Attached files
| file | filename |
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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 |
| EX-21.1 - PetVivo Holdings, Inc. | ex21-1.htm |
| EX-4.1 - PetVivo Holdings, Inc. | ex4-1.htm |
| EX-3.1 - PetVivo Holdings, Inc. | ex3-1.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, 2021
[ ] 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 | (I.R.S. Employer | |
| incorporation or organization) | 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 | Trading Symbol(s) | Name of each exchange on which registered | ||
| Common Stock, par value $.001 per share | PETV | Over-the-Counter Bulletin Board |
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] |
| Emerging Growth Company | [ ] |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act [ ]
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report. [ ]
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 $36,170,467.
As of June 24, 2021, there were 7,049,831 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
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”
As used in this report, the terms “we,” “us,” “our,” “PetVivo,” and the “Company” mean PetVivo Holding Company, Inc. and our consolidated wholly-owned subsidiaries, unless the context indicates another meaning.
Except as otherwise specifically indicated, all information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to a 1-for-4 reverse stock split (“Reverse Stock Split”) that was effective as of December 29, 2020.
The information contained on or connected to our website is not incorporated by reference into this report.
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Cautionary Statement Regarding 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.
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.
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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.
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.
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.
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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.
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.
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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 the second half of 2021.
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
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.
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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.
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 twelve 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
7,662,409 – Protein Matrix Materials, Devises and Methods of Making and Using Thereof
12 Foreign Patents Granted & Allowed
17 Patent Apps Pending (US & Foreign)
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. We believe 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.
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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.
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.
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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.
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)
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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.
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.
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.
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.
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).
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.
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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.
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.
Research and Development
The Company is currently pursuing advancements in the composition, methods of manufacture and use for its proprietary biomaterials. It is anticipated that within the next twelve months the Company will pursue additional third-party studies related to the use of Kush® for the treatment of osteoarthritis in canine and equine patients. The Company also anticipates that resources will be expended to advance and improve the manufacturing systems for Kush® that will increase product volume and overall efficiency. Finally, the Company anticipates that research and testing will be conducted in the next eighteen months involving the existing Kush® formulation and other variations to identify and determine the next commercial product(s) that may be administered to the digital cushion of horses for the treatment of navicular disease.
We intend to use a portion of the net proceeds from the offering to expand and scale our manufacturing capabilities to fill larger quantity orders should they be placed. We anticipate expending approximately $800,000 to engage independent studies of the use of our products in dogs and horses. We have had discussions with several universities that have veterinary studies in their curriculum regarding conducting such studies for us.
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Employees and Services Performed by our Independent Contractors
As of March 31, 2021 we have two full-time employees, consisting of our CEO and CFO, and have contracted with two independent contractors, who serve as our General Counsel and Director of Science and Technology.
We also engage outside consultants to assist with research and development, clinical development and regulatory matters, business development, operations and other functions from time to time.
Insurance
We currently maintain a “life science” commercial insurance policy with coverage in the amount of $1 million for our products and operations. The policy has been designed for those engaged in the life science business. We may face claims in excess of the limits of such insurance. As well, claims made against us may fall outside of our coverage. The policy is a “claims made” policy. Thus, our coverage must be maintained at the time a claim is made for us to be entitled to seek coverage from the issuer of the policy for such claims.
Corporate History and Structure
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 and it became 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 326,250 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.
Thereafter, our wholly-owned subsidiary (which was incorporated in Minnesota expressly for this transaction) completed a triangular merger (the “Merger”) with Gel-Del. Pursuant to the Merger, Gel-Del was the surviving entity and concurrently became our wholly-owned subsidiary, resulting in our 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 Cosmeta, a subsidiary of Gel-Del. The effective date for the Merger was April 10, 2017 when the Merger was filed officially with the Secretary of State of Minnesota.
An investment in our common stock and warrants 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 common stock and warrants and investors losing part or even all of their investment.
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Risks Relating to Our Financial Condition
We have incurred substantial losses to date and could continue to incur such losses.
We have incurred substantial losses since commencing our current business. For the year ended March 31, 2021, we lost approximately $3.5 million without obtaining any commercial revenues and had an accumulated deficit of approximately $58.1 million. In order to achieve and sustain future revenues, we must succeed in our current efforts to commercialize Kush® for treatment of dogs and horses suffering from osteoarthritis. That will require us to produce our products effectively in commercial quantities, establish adequate sales and marketing systems, conduct clinical trials and tests which show the safety and efficacy of Kush® in dogs and horses 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.
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, 2021 and 2020 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 obtain sufficient funding, we may have to reduce materially or even discontinue our business.
As of March 31, 2021, we had cash or cash equivalents of $23,578. Accordingly, our ability to commercialize our Kush® products is dependent on our receipt of the net proceeds from our future financings. We anticipate that our cash on hand will be adequate to satisfy operational and capital requirements for the next two months. If we are unable to realize substantial revenues in the near future, we will need to seek additional financing beyond this 21-month period to continue 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.
Risks Relating to Our Business and Industry
We have no 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 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 an early-stage 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.
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We are substantially dependent upon the success of Kush® and any failure of Kush® to achieve market acceptance would harm us significantly.
Our recent efforts and financial resources have primarily been directed toward commercialization of the 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 this products. In addition to establishing effective production, marketing, sales, distribution and training for the use of Kush®, we believe its 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.
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 animal 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 therapeutics products that may compete with our products, including Kindred Bio, Aratana Therapeutics, Next Vet, and VetDC.
Since we are an early-stage company with limited operations and financing, virtually all 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 for the foreseeable future, our efforts and financial resources will continue to focus on successfully commercializing our Kush® products, our future business strategy plan includes the identification of additional animal care products we may license, acquire or develop, and then commercializing such products into a branded product portfolio along with our Kush® products. Even if we successfully license, acquire or develop such animal care products from our proprietary technology, or acquire any such new products, we may still fail to commercialize them successfully for 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 prospects may be harmed substantially.
We will rely on third-parties to conduct studies of our current and 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 from effectively commercializing our future products.
We entered into a clinical trial services agreement with Colorado State University on November 25, 2020. In the future, we may engage other educational institutions with a veterinary medical curriculum to conduct studies of Kush® and other products to be introduced by us. We expect to have limited control over the timing and resources that such third parties will devote to the studies. Although we must rely on the third parties to conduct our studies, we remain responsible for ensuring any of our 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.
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Our success is highly dependent on the clinical advancement of our products and adverse results in clinical trials and other studies could prevent us from effectively commercializing our future products
There can be no assurance that clinical trials or studies of Kush® and our other products will demonstrate the safety and efficacy of such products in a statistically significant manner. Failure to show efficacy or adverse results in clinical trials or studies could significantly harm our business. While some clinical trials and studies of our product candidates may show indications of safety and efficacy, there can be no assurance that these results will be confirmed in subsequent clinical trials or studies or provide a sufficient basis for regulatory approval, if required. In addition, side effects observed in clinical trials or studies, or other side effects that appear in later clinical trials or studies, may adversely affect our or our distributors’ ability to market and commercialize our products.
Our operations will rely on third parties to produce our raw materials to produce our products.
We will rely on independent third parties to produce the raw materials (e.g. collagen, elastin and heparin) that we use to produce our Kush® products. As such, we will be dependent upon their services and will not be in a position to control their operations as we might if we directly produced these raw materials. While we believe the raw materials used to manufacture our Kush products are readily available and can be obtained from multiple reliable sources on a timely basis, circumstances outside our control may impair our ability to have an adequate supply of raw materials to produce our Kush products.
If we experience the rapid commercial growth we anticipate, we may not be able to manage such growth effectively.
We contemplate rapid growth for our business as we bring our Kush® products to market and anticipate that will place significant new demands on our management and our operational and financial resources. Our organizational structure will 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 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, 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 materially harm our business.
Developing, maintaining and expanding our reputation and brand with veterinarians, pet owners and others will be 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 may be subject to product liability claims, which could damage our reputation and brand substantially.
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 will significantly be dependent upon our current management and key scientific technicians, and also on our ability to attract, retain and motivate future management and 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.
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 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. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services.
Risks relating to Manufacturing
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 facility and our 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.
Risks relating to our Intellectual Property
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.
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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 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.
Risks related to Regulation
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 device for the treatment of animals rather than being a pharmaceutical product, we believe we are not required to obtain regulatory approval to produce and market them for their current intended uses. However, we have not received confirmation from any regulatory authority that our determination is correct. The production, marketing and sale of any future products for the treatment of animals based on our proprietary technology may be require us 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 could harm our business and prospects materially.
Risks relating to our Information Technology
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.
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Risks Related to our Company
Ownership and control of our Company is concentrated in our management.
As of March 31, 2021, our officers and directors beneficially own or control approximately 59% of our outstanding shares of common stock. This concentrated ownership and control by our management could adversely affect the status and perception of our common stock and/or warrants. 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 and/or warrants.
Due to this ownership concentration, 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.
The market price of our common stock is highly volatile because of several factors, including a limited public float.
The market price of our common stock has been volatile in the past and the market price of our common stock and our warrants is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
| ● | actual or anticipated fluctuations in our operating results; | |
| ● | the absence of securities analysts covering us and distributing research and recommendations about us; | |
| ● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; | |
| ● | overall stock market fluctuations; | |
| ● | announcements concerning our business or those of our competitors; | |
| ● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; | |
| ● | conditions or trends in the industry; | |
| ● | litigation; | |
| ● | changes in market valuations of other similar companies; | |
| ● | future sales of common stock; | |
| ● | departure of key personnel or failure to hire key personnel; and | |
| ● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock and/or warrants, regardless of our actual operating performance.
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Our common stock has in the past been a “penny stock” under SEC rules, and if our common stock is deemed to be a “penny stock,” it will be more difficult to resell our securities.
In the past, our common stock was a “penny stock” under applicable Securities and Exchange Commission (“SEC”) rules (generally defined as non-exchange traded stock with a per-share price below $5.00). While our common stock is currently not considered a “penny stock,” if we do not continue to satisfy the requirements to be exempt from the “penny stock” rules, it will be more difficult to resell our securities. “Penny stock” rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide 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.
Legal remedies available to an investor in “penny stocks” may include the following:
| ● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
| ● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our warrants and may affect your ability to resell our common stock and our warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments. For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance that our common stock will not be classified as a “penny stock” in the future.
If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.
Our internal controls over financial reporting have weaknesses and conditions that require correction or remediation. For the year ended March 31, 2021, we identified three material weakness in our assessment of the effectiveness of and procedures. We have (i) deficiencies in the segregation of duties, (ii) deficiencies in the staffing of our financial accounting department and (iii) limited checks and balances in processing cash and other transactions. We are committed to improving our financial reporting processes and plan on increasing the size of our accounting staff at the appropriate time for our business and its size to ameliorate our concern that we do not effectively segregate certain accounting duties or have adequate staffing, which we believe would resolve these material weakness in disclosure controls and procedures. However, there can be no assurances as to the timing of any such action or that we will be able to do so. Any failure by us to implement the changes necessary to maintain an effective system of internal controls could harm our operating results materially and 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 and warrants.
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We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal controls over financial reporting, and for certain issuers, an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal controls over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal controls over financial reporting are not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.
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, Bylaws, and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.
Our Articles of Incorporation, Bylaws, and Nevada law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 1,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights and sinking fund provisions. None of our preferred stock will be outstanding at the closing of this offering. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.
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Provisions of our Articles of Incorporation, Bylaws and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our certificate of incorporation and by-laws and Delaware law, as applicable, among other things:
| ● | provide the board of directors with the ability to alter the by-laws without stockholder approval; | |
| ● | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and | |
| ● | provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum. |
As of March 31, 2021, 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 agreement, which we catered in in Mav 2017. The lease is for 3,577 square feet of newly constructed office. laboratory and warehouse space. The base rent as of March 2021 is $2.162 and we are responsible for our proportional share of common space expenses. property taxes. and building insurance. In January 2020. the Company entered into a lease amendment whereby agreed to extend the lease term through November of 2026 in exchange of receipt of a loan of $35,000 for leasehold improvements and a grant of S7,500 which has been recorded to accrued expenses and will be amortized over the remainder of the lease term.
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.
We are not currently a party to any legal proceedings.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
MARKET INFORMATION
Our common stock is presently quoted on the OTCQB Market, operated by OTC Markets Group, under the symbol “PETV”. On June 24, 2021, the last reported price of our common stock as reported on the OTC Market’s OTCQB Marketplace was $10.50 per share. Although our common stock is traded on the OTCQB Marketplace, there is a limited trading market for our common stock. Because our common stock is thinly traded, any reported sales price may not be a true market-based valuation of our common stock.
The following table, as adjusted to reflect the Reverse Stock Split, 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 represent actual transactions. There can be no assurance that an active public market for our common stock will develop or be sustained.
| High Bid | Low Bid | |||||||
| Fiscal Year 2021 | ||||||||
| Fourth Quarter Ended March 31, 2021 | $ | 14.50 | $ | 8.20 | ||||
| Third Quarter Ended December 31, 2020 | 14.60 | 1.64 | ||||||
| Second Quarter Ended September 30, 2020 | 3.80 | 1.60 | ||||||
| First Quarter Ended June 30, 2020 | 1.56 | 0.56 | ||||||
| Fiscal Year 2020: | ||||||||
| Fourth Quarter Ended March 31, 2020 | 2.04 | 0.40 | ||||||
| Third Quarter Ended December 31, 2019 | 3.33 | 1.04 | ||||||
| Second Quarter Ended September 30, 2019 | 1.64 | 0.88 | ||||||
| First Quarter Ended June 30, 2019 | 1.64 | 0.42 | ||||||
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Number of Stockholders
As of March 31, 2021, there were approximately 287 stockholders of record. The number of stockholders of record does not include certain beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.
Dividends
We have never declared or paid any cash dividends on our common stock and do not anticipate paying any cash dividends on our common stock at any time in the foreseeable future. We currently intend to retain all available funds and any future earnings for use in the operation of our business and do not anticipate paying any dividends on our common stock in the foreseeable future. Any future determination to declare dividends will be made at the discretion of our Board and will depend on, among other factors, our financial condition, operating results, capital requirements, general business conditions, the terms of any future credit agreements and other factors that our Board may deem relevant.
RECENT SALES OF UNREGISTERED SECURITIES
On January 15, 2021, one convertible note holder converted her then outstanding balance of $50,250 in the principal and interest amounts of $50,000 and $250, respectively, into 17,379 shares of common stock at a conversion rate of $2.89 per share.
On January 29, 2021, one warrant holder converted 17,188 warrants with an exercise price of $1.20 into 15,629 shares of common stock on a cashless basis.
In January 2021, John Lai, the Company’s CEO and a Director acquired 38,516 shares in January 2021 pursuant to his cashless exercise of a warrant for purchase of 42.188 shares of common stock at a strike price of $1.33 per share.
On February 9, 2021, one warrant holder converted 9,000 warrants with an exercise price of $4.44 into 5,163 shares of common stock on a cashless basis.
On March 20, 2021, one director exercised 3,447 warrants at an exercise price of $1.60 for 3,447 shares of common stock for total proceeds to the Company of $5,504.
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SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS
The following table sets forth securities authorized for issuance under any equity compensation plan approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of March 31, 2021.
Equity Compensation Plan Information
| Plan category | 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 reflect in table) | |||||||||
| Plans approved by shareholders(1) | — | 1,000,000 | ||||||||||
| Plans not approved by shareholders(2) | 1,081,668 | $ | 2.02 | — | ||||||||
| (1) | PetVivo Holdings, Inc. 2020 Equity Incentive Plan. |
| (2) | Represents warrants granted to officers, directors, employees, financial advisors, consultants, investors, and other service providers pursuant to individual contracts, investments, awards or arrangements for compensatory purposes. |
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 and related notes that appear elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this prospectus, particularly in “RISK FACTORS.” We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this prospectus.
