interim Principal Executive and Financial Officer from August 17, 2011 until January
31, 2012. Dr. Dhillon has served as Chairman of the Board of Directors of OncoSec Medical Incorporated (NASDAQ: ONCS) since March
2011, and of Arch Therapeutics since April 2013, after serving as a director since May 2011. Dr. Dhillon served as President and
Chief Executive Officer of Inovio Pharmaceuticals, Inc. (formerly Inovio Biomedical Corporation) (NASDAQ: INO) from October 2001
to June 2009, as President and Chairman of Inovio from June 2009 until October 2009, as Executive Chairman from October 2009 until
August 2011, and as Chairman from September 2011. During his tenure at Inovio, Dr. Dhillon led the successful turnaround of the
company through a restructuring, acquisition of technology from several European and North American companies, and a merger with
VGX Pharmaceuticals to develop a vertically integrated DNA vaccine development company. Dr. Dhillon led multiple successful financings
for Inovio and concluded several licensing deals that included multinational companies, Merck and Wyeth (now Pfizer). Prior to
joining Inovio, Dr. Dhillon held roles of increasing responsibility with MDS Capital Corp. (now Lumira Capital Corp.), one of
North America’s leading healthcare venture capital organizations, from August 1998 until September 2001. In July 1989, Dr.
Dhillon started a medical clinic and subsequently practiced family medicine for over 12 years until September 2001. Dr. Dhillon
has been instrumental in successfully turning around struggling companies and influential as an active member in the biotech community.
From March 1997 to July 1998, Dr. Dhillon was a consultant to CardiomePharma Corp. (“Cardiome”), a biotechnology company
listed on the Toronto Stock Exchange and NASDAQ. While at Cardiome, Dr. Dhillon led a turnaround based on three pivotal financings,
establishing a clinical development strategy, and procuring a new management team. In his role as a founder and board member of
companies, Dr. Dhillon has been involved in several early stage healthcare focused companies listed on the Toronto Stock Exchange
and TSX Venture Exchange, which have successfully matured through advances in their development pipeline and subsequent merger
and acquisition transactions. He was a founding board member in February 2004 of Protox Therapeutics, Inc. (“Protox”),
now a publicly traded specialty pharmaceutical company known as Sophiris Bio Inc. Dr. Dhillon maintained his board position at
Protox until the execution of a financing with Warburg Pincus in November 2010. Dr. Dhillon currently sits on the Board of Directors
of BC Advantage Funds, a venture capital corporation in British Columbia, and has held this role since November 2003. Dr. Dhillon
brings extensive experience in biotechnology companies to our Board of Directors, as well as significant experience with obtaining
financing and pursuing and completing strategic transactions. He has valuable experience serving on the Board of Directors of
other publicly traded and privately held companies.
Dr.
Anthony Maida, III
joined our Board of Directors in March 2012. Dr. Maida has served on the Board of Directors of OncoSec
Medical Incorporated since June 2011 and currently serves as the Chair of its Audit Committee and as a member of its Nominating
and Corporate Governance Committee. Dr. Maida has served on the Board of Directors of Spectrum Pharmaceuticals, Inc. (NASDAQ GS:
SPPI) since December 2003 and currently serves as the Chair of its Audit Committee and a member of its Compensation Committee,
Placement Committee, Nominating and Corporate Governance Committee and Product Acquisition Committee. He is currently Senior Vice
President – Clinical Research (from June 2011) at Northwest Biotherapeutics, Inc., a company focused on the development
of therapeutic DC cell based vaccines to treat patients with cancer. Dr. Maida serves as Principal of Anthony Maida Consulting
International (since September 1999), providing consulting services to large and small biopharmaceutical firms in the clinical
development of oncology products and product acquisitions and to venture capital firms evaluating life science investment opportunities.
Recently Dr. Maida was Vice President of Clinical Research and General Manager, Oncology, world-wide (from August 2010 to June
2011) for PharmaNet, Inc. He served as the President and Chief Executive Officer of Replicon NeuroTherapeutics, Inc., a biopharmaceutical
company focused on the therapy of patients with tumors (both primary and metastatic) of the central nervous system, where he successfully
raised financing from both venture capital and strategic investors and was responsible for all financial and operational aspects
of the company, from June 2001 to July 2003. He was also President (from December 2000 to December 2001) of CancerVax Corporation,
a biotechnology company dedicated to the treatment of cancer. Dr. Maida also served as Vice President of Finance for Lockheed
DataPlan, a subsidiary of Lockheed Corporation and Senior Control for Lockheed Missiles and Space, MSD. He has been a speaker
at industry conferences and is a member of the American Society of Clinical Oncology, the American Association for Cancer Research,
the Society of Neuro-Oncology, the American Chemical Society and the International Society for Biological Therapy of Cancer. Dr.
Maida received a B.A. in History from Santa Clara University in 1975, a B.A. in Biology from San Jose State University in 1977,
an M.B.A. from Santa Clara University in 1978, an M.A. in Toxicology from San Jose State University in 1986 and a Ph.D. in Immunology
from the University of California, Davis, in 2010. We believe that his financial and operational experience in our industry will
provide important resources to our Board.
Robert
Brooke
has served as a director and our Chief Executive Officer since January 31, 2012, and previously served as our Vice
President of Business Development beginning in October 2011. Mr. Brooke was a founder of Genesis Biopharma, Inc., a cancer drug
development company now known as Iovance Biotherapeutics (NASDAQ: IOVA), where he served as Director, President and Chief Executive
Officer from March 2010 until February 2011. Mr. Brooke is a co-founder of Intervene Immune, Inc., a privately held biotechnology
company focused on immune regeneration, and since March 2014 has served on a limited part-time basis as Chief Executive Officer.
Mr. Brooke was the founder of Percipio Biosciences, Inc., a privately held research diagnostics company that manufactures and
distributes products related to oxidative stress research, and served as its President, on a limited part-time basis, from 2008
until its assets were acquired in June 2013. From 2004 to 2008, he was an analyst with Bristol Capital Advisors, LLC, investment
manager to Bristol Investment Fund, Ltd. (“Bristol”). During this period, Bristol financed over 60 public healthcare
and life science companies and was listed by The PIPEs Report in 2005 as being the most active investor in private placements
by public biotechnology companies. Mr. Brooke earned a B.S. in Electrical Engineering from Georgia Tech in 2003 and a M.S. in
Biomedical Engineering from UCLA in 2005. Mr. Brooke provides our Board of Directors with public and private capital raising experience,
as well as experience in leading early stage biotechnology companies.
Term
of Office
In
accordance with our Bylaws, our directors are elected at each annual meeting of stockholders and serve until the next annual meeting
of stockholders or until their successor has been duly elected and qualified, or until their earlier death, resignation or removal.
Committees
of the Board of Directors
On
August 24, 2012, our Board of Directors established an Audit Committee, a Compensation Committee, a Nominating and Corporate Governance
Committee, and a Finance Committee, each of which has the composition and responsibilities described below.
Audit
Committee
The
Audit Committee of our Board of Directors consists of only Dr. Maida, who serves as Chairman. Our Board of Directors has determined
that the sole member of our Audit Committee is independent within the meaning of applicable SEC rules and Nasdaq Listing Rules,
and has determined that Dr. Maida is an audit committee financial expert, as such term is defined in the rules and regulations
of the SEC, and is financially sophisticated within the meaning of the Nasdaq Listing Rules. The Audit Committee has oversight
responsibilities regarding, among other things: the preparation of our financial statements and our financial reporting and disclosure
processes; the administration, maintenance and review of our system of internal controls regarding accounting compliance; our
practices and processes relating to internal audits of our financial statements; the appointment of our independent registered
public accounting firm and the review of its qualifications and independence; the review of reports, written statements and letters
from our independent registered public accounting firm; and our compliance with legal and regulatory requirements in connection
with the foregoing. Our Board of Directors has adopted a written charter for our audit committee, which is available on our website,
www.vitality.bio.
Compensation
Committee
The
Compensation Committee of our Board of Directors consists of Dr. Dhillon and Dr. Maida, with Dr. Dhillon serving as Chairman.
Our Board of Directors has also determined that Dr. Maida is independent within the meaning of applicable Nasdaq Listing Rules.
The duties of our Compensation Committee include, without limitation: reviewing, approving and administering compensation programs
and arrangements to ensure that they are effective in attracting and retaining key employees and reinforcing business strategies
and objectives; determining the objectives of our executive officer compensation programs and the specific objectives relating
to CEO compensation, including evaluating the performance of the CEO in light of those objectives; approving the compensation
of our other executive officers and our directors; administering our as-in-effect incentive-compensation and equity-based plans;
and producing an annual report on executive officer compensation for inclusion in our proxy statement, when required and in accordance
with applicable rules and regulations. Our Board of Directors has adopted a written charter for our compensation committee, which
is available on our website, www.vitality.bio.
Nominating
and Corporate Governance Committee
The
Nominating and Corporate Governance Committee of our Board of Directors consists of Dr. Dhillon and Dr. Maida, with Dr. Dhillon
serving as Chairman. Our Board of Directors has also determined that Dr. Maida is independent within the meaning of applicable
Nasdaq Listing Rules. The responsibilities of the Nominating and Corporate Governance Committee include, without limitation: assisting
in the identification of nominees for election to our Board of Directors, consistent with approved qualifications and criteria;
determining the composition of the Board of Directors and its committees; recommending to the Board of Directors the director
nominees for the annual meeting of stockholders; establishing and monitoring a process of assessing the effectiveness of the Board
of Directors; developing and overseeing a set of corporate governance guidelines and procedures; and overseeing the evaluation
of our directors and executive officers. Our Board of Directors has adopted a written charter for our nominating and corporate
governance committee, which is available on our website, www.vitality.bio.
Financing
Committee
Dr.
Avtar Dhillon is the Chairman and sole member of our Financing Committee. The Financing Committee does not currently have a charter.
The Financing Committee has responsibilities relating to our efforts to obtain adequate funding to finance our development programs
and operations.
Family
Relationships
No
family relationships exist between any of the directors or executive officers of the Company.
EXECUTIVE
COMPENSATION
The
following table summarizes all compensation recorded by us in each of the fiscal years ended March 31, 2017 and March 31, 2016
for (i) our current principal executive and financial officer, and (ii) our next most highly compensated executive officer other
than our principal executive officer and principal financial officer serving as an executive officer at the end of our 2017 fiscal
year and whose total compensation exceeded $100,000 in our 2017 fiscal year (of which there were none).
Summary
Compensation Table
Name
|
|
Fiscal
Year
|
|
|
Salary
($)
|
|
|
Stock
Awards
(non-cash)
|
|
|
Total
($)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Robert
Brooke, Chief Executive Officer (principal executive and financial officer)
|
|
|
2017
|
|
|
|
150,000
|
|
|
|
184,940
|
(1)
|
|
|
334,940
|
|
|
|
|
2016
|
|
|
|
150,000
|
|
|
|
-
|
|
|
|
150,000
|
|
(1)
Includes amortization of an option to purchase 415,000 shares of common stock a grant of 510,585 shares of restricted commons
stock both granted in July 2016.
Employment
Agreements
On
January 31, 2012, our Board of Directors appointed Robert Brooke as our Chief Executive Officer, Secretary, Treasurer, and director.
On January 31, 2012, we entered into an Executive Employment Agreement with Mr. Brooke. Under the agreement, Mr. Brooke received
an initial annual base salary of $100,000 and is eligible to participate in the benefits made generally available to similarly-situated
executives. His annual base salary increased to $125,000 in March 2013 and to $150,000 in July 2013. The agreement further provides
that if Mr. Brooke is terminated other than for cause, death or disability, he is entitled to receive severance payments equal
to six months of his base salary. If Mr. Brooke terminates his employment with us with good reason following a change of control,
Mr. Brooke is entitled to receive severance payments equal to 12 months of his base salary. Severance payments will be reduced
by any remuneration paid to Mr. Brooke because of Mr. Brooke’s employment or self-employment during the applicable severance
period. The Executive Employment Agreement had an initial term of two years.
Under
the Executive Employment Agreement, termination for “good reason” means a termination by Mr. Brooke following the
occurrence of any of the following events without Mr. Brooke’s consent within six months of a change of control: (a) a change
in Mr. Brooke’s position that materially reduces his level of responsibility; (b) a material reduction in Mr. Brooke’s
base salary, except for reductions that are comparable to reductions generally applicable to similarly situated executives of
the Company; and (c) relocation of Mr. Brooke’s principal place of employment more than 25 miles. The term “change
of control” is defined as a change in ownership or control of the Company effected through a merger, consolidation or acquisition
by any person or related group of persons (other than an acquisition by the Company, a Company-sponsored employee benefit plan
or by a person or persons that directly or indirectly controls, is controlled by, or is under common control with, the Company)
of beneficial ownership (within the meaning of Rule 13d-3 under the Securities Exchange Act of 1934) of securities possessing
more than 50% of the total combined voting power of the outstanding securities of the Company.
Outstanding
Equity Awards at Fiscal Year-End
As
of March 31, 2017, 1) Dr. Dhillon held an option to purchase 50,000 shares of common stock, which vested and became exercisable
in full on April 1, 2012, and an option to purchase 40,000 shares of common stock, 10,000 of which vested and became fully exercisable
on each of November 21, 2015, May 21, 2016, November 21, 2016 and May 21, 2017; 2) Dr. Maida held an option to purchase 10,000
shares of common stock, 2,500 of which vested and became fully exercisable on each of November 21, 2015, May 21, 2016, November
21, 2016 and May 21, 2017, and an option to purchase 92,559 shares of common stock, 23,140 of which vested and became fully exercisable
on January 1, 2017, and 23,140 of which will vest on each of July 1, 2017 and January 1, 2018, and 23,139 of which will vest on
July 1, 2018. ; and 3) Mr. Brooke held an option to purchase 40,000 shares of common stock, 10,000 of which vested and became
fully exercisable on each of November 21, 2015, May 21, 2016, November 21, 2016 and May 21, 2017. and an option to purchase 415,000
shares of common stock, 103,750 of which vested and became fully exercisable on January 1, 2017, and 103,750 of which will vest
on each of July 1, 2017 and January 1, 2018, and 23,139 of which will vest on July 1, 2018.
