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OFFON

VITALITY BIOPHARMA, INC.

(VBIO)
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VITALITY BIOPHARMA : Management's Discussion and Analysis of Financial Condition and Results of Operations (form 10-K)

05/19/2021 | 04:08pm EDT

Certain statements contained in this Annual Report are "forward-looking statements" within the meaning of Section 27A of the Securities Act and Section 21E of the Exchange Act, and are subject to the "safe harbor" created by these sections. Future filings with the SEC, future press releases and future oral or written statements made by us or with our approval, which are not statements of historical fact, may also contain forward-looking statements. Because such statements include risks and uncertainties, many of which are beyond our control, actual results may differ materially from those expressed or implied by such forward-looking statements. Some of the factors that could cause actual results to differ materially from those expressed or implied by such forward-looking statements can be found under the caption "Risk Factors" in Part I, Item 1A, and elsewhere in this Annual Report. The forward-looking statements speak only as of the date on which they are made, and we undertake no obligation to update such statements to reflect events that occur or circumstances that exist after the date on which they are made.

The following discussion should be read in conjunction with the financial statements and the accompanying notes for the years ended March 31, 2021 and 2020 appearing elsewhere in this Annual Report. Our actual results could differ materially from those expressed or implied in any forward-looking statements as a result of various factors, including those set forth under the caption "Risk Factors" in Part I, Item 1A.



Plan of Operations


We are a company focused on the advancement of pharmaceuticals and innovative technologies that improve the lives of patients. We seek to achieve this objective through the development of novel cannabinoid pharmaceutical prodrugs known as cannabosides.

We believe our internally-developed cannabosides or cannabinoid-glycoside prodrugs will be converted within the body after administration from an inactive molecule into a pharmacologically active drug. Currently, the Company has produced more than 25 novel cannabosides, including glycosylated tetrahydrocannabinol (THC), cannabidiol (CBD), cannabidivarin (CBDV) and cannabinol (CBN), that are covered by worldwide patent applications for composition of matter, method of production and method of use. We are currently developing our most promising THC-glycoside (VBX-100) as an oral prodrug for the treatment of IBD and IBS. VBX-100 was selected from our THC-glycoside portfolio for compatibility with commercial production techniques and the optimal prodrug delivery profile that maximizes intestinal anti-inflammatory properties while minimizing psychoactive or intoxicating effects.



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

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



Critical Accounting Policies


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 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. The more significant estimates and assumption by management include, among others, assumptions used in valuing assets acquired in business acquisitions, reserves for accounts receivable, assumptions used in valuing equity instruments issued for services, the valuation allowance for deferred tax assets, accruals for potential liabilities, and assumptions used in the determination of the Company's liquidity. Actual results could differ from those estimates.



Stock-Based Compensation


The Company periodically issues stock options and restricted stock awards to employees and non-employees in non-capital raising transactions for services and for financing costs. The Company accounts for such grants issued and vesting based on ASC 718, Compensation-Stock Compensation whereby the value of the award is measured on the date of grant and recognized for employees as compensation expense on the straight-line basis over the vesting period. Recognition of compensation expense for non-employees is in the same period and manner as if the Company had paid cash for the services.



Revenue


The Company's revenue recognition policies will follow the guidance of Accounting Standards Codification (ASC) 606, Revenue from Contracts with Customers. ASC 606 creates a five-step model that requires entities to exercise judgment when considering the terms of contracts, which includes (1) identifying the contracts or agreements with a customer, (2) identifying our performance obligations in the contract or agreement, (3) determining the transaction price, (4) allocating the transaction price to the separate performance obligations, and (5) recognizing revenue as each performance obligation is satisfied.



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Recent Accounting Pronouncements

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



Results of Operations


Fiscal Years Ended March 31, 2021 and March 31, 2020




The following table sets forth our results of operations for the years ended
March 31, 2021 and 2020

.



