U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM
Mark One
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the quarterly period ended
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(Name of small business issuer in its charter)
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Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered | ||
The
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The
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Indicate
by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the
past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
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Indicate
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Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act..
Large accelerated filer | ☐ | Accelerated filer | ☐ | |
☐ | Smaller reporting company | |||
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
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Class | Outstanding as of February 8, 2022 | |
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PETVIVO HOLDINGS, INC.
FORM 10-Q
FOR THE PERIOD ENDED December 31, 2021
INDEX
Page | |||
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS | 3 | ||
PART I. FINANCIAL INFORMATION | 4 | ||
Item 1. | Financial Statements | 4 | |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 25 | |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 31 | |
Item 4. | Controls and Procedures | 31 | |
PART II. OTHER INFORMATION | 32 | ||
Item 1. | Legal Proceedings | 32 | |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 32 | |
Item 3. | Defaults Upon Senior Securities | 32 | |
Item 4. | Mine Safety Disclosure | 32 | |
Item 5. | Other information | 32 | |
Item 6. | Exhibits | 33 | |
SIGNATURES | 34 |
2 |
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of PetVivo Holdings Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including those risk factors contained in the Company’s Form 10-K filed with the SEC on June 29, 2021 and risks discussed in other SEC filings. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.
3 |
PART I.
ITEM 1. FINANCIAL STATEMENTS
PETVIVO HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
December 31, 2021 (Unaudited) | March 31, 2021 | |||||||
Assets: | ||||||||
Current Assets | ||||||||
Cash and cash equivalents | $ | $ | ||||||
Accounts receivable | - | |||||||
Inventory, net | - | |||||||
Prepaid expenses and other assets | ||||||||
Total Current Assets | ||||||||
Property and Equipment, net | ||||||||
Other Assets: | ||||||||
Deferred offering costs | - | |||||||
Operating lease right-of-use asset | ||||||||
Patents and trademarks, net | ||||||||
Security deposits | ||||||||
Total Other Assets | ||||||||
Total Assets | $ | $ | ||||||
Liabilities and Stockholders’ Equity (Deficit) | ||||||||
Current Liabilities | ||||||||
Accounts payable | $ | $ | ||||||
Accrued expenses | ||||||||
Convertible notes and accrued interest | - | |||||||
Accrued expenses – related parties | - | |||||||
Operating lease liability – current portion | ||||||||
PPP Loan and accrued interest | ||||||||
Notes payable and accrued interest - directors | - | |||||||
Notes payable and accrued interest – related party | - | |||||||
Note payable and accrued interest (current portion) | ||||||||
Total Current Liabilities | ||||||||
Other Liabilities | ||||||||
Note payable and accrued interest (net of current portion) | - | |||||||
Operating lease liability (net of current portion) | ||||||||
Share-settled debt obligation – related party, net of debt discount | - | |||||||
Total Other Liabilities | ||||||||
Total Liabilities | ||||||||
Commitments and Contingencies (see Note 13) | ||||||||
Stockholders’ Equity (Deficit): | ||||||||
Preferred stock, par value $ | , shares authorized, issued and shares outstanding at December 31, 2021 and March 31, 2021||||||||
Common stock, par value $ | , shares authorized, issued and shares outstanding at December 31, 2021 and March 31, 2021, respectively||||||||
Additional Paid-In Capital | ||||||||
Accumulated Deficit | ( | ) | ( | ) | ||||
Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
4 |
PETVIVO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
Three Months Ended December 31, | Nine Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | $ | $ | $ | ||||||||||||
Cost of Sales | - | |||||||||||||||
Gross Profit (Loss) | ( | ) | ( | ) | ||||||||||||
Operating Expenses: | ||||||||||||||||
Sales and Marketing | ||||||||||||||||
Research and Development | ||||||||||||||||
General and Administrative | ||||||||||||||||
Total Operating Expenses | ||||||||||||||||
Operating Loss | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Other Income (Expense) | ||||||||||||||||
Gain on Sale of Asset | - | - | - | |||||||||||||
Gain on Debt Restructuring | - | - | - | |||||||||||||
Gain on Debt Extinguishment | - | - | ||||||||||||||
Forgiveness of PPP loan and accrued interest | - | - | - | |||||||||||||
Derivative Expense | - | ( | ) | - | ( | ) | ||||||||||
Interest Income (Expense) | ( | ) | ( | ) | ||||||||||||
Total Other Income (Expense) | ( | ) | ( | ) | ||||||||||||
Net Loss before taxes | ( | ) | ( | ) | ( | ) | ( | ) | ||||||||
Income Tax Provision | - | - | - | - | ||||||||||||
Net Loss | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Net Loss Per Share: | ||||||||||||||||
Basic and Diluted | $ | ( | ) | $ | ( | ) | $ | ( | ) | $ | ( | ) | ||||
Weighted Average Common Shares Outstanding: | ||||||||||||||||
Basic and Diluted |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
Shares retroactively restated for 1-for-4 reverse stock split in December of 2020.