Compensation
of Directors
We
have no formal plan for compensating our directors for service in their capacities as director, although directors are entitled
to reimbursement for reasonable travel and other out-of-pocket expenses incurred in connection with attendance at meetings of
our Board of Directors.
Dr.
Dhillon and Dr. Maida served as our non-employee directors during the fiscal year ended March 31, 2017. Dr. Avtar Dhillon, the
Chairman of our Board of Directors and of several of our board committees, received total cash compensation of $110,000 for such
services during our fiscal year ended March 31, 2017, and Dr. Maida received $30,000 total cash compensation for his services
as a director during our fiscal year ended March 31, 2017.
Director
Compensation Table
The
following table shows compensation paid to our non-employee directors during the fiscal year ended March 31, 2017:
Name
|
|
Fees
earned or
paid in cash
|
|
|
Stock
awards
(non-cash)
(1)
|
|
|
All
other
compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Avtar Dhillon (1)
|
|
$
|
110,000
|
|
|
$
|
198,340
|
|
|
$
|
-
|
|
|
$
|
308,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dr.
Anthony Maida (1)
|
|
$
|
30,000
|
|
|
$
|
16,622
|
|
|
$
|
-
|
|
|
$
|
46,226
|
|
(1)
|
As
of March 31, 2017, the aggregate number of stock and option awards held by each of our non-employee directors was as follows:
(i) Dr. Avtar Dhillon held a stock award of 925,585 shares of our common stock and option awards to purchase 90,000 shares
of our common stock, and (ii) Dr. Anthony Maida, III, held a stock award of 10,000 shares of our common stock and option awards
to purchase 102,559 shares of our common stock.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions
with Related Persons
On
April 23, 2012, we entered into a lease agreement with One World Ranches LLC pursuant to which we lease from One World Ranches
LLC certain office and laboratory space located at the address of our principal executive offices. That lease agreement commenced
on May 1, 2012, was extended from May 1, 2017 to 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.
One
World Ranches LLC is jointly-owned by Dr. Avtar Dhillon, the Chairman of our Board of Directors, and his wife, Diljit Bains. The
lease agreement was approved by our Board of Directors while Dr. Avtar Dhillon abstained from voting.
On
August 18, 2012, we entered into a lease agreement with Sacramento Valley Real Estate, which is jointly-owned by Dr. Avtar Dhillon,
the Chairman of our Board of Directors, and his wife, Diljit Bains, pursuant to which we agreed to lease space located at 33-800
Clark Avenue, Yuba City, California. The month-to-month lease began on August 20, 2012 and was terminated on May 31, 2015. Our
rent payment was $1,000 per month. On August 22, 2012, we paid $1,000 as a refundable security deposit under this lease.
On
May 16, 2014, the Company entered into an Asset Purchase Agreement with Percipio to purchase certain assets of Percipio for $50,000.
The Company’s Chief Executive Officer, Robert Brooke, owned 20% of Percipio. At March 31, 2016, $11,950 of the purchase
price remains unpaid and is included in accounts payable on the accompanying balance sheet.
Except
as described above, during the fiscal years ended March 31, 2016 and 2017, and through the filing of this annual report, there
have been no transactions, and there are no currently proposed transactions, in which we were or are to be a participant and the
amount involved exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two
completed fiscal years and in which any related person had or will have a direct or indirect material interest.
Director
Independence
Our
Board of Directors has determined that Dr. Anthony Maida would qualify as “independent” as that term is defined by
Nasdaq Listing Rule 5605(a)(2). Mr. Robert Brooke would not qualify as “independent” because he currently serves as
our Chief Executive Officer. Dr. Dhillon also would not qualify as “independent” under applicable Nasdaq Listing Rules.
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED
STOCKHOLDER MATTERS
The
following table sets forth certain information regarding the beneficial ownership of our common stock by (i) each person who,
to our knowledge, beneficially owns more than 5% of our common stock, (ii) each of our directors and named executive officers,
and (iii) all of our current executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following
table, the address of each person named in the table is: c/o Vitality Biopharma, Inc., 1901 Avenue of the Stars, 2
nd
Floor, Los Angeles, California 90067. Shares of our common stock subject to options, warrants, convertible notes or other rights
currently exercisable or exercisable within 60 days after January 18, 2018, are deemed to be beneficially owned and outstanding
for computing the share ownership and percentage of the person holding such options, warrants, convertible notes or other rights,
but are not deemed outstanding for computing the beneficial ownership percentage of any other person. Percentage ownership is
based on a total of 24,200,147 shares of our common stock issued and outstanding on January 18, 2018.
Name
of Beneficial Owner
|
|
Number
of
Shares
Beneficially
Owned
|
|
|
Percentage
Beneficially
Owned (1)
|
|
Directors
and Named Executive Officers:
|
|
|
|
|
|
|
|
|
Dr.
Avtar Dhillon (2)
|
|
|
1,680,585
|
|
|
|
6.9
|
%
|
Dr.
Anthony Maida, III (3)
|
|
|
152,559
|
|
|
|
*
|
|
Robert
Brooke (4)
|
|
|
1,372,835
|
|
|
|
5.7
|
%
|
Current
Directors and Executive Officers as a Group (3 persons)
|
|
|
3,205,979
|
|
|
|
13.2
|
%
|
*Less
than 1%
(1)
|
Based
on 24,200,147 shares of our common stock issued and outstanding as of January 18,
2018. Except as otherwise indicated, we believe that the beneficial owners of the common
stock listed above, based on information furnished by such owners, have sole investment
and voting power with respect to such shares, subject to community property laws where
applicable. Beneficial ownership is determined in accordance with the rules of the SEC
and generally includes voting or investment power with respect to securities.
|
(2)
|
Includes
an option to purchase 50,000 shares of common stock, which vested and became exercisable in full on April 1, 2012, an option
to purchase 40,000 shares of common stock, 10,000 of which vested and became fully exercisable on each of November 21, 2015,
May 21, 2016, November 21, 2016 and May 21, 2017, an option to purchase 50,000 shares of common stock, 25,000 of which vest
on each of June 27, 2018 and December 28, 2018, and two grants of a total of 1,025,585 shares of restricted common stock,
all of which will vest on January 1, 2019.
|
|
|
(3)
|
Includes
10,000 shares of restricted common stock granted to Dr. Maida on July 30, 2012, 3,334 of which vested on January 1, 2013,
and 3,333 on each of January 1, 2014 and January 1, 2015, an option to purchase 10,000 shares of common stock, 2,500 of which
vested and became fully exercisable on each of November 21, 2015, May 21, 2016, November 21, 2016 and May 21, 2017, an option
to purchase 92,559 shares of common stock, 23,140 of which vested and became fully exercisable on January 1, 2017, and 23,140
of which will vest on each of July 1, 2017 and January 1, 2018, and 23,139 of which will vest on July 1, 2018, and an option
to purchase 40,000 shares of common stock, 20,000 of which vest on each of June 27, 2018 and December 28, 2018.
|
|
|
(4)
|
Includes
an option to purchase 40,000 shares of common stock, 10,000 of which vested and became fully exercisable on each of November
21, 2015, May 21, 2016, November 21, 2016 and May 21, 2017, an option to purchase 415,000 shares of common stock, 103,750
of which vested and became fully exercisable on January 1, 2017, and 103,750 of which will vest on each of July 1, 2017, January
1, 2018, and July 1, 2018, an option to purchase 50,000 shares of common stock, 12,500 of which vest on each of June 27, 2018,
December 28, 2018, June 27, 2019 and December 27, 2019, and two grants of a total of 610,585 shares of restricted commons
stock, all of which will vest on January 1, 2019.
|
LEGAL
MATTERS
Greenberg
Traurig, LLP, Sacramento, California, will pass upon the validity of the issuance of the securities offered by this prospectus.
EXPERTS
Our
financial statements for the years ended March 31, 2017 and 2016, included in this prospectus and registration statement have
been audited by Weinberg & Company, P.A., independent registered public accounting firm, as stated in their report appearing
herein, and are included in reliance upon such report given on the authority of such firm as experts in accounting and auditing.
WHERE
YOU CAN FIND MORE INFORMATION
We
file annual reports, quarterly reports, current reports, proxy statements and other information with the Securities and Exchange
Commission (“SEC”). You may read or obtain a copy of these reports at the SEC’s public reference room at 100
F Street, N.E., Washington, D.C. 20549, on official business days during the hours of 10:00 am to 3:00 pm. You may obtain information
on the operation of the public reference room and its copy charges by calling the SEC at 1-800-SEC-0330. The SEC maintains a website
that contains registration statements, reports, proxy information statements and other information regarding registrants that
file electronically with the SEC, which are available free of charge. The address of the website is http://www.sec.gov.
We
have filed with the SEC a registration statement on Form S-1 under the Securities Act with respect to the shares of common stock
and warrants being offered by this prospectus. This prospectus is part of that registration statement. This prospectus does not
contain all of the information set forth in the registration statement or the exhibits to the registration statement. For further
information with respect to us and the shares we are offering pursuant to this prospectus, you should refer to the registration
statement and its exhibits. Statements contained in this prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and you should refer to the copy of that contract or other documents filed as an exhibit
to the registration statement. You may read or obtain a copy of the registration statement at the SEC’s public reference
room and website referred to above.
Index
to Financial Statements
|
Page
|
|
|
Report
of Independent Registered Accounting Firm
|
F-2
|
|
|
Balance
Sheets as of March 31, 2017 and 2016
|
F-3
|
|
|
Statements
of Operations for the years ended March 31, 2017 and 2016
|
F-4
|
|
|
Statements
of Stockholders’ Deficiency for the years ended March 31, 2017 and 2016
|
F-5
|
|
|
Statements
of Cash Flows for the years ended March 31, 2017 and 2016
|
F-6
|
|
|
Notes
to Financial Statements for the years ended March 31, 2017 and 2016
|
F-7
|
|
|
Condensed
Unaudited Balance Sheet as of June 30, 2017
|
F-17
|
|
|
Condensed
Unaudited Statements of Operations for the three months ended June 30, 2017 and 2016
|
F-18
|
|
|
Condensed
Unaudited Statement of Stockholders’ deficit for the three months ended June 30, 2017
|
F-19
|
|
|
Condensed
Unaudited Statements of Cash Flows for the three months ended June 31, 2017 and 2016
|
F-20
|
|
|
Notes
to the Condensed Unaudited Financial Statements for the three months ended June 30, 2017 and 2016
|
F-21
|
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors
Vitality
Biopharma, Inc.
Los
Angeles, California
We
have audited the accompanying balance sheets of Vitality Biopharma, Inc., (the “Company”) as of March 31, 2017 and
2016, and the related statements of operations, stockholders’ equity (deficiency), and cash flows for the years then ended.
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion
on these financial statements based on our audits.
We
conducted our audits in accordance with standards of the Public Company Accounting Oversight Board (United States). Those standards
require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of
the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining,
on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing
the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our opinion.
In
our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of the
Company as of March 31, 2017 and 2016, and the results of its operations and its cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States of America.
The
accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed
in Note 1 to the financial statements, the Company has experienced recurring operating losses and negative operating cash flows
since inception. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s
plans in regard to these matters are also described in Note 1 to the financial statements. The accompanying financial statements
do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the
amounts and classifications of liabilities that might result from the outcome of this uncertainty.
/s/
Weinberg & Company, P.A.
|
|
Los
Angeles, California
|
|
June
28, 2017
|
|
VITALITY
BIOPHARMA, INC.
BALANCE
SHEETS
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
1,152,766
|
|
|
$
|
95,433
|
|
Accounts
receivable, net
|
|
|
19,198
|
|
|
|
30,396
|
|
Inventory
|
|
|
-
|
|
|
|
6,470
|
|
Prepaid
expenses
|
|
|
3,058
|
|
|
|
2,500
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
1,175,022
|
|
|
$
|
134,799
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity (Deficiency)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
373,696
|
|
|
$
|
215,562
|
|
Accrued
compensation – officers and directors
|
|
|
151,667
|
|
|
|
29,375
|
|
Accounts
payable - related party
|
|
|
34,500
|
|
|
|
6,900
|
|
Derivative
liability
|
|
|
240,791
|
|
|
|
401,127
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
800,654
|
|
|
|
652,964
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity (Deficiency)
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001 per share; 1,000,000,000 shares authorized; 22,215,180 and 7,911,708 shares issued and outstanding,
respectively
|
|
|
22,214
|
|
|
|
7,912
|
|
Common
stock issuable, 999,700 shares
|
|
|
-
|
|
|
|
99,970
|
|
Additional
paid-in-capital
|
|
|
18,088,093
|
|
|
|
11,890,512
|
|
Accumulated
deficit
|
|
|
(17,735,939
|
)
|
|
|
(12,516,559
|
)
|
Total
stockholders’ equity (deficiency)
|
|
|
374,368
|
|
|
|
(518,165
|
)
|
Total
liabilities and stockholders’ equity (deficiency)
|
|
$
|
1,175,022
|
|
|
$
|
134,799
|
|
The
accompanying notes are an integral part of these financial statements
VITALITY
BIOPHARMA, INC.