We are a smaller reporting company and have not generated any material revenues to date and have incurred substantial losses in connection with our limited operations. We need substantial capital to pursue our current plans to bring our first products to market. The first of such products is a proprietary gel-like protein-based biomedical material for injection into the afflicted body parts of animals suffering from osteoarthritis or other impairments to be marketed under the trade name Kush®. It will provide to veterinarians an innovative treatment for dogs and horses suffering from osteoarthritis.
The independent auditor’s report accompanying our March 31, 2021 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 substantial working capital 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.
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RESULTS OF OPERATION
| For Fiscal Year Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 12,578 | $ | 3,588 | ||||
| Total Cost of Sales | 10,695 | 19,710 | ||||||
| Total Operating Expenses | 1,960,871 | 2,000,010 | ||||||
| Total Other Income (Expense) | (1,563,792 | ) | (66,602 | ) | ||||
| Net Loss | (3,522,780 | ) | (2,082,734 | ) | ||||
| Net loss per share - basic and diluted | $ | (.57 | )* | $ | (.39 | )* | ||
* In October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was made effective December 29, 2020. All share and per share data has been retroactively adjusted for this reverse split for all period presented.
For Fiscal Year Ended March 31, 2021 (“fiscal 2021”) Compared to Fiscal Year Ended March 31, 2020 (“fiscal 2020”)
Total Revenues. For fiscal 2021, we earned $12,578 in revenue compared to $3,588 in fiscal 2020. Our sales in fiscal 2021 and 2020 represented sample product sales.
Total Cost of Sales. For fiscal 2021, we incurred $10,695 in expenses compared to $19,710 in fiscal 2020. Cost of sales during fiscal 2021 was made up of costs during the year and subsequent reserve for obsolete inventory. Cost of sales during fiscal 2020 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 2021 were $1,960,871 compared to $2,000,010 for fiscal 2020, a decrease of $39,139. Operating expenses consisted of general and administrative, sales and marketing, and research and development expenses.
General and administrative (“G&A”) expenses were $1,767,664 in fiscal 2021 compared to $1,815,829 in fiscal 2020, a decrease of 48,165. General and administrative expenses include corporate overhead, financial and administrative contracted services, consulting fees and stock compensation costs.
Sales and marketing expenses were $94,977 in fiscal 2021 compared to $171,509 in fiscal 2020, a decrease of $76,532. This decrease was due to the lack of resources available for sales and marketing activities.
Research and development (“R&D”) expenses were $98,230 in fiscal 2021 compared to $12,672 in fiscal 2020, an increase of $85,558. The increase was related to efforts to support the launch of Kush®.
Operating Loss. As a result of the foregoing, our operating loss for fiscal 2021 was $1,958,988 compared to an operating loss of $2,016,132 for fiscal 2020.
Other Income (Expense). Other expense for fiscal 2021 was $1,563,792 compared to other expense of $66,602 for fiscal 2020. In fiscal 2021, other expense included derivative expense of $1,702,100 related to debt financing and interest expense of $228,595 offset by a $366,903 gain on extinguishment of debt. In fiscal 2020, other expense consisted primarily of a loss on debt extinguishment of $81,738 and interest expense of $32,185 partially offset by a $47,710 gain on settlement.
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Net Loss. Our net loss for fiscal year ended March 31, 2021 was $3,522,780 or ($0.57) per share as compared to $2,082,734 or ($0.39) per share for fiscal year ended March 31, 2020. Net loss generally decreased primarily due to the derivative expense recognized on the debt financing in fiscal 2021. The weighted average number of shares outstanding during fiscal 2021 was 6,198,717 compared to 5,305,590 for fiscal 2020.
LIQUIDITY AND CAPITAL RESOURCES
Our financial position and future prospects depend significantly on our access to financing to fund our operations during our development stage. Much of our current cost structure is based on costs related to personnel and facilities, and not subject to material variability. In order to fund our operations and working capital needs, we historically have utilized loans from accredited investors and others, equity sales of common stock to accredited investors and others having pre-existing relationships with us, and substantial issuances of stock-based compensation to satisfy outstanding debt and pay for development, management, financial, professional and other services.
As of March 31, 2021, our current assets were $147,153 including $23,578 in cash and $123,575 in prepaid expenses. In comparison, our current liabilities as of that date were $1,405,048 consisting of $962,885 of accounts payable and accrued expenses, $36,808 of accrued expenses – related party, $235,671 in convertible notes payable, $39,020 in PPP loan, $20,000 in notes payable and accrued interest - directors, $44,554 in notes payable and accrued interest – related party, $39,528 in a note payable and $26,582 in operating lease liability – short term. Our working capital deficiency as of March 31, 2021 was $1,257,895.
We will need to raise substantial additional capital through private or public offerings of our equity or debt securities, or a combination thereof, and we may have to use a material portion of any capital raised to repay past due debt obligations. To the extent any capital raised is insufficient to both satisfy operational working capital needs and meet any required debt payments, we will most likely need to either extend, refinance or convert to equity our outstanding indebtedness.
We currently have little cash to support our operations and projected commercial growth. Accordingly, we will require substantial additional financing to fund our operational working capital for at least the next 12 months. Financing may be sought by us from several sources such as private or public sales of our equity or convertible debt securities, and/or loans from affiliates, banks or other financial institutions. We have filed Forms S-1 and S-1/A with the Securities and Exchange Commission on October 13, 2020, December 31, 2020 and March 29, 2021, respectively, to raise capital through a public offering of our common stock. In the event we cannot obtain any such financing when needed on terms acceptable to us, if at all, our business would suffer substantially.
Liquidity represents the ability of a company to generate sufficient cash to provide for its immediate cash needs, which our continued losses have made it difficult for us to accomplish. Over the past several years we have continued to incur substantial losses without any source of material revenues or liquid assets, which has caused a serious and harmful effect to our liquidity and a substantial strain on our ongoing business operations.
We have not generated any operating cash flows since we are a development stage company which has not yet realized any significant commercial revenues.
Net Cash Used in Operating Activities – We used $1,047,329 of net cash in operating activities for the year ended March 31, 2021. This cash used in operating activities was primarily attributable to our net loss of $3,522,780, gain on extinguishment of debt of $366,903 and an increase in deferred issue costs of $280,163 partially offset by an increase in accounts payable and accrued expenses of $174,652 and noncash expenses related to derivative expense of $1,702,100, stock compensation expense of $452,674 and common stock issued for services of $541,208. For the year ended March 31, 2020, we used $498,089 of net cash. The cash used in operating activities was primarily attributable to our net loss of $2,082,734 offset by noncash expenses related to $863,012 of stock compensation expense and $559,544 of depreciation and amortization expense.
Net Cash Used in Investing Activities – We used $160,164 of net cash in investing activities for the year ended March 31, 2021, consisting of $140,685 of costs capitalized to property and equipment and $19,479 of costs capitalized to patents and trademarks. This is compared to $63,696 of net cash used in investing activities in the year ended March 31, 2020, which was due to $32,791 of costs capitalized to property and equipment and $43,386 of costs capitalized to patents and trademarks offset by proceeds of $12,481 from the sale of equipment.
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Net Cash Provided by Financing Activities – During the year ended March 31, 2021, we were provided with net cash of $1,220,489 from financing activities consisting of $297,500 from entering into various convertible notes payable, $118,665 from notes payable proceeds (including PPP Loan), and $823,997 in stock and warrants sale proceeds, which were partially offset by $19,673 in repayments of note payable and note payable to related parties. In comparison, during the year ended March 31, 2020, we were provided with net cash of $565,907 from financing activities consisting primarily of $280,000 in proceeds from convertible notes payable and $339,000 in proceeds from stock and warrants sale which were partially offset by $68,093 in repayments of various notes payable, notes payable to related parties, convertible notes payable, and the debt instruments’ accrued interest.
Inventory
Inventories are stated at cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand through an inventory count.
At March 31, 2021, the Company’s inventory has a carrying value of $0 and is broken down into $36,973 of finished goods inventory, $8,773 in raw material inventory, and $1,322 in packaging inventory offset by a reserve of $47,068.
At March 31, 2020, the Company’s inventory had a carrying value of $-0- and was broken down into $50,357 of finished goods inventory, $-0- in work-in-process inventory, $-0- in raw material inventory, and $-0- in packaging inventory offset by a reserve of $50,357.
MATERIAL COMMITMENTS
Accrued Salary
We are indebted to certain related parties with respect to unreimbursed expenses and accrued salaries of $36,808 at March 31, 2021. This amount is included in accrued expenses – related party.
Notes and Convertible Notes Payable
As of March 31, 2021, we are obligated on the following notes:
| Notes Payable | Convertible Notes Payable | |||||||||
| 1. | Third Parties – Principal | $ | 78,193 | $ | 230,000 | |||||
| Third Parties – Interest | 355 | 5,671 | ||||||||
| Third Parties – Total | 78,548 | 235,671 | ||||||||
| 2. | Related Parties – Principal | 64,554 | - | |||||||
| Related Parties – Interest | - | - | ||||||||
| Related Parties – Total | 64,554 | - | ||||||||
| Total | $ | 143,102 | $ | 235,671 | ||||||
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OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2021, and 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, 2021 Form 10-K and 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 and have a working capital deficit. These factors raise substantial doubt about our ability to continue as a going concern.
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with generally accepted accounting standards in the United States of America. Our significant accounting policies are described in Note 1 to our consolidated financial statements attached hereto. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of the consolidated financial statements.
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.
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JOBS Act
On April 5, 2012, the Jumpstart Our Business Startups Act of 2012, or the JOBS Act, was enacted. Section 107 of the JOBS Act provides that an “emerging growth company” can take advantage of the extended transition period provided in Section 7(a)(2)(B) of the Securities Act of 1933, as amended, or the Securities Act, for complying with new or revised accounting standards. In other words, an “emerging growth company” can delay the adoption of certain accounting standards until those standards would otherwise apply to private companies.
We have chosen to opt out of the extended transition periods available to emerging growth companies under the JOBS Act for complying with new or revised accounting standards. Section 107 of the JOBS Act provides that our decision to opt out of the extended transition periods for complying with new or revised accounting standards is irrevocable.
We are in the process of evaluating the benefits of relying on other exemptions and reduced reporting requirements provided by the JOBS Act. Subject to certain conditions set forth in the JOBS Act, as an “emerging growth company,” we intend to rely on certain of these exemptions, including without limitation, (i) providing an auditor’s attestation report on our system of internal controls over financial reporting pursuant to Section 404(b) of the Sarbanes-Oxley Act and (ii) complying with any requirement that may be adopted by the PCAOB regarding mandatory audit firm rotation or a supplement to the auditor’s report providing additional information about the audit and the financial statements, known as the auditor discussion and analysis. We will remain an “emerging growth company” until the earliest of (i) the last day of the fiscal year in which we have total annual gross revenues of $1.07 billion or more; (ii) the last day of our fiscal year following the fifth anniversary of the date of the completion of this offering; (iii) the date on which we have issued more than $1 billion in nonconvertible debt during the previous three years; or (iv) the date on which we are deemed to be a large accelerated filer under the rules of the SEC.
Employees and Services Performed by our Independent Contractors
We currently have two full-time employees, consisting of our CEO and CFO, and have contracted with two independent contractors, who serve as our General Counsel and Director of Science and Technology. If we receive proceeds of at least $7 million in our financing transactions, we have identified and plan to add additional staff including a Chief Operating Officer, a Chief Information Officer/Investor Relations, a National Director of Sales, a National Director of Marketing, a General Counsel and a Director of Manufacturing.
We also engage outside consultants to assist with research and development, clinical development and regulatory matters, business development, operations and other functions from time to time.
Insurance
We currently maintain a “life science” commercial insurance policy with coverage in the amount of $1 million for our products and operations. The policy has been designed for those engaged in the life science business. We may face claims in excess of the limits of such insurance. As well, claims made against us may fall outside of our coverage. The policy is a “claims made” policy. Thus, our coverage must be maintained at the time a claim is made for us to be entitled to seek coverage from the issuer of the policy for such claims.
DESCRIPTION OF PROPERTIES
We rent our Edina, Minnesota office in suburban Minneapolis under the provisions of a long-term lease. 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.
Legal Proceedings
From time to time, the Company is involved in various legal claims and actions arising in the ordinary course of business. While from time to time, claims are asserted that may make demands for sums of money, we do not believe that the resolution of any of these others matters, either individually or in the aggregate, will materially affect our financial position, cash flows or the results of our operations.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the years ended March 31, 2021 and 2020 are being filed with this report and commence on page F-1, immediately following the signature page.
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. |
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
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Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2021. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (revised 2013). This assessment included an evaluation of the design and procedures of our control over financial reporting.
Based on our assessment, our management concluded that as of March 31, 2021, our internal control over financial reporting was not effective due to certain material weaknesses including:
| ● | Deficiencies in Segregation of Duties. Lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the disbursements related thereto due to our very limited staff, including our accounting personnel; | |
| ● | Deficiencies in the staffing of our financial accounting department. The number of our qualified accounting personnel with experience in public company SEC reporting and GAAP is limited; and | |
| ● | Limited checks and balances in processing cash and other transactions. |
The existence of the material weaknesses in our internal control over financial reporting increases the risks that our financial statements may be misleading materially or even need to be restated. We are committed to improving our financial and oversight organization and procedures.
Changes in internal control over financial reporting
There have been no changes in our internal control over financial reporting during our last fiscal quarter that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
None.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers are appointed by and serve at the discretion of our board of directors. The following table includes the names, ages and positions held by our executive officers and directors as of June 25, 2021:
| Name | Age | Management and/or Director Positions | ||
| John Lai | 58 | Chief Executive Officer, President and Director | ||
| Robert J. Folkes | 59 | Chief Financial Officer | ||
| John F. Dolan | 56 | General Counsel, Secretary and Director | ||
| David B. Masters, Ph.D. | 63 | Director of Science and Technology and Director | ||
| Gregory Cash | 64 | Chairman | ||
| David Deming | 61 | Director | ||
| Joseph Jasper | 56 | Director | ||
| Scott Johnson | 56 | Director | ||
| James Martin | 82 | Director | ||
| Randall A. Meyer | 57 | Director | ||
| Robert Rudelius | 65 | Director |
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John Lai, has served as a director and senior executive officer since March 2014, serving in various capacities that include serving as our Chief Financial Officer from May 2018 through December 2018 and serving as our Chief Executive Officer from March 2014 to May 2017 and June 2019 to present. From March 2012 to April 2016, Mr. Lai also was Chief Executive Officer and a director of Blue Earth Resources, Inc., a small public company which acquired and managed working interests in producing oil and gas leases in Louisiana. Mr. Lai has over thirty years of senior executive and operational management and financial experience while holding key executive positions with several public companies in various industries. In 1992, Mr. Lai founded, and until December 2012 was the principal owner and President of Genesis Capital Group, Inc., which provided significant consulting services to many public and private companies in powersports, technology and other industries, while advising its clients in corporate development, mergers and acquisitions, and private and public capital-raising through equity offerings. Mr. Lai’s role as a co-founder of the company and his many years of experience as a chief executive officer of many public or private companies are material factors regarding his qualifications to serve on our Board of Directors.
Robert J. Folkes, has served as our Chief Financial Officer since April 14, 2021. Prior to joining us, he served as the Chief Operating Officer from February 2015 until September, 2020 and as the Chief Financial Officer from 2005 until April 2016 of Tactile Systems Technology, Inc. (NASDAQ: TCMD), a manufacturer and developer of at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Since September 2020 through the current date, Mr. Folkes was a financial consultant. Prior to joining TCMD in 2004, Mr. Folkes was the Chief Financial Officer for Advanced Respiratory, a medical device company, from 1997 until its sale in 2003. Prior to joining Advanced Respiratory, Mr. Folkes was an Audit Senior Manager for Ernst & Young LLP. He served as Ernst & Young’s Senior Manager of the Entrepreneurial Services Group, and was involved with numerous SEC registrations, mergers and acquisitions. Mr. Folkes is a Certified Public Accountant and earned a B.A. in Accounting from the University of Minnesota – Carlson School of Management.