5 |
PETVIVO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(UNAUDITED)
Nine Months Ended December 31, 2021
Common Stock | Additional Paid-in | Accumulated | ||||||||||||||||||
Shares | Amount | Capital | Deficit | Total | ||||||||||||||||
Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Common stock sold | - | |||||||||||||||||||
Cash paid to exercise warrants | - | |||||||||||||||||||
Stock issued for debt conversion | - | |||||||||||||||||||
Cashless warrant exercises | ( | ) | - | - | ||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
Balance at June 30, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||
Common stock sold | - | |||||||||||||||||||
Warrants sold | - | - | - | |||||||||||||||||
Cash paid to exercise warrants | - | |||||||||||||||||||
Cashless warrant exercise | ( | ) | - | - | ||||||||||||||||
Stock issued for investor relations services | - | |||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||
Stock and warrants granted for debt conversion | - | |||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
Balance at September 30, 2021 | $ | $ | $ | ( | ) | $ | ||||||||||||||
Stock issued for services | - | |||||||||||||||||||
Vesting of restricted stock units | - | - | - | - | ||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||
Net loss | - | - | - | ( | ) | ( | ) | |||||||||||||
Balance at December 31, 2021 | $ | $ | $ | ( | ) | $ |
Nine Months Ended December 31, 2020
Common Stock | Additional Paid-in | Accumulated | Common Stock to be | |||||||||||||||||||||
Shares | Amount | Capital | Deficit | Issued | Total | |||||||||||||||||||
Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | | $ | ( | ) | ||||||||||||||
Common stock and warrants sold | - | ( | ) | - | ||||||||||||||||||||
Warrants issued with convertible debt | - | - | - | - | ||||||||||||||||||||
Stock-based compensation | - | - | ||||||||||||||||||||||
Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
Balance at June 30, 2020 | $ | $ | $ | ( | ) | - | $ | ( | ) | |||||||||||||||
Common stock sold | - | - | ||||||||||||||||||||||
Stock-based Compensation | - | - | ||||||||||||||||||||||
Stock granted for debt conversion | - | - | ||||||||||||||||||||||
Cashless warrant exercises | ( | ) | - | - | - | |||||||||||||||||||
Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
Balance at September 30, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
Cash paid to exercise warrants | - | - | ||||||||||||||||||||||
1-for-4 reverse split rounding | ( | ) | - | - | - | |||||||||||||||||||
Stock-based Compensation | - | - | - | |||||||||||||||||||||
Stock issued for services | - | - | - | |||||||||||||||||||||
Stock issued for debt conversion | - | - | ||||||||||||||||||||||
Cashless warrant exercises | ( | ) | - | - | - | |||||||||||||||||||
Net loss | - | - | - | ( | ) | - | ( | ) | ||||||||||||||||
Balance at December 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
6 |
PETVIVO HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
For the Nine Months Ended | ||||||||
December 31, 2021 | December 31, 2020 | |||||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
Net Loss For The Period | $ | ( | ) | $ | ( | ) | ||
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
Derivative expense | - | |||||||
Stock-based compensation | ||||||||
Stock issued for services | ||||||||
Depreciation and amortization | ||||||||
Amortization of debt discount | - | |||||||
Forgiveness of PPP loan and accrued interest | ( | ) | - | |||||
Intangible impairment | - | |||||||
Gain on debt restructuring | - | ( | ) | |||||
Gain on sale of asset | - | ( | ) | |||||
Changes in Operating Assets and Liabilities | ||||||||
Increase in prepaid expenses and other assets | ( | ) | ( | ) | ||||
Increase in accounts receivable | ( | ) | ( | ) | ||||
Increase in inventories | ( | ) | ( | ) | ||||
Interest accrued on convertible notes payable | ( | ) | ||||||
Interest accrued on notes payable - related party | ||||||||
Interest accrued on notes payable | - | |||||||
Increase (decrease) in accounts payable and accrued expense | ( | ) | ||||||
Increase (decrease) in accrued expenses - related party | ( | ) | ( | ) | ||||
Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
Sale of equipment | - | |||||||
Purchase of equipment | ( | ) | ( | ) | ||||
Disbursements for patents and trademarks | ( | ) | ( | ) | ||||
Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
Proceeds from stock and warrants sold | ||||||||
Proceeds from exercise of warrants | ||||||||
Decrease in deferred offering costs | - | |||||||
Equity sale proceeds receivable | - | |||||||
Proceeds from PPP loan | - | |||||||
Proceeds from notes payable | - | |||||||
Proceeds from convertible notes | - | |||||||
Repayments of convertible notes | - | ( | ) | |||||
Repayments of notes payable | ( | ) | ( | ) | ||||
