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EX-32.2 - PetVivo Holdings, Inc.ex32-2.htm
EX-32.1 - PetVivo Holdings, Inc.ex32-1.htm
EX-31.2 - PetVivo Holdings, Inc.ex31-2.htm
EX-31.1 - PetVivo Holdings, Inc.ex31-1.htm

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2020

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from _______________ to _______________

 

Commission File Number: 000-55167

 

PetVivo Holdings, Inc.

(Exact name of registrant as specified in its charter)

 

Nevada   99-0363559

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5251 Edina Industrial Blvd.

Edina, Minnesota

  55439
(Address of principal executive offices)   (Zip Code)

 

(952) 405-6216

(Registrant’s Telephone Number, Including Area Code)

 

Securities registered under Section 12(b) of the Act:

 

Title of each class registered:  

Name of each exchange on which

registered:

None   None

 

Securities registered under Section 12(g) of the Act:

 

Title of each class registered:    
Common Stock, par value $0.001    

 

Indicate by check mark if registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

[  ] Yes [X] No

 

Indicate by check mark if registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

[  ] Yes [X] No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [X] Yes [  ] No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [  ]

 

Indicate by check mark whether the registrant is a large accelerated file, 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.

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if a smaller reporting company)  

 

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

[  ] Yes [X] No

 

State the aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at which the common equity was sold, or the average bid and asked price of such common equity, as of the last business day of the registrant’s most recently completed second fiscal quarter— $7,209,634.

 

As of June 30, 2020, there were 23,111,857 shares of the issuer’s $.001 par value common stock issued and outstanding.

 

Documents incorporated by reference. There are no annual reports to security holders, proxy information statements, or any prospectus filed pursuant to Rule 424 of the Securities Act of 1933 incorporated herein by reference.

 

 

 

   
   

 

TABLE OF CONTENTS

 

    Page
     
  PART I  
     
Item 1. Business 2
Item 1A. Risk Factors 16
Item 2. Properties 23
Item 3. Legal Proceedings 23
Item 4. Mine Safety Disclosures 23
     
  PART II  
     
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 24
Item 6. Selected Financial Data 26
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations 26
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 29
Item 8. Financial Statements and Supplementary Data 29
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure 30
Item 9A. Controls and Procedures 30
Item 9B. Other Information 31
     
  PART III  
     
Item 10. Directors, Executive Officers and Corporate Governance 31
Item 11. Executive Compensation 36
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 37
Item 13. Certain Relationships and Related Transactions, and Director Independence 38
Item 14. Principal Accounting Fees and Services 40
     
  PART IV  
     
Item 15. Exhibits, Financial Statement Schedules 41

 

   
   

 

PART I

 

Forward-Looking Information

 

This Annual Report of PetVivo Holdings, Inc. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.

 

ITEM 1. BUSINESS

 

BACKGROUND

 

We were incorporated as Pharmascan Corp. in the State of Nevada on March 31, 2009. On September 21, 2010, we filed a Certificate of Amendment to our Articles of Incorporation and changed our name to Technologies Scan Corp.

 

On April 1, 2014, we filed a Certificate of Amendment to our Articles of Incorporation and changed our name to “PetVivo Holdings, Inc.”

 

On March 11, 2014, our Board of Directors authorized the execution of a securities exchange agreement dated March 11, 2014 (the “Securities Exchange Agreement”) with PetVivo Inc., a Minnesota corporation (“PetVivo”). PetVivo was founded in 2013 by John Lai and John Dolan and engaged in the business of acquiring/in-licensing and adapting human biomedical technology and products for commercial sale in the veterinary market.

 

In accordance with the terms and provisions of the Securities Exchange Agreement, we acquired all of the issued and outstanding shares of stock of PetVivo in exchange for the issuance of an aggregate 2,310,939,804 shares of our common stock to the PetVivo shareholders as adjusted for a reverse stock split effective soon after this merger; this made PetVivo our wholly-owned subsidiary. John Lai and John Dolan were controlling shareholders of Petvivo Holdings, Inc at the time of the securities exchange.

 

In August of 2013, in exchange for 1,305,000 shares of the Company’s common stock, PetVivo entered into an exclusive worldwide license for the commercialization of a patented biomaterials technology for the veterinary treatment of animals having orthopedic joint afflictions (“Technology”). The Technology was developed by Gel-Del Technologies Inc., a Minnesota corporation (“Gel-Del”). Gel-Del was a biomaterials development and manufacturing company focused on human and companion animal applications of its biomaterials technology; our initial product, Kush™, is derived from the licensed Technology.

 

Kush is comprised of a patented, gel-like, protein-based biomaterial which may be injected into the afflicted body parts of companion animals suffering from osteoarthritis. Kush’s predecessor formulation completed a Gel-Del-sponsored 145 patient First-in-Man IDE clinical trial using the novel thermoplastic biomaterial as dermal filler for human cosmetic applications. We have since terminated the License Agreement based upon consummation of the Gel-Del merger as indicated herein.

 

The Gel-Del merger was then completed under Minnesota Statutes whereby Gel-Del and a wholly-owned subsidiary of ours (which was incorporated in Minnesota expressly for this transaction) completed the triangular merger (the “Merger”). Pursuant to the Merger, Gel-Del was the surviving entity and concurrently became our wholly-owned subsidiary, resulting in our obtaining full ownership of Gel-Del. Our primary reason to effect the Merger was to obtain 100% ownership and control of Gel-Del and its patented bioscience technology, including ownership of Gel-Del’s Cosmeta subsidiary. The effective date for the Merger was April 10, 2017 when the Merger was filed officially with the Secretary of State of Minnesota.

 

 Pursuant to the Merger, we issued a total of 4,905,000 shares of our common stock pro rata to the pre-merger shareholders of Gel-Del, resulting in each outstanding common share of Gel-Del being converted into 0.798 common share of the Company; .634 share was issued in relation to the merger and .164 share was issued pursuant to the License Agreement. The 4,905,000 shares represented approximately 30% of our total post-merger outstanding common shares and were valued at the closing price of our common shares on the effective date of the Merger of $0.44 per share, resulting in total consideration of $2,180,000.

 

 2 
   

 

Company Overview

 

We are headquartered in suburban Minneapolis, Minnesota. We are a veterinary biotech and biomedical device company primarily engaged in the business of translating or adapting human biotech and medical technology into products for commercialization in the veterinary market to treat companion animals such as dogs, horses, cats, and other animals suffering from osteoarthritis and other afflictions. Our initial product, Kush, is an intra-articular injection comprised of patented, gel-like biomaterials that is being commercialized for companion animal osteoarthritis.

 

PetVivo’s proprietary biomaterials simulate a body’s cellular tissue by virtue of their reliance upon natural protein compositions which incorporate such “tissue building blocks” as collagen and elastin. Since these are naturally-occurring in the body, we believe they have an enhanced biocompatibility with living tissues compared to synthetic biomaterials such as those based upon alpha-hydroxy polymers (PLA, PLGA and the like) and other “natural” biomaterials that may lack the multiple proteins incorporated into our biomaterials. These proprietary, protein-based biomaterials appear to mimic the body’s tissue thus allowing integration, tissue repair, and possibly regeneration in long-term implantation. A derivative of our Kush particles has inherent thermoplastic properties that can be utilized to manufacture or coat implantable devices such as stents and shunts. All of our biomaterials are produced using a patented and scalable self-assembly production process.

 

 3 
   

 

CURRENT BUSINESS OPERATIONS

 

General

 

We are an emerging biomedical device company focused on the licensing and commercialization of innovative medical devices and therapeutics for pets. We operate in the $19 billion US veterinary care market that has grown at a CAGR of 4.8% between 2015 and 2019 according to the American Pet Products Association. Despite the market size, veterinary clinics and hospitals have very few treatments and/or drugs for use in treating osteoarthritis in pets and other animals.

 

The role of pets in the family has greatly evolved in recent years. Many pet owners consider their pets an important member of the family. They are now willing to spend greater amounts of money on their pets to maintain their health and quality of life.

 

We intend to leverage investments already expended in the development of human therapeutics to commercialize treatments for pets in a capital and time-efficient way. A key component of this strategy is the potential for an accelerated timeline to revenues for veterinary medical devices, which can enter the market earlier than the more stringently regulated veterinary pharmaceuticals or human therapeutics.

 

We launched our lead product, Kush™ in calendar Q2 2018. In Q4 2018 we issued a “Notice of Product Quarantine and Product Monitoring Period” notifying all product holders to suspend use of the product and place it in quarantine while the Company, through utilization of third-party testing vendors, perform additional testing of the product. Kush is a veterinarian-administered joint injection for the treatment of osteoarthritis and lameness in dogs and horses. The Kush device is made from natural components that are lubricious and cushioning to perform like cartilage for the treatment of pain and inflammation associated with osteoarthritis.

 

We believe that Kush is a superior treatment that safely improves joint function. The reparative Kush particles are lubricious, cushioning and long-lasting. The spongy, protein-based particles mimic the composition and protective function of cartilage (i.e., providing both a slippery cushion and healing scaffolding) and protect the joint as an artificial cartilage.  
   
Using industry sources, we estimate osteoarthritis afflicts approximately 20 million owned dogs in the United States and the European Union, making canine osteoarthritis a $5 billion market opportunity if selling the product at $250 per canine unit; this does not factor in any contra-lateral usage of the product by veterinarians. See Johnston, Spencer A. “Osteoarthritis. Joint anatomy, physiology, and pathobiology.” The Veterinary clinics of North (1997):699-723;  
   
http://www.humanesociety.org/issues/petoverpopulation/facts/pet_ownership_statistics.html;  

and

http://www.americanpetproducts.org/press_industrytrends.asp.

 

 

In addition to being a treatment for osteoarthritis, the joint-cushioning and lubricity effects of Kush have shown an ability to treat equine lameness that is due to navicular disease (a problem associated with misalignment of joints and bones in the hoof and digits).

 

Based on a variety of industry sources we estimate that 1 million owned horses in the United Stated and European Union suffer from lameness and/or navicular disease each year, making the equine lameness and navicular disease market an annual opportunity worth $600 million if selling the product at $600 per equine unit; this does not factor in any contra-lateral usage of the product by veterinarians. See Kane, Albert J., Josie Traub-Dargatz, Willard C. Losinger, and Lindsey P. Garber; “The occurrence and causes of lameness and laminitis in the US horse population” Proc Am Assoc Equine Pract. San Antonio (2000): 277-80; Seitzinger, Ann Hillberg, J. L. Traub-Dargatz, A. J. Kane, C. A. Kopral, P. S. Morley, L. P. Garber, W. C. Losinger, and G. W. Hill. “A comparison of the economic costs of equine lameness, colic, and equine protozoal myeloencephalitis (EPM).” In Proceedings, pp. 1048-1050. 2000; and Kilby, E. R. 10 CHAPTER, The Demographics of the U.S. Equine Population, The State of the Animals IV: 2007.

 

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Osteoarthritis is a condition with degenerating cartilage, creating joint stiffness from mechanical stress resulting in inflammation and pain. The lameness caused by osteoarthritis worsens with time from the ongoing loss of protective cushion and lubricity. There are currently very few treatments for osteoarthritis; some of which are palliative pain therapy and joint replacement. Non-steroidal, anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation, but long-term use has been shown to cause gastric problems. NSAIDs do not treat the cartilage degeneration issue to halt or slow the progression of the osteoarthritis condition.

 

We believe that our treatment of osteoarthritis in canines using Kush is far superior to the current methodology of using NSAIDs. NSAIDs have many side effects, especially in canines, whereas the company’s treatment using Kush, to our knowledge, has not elicited any adverse side effects in dogs. Remarkably, Kush-treated dogs have shown an increase in activity even after they no longer are receiving pain medication.

 

No special training is required for the administration of the Kush device. The treatment is injected into synovial joint space using standard intra-articular injection technique and multiple joints can be treated simultaneously. Kush immediately treats effects of osteoarthritis with no special post-treatment requirements.

 

Historically, drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at veterinary practices are being eroded because online, big-box and traditional pharmacies recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. The Kush device is veterinarian-administered and should expand practice revenues and margins. We believe that the increased revenues and margins provided by Kush will accelerate its adoption rate and propel it forward as the standard of care for canine and equine lameness related to or due to synovial joint issues

 

We anticipate growing our product pipeline through the acquisition or in-licensing of additional proprietary products from human medical device companies specifically for use in pets. In addition to commercializing our own products in strategic market sectors and in view of the company’s vast proprietary product pipeline, the Company is seeking to continue to develop strategic out-licensing partnerships to provide secondary revenues.

 

We plan to commercialize our products in the United States through distribution relationships supported by regional and national distributors and complemented by the use of digital marketing to educate and inform pet owners; and in Europe and the rest of the world through commercial partners. In September 2019, the Company entered into an agreement with a service provider to film a 12-part, monthly series of interviews with our CEO, John Lai, Company key opinion leaders, and other media content to be aired on Bloomberg Television Network alongside 96 commercials; we anticipate this program to begin in calendar year 2020.

 

Most veterinarians in the United States buy a majority of their equipment and supplies from one of four veterinary-product distributors. Combined, these four distributors deliver more than 85%, by revenue, of the products sold to companion animal veterinarians in the U.S. We plan to have our product distribution leverage the existing supply chain and veterinary clinic and clinician relationships already established by these large distributors. We plan to support this distribution channel with regional sales representatives. Our representatives will support our distributors alongside the veterinary clinics and hospitals. We will also target pet owners with product education and treatment awareness campaigns utilizing a variety of digital marketing tools. The unique nature and the anticipated benefits provided by our products are expected to generate significant consumer response.

 

Our biomaterials have been through a human clinical trial and have been classified as a medical device for use as a dermal filler. The FDA does not require submission of a 510(k) or formal pre-market approval for medical devices used in veterinary medicine.

 

Our current pipeline includes 17 therapeutic devices for both veterinary and human clinical applications. Some of the therapeutic devices for veterinary and human clinical applications may be regulated by the FDA or other equivalent regulatory agencies, including but not limited to the Center for Veterinary Medicine (CVM). Such regulatory agencies will implement approval and regulatory oversight processes similar to those identified herein in the section labeled “Regulation – Human and Veterinary Use.”

 

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Product Pipeline

 

 

In some of our past filings of our annual report on Form 10-K, we included a current pipeline table as above which was incorrect, and the foregoing table has been revised to reflect our current estimates of each product for the above categories. The primary reason we failed to satisfy the respective estimated dates in any earlier filings was because we did not receive anticipated substantial funding needed to satisfy those earlier performance estimates.

 

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Below is a listing of applications of our technology that we plan to commercialize or out-license to strategic partners:

 

Dermal Filler

 

Our biomaterials are constructed from purified water, protein, and carbohydrate, tailored to simulate different body tissues that biologically integrate (bio-integration). Our biomaterials can be manufactured and used as a dermal filler for wrinkle treatment by injection. These formed, gel particles fill, integrate and rejuvenate dermal skin tissue to remove the wrinkle. This product was taken through an FDA clinical trial under the name CosmetaLife®, see the results here: www.clinicaltrials.gov (NCT00414544).

 

Cardiovascular Devices

 

Our blood-compatible biomaterial, which allows blood contact and bio-integrative processes to occur without clotting, platelet attachment, or thrombogenesis, is used to repair cardiovascular tissue. VasoGraft®, a blood vessel graft made from VasoCover™ material, is designed to mimic natural blood vessel tissue in almost every respect, including the components used.

 

Drug Delivery

 

Unique fabrication techniques allow us to homogeneously distribute drug in milligram to nanogram amounts, resulting in optimum performance and manufacturing capabilities for a variety of delivery methods, such as coatings, injectables, implantables or transmucosal delivery. The first planned transmucosal product has been optimized and tested with peptide drugs with better efficacy than oral dosing via swallowing.

 

Orthopedic Devices

 

Another of our materials can be used in a variety of shapes for orthopedic and dental applications. The first products, OrthoGelic™ and OrthoMetic™, will be aimed at difficult-to-heal, non-union broken bones, by using particles to fill the empty space. The orthopedic biomaterial, made to mimic the structural components of bone, can allow integration and healing to fill in the break and exclude non-bone tissue infiltration.

 

 7 
   

 

Intellectual Property

 

Our intellectual property portfolio is comprised of patents, patent applications, trademarks and trade secrets. We have nine issued United States Patents. In addition to the United States patent portfolio we also have ten patents granted in key markets around the world including Canada, Australia and the European Union. We have an additional application pending in the European Union.

 

We believe we have developed a broad and deep patent portfolio around our biomaterials and manufacturing processes in addition to the application of these biomaterials for use as medical devices, medical device coatings and pharmaceutical delivery devices. The Company secures other technological know-how by trade secret law and also possesses several trademarks that are either registered or protected pursuant to trademark common law.

 

United States Patents:

 

10,016,534 – Protein Biomaterial and Biocoacervate Vessel Graft Systems and Methods of Making and Using Thereof

 

9,999,705 – Protein Biomaterials and Bioacervates and Methods of Making and Using Thereof

 

9,107,937 – Wound Treatments with Crosslinked Protein Amorphous Biomaterials

 

8,871,267 – Protein Matrix Materials, Devices and Methods of Making and Using Thereof

 

8,623,393 – Biomatrix Structural Containment and Fixation Systems and Methods of Use Thereof

 

8,529,939 – Mucoadhesive Drug Delivery Devices and Methods of Making and Using Thereof

 

8,465,537 – Encapsulated or Coated Stent Systems

 

8,153,591 – Protein Biomaterials and Biocoacervates and Methods of Making and Using Thereof

 

10 Foreign Patents Granted & Allowed

 

9 Patent Apps Pending (US & Foreign)

 

 8 
   

 

To maximize the strength and value of our patent portfolio, many of the claims use the transitional term “comprising”, which is synonymous with “including,” This use of transitional language is inclusive or open-ended and does not exclude additional, unrecited elements or method steps. Our patents also include method claims covering many of the applications and uses of the biomaterials as medical devices and drug delivery systems. With nine issued or allowed United States Patents that contain 312 claims, our intellectual property portfolio strongly protects our proprietary technology, including the composition of raw elements used to produce our formulations, the fabricated biomaterials and their application in end products, thereby making our material and devices much more attractive to industry partners.