John F. Dolan. Mr. Dolan has served as a director since March 2014, and he served as our Chief Financial Officer from March 2014 to November 2017. Since March 2013, Mr. Dolan also has served as corporate and intellectual property counsel for KILO, Inc. and TerraCOH, Inc., both alternative energy companies. Mr. Dolan has also served as general counsel for Traust IP Finance, LLC since June, 2019. From June 2000 to July 2012, Mr. Dolan was a shareholder in the intellectual property group of the Minneapolis law firm of Fredrikson & Byron, where he specialized in securing and protecting domestic and foreign patent and other IP rights for various clients including biomaterials technology and products. During the past five years, Mr. Dolan also has provided consulting services to several early stage companies on all aspects of IP asset protection as well as new technology and corporate development. His extensive career in the intellectual property field includes serving as a patent examiner with the U.S. Patent and Trademark Office. Mr. Dolan’s role as a cofounder of the Company and his extensive experience in intellectual property, mergers and acquisitions, private equity, corporate governance and general corporate law are material factors which demonstrate his qualifications to serve on our Board of Directors.
David B. Masters, Ph.D. Dr. Masters has served as a director since April 2015, and was appointed to serve as our Director of Science and Technology effective as of September 1, 2020. From April 2015 to December 2017, he served as our Chief Technical Officer. Dr. Masters is the founder of and served as Chief Executive Officer and Chief Technology Officer of Gel-Del Technologies, Inc., from 1999 to December 2017, while for Gel-Del he developed and obtained significant patents for the proprietary biomaterial technology and product applications acquired by us from Gel-Del. Dr. Masters is recognized internationally as a leading expert in biomaterials and local drug delivery, and over the past twenty years he has developed and obtained patents for many novel biomaterials and drug delivery products, including implantable medical devices for neurologic, vascular, orthopedic, urologic and dermal applications. Dr. Masters’ former academic career included teaching courses and doing significant research at Harvard Medical School and The Mayo Clinic. He received a B.A. Degree in Biochemistry, a Master’s Degree in Chemistry, and a Ph.D. in Behavioral and Neural Sciences from Rutgers University. Dr. Masters’ role as the founder of Gel-Del and his long professional career in developing and obtaining patents for many biomaterials and drug delivery products are material factors regarding his qualifications to serve on our Board of Directors.
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Gregory Cash. Mr. Cash has served as a director of the Company since July 2019. He has more than 35 years senior management and/or key sales and marketing executive experience in the life sciences industry, including being Chief Executive Officer or Division President of publicly traded and privately held cardiovascular medical device companies. Since 2011, he has been the Chief Executive Officer and principal owner of Argent International LLC, Minneapolis, MN, a consulting firm he founded to provide management, marketing and financial consulting services to start-up and established companies in the life sciences industry. Prior to founding Argent, Mr. Cash served for over thirty years in senior executive management or marketing roles with leading medical device companies, including five years with Boston Scientific Corporation and over fourteen years with Medtronic, Incorporated. His many industry achievements also feature extensive and high-level overseas experience including being Chief Executive Officer or a senior marketing executive of both start-up and established international medical device companies in European countries including The United Kingdom, France and Italy, as well as serving for several years as the Marketing Manager in Asia for all Medtronic product lines. Mr. Cash’s many years of experience as an executive in the medical device industry are material factors regarding his qualification to serve on our Board of Directors.
David Deming. Mr. Deming has served as a director of the Company since September 2017. Mr. Deming has over 35 years of institutional investment management experience with pensions, endowments, family offices and high net worth investors. He is currently serving as the Chief Investment Officer of Onward for Business, a main street business brokerage firm, which he joined in January 2020. He served for over 19 years as the Director of Business Development at Arbor Capital Management, LLC from January 1997 until October 2016. Subsequent thereto, he served as the Director of Marketing and Investor Relations at BCCM Advisors, an alternative investment platform, from August 2018 to March 2020 and as the Director of Business Development, Chief Compliance Officer and Partner at Asymmetric Capital Management from October 2016 until August 2018. Prior thereto, he held positions with brokerage and trading firms, including, Merrill Lynch, Paine Webber and Leuthold Weeden Capital Management and was a floor trader at the Chicago Board of Trade. Mr. Deming’s extensive experience in the finance industry is a material factor which demonstrates his qualifications to serve on our Board of Directors.
Joseph Jasper. Mr. Jasper has served as a director of the Company since August 20, 2018. He is a CFA who since 2005 has been Chief Executive Officer of Vermillion Capital Management, an institutional investment firm. From 2002 to 2005, Mr. Jasper was Managing Director and Director of Fixed Income Strategy and Marketing for Piper Jaffray Company. Prior to 2002, he spent 20 years managing, structuring and selling fixed income and equity securities at several leading investment banking firms, including U.S. Bancorp Libra and UBS PaineWebber. Mr. Jasper also serves as Vice Chairman of the Board of Directors of MicroNet, Inc. and as a director of GroundCloud, Inc. both privately-held companies. He has previously served as a director or principal advisor to many operating and venture-stage companies across a broad range of industries. Mr. Jasper received an MBA degree from the University of St. Thomas, where he also has served as its Adjunct Professor of Finance. Mr. Jasper’s extensive financing and accounting expertise are material factors which demonstrate his qualifications to serve on our Board of Directors.
Scott Johnson. Mr. Johnson has served as a director of the Company since July 2019. He is a licensed professional engineer with over 30 years experience in the life sciences industry. He has been a leader in cross-functional engineering, risk management, design controls, production engineering, quality control, auditing and FDA compliance for numerous manufacturers. Since 2012, he has been the President and principal owner of Stratego, Inc., a life sciences consulting corporation he founded to provide client services for the remediation of significant challenges with the FDA. Significant engagements of Stratego include risk management and post-market surveillance services for defibrillator products at Philips Healthcare, risk management and quality audit services for combination products at Baxter and Hospira, a subsidiary of Pfizer, quality remediation management for implantable medical devices at St. Jude Medical, a product regulatory roadmap for Varuna Biomedical and engineering PMA submissions content at Zimmer Biomet –Biologics. Mr. Johnson’s lengthy past employment include five years of employment with SciMed Life Systems, four years systems engineering, testing and compliance liaison for PumpWorks, and Part 11 compliance project manager for automated production and test systems at Boston Scientific. His engineering projects for the production of medical devices include substantial domestic and foreign facility experience. Mr. Johnson’s many years of experience as an executive in the life science industries and expertise with medical product design and regulatory issues are material factors which demonstrate his qualifications to serve on our Board of Directors..
James Martin. Mr. Martin has served as a director of the Company since July 2019. He is a retired Certified Public Accountant (“CPA”) and attorney whose career included his responsibility as Partner in Charge of KPMG’s tax practice for its Newport Beach, California office. In that role he provided and oversaw the rendition of tax services for numerous clients in varied industries including those for which KPMG provided a certified audit. He retains his AICPA membership and holds Accounting and Law Degrees from the University of Washington and, on a Fellowship, received a Master of Laws Degree from New York University. Mr. Martin’s extensive accounting expertise is a material factor which demonstrate his qualifications to serve on our Board of Directors.
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Randall A. Meyer. Mr. Meyer has served as a director since April 2015, and served as our Chief Operating Officer from April 2015 to November 2017. From January 2009 to April 2015, Mr. Meyer served as Chief Operating Officer of Gel-Del Technologies, Inc. while being in charge of all operational and marketing activities of Gel-Del. Prior to joining Gel-Del, Mr. Meyer’s substantial medical device industry management experience included being Chief Operating Officer of Softscope Medical Technologies, Inc. and being Chief Executive Officer of Tactile Systems Technology, Inc. Mr. Meyer’s role as the senior operational officer of Gel-Del for many years and his long experience as an executive officer of several companies in the medical device industry are material factors regarding his qualifications to serve on our Board of Directors.
Robert Rudelius. Mr. Rudelius has served as a director of the Company since August 2018. Currently, he is the Chief Executive Officer and Managing Director of Noble Ventures, LLC, a company he founded in 2001 that provides advisory and consulting services to early and mid-stage companies in the information technology, communications, medical technology and social e-commerce industries. He is also the co-founder, President & CEO of MedicaMetrix, Inc., a company that is building a commercialization engine that will launch a stream of medical devices aimed at delivering transformative healthcare solutions for unmet medical needs. From April 1999 through May 2001, when it was acquired by StarNet L.P., Mr. Rudelius was the founder and CEO of Media DVX, Inc., a start-up business that provided a satellite-based, IP-multicasting alternative to transmitting television commercials via analog videotapes to television stations, networks and cable television operators throughout North America. From April 1998 to April 1999, Mr. Rudelius was the President and Chief Operating Officer of Control Data Systems, Inc., during which time Mr. Rudelius reorganized and re-positioned the software company as a professional technology services company, resulting in the successful sale of the company to British Telecom. From October 1995 through April 1998, Mr. Rudelius was the founding Managing Partner of AT&T Solutions, Inc., a subsidiary of AT&T Inc. (NYSE: T) and headed the Media, Entertainment & Communications industry practice. From January 1990 through September 1995, Mr. Rudelius was a partner in McKinsey & Company’s information, technology and systems practice, during which time he headed the practice in Japan and the United Kingdom. Mr. Rudelius began his career at Arthur Andersen & Co. where he was a leader in the firm’s financial accounting systems consulting practice. Mr. Rudelius served as a member of the Axogen, Inc. (NASDAQ: AXGN) Board of Directors for ten years from September 2010 through September 30, 2020, where he served on the audit committee and as a member of the compensation committee. Mr. Rudelius has an M.B.A. from the Kellogg School of Management at Northwestern University and a B.S. in mathematics and economics from Gustavus Adolphus College in St. Peter, Minnesota. Mr. Rudelius’ qualifications to serve on our Board of Directors include his extensive executive leadership and financial experience, particularly in connection with rapid growth technology businesses, and his experience as a director of publicly traded companies
There are no family relationships between any of our executive officers and directors.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. To the Company’s knowledge, based solely on a review of the Form 3’s, 4’s and 5’s electronically filed with the SEC during fiscal 2021, all such filing requirements applicable to the Company’s directors, executive officers and greater than 10% beneficial owners were complied with, except Messrs. Carruth, Dolan and Meyer each filed 2 late Form 4’s reporting two transactions; James Martin filed 4 late Form 4’s reporting twenty two transactions; Messrs. Deming, Jasper, Johnson, Lai and Masters each filed 3 late Form 4’s reporting 3 transactions.
Committees of the Board of Directors
We have an Audit Committee, Compensation Committee, and Nominating Committee. Our Audit Committee consists of three independent directors who are David Deming, James Martin and Joseph Jasper, with Mr. Martin considered as an “audit committee financial expert” within the meaning of Regulation S-K of the SEC. Our Compensation Committee consists of three independent directors who are David Deming, Scott Johnson and Robert Rudelius. Our Nominating Committee consists of two independent directors who are Joseph Jasper and Robert Rudelius.
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Code of Ethics
We have adopted a Code of Ethics which applies to our board of directors, executive officers and other employees. Our Code of Ethics outlines the broad principles of ethical business conduct we have adopted, including subject areas such as confidentiality, conflicts of interest, corporate opportunities, public disclosure reporting, protection of company assets, and compliance with applicable laws. A copy of our Code of Ethics is available without charge to any person by written request to us at our principal offices at 5251 Edina Industrial Blvd., Edina, MN 55439.
Director Compensation
Directors who are also executive officers do not receive any compensation regarding their role as a director. John Lai and John Dolan are two directors who are also executive officers. Currently, our policy for non-executive director compensation is as follows: i) independent directors receive a grant of 25,000 warrants to purchase shares of our common stock at the exercise price on the date of grant for a term of with a 5-year term for each 2 years of service, ii) directors who serve on committees are compensated in cash or warrants, at the Company’s discretion, at various pre-set amounts for different levels of service ranging from $1,500 to $5,000 per year per director. We also have a clawback provision which provides that if a director quits or is terminated for service prior to the end of the fiscal year, all warrant issued to that director are automatically cancelled.
The following table provides information on compensation paid to our current non-management directors for their services as members of our board of directors during our fiscal year ended March 31, 2021:
| Name of director | Fees paid in cash | Stock awards ($)(1) | Warrant awards ($)(2) | All other compensation ($) | Total ($) | |||||||||||||||
| Gregory Cash | $ | 833.33 | $ | 16,185 | $ | 1,964 | $ | 15,000 | (3) | $ | 33,982.33 | |||||||||
| David Deming | $ | 1,250.00 | $ | 16,068 | $ | 1,964 | $ | 15,000 | (3) | $ | 34,282.00 | |||||||||
| Joseph Jasper | $ | 666.67 | $ | 13,814 | $ | 4,871 | $ | — | $ | 19,351.67 | ||||||||||
| Scott M. Johnson | $ | 833.33 | $ | 13,950 | $ | 982 | $ | — | $ | 15,765.33 | ||||||||||
| James Martin | $ | 833.33 | $ | 13,953 | $ | 1,964 | $ | — | $ | 16,750.33 | ||||||||||
| Dr. David Masters | $ | — | $ | 13,403 | $ | 95,990 | $ | 71,500 | (3) | $ | 180,893.00 | |||||||||
| Randall Meyer | $ | 833.33 | $ | 15,825 | $ | 982 | $ | 15,000 | (3) | $ | 32,640.33 | |||||||||
| Robert Rudelius | $ | 1,083.33 | $ | 15,942 | $ | 5,853 | $ | — | $ | 22,878.33 | ||||||||||
| (1) | The value in this column reflects the aggregate grant date fair value of the stock award as computed in accordance with ASC Topic 718. Information regarding the valuation assumptions used in the calculations are included in “Note 15 – Common Stock and Warrants” to our audited consolidated financial statements included in this form 10-K. |
| (2) | The value in this column reflects the aggregate grant date fair value of the warrants as computed in accordance with ASC Topic 718. Information regarding the valuation assumptions used in the calculations are included in “Note 15 – Common Stock and Warrants” to our audited consolidated financial statements included in this form 10-K. As of March 31, 2021, the aggregate number of warrants outstanding (vested and unvested) for Mr. Cash was 27.099, for Mr. Deming was 57,354, for Mr. Jasper 48,225, for Mr. Johnson was 25,376, for Mr. Martin was 22,500, for Dr. Masters was 41,700, for Mr. Meyer was 13,423 and Mr. Rudelius was 45,729. |
| (3) | Represents consulting fees paid to these directors. |
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ITEM 11. EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paid to or earned by our named executive officers for the fiscal years ended March 31, 2020 and 2021.