Repayments of PPP loan | ( | ) | - | |||||
Repayments of notes payable - related party | ( | ) | ( | ) | ||||
Repayments of notes payable - directors | ( | ) | - | |||||
Net Cash Provided by Financing Activities | ||||||||
Net Increase in Cash and Cash Equivalents | ||||||||
Cash and Cash Equivalents at Beginning of Period | ||||||||
Cash and Cash Equivalents at End of Period | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
Cash Paid During The Period For: | ||||||||
Interest | $ | $ | ||||||
SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES | ||||||||
Derivative treated as debt discount | $ | $ | ||||||
Stock granted for debt conversion | $ | $ | ||||||
Stock granted for share-settled debt obligation conversion | $ | $ | ||||||
Stock granted for investor relations services | $ | $ | ||||||
Note payable – related party granted for release of claim to accrued salary | $ | $ | ||||||
Note payable – related party converted into common stock | $ | $ |
The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.
7 |
PetVivo Holdings, Inc.
Notes to Financial Statements
December 31, 2021
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A) Organization and Description
The Company is in the business of commercializing its 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 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
October 2020,
(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 and intangibles, estimate of fair value of share-based payments and derivative instruments and recorded debt discount and valuation of deferred tax assets.
(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
(F) Concentration-Risk
The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of December 31, 2021, the Company did have cash balances in excess of the federally insured limits. At March 31, 2021, the Company did not have any cash balances in excess of the federally insured limits.
8 |
(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 (
(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
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
The
Company has
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
December 31, 2020, the Company had $
(K) Revenue Recognition
The Company derives revenue from the sale of pet care products to its veterinarian customers in the Unites States. For performance obligations related to the sale of our pet care products, control transfers to the customer at a point in time. Revenue is recognized upon shipment, which is when control of these products is transferred to our customers and in an amount that reflects the consideration the Company expects to receive for these products. Shipping costs charged to customers are not reported within revenue. The Company does not have any significant financing components as payment is received at or shortly after the point of sale.
(L) Accounts Receivable
Accounts receivable are recorded at management’s assessment of the expected consideration to be received, based on a detailed review of historical pricing adjustments and collections. Management relies on the results of the assessment, which includes payment history of the applicable customer as a primary source of information in estimating the collectability of our accounts receivable. We update our assessment on a quarterly basis, which to date has not resulted in any material adjustments to the valuation of our accounts receivable. We believe the assessment provides reasonable estimates of our accounts receivable valuation, and therefore believe that substantially all accounts receivable are fully collectible.
9 |
(M) Research and Development
The Company expenses research and development costs as incurred.
(N) 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 December 31, 2021 and March 31, 2021, 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
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.
10 |
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.
● 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.
(P) 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.
11 |
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
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.
(Q) Inventory
Inventories are recorded in accordance with ASC 330, Inventory, and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology.
(R) Recent Accounting Pronouncements
The Company has reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.
In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements.
All other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
(S) 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. Accrued expenses is reported separately from accounts payable in the balance sheet since the amounts are material. There was no effect on the change in net assets resulting from the reclassifications.