 

We will seek to protect our products and technologies through a combination of patents, regulatory exclusivity, and proprietary know-how. Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current compounds and any future compounds developed. We also strenuously protect our proprietary information and proprietary technology through a combination of contractual arrangements, trade secrets and patents, both in the United States and abroad. However, even patent protection may not always afford us with complete protection against competitors who seek to circumvent our patents.

 

We depend upon the skills, knowledge and experience of our scientific and technical personnel, including those of our company, as well as that of our advisors, consultants and other contractors, none of which is patentable. To help protect our proprietary know-how, which may not be patentable, and inventions for which patents may be difficult to obtain or enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we generally require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit disclosure of confidential information and, where applicable, require disclosure and assignment of ownership to us the ideas, developments, discoveries and inventions important to our business.

 

Companion Animal Market

 

Over the last several decades, we believe the animal health market and industry has a strong component in the overall U.S. economy and is more resistant to economic cycles. The veterinary sector is as an attractive area to participate in the growth of the broader healthcare industry without reimbursement risk. Based on our best knowledge, the pet industry will generate an estimated $99 billion in expenditures on pets this year—a number that leads to a CAGR of approximately 5% over the past five years (APPA). Vet Care constitutes about $19 billion of the market, while Therapeutics, a subsection of Vet Care, constitutes a smaller amount. However, we believe Therapeutics is poised to expand as pet care becomes more complex and companies launch new products for unmet needs. The growth in the U.S. companion animal market has been continuing to increase due to the increase in the number of pet-owning households.

 

The American Pet Products Association (APPA) 2017-2018 National Pet Owners Survey indicates U.S. pet ownership reached record levels in 2018. Specifically, 68% of all U.S. households owned a pet in 2018. That’s 84.6 million pet-owning households, up from 79.7 million in 2015 – a 3-year CAGR of approximately 2%. In 2018, dogs and cats were the most popular pet species, owned by 47% and 37% of U.S. households, respectively. APPA also reported that there were 89.7 million dogs (6-year CAGR of +2.3%) and 94.2 million cats (6-year CAGR of +1.4%) in the U.S. In comparison, the total U.S. human population had a +0.7% CAGR over the last eight years. APPA reported that 2% of U.S. households owned horses in 2018. According to the APPA the total number of horses owned by U.S. households increased to 7.6 million in 2018, a number consistent with the previous APPA report conducted two year earlier.

 

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Osteoarthritis Market

 

Osteoarthritis, the most common inflammatory joint disease in both dogs and horses, is a progressive condition that is caused by a deterioration of joint cartilage. Over time, the joint cartilage deterioration creates joint stiffness from mechanical stress resulting in inflammation, pain and loss of range of motion, which may be referred to as lameness. Osteoarthritis joint stiffness and lameness worsens with time from gradual cartilage degeneration and an ongoing loss of protective cushion and lubricity (i.e., loss of slippery padding). As there is no cure for osteoarthritis, the various treatment methods are focused on managing the related symptoms of pain and inflammation. Veterinarians recommend several treatments depending on the severity of the disease, including a combination of rest, weight loss, physical rehabilitation, and a regimen of pain and anti-inflammatory drugs (NSAIDs). Non-steroidal anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation caused by OA, but long-term NSAIDs cause gastric problems. Moreover, NSAIDs do not treat the cartilage degeneration issue to halt or slow progression of the OA condition.

 

The prevalence of companion animal osteoarthritis is estimated through a variety of methods. In looking at the dog osteoarthritis incidence Spencer Johnston’s article “Osteoarthritis. Joint anatomy, physiology, and pathobiology” is often cited, this article reports that 20% of all dogs over the age of one year suffer from osteoarthritis. Using this simple methodology, management has estimated that 20% of the total dog population is under age one.

 

89.7 million x 80% = 71.8 million x 20% with OA = 14.4 million dogs with OA in U.S.

 

Craig-Hallum’s July 22, 2013 institutional research report on Aratana Therapeutics estimates the U.S. dog osteoarthritis market at 16.6 million dogs. William Blair & Company, L.L.C. released a July 25, 2013 Equity Research report by Aratana Therapeutics that concluded that roughly 10% of dogs and cat suffer from osteoarthritis (89.7 million dogs x 10% = 9 million dogs with OA). Stifel issued a report on Aratana Therapeutics dated July 22, 2013 that estimated the osteoarthritis market to be 55% of dogs over the age of 10. This equates to a US market in 2014 of 7.1 million dogs with osteoarthritis.

 

Horse Osteoarthritis (Lameness)

 

Equine osteoarthritis is the most common cause of lameness in horses. The annual average costs for diagnosis and treatment of equine lameness is $3,000 per horse, with downtime & homecare costs being much higher (Oke and McIlwraith, 2010). “The USDA National Economic Cost of Equine Lameness… in the United States” published by 1978 places the annual incidence of lameness at 8.5-13.7 lameness events/100 horses.

 

As noted previously, the APPA reported the total number of horses owned by U.S. households was 7.6 million in 2018. A 2007 publication by Emily Kilby “The Demographics of the U.S. Equine Population” concludes the US horse population to be 9.5 million in 2006 with racehorses being 9% of that population or 846,000 horses. The article “The Occurrence and Causes of Lameness and Laminitis in the U.S. Horse Population” estimates that 17% of racehorses and 5.4% of the rest of the horse population go lame annually. Based on the above assumptions we calculate that there are approximately 500,000 new lame horses each year.

 

Distribution

 

Most U.S. veterinarians buy a majority of their equipment and supplies from a preferred distributor. More than 75% of veterinarians name Butler Schein Animal Health, Inc., Webster Veterinary Supply Inc. (recently acquired by Patterson), MWI, Midwest Veterinary Supply, Inc. or Victor Medical Company as their preferred distributor. Combined, these top-tier distributors sell more than 85%, by revenue, of the products sold to companion animal veterinarians in the U.S. Butler, Webster and MWI are recognized by manufacturers, distributors and veterinarians as the pre-eminent national companion animal veterinary supply distributors in the US. There are no other distributors that provide equivalent levels of service to manufacturers and regularly visit veterinarians in as wide a geographic area as Butler, Webster or MWI. Midwest and Victor are large, regional distributors, also with strong reputations for high-quality service. The above data in this paragraph was sourced from File No. 101 0023 at the U.S. Federal Trade Commission.

 

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We plan to have our product distribution leverage the existing supply chain and veterinary clinic and clinician relationships already established by these large distributors. We intend to support and supplement this distribution channel with regional business development & training representatives. We plan to have our business development representatives provide product training to distribution representatives, veterinarians and other veterinary staff. In addition, we intend to have our representatives and veterinarian partners exhibit at key veterinary conferences as well as support ongoing case studies. All of these sales, distribution, marketing and education efforts will also be supported by both veterinarian and pet owner product education and treatment awareness campaigns that will be conducted utilizing a variety of digital media tools. The unique nature and the anticipated benefits provided by our initial Kush product are expected to generate significant consumer response.

 

Particle Devices

 

Orthopedic Joint Treatments

 

A treatment for joint pain, which is made of injected, protein-based, gel-like particles. In vivo studies indicate that the gel particle device can easily be combined with synovial fluid in a rabbit knee to form a joint cushion, buffering the adjacent bones/cartilage where no damage was caused to the cartilage from replacing the synovial fluid. The particles show an effectiveness to repair, reconstitute or remodel the tissue, cartilage, ligaments and/or bone and/or enhance the functionality of the joint (e.g. repair deteriorated components present in the joint to provide cushion or shock-absorbing features to the joint and to provide joint lubricity)

 

AppTec Laboratories accomplished a gel-particle rabbit study. In short, New Zealand white rabbits (6) were injected in both stifle joints (knees) to fill but not extend the synovial space (~0.5 cc GDP/site). Rabbits were tested every other day for abnormal clinical signs including range of motion and joint observations until sacrifice. Behavioral testing revealed no abnormal scores for range of motion, withdrawal response, or joint observations (all animals were 100% normal). At one week and at four weeks the animals were sacrificed. AppTec pathologists evaluated knee joint histology. The reported cartilage surfaces of the femoral and tibia condyles and the menisci were grossly and histologically 100% normal for all animals and test sites. The test particles were found in all of the injection sites.

 

 

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The test particle did not cause changes in the articular cartilage of the femur or tibia when injected into the stifle joint of rabbits. The test article and control rabbit knees were not different for either 1 or 4-week time points for all histological measurements. In conclusion, the particles do not cause inflammation or damage to knee joint and will stick to exposed tissues and biologically integrate with those tissues. The particles were not found to stick to articular cartilage in any sample.

 

Regenerative Characteristics

 

The particle devices for joint injections have been extensively studied for a broad range of applications including the treatment of wrinkles as dermal filler. Here is an overview of the pre-clinical and clinical studies completed for CosmetaLife, which is the name used for the particle device when it was used as a dermal filler.

 

Particle Integration after 12 Weeks

 

The image at left shows collagen in blue, fibroblasts in red and CosmetaLife in gray. Note the typical cellularization and integration of collagen within the CosmetaLife matrix perimeter. Also notice the fibroblasts (collagen producers) are integrated throughout the injection site. Microvascularization, indicated by arrowheads, is also present in several locations. There is little to no sign of inflammation.

 

Trichrome Stain - 20x Objective

 

CosmetaLife Particles

 

CosmetaLife is an easy-to-inject, water-protein-based dermal filler that not only fills nasolabial wrinkle depressions but also helps rejuvenate the dermal tissues, counteracting damage that causes wrinkles. The dermal cells are attracted to the CosmetaLife gel-particles, attach to them, and then slowly replace them with natural dermal material (extracellular matrix). The natural biological replacement process of CosmetaLife to collagen is estimated to take 6-12 months. CosmetaLife clinical trial on nasolabial folds supports this estimate.

 

CosmetaLife injections allow the body to create more natural dermal structure in and around every particle. Enhancing the natural process of dermal tissue construction with CosmetaLife allows for long-term dermal contouring, corrections, and rejuvenation with little to no adverse side effects noted in clinical trials.

 

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Particle Device Clinical Studies

 

The Company has conducted several biocompatibility animal studies. In the implantation study, no abnormal clinical signs were noted for any of the rabbits. The results of the sensitization study in guinea pigs showed a sensitization response equivalent to the negative controls.

 

The results of the histological report on the rabbit skin biopsies clearly demonstrate structural integration of the particles into the host tissues by week 12. Evaluators observed the particle material integration with normal tissue, remodeled and/or new collagen, and fibroblasts throughout the injected particles, mild to no inflammation, and new collagen-matrix production.

 

A Food and Drug Administration (FDA) IDE approved pivotal human clinical trial began with CosmetaLife late in 2006. The clinical trial was a randomized, double-blind, parallel assignment, multi-center comparison of the safety and efficacy of CosmetaLife versus Restylane® (Control) for the correction of nasolabial folds. One hundred seventy-one patients were skin tested and 145 were treated at six trial sites. The number of study exits after treatment totaled four subjects. This clinical trial was reported and published at www.clinicaltrials.gov (NCT00414544).

 

The feedback from physician investigators has been positive with respect to CosmetaLife injection qualities, cosmetic appearance, and its feel to the touch. During the first three to four months of the study, CosmetaLife showed no decrease in efficacy, as compared to Restylane that showed an 11 percent decrease in efficacy. The FDA/IDE approved human clinical trial for the CosmetaLife product through twelve months was found to be the same as compared to control hyaluronic acid product, Restylane (for each interval the consensus of the blinded subjects tested preferred CosmetaLife or showed no preference at 3, 6, 9 and 12 months).

 

CosmetaLife particles, shown in figure to the left, were photographed from a light microscope under high magnification and immersed in a saline solution to help disperse them for better viewing. These particles are approximately 100 microns in size (0.1 mm in diameter).

 

We use existing, scalable processes to reduce the infrastructure requirements and manufacturing risks to deliver a consistent, high-quality product while being responsive to volume requirements. We are working to scale the manufacturing process, to date having made batches in up to 2.0-kilogram quantities to near GMP (Good Manufacturing Practices) standards.

 

Particles Safety Study

 

Patients injected with CosmetaLife were found to have no or mild inflammatory, irritation, or immunogenic responses. These results suggest the particles are biocompatible because it closely matches the skin structure, composition, and moisture content. The no-to-low immunogenic responses are attributed to the tight cross-linking of the CosmetaLife matrix, which prevents immunogenic progenitor cells from producing antibodies to the matrix.

 

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In the clinical trial, the incidence of possible reaction to a skin test was 2.55 percent, with only one subject showing a reaction to a second test or 0.6%, (1 out of 171). We also have a study report by AppTec, Inc., our Contract Research Organization, that [CosmetaLife] did not produce an antibody response during the clinical trial further supporting our belief that it is safe to use.

 

CosmetaLife is composed of materials that approximately meet the Generally Regarded As Safe (GRAS) requirements of the FDA. CosmetaLife contains materials from certified bovine and porcine tissue sources that do not harbor prion disease or BSE. Additionally, steps in the manufacturing process have been validated for deactivating all viruses.

 

Extrusion force testing and the Clinical Trial usage both demonstrate the consistent and easy injection of CosmetaLife. Twenty-five month stability testing shows that CosmetaLife is stable at room temperature conditions. Moreover, CosmetaLife has been shown to be stable at 40 °C (104 °F) conditions for at least 3 months.

 

Competition

 

The development and commercialization of new animal health medicines is highly competitive, and we expect considerable competition from major pharmaceutical, biotechnology and specialty animal health medicines companies. As a result, there are, and likely will continue to be, extensive research and substantial financial resources invested in the discovery and development of new animal health medicines. Our potential competitors include large animal health companies, such as Zoetis, Inc.; Merck Animal Health, the animal health division of Merck & Co., Inc.; Merial, the animal health division of Sanofi S.A.; Elanco, the animal health division of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; NAH, the animal health division of Novartis AG; Boehringer Ingelheim Animal Health, the animal health division of Boehringer Ingelheim GmbH; Virbac Group; Ceva Animal Health; Vetoquinol and Dechra Pharmaceuticals PLC. We are also aware of several smaller early stage animal health companies, such as Kindred Bio, Aratana Therapeutics Inc. (recently acquired by Elanco), NextVet and VetDC that are developing products for use in the pet therapeutics market.

 

Regulation – Human and Veterinary Use

 

A number of the medical devices that we manufacture for veterinary applications, and plan to manufacture for human applications, are subject to regulation by numerous regulatory bodies, including the FDA and comparable international regulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices. Medical devices are generally subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation program be conducted before a device receives approval for commercial distribution.

 

In the EU, medical devices are required to comply with the Medical Devices Directive and obtain CE Mark certification in order to market medical devices. The CE Mark certification, granted following approval from an independent Notified Body, is an international symbol of adherence to quality assurance standards and compliance with applicable European Medical Devices Directives. Distributors of medical devices may also be required to comply with other foreign regulations such as Ministry of Health Labor and Welfare approval in Japan. The time required to obtain these foreign approvals to market our products may be longer or shorter than that required in the U.S., and requirements for those approvals may differ from those required by the FDA. In Europe, our devices are classified as Class IIa or IIb, and will need to conform to the Medical Devices Directive.

 

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In the U.S., specific permission from the FDA to distribute a new device is usually required (that is, other than in the case of very low risk devices), and we expect that some form of marketing authorization will be necessary for our devices. Marketing authorization is generally sought and obtained in one of two ways. The first process requires that a pre-market notification (510(k) Submission) be made to the FDA to demonstrate that the device is as safe and effective as, or “substantially equivalent” to, a legally-marketed device that is not subject to pre-market approval (“PMA”). A legally-marketed device is a device that (i) was legally marketed prior to May 28, 1976, (ii) has been reclassified from Class III to Class II or I, or (iii) has been found to be substantially equivalent to another legally-marketed device following a 510(k) Submission. The legally-marketed device to which equivalence is drawn is known as the “predicate” device. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent to a predicate device. In some instances, data from human clinical studies must also be submitted in support of a 510(k) Submission. If so, these data must be collected in a manner that conforms with specific requirements in accordance with federal regulations including the Investigational Device Exemption (IDE) and human subjects protections or “Good Clinical Practice” regulations. After the 510(k) application is submitted, the applicant cannot market the device unless FDA issues “510(k) clearance” deeming the device substantially equivalent. After an applicant has obtained clearance, the changes to existing devices covered by a 510(k) Submission which do not significantly affect safety or effectiveness can generally be made without additional 510(k) Submissions, but evaluation of whether a new 510(k) is needed is a complex regulatory issue, and changes must be evaluated on an ongoing basis to determine whether a proposed change triggers the need for a new 510(k), or even PMA. The 510(k) clearance pathway is not available for all devices: whether it is a suitable path to market depends on several factors, including regulatory classifications, the intended use of the device, and technical and risk-related issues for the device.

 

The second, more rigorous, process requires that an application for PMA be made to the FDA to demonstrate that the device is safe and effective for its intended use as manufactured. This approval process applies to most Class III devices. A PMA submission includes data regarding design, materials, bench and animal testing, and human clinical data for the medical device. Again, clinical trials are subject to extensive FDA regulation. Following completion of clinical trials and submission of a PMA, the FDA will authorize commercial distribution if it determines there is reasonable assurance that the medical device is safe and effective for its intended purpose. This determination is based on the benefit outweighing the risk for the population intended to be treated with the device. This process is much more detailed, time-consuming, and expensive than the 510(k) process. Also, FDA may impose a variety of conditions on the approval of a PMA.