| Name and Principal Position | Year | Salary ($) | Stock Awards ($)(1) | Warrant Awards ($)(1) | All Other Compensation ($) | Total ($) | |||||||||||||||||
| John Lai, CEO and President (2) | 2021 | 91,668 | 100,860 | 47,742 | 240,270 | ||||||||||||||||||
| 2020 | 34,797 | (3) | 0 | 360,684 | (4) | 116,000 | (5) | 511,481 | |||||||||||||||
| John Carruth, Former CFO (6) | 2021 | 87,197 | 78,549 | — | — | 165,746 | |||||||||||||||||
| 2020 | 100,000 | 0 | 249,978 | 0 | 349,978 | ||||||||||||||||||
| John F. Dolan, General Counsel and Secretary (7) | 2021 | — | 68,982 | 4,308 | 40,250 | (8) | 113,540 | ||||||||||||||||
| 2020 | 0 | 134,546 | 83,000 | (9) | 217,546 | ||||||||||||||||||
| (1) | The values in these columns reflect the aggregate grant date fair value of the stock awards and warrant awards as computed in accordance with ASC Topic 718. Information regarding the valuation assumptions used in the calculations are included in “Note 15 – Common Stock and Warrants” to our audited consolidated financial statements included in this form 10-K. |
| (2) | Mr. Lai was appointed to serve as the Company’s CEO in June 2019. |
| (3) | In lieu of receiving cash for $30,000 in accrued compensation owed to him, Mr. Lai received warrants to purchase an aggregate of 19,847 shares of our common stock at an exercise price of $1.95 per share. The warrants were fully vested and expire five years after the grant date. |
| (4) | Mr. Lai failed to meet the performance requirements for warrants to purchase 22,500 shares on October 31, 2020. These warrants had a fair market value of $34,648 and were forfeited on October 30, 2019. |
| (5) | In lieu of receiving cash for $116,000 in accrued compensation owed to him for services rendered in fiscal 2018-2019, Mr. Lai received 87,000 shares of the Company’s common stock as settlement for this accrued compensation. |
| (6) | Mr. Carruth served as our Acting Chief Financial Officer from December 2018 until July 2019 and as our Chief Financial Officer since July 2019. Mr. Carruth resigned from his position as our Chief Financial Officer on April 9, 2021. |
| (7) | Mr. Dolan has served as our General Counsel since November 2019. He is an independent contractor. |
| (8) | Includes consulting fees of $40,000 ($10,000 of which has been accrued but not paid) and $250 in director’s fees. |
(9)
|
Includes (i) $68,000 in deferred compensation for fiscal 2018-2019 and, (ii) $30,000 in deferred consulting fees for fiscal 2020. In lieu of receiving $98,000 in accrued compensation owed to him, Mr. Dolan agreed to accept 51,000 shares of the Company’s common stock and warrants to purchase an aggregate of 12,799 shares of the Company’s common stock. Please see “Executive Employment and Consulting Agreements - John Dolan” for more detail. |
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OUTSTANDING EQUITY AWARDS
The table below provides information regarding unexercised option and warrants awards held by each of our named executive officers as of our fiscal year-end, March 31, 2021, as adjusted for the Reverse Stock Split.
| Option Awards | ||||||||||||||||
| Name | Grant Date | Number of Securities Underlying Unexercised Options Exercisable | Number of Securities Underlying Unexercised Option Unexercisable | Option Exercise Price ($) | Option Expiration Date | |||||||||||
| John Lai | 3/31/2020 | 24,523 | (1) | — | $ | 1.27 | 3/31/2025 | |||||||||
| 6/30/2020 | 7,441 | (1) | $ | 1.60 | 6/30/2025 | |||||||||||
| 6/8/2020 | 22,500 | (2) | 22,500 | (2) | $ | 1.40 | 6/8/2025 | |||||||||
| 6/02/2017 | 42,188 | (3) | — | $ | 1.33 | 6/30/2021 | ||||||||||
| 12/31/2019 | 19,847 | (1) | — | $ | 1.95 | 12/31/2024 | ||||||||||
| 10/31/2019 | 45,000 | (4) | 90,000 | (4) | $ | 2.24 | 10/31/2024 | |||||||||
| John Carruth | 12/10/2018 | 33,750 | (5) | $ | 1.33 | 12/10/2023 | ||||||||||
| 4/30/2018 | 18,000 | (6) | — | $ | 1.33 | 4/30/2023 | ||||||||||
| 10/31/2019 | 45,000 | (7) | 67,500 | (7) | $ | 4.44 | 10/30/2024 | |||||||||
| John F. Dolan | 1/15/2019 | 42,188 | (1) | — | $ | 1.20 | 1/15/2029 | |||||||||
| 3/31/2020 | 8,829 | (1) | — | $ | 1.27 | 3/31/2025 | ||||||||||
| 12/31/2019 | 3,970 | (1) | — | $ | 1.95 | 12/31/2024 | ||||||||||
| 10/31/2019 | 21,375 | (8) | 33,750 | (8) | $ | 2.24 | 10/31/2024 | |||||||||
| (1) | These warrants were granted to Mr. Lai and Mr. Dolan in lieu of compensation and vested immediately on their grant dates. |
| (2) | Mr. Lai was granted a warrant to purchase 22,500 shares of our common stock at an exercise price of $1.40 per share. The warrants have a five year term and vest based on the satisfaction of certain performance conditions, which requires the Company to complete a capital raise of at least $5 million on or before October 31, 2020. |
| (3) | These warrants were granted to Mr. Lai for serving as our President and vested semi-annually over a 2 year period from their grant date and were fully vested as of March 31, 2020. |
| (4) | Mr. Lai was granted a warrant to purchase up to 135,000 shares of our common stock at an exercise price of $2.24 per share pursuant to his employment agreement. The warrants have a five-year term and 90,000 warrants vest quarterly over a three-year term and 45,000 warrants vest based on certain performance conditions; 22,500 of which have expired and 22,500 of which vest if the Company completes a successful listing on the Exchange and sustaining a stock price of at least $16.00 for the thirty consecutive days of trading. |
| (5) | Mr. Carruth was granted a warrant to purchase 33,750 shares of our common stock at an exercise price of $1.33 per share for acting CFO services. The warrants have a five-year term and vest at the rate of 1/8 per quarter (4,219) beginning on December 31, 2018. |
| (6) | Mr. Carruth was granted a warrant to purchase 18,000 shares of our common stock at an exercise price of $4.44 per share for serving as the Controller. These warrants have a five-year term and vested at the rate of 1/8 per quarter (2,250) beginning on June 30, 2018. |
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| (7) | Mr. Carruth was granted a warrant to purchase up to 90,000 shares of our common stock at an exercise price of $2.24 per share pursuant to his employment agreement. These warrants have a five-year term and vest quarterly over a three-year term. He also received a warrant to purchase up to 22,500 shares of the Company’s common stock at an exercise price of $2.24 per share that vest upon certain milestones, which includes vesting of (i) 11,250 shares upon the Company’s filing and approval of an S-1 registration statement by the SEC and (ii) 11,250 shares on the date of completion of a successful uplisting to the Exchange or similar national exchange. |
| (8) | Mr. Dolan received a warrant to purchase 55,125 shares of the Company’s common stock at an exercise price of $2.24 per share for his services as an independent contractor, of which 10,125 vested immediately, 22,500 warrants vest upon achieving certain performance milestones and 22,500 vest in equal installments of 1,875 warrants each quarter over the three years ended September 30, 2022. |
LONG-TERM INCENTIVE PLANS
There are no arrangements or plans in which we provide pension, retirement or similar benefits for directors or executive officers. We do not have any material bonus or profit-sharing plans pursuant to which cash or non-cash compensation is or may be paid to our directors or executive officers.
2020 Equity Incentive Plan
The PetVivo Holdings, Inc. 2020 Equity Incentive Plan (“Plan”) was adopted by the Board of Directors on July 10, 2020 and approved by our stockholders on September 22, 2020 The Plan permits the following types of awards: stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards and other types of awards. The Company reserved 1,000,000 shares of common stock for issuance under the 2020 Plan. As of March 31, 2021, the Company had not granted any stock awards under the 2020 Plan. The Plan will terminate on July 10, 2030.
EXECUTIVE AND CONSULTANT AGREEMENTS
John Lai
On October 1, 2019, we entered into employment agreement with John Lai to serve as our Chief Executive Officer for a term of three years to expire on September 30, 2022. This agreement may be terminated by the Company without cause at any time upon 10 days’ notice or for Cause (as defined in Mr. Lai’s employment agreement). Mr. Lai’s annual base salary is a minimum of $100,000 or such higher annual salary, if approved by the Board. The Board may elect to pay Mr. Lai’s salary in cash or warrants to purchase shares of the Company’s common stock at 125% of the cash value calculated using the volume weight average price of the Company’s common stock in the last week of the quarter that the base salary is accrued but that conversion rate shall never be less than $1.40 per share. Mr. Lai is eligible to receive discretionary bonuses, as determined by the Board and is eligible for all employee benefits provided to executives of similar tenure. Mr. Lai’s employment agreement contains customary confidentiality and non-competition provisions which survive for a period of one year after his employment with the Company is terminated.
Fiscal 2020 Compensation
In fiscal 2020, most of Mr. Lai’s compensation was in the form of equity. Mr. Lai received $4,000 in cash for salary payments and the balance of his compensation was in equity. Mr. Lai agreed to convert $30,000 in accrued compensation owed to him for services in fiscal 2020 into warrants to purchase an aggregate of 19,847 shares of our common stock at an exercise price of $1.95 per share. The warrants were fully vested and expire five years after the grant date. Additionally, he agreed to convert $116,000 in accrued compensation owed to him from fiscal 2018-2019 into 87,000 shares of our common stock in September 2019.
On October 31, 2019, the Board approved a compensation plan for John Lai that included his retention of 150,000 escrowed shares. On October 31, 2019, Mr. Lai was granted a warrant to purchase up to 135,000 shares of our common stock at an exercise price of $2.24 per share. The warrants have a five-year term and 90,000 warrants vest quarterly over a three-year term and 45,000 warrants will vest based on certain performance conditions; 22,500 of which were forfeited because the Company did not meet the performance condition of completing a raise of at least $10 million on or before March 31, 2020. The remaining 22,500 warrants will vest if the Company completes a successful listing on the Exchange and sustaining a stock price of at least $16.00 for the thirty consecutive days of trading on or before October 31, 2022.
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On December 16 2019, the Company entered into an agreement (“Escrow Agreement”) with Mr. Lai pursuant to which 254,018 shares held by Mr. Lai are held in escrow. These shares will be released from escrow if: (i) PetVivo obtains equity financing in an amount of at least $5 million and (ii) PetVivo’s listing on Nasdaq, the New York Stock Exchange or an equivalent securities exchange. If none of these conditions are satisfied, all of the shares held in escrow will be transferred to the treasury of PetVivo for cancellation. Furthermore, if John Lai is terminated for cause or voluntarily resigns from his position at PetVivo, all of the shares will be cancelled. If Mr. Lai is terminated without cause, all of the shares held in escrow will be returned to him.
On March 31, 2020, the Board granted Mr. Lai a warrant to purchase 24,523 shares of the Company’s common stock with an exercise price of $1.27 per share for compensatory purposes. The warrants are immediately exercisable and will expire on March 31, 2025.
Fiscal 2021 Compensation
In fiscal 2021, Mr. Lai received a mix of both cash and equity compensation. He received a $91,668 in cash compensation. In June 2020, he received a warrant to purchase 7,441 shares of common stock for compensatory purposes. These warrants have an exercise price of $1.60 per share, vested immediately and expire in June 2025. In addition, he received a warrant to purchase 22,500 shares of the Company’s common stock, based on the milestone of the Company completing a capital raise in excess of $10 million by October 31, 2020. The Company did not meet this milestone by October 31, 2020, so Mr. Lai forfeited these warrants. On September 16, 2020, the Company granted Mr. Lai a bonus of 33,619 shares for exemplary work.
John Carruth
On October 1, 2019, we entered into an employment agreement, with John Carruth to serve as our Chief Financial Officer for a term of three years, to expire on September 30, 2022. This agreement may be terminated by the Company at any time upon 10 days’ notice or for Cause (as defined in Mr. Carruth’s employment agreement). Under this agreement, Mr. Carruth’s annual base salary is a minimum of $100,000 or such higher annual salary, approved by the Board. The Board may elect to pay Mr. Carruth’s salary in cash or warrants to purchase shares of the Company’s common stock at exercise price of $1.40 per share. Mr. Carruth is eligible to receive discretionary bonuses, as determined by the Board and is eligible for all employee benefits provided to executives of similar tenure. Mr. Carruth’s employment agreement contains customary confidentiality and non-competition provisions which survive for a period of one year after his employment with the Company is terminated.
We amended our employment agreement with Mr. Carruth pursuant to an amendment (“Amendment”) dated June 15, 2020, with an effective date of April 14, 2020 to provide that Mr. Carruth’s employment would be part-time and reduced his salary to a maximum of $33,000 per year. All other terms of his employment agreement remained the same. In December 2020, Mr. Carruth advised the Company that he would be able to serve as a full-time employee. We amended his employment agreement to provide that Mr. Carruth’s employment would be full time and increased his salary to at least $100,000 per year pursuant to a second amendment dated and effective as of January 20, 2021,. All other terms of the employment agreement remain the same.
Mr. Carruth resigned from his position as our Chief Financial Officer effective as of April 9, 2021.
Fiscal 2020 Compensation
In fiscal 2020, Mr. Carruth received a mix of both cash and equity compensation. He was a full-time employee in fiscal 2020 and received a base salary of $100,000 and warrants to purchase an aggregate of 112,500 shares of the Company’s common stock at an exercise price of $2.24 per shares, of which 90,000 warrants will vest on a pro-rata basis each quarter over a 3 year period and 22,500 warrants will vest based upon the Company achieving certain milestones. The performance vesting requirements are as follows: warrants to purchase 11,250 shares will vest upon the Company’s filing and approval of an S-1 registration statement by the SEC on or before October 31, 2024 and (ii) warrants to purchase 11,250 shares will vest on the date of completion of a successful uplisting to the Exchange or similar national exchange on or before October 31, 2014.
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Fiscal 2021 Compensation
In fiscal 2021, Mr. Carruth received a mix of both cash and equity compensation. He was a full-time employee for approximately 3 months and a part-time employee for 9 months in fiscal 2021. His annual cash compensation was $87,197 and he received a grant of 26,217 shares of restricted stock as compensation for exemplary work.
John Dolan
We entered into an independent contractor agreement with John Dolan, our General Counsel and Secretary on November 20, 2019. This agreement has a term of three years and is set to expire on September 30, 2022. Mr. Dolan will receive compensation at the rate of $3,000 per month for the performance of general counsel services, which shall be provided for approximately 25% of his normal monthly time allocated to such services. The Company may pay the monthly compensation at its discretion in cash or warrants for common at 125% of the cash value calculated by using the volume weighted average price of the Company’s common stock in the last week of the quarter that compensation is accrued. In April 2021, the Compensation Committee increased Mr. Dolan’s monthly consulting fee to $5,000 per month.
Fiscal 2020 Compensation
In fiscal 2020, Mr. Dolan received only equity compensation from the Company. He agreed to accept equity compensation in exchange for certain outstanding consulting fees that were due to him. In September 2019, he agreed to accept 51,000 shares of the Company’s common stock in exchange for $58,000 in accrued compensation that was payable to him. In December 2019, Mr. Dolan agreed to accept warrants to purchase 3,970 shares of the Company’s common stock at an exercise price of $1.95 per share in exchange for $6,000 in consulting fees owed to him. These warrants were immediately exercisable and expired on December 31, 2024. In March 2020, Mr. Dolan agreed to accept warrants to purchase 8,829 shares of our common stock at an exercise price of $1.27 per share in exchange for $9,000 in consulting fees that were due to him. These warrants were immediately exercisable and expired on March 31, 2025.
On December 31, 2019, Mr. Dolan received a warrant to purchase 55,125 shares of the Company’s common stock at an exercise price of $2.24 per share, of which 10,125 vested immediately, 22,500 warrants vest upon achieving certain performance milestones and 22,500 vest in equal installments of 1,875 warrants each quarter over the three years ended September 30, 2022. All of these 55,125 warrants expire on October 31, 2024.
Fiscal 2021 Compensation
In fiscal 2021, Mr. Dolan received a mix of cash and equity compensation. He received $30,000 in consulting fees from the Company, with an additional $10,000 accrued but not paid as of March 31, 2021, and $250 for serving as a director. He also received a grant of 22,993 shares of restricted stock to Mr. Dolan as compensation for exemplary work in September 2020.
Robert J. Folkes
We entered into an employment agreement with Robert J. Folkes, our Chief Financial Officer, on April 14, 2021. Mr. Folkes will receive an annual base salary of $190,000 per year. The employment agreement is for a term of approximately two years and nine months and terminates on January 31, 2024. The Company may terminate Mr. Folkes employment at any time upon 10 days advance written notice or for Cause (as defined in the Employment Agreement).
Mr. Folkes is eligible to receive an incentive bonus annual target of 50% of base salary ($95,000) based upon the achievement of performance goals developed for each year by the Company’s Board and Compensation Committee. Any bonus earned as a result of the Company’s fiscal 2021 performance will be pro-rated based on Mr. Folkes’ start date. He is also eligible to receive all benefits offered to the Company’s employees.