12 |
NOTE 2 – INVENTORY
As
of December 31, 2021 and March 31, 2021, the Company had inventory of $
The inventory components are as follows:
December 31, 2021 | March 31, 2021 | |||||||
Finished Goods | $ | $ | ||||||
Work in Process | - | |||||||
Raw Materials | ||||||||
Manufacturing Supplies | - | |||||||
Reserve for Obsolete Inventory | - | ( | ) | |||||
Total Net | $ | $ |
At
December 31, 2021, both the inventory cost of $
The
Company recognized a benefit to cost of sales of $
NOTE 3 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS
As
of December 31, 2021, the Company had $
As
of March 31, 2021, the Company had $
13 |
NOTE 4 –PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
December 31, 2021 | March 31, 2021 | |||||||
Leasehold improvements | $ | $ | ||||||
Production equipment | ||||||||
R&D equipment | ||||||||
Computer equipment and furniture | ||||||||
Total, at cost | ||||||||
Accumulated depreciation | ( | ) | ( | ) | ||||
Total Net | $ | $ |
During
the three months ended December 31, 2021 and 2020, depreciation expense was $
NOTE 5 – INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
December 31, 2021 | March 31, 2021 | |||||||
Patents | $ | $ | ||||||
Trademarks | ||||||||
Total at cost | ||||||||
Accumulated Amortization | ( | ) | ( | ) | ||||
Total net | $ | $ |
During
the three-month periods ended December 31, 2021 and 2020, amortization expense was $
NOTE 6 – ACCRUED EXPENSES
The components of accrued expenses were as follows:
December 31, 2021 | March 31, 2021 | |||||||
Accrued payroll and related taxes | $ | $ | ||||||
Accrued lease termination expense | ||||||||
Total | $ | $ |
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 $
14 |
NOTE 7 - RELATED PARTY NOTES PAYABLE
At
December 31, 2021 and March 31, 2021, the Company is obligated for a related party note payable and accrued interest in the total amount
of $ and $
The
Company entered into notes payable with four directors in March 2021 which accrue interest at a rate of
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 $
On
May 1, 2020, the Company received $
At
March 31, 2021, the Company is obligated for several convertible notes payable in the total amount of $
At
September 30, 2020, the Company is obligated for one convertible note payable held by RedDiamond Partners, LLC (“RDCN”);
the Company entered into the RDCN on June 15, 2020, whereby the note is convertible on or after January 15, 2021 and before maturity
on March 15, 2021 at a rate of $
15 |
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 $
The
Promissory Note was entered into with an effective date of September 1, 2020 in a principal amount of $
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 of the Settlement Agreement, 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 Dr. Masters both agreed
to convert his note payable in the then outstanding balance of $
16 |
At
December 31, 2021 and March 31, 2021, the Company was obligated for principal and accrued interest in the amounts of $-
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 instruments, 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 8 to these financial statements, under the binomial pricing model with Monte Carlo simulations 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 | $ | $ | $ | |||||||||
Conversion price | $ | $ | $ | |||||||||
Days to maturity | ||||||||||||
Weighted-average volatility* | % | % | ||||||||||
Risk-free rate | % | % |
The
initial valuation of $
NOTE 11–ACCRUED EXPENSES – RELATED PARTY
At
March 31, 2021, the Company was obligated to pay $
In
August 2021, the total amount due to the related party was paid from the proceeds of its Public Offering and there is
17 |
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 made contributions to the plan for the three
and nine months ended December 31, 2021 of $
NOTE 13 – COMMITMENTS AND CONTINGENCIES
The
Company entered into an eighty-four-month lease for
Rent
expense for the three-month periods ended December 31, 2021 and December 31, 2020 were $
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2021:
2022 | $ | |||
2023 | ||||
2024 | ||||
2025 | ||||
2026 | ||||
2027 | ||||
Less: amount representing interest | ( | ) | ||
Total | $ |
In
compliance with ASC 842, the Company recognized, based on the extended lease term to November 2026 and a treasury rate of
Present value of future base rent lease payments | $ | |||
Present value of future base rent lease payments – net | $ |
As of December 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 | $ | |||
Total operating lease assets | ||||
Operating lease current liability | ||||
Operating lease other liability | ||||
Total operating lease liabilities | $ |
The Company has employment agreements with its executive officers. As of December 31, 2021, these agreements contain severance benefits ranging from one month to six months if terminated without cause. As of March 31, 2021, the employment agreements to executive officers did not contain severance benefits if terminated without cause.