 

Both before and after a device for the U.S. market is commercially released, we would have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and other information to identify potential problems with marketed medical devices. We would also be subject to periodic inspection by the FDA for compliance with the FDA’s quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, and servicing of all finished medical devices intended for human use. In addition, the FDA and other U.S. regulatory bodies (including the Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the Department of Justice (DOJ), and various state Attorneys General) monitor the manner in which we promote and advertise our products. Although physicians are permitted to use their medical judgment to employ medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such “off-label” uses and can only market our products for cleared or approved uses. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health, order a recall, repair, replacement, or refund of such devices, detain or seize adulterated or misbranded medical devices, or ban such medical devices. The FDA may also impose operating restrictions, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, including a hold on approving new devices until issues are resolved to its satisfaction, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the DOJ. Conduct giving rise to civil or criminal penalties may also form the basis for private civil litigation by third-party payers or other persons allegedly harmed by our conduct.

 

The delivery of our devices in the U.S. market would be subject to regulation by the U.S. Department of Health and Human Services and comparable state agencies responsible for reimbursement and regulation of health care items and services. U.S. laws and regulations are imposed primarily in connection with the Medicare and Medicaid programs, as well as the government’s interest in regulating the quality and cost of health care.

 

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Federal health care laws apply when we or customers submit claims for items or services that are reimbursed under Medicare, Medicaid, or other federally-funded health care programs. The principal federal laws include: (1) the False Claims Act which prohibits the submission of false or otherwise improper claims for payment to a federally-funded health care program; (2) the Anti-Kickback Statute which prohibits offers to pay or receive remuneration of any kind for the purpose of inducing or rewarding referrals of items or services reimbursable by a Federal health care program; (3) the Stark law which prohibits physicians from referring Medicare or Medicaid patients to a provider that bills these programs for the provision of certain designated health services if the physician (or a member of the physician’s immediate family) has a financial relationship with that provider; and (4) health care fraud statutes that prohibit false statements and improper claims to any third-party payer. There are often similar state false claims, anti-kickback, and anti-self referral and insurance laws that apply to state-funded Medicaid and other health care programs and private third-party payers. In addition, the U.S. Foreign Corrupt Practices Act can be used to prosecute companies in the U.S. for arrangements with physicians, or other parties outside the U.S. if the physician or party is a government official of another country and the arrangement violates the law of that country.

 

The laws applicable to us are subject to change, and subject to evolving interpretations. If a governmental authority were to conclude that we are not in compliance with applicable laws and regulations, we and our officers and employees could be subject to severe criminal and civil penalties including substantial fines and damages, and exclusion from participation as a supplier of product to beneficiaries covered by Medicare or Medicaid.

 

The process of obtaining clearance to market products is costly and time-consuming in virtually all of the major markets in which we expect to sell products and may delay the marketing and sale of our products. Countries around the world have recently adopted more stringent regulatory requirements, which are expected to add to the delays and uncertainties associated with new product releases, as well as the clinical and regulatory costs of supporting those releases. No assurance can be given that any of our other medical devices will be approved on a timely basis, if at all. In addition, regulations regarding the development, manufacture and sale of medical devices are subject to future change. We cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.

 

Pertaining to our Kush device (offered for veterinary use only), in the U.S., the FDA does not require submission of a 510(k), PMA, or any pre-market approval for devices used in veterinary medicine. Device manufacturers who exclusively manufacture or distribute veterinary devices are not required to register their establishments and list veterinary devices and are exempt from post-marketing reporting. The FDA does have regulatory oversight over veterinary devices and can take appropriate regulatory action if a veterinary device is misbranded or adulterated. It is the responsibility of the manufacturer and/or distributor of these articles to assure that these animal devices are safe, effective, and properly labeled.

 

Exported devices are subject to the regulatory requirements of each country to which the device is exported. Some countries do not have medical device regulations, but in most foreign countries medical devices are regulated. Frequently, medical device companies may choose to seek and obtain regulatory approval of a device in a foreign country prior to application in the U.S. given the differing regulatory requirements. However, this does not ensure approval of a device in the U.S.

 

ITEM 1A. RISK FACTORS

 

An investment in our securities involves a high degree of risk. You should carefully consider the following described risks together with all other information included in this prospectus before making an investment decision with regard to this offering. If one or more of the following risks occurs, our business, financial condition, and results of operations could be materially harmed, which most likely would result in a decline in the trading price of our Stock and investors losing part or even all of their investment.

 

We have incurred substantial losses to date and could continue to incur such losses.

 

We have incurred substantial losses since commencing our business. For our fiscal years ended March 31, 2020 and 2019, we lost approximately $2.08 million and $4.76 million, respectively, without obtaining any material, commercial revenues. As of March 31, 2020, we had an accumulated deficit of approximately $54.59 million. In order to achieve and sustain future revenue growth, we must succeed in our current commercialization of our Kush product for treatment of companion animal osteoarthritis or find other methods of obtaining material cash flows. That will likely require us to produce our products effectively in commercial quantities, establish adequate sales and marketing systems, and gain significant support from veterinarians in the use of our products. We expect to continue to incur losses until such time, if ever, as we succeed in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. We may never generate revenues sufficient to become profitable or to sustain profitability.

 

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Our auditors have expressed doubt about our ability to continue as a going concern.

 

The report of our independent registered accounting firm that audited our March 31, 2020 and 2019 financial statements included an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. Our ability to continue as a going concern is contingent primarily upon our continuing to raise sufficient working capital to support our operations until attaining profitability, which may never happen. If we are unable to secure sufficient funding we may not be able to continue as a going concern.

 

If we are unable to obtain sufficient funding, we may have to reduce materially or even discontinue our business.

 

We have limited cash available to commercialize our Kush product and accordingly are dependent upon raising substantial funding from either private or public sale of our equity securities. If we are unable to obtain substantial financing in the near future, we will need to delay significantly or even discontinue our operations. We also most likely will require additional financing to develop additional new products or to expand into foreign markets.

 

Along with establishing effective production, marketing, sales and distribution of our Kush products, we believe that our future capital requirements depend upon the timing and costs of many factors with some of them beyond our control, including our ability to establish an adequate base of veterinarian clinics using our products, costs in obtaining patents and any required regulatory approvals for future products, costs of any future target animal studies, costs related to new product development, costs of finished product inventory, expenses to attract and retain skilled personnel as needed, increased costs related to being a listed public company, and the costs of any future acquisitions of existing companies or IP technologies. There is no assurance that future additional capital will be available to us as needed, or if available upon terms acceptable to us.

 

We have a limited operating history upon which to base an evaluation of our prospects.

 

We have had no material commercial operations, since our primary efforts and resources have been directed toward acquiring our technology to produce and sell proprietary products for the pet animal market. Our lack of an operating history makes an evaluation of our business and prospects very difficult. Our prospects must be considered speculative, especially considering the risks, expenses and difficulties frequently encountered in the establishment of a smaller reporting company. Our ability to operate our business successfully remains unknown and untested. If we cannot commercialize our products effectively, or are significantly delayed or limited in doing so, our business and operations will be harmed substantially, and we may even need to cease operations.

 

We are substantially dependent upon the success of our recently introduced Kush products, and any failure of these products to achieve market acceptance would harm us significantly.

 

Our recent efforts and financial resources have primarily been directed toward commercialization of our initial Kush products for the treatment of dogs and horses suffering from osteoarthritis. Accordingly, our prospects rely heavily on the successful launch and follow-up marketing of these products. As well as establishing effective production, marketing, sales, distribution and training for our Kush products, we believe their successful commercialization will depend on other material factors including our ability to educate and convince veterinarians and pet owners about the benefits, safety and effectiveness of our Kush products, the occurrence and severity of any side effects to pets from use of our products, maintaining regulatory compliance and effective quality control for our products, our ability to maintain and enforce our patents and other intellectual property rights, any increased manufacturing costs from third-party contractors or suppliers, and the availability, cost and effectiveness of treatments offered by competitors.

 

If we fail to attract and retain qualified management and key scientific personnel, we may be unable to successfully commercialize our current products or develop new products effectively.

 

Our success depends significantly upon our current management and key scientific technicians, and also on our continued ability to attract, retain and motivate future management and technology employees. We are highly dependent upon our current management and technology personnel, and the loss of the services of any of them could delay or prevent the successful commercialization or development of current or future products. Competition to obtain qualified personnel in the animal health field is intense due to the limited number of individuals possessing the skills and experience required by our industry. We may not be able to attract or retain qualified personnel as needed on acceptable terms, or at all, which would harm our business and operations.

 

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Our operations rely on various third-party vendors, and any loss of one or more of our key vendors may affect our financial position and results of operations adversely.

 

We will rely on third-party vendors or contractors to provide ingredients for and to possibly complete part of or all of the manufacturing procedures while producing our Kush products. Any loss of one or more of these third-party contractors could disrupt our business adversely and cause a material negative effect on our operations.

 

Any loss of a third-party manufacturer or producer for any reason, or its inability to produce Kush product quantities on a timely basis to fulfill purchase orders from our customers, would harm our business and operations substantially. In any such event that requires us to seek and source another qualified third-party manufacturer, we most likely would encounter material delays and increased costs, which would affect our business adversely.

 

If any part of manufacturing or R&D is done in-house, the proper completion of our suburban, MN facility with the appropriate certifications is imperative and if not done so, it may have a material adverse impact on our operations.

 

If we experience rapid commercial growth, we may not be able to manage such growth effectively.

 

Any rapid growth we may experience while commercializing our products could place significant new demands on our management and our operational and financial resources. Our organizational structure may become more complex as we add additional personnel, and we would likely require more financial and staff resources to support and continue our growth. If we are unable to manage our growth effectively, our business, financial condition and results of operations may be materially harmed.

 

We have a limited marketing and sales organization, and if our current marketing and sales personnel are insufficient or inadequate to support the current introduction of our Kush products, we may not be able to sell these products in quantities to become commercially successful.

 

We have a limited marketing and sales organization, and we have minimal prior experience in the marketing, sale and distribution of pet care products. There are significant risks involved in our building and managing an effective sales organization, including our ability to hire, adequately train, maintain and motivate qualified individuals, generate sufficient sales leads and other contacts, and establish effective product distribution channels. Any failure or substantial delay in the development of our internal and/or external sales, marketing and distribution capabilities would adversely impact our business and financial condition.

 

Our business will depend significantly on the sufficiency and effectiveness of our marketing and product promotional programs and incentives.

 

Due to the highly competitive nature of our industry, we must effectively and efficiently promote and market our products through internet, television and print advertising, social media, other digital marketing avenues and through trade promotions and other incentives to sustain and improve our competitive position in our market. Moreover, from time to time we may have to change our marketing strategies and spending allocations based on responses from our veterinarian customers and pet owners. If our marketing, advertising and trade promotions are not successful to create and sustain consistent revenue growth or fail to respond to marketing strategy changes in our industry, our business, financial condition and results of operations may be adversely affected.

 

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Any damage to our reputation or our brand may harm our business materially.

 

Developing, maintaining and expanding our reputation and brand with veterinarians, pet owners and others is critical to our success. Our brand may suffer if our marketing plans or product initiatives are unsuccessful. The importance of our brand and demand for our products may decrease if competitors offer products with benefits similar to or as effective as our products and at lower costs to consumers. Although we maintain procedures to ensure the quality, safety and integrity of our products and their production processes, we may be unable to detect or prevent product and/or ingredient quality issues such as contamination or deviations from our established procedures. If any of our products cause injury to animals, we may incur material expenses for product recalls, and also may be subject to product liability claims, which could damage our reputation and brand substantially.

 

We may not be able to manage our manufacturing and supply chain effectively, which would harm our results of operations.

 

We must accurately forecast demand for our products in order to have adequate product inventory available to fill customer orders timely. Our forecasts will be based on multiple assumptions that may cause our estimates to be inaccurate, and thus affect our ability to ensure adequate manufacturing capability to satisfy product demand. Any material delay in our ability to obtain timely product inventories from our manufacturing contractors and their ingredient suppliers could prevent us from satisfying increased consumer demand for our products, resulting in material harm to our brand and business. In addition, we will need to continuously monitor our inventory and product mix against forecasted demand to avoid having inadequate product inventory or having too much product inventory on hand. If we are unable to manage our supply chain effectively, our operating costs may increase materially.

 

Failure to protect our intellectual property could harm our competitive position or cause us to incur significant expenses and personnel resources to enforce our rights.

 

Our success will depend significantly upon our ability to protect our intellectual property (IP) rights, including patents, trademarks, trade secrets, and process know-how, which valuable assets support our brand and the perception of our products. We rely on patent, trademark, trade secret and other intellectual property laws, as well as non-disclosure and confidentiality agreements to protect our intellectual property. Our non-disclosure and confidentiality agreements may not always effectively prevent disclosure of our proprietary IP rights, and may not provide an adequate remedy in the event of an unauthorized disclosure of such information, which could harm our competitive position. We also may need to engage in costly litigation to enforce or protect our patent or other proprietary IP rights, or to determine the validity and scope of proprietary rights of others. Any such litigation could require us to expend significant financial resources and also divert the efforts and attention of our management and other personnel from our ongoing business operations. If we fail to protect our intellectual property, our business, brand, financial condition and results of operations may be materially harmed.

 

We may be subject to intellectual property infringement claims, which could result in substantial damages and diversion of the efforts and attention of our management.

 

We must respect prevailing third-party intellectual property, and the procedures and steps we take to prevent our misappropriation, infringement or other violation of the intellectual property of others may not be successful. If third parties assert infringement claims against us, our contract manufacturers or suppliers, or veterinarians using our products and technology, we could be required to expend substantial financial and personnel resources to respond to and litigate or settle any such third-party claims. Although we believe our patents, manufacturing processes and products do not infringe in any material respect on the intellectual property rights of other parties, we could be found to infringe on such proprietary rights of others. Any claims that our products, processes or technology infringe on third-party rights, regardless of their merit or resolution, could be very costly to us and also materially divert the efforts and attention of our management and technical personnel. Any adverse outcome to us from one or more such claims against us could, among other things, require us to pay substantial damages, to cease the sale of our products, to discontinue our use of any infringing processes or technology, to expend substantial resources to develop non-infringing products or technology, or to license technology from the infringed party. If one or more of such adverse outcomes occur, our ability to compete could be affected significantly and our business, financial condition and results of operations could be harmed substantially.

 

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We may be unable to obtain required regulatory approvals for future products timely or at all, and the denial or substantial delay of any such approval could delay materially or even prevent our efforts to commercialize new products, which could adversely impact our ability to generate future revenues.

 

Based on our determination that our Kush products constitute a medical device as opposed to a pharmaceutical product, we are not required to obtain regulatory approval to produce and market them. Regarding the production, marketing and sale of any future pet care products based on our proprietary technology and which cannot be deemed a medical device, however, we may be required to obtain regulatory approval from the Center for Veterinarian Medicine (CVM), a branch of the FDA, and/or the USDA, and also certain state regulatory authorities. Any substantial delay or inability to obtain required regulatory approvals for any new products developed by us could substantially delay or even prevent their commercialization, which would materially adversely impact our business and prospects.

 

Moreover, at such future time that we commence business internationally, our products will need to obtain regulatory approval for labeling, marketing and sale in foreign countries from authorities such as the European Commission (EU) or the European Medicine Agency (EMA). Any substantial delay or inability to obtain any necessary foreign regulatory approvals for our products would harm our business and future prospects materially.

 

Our products will face significant competition in our industry, and our failure to compete effectively may prevent us from achieving any significant market penetration.

 

The development and commercialization of pet care products is highly competitive, including significant competition from major pharmaceutical, biotechnology, and specialty animal health medical companies. Our competitors include Zoetis, Inc.; Merck Animal Health, the animal health division of Merck & Co., Inc.; Merial, the animal health division of Sanofi, S.A.; Elanco, the animal health division of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; Novartis Animal Health, the animal health division of Novartis AG; Boehringer Ingelheim Animal Health; Virbac Group; Ceva Animal Health; Vetaquinol; and Dechra Pharmaceuticals PLC. There also are several smaller stage animal health companies which have recently emerged in our industry and are developing pet therapeutics products, including Kindred Bio, Aratana Therapeutics (recently acquired by Elanco), Next Vet, and VetDC.

 

Since we are an early-stage company with limited operations and financing, virtually all of our competitors have substantially more financial, technical and personnel resources than us. Most of them also have established brands and substantial experience in the development, production, regulation and commercialization of animal health care products. Regarding our development of any new products or technology, we also compete with academic institutions, governmental agencies and private organizations that conduct research in the field of animal health medicines. We expect that competition in our industry is based on several factors including primarily product reliability and effectiveness, product pricing, product branding, adequate patent and other IP protection, safety of use, and product availability.

 

Although currently and for some time our efforts and financial resources will focus on successfully commercializing our patented Kush products, our future business strategy will identify future animal care products for licensing, acquiring or developing by us, and then commercializing them into a branded product portfolio along with our Kush products. Even if we successfully identify and license, produce from our proprietary technology, or acquire any such new products, we may still fail to commercialize them successfully due to various reasons including competitors offering alternative products which are more effective than ours, our discovery of third-party IP rights already covering the products, harmful side effects caused to animals by the products, inability to produce products in commercial quantities at an acceptable cost, or the products not being accepted by veterinarians and pet owners as being safe or effective. If we fail to successfully obtain and commercialize future new animal care products, our business and future prospects may be harmed substantially.

 

There may be decreased spending on pets in a challenging economic climate.