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Effective as of April 14, 2021, we granted Mr. Folkes 34,000 Restricted Stock Grants (“RSUs”) from the Company’s 2020 Equity Incentive Plan. The RSU’s vest in three installments, based on continued employment as follows: 10,000 RSU’s vest on January 1, 2022, 10,000 RSU’s vest on January 1, 2023 and 14,000 vest on January 1, 2024.
David Masters
We entered into an independent contractor agreement with Dr. David Masters, our Director of Science and Technology, for a six month period to begin effective as of September 1, 2020. Dr. Masters is working on a part-time basis as an independent contractor for the Company and is not an executive officer of the Company. Under the Consulting Agreement, Dr. Masters will receive a monthly payment of $10,500. In addition, Dr. Masters will be eligible to receive cash performance bonuses in the amounts of $25,000 and $20,000, respectively, for meeting two significant milestones focused upon the further development and manufacture of the Company’s osteoarthritis product, Kush®, and the Company’s first commercial mucoadhesive active agent delivery product. Additionally, the Company issued Dr. Masters a warrant allowing Dr. Masters the right to purchase 120,000 restricted shares of the Company’s common stock. The warrant shares shall vest in four equal increments of 30,000 warrant shares at the end of each month for the first four months of engagement.
The Consulting Agreement further contains customary non-competition, confidentiality, and intellectual property assignment provisions. The Consulting Agreement expired on December 31, 2020.
Potential Payments Upon Termination of Employment or Change-in-Control
Termination and Change-in-Control Agreements or Arrangements
We do not have any contracts, agreements, or arrangements with any of our named executive officers providing for additional benefits or payments in connection with a termination of employment, change in job responsibility, or change-in-control. Upon termination of employment for any reason, all unvested restricted stock units expire.
Change in Control Provisions of the 2020 Plan
Subject to the terms of the applicable award agreement or an individual agreement between the Company and a participant, upon a change in control, the Board may, in its discretion, determine whether some or all outstanding options shall become exercisable in full or in part, whether the restriction period and performance period applicable to some or all outstanding restricted stock awards and restricted stock units, shall lapse in full or in part, and whether the performance measures applicable to some or all outstanding awards shall be deemed to be satisfied. The Board may further require that shares of stock of the Company resulting from such a change in control, thereof, be substituted for some or all of our shares of common stock subject to an outstanding award and that any outstanding awards, in whole or in part, be surrendered to us by the holder, to be immediately cancelled by us, in exchange for a cash payment, shares of capital stock of the corporation resulting from or succeeding us, or a combination of both cash and such shares of stock.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of March 31, 2021 (the “Record Date”), after applying the Reverse Stock Split, we had 6,799,113 shares of our common stock issued and outstanding. The following table sets forth, as of the Record Date, information concerning the beneficial ownership of shares of our common stock held by our directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than 5% of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than 5% of our outstanding common stock is c/o PetVivo Holdings, Inc., 5251 Edina Industrial Blvd., Edina, MN 55439. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
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As used in this section, the term “beneficial ownership” with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which provide that shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or become exercisable within 60 days of the date of the table are deemed beneficially owned by their holders. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them.
| Name of Beneficial Owners, Officers and Directors | Amount and Nature of Beneficial Owner | Percent of Class | ||||
| John Lai | 1,010,077 shares (1) | 14.86 | % | |||
| John Carruth | 122,967 shares (2) | 1.81 | % | |||
| John F. Dolan | 552,601 shares (3) | 8.13 | % | |||
| David B. Masters | 1,155,782 shares (4) | 17.00 | % | |||
| Randall A. Meyer | 555,325 shares (5) | 8.17 | % | |||
| Scott Johnson | 180,715 shares (6) | 2.66 | % | |||
| Gregory Cash | 42,890 shares (7) | 0.63 | % | |||
| David Deming | 71,666 shares (8) | 1.05 | % | |||
| James Martin | 83,437 shares (9) | 1.23 | % | |||
| Joseph Jasper | 57,434 shares (10) | 0.84 | % | |||
| Robert Rudelius | 180,070 shares (11) | 2.65 | % | |||
| All directors and named executive (officers as a group 11 persons) | 4,012,964 shares (12) | 59.02 | % | |||
| 5% Stockholders | ||||||
| Stanley Cruden | 591,081 shares (13) | 8.69 | % | |||
| (1) | Amount consists of 871,077 shares owned directly by Mr. Lai, of which 254.018 shares (“Escrowed Shares”) are held purusuant to the Escrow Agreement, and warrants to purchase 139,000 shares that are vested or will vest within 60 days of the Record Date. The Escrowed Shares will be released to Mr Lai when the Company obtains an equity financing in an amount of at least $5 million and the Company’s common stock is listed on Nasdaq, the New York Stock Exchange or an equivalent securities exchange. If none of these conditions are satisfied. all of the Escrowed Shares will be transferred to the treasury of PetVivo for cancellation. Furthermore. if John Lai is terminated for cause or voluntarily resigns from his position at PetVivo. all of the Escrowed Shares will be cancelled. If Mr. Lai is terminated without cause. all of the Escrowed Shares held in escrow will be returned to him. |
| (2) | Amount consists of 26,217 shares owned directly by Mr. Carruth and warrants to purchase 96,750 shares that are vested or will vest within 60 days of the Record Date. Mr. Carruth served as the Chief Financial Officer of the Company for the 2020 fiscal year, and resigned on April 9, 2021. |
| (3) | Amount consists of 476,239 shares held directly by Mr. Dolan and warrants to purchase 76,362 shares that are vested or will vest within 60 days of the Record Date. |
| (4) | Amount consists of 1,114,082 shares held directly by Dr. Masters and warrants to purchase 41,700 shares that are vested or will vest within 60 days of the Record Date. |
| (5) | Amount consists of 541,902 shares that are owned directly by Mr. Meyer and includes warrants to purchase 13,423 shares that are vested or will vest within 60 days of the Record Date. |
| (6) | Amount consists of 155,339 shares held by Mr. Johnson directly, and includes warrants to purchase 25,376 shares that are vested or will vest within 60 days of the Record Date. |
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| (7) | Amount consists of 15,791 shares held by Mr. Cash directly and warrants to purchase 27,099 shares that are vested or will vest within 60 days of the Record Date. |
| (8) | Amount consists of 14,312 shares held by Mr. Deming directly or with his spouse, and warrants to purchase 57,354 shares that are vested or will vest within 60 days of the Record Date. |
| (9) | Amount consists of 60,937 shares held by Mr. Martin directly, his two IRA accounts, by Martinmoore Holdings, LLP, a company controlled by Mr. Martin who exercises sole voting and dispositive power over the shares, warrants to purchase 22,500 shares that are vested or will vest within 60 days of the Record Date. |
| (10) | Amount includes 9,209 shares held directly by Mr. Jasper and warrants to purchase 48,225 shares that are vested or will vest within 60 days of the Record Date. |
| (11) | Amount includes 134,341 shares held by Mr. Rudelius directly, in his IRA, and by Noble Ventures, LLC, a company controlled by Mr. Rudelius and warrants to purchase 45,729 shares that are vested or will vest within 60 days of the Record Date. |
| (12) | Amount includes warrants owned by all of our named executive officers and directors, as a group, to purchase an aggregate of 593,521 shares that are vested or will vest within 60 days of the Record Date. |
| (13) | As reported in Mr. Cruden’s Amendment No. 3 to his Schedule 13G filed with the SEC on December 14, 2020. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The following is a summary of the transactions since April 1, 2018 between the Company and its executive officers, directors, nominees for directors, principal shareholders and related parties involves amounts in excess of $60,000 or that the Company has chosen to voluntarily disclose.
David Masters
Effective September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant to (i) an Amendment to Promissory Note (“Amendment”) which amended certain outstanding promissory notes dated September 5, 2013, February 11, 2014 and August 14, 2014 (collectively, the “Outstanding Notes”) issued by Gel-Del, the Company’s wholly-owned subsidiary, with an aggregate amount owed of $65,700 and (ii) a Promissory Note (“Note”) having a principal amount of $195,000, which represents accrued salary owed to Dr. Masters. The Amendment extends, for up to an additional two years and under the same terms as originally entered into, the Outstanding Notes. The Company also entered into a Settlement and General Release (“Settlement Agreement”) with Dr. Masters that provides for the settlement and general release of any and all past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters may have had, may currently have or may acquire against the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial condition of Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters and his affiliates and the Company on or prior to the September 1, 2020 or (c) the employment of Dr. Masters by the Company (except for claims directly relating to the breach of the Amendment, the Note or the Consulting Agreement).
Effective October 15, 2020 we entered into a note conversion agreement with David B. Masters in which he agreed to convert his Promissory Note having an outstanding principal amount of $192,500 plus a conversion fee of $3,500 into units (the “Units”) consisting of one share of the Company’s common stock and one warrant to purchase one share of Common Stock, as part of the Company’s public offering of Units. The number of Units to be issued pursuant to the conversion of the Note shall be determined by dividing the conversion amount of $196,000 by the per Unit price at which the Company sells Units in its public offering.
As of March 31, 2021, the Company owes David Masters an aggregate amount of $240,554. Assuming this offering is completed and the Promissory Note is converted into shares of our common stock, the Company’s total amount of indebtedness to David Masters will be approximately $44,554.
On September 4, 2020, the Company granted warrants for 30,000 shares of its common stock valued at $96,000 to David Masters for production and manufacturing consulting services, at a price of $1.40 per share, vesting in equal monthly amounts over the four-month period ending December 31, 2020 for a term of 5 years from the date of the grant.
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John Lai
On December 16, 2019, PetVivo, John Lai, Wesley Hayne and Edward Wink entered into an escrow agreement which replaced the prior escrow agreement dated June 7, 2017. Pursuant to the escrow agreement, John Carruth, the CFO and acting escrow agent is holding 254,018 shares issued in the name of Mr. Lai in escrow, which shares will be released when (i) PetVivo obtains equity financing in an amount of at least $5 million and (ii) PetVivo’s listed on Nasdaq, the New York Stock Exchange or an equivalent securities exchange. If none of these conditions are satisfied, all of the shares held in escrow will be transferred to the treasury of PetVivo for cancellation. Furthermore, if John Lai is terminated for cause or voluntarily resigns from his position at PetVivo, all of the shares will be cancelled. If Mr. Lai is terminated without cause, all of the shares held in escrow will be returned to him.
In February of 2020, the Company issued John Lai 15,349 shares of common stock pursuant to his cashless conversion of an outstanding warrant for 42,188 shares of common stock with a strike price of $1.48 per share.
On October 30, 2020, Mr. Lai converted 42,188 warrants into common stock with an exercise and conversion price of $1.33 per share into 32,347 shares of our common stock on a cashless basis pursuant to the warrant’s cashless conversion feature. In January 2021, Mr. Lai converted 42,188 warrants into common stock with an exercise and conversion price of $1.33 per share into 38,516 shares of our common stock on a cashless basis pursuant to the warrant’s cashless conversion feature
John Lai, John Dolan and Randy Meyer
On September 11, 2019, the Company issued an aggregate of 323,967 shares of common stock to John Lai, John Dolan and Randy Meyer, a former employee and current director of the Company, an aggregate amount of $455,965 in exchange for their forgiveness of an aggregate amount of $455,965 in accrued salary and release of all claims against the Company for unpaid compensation.
Director Independence
Six of our directors are deemed independent, who are Messrs. Cash, Deming, Jasper, Johnson, Martin, Rudelius, and Cash.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Audit Fees
The aggregate fees billed for the fiscal years ended March 31, 2020 and 2021 for professional services rendered by the principal accountant for the audit of our annual financial statements included in our Form 10-K and review of our quarterly unaudited financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings or engagements for those fiscal years were $31,100 and $45,130, respectively. Assurance Dimensions provided services for the years ended March 31, 2020, and March 31, 2021.
Audit-Related Fees
For the fiscal years ended March 31, 2020 and 2021, there were no fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed above under “Audit Fees.”
Tax Fees
For the fiscal years ended March 31, 2020 and 2021, there were no fees billed for services for tax compliance, tax advice, and tax planning work by our principal accountants.
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All Other Fees
None.
Pre-Approval Policies and Procedures
Prior to engaging our accountants to perform a particular service, our Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a) | Financial Statements. |
Included in Item 8
| (b) | Exhibits required by Item 601. |
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*Filed herewith
+ Indicates compensatory plan
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SIGNATURES
Pursuant to the requirements of theSection 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
| PetVivo
Holdings, Inc., a Nevada corporation | ||
| June 28, 2021 | By: | /s/ John Lai |
| John Lai | ||
| Its: | CEO, President and Director (Principal Executive Officer) | |
| June 28, 2021 | By: | /s/ Robert J. Folkes |
| Robert J. Folkes | ||
| Its: | Chief Financial Officer (Principal Financial and Accounting Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| /s/ John Lai | June 28, 2021 | |
| John Lai | ||
| CEO, President and Director | ||
| (Principal Executive Officer) |
| /s/ Robert J. Folkes | June 28, 2021 | |
| Robert J. Folkes | ||
| Chief Financial Officer | ||
| /s/ John Dolan | June 28, 2021 | |
| John Dolan | ||
| Secretary and Director |
| /s/ Randall Meyer | June 28, 2021 | |
| Randall Meyer | ||
| Director |
| /s/ Robert Rudelius | June 28, 2021 | |
| Robert Rudelius | ||
| Director |
| /s/ David Deming | June 28, 2021 | |
| David Deming | ||
| Director |
| /s/ Joseph Jasper | June 28, 2021 | |
| Joseph Jasper | ||
| Director | ||
| /s/ Scott Johnson | June 28, 2021 | |
| Scott Johnson | ||
| Director | ||
| /s/ David A. Masters | June 28, 2021 | |
| David A. Masters, Ph.D. | ||
| Director | ||
| /s/ Gregory Cash | June 28, 2021 | |
| Gregory Cash | ||
| Director | ||
| /s/ James Martin | June 28, 2021 | |
| James Martin | ||
| Director |
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PETVIVO, INC.