18 |
The Company has received correspondence from an attorney representing Dr. David Masters, our former Chief Technology Officer and current director, alleging that the Company, among other items, breached its settlement and consulting agreement with him and owes him additional monies pursuant to these agreements. His attorney also alleges that the Company promised to enter into a new employment agreement with him and failed to fulfill that promise. The Company believes that Dr. Master’s claims are without merit and has retained legal counsel. The Company does not believe that this matter will have a material impact on its financial position or results of operations.
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 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. In August 2021, we raised net proceeds of approximately $
The Company expects to incur losses in the future as its commercially launches its first product. 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 of these financial statements. Management intends to raise additional funds by selling securities in public or private offerings. 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.
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 a 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 authorized under the 2020 Plan is shares. Unless sooner terminated by the Board, the 2020 Plan will terminate at midnight on . The number of shares available to grant under the Plan was at December 31, 2021.
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.
The 2020 Plan is 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 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.
19 |
The aggregate number of shares of PetVivo common stock available and reserved to be issued under the 2020 Plan is 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 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.
Units – Public Offering
On
August 13, 2021, the Company sold an aggregate of
The
Company received gross proceeds of $
.
Pursuant
to the Underwriting Agreement, we issued warrants (the “Underwriter’s Warrants”) to ThinkEquity to purchase
20 |
Common Stock
For the nine months ended December 31, 2021, the Company issued shares of common stock as follows:
i)
ii)
iii)
iv)
v)
vi)
vii)
viii)
ix)
x)
xi)
xii)
xiii)
xiv)
xv) shares in December 2021 related to vesting of restricted stock units.
For the nine months ended December 31, 2020, the Company issued shares of common stock as follows:
i) i) shares valued at $ and recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term; and
ii)
iii)
21 |
iv)
v)
vi) shares valued at $ to directors and officers on September 14, 2020 as bonuses for work over the past two years as follows:
a. | to John Lai | |
b. | to John Carruth | |
c. | to John Dolan | |
d. | to Gregory Cash | |
e. | to David Deming | |
f. | to Robert Rudelius | |
g. | to Randy Meyer | |
h. | to Jim Martin | |
i. | to Scott Johnson | |
j. | to Joseph Jasper | |
k. | to David Masters |
vii)
viii)
ix)
x)
xi)
Time-Based Restricted Stock Units
We
have granted time-based restricted stock units to certain participants under the 2020 Plan that are stock-settled with common shares.
Time-based restricted stock units granted under the 2020 Plan vest over three years. Stock-based compensation expense included in the
Condensed Consolidated Statements of Operations for time-based restricted stock units was $
22 |
Our time-based restricted stock unit activity for the nine months ended December 31, 2021 was as follows:
Units Outstanding | Weighted Average Grant Date Fair Value Per Unit | Aggregate Intrinsic Value (1) | ||||||||||
Balance at March 31, 2021 | ||||||||||||
Granted | $ | |||||||||||
Vested | ( | ) | ||||||||||
Balance at December 31, 2021 | $ | $ |
(1) |
Warrants
During
the nine months ended December 31, 2021, the Company issued warrants to purchase an aggregate of
● | warrants
to purchase | |
● | warrants
to purchase | |
● | warrants
to purchase |
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 approximately
ii)
risk-free rate identical to the U.S. Treasury
During the nine months ended December 31, 2020, the Company issued warrants to purchase a total of shares of common stock as follows:
i)
warrants issued for
ii)
warrants issued for
iii)
warrants issued with debt for
iv)
warrants for
23 |
v)
warrants for
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
ii)
risk-free rates identical to the U.S. Treasury
A summary of warrant activity for the year ending March 31, 2020 and nine-month period ending December 31, 2021 is as follows:
Number of Warrants | Weighted- Average Exercise Price | Warrants Exercisable | Weighted- Average Exercisable Price | |||||||||||||
Outstanding, March 31, 2020 | $ | $ | ||||||||||||||
Issued in conjunction with convertible debt | ||||||||||||||||
Sold for Cash | ||||||||||||||||
Issued and granted | ||||||||||||||||
Exercised for cash | ( | ) | ( | ) | ||||||||||||
Cashless warrant exercises | ( | ) | ( | ) | ||||||||||||
Expired | ( | ) | ( | ) | ||||||||||||
Outstanding, March 31, 2021 | ||||||||||||||||
Issued and granted | ||||||||||||||||
Exercised for cash | ( | ) | ( | ) | ||||||||||||
Cashless warrant exercises | ( | ) | ( | ) | ||||||||||||
Expired | ( | ) | ( | ) | ||||||||||||
Cancelled | ( | ) | ( | ) | ||||||||||||
Outstanding, December 31, 2021 | $ | $ |
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 | |||||||||||||||||
$ | -$ | $ | $ | |||||||||||||||||||
- | ||||||||||||||||||||||
- | ||||||||||||||||||||||
Total |
For
the three months ended December 31, 2021 and 2020, the total stock-based compensation on all instruments was $
NOTE 16 – SUBSEQUENT EVENT
In
October 2021, the Company entered into a new lease agreement of
In January 2022, the Company issued shares of its common stock, shares related to vesting of restricted stock units and shares to a consultant for investor relations services.