STATEMENTS
OF OPERATIONS
|
|
Year
Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
163,363
|
|
|
$
|
248,348
|
|
Cost
of goods sold
|
|
|
108,255
|
|
|
|
149,478
|
|
Gross
profit
|
|
|
55,108
|
|
|
|
98,870
|
|
|
|
|
|
|
|
|
|
|
Operating
Expenses:
|
|
|
|
|
|
|
|
|
General
and Administrative
|
|
|
2,605,097
|
|
|
|
2,196,922
|
|
Rent
- related party
|
|
|
27,600
|
|
|
|
30,600
|
|
Research
and development
|
|
|
893,960
|
|
|
|
613,119
|
|
Total
Operating Expenses
|
|
|
3,526,657
|
|
|
|
2,840,641
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(3,471,549
|
)
|
|
|
(2,741,771
|
)
|
|
|
|
|
|
|
|
|
|
Other
income (expenses)
|
|
|
|
|
|
|
|
|
Interest
expense
|
|
|
(1,010
|
)
|
|
|
(363
|
)
|
Change
in fair value of derivative liability
|
|
|
(1,746,821
|
)
|
|
|
2,600,809
|
|
Total
other income (expense)
|
|
|
(1,747,831
|
)
|
|
|
2,600,446
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,219,380
|
)
|
|
$
|
(141,325
|
)
|
|
|
|
|
|
|
|
|
|
Net
loss per share - Basic and diluted
|
|
$
|
(0.38
|
)
|
|
$
|
(0.02
|
)
|
Weighted
average number of common shares outstanding, basic and diluted
|
|
|
13,591,137
|
|
|
|
7,541,983
|
|
The
accompanying notes are an integral part of these financial statements
VITALITY
BIOPHARMA, INC.
STATEMENTS
OF STOCKHOLDERS’ EQUITY (DEFICIENCY)
YEARS
ENDED MARCH 31, 2017 and 2016
|
|
Common
Stock
|
|
|
Additional
Paid-in-
|
|
|
Accumulated
|
|
|
Common
stock,
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
issuable
|
|
|
Total
|
|
Balance,
April 1, 2015
|
|
|
7,296,892
|
|
|
$
|
7,297
|
|
|
$
|
11,288,637
|
|
|
$
|
(12,375,234
|
)
|
|
$
|
-
|
|
|
$
|
(1,079,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization
of common stock issued to employees with vesting terms
|
|
|
-
|
|
|
|
-
|
|
|
|
161,936
|
|
|
|
-
|
|
|
|
-
|
|
|
|
161,936
|
|
Common
stock issued for services
|
|
|
114,816
|
|
|
|
115
|
|
|
|
275,885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
276,000
|
|
Fair
value of vested stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
286,248
|
|
|
|
-
|
|
|
|
-
|
|
|
|
286,248
|
|
Fair
value of vested warrants granted to employees
|
|
|
-
|
|
|
|
-
|
|
|
|
182,072
|
|
|
|
-
|
|
|
|
-
|
|
|
|
182,072
|
|
Issuance
of stock and warrants
|
|
|
500,000
|
|
|
|
500
|
|
|
|
(403,577
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(403,077
|
)
|
Extinguishment
of derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
99,311
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,311
|
|
Common
Stock issuable, 9,997,000 shares
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
99,970
|
|
|
|
99,970
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(141,325
|
)
|
|
|
-
|
|
|
|
(141,325
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2016
|
|
|
7,911,708
|
|
|
|
7,912
|
|
|
|
11,890,512
|
|
|
|
(12,516,559
|
)
|
|
|
99,970
|
|
|
|
(518,165
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of stock and warrants
|
|
|
4,150,000
|
|
|
|
4,150
|
|
|
|
1,760,850
|
|
|
|
-
|
|
|
|
(99,970
|
)
|
|
|
1,665,030
|
|
Common
stock issued for services
|
|
|
552,500
|
|
|
|
552
|
|
|
|
658,549
|
|
|
|
-
|
|
|
|
-
|
|
|
|
659,101
|
|
Shares
issued upon warrant exercises
|
|
|
8,189,262
|
|
|
|
8,189
|
|
|
|
768,811
|
|
|
|
-
|
|
|
|
-
|
|
|
|
777,000
|
|
Amortization
of common stock issued to employees with vesting terms
|
|
|
1,436,170
|
|
|
|
1,436
|
|
|
|
339,814
|
|
|
|
-
|
|
|
|
-
|
|
|
|
341,250
|
|
Fair
value of vested stock options
|
|
|
-
|
|
|
|
-
|
|
|
|
762,374
|
|
|
|
-
|
|
|
|
-
|
|
|
|
762,374
|
|
Extinguishment
of derivative liability
|
|
|
-
|
|
|
|
-
|
|
|
|
1,907,158
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,907,158
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancellation
of unvested restricted stock
|
|
|
(25,000
|
)
|
|
|
(25
|
)
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Adjustment
to common stock in conjunction with reverse split
|
|
|
540
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Net
Loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(5,219,380
|
)
|
|
|
|
|
|
|
(5,219,380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
March 31, 2017
|
|
|
22,215,180
|
|
|
$
|
22,214
|
|
|
$
|
18,088,093
|
|
|
$
|
(17,735,939
|
)
|
|
|
-
|
|
|
$
|
374,368
|
|
The
accompanying notes are an integral part of these financial statements.
VITALITY
BIOPHARMA, INC.
STATEMENTS
OF CASH FLOWS
|
|
Years
Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,219,380
|
)
|
|
$
|
(141,325
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Fair
value of vested stock options
|
|
|
762,374
|
|
|
|
286,248
|
|
Fair
value of vested common stock issued to employees
|
|
|
341,250
|
|
|
|
161,936
|
|
Fair
value of vested warrants granted to employees
|
|
|
-
|
|
|
|
182,072
|
|
Fair
value of common stock issued for services
|
|
|
659,101
|
|
|
|
276,000
|
|
Change
in fair value of derivative liability
|
|
|
1,746,821
|
|
|
|
(2,600,809
|
)
|
Changes
in assets and liabilities:
|
|
|
|
|
|
|
|
|
Accrued
compensation – officers and directors
|
|
|
122,292
|
|
|
|
29,375
|
|
Accounts
receivable
|
|
|
11,199
|
|
|
|
31,199
|
|
Inventory
|
|
|
6,470
|
|
|
|
2,008
|
|
Prepaid
expense
|
|
|
(558
|
)
|
|
|
-
|
|
Accounts
payable - related party
|
|
|
27,600
|
|
|
|
5,900
|
|
Accounts
payable and accrued liabilities
|
|
|
158,134
|
|
|
|
81,555
|
|
Net
Cash Used in Operating Activities
|
|
|
(1,384,697
|
)
|
|
|
(1,685,841
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from exercise of warrants, net
|
|
|
777,000
|
|
|
|
-
|
|
Proceeds
from Common Stock issuable
|
|
|
-
|
|
|
|
99,970
|
|
Proceeds
from sale of common stock and warrants, net
|
|
|
1,665,030
|
|
|
|
1,291,574
|
|
Net
Cash Provided by Financing Activities
|
|
|
2,442,030
|
|
|
|
1,391,544
|
|
|
|
|
|
|
|
|
|
|
Net
increase (decrease) in cash
|
|
|
1,057,333
|
|
|
|
(294,297
|
)
|
Cash
- Beginning of Period
|
|
|
95,433
|
|
|
|
389,730
|
|
|
|
|
|
|
|
|
|
|
Cash
- End of Period
|
|
$
|
1,152,766
|
|
|
$
|
95,433
|
|
Supplemental
Disclosure of Cash Flow Information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-Cash
Investing and Financing Activities:
|
|
|
|
|
|
|
|
|
Fair
value of warrants issued with common stock, recorded as derivative liability
|
|
$
|
-
|
|
|
$
|
1,694,651
|
|
Extinguishment
of derivative liability
|
|
$
|
1,907,158
|
|
|
|
99,311
|
|
The
accompanying notes are an integral part of these financial statements.
VITALITY
BIOPHARMA, INC.
NOTES
TO FINANCIAL STATEMENTS FOR THE
YEARS
ENDED MARCH 31, 2017 AND 2016
1.
BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vitality
Biopharma, Inc. (the “Company”, “we”, “us” or “our”), was incorporated in the
State of Nevada on June 29, 2007. The Company’s fiscal year end is March 31.
In
2015, the Company developed a new class of cannabinoids known as cannabosides, which were discovered through application of the
Company’s proprietary enzymatic bioprocessing technologies originally developed for stevia sweeteners. In 2016, the Company
received approvals from the U.S. Drug Enforcement Administration (the “DEA”) and the State of California to initiate
studies and manufacturing scale-up at its research and development facilities in order to develop cannabosides.
In
May 2016, we received shareholder and board approval for a name change to Vitality Biopharma, Inc., an exchange of one (1) share
of the Company’s common stock for each 10 shares of common stock outstanding or exercisable under any outstanding warrants
or option agreements, and an increase in the number of shares of authorized common stock from 525,000,000 to 1,000,000,000. These
corporate changes became effective on July 20, 2016. All share and per share information contained in these financial statements
has been adjusted to reflect these changes as if it had occurred in the earliest period presented.
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 normal course of business. As reflected in the accompanying financial statements,
for the year ended March 31, 2017, the Company incurred a net loss of $5,219,380 and used cash in operating activities of $1,384,697.
These factors raise substantial doubt about the Company’s ability to continue as a going concern within one year of the
date that the financial statements are issued. The financial statements do not include any adjustments that might be necessary
should the Company be unable to continue as a going concern.
The
ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future
and/or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when
they come due. We estimate as of March 31, 2017 we will have sufficient funds to operate the business for the next 9 months. We
will require additional financing to fund our planned future operations, including the continuation of our ongoing research and
development efforts, seeking to license or acquire new assets, and researching and developing any potential patents and any further
intellectual property that we may acquire. Further, these estimates could differ if we encounter unanticipated difficulties, in
which case our current funds may not be sufficient to operate our business for that period. In addition, 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 additional financing will be required to fund our planned principal
operations in the near term and in future periods, including research and development activities relating to stevia extract production,
developing and seeking regulatory approval for any of our stevia product candidates, 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, significant revenue to fund our business from our operations, and will need to obtain most of our
necessary funding from external sources in the near 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 capital in the future. However, if we raise additional funds by issuing equity or convertible
debt securities, our existing stockholders’ ownership will be diluted, and obtaining commercial loans would increase our
liabilities and future cash commitments. If we pursue capital through alternative sources, such as collaborations or other similar
arrangements, we may be forced to relinquish rights to our proprietary technology or other intellectual property and could result
in our receipt of only a portion of any revenue that may be generated from a partnered product or business. Further, these or
other sources of capital may not be available on commercially reasonable or acceptable terms when needed, or at all. If we cannot
raise the money that we need in order to continue to develop our business, we will be forced to delay, scale back or eliminate
some or all of our proposed 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.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. The more significant estimates and assumptions by management include, among
others, reserves for accounts receivable, the fair value of equity instruments issued for services, and assumptions used in the
valuation of derivative liabilities and the valuation allowance for deferred tax assets.
Revenues
Revenue
is measured at the fair value of the consideration received or receivable and represents amounts receivable for products and/or
services that have been delivered in the normal course of business, title has passed, the selling price is both fixed and determinable,
and collectability is reasonably assured, all of which generally occurs upon shipment of the Company’s product or delivery
of the product to the destination specified by the customer.
The
Company determines whether delivery has occurred based on when title transfers and the risks and rewards of ownership have transferred
to the buyer, which usually occurs when the Company ships the products. The Company regularly reviews its customers’ financial
positions to ensure that collectability is reasonably assured. Except for warranties, the Company has no post-sales obligations.
Accounts
Receivable
The
Company evaluates the collectability of its trade accounts receivable based on a number of factors. In circumstances where the
Company becomes aware of a specific customer’s inability to meet its financial obligations to the Company, a specific reserve
for bad debts is estimated and recorded, which reduces the recognized receivable to the estimated amount the Company believes
will ultimately be collected. In addition to specific customer identification of potential bad debts, bad debt charges are recorded
based on the Company’s historical losses and an overall assessment of past due trade accounts receivable outstanding.
The
allowance for doubtful accounts and returns and discounts is established through a provision reducing the carrying value of receivables.
At March 31, 2017 and 2016, the allowance for doubtful accounts and returns and discounts was approximately $50,500 and $17,500,
respectively.
Financial
Assets and Liabilities Measured at Fair Value
The
Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial
assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used
to measure their fair value. Authoritative guidance provided by FASB defines the following levels directly related to the amount
of subjectivity associated with the inputs to fair valuation of these financial assets:
Level
1
|
|
Quoted
prices in active markets for identical assets or liabilities.
|
|
|
|
Level
2
|
|
Inputs,
other than the quoted prices in active markets, that are observable either directly or indirectly.
|
|
|
|
Level
3
|
|
Unobservable
inputs based on the Company’s assumptions.
|
The
fair value of the derivative liabilities of $240,791 and $401,127 at March 31, 2017 and 2016, respectively, were valued using
Level 2 inputs.
The
carrying value of cash and accounts payable and accrued liabilities approximates their fair value because of the short maturity
of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average
Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the March
31, 2017, 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.
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.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions, for
services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based
Payment Topic of the FASB Accounting Standards Codification (“ASC”), which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including
employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to
employees and directors on the date of grant using a Black-Scholes-Merton option-pricing model, and the value of the portion of
the award that is ultimately expected to vest is recognized as expense over the required service period in the Company’s
statements of operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance
with the authoritative guidance whereas the value of the stock compensation is based upon the measurement date as determined at
either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn 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 time of grant and revised, as necessary, in subsequent periods if actual forfeitures
differ from those estimates.
The
Company periodically issues unvested (“restricted”) shares of its common stock to employees as equity incentives.
The Company’s restricted stock vests upon the satisfaction of a recipient’s service condition, which is satisfied
over a period of number of years. The restricted shares vest over certain period and remain subject to forfeiture if vesting conditions
are not met. The Company values the shares based on the price per share of the Company’s shares at the date of grant and
recognizes the value as compensation expense ratably over the vesting period.
Basic
and Diluted Loss Per Share
Basic
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted loss per share is computed by dividing net loss applicable to common stockholders by
the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. Diluted loss per share excludes all potential common shares if their
effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings
per share as their inclusion would be anti-dilutive:
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Options
|
|
|
2,820,489
|
|
|
|
907,500
|
|
Warrants
|
|
|
372,421
|
|
|
|
2,002,719
|
|
Total
|
|
|
3,192,910
|
|
|
|
2,910
219
|
|
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, patent fees and costs, and
other expenses relating to the acquisition, design, development and testing of the Company’s treatments and product candidates.