 

Our business may encounter a challenging and negative economic climate during any future recession including adverse changes in interest rates, material inflation, volatile commodity markets, and credit unavailability or restrictions, resulting in a reduction in consumer spending. The keeping of pets and level of purchasing pet-related products in such negative economic conditions may constitute discretionary spending for some consumers, and any material decline in consumer discretionary spending may reduce overall levels of pet ownership or at least spending on pets. Accordingly, a significant slowdown in the general economy may cause a material decline in the demand for our products.

 

Natural disasters and other events beyond our control could materially adversely affect us.

 

Natural disasters or other catastrophic events may cause damage or disruption to our operations, international and domestic commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics (including the ongoing Coronavirus (COVID-19) epidemic) and other events beyond our control. Such events could make it difficult or impossible for us to deliver our products to our customers, and could decrease demand for our products.

 

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We will rely on third-party contractors to conduct any target animal studies for new products, and if these third parties do not successfully perform their contracted commitments effectively or substantially fail to meet expected study deadlines, we could be delayed significantly or even prevented from obtaining regulatory approval for or effectively commercializing our future products.

 

We do not conduct our target animal studies, but rather we rely on qualified and experienced third-party contractors to conduct these significant studies. Generally, we will have limited ability to control the amount of timing or resources that they will devote to our particular target animal studies. Although we must rely on these third parties to conduct our studies, we remain responsible for ensuring any of our target animal studies are conducted in compliance with protocols, regulations and standards set by industry regulatory authorities and commonly referred to as current good clinical practices (cGCPs) and good laboratory practices (GLPs). These required clinical and laboratory practices include many items regarding the conducting, monitoring, recording and reporting the results of target animal studies to ensure that the data and results of these studies are objective and scientifically credible and accurate.

 

A failure of one or more key information technology systems, networks or processes may harm our ability to conduct our business effectively.

 

The effective operation of our business and operations will depend significantly on our information technology and computer systems. We will rely on these systems to effectively manage our sales and marketing, accounting and financial, and legal and compliance functions, new product development efforts, research and development data, communications, supply chain and product distribution, order entry and fulfillment, and other business processes. Any material failure of our information technology systems to perform satisfactorily, or their damage or interruption from circumstances beyond our control such as power outages or natural disasters, could disrupt our business materially and result in transaction errors, processing inefficiencies, and even the loss of sales and customers causing our business and results of operations to suffer materially.

 

Being a public company results in substantial expenses and diverts management’s attentions.

 

Our business must bear the expenses associated with being a public company including being subject to the reporting requirements of the Securities Exchange Act of 1934. These requirements generate significant accounting, auditing, legal and financial compliance costs, and may place significant strain on our personnel and resources. As a result, management’s attention may be diverted from other significant business concerns, which could have an adverse material effect on our business, financial condition and results of operations.

 

If we fail to establish and maintain an effective system of internal controls over financial reporting, we may not be able to report our financial results accurately or detect fraud. In that event, investors and the financial community could lose confidence in our financial reporting, which in turn may result in a decline in the trading price of our stock, or otherwise harm our operating results and financial condition.

 

Internal controls over financial reporting are processes designed to provide reasonable assurances regarding the reliability of financial reporting and the proper preparation of financial statements. We must maintain effective internal controls over financial reporting to provide reliable financial reports, avoid misstatements in our financial statements, and detect any fraud or material weaknesses in our internal controls. We are in the process of assessing our internal controls to identify changes needed to be implemented by us to remedy our material weaknesses. Any failure by us to implement the changes necessary to maintain an effective system of internal controls could harm our operating results materially and also cause investors and financial analysts to lose confidence in our reported financial information. Any such loss of confidence in the investment community would have a negative effect on the trading and price of our common stock.

 

Ownership and control of our Company is concentrated in our management.

 

Our officers and directors beneficially own or control approximately 55% of our outstanding shares of common stock, which represents concentrated ownership and control by our management, and could adversely affect the status and perception of our common stock. In addition, any material sales of common stock of our management, or even the perception that such sales will occur, could cause a material decline in the trading price of our common stock.

 

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Due to this majority concentration of ownership of our common stock, our management has the ability to control all matters requiring stockholder approval including the election of all directors, the approval of mergers or acquisitions, and other significant corporate transactions. Any person acquiring our common stock most likely will have no effective voice in the management of our company. This ownership concentration also could delay or prevent a change of control of the Company, which could deprive our stockholders from receiving a premium for their common shares.

 

We do not anticipate paying any dividends on our common stock for the foreseeable future.

 

We have not paid any dividends on our common stock to date, and we do not anticipate paying any such dividends in the foreseeable future. We anticipate that any earnings experienced by us will be retained to finance the implementation of our operational business plan and expected future growth.

 

The elimination of monetary liability against our directors and executive officers under Nevada law and the existence of indemnification rights held by them granted by our bylaws could result in substantial expenditures by us.

 

Our articles of incorporation eliminate the personal liability of our directors and officers to the Company and its stockholders for damages for breach of fiduciary duty to the maximum extent permissible under Nevada law. In addition, our bylaws provide that we are obligated to indemnify our directors or officers to the fullest extent authorized by Nevada law for costs or damages incurred by them involving legal proceedings brought against them relating to their positions with the Company. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers.

 

Our Articles of Incorporation allow for our Board of Directors to create and designate new series of our preferred stock without any approval of our shareholders, which could diminish the rights of holders of our common stock.

 

We have no outstanding preferred stock and no present intention to designate or issue any series of our preferred stock. Our Board of Directors, however, has the authority to fix and determine the relative rights and preferences of our authorized preferred stock without further common stockholder approval for issuance. Accordingly, our directors could authorize preferred shares, for example, that would grant a preference over common shareholders to our assets upon liquidation, or grant voting power and rights superior to those of common shares, or grant rights to preferred stock to accumulate and receive dividend payments before any dividend or other distribution to common shareholders, or grant special redemption terms and rights prior to any redemption of common shares, or grant rights convertible at favorable terms into common stock. Granting one or more of these or other preference rights to preferred stock could adversely affect the rights of our common stockholders such as decreasing the relative voting power of our common stock or causing substantial dilution to our common stockholders.

 

There has been no consistent active trading market for our common stock, and public trading of our common stock may continue to be inactive and fluctuate substantially.

 

There has never been a consistent active trading market for our common stock. Our common stock currently trades over-the-counter on the OTCQB of OTC Markets Group, Inc. There is no assurance that the trading market for our common stock will become more active or liquid. Moreover, the trading price of our common stock has fluctuated substantially over the past few years, and there remains a significant risk that our common stock price may continue to fluctuate substantially in the future in response to various factors including any material variations in our periodic operating results, departures or additions of management or other key personnel, announcements of acquisitions, mergers, or new technology or patents, new product developments, significant litigation matters, gain or loss of significant customers, significant capital transactions, substantial sales of our common stock in our trading market, and general and specific market and economic conditions.

 

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Our failure to meet financial performance guidance we have provided to the public could result in a decline in our stock price.

 

In the future, we may provide public guidance on our expected financial results for future periods. Such guidance would be comprised of forward-looking statements comprised of material risks and uncertainties, and accordingly our actual results may differ materially from any such guidance we may provide. If our actual financial results for a particular operating period fail materially to satisfy our prior guidance, the market price of our common stock may decline.

 

Additional issuance of equity securities may result in dilution to our existing stockholders.

 

Our Articles of Incorporation authorize the issuance of 225,000,000 shares of common stock and 20,000,000 shares of preferred stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future, or for other matters in their discretion, and the issuance of any such shares may result in a reduction of the book value or market price of the then outstanding shares of our common stock. If we do issue any such additional shares in the future, such issuance also will cause a reduction in the proportionate ownership and voting power of current stockholders.

 

Because we may be subject to the “penny stock” rules, the level of trading activity in our stock may be reduced and accordingly may make it difficult for investors to sell their shares.

 

Broker-dealer practices in connection with transactions in “penny stocks” are regulated by certain penny stock rules adopted by the Securities and Exchange Commission. Penny stocks, like shares of our common stock, generally are equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on NASDAQ. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document that provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction, and, if the broker-dealer is the sole market maker, the broker-dealer must disclose this fact and the broker-dealer’s presumed control over the market, and monthly account statements showing the market value of each penny stock held in the customer’s account. In addition, broker-dealers who sell these securities to persons other than established customers and “accredited investors” must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. Consequently, these requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security subject to the penny stock rules, and investors in our common stock may find it difficult to sell their shares.

 

ITEM 2. PROPERTIES

 

Property held by us. As of March 31, 2020, we do not own any interests in real estate. We rent our Edina, Minnesota office in suburban Minneapolis under the provisions of a long-term lease.

 

Our Facilities. Our executive, administrative and operating offices are located at 5251 Edina Industrial Blvd., Edina, Minnesota 55439. We believe that our facility is adequate for our needs and that additional suitable space will be available on acceptable terms as required.

 

ITEM 3. LEGAL PROCEEDINGS

 

We are not currently a party to any legal proceedings.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

 

MARKET INFORMATION

 

During the fiscal years ended March 31, 2019 and 2020, our common stock was listed for quotation on the OTC Pink Sheets and OTCQB markets under the symbol “PETV.” The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated as quoted by the OTC Pink Sheets and OTCQB markets. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.

 

Quarter Ended  High Bid   Low Bid 
June 30, 2018  $2.04   $1.17 
September 30, 2018  $1.39   $0.66 
December 31, 2018  $0.72   $0.27 
March 31, 2019  $1.19   $0.33 
June 30, 2019  $0.44   $0.14 
September 30, 2019  $0.44   $0.26 
December 31, 2019  $0.88   $0.35 
March 31, 2020  $0.55   $0.12 

 

Stockholders

 

The approximate number of stockholders of record at March 31, 2020 was 246. The number of stockholders of record does not include beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

 

Dividend Policy

 

We have never declared or paid a cash dividend on our capital stock. We do not expect to pay cash dividends on our common stock in the foreseeable future. We currently intend to retain our earnings, if any, for use in our business. Any dividends declared in the future will be at the discretion of our Board of Directors.

 

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RECENT SALES OF UNREGISTERED SECURITIES

 

During fiscal year ended March 31, 2020 and to date, we issued an aggregate of 3,044,657 shares of unregistered common stock as follows:

 

i) 348,000 shares to John Lai (CEO, President & Director) pursuant to a Settlement Agreement whereby Mr. Lai agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $116,000 and hold the shares for a period of at least 3 years;

ii) 575,806 shares to Randall Meyer (Director) pursuant to a Settlement Agreement whereby Mr. Meyer agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $191,936 and hold the shares for a period of at least 3 years;

iii) 204,000 shares to John Dolan (Secretary & Director) pursuant to a Settlement Agreement whereby Mr. Dolan agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $68,000 and hold the shares for a period of at least 3 years; and

iv) 168,060 shares to a former employee pursuant to a Settlement Agreement dated August 29, 2019, whereby this individual agreed to release the Company of all claims, including compensation earned in the amount of $80,029; and

v) 108,000 shares to a service provider for services provided during the one-year period ended July 13, 2019 and valued at $1.11/share over that period on a pro-rata basis; and

vi) 360,000 shares to one shareholder that the Company sold in exchange for $100,000, which equates to a price per share of $.28/share; and

vii) 270,000 shares to one service provider for services to be provided during the one-year period ended December 31, 2020, whereby this service provider agreed to provide video production, investor relations, and promotional services in exchange for 270,000 shares of common stock. The scope of services includes but is not limited to coordinating the airing of 96 commercials nationally on Bloomberg T.V. network and producing 12, monthly, 10-minute interviews; and

viii) 486,000 shares to various accredited investors in exchange for $135,000 in cash, which equates to a price per share of $.28/share; and

ix) 90,000 shares to service providers for investor relations and marketing services performed by Barry Kaplan Associates during the six-month period ending in April 2020; and

x) 160,000 units in exchange for $104,000, which equates to $.65/unit, whereby a unit is made up of one share of common stock and ½ warrant share wherein the common stock was recorded at its relative fair value of $69,391 and the warrants are described below in this Form 10-K’s Note 13’s “Warrants” subsection; and

xi) 150,000 shares of common stock to a service provider, Launchpad IR, at $.42/share for total consideration of $70,500, for investor relations services.

xii) 63,141 shares of common stock to a former Director of the Company pursuant to a cashless conversion feature within the former Director’s warrant for 168,750 shares, equating to a conversion rate of .37:1.00; and

xiii) 61,396 shares of common stock to a John Lai, the CEO of the Company, pursuant to a cashless conversion feature within his warrant for 168,750 shares, equating to a conversion rate of .36:1.00.

 

The transactions outlined directly above and enumerated i) through iii) yielded a reduction of $375,936 in Accrued Expenses – Related Party that was owed and payable to them arising from services they provided in the past. The settlement of $80,029 explained in number iv above for a former employee’s accrued salary was accounted for as a reduction of Accounts Payable and Accrued Expenses. A loss on extinguishment of debt was recorded in the amount of $81,738 related to the transactions numbered i) through iv).

 

On October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention of 600,000 escrowed shares that he never returned to the Company’s Treasury.

 

After the balance sheet date of March 31, 2020, the Company sold and agreed to issue 80,000 units in exchange for $52,000, which equates to $.65/unit, whereby a unit is made up of one share of common stock and ½ warrant share wherein the common stock was recorded at its relative fair value of $34,709 and the warrants are described below in this Form 10-K’s Note 13’s “Warrants” subsection

 

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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS

 

At March 31, 2020, the Company has issued 1,555,700 warrants to Directors and Officers in connection with Equity Compensation Plans as indicated in the below Equity Compensation Plan Information table as of March 31, 2020, below:

 

Equity Compensation Plan Information

 

   Number of securities to be issued upon exercise of outstanding options, warrants and rights   Weighted-average exercise price of outstanding options, warrants and rights   Number of securities remaining available for future issuance under equity compensation plans (excluding securities reflected in column (a)) 
   (a)   (b)   (c) 
Equity compensation plans approved by security holders   -0-   $-0-    -0- 
Equity compensation plans not approved by security holders   1,555,700    0.52    86,733,333 
Total   1,555,700   $0.52    86,733,333*

 

*calculated by taking eligible future cash compensation to be earned of $69,375 and converting at a rate of $.001 (par value) per share, grossing up 125%, and adding additional approved warrants for 15,000 shares

 

Please see Note 17 – Subsequent Events regarding this equity compensation plan information.

 

As of the date of this Annual Report, we have a compensation plan in place for directors and officers whereby they are eligible to earn cash and equity compensation in the form of warrants for their service on various committees, our manufacturing task force, the board of directors, and as officers as follows:

 

Cash Compensation for Period Between September 1, 2019 and August 31, 2020
Position  Cash Compensation 
Chairman of the board of Directors  $5,000 
Chairman of the Audit Committee  $5,000 
Chairman of the Compensation Committee  $5,000 
Chairman of the Nominating and Governance Committee  $3,000 
Member of the Audit Committee  $2,500 
Member of the Compensation Committee  $2,500 
Member of the Nominating and Governance Committee  $1,500 
Member of Manufacturing Task Force  $1,500*
CEO  $100,000 
CFO  $100,000 
General Counsel  $36,000 
*for a 6-month term ending February 29, 2020     

 

All cash compensation as outlined in the above table titled Cash Compensation for Period Between September 1, 2019 and August 31, 2020, can be converted at the Company’s option into warrants at a rate commensurate with the Variable Weighted Average Price (“VWAP”) as determined by taking the dollars traded for every transaction during the last full calendar week of trading during a fiscal quarter (price multiplied by the number of shares traded) and then dividing by the total shares traded over that same period; the resulting number of warrants is then grossed up 125% (for example, 100 warrants is grossed up to 125 warrants) and issued with an exercise price equal to the VWAP as calculated above, and a term of 5 years.

 

Pursuant to agreements with John Dolan, John Lai and John Carruth, the Company issued warrants for 220,500 shares of common stock to John Dolan, whereby 40,500 were granted as a bonus and were vested immediately on the October 31, 2019 grant date, 90,000 that vest upon a performance-based milestone, and 90,000 that vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share. Similarly, the Company issued warrants for 540,000 shares to John Lai, whereby 180,000 vest upon performance-based milestones and 360,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share. Finally, the Company issued warrants for 450,000 shares to John Carruth, whereby 90,000 vest upon performance-based milestones and 360,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share.

 

Finally, 15,000 warrants for common stock for non-officer, independent directors were approved for issuance if the respective director remained in service as a board member through August 31, 2020 as follows: i) 7,500 to Joseph Jasper whereby 3,750 vest each month for the 2-month period ending August 31, 2020; and ii) 7,500 to Robert Rudelius whereby 3,750 vest each month for the 2-month period ending August 31, 2020. Both Joseph Jasper and Robert Rudelius’ warrants for 7,500 shares will have an exercise price equal to the prevailing price on the date of issuance, which is expected to be July 1, 2020, and will be exercisable for 5 years form that date.

 

ITEM 6. SELECTED FINANCIAL DATA

 

Not applicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION

 

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the year ended March 31, 2020, together with notes thereto as included in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in our forward-looking statements. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

 

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We are a smaller reporting company and have not generated any material revenue to date. We have incurred recurring losses to date. Our financial statements have been prepared assuming that we will continue as a going concern and, accordingly, do not include adjustments relating to the recoverability and realization of assets and classification of liabilities that might be necessary should we be unable to continue in operation.

 

We will require additional, substantial capital to meet our long-term operating requirements. We expect to raise additional capital through, among other things, the sale of equity or debt securities.