24 |
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We were incorporated in Nevada in 2009 under a former name. In 2014, we entered our current business through a reverse merger with PetVivo Inc., a Minnesota corporation founded in 2013. From this merger, PetVivo Inc. became our wholly-owned subsidiary, and concurrently we changed our Nevada corporate name to PetVivo Holdings, Inc.
On August 13, 2021, the Company sold an aggregate of 2,500,000 units at a price to the public of $4.50 per unit (the “Public Offering”), each unit consisting of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $5.625 per share pursuant to an Underwriting Agreement we entered into with ThinkEquity, a division of Fordham Financial Management, Inc. (“ThinkEquity”) The shares of common stock and warrants were transferrable separately immediately after issuance. In addition, pursuant to the Underwriting Agreement, the Company granted ThinkEquity a 45-day option to purchase up to 375,000 additional shares of common stock, and/or 375,000 additional warrants, to cover over-allotments in connection with the Offering, which ThinkEquity partially exercised to purchase 375,000 warrants on the closing date.
The Company received gross proceeds of $11,253,850 at the closing of the Public Offering, before deducting underwriting discounts, commissions of eight percent (8%), and offering expenses. The total net proceeds received by the Company in the Public Offering were approximately $9,781,000.
CURRENT BUSINESS OPERATIONS
We are an emerging biomedical device company based in Minneapolis, Minnesota, focused on the licensing and commercialization of innovative medical devices and therapeutics for pets. We operate in the $31.4 billion US veterinary care and products market (market size according to the American Pet Products Association, Morris Animal Foundation). 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. In addition, the role of pets in the family has greatly evolved in recent years as many pet owners consider their pets an important member of the family and are now willing to spend greater amounts of money on their pets to maintain their health and quality of life.
We intend to leverage our investments 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 accelerated timeline to revenues for veterinary medical devices, which enter the market earlier than the more-stringently regulated veterinary pharmaceuticals or human therapeutics.
Our lead product, Spryng™ (formerly known as Kush®) was launched in September 2021. Spryng™ is a veterinarian-administered joint injection for the treatment of osteoarthritis and lameness in dogs and horses. The Spryng™ 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.
25 |
We believe that Spryng™ is an optimal treatment that safely improves joint function. The Spryng™ 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.
According to the 2019 State of Pet Health Report published by Banfield Pet Hospital, osteoarthritis has increased by 66% in dogs over the past 10 years. Using industry sources, we estimate osteoarthritis afflicts approximately 14 million owned dogs in the United States and the European Union, making canine osteoarthritis an estimated potential $4 billion market opportunity; 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 America (1997):699-723; and http://www.americanpetproducts.org/press_industrytrends.asp.
In addition to being a treatment for osteoarthritis, the joint-cushioning and lubricity effects of Spryng™ 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, making the equine lameness and navicular disease market an annual opportunity worth $550 million; 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 Spryng™ is far superior to the current methodology of using NSAIDs. NSAIDs have many side effects, especially in canines, whereas the Company’s treatment using Spryng™, to our knowledge, has not elicited any adverse side effects in dogs. Remarkably, Spryng™ 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 Spryng™ device. The treatment is injected into synovial joint space using standard intra-articular injection technique and multiple joints can be treated simultaneously. Spryng™ immediately treats effects of osteoarthritis with no special post-treatment requirements.