Research and development costs are expensed as incurred.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU
2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that
reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard
requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05, all of which clarify
certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December
15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods
therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application
(the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to
determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company
will adopt the provisions of this statement in the quarter beginning April 1, 2018.
In
February 2016, the FASB issued ASU No. 2016-02, Leases. This update will require the recognition of a right-of-use asset and a
corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer
than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with
all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability
will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the
repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component
will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting
periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured
at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating
the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.
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.
DERIVATIVE LIABILITY
Under
authoritative guidance issued by the FASB, instruments which do not have fixed settlement provisions are deemed to be derivative
instruments. In May 2015, the Company issued certain warrants which included 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. The Company determined that the exercise prices of the warrants were not fixed because they are subject to fluctuation
based on the occurrence of future offerings or events, and certain fundamental transactions. In accordance with the FASB authoritative
guidance, the conversion feature of the warrants was separated from the host contract and recognized as a derivative 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, 2015, the balance of the derivative liabilities was $1,406,596. During the year ended March 31, 2016, the Company recognized
additional derivative liabilities of $1,694,651 related to the issuance of new warrants, recorded a decrease in derivative liability
of $2,600,809, and recorded an extinguishment of $99,311 related to warrants that were exercised. At March 31, 2016, the balance
of the derivative liabilities was $401,127. During the year ended March 31, 2017, the Company recorded an increase in derivative
liability of $1,746,821, and recorded an extinguishment of $1,907,158 related to warrants that were exercised. At March 31, 2017,
the balance of the derivative liabilities was $240,791.
At
March 31, 2017 and March 31, 2016, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton pricing
model with the following assumptions:
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Conversion
feature:
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
0.19
|
%
|
|
|
0.19-1.04
|
%
|
Expected
volatility
|
|
|
125
|
%
|
|
|
105.06-124.77
|
%
|
Expected
life (in years)
|
|
|
1
to 3 years
|
|
|
|
.01
to 4 years
|
|
Expected
dividend yield
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Fair Value:
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
240,791
|
|
|
$
|
401,127
|
|
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
financings
On
March 9, 2017, we entered into a securities purchase agreement with certain accredited investors, pursuant to which we issued
to the purchasers an aggregate of 1,500,000 shares of the Company’s common stock, par value $0.001 per share at a price
of $1.00 per share, for the aggregate proceeds of $1,500,000.
In
May 2016, the Company entered into a securities purchase agreement providing for the issuance of 2,650,000 shares of the Company’s
common stock and warrants to purchase 7,950,000 shares of the Company’s common stock, at a price of $0.10 per share for
aggregate proceeds to the Company of $265,000. The warrants were all exercised prior to their expiration date on February 4, 2017
(see Note 5).
In
May 2015, the Company entered into a securities purchase agreement with seven purchasers for the sale of an of aggregate of 500,000
shares of the Company’s common stock, and warrants to purchase an aggregate of 1,250,006 shares of the Company’s common
stock for total gross proceeds of $1,500,000, or a sales price of $3.00 per share. The Company also issued warrants to purchase
up to 40,000 shares of the Company’s common stock to its placement agent.
Common
stock issued to employees with vesting terms
The
Company has issued shares of common stock to employees and directors that vest over time. The fair value of these stock awards
are based on the market price of the Company’s common stock on the dates granted, and are amortized over vesting terms ranging
up to three years.
During
the year ended March 31, 2017, the Company issued an aggregate of 1,436,170 shares of its common stock to one officer and one
director. The aggregate fair value of these awards was approximately $718,000, which will be amortized over the 1.75 year vesting
term of the awards.
At
March 31, 2015, the accumulated vested balance of stock awards was $449,280. During the year ended March 31, 2016, the fair value
of stock awards that vested was $161,936. At March 31, 2016, the accumulated vested balance of stock awards was $611,216. During
the year ended March 31, 2017, we recorded expense related to the fair value of stock awards that vested of $341,250. At March
31, 2017, the accumulated vested balance of the stock awards $952,466. At March 31, 2017, the amount of unvested compensation
related to these awards is approximately $410,000, and will be recorded as expense over 1.25 years.
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:
|
|
Number
of Shares
|
|
Non-vested
shares, April 1, 2015
|
|
|
208,333
|
|
Granted
|
|
|
-
|
|
Vested
|
|
|
(39,167
|
)
|
Forfeited
|
|
|
-
|
|
Non-vested
shares, April 1, 2016
|
|
|
169,166
|
|
Granted
|
|
|
1,436,170
|
|
Vested
|
|
|
(2,500
|
)
|
Forfeited
|
|
|
(166,666
|
)
|
Non-vested
shares, March 31, 2017
|
|
|
1,436,170
|
|
Common
stock issued for services
During
the year ended March 31, 2017, the Company issued a total of 552,500 share of common stock to three consultants as payment for
services and recorded expenses of $659,101 based on the fair value of the Company’s common stock at the issuance dates.
During
the year ended March 31, 2016, the Company issued a total of 114,816 share of common stock to four consultants as payment for
services and recorded expenses of $276,000 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 fiscal years ended March 31, 2016 and 2017 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Balance
at April 1, 2015
|
|
|
632,500
|
|
|
$
|
3.30
|
|
Granted
|
|
|
277,500
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
Cancelled
|
|
|
(2,500
|
)
|
|
|
|
|
Balance outstanding
at March 31, 2016
|
|
|
907,500
|
|
|
$
|
3.30
|
|
Granted
|
|
|
2,263,821
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
|
|
Expired
|
|
|
(285,000
|
)
|
|
|
|
|
Cancelled
|
|
|
(65,832
|
)
|
|
|
|
|
Balance
outstanding at March 31, 2017
|
|
|
2,820,489
|
|
|
$
|
1.27
|
|
Balance
exercisable at March 31,2017
|
|
|
965,626
|
|
|
$
|
1.70
|
|
A
summary of the Company’s stock options outstanding and exercisable as of March 31, 2017 is as follows:
|
|
Number
of
Options
|
|
|
Weighted
Average
Exercise Price
|
|
|
Weighted
Average Grant- date Stock Price
|
|
Options
Outstanding, March 31, 2017
|
|
|
1,710,821
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
153,000
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
|
|
130,000
|
|
|
$
|
1.00
|
|
|
$
|
10.00
|
|
|
|
|
10,000
|
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
|
|
647,500
|
|
|
$
|
2.00
– 2.79
|
|
|
$
|
2.00
– 2.79
|
|
|
|
|
123,334
|
|
|
$
|
3.10
– 3.80
|
|
|
$
|
3.10
– 3.80
|
|
|
|
|
45,834
|
|
|
$
|
4.00
– 4.70
|
|
|
$
|
4.00
– 4.70
|
|
|
|
|
2,820,489
|
|
|
|
|
|
|
|
|
|
Options Exercisable,
March 31, 2017
|
|
|
427,708
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
37,500
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
|
|
130,000
|
|
|
$
|
1.00
|
|
|
$
|
10.00
|
|
|
|
|
5,000
|
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
|
|
201,250
|
|
|
$
|
2.00
– 2.79
|
|
|
$
|
2.00
– 2.79
|
|
|
|
|
118,334
|
|
|
$
|
3.10
– 3.80
|
|
|
$
|
3.10
– 3.80
|
|
|
|
|
45,834
|
|
|
$
|
4.00
– 4.70
|
|
|
$
|
4.00
– 4.70
|
|
|
|
|
965,626
|
|
|
|
|
|
|
|
|
|
During
the years ended March 31, 2017 and 2016, we expensed total stock-based compensation related to stock options of $762,374 and $286,248,
respectively, and the remaining unamortized cost of the outstanding stock-based awards at March 31, 2017 was approximately $801,000.
This cost will be amortized on a straight line basis over a weighted average remaining vesting period of 2 years. At March 31,
2017, the 2,820,489 outstanding stock options had an intrinsic value of approximately $2,560,000.
Year
Ended March 31, 2017
During
the year ended March 31, 2017, the Company granted to employees options to purchase an aggregate of 1,718,262 shares of the Company’s
common stock with exercise prices of from $0.50 to $2.79 per share, that expire ten years from the date of grant, and all have
vesting period of 24 months. The fair value of each option award was estimated on the date of grant using the Black-Scholes option
pricing model based on the following assumptions: (i) volatility rate between 126.34% and 131.33%, (ii) discount rate between
1.60% and 2.45%, (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 the option grants to employees at their grant dates was approximately
$1,045,000. During the year ended March 31, 2017, amortization of approximately $305,000 was recorded related to these options.
During
the year ended March 31, 2017, the Company also granted to seven consultants options to purchase 545,559 shares of the Company’s
common stock with exercise prices of per share between $0.50 and $2.34, that expire in ten years from date of grant, and have
vesting period of 24 months. The fair value of these options granted to the consultants was estimated using the Black-Scholes
option pricing model based on the following assumptions: (i) volatility rate between 126.34% and 129.31% (ii) discount rate between
1.36% and 2.4%, (iii) zero expected dividend yield, and (iv) expected life of 10 years. The total fair value of the option grants
to the consultants at their grant dates was approximately $830,000. The Company re-measures any non-vested options to non-employees
to fair value at the end of each reporting period. At March 31, 2017, the fair value of the 545,559 options was $183,450. During
the year ended March 31, 2017, amortization of $136,473 was recorded on these options.
Year
Ended March 31, 2016
During
the year ended March 31, 2016, the Company granted to employees options to purchase an aggregate of 137,500 shares of the Company’s
common stock that expire ten years from the date of grant and have vesting periods ranging from zero to 36 months. The fair value
of each option award was estimated on the date of grant using the Black-Scholes option pricing model based on the following assumptions:
(i) volatility rate of 76.26%, (ii) discount rate of 2.19 %, (iii) zero expected dividend yield, and (iv) expected life of 5 years,
which is the average of the term of the options and their vesting periods. The total fair value of the option grants to employees
at their grant dates was approximately $233,000.
Also,
during the year ended March 31, 2016, the Company granted options to purchase 140,000 shares of the Company’s common stock
to five consultants that expire between three and ten years from date of grant. 70,000 of the options vested immediately and the
balance of the options vest over periods up to 36 months. The fair value of these options granted to the consultants was estimated
using the Black-Scholes option pricing model based on the following assumptions: (i) volatility rate between 76.26% to 107.51%,
(ii) discount rate of 2.17%, (iii) zero expected dividend yield, and (iv) expected life of 5 years. The total fair value of the
option grants to the consultants at their grant dates was approximately $131,000.
5.
WARRANTS
A
summary of warrants to purchase common stock issued during the fiscal years ended March 31, 2016 and 2017 is as follows:
|
|
Shares
|
|
|
Weighted
Average Exercise Price
|
|
Balance
outstanding at April 1, 2015
|
|
|
1,212,715
|
|
|
$
|
3.70
|
|
Granted
|
|
|
1,290,006
|
|
|
|
3.19
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
Expired/Cancelled
|
|
|
(500,002
|
)
|
|
|
-
|
|
Balance outstanding
at March 31, 2016
|
|
|
2,002,719
|
|
|
$
|
3.50
|
|
Granted
|
|
|
7,950,000
|
|
|
|
0.17
|
|
Exercised
|
|
|
(9,036,965
|
)
|
|
|
0.58
|
|
Expired/Cancelled
|
|
|
(543,333
|
)
|
|
|
3.46
|
|
Balance
outstanding at March 31, 2017
|
|
|
372,421
|
|
|
$
|
2.79
|
|
Balance
exercisable at March 31, 2017
|
|
|
372,421
|
|
|
$
|
2.79
|
|
In
conjunction with the May 2016 Offering (see Note 3), the Company granted to investors warrants to purchase 7,950,000 shares of
the Company’s common stock, at a price of $0.10 per share. The warrants were all exercised prior to their expiration date
on February 4, 2017.
In
conjunction with the May 2015 offering of the Company’s common stock, the Company granted warrants to purchase an aggregate
of 1,290,006 shares of the Company’s common stock. The warrants were exercisable immediately, had exercise prices ranging
from $3.50 to $4.50 per share, and expiration periods from nine months to 5 years.
During
the year ended March 31, 2017, the Company received $777,000 of proceeds from holders of warrants to acquire 4,570,590 shares
of common stock. In addition, warrant holders exchanged 4,466,375 warrants on a cashless basis for 3,618,672 shares of common
stock.
The
outstanding and exercisable warrants had no intrinsic value as of March 31, 2017 and March 31, 2016.
6.
INCOME TAXES
The
Company has no tax provision for any period presented due to its history of operating losses. Significant components of deferred
income tax assets and liabilities at March 31, 2017 and 2016 are presented below. Management has determined that their realization
is not likely to occur and accordingly, the Company has recorded a valuation allowance to reduce deferred tax assets to zero.
At
March 31, 2017, we had federal net operating loss carryforwards, or NOLs, of approximately $10,350,000 that are available to offset
future federal taxable income and will expire in the years through 2037. At March 31, 2017, we had state NOLs of approximately
$10,100,000 that will expire if unused through 2037.