INDEX TO FINANCIAL STATEMENTS
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
of 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, 2021 and 2020, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended March 31, 2021 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, 2021 and 2020, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2021, 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 that the Company will continue as a going concern. As discussed in Note 14 to the financial statements, the Company has suffered recurring losses for the year ended March 31, 2021. For the year ended March 31, 2021, the Company had a net loss of $3,522,780 and net cash used in operating activities of $1,047,329; and as of March 31, 2021 an accumulated deficit of $58,111,426, and had negative working capital of $1,257,895. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 14. 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 consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company 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 standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated 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. 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 consolidated 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 consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
We did not identify any critical audit matters that need to be communicated.
| /s/ Assurance Dimensions | |
| We have served as the Company’s auditor since 2019. | |
| Margate, Florida | |
| June 28, 2021 |
| F-2 |
CONSOLIDATED BALANCE SHEETS
| March 31, 2021 | March 31, 2020 | |||||||
| Assets: | ||||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | 23,578 | $ | 888 | ||||
| Accounts receivable | — | 1,000 | ||||||
| Equity sale proceeds receivable | — | 52,000 | ||||||
| Restricted cash | — | 9,694 | ||||||
| Inventory, net | — | — | ||||||
| Prepaid expenses and other assets | 123,575 | 133,523 | ||||||
| Total Current Assets | 147,153 | 197,105 | ||||||
| Property and Equipment, net | 214,038 | 109,907 | ||||||
| Other Assets: | ||||||||
| Deferred offering costs | 280,163 | — | ||||||
| Operating lease right-of-use asset | 157,760 | 148,693 | ||||||
| Patents and trademarks-net | 27,932 | 58,611 | ||||||
| Security Deposit | 8,201 | 8,201 | ||||||
| Total other Assets | 474,056 | 215,505 | ||||||
| Total Assets | $ | 835,247 | $ | 522,517 | ||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable and accrued expenses | $ | 962,885 | $ | 794,057 | ||||
| Convertible notes and accrued interest | 235,671 | — | ||||||
| Accrued expenses – related parties | 36,808 | 252,607 | ||||||
| Operating lease liability – short term | 26,582 | 24,791 | ||||||
| PPP Loan and accrued interest | 39,020 | — | ||||||
| Notes payable and accrued interest - directors | 20,000 | — | ||||||
| Notes payable and accrued interest – related party | 44,554 | 61,255 | ||||||
| Note payable and accrued interest | 39,528 | 15,095 | ||||||
| Total Current Liabilities | 1,405,048 | 1,147,805 | ||||||
| Other Liabilities | ||||||||
| Convertible notes and accrued interest payable | — | 286,981 | ||||||
| Operating lease liability (net of current) | 131,178 | 123,901 | ||||||
| Share-settled debt obligation – related party, net of debt discount | 196,000 | — | ||||||
| Total Other Liabilities | 327,178 | 410,882 | ||||||
| Total Liabilities | $ | 1,732,226 | $ | 1,558,687 | ||||
| Commitments and Contingencies (see Note 13) | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, par value $0.001, 20,000,000 shares authorized, issued 0 and 0 shares outstanding at March 31, 2021 and March 31, 2020 | ||||||||
| Common stock, par value $0.001, 250,000,000 shares authorized, issued 6,799,113 and 5,727,965 shares outstanding at March 31, 2021 and March 31, 2020 | 6,799 | 5,728 | ||||||
| Common Stock to be issued | — | 52,000 | ||||||
| Additional Paid-In Capital | 57,207,648 | 53,494,748 | ||||||
| Accumulated Deficit | (58,111,426 | ) | (54,588,646 | ) | ||||
| Total Stockholders’ Deficit | (896,979 | ) | (1,036,170 | ) | ||||
| Total Liabilities and Stockholders’ Deficit | $ | 835,247 | $ | 522,517 | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-3 |
CONSOLIDATED STATEMENTS OF OPERATIONS
| Year Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Revenues | $ | 12,578 | $ | 3,588 | ||||
| Cost of Sales | 10,695 | 19,710 | ||||||
| Gross Profit (Loss) | 1,883 | (16,122 | ) | |||||
| Operating Expenses: | ||||||||
| General and Administrative | 1,767,664 | 1,815,829 | ||||||
| Research and Development | 98,230 | 12,672 | ||||||
| Sales and Marketing | 94,977 | 171,509 | ||||||
| Total Operating Expenses | 1,960,871 | 2,000,010 | ||||||
| Loss from operations | (1,958,988 | ) | (2,016,132 | ) | ||||
| Other Income (expense) | ||||||||
| Derivative expense | (1,702,100 | ) | — | |||||
| Interest expense | (228,595 | ) | (32,185 | ) | ||||
| Gain on Settlements | — | 47,710 | ||||||
| Loss on Sale of Assets | — | (389 | ) | |||||
| Gain (Loss) on Extinguishment of Debt | 366,903 | (81,738 | ) | |||||
| Total Other Income (Expense) | (1,563,792 | ) | (66,602 | ) | ||||
| Net Loss before income taxes | (3,522,780 | ) | (2,082,734 | ) | ||||
| Income Tax Provision | — | — | ||||||
| Net Loss | $ | (3,522,780 | ) | $ | (2,082,734 | ) | ||
| Net Loss Per Share – Basic and Diluted | (0.57 | ) | (0.39 | ) | ||||
| Weighted Average Common Shares Outstanding – Basic and Diluted | 6,198,717 | 5,305,590 | ||||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-4 |
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY (DEFICIT)
| Common Stock | Additional Paid-in | Accumulated | Common Stock to be | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Issued | Total | |||||||||||||||||||
| Balance March 31, 2019 | 4,966,801 | $ | 4,967 | $ | 51,569,795 | $ | (52,505,912 | ) | $ | 86,333 | $ | (844,817 | ) | |||||||||||
| Adjustment for 9-for-10-reverse stock split | 64 | — | — | — | — | — | ||||||||||||||||||
| Common stock issued | 19,425 | 19 | 86,314 | — | (86,333 | ) | — | |||||||||||||||||
| Common stock sold | 251,500 | 252 | 304,139 | — | 34,709 | 339,100 | ||||||||||||||||||
| Warrants sold | — | — | 34,609 | — | 17,291 | 51,900 | ||||||||||||||||||
| Warrant conversions | 31,134 | 31 | (31 | ) | — | — | — | |||||||||||||||||
| Stock-based compensation | 135,075 | 135 | 962,543 | — | — | 962,678 | ||||||||||||||||||
| Stock granted for settlement | 323,966 | 324 | 537,379 | — | — | 537,703 | ||||||||||||||||||
| Net loss | — | — | — | (2,082,734 | ) | — | (2,082,734 | ) | ||||||||||||||||
| Balance March 31, 2020 | 5,727,965 | $ | 5,728 | $ | 53,494,748 | $ | (54,588,646 | ) | $ | 52,000 | $ | (1,036,170 | ) | |||||||||||
| Adjustment for 1-for- 4 reverse stock split | 724 | — | — | — | — | — | ||||||||||||||||||
| Common stock sold | 246,071 | 246 | 368,254 | — | (52,000 | ) | 316,500 | |||||||||||||||||
| Cash paid to exercise warrants | 205,946 | 206 | 455,291 | 455,497 | ||||||||||||||||||||
| Common stock issued for services | 204,752 | 205 | 541,003 | — | 541,208 | |||||||||||||||||||
| Warrants issued in conjunction with convertible debt | — | — | 91,500 | — | — | 91,500 | ||||||||||||||||||
| Cashless warrant exercises | 107,705 | 108 | (108 | ) | — | — | — | |||||||||||||||||
| Stock-based compensation | — | — | 452,674 | — | — | 452,674 | ||||||||||||||||||
| Stock issued for debt conversion | 305,950 | 306 | 1,804,286 | — | — | 1,804,592 | ||||||||||||||||||
| Net loss | — | — | — | (3,522,780 | ) | — | (3,522,780 | ) | ||||||||||||||||
| Balance March 31, 2021 | 6,799,113 | $ | 6,799 | $ | 57,207,648 | $ | (58,111,426 | ) | $ | — | $ | (896,979 | ) | |||||||||||
The accompanying notes are an integral part of these consolidated financial statements.
Shares retroactively restated for a 1-for-4 reverse stock split in December of 2020.
| F-5 |
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended March 31 | ||||||||
| 2021 | 2020 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net Loss for the Year | $ | (3,522,780 | ) | $ | (2,082,734 | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Stock-based compensation | 452,674 | 863,012 | ||||||
| Depreciation and amortization | 86,712 | 559,544 | ||||||
| (Gain) Loss on debt extinguishment | (366,903 | ) | 81,738 | |||||
| Derivative expense | 1,702,100 | — | ||||||
| Amortization of debt discount | 174,595 | — | ||||||
| Common stock issued for services | 541,208 | — | ||||||
| Intangible impairment | — | 31,272 | ||||||
| Loss on sale of assets | — | 389 | ||||||
| Gain on settlement | — | (47,710 | ) | |||||
| Changes in Operating Assets and Liabilities | ||||||||
| Inventory | — | 12,495 | ||||||
| Prepaid expenses and other assets | 9,948 | 2,970 | ||||||
| Accounts receivable | 1,000 | (1,000 | ) | |||||
| Deferred offering costs | (280,163 | ) | — | |||||
| Interest accrued on convertible notes payable | (1,310 | ) | 25,518 | |||||
| Interest accrued on notes payable – related party | — | 5,504 | ||||||
| Interest accrued on notes payable - directors | 382 | 820 | ||||||
| Interest accrued on PPP Loan | 355 | — | ||||||
| Increase (Decrease) in accounts payable and accrued expense | 174,652 | (4,232 | ) | |||||
| Increase (Decrease) in accrued expenses – related party | (19,799 | ) | 54,325 | |||||
| Net Cash Used in Operating Activities | (1,047,329 | ) | (498,089 | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Proceeds from sale of equipment | — | 12,481 | ||||||
| Purchase of property and equipment | (140,685 | ) | (32,791 | ) | ||||
| Increase in patents and trademarks | (19,479 | ) | (43,386 | ) | ||||
| Net Cash Used in Investing Activities | (160,164 | ) | (63,696 | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from common stock sold | 316,500 | 339,000 | ||||||
| Cash proceeds from warrant exercises | 455,497 | — | ||||||
| Proceeds from convertible notes | 297,500 | 280,000 | ||||||
| Equity sale proceeds receivable | 52,000 | — | ||||||
| Proceeds from note payable | 35,000 | 15,000 | ||||||
| Proceeds from PPP Loan | 38,665 | — | ||||||
| Proceeds from notes payable – directors | 45,000 | — | ||||||
| Repayments of convertible notes | — | (18,537 | ) | |||||
| Repayments of note payable | (2,972 | ) | (19,556 | ) | ||||
| Repayments of notes payable –related party | (16,701 | ) | (30,000 | ) | ||||
| Net Cash Provided by Financing Activities | 1,220,489 | 565,907 | ||||||
| Net Increase in Cash and Restricted Cash | 12,996 | 4,122 | ||||||
| Cash and Restricted Cash at Beginning of Year | 10,582 | 6,460 | ||||||
| Cash and Restricted Cash at End of Year | $ | 23,578 | $ | 10,582 | ||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION: | ||||||||
| Cash Paid During the Year For: | ||||||||
| Interest | $ | 36,596 | $ | 23,905 | ||||
| SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES | ||||||||
| Accounts payable – related party converted to share-settlement debt obligation – related party | $ | 196,000 | $ | — | ||||
| Notes Payable and interest converted into common stock – related parties | $ | 25,382 | $ | — | ||||
| Proceeds not received at balance sheet date pursuant to Stock and Warrant sales | $ | — | $ | 52,000 | ||||
| Leasehold improvements included in accounts payable | $ | 33,580 | $ | 67,372 | ||||
| Warrants converted | $ | 103 | $ | 124 | ||||
| Prepaid stock-based compensation for services | $ | — | $ | 99,664 | ||||
| Stock granted for debt conversions | $ | 1,804,592 | $ | — | ||||
| Stock granted pursuant to settlements | $ | — | $ | 537,703 | ||||
| Warrants issued in debt financing | $ | 91,500 | $ | — | ||||
| Derivative treated as debt discount | $ | 352,941 | $ | — | ||||
The accompanying notes are an integral part of these consolidated financial statements.
| F-6 |
Notes to Consolidated Financial Statements
March 31, 2021
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.
In October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was made effective December 29, 2020; concurrently, the Company increased its authorized shares of common stock from 225,000,000 to 250,000,000; all share and per share data has been retroactively adjusted for this reverse split for all period presented.
| (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. The Company had no cash equivalents at March 31, 2021 and March 31, 2020.
| (F) | Concentration-Risk |
The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of March 31, 2021, 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 considering 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 considering events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
| (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 1,081,668 warrants outstanding as of March 31, 2021, with varying exercise prices ranging from $1.20 to $10.00/share. The weighted average exercise price for these warrants is $2.02/share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.
The Company has 1,234,295 warrants outstanding as of March 31, 2020, with varying exercise prices ranging from $1.20 to $15.56/share. The weighted average exercise price for these warrants is $2.12/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, 2021, the Company had $230,000 in convertible notes and $5,671 in accrued interest outstanding, these notes mature in our fiscal quarter ended June 30, 2021; see Note 8 to these financial statements for more information on these convertible notes. If converted, the $235,671 in outstanding principal and accrued interest would convert into 81,579 shares of common stock at a rate of $2.89 per share.
At March 31, 2020, the Company had $280,000 in convertible notes and $6,981 in accrued interest outstanding. If converted, the $286,981 in outstanding principal and accrued interest would convert into 99,301 shares of common stock at a rate of $2.89 per share.
| F-8 |
At March 31, 2021, the Company has a Share-Settled Debt Obligation to a Related Party of $196,000 which will convert into common shares at the stock price of our S-1 offering currently being conducted. Although the number of shares is yet to be determined, the obligation is potentially dilutive. The if-converted method shall not be applied for the purposes of computing EPS as the effect would be antidilutive.
| (K) | Revenue Recognition |
The Company recognizes revenue on arrangements in accordance with FASB ASC No. 606, “Revenue From Contracts With Customers”. Revenue is recognized upon shipment of our pet care products to our customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
| (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. |
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, notes payable – directors and others. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2021 and March 31, 2020, 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, 2021 and March 31, 2020.
| F-9 |
| (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. | |
| ● | 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. |
| F-10 |
| ● | 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.
| (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.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
| F-11 |
| (R) | Reclassifications |
A certain account in the prior year financial statements has been reclassified for comparative purposes to conform with the presentation in the current year financial statements. Investment in equity securities at cost has been combined with prepaid expenses and other assets since the investment balance was not material. There was no effect on the change in net assets resulting from the reclassifications.
NOTE 2 – INVENTORY
As of March 31, 2021 and March 31, 2020, the Company had inventory of $47,068 and $50,357 of inventory, respectively, 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.
The inventory components are as follows:
| As of March 31 | ||||||||
| 2021 | 2020 | |||||||
| Finished Goods | $ | 36,973 | $ | 50,357 | ||||
| Raw Materials | 8,773 | — | ||||||
| Manufacturing Supplies | 1,322 | — | ||||||
| 47,068 | 50,357 | |||||||
| Reserve for Obsolete Inventory | (47,068 | ) | (50,357 | ) | ||||
| Total Net | $ | — | $ | — | ||||
The Company recognized income of $3,289 related to the change in the reserve of obsolete inventory for the year ended March 31, 2021. For the year ended March 31, 2020, the Company recognized expense of $50,357 related to the reserve of obsolete inventory.
NOTE 3 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS
As of March 31, 2021, the Company had $123,575 in prepaid expenses and other assets consisting of approximately $78,000 in marketing services, $9,000 in annual OTC listing license and $9,000 in insurance costs. The Company also had deferred offering costs of $280,163 consisting of legal and accounting costs incurred related to our S-1 and S-1/A filings with the Securities and Exchange Commission on October 13, 2020, December 31, 2020 and March 29, 2021, respectively, which will be recorded as a reduction of proceeds should we be successful in raising capital through this S-1 offering or expensed if not.
As of March 31, 2020, the Company had $133,523 in prepaid expenses recorded consisting of approximately $100,000 in marketing services, $10,000 in annual OTC listing license and $6,000 in insurance costs.
| F-12 |
NOTE 4 –PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
| As of March 31 | ||||||||
| 2021 | 2020 | |||||||
| Leasehold improvements | $ | 198,015 | $ | 98,706 | ||||
| Production equipment | 128,849 | 87,473 | ||||||
| R&D equipment | 25,184 | 25,184 | ||||||
| Furniture | 10,130 | 10,130 | ||||||
| Total, at cost | 362,178 | 221,493 | ||||||
| Accumulated depreciation | (148,140 | ) | (111,586 | ) | ||||
| Total Net | $ | 214,038 | $ | 109,907 | ||||
During fiscal years 2021 and 2020, depreciation expense was $36,554 and $16,224, respectively.