Historically, drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at veterinary practices are being eroded because online, big-box and traditional pharmacies recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. The Spryng™ device is veterinarian-administered and should expand practice revenues and margins. We believe that the increased revenues and margins provided by Spryng™ 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. If the Company has sufficient capital to commence commercial manufacturing of Spryng™, its challenge will be whether it can consistently operate effectively to manufacture Spryng™ and other products and market and sell them in quantities and prices sufficient to obtain a satisfactory and sustaining profit. We have not done this to date and our challenge is to do so going forward.
26 |
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; this program started in August 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.
RESULTS OF OPERATIONS
The following discussion of our results of operations and financial condition should be read in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto, and related Management’s Discussion and Analysis appearing in our Annual Report on Form 10-K for the year ended March 31, 2020. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements” below and the “Risk Factors” section in our Annual Report on Form 10-K for the year ended March 31, 2021.
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 Spryng.™ It will provide to veterinarians an innovative treatment for dogs and horses suffering from osteoarthritis.
RESULTS OF OPERATIONS
For the Three Months Ended December 31, | For the Nine Months Ended December 31, | |||||||||||||||
2021 | 2020 | 2021 | 2020 | |||||||||||||
Revenues | $ | 51,004 | $ | 507 | $ | 60,126 | $ | 7,303 | ||||||||
Total Cost of Sales | 98,997 | - | 104,048 | 350 | ||||||||||||
Total Operating Expenses | 1,609,658 | 385,897 | 3,235,604 | 1,652,978 | ||||||||||||
Total Other Income (Expense) | 15,522 | (652,363 | ) | 41,294 | (1,553,738 | ) | ||||||||||
Net Loss | $ | (1,642,129 | ) | $ | (1,037,753 | ) | $ | (3,238,232 | ) | $ | (3,199,763 | ) | ||||
Net loss per share - basic and diluted | $ | (0.17 | ) | $ | (0.16 | ) | $ | (0.38 | ) | $ | (0.53 | ) |
* 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.
27 |
For The Three Months Ended December 31, 2021 Compared to The Three Months Ended December 31, 2020
Total Revenues. Revenues increased to $51,004 for the three months ended December 31, 2021 compared to $507 for the three months ended December 31, 2020, and consisted of sales of our Spryng™ product to veterinary clinics. The increase in revenues is due to the Company commercialization of its Spryng™ product in September 2021.
Total Cost of Sales. Cost of sales increased to $98,997 for the three months ended December 31, 2021 compared to $0 for the three months ended December 31, 2021 and 2020, respectively. The increase in s directly related to increased sales of the Spryng™ product. Cost of sales includes product costs related to the sale of products and labor and overhead costs.
Operating Expenses. Operating expenses increased to $1,609,658 for the three months ended December 31, 2021 compared to $385,897 for the three months ended December 31, 2020. Operating expenses consisted of general and administrative (“G&A”), sales and marketing, and research and development expenses. The increase is primarily due to increased G&A expenses and sales and marketing expenses related to the sale of our Spryng™ product.
G&A expenses increased to $1,170,870 for the three months ended December 31, 2021 compared to $331,148 for the three months ended December 31, 2020. General and administrative expenses include compensation and benefits, contracted services, consulting fees, stock compensation and incremental public company costs.
Sales and marketing expenses were $404,462 and $24,484 for the three months ended December 31, 2021 and 2020, respectively. Sales and marketing expenses include compensation, consulting, tradeshows and stock compensation costs to support the launch of Spryng™.
Research and development (“R&D”) expenses were $34,326 and $30,265 for the three months ended December 31, 2021 and 2020, respectively.
Operating Loss. As a result of the foregoing, our operating loss was $1,657,651 and $385,390 for the three months ended December 31, 2021 and 2020. The increase was related to the infrastructure costs to support the launch of Spryng™ and the incremental public company costs.
Other Income (Expense). Other income was $15,522 for the three months ended December 31, 2021 as compared to expense of $652,363 for the three months ended December 31, 2020. Other income in 2021 consisted of net interest expense. Other expense in 2020 consisted primarily of derivative expense related to debt financing of $970,600 and interest expense of $48,666 partially offset by a gain on extinguishment of debt of $366,903.