Significant
components of the Company’s deferred tax assets and liabilities are as follows as of:
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Deferred
income tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforwards
|
|
$
|
4,300,000
|
|
|
$
|
3,630,000
|
|
Share-based
compensation
|
|
|
3,245,000
|
|
|
|
2,540,000
|
|
Research
credits
|
|
|
63,000
|
|
|
|
63,000
|
|
Other,
net
|
|
|
40,000
|
|
|
|
40,000
|
|
Less:
Valuation allowance
|
|
|
(7,648,000
|
)
|
|
|
(6,273,000
|
)
|
Net
deferred income tax assets (liabilities)
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation
of the effective income tax rate to the U.S. statutory rate is as follows:
|
|
Year
Ended
|
|
|
|
March
31,
|
|
|
|
2017
|
|
|
2016
|
|
Federal
Statutory tax rate
|
|
|
(34
|
)%
|
|
|
(34
|
)%
|
State
tax, net of federal benefit
|
|
|
(8
|
)%
|
|
|
(5
|
)%
|
|
|
|
(42
|
)%
|
|
|
(39
|
)%
|
Valuation
allowance
|
|
|
42
|
%
|
|
|
39
|
%
|
Effective
tax rate
|
|
|
-
|
%
|
|
|
-
|
%
|
The
Company adopted accounting rules which address the determination of whether tax benefits claimed or expected to be claimed on
a tax return should be recorded in the financial statements. Under these rules, the Company may recognize the tax benefit from
an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing
authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such
a position are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate
settlement. These accounting rules also provide guidance on de-recognition, classification, interest and penalties on income taxes,
accounting in interim periods and requires increased disclosures. As of March 31, 2017, no liability for unrecognized tax benefits
was required to be recorded. The Company has a policy of recognizing tax related interest and penalties as additional tax expense
when incurred. During the years ended March 31, 2017 and 2016, the Company did not recognize any interest and penalties.
7.
RELATED PARTY TRANSACTIONS AND LEASE OBLIGATIONS
On
April 23, 2012, the Company entered into a lease agreement with One World Ranches LLC (“One World Ranches”), (the
“Carlson Lease”). The Carlson Lease began on May 1, 2012 and was extended from May 1, 2017 to 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.. The Company has
paid $1,500 as a refundable security deposit under the Carlson Lease.
Aggregate
payments under leases with related parties for the years ended March 31, 2017 and 2016 were $27,600 and $30,600, respectively.
On
May 16, 2014, the Company entered into an Asset Purchase Agreement with Percipio Biosciences, Inc. (“Percipio”), a
Delaware corporation, to purchase certain assets of Percipio for $50,000. The Company’s Chief Executive Officer, Robert
Brooke, owned 20% of Percipio. At March 31, 2017, $10,500 of the purchase price remains unpaid and is included in accounts payable
on the accompanying balance sheet.
8.
DISTRIBUTION AND LICENSE AGREEMENTS (TERMINATED AUGUST 2016)
In
August 2014, we entered into distribution and license agreements with Qualipride International (“Qualipride”), Mr.
Dong Yuejin and Mr. Guo Yuxiao related to stevia products for the Company. Under employment agreements related to the distribution
and license agreements, Mr. Dong and Mr. Guo were entitled to receive an aggregate of 240,000 restricted shares of our common
stock and warrants to purchase up to an aggregate of 440,000 shares of our common stock. 40,000 shares of our restricted common
stock and warrants to purchase 80,000 shares of our common stock vested immediately, 100,000 shares of our restricted common stock
and warrants to purchase up to an aggregate of 200,000 shares of our common stock have vesting terms ranging from one to three
years, and the balance of 100,000 shares of our restricted common stock and warrants to purchase up to an aggregate of 160,000
shares of our common stock will vest once certain financial and operational milestones are achieved, as defined.
For
the year ending March 31, 2016, stock based compensation related to the vesting of these options was $182,072. For the year ending
March 31, 2017, there was no stock-based compensation for these warrants. At March 31, 2016 and 2017, the accumulated amortization
related to these vested warrants was $649,860.
The
distribution, license and employment agreements all terminated in August 2016. Twenty-five thousand (25,000) shares of the restricted
common stock and warrants to purchase 293,332 shares of the Company’s common stock that were unvested as of the termination
date of the agreements were cancelled.
9.
COMMITMENTS
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. The document requests
were primarily in connection with this matter. We have complied with all document requests and the Company’s CEO will provide
testimony in July 2017.
We
are unaware of the scope or timing of the SEC’s examination. As a result, we do not know how the SEC examination is proceeding,
when the investigation will be concluded, or if we will become involved to a greater extent than providing documents and testimony
to the SEC. We also are unable to predict what action, if any, might be taken in the future by the SEC or its staff as a result
of the matters that are the subject to its investigation or what impact, if any, the cost of continuing to respond to subpoenas
might have on our financial position, results of operations, or cash flows. We have not established any provision for losses in
respect of this matter. Furthermore, it is possible that we currently are, or may hereafter become a target of the SEC’s
investigation.
As
of March 31, 2017, we had accrued $60,000 in legal fees related to the SEC examination.
12.
SUBSEQUENT EVENTS
In
April 2017, we issued 50,000 shares of our common stock to a consultant as compensation for services valued at $100,000.
VITALITY
BIOPHARMA, INC.
CONDENSED
BALANCE SHEETS
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
|
|
(unaudited)
|
|
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Assets
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
815,487
|
|
|
$
|
1,152,766
|
|
Accounts
receivable, net
|
|
|
20,236
|
|
|
|
19,198
|
|
Prepaid
expenses
|
|
|
3,058
|
|
|
|
3,058
|
|
|
|
|
|
|
|
|
|
|
Total
Assets
|
|
$
|
838,781
|
|
|
$
|
1,175,022
|
|
|
|
|
|
|
|
|
|
|
Liabilities
and Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
Liabilities
|
|
|
|
|
|
|
|
|
Accounts
payable and accrued liabilities
|
|
$
|
280,095
|
|
|
$
|
373,696
|
|
Accrued
compensation – officers and directors
|
|
|
151,667
|
|
|
|
151,667
|
|
Accounts
payable - related party
|
|
|
2,600
|
|
|
|
34,500
|
|
Derivative
liability
|
|
|
147,150
|
|
|
|
240,791
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities
|
|
|
581,512
|
|
|
|
800,654
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
Equity
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.001 per share; 1,000,000,000 shares authorized; 23,034,347 and 22,215,180 shares issued and outstanding,
respectively
|
|
|
23,034
|
|
|
|
22,214
|
|
Additional
paid-in-capital
|
|
|
19,975,047
|
|
|
|
18,088,093
|
|
Accumulated
deficit
|
|
|
(19,740,812
|
)
|
|
|
(17,735,939
|
)
|
Total
stockholders’ equity
|
|
|
257,269
|
|
|
|
374,368
|
|
Total
liabilities and stockholders’ equity
|
|
$
|
838,781
|
|
|
$
|
1,175,022
|
|
The
accompanying notes are an integral part of these condensed financial statements.
VITALITY
BIOPHARMA, INC.
CONDENSED
STATEMENTS OF OPERATIONS
(Unaudited)
|
|
Three
Months Ended
September 30,
|
|
|
Six
Months Ended
September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,976
|
|
|
$
|
45,888
|
|
|
$
|
58,019
|
|
|
$
|
92,265
|
|
Cost
of goods sold
|
|
|
17,480
|
|
|
|
20,893
|
|
|
|
37,966
|
|
|
|
46,012
|
|
Gross
profit
|
|
|
13,496
|
|
|
|
24,995
|
|
|
|
20,053
|
|
|
|
46,253
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
601,882
|
|
|
|
706,609
|
|
|
|
1,275,671
|
|
|
|
1,034,483
|
|
Rent
and other related party costs
|
|
|
7,800
|
|
|
|
6,900
|
|
|
|
15,300
|
|
|
|
13,800
|
|
Research
and development
|
|
|
420,587
|
|
|
|
129,902
|
|
|
|
827,596
|
|
|
|
240,217
|
|
Total
operating expenses
|
|
|
1,030,269
|
|
|
|
843,411
|
|
|
|
2,118,567
|
|
|
|
1,288,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss
from operations
|
|
|
(1,016,773
|
)
|
|
|
(818,416
|
)
|
|
|
(2,098,514
|
)
|
|
|
(1,242,247
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liability
|
|
|
118,253
|
|
|
|
(328,008
|
)
|
|
|
93,641
|
|
|
|
(342,961
|
)
|
Interest
expense
|
|
|
-
|
|
|
|
(95
|
)
|
|
|
-
|
|
|
|
(716
|
)
|
Total
other income (expense)
|
|
|
118,253
|
|
|
|
(328,103
|
)
|
|
|
93,641
|
|
|
|
(343,677
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(898,520
|
)
|
|
$
|
(1,146,519
|
)
|
|
$
|
(2,004,873
|
)
|
|
$
|
(1,585,924
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss per
common share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
$
|
(0.04
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.09
|
)
|
|
$
|
(0.15
|
)
|
Weighted average
number of common shares outstanding
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and Diluted
|
|
|
22,760,660
|
|
|
|
12,247,463
|
|
|
|
22,509,356
|
|
|
|
10,916,841
|
|
The
accompanying notes are an integral part of these condensed financial statements.
VITALITY
BIOPHARMA, INC.
CONDENSED
STATEMENT OF CHANGES IN STOCKHOLDERS’ EQUITY
SIX
MONTHS ENDED SEPTEMBER 30, 2017
(Unaudited)
|
|
|
|
|
|
|
|
Additional
|
|
|
|
|
|
|
|
|
|
Common
Stock
|
|
|
Paid-in
|
|
|
Accumulated
|
|
|
|
|
Description
|
|
Shares
|
|
|
Amount
|
|
|
Capital
|
|
|
Deficit
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-
March 31, 2017
|
|
|
22,215,180
|
|
|
$
|
22,214
|
|
|
$
|
18,088,093
|
|
|
$
|
(17,735,939
|
)
|
|
$
|
374,368
|
|
Issuance
of common stock and warrants
|
|
|
666,667
|
|
|
|
667
|
|
|
|
994,334
|
|
|
|
|
|
|
|
995,001
|
|
Fair
value of vested restricted common stock
|
|
|
|
|
|
|
|
|
|
|
205,167
|
|
|
|
—
|
|
|
|
205,167
|
|
Fair
value of vested stock options
|
|
|
—
|
|
|
|
—
|
|
|
|
423,930
|
|
|
|
—
|
|
|
|
423,930
|
|
Fair
value of common stock issued for services
|
|
|
152,500
|
|
|
|
153
|
|
|
|
263,523
|
|
|
|
—
|
|
|
|
263,676
|
|
Net
loss
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,004,873
|
)
|
|
|
(2,004,873
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance-
September 30, 2017 (unaudited)
|
|
|
23,034,347
|
|
|
$
|
23,034
|
|
|
$
|
19,975,047
|
|
|
$
|
(19,740,812
|
)
|
|
$
|
257,269
|
|
The
accompanying notes are an integral part of these condensed financial statements.
VITALITY
BIOPHARMA, INC.
CONDENSED
STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
Six
Months Ended September 30,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Operating
activities
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(2,004,873
|
)
|
|
$
|
(1,585,924
|
)
|
Adjustments
to reconcile net loss to net cash used in operating activities
|
|
|
|
|
|
|
|
|
Fair
value of vested stock options
|
|
|
423,930
|
|
|
|
200,315
|
|
Fair
value of vested restricted common stock
|
|
|
205,167
|
|
|
|
129,749
|
|
Change
in fair value of derivative liability
|
|
|
(93,641
|
)
|
|
|
342,961
|
|
Fair
value of common stock issued for services
|
|
|
263,676
|
|
|
|
221,250
|
|
Fair
value of vested warrants granted to employees
|
|
|
-
|
|
|
|
35,014
|
|
Changes
in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
|
(1,038
|
)
|
|
|
2,460
|
|
Deposit
|
|
|
-
|
|
|
|
(558
|
)
|
Inventory
|
|
|
-
|
|
|
|
-
|
|
Accounts
payable and accrued liabilities
|
|
|
(93,601
|
)
|
|
|
62,133
|
|
Accounts
payable - related party
|
|
|
(31,900
|
)
|
|
|
13,800
|
|
Net
cash used in operating activities
|
|
|
(1,332,280
|
)
|
|
|
(578,800
|
)
|
|
|
|
|
|
|
|
|
|
Financing
activities
|
|
|
|
|
|
|
|
|
Proceeds
from sale of common stock, net
|
|
|
995,001
|
|
|
|
165,030
|
|
Proceeds
from exercise of warrants
|
|
|
-
|
|
|
|
352,001
|
|
Net
cash provided by financing activities
|
|
|
995,001
|
|
|
|
517,031
|
|
|
|
|
|
|
|
|
|
|
Net
decrease in cash
|
|
|
(337,279
|
)
|
|
|
(61,769
|
)
|
|
|
|
|
|
|
|
|
|
Cash
- beginning of period
|
|
|
1,152,766
|
|
|
|
95,433
|
|
Cash
- end of period
|
|
$
|
815,487
|
|
|
$
|
33,664
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosure of cash flow information:
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
-
|
|
|
$
|
716
|
|
Income
taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Non-cash
activities:
|
|
|
|
|
|
|
|
|
Extinguishment
of derivative liability
|
|
$
|
-
|
|
|
$
|
80,278
|
|
The
accompanying notes are an integral part of these condensed financial statements.
VITALITY
BIOPHARMA, INC.
NOTES
TO CONDENSED FINANCIAL STATEMENTS
THREE
AND SIX MONTHS ENDED SEPTEMBER 30, 2017 AND 2016
(Unaudited)
1.
BUSINESS OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Vitality
Biopharma, Inc. (the “Company”, “we”, “us” or “our”), was incorporated in the
State of Nevada on June 29, 2007. The Company’s fiscal year end is March 31.
In
2015, the Company developed a new class of cannabinoids known as cannabosides, which were discovered through application of the
Company’s proprietary enzymatic bioprocessing technologies originally developed for stevia sweeteners. 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.
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 normal course of business. As reflected in the accompanying financial statements,
for the six months ended September 30, 2017, the Company incurred a net loss of $2,004,873 and used cash in operating activities
of $1,332,280. These factors raise substantial doubt about the Company’s 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 report on the Company’s March 31, 2017 financial statements, has raised substantial doubt about the Company’s
ability to continue as a going concern. The financial statements do not include any adjustments that might be necessary should
the Company be unable to continue as a going concern.
The
ability to continue as a going concern is dependent on the Company attaining and maintaining profitable operations in the future
and/or raising additional capital to meet its obligations and repay its liabilities arising from normal business operations when
they come due. We estimate that as of September 30, 2017 we have sufficient funds to operate the business for the next six months.