 

RESULTS OF OPERATION

 

  

For Fiscal Year Ended

March 31, 2020

  

For Fiscal Year Ended

March 31, 2019

 
         
Revenues  $3,588   $0 
           
Total Cost of Sales   19,710    77,936 
           
Total Operating Expenses   2,000,010    4,594,872 
           
Total Other Income (Expense)   (66,602)   (84,950)
           
Net Loss   (2,082,734)   (4,757,758)
           
Net loss per share - basic and diluted  $(.10)  $(.26)

 

For Fiscal Year Ended March 31, 2020 Compared to Fiscal Year Ended March 31, 2019

 

Total Revenues. For fiscal year ended March 31, 2020, we earned $3,588 in revenue compared to $-0- earned in revenue during fiscal year ended March 31, 2019 (an increase of $3,588).

 

These sales represented sample product sales, with no commercial sales.

 

Total Cost of Sales. For fiscal year ended March 31, 2020, we incurred $19,710 in expense compared to $77,936 in fiscal year ended March 31, 2019. Cost of sales during the year ended March 31, 2020 was made up of costs during the year and subsequent reserve for obsolete inventory. Cost of sales during the year ended March 31, 2019 was made up of a reserve for obsolete inventory taken due to an analysis that included the product status, shelf life, and lack of material sales.

 

Operating Expenses. Operating expenses for fiscal year ended March 31, 2020 were $2,000,010 compared to $4,594,872 for fiscal year ended March 31, 2019 (a decrease of $2,594,862). For fiscal year ended March 31, 2020, our operating expenses consisted of: (i) $12,672 (2019: $200,982) in research and development, (ii) $171,509 in sales and marketing (2019: $38,348), (iii) $1,784,557 (2019: $4,251,742) in general and administrative and (iv) $31,272 in intangible impairment (2019: $103,800). The major differences in general and administrative expenses was the large decrease in other general and administrative expenses mainly attributable to $861,592 in common stock issued to John Lai to replace shares he gave up into escrow, and $584,501 in common stock issued to John Lai to replace shares he gave up to secure funding in 2015. General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.

 

Thus, our operating loss for fiscal year ended March 31, 2020 was $2,016,132 compared to an operating loss of $4,672,808 for fiscal year ended March 31, 2019.

 

Other Income (Expense). Other Income (Expense) for fiscal year ended March 31, 2020 was ($66,602) (2019: ($84,950)). Other expenses consisted of: (i) gain on settlements of $47,710 (2019: $-0-), (ii) interest expense of ($32,185) (2019: ($84,950)), (iii) Loss on sale of assets of ($389) (2019: $-0-), and (iv) Loss on debt extinguishment of ($81,738) (2019: $-0-).

 

Net Loss before Taxes and Net Loss. Our net loss before taxes for fiscal year ended March 31, 2020 was ($2,082,734) or ($.10) per share as compared to ($4,757,758) or ($.26) per share for fiscal year ended March 31, 2019. Net loss generally decreased primarily due to the following differences in fiscal year ended March 31, 2019: increased expense related to sales and marketing of $133,161, a decrease in expense related to research and development of $188,31, a decrease in Intangible impairment of $72,528, and a decrease in general and administrative expenses of $2,467,185. The weighted average number of shares outstanding during fiscal year ended March 31, 2020 was 21,222,359 compared to 18,451,797 for fiscal year ended March 31, 2019.

 

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LIQUIDITY AND CAPITAL RESOURCES

 

Fiscal Year Ended March 31, 2020

 

As of March 31, 2020, our current assets were $197,105 and our current liabilities were $1,147,805 which resulted in a working capital deficit of $950,700.

 

As of March 31, 2020, our current assets were comprised of: (i) $888 in cash and cash equivalents; (ii) $1,000 in accounts receivable; (iii) $52,000 in equity sale proceeds receivable; (iv) $9,694 in restricted cash; (v) $1,500 in investments – equity securities; and (vi) $132,023 in prepaid expenses. As of March 31, 2020, our total assets were $522,517 comprised of: (i) current assets of $197,105; (ii) $109,907 in property and equipment (valued at $221,493 less depreciation of $111,586); (iii) $8,201 in a security deposit; (iv) $58,611 in trademark and patents – net; and (v) $148,693 in operating lease right-of-use.

 

As of March 31, 2020, our current liabilities were comprised of: (i) $794,057 in accounts payable and accrued expenses; (ii) $252,607 in accrued expenses – related party; (iii) $15,095 in notes payable and accrued interest; (iv) $61,255 in notes payable and accrued interest – related party; and (v) $24,791 in operating lease liability – short term.

 

Stockholders’ deficit increased from ($844,817) on March 31, 2019 to ($1,036,170) on March 31, 2020.

 

At the present time the Company does not have sufficient funds to continue initial commercial operations, scale manufacturing, and launch an in-depth sales and marketing campaign. The Company has entered into letters of intent with multiple independent distributors, is setting up its manufacturing facility, team, and consulting group, however these things are not capable of producing product as of the balance sheet date. To effectively commercialize our products, the Company will need to raise substantial capital, which there is no assurance will happen. During the year ended March 31, 2020 the Company added several new independent board members and has enhanced its corporate governance through increased activity from its audit, compensation, and nominating and governance committees.

 

Cash Flows from Operating Activities. We have not generated positive cash flows from operating activities due to a lack of material revenues. For the fiscal year ended March 31, 2020, net cash flows used in operating activities was ($494,252) (2019: ($736,445)). Net cash flows used in operating activities during fiscal year ended March 31, 2020 consisted primarily of a net loss of ($2,082,734) (2019: ($4,757,758)), which was primarily adjusted by: (i) ($962,678) of stock-based compensation (2019: $1,642,869); (ii) $-0- in common stock issued to replace shares given up into escrow (2019: $1,446,093); (iii) $559,544 (2019: $646,921) in depreciation and amortization. The stock-based compensation expenses including warrant and common stock issuances helped us to operate the business with minimal amounts of cash on hand at any given time during the year.

 

Cash Flows from Investing Activities. For fiscal year ended March 31, 2020, net cash flows used by investing activities was ($65,196) (2019: ($103,807)) consisting of: (i) a $-0- (2019: (1,999)) change in security deposit and other assets; (ii) ($32,791) (2019: ($27,119)) in purchases of equipment; (iii) ($43,386) (2019: ($78,687)) in patents and trademarks; (iv) $450 (2019: $-0-) in proceeds from sale of equipment; and (v) ($1,500) (2019: $-0-) in increase in investments – equity securities.

 

Cash Flows from Financing Activities. We have financed our operations primarily from debt or the issuance of equity instruments. For fiscal year ended March 31, 2020, net cash flows provided from financing activities was $565,907 (2019: $609,377) consisting of: (i) $339,000 (2019: $399,865) in common stock and warrants issued for cash; (ii) $15,000 (2019: $215,000) in proceeds from notes payable, which was partially offset by ($19,565) (2019: ($50,482)) in repayments; (iii) $-0- (2019: $70,000) in proceeds from notes payable – related parties, which was offset by ($30,000) (2019: ($25,006)) in repayments; (iv) $280,000 (2019: $-0-) in proceeds from convertible notes payable, which was partially offset by ($18,537) (2019: $-0-) in repayments.

 

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MATERIAL COMMITMENTS

 

Related Party Accrued Salaries and Accounts Payable

 

We are indebted to related parties. At March 31, 2020, we are obligated for current and former unpaid officer and director salaries and payables and related payroll taxes payable of $252,607. This amount is included in accounts payable and accrued expenses – related parties.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of the date of this Annual Report, we do not have any 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 are material to investors.

 

GOING CONCERN

 

The independent auditors’ report accompanying our March 31, 2020 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a working capital accumulated deficit, and are currently in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue as a going concern.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

The following describes the recently issued accounting standards used in reporting our financial condition and results of operations. In some cases, accounting standards allow more than one alternative accounting method for reporting. In those cases, our reported results of operations would be different should we employ an alternative accounting method.

 

The FASB issued ASC 606 as guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption: retrospectively to each prior reporting period presented, 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 adopted the guidance on April 1, 2018 and applied the cumulative catch-up transition method. There was no transition adjustment upon adoption of the new standard.

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this ASU supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The Company adopted Topic 842 on April 1, 2019 and resulted in a right of use asset and liability of $154,917.

 

All newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

IITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not applicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

 

The financial statements required by Item 8 are presented in the following order:

 

 29 
   

 

PetVivo Holdings, Inc.

Consolidated Financial Statements

March 31, 2020 and 2019

 

TABLE OF CONTENTS

 

Report of Independent Registered Public Accounting Firm F-2
Consolidated Balance Sheets F-3
Consolidated Statements of Operations F-4
Consolidated Statements of Changes in Stockholders’ Equity [Deficit] F-5
Consolidated Statements of Cash Flows F-6
Notes to Consolidated Financial Statements F-7

 

 F-1 
   

 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Stockholders and Board of Directors

PetVivo Holdings, Inc.

 

Opinion on the Consolidated Financial Statements

 

We have audited the accompanying consolidated balance sheets of PetVivo Holdings, Inc. (the Company) as of March 31, 2020 and 2019, the related consolidated statements of operations, changes in stockholders’ deficit and cash flows for each of the years in the two-year period ended March 31, 2020 and 2019 and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2020 and 2019 and the results of its operations and its cash flows for the years ended March 31, 2020 and 2019 in conformity with accounting principles generally accepted in the United States of America.

 

Explanatory Paragraph – Going Concern

 

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 12 to the financial statements, the Company had a net loss and cash used from operations of approximately $2,082,734 and $496,589, respectively, for the year ended of March 31, 2020 and a working capital deficit of approximately $950,700 as of March 31, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 12. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audits. We are a public accounting firm registered with the Public Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, 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.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Very truly yours,

 

 

We have served as the Company’s auditor since 2019

 

Margate, Florida

 
   

June 29, 2020

 

  

 

 F-2 
   

 

PETVIVO HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

 

   March 31, 2020   March 31, 2019 
Assets:          
Current Assets          
Cash and cash equivalents  $888   $6,460 
Accounts receivable   1,000    - 
Equity sale proceeds receivable   52,000    - 
Restricted cash   9,694    - 
Inventory, net   -    12,495 
Employee advance   -    2,500 
Prepaids   132,023    34,327 
Investments – equity securities   1,500    - 
Total Current Assets   197,105    55,782 
           
Property and Equipment:          
Property & equipment   221,493    149,802 
Less: accumulated depreciation   (111,586)   (112,453)
Total Fixed Assets   109,907    37,349 
           
Other Assets:          
Trademark and patents-net   58,611    589,817 
Operating lease right-of-use asset   148,693    - 
Security deposit   8,201    8,201 
Total Other Assets   215,505    598,018 
Total Assets  $522,517   $691,149 
           
Liabilities and Stockholders’ Equity (Deficit)          
           
Current Liabilities          
Accounts payable & accrued expenses  $794,057   $854,990 
Accrued expenses - related party   252,607    576,393 
Operating lease liability – short term   24,791    - 
Notes payable and accrued interest   15,095    18,831 
Notes payable and accrued interest - related party   61,255    85,752 
Total Current Liabilities   1,147,805    1,535,966 
           
Other Liabilities          
Convertible notes and accrued interest payable   286,981    - 
Operating lease liability (net of current)   123,901    - 
Total Other Liabilities   410,882    - 
Total Liabilities  $1,558,687   $1,535,966 
           
Commitments and Contingencies (Note 14)          
           
Stockholders’ Equity (Deficit):          
Preferred stock, par value $0.001, 20,000,000 shares authorized, issued 0 and 0 shares outstanding at March 31, 2020 and March 31, 2019          
Common stock, par value $0.001, 225,000,000 shares authorized, issued 22,911,857 and 19,867,200 shares outstanding at March 31, 2020 and March 31, 2019   22,911    22,074 
Common stock to be issued   52,000    86,333 
Additional Paid-In Capital   53,477,565    51,552,688 
Accumulated Deficit   (54,588,646)   (52,505,912)
Total Stockholders’ Deficit   (1,036,170)   (844,817)
Total Liabilities and Stockholders’ Deficit  $522,517   $691,149 

 

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

 

 F-3 
   

 

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

 

   Year Ended   Year Ended 
   March 31, 2020   March 31, 2019 
         
Revenues  $3,588   $- 
Inventory Write-Down   19,710    77,936 
Total Cost of Sales   19,710    77,936 
           
Gross Profit   (16,122)   (77,936) 
           
Operating Expenses:          
           
Research and Development   12,672    200,982 
Intangible Impairment   31,272    103,800 
Sales and Marketing   171,509    38,348 
           
General and Administration:          
Depreciation and Amortization   559,544    646,921 
Other General and Administrative   1,225,013    3,604,821 
Total General and Administration   1,784,557    4,251,742 
           
Total Operating Expenses   2,000,010    4,594,872 
           
Operating Loss   (2,016,132)   (4,672,808)
           
Other Income (Expense)          
Gain on Settlements   47,710    - 
Loss on Sale of Assets   (389)   - 
Loss on Extinguishment of Debt   (81,738)   - 
Interest Expense   (32,185)   (84,950)
Total Other Income (Expense)   (66,602)   (84,950)
           
Net Loss before taxes  $(2,082,734)  $(4,757,758)
           
Income Tax Provision   -    - 
           
Net Loss   (2,082,734)   (4,757,758)
           
Net Loss Per Share – Basic And Diluted  $(0.10)  $(0.26)
           
Weighted Average Common Shares Outstanding - Basic And Diluted   21,222,359    18,451,797 

 

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

 

 F-4 
   

 

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)

 

           Additional       Common     
   Common Stock   Paid-in   Accumulated   Stock to be     
   Shares   Amount   Capital   Deficit   Issued   Total 
Balance March 31, 2018   16,451,167   $18,279   $47,257,557   $(47,748,154)  $608,966   $136,648 
Common stock issued   904,758    1,005    607,961    -    (608,966)   - 
Common stock returned   -    -    (177,600)   -    -    (177,600)
Common stock sold   999,923    1,111    398,754    -    -    399,865 
Stock-based compensation   24,384    27    1,556,509    -    86,333    1,642,869 
Stock granted for debt conversion   763,921    849    386,863    -    -    387,712 
Common stock issued to replace shares to officer   723,047    803    1,445,290    -    -    1,446,093 
Common stock issued by officer   -    -    77,354    -    -    77,354 
Net loss   -    -    -    (4,757,758)   -    (4,757,758)
Balance March 31, 2019   19,867,200   $22,074   $51,552,688   $(52,505,912)  $86,333   $(844,817)
Adjustment for 9-for-10 reverse stock split   254    (2,206)   2,206    -    -    - 
Common stock issued   77,700    78    86,255    -    (86,333)   - 
Common stock sold   1,006,000    1,006    303,385    -    34,709    339,100 
Warrants sold   -    -    34,609    -    17,291    51,900 
Warrant conversions   124,537    124    (124)   -    -    - 
Stock-based compensation   540,300    540    962,138    -    -    962,678 
Stock granted for settlement   1,295,866    1,295    536,408    -    -    537,703 
Net loss   -    -    -    (2,082,734)   -    (2,082,734)
Balance March 31, 2020   22,911,857   $22,911   $53,477,565   $(54,588,646)  $52,000   $(1,036,170)

 

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

Shares retroactively restated for 9-for-10 reverse stock split in November of 2019

 

 F-5 
   

 

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

 

    For the year ended     For the year ended  
    March 31, 2020     March 31, 2019  
CASH FLOWS FROM OPERATING ACTIVITIES:                
                 
Net Loss For The Year   $ (2,082,734 )   $ (4,757,758 )
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:                
Stock-based compensation     863,012       1,642,869  
Depreciation and amortization     559,544       646,921  
Loss on debt extinguishment     81,738       -  
Intangible impairment     31,272       103,800  
Loss on sale of assets     389       -  
Gain on settlement     (47,710 )     -  
Common stock issued to replace shares to officer     -       1,446,093  
Common stock issued by officer on behalf of PetVivo     -       77,354  
Beneficial conversion feature     -       66,248  
Write-off of accounts receivable     -       163  
Common stock returned     -       (177,600 )
Changes in Operating Assets and Liabilities                
Decrease in inventory     12,495       13,059  
Increase in prepaid expenses and employee advances     4,470       (14,379 )
Increase in receivables     (1,000     -  
Interest accrued on convertible notes payable     25,518       -  
Interest accrued on notes payable - related party     5,504       9,201  
Interest accrued on notes payable     820       8,593  
Increase (Decrease) in accounts payable and accrued expense     (4,232     182,482  
Increase (Decrease) in accrued expenses - related party     54,325       16,509  
Net Cash Used In Operating Activities     (496,589 )     (736,445 )
                 
CASH FLOWS FROM INVESTING ACTIVITIES                
Decrease in security deposit     -       1,999  
Increase in investments - equity securities     (1,500 )     -  
Proceeds from sale of equipment     12,481       -  
Purchase of equipment     (32,791 )     (27,119 )
Increase in patents and trademarks     (43,386 )     (78,687 )
Net Cash Used in Investing Activities     (65,196 )     (103,807 )
                 
CASH FLOWS FROM FINANCING ACTIVITIES                
Proceeds from stock and warrants sale     339,000       399,865  
Proceeds from convertible notes     280,000       -  
Proceeds from notes     15,000       215,000  
Proceeds from notes - related parties     -       70,000  
Repayments of convertible notes     (18,537     -  
Repayments of notes payable     (19,556 )     (50,482 )
Repayments of notes payable - related party     (30,000     (25,006
Net Cash Provided by Financing Activities     565,907       609,377  
                 
Net Increase (Decrease) in Cash and Restricted Cash     4,122       (230,875 )
Cash and Restricted Cash at Beginning of Year     6,460       237,335  
Cash and Restricted Cash at End of Year   $ 10,582     $ 6,460  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Cash Paid During The Year For:                
Interest   $ 23,805     $ 20,181  
Income taxes paid   $ -     $ -  
                 
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:                
Notes Payable interest converted into common stock   $ -     $ 4,280  
Notes Payable interest converted into common stock - related parties   $ -     $ 1,722  
Proceeds not received at balance sheet date pursuant to Stock and Warrant sales   $ 52,000     $ -  
Leasehold improvements included in accounts payable   $ 67,361     $ -  
Warrants converted   $ 124     $ -  
Prepaid stock-based compensation for services   $ 99,664     $ -  
Stock granted for debt conversions   $ -     $ 387,712  
Stock granted pursuant to settlements   $ 537,703     $ -  

 

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

 

 F-6 
   

 

PetVivo Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2020

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) Organization and Description

 

The Company is in the business of licensing and commercializing our proprietary medical devices and biomaterials for the treatment of afflictions and diseases in animals, initially for dogs and horses. The Company’s operations are conducted from its headquarter facilities in suburban Minneapolis, Minnesota.