                                                   Years Ended March 31,
                                                   2021             2020

Operating Expenses:

General and administrative                     $  1,929,308$  2,680,217
Research and development                            408,905        1,009,894
Rent - related party                                      -            2,600
Loss from operations                             (2,338,213 )     (3,692,711 )

Other Income:
Gain on extinguishment of liabilities             1,456,574                -
Change in fair value of derivative liability              -           35,710
Other income                                            788           24,772

Loss from continuing operations                    (880,851 )     (3,632,229 )
Loss from discontinued operations                         -         (733,126 )

Net loss                                       $   (880,851 )$ (4,365,355 )

Our net loss during the fiscal year ended March 31, 2021 was $880,851 compared to a net loss of $4,365,355 for the fiscal year ended March 31, 2020 (a decrease of $3,484,504). The lower net loss of $3,484,504 was due to: (i) a $750,909 decrease in general and administrative expenses during fiscal year 2021 compared to fiscal year 2020, (ii) a $600,989 decrease in research and development expenses during fiscal year 2021 compared to fiscal year 2020, (iii) a $1,456,574 recognition of gains on extinguishment of liabilities during fiscal year 2021 compared to no gains recognized during fiscal year 2020, and (iv) no loss from discontinued operations during fiscal year 2021 compared to a loss from discontinued operations of $733,126 during fiscal year 2020.

During the fiscal year ended March 31, 2021, we incurred general and administrative expenses in the aggregate amount of $1,929,308 compared to $2,680,217 incurred during the fiscal year ended March 31, 2020 (a decrease of $750,909). General and administrative expenses generally include corporate overhead, salaries and other compensation costs, financial and administrative contracted services, marketing, consulting costs and travel expenses. The largest decrease in general and administrative expenses was in our legal fees, which totaled $228,244 during the fiscal year 2021, compared to $727,017 during the fiscal year 2020 (a decrease of $498,773). We also recorded wages of $644,708 during fiscal year 2021, compared to $805,633 during fiscal year 2020 (a decrease of $160,925).

During the fiscal year ended March 31, 2021, we incurred research and development costs of $408,905 compared to $1,009,894 incurred during the fiscal year ended March 31, 2020 (a decrease of $600,989). The Company's non-personnel research and development expenses, including study expenses, raw materials and laboratory costs, were $87,347 during fiscal year 2021, compared to $310,069 during fiscal year 2020 (a decrease of $222,722). The Company's research and development personnel costs were $241,003 during fiscal year 2021, compared to $487,859 during fiscal year 2020 (a decrease of $246,856). We also recorded $80,555 related to stock-based compensation in our research and development costs during fiscal year 2021, compared to $214,567 during fiscal year 2020 (a decrease of $134,012).



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During the fiscal year ended March 31, 2020, we incurred related party rent of $2,600. No such costs were incurred during the fiscal year ended March 31, 2021.

Loss from continuing operations was $880,851 during the fiscal year ended March 31, 2021 compared to a loss from continuing operations of $3,632,229 during the fiscal year ended March 31, 2020 (a decrease of $2,751,378). The lower net loss of $2,751,378 was due to: (i) a $750,909 decrease in general and administrative expenses during fiscal year 2021 compared to fiscal year 2020, (ii) a $600,989 decrease in research and development expenses during fiscal year 2021 compared to fiscal year 2020, and (iii) a $1,456,574 recognition of gains during fiscal year 2021 compared to no gains recognized during fiscal year 2020.

During the fiscal year ended March 31, 2020, the loss from discontinued operations was $733,126. No losses from discontinued operations were reported for the fiscal year ended March 31, 2021. For the year ended March 31, 2020, discontinued operations included $44,698 of revenue and $777,824 of expenses, including $630,231 of general and administrative expenses and $143,232 of cost of sales.

During the fiscal year ended March 31, 2021, we recorded net other income in the amount of $1,457,362, consisting of a gain on the extinguishment of a note payable of $97,516, gain on settlement with vendor of $1,062,405, gain on the extinguishment of an advance of $296,653, and other income of $788. During the fiscal year ended March 31,2020, we recorded other income of $60,482, consisting of other income of $24,772 and a gain related to the change in fair value of derivative liability of $35,710 during the fiscal year ended March 31, 2020.

The decrease in net loss from continuing operations attributable to common stockholders during the fiscal year ended March 31, 2021 compared to the fiscal year ended March 31, 2020 in an amount equal to $2,751,378 is primarily due to: (i) a $750,909 decrease in general and administrative expenses during fiscal year 2021 compared to fiscal year 2020, (ii) a $600,989 decrease in research and development expenses during fiscal year 2021 compared to fiscal year 2020, and (iii) a $1,456,574 recognition of gains during fiscal year 2021 compared to no gains recognized during fiscal year 2020.