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
future operations, including the continuation of our ongoing research and development efforts, licensing or acquiring new assets,
and researching and developing any potential patents and any further intellectual property that we may acquire. Further, these
estimates could differ if we encounter unanticipated difficulties, in which case our current funds may not be sufficient to operate
our business for that period. In addition, 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. We will need to raise additional funds in order to continue operating our
business and pursue and execute our planned research and development and commercial operations. We do not presently have, nor
do we expect in the near future to have, sufficient or consistent revenue to fund our business from our operations, and will need
to obtain significant funding from external sources. Since inception, we have funded our operations primarily through equity and
debt financings, and we expect to continue to rely on these sources of capital in the future. However, if we raise additional
funds by issuing equity or convertible debt securities, our existing stockholders’ ownership will be diluted, and obtaining
commercial loans would increase our liabilities and future cash commitments. If we pursue capital through alternative sources,
such as collaborations or other similar arrangements, we may be forced to relinquish rights to our proprietary technology or other
intellectual property that could result in our receipt of only a portion of any revenue that may be generated from a partnered
product or business. Further, these or other sources of capital may not be available on commercially reasonable or acceptable
terms when needed, or at all. If we cannot raise the money that we need in order to continue to operate and develop our business,
we will be forced to delay, scale back or eliminate some or all of our operations. If any of these were to occur, there is a substantial
risk that our business would fail and our stockholders could lose all of their investment.
Basis
of Presentation of Unaudited Condensed Financial Information
The
unaudited condensed financial statements of the Company for the three and six months ended September 30, 2017 and 2016 have been
prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”)
for interim financial information, applied on a consistent basis, and pursuant to the requirements for reporting on Form 10-Q
and the requirements of Regulation S-K and Regulation S-X promulgated under the Securities Act of 1933, as amended (the “Securities
Act”). Accordingly, they do not include all the information and footnotes required by U.S. GAAP for complete audited financial
statements. However, the information included in these financial statements reflects all adjustments (consisting solely of normal
recurring adjustments), which are, in the opinion of management, necessary for the fair presentation of the Company’s financial
position and the results of operations. Results shown for interim periods are not necessarily indicative of the results to be
obtained for a full fiscal year or any future annual or interim period. The balance sheet information as of March 31, 2017 was
derived from the Company’s audited financial statements as of and for the year ended March 31, 2017 included in the Company’s
Annual Report on Form 10-K filed with the Securities and Exchange Commission (the “SEC”) on June 28, 2017. These financial
statements should be read in conjunction with that report.
Use
of Estimates
The
preparation of financial statements in conformity with generally accepted accounting principles in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.
Actual results could differ from those estimates. Significant estimates and assumptions by management include, among others, reserves
for accounts receivable, the fair value of equity instruments issued for services, and assumptions used in the valuation of derivative
liabilities and the valuation allowance for deferred tax assets, and the accrual of potential liabilities.
Financial
Assets and Liabilities Measured at Fair Value
The
Company uses various inputs in determining the fair value of its investments and measures these assets on a recurring basis. Financial
assets recorded at fair value in the balance sheets are categorized by the level of objectivity associated with the inputs used
to measure their fair value. Authoritative guidance provided by FASB defines the following levels directly related to the amount
of subjectivity associated with the inputs to fair valuation of these financial assets:
Level
1
|
Quoted
prices in active markets for identical assets or liabilities.
|
|
|
Level
2
|
Inputs,
other than the quoted prices in active markets, that are observable either directly or indirectly.
|
|
|
Level
3
|
Unobservable
inputs based on the Company’s assumptions.
|
The
fair value of the derivative liabilities of $147,150 and $240,791 at September 30, 2017 and March 31, 2017, respectively, were
valued using Level 2 inputs.
The
carrying value of cash and accounts payable and accrued liabilities approximates their fair value because of the short maturity
of these instruments. Unless otherwise noted, it is management’s opinion that the Company is not exposed to significant
interest, currency or credit risks arising from these financial instruments.
Derivative
Financial Instruments
The
Company evaluates its financial instruments to determine if such instruments are derivatives or contain features that qualify
as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument
is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported
in the statements of operations. For stock-based derivative financial instruments, the Company uses a probability weighted average
Black-Scholes-Merton models to value the derivative instruments at inception and on subsequent valuation dates through the September
30, 2017, reporting date. The classification of derivative instruments, including whether such instruments should be recorded
as liabilities or as equity, is evaluated at the end of each reporting period.
Stock-Based
Compensation
The
Company periodically issues stock options and warrants to employees and non-employees in non-capital raising transactions, for
services and for financing costs. The Company accounts for share-based payments under the guidance as set forth in the Share-Based
Payment Topic of the FASB Accounting Standards Codification (“ASC”), which requires the measurement and recognition
of compensation expense for all share-based payment awards made to employees, officers, directors, and consultants, including
employee stock options, based on estimated fair values. The Company estimates the fair value of share-based payment awards to
employees and directors on the date of grant using a Black-Scholes-Merton option-pricing model, and the value of the portion of
the award that is ultimately expected to vest is recognized as expense over the required service period in the Company’s
statements of operations. The Company accounts for stock option and warrant grants issued and vesting to non-employees in accordance
with the authoritative guidance whereas the value of the stock compensation is based upon the measurement date as determined at
either a) the date at which a performance commitment is reached, or b) the date at which the necessary performance to earn 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 time of grant and revised, as necessary, in subsequent periods if actual forfeitures
differ from those estimates.
The
Company periodically issues unvested (“restricted”) shares of its common stock to employees as equity incentives.
The Company’s restricted stock vests upon the satisfaction of a recipient’s service condition, which is satisfied
over a period of years. The restricted shares vest over certain period and remain subject to forfeiture if vesting conditions
are not met. The Company values the shares based on the price per share of the Company’s shares at the date of grant and
recognizes the value as compensation expense ratably over the vesting period.
Basic
and Diluted Loss Per Share
Basic
loss per share is computed by dividing the net loss applicable to common stockholders by the weighted average number of outstanding
common shares during the period. Diluted loss per share is computed by dividing net loss applicable to common stockholders by
the weighted average number of common shares outstanding plus the number of additional common shares that would have been outstanding
if all dilutive potential common shares had been issued. Diluted loss per share excludes all potential common shares if their
effect is anti-dilutive. The following potentially dilutive shares were excluded from the shares used to calculate diluted earnings
per share as their inclusion would be anti-dilutive:
|
|
Six
months ended
|
|
|
|
September
30, 2017
|
|
|
September
30, 2016
|
|
Options
|
|
|
2,871,710
|
|
|
|
2,452,488
|
|
Warrants
|
|
|
705,755
|
|
|
|
9,702,713
|
|
Total
|
|
|
3,577,465
|
|
|
|
12,155,201
|
|
Research
and Development
Research
and development costs consist primarily of fees paid to consultants and outside service providers, and other expenses relating
to the acquisition, design, development and testing of the Company’s treatments and product candidates. Research and development
costs are expensed as incurred.
Recent
Accounting Pronouncements
In
May 2014, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) No. 2014-09, Revenue from Contracts
with Customers. ASU 2014-09 is a comprehensive revenue recognition standard that will supersede nearly all existing revenue recognition
guidance under current U.S. GAAP and replace it with a principle based approach for determining revenue recognition. Under ASU
2014-09, revenue is recognized when a customer obtains control of promised goods or services and is recognized in an amount that
reflects the consideration which the entity expects to receive in exchange for those goods or services. In addition, the standard
requires disclosure of the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers.
The FASB has recently issued ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, and ASU 2017-05, all of which clarify
certain implementation guidance within ASU 2014-09. ASU 2014-09 is effective for interim and annual periods beginning after December
15, 2017. Early adoption is permitted only in annual reporting periods beginning after December 15, 2016, including interim periods
therein. The standard can be adopted either retrospectively to each prior reporting period presented (full retrospective method),
or retrospectively with the cumulative effect of initially applying the guidance recognized at the date of initial application
(the cumulative catch-up transition method). The Company is currently in the process of analyzing the information necessary to
determine the impact of adopting this new guidance on its financial position, results of operations, and cash flows. The Company
will adopt the provisions of this statement in the quarter beginning April 1, 2018.
In
February 2016, the FASB issued ASU No. 2016-02, Leases. This update will require the recognition of a right-of-use asset and a
corresponding lease liability, initially measured at the present value of the lease payments, for all leases with terms longer
than 12 months. For operating leases, the asset and liability will be expensed over the lease term on a straight-line basis, with
all cash flows included in the operating section of the statement of cash flows. For finance leases, interest on the lease liability
will be recognized separately from the amortization of the right-of-use asset in the statement of comprehensive income and the
repayment of the principal portion of the lease liability will be classified as a financing activity while the interest component
will be included in the operating section of the statement of cash flows. ASU 2016-02 is effective for annual and interim reporting
periods beginning after December 15, 2018. Early adoption is permitted. Upon adoption, leases will be recognized and measured
at the beginning of the earliest period presented using a modified retrospective approach. The Company is currently evaluating
the impact of the adoption of ASU 2016-02 on its financial statements and related disclosures.
In
July 2017, the FASB issued ASU 2017-11,
Earnings Per Share (Topic 260); Distinguishing Liabilities from Equity (Topic 480);
Derivatives and Hedging (Topic 815): (Part I) Accounting for Certain Financial Instruments with Down Round Features, (Part II)
Replacement of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments of Certain Nonpublic Entities and Certain
Mandatorily Redeemable Noncontrolling Interests with a Scope Exception.
ASU 2017-11 allows companies to exclude a down round
feature when determining whether a financial instrument (or embedded conversion feature) is considered indexed to the entity’s
own stock. As a result, financial instruments (or embedded conversion features) with down round features may no longer be required
to be accounted for as derivative liabilities. A company will recognize the value of a down round feature only when it is triggered
and the strike price has been adjusted downward. For equity-classified freestanding financial instruments, an entity will treat
the value of the effect of the down round as a dividend and a reduction of income available to common shareholders in computing
basic earnings per share. For convertible instruments with embedded conversion features containing down round provisions, entities
will recognize the value of the down round as a beneficial conversion discount to be amortized to earnings. The guidance in ASU
2017-11 is effective for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. Early
adoption is permitted, and the guidance is to be applied using a full or modified retrospective approach. The adoption of ASU
2017-11 is not expected to have an impact on the Company’s financial statements and related disclosures because the conversion
feature of the Company’s warrants have features other than down round provisions that require current accounting treatment
and classification.
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.
DERIVATIVE LIABILITY
In
May 2015, the Company issued certain warrants which included 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, the Company determined that the warrants can be settled for cash at the holders’ option in a future fundamental
transaction, as defined. As a result of the anti-dilution and fundamental transaction provisions, the Company determined that
the conversion feature of the warrants should be separated from the host contract, be recognized as a derivative liability, and
re-measured at each reporting period with the change in value reported in the statement of operations.
At
March 31, 2017, the balance of the derivative liabilities was $240,791. During the six months ended September 30, 2017, the Company
recorded a decrease in derivative liability of $93,641. At September 30, 2017, the balance of the derivative liabilities was $147,150.
At
September 30, 2017 and March 31, 2017, the derivative liabilities were valued using a probability weighted Black-Scholes-Merton
pricing model with the following assumptions:
|
|
September
30, 2017
|
|
|
March
31, 2017
|
|
Conversion
feature:
|
|
|
|
|
|
|
|
|
Risk-free
interest rate
|
|
|
1.20-1.55
|
%
|
|
|
0.19
|
%
|
Expected
volatility
|
|
|
125
|
%
|
|
|
125
|
%
|
Expected
life (in years)
|
|
|
.5
to 3 years
|
|
|
|
1
to 3 years
|
|
Expected
dividend yield
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Fair
Value:
|
|
|
|
|
|
|
|
|
Conversion
feature
|
|
$
|
147,150
|
|
|
$
|
240,791
|
|
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
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. During the six months ended September 30, 2017, we
recorded expense related to the fair value of stock awards that vested of $205,167. At September 30, 2017, the amount of unvested
compensation related to these awards is approximately $200,000, 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:
|
|
|
Number
of Shares
|
|
Non-vested
shares, April 1, 2017
|
|
|
|
1,436,170
|
|
Granted
|
|
|
|
—
|
|
Vested
|
|
|
|
(718,085
|
)
|
Forfeited
|
|
|
|
—
|
|
Non-vested
shares, September 30, 2017
|
|
|
|
718,085
|
|
Common
stock issued for services
During
the six months ended September 30, 2017, the Company issued a total of 152,500 shares of common stock to two consultants as payment
for services and recorded expense of $263,676 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 three months ended September 30, 2017 is as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Balance
outstanding at March 31, 2017
|
|
|
2,820,489
|
|
|
$
|
1.27
|
|
Granted
|
|
|
100,000
|
|
|
|
1.59
|
|
Exercised
|
|
|
—
|
|
|
|
|
|
Expired
|
|
|
(48,779
|
)
|
|
|
0.55
|
|
Cancelled
|
|
|
—
|
|
|
|
|
|
Balance
outstanding at September 30, 2017
|
|
|
2,871,710
|
|
|
$
|
1.19
|
|
Balance
exercisable at September 30, 2017
|
|
|
1,582,833
|
|
|
$
|
1.26
|
|
A
summary of the Company’s stock options outstanding and exercisable as of September 30, 2017 is as follows:
|
|
|
Number
of Options
|
|
|
Weighted
Average Exercise Price
|
|
|
Weighted
Average Grant- date Stock Price
|
|
Options
Outstanding, September 30, 2017
|
|
|
|
1,664,542
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
153,000
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
|
|
|
130,000
|
|
|
$
|
1.00
|
|
|
$
|
10.00
|
|
|
|
|
|
7,500
|
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
|
|
|
100,000
|
|
|
$
|
1.59
|
|
|
$
|
1.59
|
|
|
|
|
|
647,500
|
|
|
$
|
2.00
– 2.79
|
|
|
$
|
2.00
– 2.79
|
|
|
|
|
|
123,334
|
|
|
$
|
3.10
– 3.80
|
|
|
$
|
3.10
– 3.80
|
|
|
|
|
|
45,834
|
|
|
$
|
4.00
– 4.70
|
|
|
$
|
4.00
– 4.70
|
|
|
|
|
|
2,871,710
|
|
|
|
|
|
|
|
|
|
Options
Exercisable, September 30, 2017
|
|
|
|
855,415
|
|
|
$
|
0.50
|
|
|
$
|
0.50
|
|
|
|
|
|
75,750
|
|
|
$
|
0.96
|
|
|
$
|
0.96
|
|
|
|
|
|
130,000
|
|
|
$
|
1.00
|
|
|
$
|
10.00
|
|
|
|
|
|
7,500
|
|
|
$
|
1.50
|
|
|
$
|
1.50
|
|
|
|
|
|
345,000
|
|
|
$
|
2.00
– 2.79
|
|
|
$
|
2.00
– 2.79
|
|
|
|
|
|
123,334
|
|
|
$
|
3.10
– 3.80
|
|
|
$
|
3.10
– 3.80
|
|
|
|
|
|
45,834
|
|
|
$
|
4.00
– 4.70
|
|
|
$
|
4.00
– 4.70
|
|
|
|
|
|
1,582,833
|
|
|
|
|
|
|
|
|
|
During
the six months ended September 30, 2017, we expensed total stock-based compensation related to stock options of $423,930, and
the remaining unamortized cost of the outstanding stock-based awards at September 30, 2017 was approximately $1,079,000. This
cost will be amortized on a straight line basis over a weighted average remaining vesting period of 2 years. At September 30,
2017, the 2,871,710 outstanding stock options had an intrinsic value of approximately $1,657,000.