 

(B) Basis of Presentation

 

PetVivo Holdings, Inc. (the “Company”) was incorporated in Nevada under a former name in 2009 and entered its current business in 2014 through a stock exchange reverse merger with PetVivo, Inc., a Minnesota corporation. This merger resulted in Minnesota PetVivo becoming a wholly-owned subsidiary of the Company. In April 2017, the Company acquired another Minnesota corporation, Gel-Del Technologies, Inc., through a statutory merger, which is also a wholly-owned subsidiary of the Company.

 

In November 2019, the Company effected a 9-for-10 reverse split of our authorized and outstanding shares of common stock. Pursuant to this reverse stock split, each ten (10) shares of PetVivo’s outstanding common stock, $.001 par value per share, was combined and converted into nine (9) post-split outstanding shares of common stock, $.001 par value per share; 24,974,518 pre-reverse-split shares of common stock were combined during the 9-for-10 reverse split into 22,477,320 shares of post-reverse-split shares of common stock with 254 shares being issued for fractional shares through the date of the balance sheet. Accordingly, all references to number of shares of common stock and per share data have been adjusted retroactively where applicable to account for this reverse split.

 

(C) Principles of Consolidation

 

The accompanying consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota corporations, Gel-Del Technologies, Inc. and PetVivo, Inc. All intercompany accounts have been eliminated upon consolidation.

 

(D) Use of Estimates

 

In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, estimate of fair value of share-based payments and derivative instruments and recorded debt discount, valuation of deferred tax assets and valuation of in-kind contribution of services and interest.

 

 F-7 
   

 

(E) Cash and Cash Equivalents

 

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. At March 31, 2020, and March 31, 2019 the Company had no cash equivalents.

 

(F) Concentration-Risk

 

The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of March 31, 2020, the Company did not have any cash balances in excess of the federally insured limits.

 

(H) Property & Equipment

 

Property and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking into account their respective estimated residual values) over the assets estimated useful life of (3) years for equipment, (5) years for automobile, and (7) years for furniture and fixtures.

 

(I) Patents and Trademarks

 

The Company capitalizes direct costs for the maintenance and advancement of their patents and trademarks and amortizes these costs over the lesser of a useful life of 60 months or the life of the patent. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

 

 F-8 
   

 

(J) Loss Per Share

 

Basic loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding during the period.

 

The Company has 4,901,119 warrants outstanding as of March 31, 2020, with varying exercise prices ranging from $3.89 to $.30/share. The weighted average exercise price for these warrants is $.53/share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.

 

The Company had 3,818,919 warrants outstanding as of March 31, 2019 with varying exercise prices ranging from $3.89 to $.33/share. The weighted average exercise price for these warrants was $.55/share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.

 

The Company uses the guidance in Accounting Standards Codification # 260 (“ASC 260”) to determine if-converted loss per share. ASC 260 states that convertible securities should be considered exercised at the later date of the first day of the reporting period’s quarter or the inception date of the debt instrument. Also, the if-converted method shall not be applied for the purposes of computing diluted EPS if the effect would be antidilutive.

 

At March 31, 2020, the Company had $280,000 in convertible notes and $6,981 in accrued interest outstanding, these notes mature in our fiscal quarter ended June 30, 2021; see Note 9 to these financial statements for more information on these convertible notes. If converted, the $286,981 in outstanding principal and accrued interest would convert into 397,359 shares of common stock at a rate of $.72 per share.

 

(K) Revenue Recognition

 

The Company will recognize revenue on arrangements in accordance with FASB ASC No. 606, “Revenue From Contracts With Customers”. Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The Company adopted the guidance on April 1, 2018 using the cumulative catch-up transition method. This change in accounting did not have any material effect on the Company’s financial statements.

 

(L) Research and Development

 

The Company expenses research and development costs as incurred.

 

(M) Fair Value of Financial Instruments

 

The Company applies the accounting guidance under FASB ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.

 

The guidance also establishes a fair value hierarchy for measurements of fair value as follows:

 

  Level 1 - quoted market prices in active markets for identical assets or liabilities.
     
  Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
     
  Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

 

 F-9 
   

 

The Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, accrued expenses – related parties, notes payable and accrued interest, and notes payable and accrued interest - related party, and others. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2020 and March 31, 2019, due to the short-term nature of these instruments and the Company’s borrowing rate of interest.

 

In instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy, the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment and considers factors specific to the asset or liability. The valuation of the Company’s notes recorded at fair value is determined using Level 3 inputs, which consider (i) time value, (ii) current market and (iii) contractual prices.

 

The Company had no assets and liabilities measured at fair value on a recurring basis at March 31, 2020 and March 31, 2019.

 

(N) Stock-Based Compensation - Non-Employees

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).

 

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:

 

  Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
     
  Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 F-10 
   

 

  Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
     
  Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

 

(O) Income Taxes

 

The Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740. Deferred tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.

 

As required by ASC Topic 450, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied ASC Topic 740 to all tax positions for which the statute of limitations remained open. As a result of the implementation of ASC Topic 740, the Company did not recognize any change in the liability for unrecognized tax benefits.

 

The Company is not currently under examination by any federal or state jurisdiction.

 

The Company’s policy is to record tax-related interest and penalties as a component of operating expenses.

 

(P) Inventory

 

Inventories are recorded in accordance with ASC 330 and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology and capitalize costs on a project basis as they occur. The current marketed shelf life of our Kush inventory is 3 years. However, management reserves the right to review and adjust this as necessary.

 

 F-11 
   

 

(Q ) Recent Accounting Pronouncements

 

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this ASU supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The Company adopted Topic 842 on April 1, 2019 and resulted in a right of use asset and liability of $154,917.

 

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. We do not expect the adoption of this ASU to have a material effect on our consolidated financial statements.

 

In July 2018, the FASB issued ASU 2018-07, Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, an accounting standard update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting for employee and non-employee share-based payments. The accounting standards update is effective as of the beginning of 2019 with early adoption permitted. We have elected to adopt this standard as of April 1, 2018, the beginning of our 2019 fiscal year, with the main reason for adoption being comparability between both employee and non-employee share-based payments. The adoption of this standard did not have any material effect on the Company’s financial statements or any component of stockholder’s equity.

 

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods therein. Early adoption is permitted. The Company is currently assessing the impact of this standard on their Financial Statements.

 

All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.

 

NOTE 2 – INVENTORY

 

As of March 31, 2020 and March 31, 2019, respectively, the Company had approximately $50,000 and $78,000 of finished goods inventory; however, reserves of equal amounts for each respective period were taken because of the substantial doubt in the Company’s ability to utilize this inventory to obtain material sales, primarily due to (among other things) the fact the Company has not obtained controlled study data detailing the safe and effective use of Kush™ in dogs and horses.

 

As of March 31, 2019, all of the Company’s finished goods inventory were in quarantine due to a contamination issue. During the year ended March 31, 2020, the Company released some inventory for sale and sample to the public.

 

Total Inventory is broken out as follows:

 

   March 31, 2020   March 31, 2019 
Finished Goods  $50,357   $77,936 
Reserve for Obsolete Inventory   (50,357)   (77,936)
Work in Process   -0-    -0- 
Manufacturing Supplies   -0-    3,127 
Raw Materials   -0-    9,368 
Total Inventory  $-0-   $12,495 

 

NOTE 3 – INVESTMENTS – EQUITY SECURITIES

 

On June 28, 2019, the Company entered into a purchase agreement with a third-party to purchase 1,500,000 shares of Emerald Organic Products, Inc. (OTC Pink: “EMOR”) common stock for consideration of $1,500 in cash. The Company applied guidance from ASU No. 2016-01 Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities and ASC 820 to arrive at a fair value at March 31, 2020, of $1,500. The Company took into account many factors when determining the stock’s fair value including, but not limited to, the nature and duration of the restriction on the stock, the extent to which potential buyers would be limited by the restriction, and qualitative and quantitative factors specific to both the instrument and the issuer.

 

 F-12 
   

 

NOTE 4 – PROPERTY AND EQUIPMENT

 

During fiscal years 2020 and 2019, depreciation expense was $16,224 and $8,342, respectively. During the year ended March 31, 2020, we recorded a loss on sale of assets in the amount of $389. The $389 loss on sale of assets was made up of the sale of assets with carrying books values totaling $12,870 sold for purchase prices totaling $12,481.

 

During the fiscal year ended March 31, 2020, the Company also built onto its Edina manufacturing facility to include: (i) proper HVAC equipment valued at $64,000; (ii) proper cleanroom structural environment and walls valued at $13,657; and (iii) proper electrical capabilities valued at $8,947.

 

The Company anticipates incurring approximately an additional $40,000 in facilities build-out expenses to obtain an operational manufacturing facility.

 

The components of property and equipment were as follows:

 

   As of March 31 
   2020   2019 
Leasehold improvements  $98,706   $4,602 
Furniture and office equipment   10,130    10,130 
Production equipment   87,473    108,882 
R&D equipment   25,184    26,188 
Total, at cost   221,493    149,802 
Accumulated depreciation   (111,586)   (112,453)
Total, net  $109,907   $37,349 

 

NOTE 5 – INTANGIBLE ASSETS

 

The components of intangible assets, all of which are finite-lived, were as follows:

 

   As of March 31 
   2020   2019 
Patents  $3,822,542   $3,820,374 
Trademarks   25,023    22,829 
Total, at cost   3,847,565    3,843,203 
Accumulated Amortization   (3,788,954)   (3,253,386)
Total, net  $58,611   $589,817 

 

During fiscal years 2020 and 2019, amortization expense was $543,320 and $638,579, respectively. The Company performed intangible impairment analyses throughout the year ended March 31, 2020 and concluded that approximately $31,000 (2019: $104,000) in patents needed to be impaired. We conducted these analyses pursuant to ASC 350 and ASC 360.

 

NOTE 6 – PREPAID EXPENSES

 

As of March 31, 2020, the Company had approximately $132,023 in prepaid expenses recorded on our balance sheet, respectively, as follows: i) approximately $100,000 in marketing services; ii) approximately $10,000 in annual OTC listing license; and iii) approximately $6,000 in insurance costs.

 

As of March 31, 2019, the Company had approximately $34,327 in prepaid expenses recorded on our balance sheet, respectively, as follows: i) approximately $10,000 in annual OTC listing license; ii) $2,000 in SEC filing service services; iii) $7,000 in insurance costs; and iv) $10,000 in legal services.

 

 F-13 
   

 

NOTE 7 - RELATED PARTY NOTES PAYABLE

 

At March 31, 2020, the Company is obligated for a related party note payable and accrued interest in the total amount of $61,255 (2019: $85,752); the maturity date of this note is April 30, 2020. As of the date of this filing we are in default on this note. The related party note payable terms are accrual of interest at eight percent annually with payments of $3,100 per month, which are applied to interest first, then principal. The terms also include a stipulation that if the Company receives additional financing during any 24-month period from the date of the note in the amount greater than $3,500,000, the Company will immediately pay the officer the principal amount of the note along with all interest due.

 

During the year ended March 31, 2019, the Company entered into bridge note agreements with related parties totaling $70,000 in principal. Upon entering into these bridge note agreements, the note-holders were issued one warrant for every $2.00 in principal loaned to the Company. These warrants were exercisable at $1.11 for a term of three years and vested immediately. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on the debt was $15,677. The note terms dictate 12% simple interest, compounding daily based on a 365-day year, paid out 6 months from the date of the note along with the principal amount loaned to the Company; these notes were to mature in calendar Q1 of 2019. The entire $70,000 in principal and $1,722 in accrued interest was converted into 215,166 shares of common stock at a rate of $.33 per share pursuant to bridge note conversion agreements in December of 2018.

 

An additional $13,333 in equity issuance expense was recognized due to a beneficial conversion feature whereby $20,000 of the $70,000 in principal was converted at $.33 per share when the stock price on the date of the conversion agreement was $.55 per share.

 

Also, pursuant to the bridge note conversion agreements, for every $2.00 in outstanding balance converted into equity the note-holder received one warrant exercisable at $.33 per share through December 31, 2018; 32,275 of these warrants were issued. The entire balance remaining in debt discount of $15,677 was charged to interest expense upon conversion of these notes.

 

NOTE 8 – NOTES PAYABLE

 

At March 31, 2020, the Company is obligated for one note payable and accrued interest in the total amounts of $15,000 and $95, respectively. The note terms dictate 6.5% per annum on the unpaid outstanding principal per year from the date funds were first advanced, which was February 25, 2020. This note originated from a lease amendment whereby we extended our lease at our Edina facility for two years (see Note 14); if certain criteria are met, the Company is able to receive an additional $27,500 in loan proceeds pursuant to this promissory note agreement.

 

At March 31, 2019, the Company was obligated for one note payable and accrued interest in the total amounts of $18,831 and $-0-, respectively. The note terms dictate 12% simple interest, compounding daily based on a 365-day year, paid out 6 months from the date of the note and the issuance of a detachable warrant for purchase of half of the principal amount in shares exercisable at $1.11 per share for a 3-year term. All debt discount associated with the warrants issued in conjunction with this note was charged to interest expense as of the maturity date of the note in February of 2019. Upon maturity of the note we entered into a note amendment whereby instead of paying out the entire outstanding balance of principal and interest, we were to pay an initial installment of $5,000 and then monthly payments of $3,000 until the amended maturity date of September 30, 2019, at which time the entire outstanding balance was paid.

 

During the year ended March 31, 2019 the Company entered into bridge note agreements with several bridge note holders in the principal amount of $215,000. There were 96,750 detachable warrants issued in conjunction with bridge notes entered into in the year ending March 31, 2019. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on the debt is $49,880; this amount was amortized to interest expense on a straight-line basis over the term of the loans.

 

 F-14 
   

 

During the year ended March 31, 2019 and pursuant to bridge note conversion agreements, $150,000 in principal and $4,280 in accrued interest was converted into 462,838 shares of common stock at a rate of $.33 per share. Pursuant to the conversion of the notes, each note-holder who converted their note(s) received a warrant for purchase of half of the outstanding balance in shares exercisable at $.33 per share through December 31, 2018; 69,426 of these warrants were issued. An additional $33,822 in equity issuance expense was recognized due to a beneficial conversion feature whereby $50,734 in principal and interest was converted at $.33 per share when the stock price on the date of the conversion agreement was $.55 per share. During the year ended March 31, 2019, $46,169 in principal was repaid, and $4,313 in accrued interest was paid out. Each of the warrants issued pursuant to conversion of these notes, if exercised, qualified for 1 additional share of common stock transferred from a founder of the Company for every 3 shares received through exercising of these warrants; 30,016 shares were transferred to these note-holders by a founder. During the year ended March 31, 2019 the entire total of $49,880 in debt discount has been relieved to interest expense due to amortization and the conversions.

 

NOTE 9 – CONVERTIBLE NOTES PAYABLE

 

At March 31, 2020, the Company is obligated for several convertible notes payable in the total amount of $286,981 made up of $280,000 in principal and $6,981 in interest. The Company entered into these convertible notes during the quarter ended June 30, 2019. All of these convertible notes mature during the quarter ended June 30, 2021, two years from their inception dates. These convertible notes accrue interest at a rate of 10%. Accrued interest is due and payable each calendar quarter in cash; during the years ended March 31, 2020 and 2019, the Company paid out $18,536 and $-0-, respectively, in accrued interest to these convertible note holders. These convertible notes automatically convert into shares of common stock at a rate of $.72 per share at the earlier of the maturity date or an uplist to a national securities exchange (e.g. NASDAQ or New York Stock Exchange) provided that the Company’s stock price is at least $.87 at the time of the uplist. The convertible note holders have the right to convert their outstanding principal and interest into shares of the Company’s common stock at any time during their note’s term at $.72 per share. No note holders have converted their notes through the date of this report. As of March 31, 2020, these convertible notes did not include a beneficial conversion feature.

 

 F-15 
   

 

NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

 

At March 31, 2020, the Company is obligated to pay $794,057 (2019: $854,990) in accounts payable and accrued expenses. Of the total, $556,653 (2019: $524,273) is made up of accounts payable, while the $237,404 (2019: $330,717) in accrued expenses is made up of past employee’s accrued salaries and related payroll taxes payable. The Company has not paid the related payroll taxes, consisting primarily of Social Security and Medicare taxes. As a result, the Company has established an accrued liability for the unpaid salaries, along with related taxes of approximately $22,026 (2019: $58,124) at March 31, 2020 and 2019, respectively.

 

NOTE 11 – ACCRUED EXPENSES – RELATED PARTY

 

At March 31, 2020, the Company was obligated to pay $252,607 in accrued expenses due to related parties. Of the total, $38,954 was made up of accounts payable, while $213,653 was made up of accrued salaries.