Liquidity and Capital Resources

We have incurred losses since inception resulting in an accumulated deficit of $47,427,709, and further losses are anticipated in the development of our business.

The continuation of our business is dependent upon us raising additional capital and eventually attaining and maintaining profitable operations. We do not have any firm commitments for future capital. We do not presently have any revenue to fund our business from our operations, and we will need to obtain all of our necessary funding from external sources in the near term. We may not be able to obtain additional financing 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 may be required to sell, delay, scale back or eliminate some or all of our proposed operations.

As of March 31, 2021, we had total current assets of $887,332. Our total current assets as of March 31, 2021 were comprised of cash in the amount of $884,137 and prepaid expenses in the amount of $3,195. Our total current liabilities as of March 31, 2021 were $33,440, represented entirely by a lease payment attributable to our wholly-owned subsidiary, The Control Center, Inc., for which Vitality Biopharma, Inc. is not responsible. At March 31, 2021, we had working capital of $853,892. We had no long-term liabilities as of March 31, 2021.



Sources of Capital


We do not expect to generate any revenue in the near term. We currently have no commitments for any future funding. As of March 31, 2021, we had cash in the amount of $884,137. Based on our corporate strategy described above under the heading "Plan of Operations", our total expenditures for the fiscal year ending March 31, 2022, are expected to be approximately $1,400,000, which is comprised of research and development and general operating expenses. Based on our cash balance of $884,137 on March 31, 2021, and our estimated total expenditures of approximately $1,400,000 for the 12-month period ending March 31, 2022, we do not expect to have sufficient funds to operate our business over the next 12 months. Furthermore, our estimate of total expenditures could increase if we encounter unanticipated difficulties. In addition, our estimates of the amount of cash necessary to fund our business may prove to be too low, and we could spend our available financial resources much faster than we currently expect. If we cannot raise the capital necessary to continue to develop our business, we will 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.



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Since inception, we have primarily funded our operations through equity and debt financings. We expect to continue to fund our operations primarily through equity and debt financings in the foreseeable future. However, sources of additional funds may not be available when needed, on acceptable terms, or at all. 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 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. 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.

Net Cash Used in Operating Activities

We have not generated positive cash flows from operating activities. For the fiscal year ended March 31, 2021, net cash used in operating activities was $1,605,076 compared to net cash used in operating activities of $3,590,516 for the fiscal year ended March 31, 2020. Net cash used in operating activities during the fiscal year ended March 31, 2021 consisted primarily of a net loss of $880,851, a decrease in accounts payable of $216,683, and the gain on extinguishment of liabilities of $1,006,574, net of the cash received of $450,000, offset by $461,856 related to stock-based compensation. Net cash used in operating activities during the fiscal year ended March 31, 2020 consisted primarily of a net loss of $4,365,355, offset by $626,668 related to stock-based compensation, and an increase in accounts payable and accrued liabilities of $221,563, and cash used in operating activities-discontinued operations of $742,225.

Net Cash Provided By Investing Activities

No cash was provided by investing activities during the fiscal years ended March 31, 2021 or 2020.

Net Cash Provided By Financing Activities

During the fiscal year ended March 31, 2021, net cash provided from financing activities was $96,988 from a note payable issued in connection with the Company's PPP loan. No cash was provided by financing activities during the fiscal year ended March 31, 2020.

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.

© Edgar Online, source Glimpses

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Financials (USD)
Sales 2021 - - -
Net income 2021 -0,88 M - -
Net cash 2021 0,85 M - -
P/E ratio 2021 -10,4x
Yield 2021 -
Capitalization 19,3 M 19,3 M -
EV / Sales 2020 -
EV / Sales 2021 -
Nbr of Employees 3
Free-Float 66,4%
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Managers and Directors
Michael Cavanaugh Chief Executive Officer & Director
Richard McKilligan Controller, Chief Financial & Accounting Officer
Edward F. Feighan Executive Chairman
Brandon Zipp Chief Science Officer
Richard F. Celeste Independent Director
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