NOTE 5 – INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
| As of March 31 | ||||||||
| 2021 | 2020 | |||||||
| Patents | $ | 3,840,903 | $ | 3,822,542 | ||||
| Trademarks | 26,142 | 25,023 | ||||||
| Total at cost | 3,867,045 | 3,847,565 | ||||||
| Accumulated Amortization | (3,839,113 | ) | (3,788,954 | ) | ||||
| Total net | $ | 27,932 | $ | 58,611 | ||||
During fiscal years 2021 and 2020, amortization expense was $50,158 and $543,320, respectively. The Company performed intangible impairment analyses throughout the years ended March 31, 2021 and March 31, 2020 and concluded that approximately $-0- and $31,000 in patents were impaired, respectively.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The components of accounts payable and accrued expenses were as follows:
| As of March 31 | ||||||||
| 2021 | 2020 | |||||||
| Accounts payable | $ | 741,111 | $ | 556,653 | ||||
| Accrued payroll and related taxes | 221,774 | 237,404 | ||||||
| Total | $ | 962,885 | $ | 794,057 | ||||
NOTE 7 - RELATED PARTY NOTES PAYABLE
At March 31, 2021, the Company is obligated for a related party note payable and accrued interest in the total amount of $44,554 (2020: $61,255); the maturity date of this note was April 30, 2020. As of June 28, 2021, 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. Please see Note 10 to these financial statements for more information on this note.
| F-13 |
The Company entered into notes payable with three directors in May 2020, in the aggregate principal amount of $25,000. The notes with these three directors accrued interest at a rate of 6% annually, yielding a total amount of accrued interest of $382 at August 14, 2020, the maturity date, and on that date the total outstanding balance of $25,382 was converted at $1.02 per share into 25,003 shares of common stock.
The Company entered into notes payable with four directors in March 2021, in the aggregate principal amount of $20,000. The notes accrue interest at a rate of 6% annually and are due in September 2021.
NOTE 8 – NOTES PAYABLE AND CONVERTIBLE NOTES
In January 2020, the Company entered into a lease amendment for our corporate office facility whereby the lease term was extended through November of 2026 in exchange for a loan of $42,500 (March 31, 2020 - $15,000). The note payable accrues interest at a rate of 6% per annum. At March 31, 2021 and 2020, the amount outstanding on the note was $39,528 and $15,095, respectively. The note is classified as a current liability as the Company has not been current on its loan payments as of March 31, 2021.
On May 1, 2020, the Company received $38,665 in loan proceeds pursuant to the Paycheck Protection Program enacted by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act. At March 31, 2021, the Company was obligated for the outstanding balance of $39,020. The principal and accrued interest may be forgivable and the Company has applied for forgiveness. The loan accrues interest at a rate of 1% per annum and matures on May 1, 2022; if not forgiven prior to December 1, 2020, the Company is required to pay monthly installments toward principal and interest until the note is paid in full. However, through the date of this filing we are awaiting review and further guidance from the loan issuer on our repayment status.
At March 31, 2021, the Company is obligated for several convertible notes payable in the total amount of $235,671 made up of $230,000 in principal and $5,671 in interest. All of these convertible notes mature during the quarter ended June 30, 2021. 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, 2021 and 2020, the Company paid out interest of $23,063 and $18,536, respectively, to these convertible note holders. These convertible notes automatically convert into shares of common stock at a rate of $2.88 per share at the earlier of the maturity date or an uplist to a national securities exchange (e.g., Exchange or New York Stock Exchange) provided that the Company’s stock price is at least $3.48 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 $2.88 per share. As of March 31, 2021, these convertible notes did not include a beneficial conversion feature. All of these notes were converted in April 2021.
The Company entered into a convertible note payable held by RedDiamond Partners, LLC (“RDCN”) on June 15, 2020, whereby the RDCN was convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $1.12/share. The RDCN was issued in the principal amount of $352,941 with $52,941 being made up of a 15% Original Issue Discount (“OID”) and included a conversion feature. However, this conversion feature’s exercise contingency was only utilizable if triggered by the occurrence of an Event of Default, which included events that were outside the control of the Company (i.e., not based solely on the market for the Company’s stock or the Company’s own operations). Additionally, the RDCN accrued interest at a rate of 12.5% per annum, calculated on a 360-day-per-year-basis. This RDCN was issued alongside a warrant to purchase of 139,286 shares of Company common stock (“RDCN Warrants”) with a relative fair value of $91,500. Upon inception, the outstanding principal balance of the RDCN was reduced to $-0- by various discounts on the debt totaling $352,941 as follows: i) the RDCN Warrants generated a discount on the debt of $91,500 based on the relative fair value of the same; ii) $2,500 in investor legal costs was treated as a discount on the debt since this was paid by the Company; iii) $52,941 of OID was treated as a discount on the debt; iv) a discount of $206,000 was taken due to the conversion option being treated as a derivative. In evaluating the various instruments and their components within this transaction (including issuance of the RDCN and RDCN Warrants) for treatment as a derivative and the respective accounting treatment of the same, the Company referenced ASC 470 and ASC 815 in conjunction with interpretive guidance. In conjunction with the RDCN and RDCN Warrants issuances, the Company also paid $30,000 and issued 75,000 warrants (“Think Warrants”) valued at $31,500 using the Black-Scholes model to Think Equity for soliciting the RedDiamond Partners, LLC transaction. The total issuance costs paid to Think Equity of $61,500 of cash and warrants, which the Company recorded the relative fair value of $52,399 to expense since no further discount was available to be taken on the debt. For the year ended March 31, 2021, the Company amortized a pro-rata portion of the discount on the debt on a straight-line basis to interest expense in the amount of $173,174. At October 26, 2020, the Company entered into a note conversion agreement that converted the then outstanding balance of $368,995 made up of $352,941 in principal and $16,054 in accrued interest into 263,568 shares of common stock at a rate of $1.40 per share when the market price of the stock was $6.56. The settlement relieved a derivative liability in the amount of $1,908,100, outstanding principal and interest of $368,995, and debt discount in the amount of $181,187 in exchange for stock valued on the date of the settlement in the total amount of $1,729,005; this triggered a gain on debt extinguishment of $366,903. Please see Note 11 to these financial statements for more information on this conversion. As of March 31, 2021, the Company had $-0- in unamortized debt discount remaining and owed $-0- in principal and interest pursuant to the RDCN.
| F-14 |
NOTE 9 – SHARE-SETTLED DEBT OBLIGATION – RELATED PARTY
Effective September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant to an Amendment to Promissory Note and a Promissory Note. The Amendment to Promissory Note extends, for up to an additional two years and under the same terms as originally entered into, the original promissory notes which were issued by Gel-Del Technologies, Inc., a wholly owned subsidiary of the Company, to Dr. Masters. Because this Amendment to Promissory Note simply extended the term over which the Company is required to pay back the outstanding balance this change has been treated as a debt modification. The outstanding principal of $59,642 and interest balance of $6,058 of the original promissory notes was $65,700 at the time of execution of the Amendment to Promissory Note; the terms of this Amendment to Promissory Note are interest accrual at a rate of 8% on an annual basis or 20% if the note is in default. The Amendment to Promissory Note requires monthly payments of $3,100 and a maturity date of June 30, 2022, provided however that if the Company shall achieve $1,500,000 in equity sales or achieve gross product sales of $1,500,000, the Company must pay the outstanding balance at that time.
The Promissory Note was entered into with an effective date of September 1, 2020 in a principal amount of $195,000, which represented David Masters’ release of any claim to the $195,000 in past accrued salary he was owed, it accrues interest at a rate of 3% per annum, has a maturity date of August 31, 2022, and required payments of $4,000 per month beginning when the Company’s sale of products reach $3,500,000. The reclassification of the $195,000 was treated as a debt modification.
A Settlement and General Release (“Settlement Agreement”) was also executed by Dr. Masters to the benefit of the Company as a settlement and general release of any and all past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters ever had, may have or may acquire against the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial condition of the Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters’ and his affiliates and the Company on or prior to the Effective Date, or (c) the employment of Dr. Masters by the Company (except for claims directly relating to the breach of the Amendment to Promissory Note, the Promissory Note or the Consulting Agreement).
On October 15, 2020, the Company entered into a note conversion agreement with David Masters whereby the Company and Mr. Masters both agreed to convert his note payable in the then outstanding balance of $193,158 made up of $192,500 in principal and $658 in accrued interest into common stock and warrants pursuant to terms identical to what is agreed upon in our proposed S-1 offering. Pursuant to this conversion agreement the Company agreed to convert $196,000 made up of $192,500 in principal and a conversion fee of $3,500 and Mr. Masters agreed to forego the interest accrued in the amount of $658. The conversion fee of $3,500 was treated as a discount on the debt and the $658 was treated as a reduction of the discount on debt. As of March 31, 2021, the outstanding balance of $196,000 for this share-settled debt obligation had not yet been converted and is recorded as a liability due to the fact the Company had not agreed to terms of our S-1 offering currently being conducted.
At March 31, 2021, the Company was obligated for principal and accrued interest in the amounts of $-0- and $-0-, respectively, related to the Promissory Note and $44,554 and $-0-, respectively, related to the Amendment to Promissory Note.
| F-15 |
NOTE 10 – DERIVATIVE LIABILITY AND EXPENSE
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The Company used the following assumptions for determining the fair value of the conversion feature in the RDCN referenced in Note 9 to these consolidated financial statements, under the binomial pricing model at June 15, 2020, September 30, 2020, and October 26, 2020, the issuance, balance sheet, and conversion dates, respectively:
| June 15, 2020 | September 30, 2020 | October 26, 2020 | ||||||||||
| Stock price on valuation date | $ | 1.68 | $ | 1.60 | $ | 6.56 | ||||||
| Conversion price | $ | 1.12 | $ | 1.12 | $ | 1.12 | ||||||
| Days to maturity | 273 | 166 | 140 | |||||||||
| Weighted-average volatility* | 367 | % | 327 | % | 197 | % | ||||||
| Risk-free rate | .18 | % | .12 | % | .11 | % | ||||||
The initial valuation of $526,800 at June 15, 2020, generated a discount on the debt of $206,000, which net the convertible note liability to $-0- and forced a recognition of derivative expense of $320,800 and a corresponding offset to derivative liability of $526,800. At September 30, 2020, the Company revalued the derivative liability to $937,500. At October 26, 2020, the Company revalued the derivative liability to $1,908,100. For the year ended March 31, 2021, the Company recognized $1,702,100 to derivative expense and derivative liability. On October 26, 2020, the Company entered into a conversion agreement whereby the RDCN was converted into 263,568 shares of common stock at a rate of $1.40 per share; this triggered a gain on extinguishment of debt in the amount of $366,903 as described in Note 8.
The Company recorded derivative liability transactions during the year ended March 31, 2021 as follows:
| Convertible note embedded derivative liability | ||||
| Balance at March 31, 2020 | $ | -0- | ||
| Initial recognition of derivative liability | 526,800 | |||
| Change in fair value | 21,400 | |||
| Balance at June 30, 2020 | 548,200 | |||
| Change in fair value | 389,300 | |||
| Balance at September 30, 2020 | 937,500 | |||
| Change in fair value | 970,600 | |||
| Balance at October 26, 2020 | 1,908,100 | |||
| Conversion of note on October 26,2020 | (1,908,100 | ) | ||
| Balance at March 31, 2021 | $ | -0- | ||
| F-16 |
For the years ended March 31, 2021 and 2020, the Company recognized $1,702,100 and $-0- to derivative expense and derivative liability, respectively.
NOTE 11–ACCRUED EXPENSES – RELATED PARTY
At March 31, 2021, the Company was obligated to pay $36,808 in accrued expenses due to a related party. Of the total, $28,965 was made up of accounts payable, while $7,843 was made up of accrued salaries.
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.
NOTE 12–RETIREMENT PLAN
In February 2021, the Company established a 401(k) retirement plan for its employees in which eligible employees can contribute a percentage of their compensation. The Company may also make discretionary contributions. The Company did not make any contributions to the plan to the year ended March 31, 2021.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
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 in May 2017. The base rent has annual increases of 2% 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. In January 2020, the Company entered into a lease amendment whereby agreed to extend the lease term through November of 2026 in exchange for receipt of a loan of $42,500 recorded to notes payable and a grant of $7,500, which has been recorded to accrued expenses and will be amortized over the remainder of the lease term. The base rent as of March 31, 2021 is $2,162.
Rent expense for the years ended March 31, 2021 and March 31, 2020 were $56,646 and $51,292, respectively.
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2021:
| 2022 | $ | 26,634 | ||
| 2023 | 27,167 | |||
| 2024 | 27,710 | |||
| 2025 | 28,265 | |||
| 2026 | 28,830 | |||
| 2027 | 19,474 | |||
| $ | 158,080 | |||
| Less: amount representing interest | (320 | ) | ||
| Total | $ | 157,760 |
In compliance with ASC 842, the Company recognized, based on the extended lease term to November 2026 and a treasury rate of 0.12%, an operating lease right-to-use assets for approximately $189,600 and corresponding and equal operating lease liabilities for the lease. As of March 31, 2021, the present value of future base rent lease payments based on the remaining lease term and weighted average discount rate are approximately 6 years and 0.12%, respectively, are as follows:
| Present value of future base rent lease payments | $ | 157,760 | ||
| Base rent payments included in prepaid expenses | - | |||
| Present value of future base rent lease payments – net | $ | 157,760 |
| F-17 |
As of March 31, 2021, the present value of future base rent lease payments – net is classified between current and non-current assets and liabilities as follows:
| Operating lease right-of-use asset | $ | 157,760 | ||
| Total operating lease assets | 157,760 | |||
| Operating lease current liability | 26,582 | |||
| Operating lease other liability | 131,178 | |||
| Total operating lease liabilities | $ | 157,760 |
Pursuant to a lease wherein our subsidiary, Gel-Del Technologies, Inc., was the lessee until and through the lease’s termination in fiscal year 2017-2018, the Company had recorded as of those fiscal years approximately $330,000 as a potential payable to the lessor, which this liability remains as of March 31, 2021 and 2020 and is included in accounts payable.
The Company has employment agreements with the Chief Executive Officer and Chief Financial Officer. As of March 31, 2021, these agreements do not contain severance benefits if terminated without cause.
NOTE 14 - 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 $3,522,780 for the year ended March 31, 2021 and had net cash used in operating activities of $1,047,329 for the same period. Additionally, the Company has an accumulated deficit of $58,111,426, negative working capital of $1,257,895, and a stockholders’ deficit of $896,979, at March 31, 2021. 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.
NOTE 15 – COMMON STOCK AND WARRANTS
Equity Incentive Plan
On July 10, 2020, our Board of Directors unanimously approved the PetVivo Holdings, Inc “2020 Equity Incentive Plan” (the “2020 Plan”), subject to approval by our stockholders at the Regular Meeting of Stockholders held on September 22, 2020, when it was approved by our stockholders and became effective. The number of shares of our common stock available and that may be issued as awards under the 2020 Plan is 1,000,000 shares. Unless sooner terminated by the Board, the 2020 Plan will terminate at midnight on July 10, 2030.
Employees, consultants and advisors of the Company (or any subsidiary), and non-employee directors of the Company will be eligible to receive awards under the 2020 Plan. In the case of consultants and advisors, however, their services cannot be in connection with the offer and sale of securities in a capital-raising transaction nor directly or indirectly promote or maintain a market for PetVivo securities.
| F-18 |
The 2020 Plan will be administered by the Compensation Committee of our Board of Directors (the “Committee”), which has full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment, any deferral payment, and other terms and conditions of each award. Subject to provisions of the 2020 Plan, the Committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The Committee also has the authority to interpret and establish rules and regulations for the administration of the 2020 Plan. In addition, the Board of Directors may also exercise the powers of the Committee.
The aggregate number of shares of Petvivo common stock available and reserved to be issued under the 2020 Plan is 1,000,000 shares, but includes the following limits:
● the maximum aggregate number of shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will be 10,000 shares; provided that such limit will not apply to any election of a Non-Employee Director to receive shares of Common Stock in lieu of all or a portion of any annual Board, committee, chair or other retainer, or any meeting fees otherwise payable in cash.
Awards can be granted for no cash consideration or for any cash and other consideration as determined by the Committee. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares of PetVivo common stock, other securities or property, or any combination of these in a single payment, installments or on a deferred basis. The exercise price per share of any stock option and the grant price of any stock appreciation right may not be less than the fair market value of PetVivo common stock on the date of grant. The term of any award cannot be longer than ten years from the date of grant. Awards will be adjusted in the event of a stock dividend or other distribution, recapitalization, forward or reverse stock split, reorganization, merger or other business combination, or similar corporate transaction, in order to prevent dilution or enlargement of the benefits or potential benefits provided under the 2020 Plan.