 

At March 31, 2019, the Company is obligated to pay $576,393 in accrued expenses due to related parties. Of the total, $89,186 is made up of accounts payable, while $487,207 is made up of accrued salaries and payroll taxes payable.

 

NOTE 12 - GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.

 

The Company incurred net losses of $2,082,734 for the year ended March 31, 2020 and had net cash used in operating activities of $496,589 for the same period. Additionally, the Company has an accumulated deficit of $54,588,646, working capital of ($950,700), and a stockholders’ deficit of $1,036,170, at March 31, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months after the date of issuance on these financial statements. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to achieve a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance its operations.

 

Management intends to raise additional funds either through a private placement or public offering of its equity securities. Management believes that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern. While the Company believes in its viability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and raise additional funds.

 

COVID-19 has had an impact on the global economy, which directly or indirectly may have an impact on our ability to continue as a going concern.

 

These financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.

 

 F-16 
   

 

NOTE 13 – COMMON STOCK AND WARRANTS

 

During the fiscal year ended March 31, 2020, the Company had several equity transactions as follows:

 

Common Stock

 

On November 22nd, 2019, the Company approved and declared a reverse stock split of all its outstanding common stock at a ratio of 9-for-10 shares. Pursuant to this reverse stock split, each ten (10) shares of PetVivo’s outstanding common stock, $.001 par value per share, was combined and converted into nine (9) post-split outstanding shares of common stock, $.001 par value per share. This reverse stock split affected all PetVivo shareholders uniformly and accordingly will not alter any shareholder’s percentage interest or ownership of PetVivo equity. Through the date of this filing, 254 shares of common stock have been issued due to rounding up of fractional shares.

 

During fiscal year ended March 31, 2020 and to date, the Company issued an aggregate of 3,044,657 shares of unregistered common stock which included the following:

 

i) 348,000 shares to John Lai (CEO, President & Director) pursuant to a Settlement Agreement whereby Mr. Lai agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $116,000 and hold the shares for a period of at least 3 years;

 

ii) 575,806 shares to Randall Meyer (Director) pursuant to a Settlement Agreement whereby Mr. Meyer agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $191,936 and hold the shares for a period of at least 3 years;

 

iii) 204,000 shares to John Dolan (Secretary & Director) pursuant to a Settlement Agreement whereby Mr. Dolan agreed to release the Company of all claims through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $68,000 and hold the shares for a period of at least 3 years; and

 

iv) 168,060 shares to a former employee pursuant to a Settlement Agreement dated August 29, 2019, whereby this individual agreed to release the Company of all claims, including compensation earned in the amount of $80,029; and

 

v) 108,000 shares to a service provider for $120,000 worth of services provided during the one-year period ended July 13, 2019 and valued at $1.11/share over that period on a pro-rata basis; and

 

vi) 360,000 shares to one shareholder that the Company sold in exchange for $100,000, which equates to a price per share of $.28/share; and

 

vii) 270,000 shares to one service provider valued at $102,000 whereby this service provider agreed to provide video production, investor relations, and promotional services in exchange for 270,000 shares of common stock. The scope of services includes but is not limited to coordinating the airing of 96 commercials nationally on Bloomberg T.V. network and producing 12, monthly, 10-minute interviews; and

 

viii) 486,000 shares to various accredited investors in exchange for $135,000 in cash, which equates to a price per share of $.28/share; and

 

ix) 90,000 shares to service providers for $55,000 of investor relations and marketing services performed by Barry Kaplan Associates during the six-month period ending in April 2020; and

 

x) 160,000 units in exchange for $104,000, which equates to $.65/unit, whereby a unit is made up of one share of common stock and ½ warrant share wherein the common stock was recorded at its relative fair value of $69,391 and the warrants are described below in this Form 10-K’s Note 13’s “Warrants” subsection; and

 

xi) 150,000 shares of common stock to a service provider, Launchpad IR, at $.42/share for total consideration of $70,500, for investor relations services.

 

xii) 63,141 shares of common stock to a former Director of the Company pursuant to a cashless conversion feature within the former Director’s warrant for 168,750 shares, equating to a conversion rate of .37:1.00; and

 

xiii) 61,396 shares of common stock to a John Lai, the CEO of the Company, pursuant to a cashless conversion feature within his warrant for 168,750 shares, equating to a conversion rate of .36:1.00.

 

 F-17 
   

 

The transactions outlined directly above and enumerated i) through iii) yielded a reduction of $375,936 in Accrued Expenses – Related Party that was owed and payable to them arising from services they provided in the past. The settlement of $80,029 explained in number iv above for a former employee’s accrued salary was accounted for as a reduction of Accounts Payable and Accrued Expenses. A loss on extinguishment of debt was recorded in the amount of $81,738 related to the transactions numbered i) through iv).

 

On October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention of 600,000 escrowed shares.

 

After the balance sheet date of March 31, 2020, the Company sold and agreed to issue 80,000 units in exchange for $52,000, which equates to $.65/unit, whereby a unit is made up of one share of common stock and ½ warrant share wherein the common stock was recorded at its relative fair value of $34,709 and the 40,000 warrants are valued at $17,291 and are exercisable for 3 years from the date of the grant at $1.00/share. The $52,000 was recorded as a receivable at March 31, 2020 pursuant to ASC 310-10-S99-2, which permits the Company to record such a note as an asset if the note is collected prior to issuance of the financial statements; as outlined in Note 17, we received the funds pursuant to this sale prior to the issuance of this Annual Report on Form 10-K.

 

Warrants

 

During the year ended March 31, 2020, the Company granted 360,000 warrants to management team members that vest upon achieving certain performance conditions (milestones). These 360,000 warrants were valued using the Black Scholes valuation model at $199,982. On a quarterly basis, the Company evaluates the probability of these certain milestones being reached and recognizes expense relating to these warrants based on that probability and other criteria. As of March 31, 2020, these milestones were not met and were not probable to occur and as a result the Company recognized $-0- in expense related to these 360,000 warrants that may or may not vest pursuant to their respective milestones.

 

During the year ended March 31, 2020, the Company granted warrants to purchase a total of 1,905,700 shares of common stock valued using the Black-Scholes model including:

 

i) warrants for 270,000 shares, valued at $119,954, to three new Directors, Messrs. Scott Johnson, Gregory Cash, and James Martin, with 135,000 vested immediately and 135,000 vesting quarterly between August 2020 and May 2021, and exercisable over a five-year term at $.33/share; and

 

ii) warrants for 220,500 shares, valued at $122,489, to John Dolan, whereby 40,500 were granted as a bonus and were vested immediately on the October 31, 2019 grant date, 90,000 that vest upon a performance-based milestone, and 90,000 that vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share; and

 

iii) warrants for 540,000 shares, valued at $299,973, to John Lai, whereby 180,000 vest upon performance-based milestones and 360,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share; and

 

iv) warrants for 450,000 shares, valued at $249,997, to John Carruth, whereby 90,000 vest upon performance-based milestones and 360,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $.56/share; and

 

v) warrants for 41,250 shares, valued at $22,915, to David Deming, whereby they vest monthly during the eleven-month period ending August 31, 2020, have a strike price of $.49 and a five-year term; and

 

vi) warrants for 79,397 shares, valued at $38,744, to John Lai, whereby they vested on December 31, 2019, have a strike price of $.50 and a five-year term; and

 

vii) warrants for 15,880 shares, valued at $7,749, to John Dolan, whereby they vested on December 31, 2019, have a strike price of $.50 and a five-year term; and

 

viii) warrants for 80,000 shares, issued as a detachable warrant in purchased units with a relative fair value of $34,609, whereby an accredited investor purchased 160,000 units for $104,000 at a rate of $.65/unit and a unit equates to one share of common stock and one-half warrant, and furthermore where the warrants are exercisable for a term of 3 years, have a strike price of $1.00/share and are vested immediately; and

 

ix) warrants to several directors for service to the Company, issued and vested on December 31, 2019, with a strike price of $.49/share, and exercisable for a five-year term as follows:

 

 F-18 
   

 

  a) To Gregory Cash, 7,059 warrants, valued at $3,445; and
  b) To Robert Rudelius, 5,735 warrants, valued at $2,799; and
  c) To Scott Johnson, 4,852 warrants, valued at $2,368; and
  d) To Randall Meyer, 4,852 warrants, valued at $2,368; and
  e) To David Deming, 4,412 warrants, valued at $2,153; and
  f) To James Martin, 4,412 warrants, valued at $2,153; and
  g) To Joseph Jasper, 3,528 warrants, valued at $1,722; and
  h) To David Masters, 2,647 warrants, valued at $1,292.

 

x) warrants for 98,093 shares, valued at $11,967, to John Lai, whereby they vested on March 31, 2020, have a strike price of $.32 and a five-year term; and

 

xi) warrants for 35,314 shares, valued at $4,308, to John Dolan, whereby they vested on March 31, 2020, have a strike price of $.32 and a five-year term; and

 

xii) warrants to several directors for service to the Company, issued and vested on March 31, 2020, with a strike price of $.32/share, and exercisable for a five-year term as follows:

 

  a) To Gregory Cash, 6,867 warrants, valued at $838; and
  b) To Robert Rudelius, 6,376 warrants, valued at $778; and
  c) To Scott Johnson, 4,415 warrants, valued at $539; and
  d) To Randall Meyer, 4,415 warrants, valued at $539; and
  e) To David Deming, 4,905 warrants, valued at $598; and
  f) To James Martin, 4,905 warrants, valued at $598; and
  g) To Joseph Jasper, 3,924 warrants, valued at $479; and
  h) To David Masters, 1,962 warrants, valued at $239.

 

 F-19 
   

 

During the year ended March 31, 2020, the Company cancelled warrants to purchase a total of 396,000 shares of common stock including:

 

i) warrants for 270,000 shares, valued at $300,770 using the Black-Scholes model, $117,144 in expense of which had yet to be taken at the time of cancellation were cancelled pursuant to the terms of such warrants dictating cancellation upon the two-month anniversary of a cease of service; and

 

ii) warrants for 54,000 shares that were never originally valued, were to be vested upon billing from service providers, and were cancelled because those services were never received; and

 

iii) warrants for 36,000 shares, valued at $68,000 using the Black-Scholes model, $17,000 in expense of which had yet to be taken at the time of cancellation were cancelled pursuant to the holder’s service agreement’s term lapsing and requisite clauses contained therein; and

 

iv) warrants for 36,000 shares, valued at $68,000 using the Black-Scholes model, $-0- in expense of which had yet to be taken at the time of cancellation were cancelled pursuant to the holder’s service agreement’s term lapsing and requisite clauses contained therein.

 

During the year ended March 31, 2020, the Company had warrants to purchase a total of 90,000 shares of common stock expire including:

 

i) warrants for 90,000 shares, valued at $49,996 using the Black-Scholes model, $49,996 in expense of which had yet to be taken at the time of expiration, held by John Lai, but had not vested pursuant to the performance milestones included in the same.

 

During the year ended March 31, 2020, the Company had warrants to purchase a total of 337,500 shares of common stock converted on a cashless basis including:

 

i) warrants for 168,750 shares, valued at $56,223 using the Black-Scholes model, $-0- in expense of which had yet to be taken at the time of conversion, held and converted by John Lai into 61,396 shares of common stock at a conversion rate of .36:1.00; and

 

ii) warrants for 168,750 shares, valued at $102,807 using the Black-Scholes model, $-0- in expense of which had yet to be taken at the time of conversion were converted into 63,141 shares of common stock at a conversion rate of .37:1.00 by a former director of the Company.

 

During the fiscal year ended March 31, 2019 the Company had several equity transactions as follows:

 

Common Stock Issued

 

The Company issued a total of 904,759 shares of common stock (adjusted for the stock split that occurred during fiscal year 2020) during the fiscal year ended March 31, 2019 pursuant to agreements entered into in previous years as follows:

 

  i) 382,759 shares pursuant to conversions of $181,966 in debt; $66,230 was converted into 85,153 shares at $.78 per share and $115,736 was converted into 297,606 shares at $.39 per share;
  ii) 279,000 shares pursuant to subscription agreements for $310,000 in cash;
  iii) 54,000 shares pursuant to a warrant exercise agreement for $60,000 in cash;
  iv) 9,000 shares valued at $1.67 per share to a service provider for management consulting services rendered in the amount of $15,000;
  v) 180,000 shares valued based on the stock price on the date of the issuance on June 7, 2017 at $.23 per share for total consideration of $42,000 to the Company’s former CEO, Wesley Hayne, for serving in that capacity.

 

Common Stock Returned

 

During the fiscal year ended March 31, 2019, upon the departure of the former CEO Wesley Hayne, 540,000 shares held in escrow were returned to John Lai and a reduction of expense and corresponding reduction of additional paid in capital was recorded in the amount of ($177,600), which was based on the $.33 share price at the time of original valuation.

 

Common Stock Sold

 

During the fiscal year ended March 31, 2019, the Company

 

  i) issued 299,507 shares of common stock to several accredited investors in consideration of $166,393 in cash pursuant to warrant exercises;
  ii) issued 700,415 shares of common stock to several accredited investors in consideration of $233,472 in cash pursuant to discounted warrant exercise agreements whereby the company offered all warrant holders the option to exercise their warrants at $.33 per share and they would receive 1 share for every 3 shares received pursuant to the discounted warrant exercise agreement from John Lai, the President of the Company.

 

Stock-Based Compensation Granted

 

During the fiscal year ended March 31, 2019, the Company issued 24,384 shares of common stock to two service providers as follows:

 

  i) 1,884 shares of common stock valued at $2,700 for website services;
  ii) 22,500 shares of common stock valued at $24,750 for marketing services.

 

Also, stock-based compensation expense was recognized pursuant to several warrants’ vesting periods in the amount of $1,449,348 as follows:

 

  i) $99,882 in expense pursuant to vesting of warrants granted to service providers;
  ii) $258,031 in expense pursuant to vesting of warrants granted to advisors;
  iii) $780,181 in expense pursuant to vesting of warrants granted to directors;
  iv) $161,750 in expense pursuant to vesting of warrants granted to employees;
  v) $149,505 in expense pursuant to vesting of warrants granted to officers.

 

 F-20 
   

 

There were also several warrants granted in conjunction with bridge notes that were entered into during the fiscal year ended March 31, 2019 that led to recognition of $14,181 in stock-based compensation expense. Also, warrants granted in conjunction with these bridge notes led to the setup and subsequent amortization of a debt discount to interest expense in the amount of $65,557 with the offset recorded in additional paid in capital.

 

Finally, pursuant to a manufacturing and production agreement with CytoMedical Design Group (“CMDG”) the Company had granted but not issued CMDG 77,700 shares of common stock valued at $86,333 which had been recorded to general and administrative expense with an offset to stock to be issued during the fiscal year ended March 31, 2019.

 

Stock Granted for Debt Conversion

 

During the fiscal year ended March 31, 2019, the Company issued 85,916 shares of common stock to a third party to convert their accounts payable in the amount of $95,462. We also issued 678,006 shares of common stock pursuant to conversions of bridge notes with principal and accrued interest in the total amount of $226,002; some of these conversions took place on a date when the stock price was publicly-quoted at a price higher than that of the conversion price, which led to expense recognized due to these beneficial conversion features with an offset to additional paid in capital in the amount of $66,248.

 

Common Stock Issued to Replace Shares to Officer

 

During the fiscal year ended March 31, 2019, the Company issued 723,047 shares of common stock valued at $1,446,093 to John Lai, the Company’s President, to replace shares he had previously given up as follows:

 

  i) 292,251 shares of common stock valued at $584,501; these shares were issued to replace 292,251 shares given to a third party by John Lai in order to secure funding in 2015; this transaction is included in Common stock issued to replace shares to officer on the statement of equity;
  ii) 430,796 shares of common stock valued at $861,592; these shares were issued to virtually restore 450,000 shares of common stock John lost to escrow pursuant to its terms.

 

Common Stock Issued by Officer

 

During the fiscal year ended March 31, 2019, the Company recognized $77,354 in stock-based compensation expense with an offset to additional paid in capital pursuant to stock transfer agreements whereby John Lai transferred 1 share for every 3 shares warrant holders received pursuant to their discounted warrant exercises entered into in December of 2018 during our discounted warrant exercise offering; this is explained more in the below section titled Warrant Grants.

 

 F-21 
   

 

Warrant Grants

 

During the fiscal year ended March 31, 2019, the Company granted warrants to purchase a total of 1,782,478 shares of common stock including:

 

i) warrants for 72,000 shares to two advisory board members for service, vested semi-annually over two years, and exercisable over a five-year term at $1.11/share and valued at $70,434;

 

ii) warrants for 207,000 shares to John Carruth, the Company’s Acting CFO at the time, in consideration of his employment, vested quarterly over two years, with a strike price of $.33 per share and exercisable over a five-year term and valued at $69,072;

 

iii) warrants for 27,000 shares to a lawyer for general legal counsel, fully-vested and exercisable over a five-year term at $1.11/share valued at $52,818;

 

iv) warrants for 54,000 shares to various information technology service providers for IT services, vested as billed, exercisable over a five-year term, which are valued as earned and have not yet been earned;

 

v) warrants for 270,000 shares to three new Directors in consideration of their service, vested quarterly over two years, and exercisable over a five-year term at $1.11/share and valued at $259,920;

 

vi) warrants for 128,250 shares to several note holders pursuant to their bridge note agreements, vested immediately, and exercisable over a three-year term at $1.11/share and valued at $85,218;

 

vii) warrants for 101,728 shares to several note holders pursuant to their conversion of notes into equity, vested immediately, exercisable through December 31, 2018 at $.33/share and valued at $11,170;

 

viii) warrants for 922,501 shares to several board members, valued at $561,910, vested immediately, for a term of ten years with a strike price of $.30/share and a one-time protection against a reverse split whereby the strike price will not be adjusted upon combination of outstanding shares of stock, as follows:

 

  i) Sheryll Grisewood 168,750
  ii) David Merrill 168,750
  iii) John Dolan 168,750
  iv) David Deming 84,375
  v) Peter Vezmar 84,375
  vi) Joseph Jasper 84,375
  vii) Robert Rudelius 78,750
  viii) David Masters 42,188
  ix) Randall Meyer 42,188

 

Also, during the year ended March 31, 2019, the Company reduced the strike price of 528,750 warrants for members of the board of directors to $.33 per share. They also reduced the strike price of 72,000 warrants to $.33 per share issued to John Carruth, the Acting CFO at the time. Pursuant to ASC 718-20-35-3 the Company did not realize any additional expense associated with these reductions in strike price, as the change in fair value of these instruments was not in excess of the original instrument.