5.
WARRANTS
At
September 30, 2017, warrants to purchase common shares were outstanding as follows:
|
|
Shares
|
|
|
Weighted
Average
Exercise Price
|
|
Balance
at March 31, 2017
|
|
|
372,421
|
|
|
$
|
2.79
|
|
Granted
|
|
|
333,334
|
|
|
|
2.00
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
Expired
|
|
|
|
|
|
$
|
—
|
|
Balance
outstanding and exercisable at September 30, 2017
|
|
|
705,755
|
|
|
$
|
2.41
|
|
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
subsequent equity sales by the Company, and are 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 September 30, 2017, the 705,755 outstanding warrants had no intrinsic value.
6.
RELATED PARTY OBLIGATIONS
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 six months ended September 30, 2017 and 2016 were $15,300 and
$13,800, respectively.
7.
COMMITMENTS
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. The document requests
were primarily in connection with this matter. 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 December 2017.
As
of September 30, 2017, we had accrued approximately $13,500 in legal fees related to the SEC examination.
8.
SUBSEQUENT EVENTS
In
October 2017, the Company issued a total of 32,468 shares of common stock to one consultant as payment for services and recorded
expenses of $50,000 based on the fair value of the Company’s common stock at the issuance dates.
In
December 2017, the Company issued 100,000 restricted shares of our common stock to each of Dr. Avtar Dhillon, the
Company’s Chairman, and Robert Brooke, the Company’s Chief Executive Officer, which all vest on January 1, 2019.
The total fair value of approximately $362,000 will be amortized over the vesting period.
In
December 2017, the Company issued options to purchase a total of 370,000 shares of our common stock to five employees and two
directors. The options issued to the directors vest over one year and the options issued to the employees vest over two years.
The total fair value of approximately $641,000 will be amortized over the respective vesting periods.
PART
II
INFORMATION
NOT REQUIRED IN PROSPECTUS
Item
13. Other Expenses of Issuance and Distribution.
Set
forth below is an estimate of the approximate amount of the fees and expenses payable by us in connection with the issuance and
distribution of the securities being offered.
EXPENSE
|
|
AMOUNT
|
|
|
|
|
|
Registration
Fees
|
|
$
|
331.61
|
|
Legal
Fees
|
|
|
-
|
|
Accounting
Fees
|
|
|
3,000.00
|
|
Miscellaneous
Fees and Expenses
|
|
|
1,000.00
|
|
|
|
|
|
|
Total
|
|
$
|
4,331.61
|
|
Item
14. Indemnification of Directors and Officers.
We
have not entered into separated indemnification agreements with our directors and officers. Our bylaws provide that we shall indemnify
any director or officer to the full extent permitted by law.
Nevada
Revised Statutes provide us with the power to indemnify any of our directors, officers, employees and agents:
|
●
|
a
corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending
or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, except an action by or
in the right of the corporation, by reason of the fact that he is or was a director, officer, employee or agent of the corporation,
or is or was serving at the request of the corporation as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, against expenses, including attorneys’ fees, judgments, fines and amounts
paid in settlement actually and reasonably incurred by him in connection with the action, suit or proceeding if he or she
acted in good faith and in a manner which he or she reasonably believed to be in or not opposed to the best interests of the
corporation, and, with respect to any criminal action or proceeding, had no reasonable cause to believe his or her conduct
was unlawful;
|
|
|
|
|
●
|
a
corporation may indemnify any person who was or is a party or is threatened to be made a party to any threatened, pending
or completed action or suit by or in the right of the corporation to procure a judgment in its favor by reason of the fact
that he or she is or was a director, officer, employee or agent of the corporation, or is or was serving at the request of
the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise against expenses, including amounts paid in settlement and attorneys’ fees actually and reasonably incurred
by him or her in connection with the defense or settlement of the action or suit if he or she acted in good faith and in a
manner which he or she reasonably believed to be in or not opposed to the best interests of the corporation. Indemnification
may not be made for any claim, issue or matter as to which such a person has been adjudged by a court of competent jurisdiction,
after exhaustion of all appeals therefrom, to be liable to the corporation or for amounts paid in settlement to the corporation,
unless and only to the extent that the court in which the action or suit was brought or other court of competent jurisdiction
determines upon application that in view of all the circumstances of the case, the person is fairly and reasonably entitled
to indemnity for such expenses as the court deems proper; and
|
|
●
|
to
the extent that a director, officer, employee or agent of a corporation has been successful on the merits or otherwise in
defense of any action, suit or proceeding, or in defense of any claim, issue or matter therein, the corporation must indemnify
him or her against expenses, including attorneys’ fees, actually and reasonably incurred by him or her in connection
with the defense.
|
Nevada
Revised Statutes provide that a corporation may make any discretionary indemnification only as authorized in the specific case
upon a determination that indemnification of the director, officer, employee or agent is proper in the circumstances. The determination
must be made:
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●
|
by
the stockholders of the corporation;
|
|
|
|
|
●
|
by
the board of directors of the corporation by majority vote of a quorum consisting of directors who were not parties to the
action, suit or proceeding;
|
|
|
|
|
●
|
if
a majority vote of a quorum consisting of directors who were not parties to the action, suit or proceeding so orders, by independent
legal counsel in a written opinion;
|
|
|
|
|
●
|
if
a quorum consisting of directors who were not parties to the action, suit or proceeding cannot be obtained, by independent
legal counsel in a written opinion; or
|
|
|
|
|
●
|
by
court order.
|
Nevada
Revised Statutes further provide that a corporation may purchase and maintain insurance or make other financial arrangements on
behalf of any person who is or was a director, officer, employee or agent of the corporation, or is or was serving at the request
of the corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other
enterprise for any liability asserted against him and liability and expenses incurred by him in his capacity as a director, officer,
employee or agent, or arising out of his status as such, whether or not the corporation has the authority to indemnify him against
such liability and expenses.
We
carry insurance policies insuring our directors and officers against certain liabilities that they may incur in their capacity
as directors and officers.
Item
15. Recent Sales of Unregistered Securities.
Since
August 1, 2014, we have offered, issued and/or sold the following securities, which were not registered under the Securities Act
of 1933, as amended:
On
December 12, 2017, we 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, and warrants
to purchase up to 466,667 shares of the Company’s common stock at a price of $1.50 per share, for the aggregate purchase
price of $1,399,998. Each Warrant has an exercise price of $2.00 per share, is immediately exercisable, and will expire on the
three year anniversary of the date of issuance, which is December 12, 2020.
On
July 26, 2017, we 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, and warrants
to purchase up to 333,334 shares of the Company’s common stock at a price of $1.50 per share, for the aggregate purchase
price of $1,000,000.50. Each Warrant has an exercise price of $2.00 per share, is immediately exercisable, and will expire on
the three year anniversary of the date of issuance, which is July 26, 2020.
In
April 2017, we issued 50,000 shares of our common stock to a consultant as compensation for services valued at $100,000.
On
March 9, 2017, we entered into a securities purchase agreement with certain accredited investors, pursuant to which the Company
issued an aggregate of 1,500,000 shares of the Company’s common stock, par value $0.001 per share, at a price of $1.00 per
share, for the aggregate purchase price of $1,500,000.00, which shares were issued on March 9, 2017.
On
May 4, 2016, we issued an aggregate of 2,650,000 shares of the Company’s common stock and warrants to purchase up to an
aggregate of 7,950,000 shares of the Company’s common stock, at a price of $0.10 per share, for the aggregate purchase price
of $265,000. Each warrant had an exercise price of $0.17 per share, was immediately exercisable, and expired on the six month
anniversary of the date of issuance. The exercisability of the warrants may be limited if, upon exercise, the holder or any of
its affiliates would beneficially own more than 9.99% of the Company’s common stock.
In
October and November 2015, the Company issued an aggregate of 513,157 shares of our common stock pursuant to the terms of a certain
consulting agreement for services valued at $100,000.
In
May 2015, the Company issued an aggregate of 5,000,002 shares of our common stock and warrants to purchase 12,900,005 of our common
stock to certain investors and placement agents for net proceeds of approximately $1,292,000.
In
November and December 2014, the Company issued an aggregate of 419,867 shares of our common stock to a consultant as payment for
services and recorded expenses of $150,000 based on the closing market price of our common stock on the date of the issuance.
In
August 2014, the Company issued 147,058 shares of our common stock to a consultant as payment for services and recorded expenses
of $50,000 based on the closing market price of our common stock on the date of the issuance.
The
issuance and sale of the securities referenced above (collectively, the “Securities”) have not been registered under
the Securities Act and the Securities have been sold and will be 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:
each of the Purchasers has represented that it is an accredited investor as defined in Regulation D and that it is acquiring the
Securities for its own account and not with a view to or for distributing or reselling the Securities and that it has sufficient
investment experience to evaluate the risks of the investment; the Company used no advertising or general solicitation in connection
with the issuance and sale of the Securities; and the Securities will be issued as restricted securities.
None
of the Securities may be offered or sold in the United States absent registration under or exemption from the Securities Act and
any applicable state securities laws.
Item
16. Exhibits and Financial Statement Schedules
See
the Exhibit Index following the signature page to this Registration Statement.
Item
17. Undertakings.
The
undersigned registrant hereby undertakes:
(1)
To file, during any period in which offers or sales are being made, a post-effective amendment to this registration statement:
(i)
To include any prospectus required by Section 10(a)(3) of the Securities Act of 1933;
(ii)
To reflect in the prospectus any facts or events arising after the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the aggregate, represent a fundamental change in the information set
forth in the registration statement. Notwithstanding the foregoing, any increase or decrease in volume of securities offered (if
the total dollar value of securities offered would not exceed that which was registered) and any deviation from the low or high
end of the estimated maximum offering range may be reflected in the form of prospectus filed with the Commission pursuant to Rule
424(b) if, in the aggregate, the changes in volume and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the “Calculation of Registration Fee” table in the effective registration statement; and
(iii)
To include any material information with respect to the plan of distribution not previously disclosed in the registration statement
or any material change to such information in the registration statement.
(2)
That, for the purpose of determining any liability under the Securities Act of 1933, each such post-effective amendment shall
be deemed to be a new registration statement relating to the securities offered therein, and the offering of the securities at
that time shall be deemed to be the initial
bona fide
offering thereof.
(3)
To remove from registration by means of a post-effective amendment any of the securities being registered that remain unsold at
the termination of the offering.
(4)
That, for the purpose of determining liability under the Securities Act to any purchaser, each prospectus filed pursuant to Rule
424(b) as part of a registration statement relating to an offering, other than registration statements relying on Rule 430B or
other than prospectuses filed in reliance on Rule 430A, shall be deemed to be part of and included in the registration statement
as of the date it is first used after effectiveness. Provided, however, that no statement made in a registration statement or
prospectus that is part of the registration statement or made in a document incorporated or deemed incorporated by reference into
the registration statement or prospectus that is part of the registration statement will, as to a purchaser with a time of contract
of sale prior to such first use, supersede or modify any statement that was made in the registration statement or prospectus that
was part of the registration statement or made in any such document immediately prior to such date of first use.
(5)
That, for the purpose of determining liability of the registrant under the Securities Act of 1933 to any purchaser in the initial
distribution of the securities: The undersigned registrant undertakes that in a primary offering of securities of the undersigned
registrant pursuant to this registration statement, regardless of the underwriting method used to sell the securities to the purchaser,
if the securities are offered or sold to such purchaser by means of any of the following communications, the undersigned registrant
will be a seller to the purchaser and will be considered to offer or sell such securities to such purchaser:
(i)
Any preliminary prospectus or prospectus of the undersigned registrant relating to the offering required to be filed pursuant
to Rule 424 (§230.424 of Title 17 of the Code of Federal Regulations);
(ii)
Any free writing prospectus relating to the offering prepared by or on behalf of the undersigned registrant or used or referred
to by the undersigned registrant;
(iii)
The portion of any other free writing prospectus relating to the offering containing material information about the undersigned
registrant or its securities provided by or on behalf of the undersigned registrant; and
(iv)
Any other communication that is an offer in the offering made by the undersigned registrant to the purchaser.
Insofar
as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion
of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant
of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered,
the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court
of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
SIGNATURES
Pursuant
to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of Los Angeles, State of California, on January 19, 2018.
|
VITALITY
BIOPHARMA, INC.