The 2020 Plan permits the following types of awards: stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, other stock-based awards, and dividend equivalents.
As of March 31, 2021, the Company has not awarded any shares pursuant to the 2020 Plan.
Common Stock
For the year ended March 31, 2021 the Company issued 1,070,424 shares of common stock as follows:
i) 30,000 shares valued at $32,453 and recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term;
ii) 20,000 shares with a relative value of $34,709 pursuant to a purchase of 20,000 units whereby a unit is made up of 1 share of common stock and ½ warrant. The value of $34,709 along with the relative value of the warrants associated with this transaction of $17,291 ($52,000 total) was recorded during the quarter ended March 31, 2020 to Common Stock Subscribed and moved to Additional Paid in Capital and Capital Stock upon receipt of funds and issuance of shares of common stock during the quarter ended June 30, 2020;
iii) 12,500 shares valued at $22,000 on July 1, 2020 to two service providers as follows: a) 10,000 to a marketing and investor relations service provider valued at $17,600 that was recorded to stock-based compensation; and b) 2,500 to a legal service provider valued at $4,400 that was recorded to stock-based compensation;
iv) 15,257 shares valued at $12,053 on July 24, 2020 to one warrant holder whereby this warrant holder converted on a cashless basis 25,000 warrants into 15,257 shares of common stock and the warrant had an exercise price of $1.20 per share;
| F-19 |
v) 226,071 shares during August and September of 2020 in exchange for $316,500 in cash to four accredited investors;
vi) 162,252 shares valued at $486,755 to directors and officers on September 14, 2020 as bonuses for work over the past two years and recorded to stock-based compensation as follows:
| a. | 33,619 to John Lai | |
| b. | 26,217 to John Carruth | |
| c. | 22,993 to John Dolan | |
| d. | 10,789 to Gregory Cash | |
| e. | 10,711 to David Deming | |
| f. | 10,627 to Robert Rudelius | |
| g. | 10,550 to Randy Meyer | |
| h. | 9,302 to Jim Martin | |
| i. | 9,300 to Scott Johnson | |
| j. | 9,209 to Joseph Jasper | |
| k. | 8,935 to David Masters |
vii) 25,003 shares valued at $25,382 to three directors on August 14, 2020, pursuant to their conversions of notes in the total outstanding balance amount of $25,382 made up of $25,000 in principal and $382 in accrued interest; these notes had a set conversion price of $1.02 per share.
viii) 263,568 shares in October 2020 pursuant to conversion of $368,995 in principal and accrued interest of the RDCN valued at $1,729,005 as outlined in this Note 9;
ix) 32,347 shares in October 2020 pursuant to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase of 42,188 shares of common stock at a strike price of $1.33 per share;
x) 202,499 shares in October, November and December to accredited investors pursuant to their exercising of warrants with strike prices of $2.22 for cash proceeds of $449,993;
xi) 793 shares in October 2020 pursuant to a warrant holder’s cashless exercise of a warrants for purchase of 6,750 shares of common stock at a strike price of $4.44 per share;
xii) 17,379 shares on January 2021 pursuant to a conversion of a $50,000 convertible note and $205 in accrued interest at a conversion rate of $2.89 per share;
xiii) 38,516 shares in January 2021 pursuant to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase of 42,188 shares of common stock at a strike price of $1.33 per share;
xiv) 15,629 shares in January 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 17,187 shares of common stock at a strike price of $1.33 per share;
xv) 5,163 shares in February 2021 pursuant to a warrant holder’s cashless exercise of warrant for purchase of 9,000 shares of common stock at a strike price of $4.44 per share;
xvi) 3,447 shares in March 2021 to a director pursuant to a warrant holder’s exercise of warrants for purchase with a strike price of $1.60 per share for cash proceeds of $5,504.
On October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention of 150,000 escrowed shares that he never returned to the Company’s Treasury.
John Lai (CEO & Director), Randall Meyer (Director), and John Dolan (Secretary & Director) are all related parties, and the reduction of $375,936 as outlined in the above Roman numeral vi was included in Accrued Expenses – Related Party. The settlement of $80,029 for a former employee’s accrued salary as outlined in the above Roman numeral vi 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 these transactions as indicated in Roman numeral vi above.
| F-20 |
For the year ended March 31, 2020, the Company issued 761,100 shares of common stock as follows:
i) 87,000 shares to John Lai 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) 143,952 shares to Randall Meyer 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) 51,000 shares to John Dolan 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) 42,015 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) 27,000 shares to a service provider for $120,000 worth of services provided during the one-year period ended July 13, 2019 and valued at $4.44 per share over that period on a pro-rata basis; and
vi) 90,000 shares on September 13, 2019 to one shareholder that the Company sold in exchange for $100,000, which equates to a price per share of $1.12 per share; and
vii) 67,500 shares on September 18, 2019 to a service provider valued at $102,000 whereby this service provider agreed to provide video production, investor relations, and promotional services in exchange for 67,500 shares of common stock;
viii) 121,500 shares to various accredited investors in exchange for $135,000 in cash, which equates to a price per share of $1.12 per share; and
ix) 22,500 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) On December 9, 2019, the Company received $104,000 in exchange for 40,000 units, which equates to $2.60/unit, whereby a unit is made up of one share of common stock and 1/2 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) On December 31, 2019, The Company entered into an agreement whereby we agreed to issue 37,500 shares of common stock to a service provider, Launchpad IR, at $1.68/share for total consideration of $70,500, for investor relations services.
xii) 15,784 shares of common stock to a former Director of the Company pursuant to a cashless conversion feature within the former Director’s warrant for 42,188 shares, equating to a conversion rate of .37:1.00; and
xiii) 15,349 shares of common stock to a John Lai pursuant to a cashless conversion feature within his warrant for 42,188 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).
| F-21 |
On October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention of 150,000 escrowed shares.
After the balance sheet date of March 31, 2020, the Company sold and agreed to issue 20,000 units in exchange for $52,000, which equates to $2.60/unit, whereby a unit is made up of one share of common stock and 1/2 warrant share wherein the common stock was recorded at its relative fair value of $34,709 and the 10,000 warrants are valued at $17,291 and are exercisable for 3 years from the date of the grant at $4.00/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, 2021, the Company issued warrants to purchase a total of 240,632 shares of common stock as follows:
i) warrants issued for 10,000 shares, sold at $17,291 to one investor using the Black-Scholes model, whereas the warrants vested immediately upon issuance and are exercisable at $4.00 per share for 3 years from the grant date of April 6, 2020;
ii) warrants issued for 72,596 shares, valued at $160,307 using the Black-Scholes model, to directors, officers and consultants at exercise prices between $1.40 and 1.60 per share with a weighted average price per share of $1.52 per share; and
iii) warrants issued with debt for 158,036 shares, valued at $265,500 using the Black-Scholes model, to an investor and broker, whereby the relative value as described in Note 9 of $91,500 was recorded to Warrants issued in conjunction with convertible debt on the statement of equity; the warrants have a cashless warrant exercise feature, are exercisable at $1.40 per share for a term of five years from the date of the grant of June 15, 2020 and vested immediately.
These warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:
i) an expected volatility of the Company’s shares on the date of the grants of between approximately 350% and 433%, based on historical volatility.
ii) risk-free rates identical to the U.S. Treasury 3-year and 5-year treasury bill rates on the date of the grants between 0.29% and 1.16%.
During the year ended March 31, 2021, the Company had warrants to purchase a total of 45,000 shares of common stock expire valued at $84,644 using the Black-Scholes model, $84,644 of unrecognized compensation which will not be recognized due to the expiration of this warrant since it was not vested pursuant to the performance milestones included in the same.
During the year ended March 31, 2020, the Company granted 90,000 warrants to management team members that vest upon achieving certain performance conditions (milestones). These 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 warrants that may or may not vest pursuant to their respective milestones.
| F-22 |
During the year ended March 31, 2020, the Company granted warrants to purchase a total of 476,425 shares of common stock valued using the Black-Scholes model including:
i) warrants for 67,500 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 $1.32/share; and
ii) warrants for 55,125 shares, valued at $122,489, to John Dolan, whereby 10,125 were granted as a bonus and were vested immediately on the October 31, 2019 grant date, 22,500 that vest upon a performance-based milestone, and 22,500 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 $2.24 per share; and
iii) warrants for 135,000 shares, valued at $299,973, to John Lai, whereby 45,000 vest upon performance-based milestones and 90,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $2.24 per share; and
iv) warrants for 112,500 shares, valued at $249,997, to John Carruth, whereby 22,500 vest upon performance-based milestones and 90,000 vest quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $2.24 per share; and
v) warrants for 10,313 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 $1.96 per share and a five-year term; and
vi) warrants for 19,847 shares, valued at $38,744, to John Lai, whereby they vested on December 31, 2019, have a strike price of $1.95 per share and a five-year term; and
vii) warrants for 3,970 shares, valued at $7,749, to John Dolan, whereby they vested on December 31, 2019, have a strike price of $1.95 per share and a five-year term; and
viii) warrants for 20,000 shares, issued as a detachable warrant in purchased units with a relative fair value of $34,609, whereby an accredited investor purchased 40,000 units for $104,000 at a rate of $2.60/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 $4.00 per 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 $1.96 per share, and exercisable for a five-year term:
| a. | 1,765 to Gregory Cash valued at $3,445 and, | |
| b. | 1,434 to Robert Rudelius valued at $2,799 and, | |
| c. | 1,213 to Scott Johnson valued at $2,368 and, | |
| d. | 1,213 to Randall Meyer valued at $2,368 and, | |
| e. | 1,103 to David Deming valued at $2,153 and, | |
| f. | 1,103 to James Martin valued at $2,153 and, | |
| g. | 882 to Joseph Jasper valued at $1,722 and, | |
| h. | 662 to David Masters valued at 1,292. |
x) warrants for 24,523 shares, valued at $11,967, to John Lai, whereby they vested on March 31, 2020, have a strike price of $1.28 per share and a five-year term; and
xi) warrants for 8,829 shares, valued at $4,308, to John Dolan, whereby they vested on March 31, 2020, have a strike price of $1.27 per share and a five-year term; and
| F-23 |
xii) warrants to several directors for service to the Company, issued and vested on March 31, 2020, with a strike price of $1.28 per share, and exercisable for a five-year term:
| a. | 1,717 to Gregory Cash valued at $838 and, | |
| b. | 1,594 to Robert Rudelius valued at $778 and, | |
| c. | 1,104 to Scott Johnson valued at $539 and, | |
| d. | 1,104 to Randall Meyer valued at $539 and, | |
| e. | 1,226 to David Deming valued at $598 and, | |
| f. | 1,226 to James Martin valued at $598 and, | |
| g. | 981 to Joseph Jasper valued at $479 and, | |
| h. | 491 to David Masters valued at $239. |
During the year ended March 31, 2020, the Company cancelled warrants to purchase a total of 90,000 shares of common stock including:
i) warrants for 67,500 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 13,500 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 9,000 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.
During the year ended March 31, 2020, the Company had warrants to purchase a total of 84,375 shares of common stock converted on a cashless basis including:
i) warrants for 42,188 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 15,349 shares of common stock at a conversion rate of .36:1.00; and
ii) warrants for 42,187 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 15,785 shares of common stock at a conversion rate of .37:1.00 by a former director of the Company.
A summary of warrant activity is as follows:
Number of Warrants | Weighted- Average Exercise Price | Warrants Exercisable | Weighted- Average Exercisable Price | |||||||||||||
| Outstanding, March 31, 2019 | 954,745 | $ | 2.20 | 758,759 | $ | 2.16 | ||||||||||
| Granted | 476,425 | 2.07 | ||||||||||||||
| Cashless warrant exercises | (84,375 | ) | 1.27 | |||||||||||||
| Expired | (22,500 | ) | 2.22 | |||||||||||||
| Canceled | (90,000 | ) | 2.32 | |||||||||||||
| Outstanding, March 31, 2020 | 1,234,295 | 2.12 | 1,027,092 | 2.13 | ||||||||||||
| Issued in conjunction with convertible debt | 158,036 | 1.40 | ||||||||||||||
| Sold for cash | 10,000 | 4.00 | ||||||||||||||
| Issued and granted | 72,596 | 1.52 | ||||||||||||||
| Exercised for cash | (205,946 | ) | 2.21 | |||||||||||||
| Cashless warrant exercises | (142,313 | ) | 1.64 | |||||||||||||
| Expired | (45,000 | ) | 3.78 | |||||||||||||
| Outstanding, March 31, 2021 | 1,081,668 | $ | 2.02 | 881,982 | $ | 2.00 | ||||||||||
| F-24 |
At March 31, 2021, 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 | ||||||||||||||||
| 1.20-2.00 | 653,055 | $ | 1.36 | 4.28 | 622,119 | $ | 1.36 | ||||||||||||||
| 2.01-4.00 | 320,438 | 2.39 | 3.43 | 151,688 | 2.57 | ||||||||||||||||
| 4.01-10.00 | 108,175 | 4.94 | 1.50 | 108,175 | 4.94 | ||||||||||||||||
| Total | 1,081,668 | 2.02 | 3.75 | 881,982 | 2.00 | ||||||||||||||||
For the years ended March 31, 2021 and 2020, the total stock-based compensation on all instruments was $452,674 and $962,678, respectively. It is expected that the Company will recognize expense after March 31, 2021 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as of March 31, 2021 in the amount of approximately $235,000.
The Company granted warrants during the fiscal years ended March 31, 2021 and 2020 based on the following ranges:
| Fiscal Year Ended March 31, | ||||||||
| 2021 | 2020 | |||||||
| Stock price on valuation date | $ | 1.54-1.76 | $ | .48-2.25 | ||||
| Exercise price | $ | 1.32-1.60 | $ | 1.28-2.24 | ||||
| Term (years) | 5.00 | .003-10 | ||||||
| Weighted-average volatility* | 344 | % | 348 | % | ||||
| Risk-free rate | .3% - .6 | % | 1.5% - 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.
NOTE 16 – INCOME TAXES
The following table presents the net deferred tax assets as of March 31, 2021 and 2020:
| 2021 | 2020 | |||||||
| Net operating loss carryforwards | 4,924,000 | 4,974,000 | ||||||
| Stock compensation | 307,000 | 189,000 | ||||||
| Derivative expense | 489,000 | — | ||||||
| Other | 44,000 | 160,000 | ||||||
| Total deferred tax assets | 5,764,000 | 5,323,000 | ||||||
| Valuation allowance | (5,764,000 | ) | (5,323,000 | ) | ||||
| Net deferred tax assets | $ | — | $ | — | ||||
| F-25 |
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, 2021 and 2020, respectively, the Company had net operating loss carryforwards of approximately $17,100,000 and $16,500,000. The deferred tax assets arising from the net operating loss carryforwards are approximately $4,924,000 and $4,974,000 as of March 31, 2021 and 2020, 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, 2021 and 2020 was approximately $441,000 and ($252,000), 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 $17,100,000 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.
Income tax expense (benefits) to the statutory rate of 21% for the years ended March 31, 2021 and 2020 is as follows:
| 2021 | 2020 | |||||||
| Tax benefits at statutory rate | 21.0 | % | 21.0 | % | ||||
| State income tax benefits, net of federal | 7.7 | % | 7.7 | % | ||||
| Tax rate adjustment to deferred tax assets | 3.2 | % | – | |||||
| Net effective rate | 31.9 | % | 28.7 | % | ||||
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, 2021 and 2020, 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 2018 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
In April through June of 2021, the Company issued a total of 250,718 shares of common stock as follows:
i) issued 49,014 shares of common stock to various investors for total proceeds of $343,098; and
ii) issued 4,500 shares upon the exercise of 4,500 warrants for total proceeds of $40,000; and
iii) issued 80,522 shares upon conversion of debt totaling $232,658; and.
iv) Issued 116,682 shares upon the cashless exercise of warrants to purchase 181,474 shares.
| F-26 |