 

During the fiscal year ended March 31, 2019, the Company cancelled previous grants of warrants to purchase 90,000 shares of common stock including:

 

i) warrants for 54,000 shares from a service provider due to the termination of a contract pursuant to its terms that were valued at $102,000;

 

ii) warrants for 36,000 shares from a former advisory board member due to the termination of a contract that were valued at $68,000.

 

During December 2018 the Company offered its warrant-holders the option to exercise their warrants at a discounted rate of $.33 per share if exercised within 15 days of the offer date. Pursuant to this discounted warrant exercise agreement (“DWEA”), warrant-holders were entitled to 1 share issued by way of stock transfer from a founder of the Company for every 3 shares received pursuant to the DWEA. Several warrant-holders entered into such agreements whereby they received 610,369 shares of newly-issued common stock and 203,456 shares of common stock from John Lai, a founder of the Company, in exchange for $203,456 in cash.

 

During December 2018, the Company offered its note-holders the option to convert their notes and receive 1 warrant for every $2.00 in outstanding balance of principal and interest converted. There were 101,729 of these warrants issued; 11,680 expired on December 31, 2018 and the remaining 90,049 were exercised in exchange for $30,016 in cash. Pursuant to these exercised warrants, each warrant-holder received 1 share of common stock from a founder, John Lai; the total number of shares transferred by John Lai to these warrant-holders was 30,016 shares, which were valued at $11,759.

 

 F-22 
   

 

A summary of warrant activity for fiscal years ending March 31, 2019 and 2020 is as follows:

 

   Number of Warrants   Weighted-
Average
Exercise
Price
   Warrants Exercisable   Weighted-
Average
Exercisable
Price
 
                 
Outstanding, March 31, 2018   3,138,046    .66    2,190,241    .63 
                     
Granted   1,782,478    .46           
                     
Exercised   (999,925)   .40           
                     
Expired   (11,680)   .33           
                     
Cancelled   (90,000)   1.11           
                     
Outstanding, March 31, 2019   3,818,919    .55    3,035,035    .54 
                     
Granted   1,905,700    .52           
                     
Cashless Conversions   (337,500)   .32           
                     
Expired   (90,000)   .56           
                     
Cancelled   (396,000)   .58           
                     
Outstanding, March 31, 2020   4,901,119    .55    4,072,369    .53 

 

At March 31, 2020, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

 

    Warrants Outstanding   Warrants Exercisable 
Range of Warrant
Exercise Price
   Number of Warrants   Weighted-
Average
Exercise Price
  

Weighted-
Average
Remaining Contractual
Life

(Years)

   Number of Warrants   Weighted-
Average
Exercise Price
 
.30-.50    2,299,701    .38    5.48    2,434,701    .33 
                           
.51-1.00    2,105,739    .57    2.92    1,141,989    .59 
                           
1.01-3.50    495,679    1.42    2.36    495,679    1.42 
                           
Total    4,901,119    .53    4.06    4,072,369    .53 

 

The Company granted warrants during the fiscal years ended March 31, 2020 and 2019 based on the following ranges:

 

    Fiscal Year Ended March 31,  
    2020     2019  
Stock price on valuation date   $ .12 - $.56     $ .27 - $2.00  
Exercise price   $ .32 - $.56     $ .33 - $1.67  
Term (years)     .003 - 10       .003 - 10  
Weighted-average volatility*     348 %     238 %
Risk-free rate     1.5% - 2.4 %     1.7% - 2.4 %

 

*Weighted-average volatility disclosed as opposed to a range

 

The fair value of each warrant award is estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted in the table above. Because the Black-Scholes valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed in the table above. Implied volatilities are based on historical volatility of the Company’s stock. No reserve is taken for warrants granted that we estimate will not vest as there is not enough historical data to come to a reasonable estimation of the same. The risk-free rate for periods within the contractual lives of the warrants is based on the 13-week U.S. Treasury bill rates in effect at the time of grants.

 

For the years ended March 31, 2020 and 2019, the total stock-based compensation on all instruments was $962,678 and $1,642,869, respectively. It is expected that the Company will recognize expense after March 31, 2020 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as of March 31, 2020 in the amount of approximately $500,000. Additionally, the Company has approximately $150,000 of expense to recognize for warrants with potential future milestones.

 

 F-23 
   

 

NOTE 14 – LEASE AND COMMITMENTS

 

Rent expense for the years ended March 31, 2020 and March 31, 2019 were $51,292 and $69,758, respectively.

 

On July 2nd, 2018 the Company gave its manufacturing contractor in Rochester, MN a 90-day notice to cancel the lease and agreement, which it had the right to do so, under which the Company was renting manufacturing and office space; while the Company has yet to recognize any expense directly related to this lease termination through the date of this filing besides approximately $2,000 in moving and labor costs. Subsequently, the Company entered into a one-year agreement on July 13, 2018 with a 60-day notice of termination clause for 1,000 square feet of manufacturing and office space in White Bear Lake, MN.

 

The Company entered into an eighty-four-month lease for 3,577 square feet of newly constructed office, laboratory and warehouse space located in Edina, Minnesota on May 3, 2017. The Company resided in the facility starting in November of 2017. The base rent is $2,078 per month and the Company is responsible for its proportional share of common space expenses, property taxes, and building insurance. This lease is terminable by the landlord if damage causes the property to no longer be utilized as an integrated whole and by the Company if damage causes the facility to be unusable for a period of 45 days. The Company entered into a lease amendment whereby the lease term was extended through November of 2026 in exchange for a loan of $42,500 and a grant of $7,500 for lease improvements. Through the balance sheet date, the Company has received $15,000 in loan proceeds and expects to receive the remaining loan amount of $27,500 and grant amount of $7,500 if certain criteria are met relating to the build out of our Edina facility; some of these criteria are not contingent upon the Company’s performance.

 

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2020:

 

Year Ended March 31,    
2021  $24,936 
2022   24,936 
2023   24,936 
2024   24,936 
2025   24,936 
Thereafter   29,092 
   $153,772 
Less: Amount representing interest   (5,080)
Present value of lease liabilities  $148,692 

 

In compliance with ASC 842 the Company adopted new guidance in relation to lease accounting on April 1, 2019 whereby we recognized operating lease right-to-use assets and corresponding and equal operating lease liabilities for the lease of our facility in Edina, MN. As of March 31, 2020, planned future base rent lease payments total $153,772, which has been discounted to $148,693 using the 52-week treasury bill coupon equivalent discount rate of 2.18% and a present value model. As of March 31, 2020, the Company only had one operating lease so that the remaining lease term and weighted average discount rate are approximately 7 years and 2.18%, respectively.

 

   March 31, 2020 
Present value of future base rent lease payments  $148,692 
Base rent payments included in prepaid expenses   - 
Present value of future base rent lease payments – net  $148,692 

 

As of March 31, 2020, the present value of future base rent lease payments – net is classified between current and non-current assets and liabilities as follows:

 

   March 31, 2020 
Operating lease right-of-use asset  $148,693 
Total operating lease assets   148,693 
      
Operating lease current liability   24,791 
Operating lease other liability   123,901 
Total operating lease liabilities  $148,692 

 

Pursuant to a lease wherein our subsidiary, Gel-Del Technologies, Inc., was the lessee until the lease’s termination in 2017, the Company owes approximately $330,000 to the lessor as of March 31, 2020; this amount is included in accounts payable.

 

NOTE 15 – GAIN ON SETTLEMENTS

 

During the fiscal year ended March 31, 2020, the Company had recognized $47,710 in gain on settlements pursuant to several transactions as follows: i) $29,986 pursuant to a settlement of an invoice for $39,986 whereby we paid $10,000 in cash and the remainder was forgiven; ii) $13,033 pursuant to a conversion of $25,000 in accrued compensation owed to John Lai into warrants valued at $11,967 using the Black-Scholes model (see Note 13); and iii) $4,692 pursuant to a conversion of $9,000 in accrued compensation owed to John Dolan into warrants valued at $4,308 using the Black-Scholes model (see Note 13).

 

NOTE 16 – INCOME TAXES

 

The following table presents the net deferred tax assets as of March 31, 2020 and 2019:

 

   2020   2019 
Net operating loss carryforwards:          
Federal  $(3,467,533)  $(3,801,404)
State   (1,618,182)   (1,773,989)
Total net operating loss carryforwards   (5,085,714)   (5,575,393)
Total deferred tax assets   (5,085,714)   (5,575,393)
Valuation allowance   5,085,714    5,575,393 
Net deferred tax assets  $   $ 

 

 F-24 
   

 

Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.

 

Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income. The Company’s deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers would be limited under the Internal Revenue Code should a significant change in ownership occur within a three-year period.

 

At March 31, 2020 and 2019, respectively, the Company had net operating loss carryforwards of approximately $16,500,000 and $18,100,000. The deferred tax assets arising from the net operating loss carryforwards are approximately $5,100,000 and $5,600,000 as of March 31, 2020 and 2019, respectively. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management’s analysis, they concluded not to retain a deferred tax asset since it is uncertain whether the Company can utilize this asset in future periods. Therefore, they have established a full reserve against this asset. The change in the valuation allowance during the years ended March 31, 2020 and 2019 was approximately ($489,679) and $1,325,021, respectively. The net operating loss carryforwards, if not utilized, generally expire twenty years from the date the loss was incurred, beginning in 2021, and losses incurred after 2018 are carried forward indefinitely and subject to annual limitations for federal and Minnesota purposes.

 

Of the approximately $16,500,000 in net operating loss carryforwards, approximately $7,000,000 has been accumulated in our pre-merger operating subsidiary, Gel-Del Technologies, Inc. IRC 382 provides guidance around whether or not the Company is able to utilize the pre-merger Gel-Del Technologies, Inc. net operating loss of approximately $7,000,000. Management is currently analyzing whether or not these pre-merger dollars will be allowable if our deferred tax asset is ever realized.

 

A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate and current Minnesota tax rate to the total benefit for income taxes at March 31, 2020 and 2019 is as follows:

 

   2020   2019 
Expected federal tax at 21%  $(5,085,714)   (5,575,393)
Valuation allowance   5,085,714    5,575,393 
Provision for income taxes  $   $ 

 

The Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As of March 31, 2020 and 2019, the Company had no accrued interest and penalties related to uncertain tax positions.

 

The Company is subject to taxation in the U.S. and Minnesota. Our tax years for 2017 and forward are subject to examination by tax authorities. The Company is not currently under examination by any tax authority.

 

Management has evaluated tax positions in accordance with FASB ASC 740, and has not identified any tax positions, other than those discussed above, that require disclosure.

 

NOTE 17 – SUBSEQUENT EVENTS

 

On June 8, 2020, the Company’s Board of Directors approved a change to the Equity Compensation Plan whereby the accrued compensation may be paid in cash or converted into warrants at a set rate of $.35 with a gross up of 125% starting in the quarter ended June 30, 2020. The number of securities remaining available for future issuance under our equity compensation plans is now 262,767.

 

 F-25 
   

 

Before the balance sheet date of March 31, 2020, the Company entered into an agreement to sell units to an investor for $52,000; after the balance sheet date of March 31, 2020, the Company received proceeds from the sale of units in the amount of $52,000 priced at $.65/unit whereby a unit is made of 1 share of common stock and ½ warrant and whereby a warrant is exercisable for $1.00 per share of common stock and exercisable for a term of 3 years and vested immediately. As of the balance sheet date of March 31, 2020, $52,000 was recorded to equity sale proceeds receivable.

 

On April 10, 2020, the Company entered into an agreement with a social media marketing service provider to provide various consulting, marketing and other various services for a 6-month term ending on October 10, 2020, in exchange for 120,000 shares of PetVivo common stock.

 

On May 14, 2020, the Company approved a convertible note offering to directors of the Company whereby Scott Johnson and James Martin both purchased $10,000 each in principal while Gregory Cash purchased $5,000 in principal for a total of $25,000. The terms of the convertible notes are 90 days with interest accrued at 6% and convertible at the VWAP on the date of the notes, all of which were May 14, 2020, making the conversion price $.2538/share. The Company retains the right to prepay these notes if it so chooses, otherwise they automatically convert upon maturity at the end of their 90-day periods.

 

On June 8, 2020, the Company approved issuance of a warrant for 90,000 shares of common stock to John Lai valued at $27,524 using the Black-Scholes model, exercisable at $.556 per share for a term that ends on October 31, 2020, and vests upon certain performance milestones.

 

As indicated in Note 7 to these financial statements, at March 31, 2020, the Company was obligated for a related party note payable and accrued interest in the total amount of $61,255; the maturity date of this note was April 30, 2020. As of the date of this filing we are in default on this note. The related party note payable terms are accrual of interest at eight percent annually with payments of $3,100 per month, which are applied to interest first, then principal. The terms also include a stipulation that if the Company receives additional financing during any 24-month period from the date of the note in the amount greater than $3,500,000, the Company will immediately pay the officer the principal amount of the note along with all interest due.

 

On June 15, 2020, PetVivo Holdings, Inc. (the “Company,” “we,” “us,” or “our company”) entered into a Securities Purchase Agreement (the “Purchase Agreement”) with an investor, pursuant to which the Company sold to the investor up to $705,882 aggregate principal amount of 15% OID convertible promissory notes (the “Notes”) and warrants (the “Warrants”) to purchase up to 1,114,286 shares of common stock, par value $0.001 per share (the “Common Stock”), in two tranches. On June 15, 2020, we issued and sold to the investor a Note in the principal amount of $352,941 and Warrants to purchase 557,143 shares of Common Stock for proceeds of $300,000 (representing an original issue discount of 15%). Within five business days of the date we deliver written notice to the investor following the filing our Annual Report on Form 10-K for the year ended March 31, 2020, at the Company’s discretion, we may issue and sell to the investor an additional Note, of which the investor is required to purchase, in the principal amount of $352,941 and Warrants to purchase an additional 557,143 shares of Common Stock for proceeds of $300,000 (representing an original issue discount of 15%); provided, however, that the investor will not be required to purchase such additional securities if we are in default under the Purchase Agreement or the outstanding Note or if certain other customary closing conditions are not met. The second Tranche Closing may not occur later than December 31, 2020.

 

The issued Note matures on March 15, 2021. However, we have the right to redeem all or a portion of the Notes on ten days prior written notice, during which time the holder of the Notes may convert the principal amount and all accrued interest on the Notes into Common Stock as discussed below.

 

The Notes bear interest at the rate of 12.5% per annum and are convertible into shares of Common Stock at a conversion price equal to $0.28 per share or, upon the occurrence and during the continuance of an Event of Default (as defined in the Notes), if lower, at a conversion price equal to 70% of the lowest daily VWAP of the Common Stock during the 15 consecutive trading days immediately preceding the applicable conversion date. However, the holder of the Notes will not have the right to convert any portion of the Notes if the holder, together with its affiliates, would beneficially own in excess of 4.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its conversion and under no circumstances may convert the Notes if the investor, together with its affiliates, would beneficially own in excess of 9.99% of the number of shares of the Common Stock outstanding immediately after giving effect to its conversion.

 

The Warrants are exercisable to purchase shares of Common Stock for a purchase price of $0.35 per share, subject to adjustment, at any time on or prior to June 15, 2025, and may be exercised on a cashless basis if the shares of Common Stock underlying the Warrants are not then registered under the Securities Act.

 

In connection with this transaction, the Company entered into an Engagement Agreement (the “Engagement Agreement”) with ThinkEquity, a division of Fordham Financial Management, Inc. (the “Placement Agent”), pursuant to which we have agreed to pay the Placement Agent a cash fee equal to 10% of the gross proceeds received by the Company from the investor in this transaction. Pursuant to the Engagement Agreement, we also agreed to grant to the Placement Agent or its designees warrants, substantially in the form of the Warrants, to purchase up to 10% of the aggregate number of shares of common stock underlying purchase price paid for the Notes, which, in the case of the initial closing, equals 75,000 shares of common stock, at an exercise price of $0.35 (the “Placement Agent Warrants”).

 

The Placement Agent Warrants are exercisable, in whole or in part, commencing on the issuance date and have an exercise period of five years. In the event that there is not an effective registration statement permitting for the resale of the shares underlying the Placement Agent Warrants, the Placement Agent Warrants shall be exercisable on a cashless basis. There are significant restrictions pursuant to FINRA Rule 5110 against transferring the Placement Agent’s Warrants and the shares issuable upon exercise of the Placement Agent Warrants during the one hundred eighty (180) days after the closing date.

 

The foregoing descriptions of the terms of the Purchase Agreement, the Notes and the Warrants do not purport to be complete and are qualified in their entirety by reference to the full text of the Purchase Agreement, the Notes and the Warrants.

 

 F-26 
   

 

ITEM 9. CHANGES AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

 

None.

 

ITEM 9A. CONTROLS AND PROCEDURES

 

EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES

 

We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective.

 

Management’s annual report on internal control over financial reporting

 

Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:

 

  Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets;
     
  Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and
     
  Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.