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|
|
|
|
By:
|
/s/
Robert Brooke
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Robert
Brooke
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|
Chief
Executive Officer (Principal Executive, Financial and Accounting Officer)
|
KNOW
ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Avtar Dhillon and Robert
Brooke, and each of them, as his or her true and lawful attorneys-in-fact and agents, each with full power of substitution and
resubstitution, for him or her and in his or her name, place and stead, in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement and to file the same, with all exhibits thereto and all documents
in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about
the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that
such attorneys-in-fact and agents or any of them, or his or her or their substitute or substitutes, may lawfully do or cause to
be done by virtue hereof.
Pursuant
to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the
capacities and on the dates indicated.
SIGNATURE
|
|
TITLE
|
|
DATE
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|
|
|
/s/
Robert Brooke
|
|
Chief
Executive Officer (
Principal Executive, Financial and Accounting Officer
)
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|
January
19, 2018
|
Robert
Brooke
|
|
|
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|
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|
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|
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/s/
Avtar Dhillon
|
|
Director
|
|
January
19, 2018
|
Dr.
Avtar Dhillon
|
|
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/s/
Anthony Maida
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Director
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January
19, 2018
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Dr.
Anthony Maida, III
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|
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EXHIBIT
INDEX
2.1
|
|
Agreement
and Plan of Merger, dated September 14, 2011, by and between Stevia First Corp. and Legend Mining Inc. (Incorporated by reference
to Exhibit 3.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 14, 2011.)
|
|
|
|
3.1.1
|
|
Articles
of Incorporation of Stevia First Corp. (Incorporated by reference to Exhibit 3.1 to the registrant’s Registration Statement
on Form S-1 filed with the SEC on August 6, 2008 (File No. 333-152830).)
|
|
|
|
3.1.2
|
|
Articles
of Merger, effective October 10, 2011 (Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report on
Form 8-K filed with the SEC on October 14, 2011.)
|
|
|
|
3.1.3
|
|
Certificate
of Change, effective October 10, 2011 (Incorporated by reference to Exhibit 3.2 to the registrant’s Current Report on
Form 8-K filed with the SEC on October 14, 2011.)
|
|
|
|
3.2.1
|
|
Bylaws
of Stevia First Corp. (Incorporated by reference to Exhibit 3.2 to the registrant’s Registration Statement on Form S-1
filed with the SEC on August 6, 2008 (File No. 333-152830).)
|
|
|
|
3.2.2
|
|
Certificate
of Amendment of Bylaws of Stevia First Corp. (Incorporated by reference to Exhibit 3.1 to the registrant’s Current Report
on Form 8-K filed with the SEC on February 7, 2012.)
|
|
|
|
3.2.3
|
|
Certificate
of Amendment of Articles of Incorporation of Vitality Biopharma, Inc. (Incorporated by reference to Exhibit 3.1 to the registrant’s
Current Report on Form 8-K filed with the SEC on July 19, 2016.)
|
|
|
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4.1
|
|
Form
of Series A/B/C Common Stock Purchase Warrant (Incorporated by reference to Exhibit 4.1 to the registrant’s Current
Report on Form 8-K filed with the SEC on June 26, 2013.)
|
|
|
|
4.2
|
|
Offer
Letter to Series B Warrant holders dated December 6, 2013 (Incorporated by reference to Exhibit 4.1 to the registrant’s
Current Report on Form 8-K filed with the SEC on December 9, 2013.)
|
|
|
|
4.3
|
|
Offer
Letter to Series C Warrant holders dated March 27, 2014 (Incorporated by reference to Exhibit 4.1 to the registrant’s
Current Report on Form 8-K filed with the SEC on April 3, 2014.)
|
|
|
|
4.4
|
|
Form
of Series A/B/C Common Stock Purchase Warrant (Incorporated by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K filed with the SEC on May 6, 2015.)
|
|
|
|
4.5
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Morris Capital, Inc. (amended to reflect the reverse stock split
effected by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.1 to the registrant’s Amendment No,
1 to Registration Statement on Form S-1 filed with the SEC on October 11, 2016.)
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|
|
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4.6
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Quezon Group LLC (amended to reflect the reverse stock split effected
by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.2 to the registrant’s Amendment No, 1 to Registration
Statement on Form S-1 filed with the SEC on October 11, 2016.)
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|
|
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4.7
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Trius Holdings Limited (amended to reflect the reverse stock split
effected by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.3 to the registrant’s Amendment No,
1 to Registration Statement on Form S-1 filed with the SEC on October 11, 2016.)
|
|
|
|
4.8
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Armour Securities LLC (amended to reflect the reverse stock split
effected by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.4 to the registrant’s Amendment No,
1 to Registration Statement on Form S-1 filed with the SEC on October 11, 2016.)
|
4.9
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Gotama Capital SA (amended to reflect the reverse stock split effected
by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.5 to the registrant’s Amendment No, 1 to Registration
Statement on Form S-1 filed with the SEC on October 11, 2016.)
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|
|
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4.10
|
|
Amended
Common Stock Purchase Warrant dated May 4, 2016 issued to Hampton Partners Inc. (amended to reflect the reverse stock split
effected by the Company on July 15, 2016) (Incorporated by reference to Exhibit 4.6 to the registrant’s Amendment No,
1 to Registration Statement on Form S-1 filed with the SEC on October 11, 2016.)
|
|
|
|
4.11
|
|
Second
Amendment to Common Stock Purchase Warrants dated November 30, 2016 (Incorporated by reference to Exhibit 4.7 to the registrant’s
amendment No. 2 to Registration Statement on Form S-1 filed with the SEC on December 6, 2016.)
|
|
|
|
5.1*
|
|
Opinion
of Greenberg Traurig, LLP.
|
|
|
|
10.1
|
|
Form
of Convertible Debenture Subscription Agreement dated January 31, 2012 (Incorporated by reference to Exhibit 10.1 to the registrant’s
Current Report on Form 8-K filed with the SEC on February 7, 2012.)
|
|
|
|
10.2
|
|
Form
of Convertible Debenture (Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed
with the SEC on February 7, 2012.)
|
|
|
|
10.3#
|
|
Executive
Employment Agreement, dated January 31, 2012, by and between the registrant and Robert T. Brooke (Incorporated by reference
to Exhibit 10.3 to the registrant’s Current Report on Form 8-K filed with the SEC on February 7, 2012.)
|
|
|
|
10.4#
|
|
Stevia
First Corp. 2012 Stock Incentive Plan (Incorporated by reference to Exhibit 10.4 to the registrant’s Current Report
on Form 8-K filed with the SEC on February 7, 2012.)
|
|
|
|
10.5
|
|
Form
of Convertible Debenture Subscription Agreement dated February 7, 2012 (Incorporated
by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed
with the SEC on February 28, 2012.)
|
|
|
|
10.6
|
|
Form
of Convertible Debenture (Incorporated by reference to Exhibit 10.2 to the registrant’s
Current Report on Form 8-K filed with the SEC on February 28, 2012.)
|
|
|
|
10.7
|
|
Note
Exchange Agreement, dated May 24, 2012, by and between the registrant and Hsien Loong
Wong (Incorporated by reference to Exhibit 10.1 to the registration’s Current Report
on Form 8-K filed with the SEC on May 25, 2012.)
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|
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10.8
|
|
Note
Exchange Agreement, dated May 24, 2012, by and between the registrant and Wong Tsan Tung
(Incorporated by reference to Exhibit 10.2 to the registration’s Current Report
on Form 8-K filed with the SEC on May 25, 2012.)
|
|
|
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10.9
|
|
Lease
Agreement, dated April 23, 2012, by and between the registrant and One World Ranches
LLC (Incorporated by reference to Exhibit 10.1 to the registrant’s Annual Report
on Form 10-K filed with the SEC on July 13, 2012.)
|
|
|
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10.10
|
|
Lease
Agreement, dated April 23, 2012, by and between the registrant and Sutter Butte Ranches LLC (Incorporated by reference to
Exhibit 10.2 to the registrant’s Annual Report on Form 10-K filed with the SEC on July 13, 2012.)
|
10.11
|
|
Form
of Securities Purchase Agreement, dated October 29, 2012, by and among the registrant and the signatories thereto (Incorporated
by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on October 31, 2012.)
|
|
|
|
10.12
|
|
Form
of 0% Convertible Debenture (Incorporated by reference to Exhibit 10.2 to the registrant’s
Current Report on Form 8-K filed with the SEC on October 31, 2012.)
|
|
|
|
10.13
|
|
Form
of Warrant (Incorporated by reference to Exhibit 10.3 to the registrant’s Current
Report on Form 8-K filed with the SEC on October 31, 2012.)
|
|
|
|
10.14
|
|
Form
of Registration Rights Agreement, dated November 1, 2012, by and among the registrant
and the signatories thereto (Incorporated by reference to Exhibit 10.4 to the registrant’s
Current Report on Form 8-K filed with the SEC on October 31, 2012.)
|
|
|
|
10.15
|
|
Placement
Agent Agreement, dated October 29, 2012, by and between the registrant and Dawson James
Securities, Inc. (Incorporated by reference to Exhibit 10.5 to the registrant’s
Current Report on Form 8-K filed with the SEC on October 31, 2012.)
|
|
|
|
10.16
|
|
License
Agreement, dated August 28, 2012 by and between the registrant and Vineland Research and Innovation Centre, Inc. (Incorporated
by reference to Exhibit 10.18 to the registrant’s Registration Statement on Form S-1/A filed with the SEC on January
11, 2013 (File No. 333-185215.))
|
|
|
|
10.17
|
|
Amendment
No. 1 to the Stevia First Corp, 2012 Stock Incentive Plan (Incorporated by reference to Exhibit 10.19 to the registrant’s
Annual Report on Form 10-K filed with the SEC on May 20, 2013.)
|
|
|
|
10.18
|
|
Securities
Purchase Agreement, dated June 25, 2013, by and among Stevia First Corp. and the Purchasers listed on the signature pages
thereto (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC
on June 26, 2013.)
|
|
|
|
10.19
|
|
Amendment
to License Agreement, dated October 10, 2013 by and between Stevia First Corp. and Vineland Research and Innovation Centre,
Inc. (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on
October 16, 2013.)
|
|
|
|
10.20
|
|
Form
of Stock Release Agreement dated April 2, 2014 (Incorporated by reference to Exhibit
10.1 to the registrant’s Current Report on Form 8-K filed with the SEC on April
3, 2014.)
|
|
|
|
10.21
|
|
Amendment
No. 2 to Stevia First Corp. 2012 Stock Incentive Plan (Incorporated by reference to Exhibit 10.21 to the registrant’s
Annual Report on Form 10-K filed with the SEC on June 30, 2014.).
|
|
|
|
10.22
|
|
Form
of Securities Purchase Agreement, dated May 5, 2015, by and among Stevia First Corp. and the Purchasers listed on the signature
pages thereto (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the
SEC on May 6, 2015.)
|
|
|
|
10.23
|
|
Form
of Registration Rights Agreement (Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form
8-K filed with the SEC on May 6, 2015.)
|
|
|
|
10.24
|
|
Securities
Purchase Agreement, dated May 4, 2016, by and among Stevia First Corp. and the Purchasers listed on the signature pages thereto.
(Incorporated by reference to Exhibit 10.1 to the registrant’s Amendment No, 1 to Registration Statement on Form S-1
filed with the SEC on October 11, 2016.)
|
|
|
|
10.25
|
|
Form
of Warrant (Incorporated by reference to Exhibit 4.1 to the registrant’s Current Report on Form 8-K filed with the SEC
on May 9, 2016.)
|
|
|
|
10.26
|
|
Securities
Purchase Agreement, dated July 26, 2017 by and among Vitality Biopharma, Inc., and the Purchasers listed on the signature
pages thereto (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the
SEC on July 27, 2017.)
|
10.27
|
|
Registration
Rights Agreement, dated July 26, 2017, by and among Vitality Biopharma, Inc. and the Purchasers listed on the signature pages
thereto (Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the SEC
on July 27, 2017.)
|
|
|
|
10.28
|
|
Securities
Purchase Agreement, dated December 12, 2017 by and among Vitality Biopharma, Inc., and the Purchasers listed on the signature
pages thereto (Incorporated by reference to Exhibit 10.1 to the registrant’s Current Report on Form 8-K filed with the
SEC on December 13, 2017.)
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|
|
|
10.29
|
|
Registration
Rights Agreement, dated December 12, 2017, by and among Vitality Biopharma, Inc. and the Purchasers listed on the signature
pages thereto (Incorporated by reference to Exhibit 10.2 to the registrant’s Current Report on Form 8-K filed with the
SEC on December 13, 2017.)
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|
|
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10.30
|
|
Lease
Renewal Agreement, dated May 1, 2017, by and between the registrant and One World Ranches LLC (Incorporated by reference to
Exhibit 10.3 to the registrant’s Quarterly Report on Form 10-Q filed with the SEC on August 10, 2017.)
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|
|
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21.1
|
|
Subsidiaries
(Incorporated by reference to Exhibit 21.1 to the registrant’s Annual Report on Form 10-K filed with the SEC on June
24, 2016).)
|
|
|
|
23.1*
|
|
Consent
of Weinberg & Company, P.A.
|
|
|
|
23.2*
|
|
Consent
of Greenberg Traurig, LLP (contained in Exhibit 5.1).
|
|
|
|
24.1
|
|
Power
of Attorney (included on signature page).
|
101.INS*++
|
|
XBRL
Instant Document
|
101.SCH*++
|
|
XBRL
Taxonomy Extension Schema Document
|
101.CAL*++
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
101.DEF*++
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
101.LAB*++
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
101.PRE*++
|
|
BRL
Taxonomy Extension Presentation Linkbase Document
|
*
|
|
Filed
herewith.
|
|
|
|
#
|
|
Management
contract or compensatory plan or arrangement.
|
|
|
|
++
|
|
In
accordance with Regulation S-T, the XBRL-related information in Exhibit 101 to this Registration Statement on Form S-1 shall
be deemed to be “furnished” and not “filed.”
|