Net Loss. Our net loss for the three months ended December 31, 2021 was $1,642,129 or ($0.17) as compared to a net loss of $1,037,753 or ($0.16) per share for the three months ended December 31, 2020. The increase was related to the infrastructure costs to support the launch of Spryng™ and the incremental public company costs. The weighted average number of shares outstanding was 9,756,945 compared to 6,442,549 for the three months ended December 31, 2021 and 2020, respectively.
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For The Nine Months Ended December 31, 2021 Compared to The Nine Months Ended December 31, 2020
Total Revenues. Revenues increased to $60,126 for the nine months ended December 31, 2021 compared to $7,303 for nine months ended December 31, 2020, respectively, and consisted of sales to veterinary clinics. The Company began commercialization of its Spryng™ product in September 2021.
Total Cost of Sales. Cost of sales was $104,048 for the nine months ended December 31, 2021 compared to $350 for the nine months ended December 31, 2020. The increase is directly related to increased sales of the Spryng™ product. Cost of sales includes product costs related to the sale of products and labor and overhead costs. The increase is primarily attributed to our increased sales
Operating Expenses. Operating expenses increased to $3,235,604 for the nine months ended December 31, 2021 and $1,652,978 for the nine months ended December 31, 2020. Operating expenses consisted of general and administrative, sales and marketing, and research and development expenses. The increase is primarily due to increased G&A expenses and sales and marketing expenses related to the sale of our Spryng™ product.
General and administrative (“G&A”) expenses were $2,258,001 and $1,515,968 for the nine months ended December 31, 2021 and 2020, respectively. General and administrative expenses include compensation and benefits, contracted services, consulting fees, stock compensation and incremental public company costs.
Sales and marketing expenses were $689,960 and $106,745 for the nine months ended December 31, 2021 and 2020, respectively. Sales and marketing expenses include compensation, consulting, tradeshows and stock compensation costs to support the launch of Spryng™..
Research and development (“R&D”) expenses were $287,643 and $30,265 for the nine months ended December 31, 2021 and 2020, respectively. The increase was related to efforts to support the launch of Spryng™.
Operating Loss. As a result of the foregoing, our operating loss was $3,279,526 and 1,646,025 for the nine months ended December 31, 2021 and 2020. The increase was related to the costs to support the launch of Spryng™ and the incremental public company costs.
Other Income (Expense). Other income was $41,294 for the nine months ended December 31, 2021 as compared to expense of $1,553,738 for the nine months ended December 31, 2020. Other income in 2021 consisted of the forgiveness of PPP Loan of $31,680 and net interest income of $9,614. Other expense in 2020 consisted primarily of derivative expense related to debt financing of $1,702,100 and interest expense of $219,539.
Net Loss. Our net loss for the nine months ended December 31, 2021 was $3,238,232 or ($0.38) as compared to a net loss of $ 3,199,763 or ($0.53) per share for the nine months ended December 31, 2020. The weighted average number of shares outstanding was 8,426,135 compared to 6,006,382 for the nine months ended December 31, 2021 and 2020, respectively.
LIQUIDITY AND CAPITAL RESOURCES
On August 13, 2021, we closed an underwriting public offering of 2,500,000 units, at a price of $4.50 per unit. Net proceeds from the Public Offering were approximately $9,781,000, net of commissions and expenses of the offering. As of December 31, 2021, our current assets were $8,035,394 including $7,553,738 in cash and cash equivalents. In comparison, our current liabilities as of that date were $1,106,440 including $1,069,204 of accounts payable and accrued expenses. Our working capital as of December 31, 2021 was $6,928,954.
The Company has continued to realize losses from operations. However, as a result of our Public Offering, we believe we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements for at least the next 12 months. We will need to raise additional capital in the future to support our efforts to commercialize Spryng™ and our ongoing operations. We expect to continue to raise additional capital through the sale of our securities from time to time for the foreseeable future to fund our business expansion. Our ability to obtain such additional capital will likely be subject to various factors, including our overall business performance and market conditions. There can be no guarantee that the Company will be successful in its ability to raise additional capital to fund its business plan.
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Net Cash Used in Operating Activities – We used $2,804,480 of net cash in operating activities for the nine months ended December 31, 2021. This cash used in operating activities was primarily attributable to our net loss of $3,238,232, forgiveness of PPP loan and accrued interest of $31,680, an increase in inventory of 104,965 and an increase in prepaid expenses and other assets of $44,559 partially offset by an increase in accounts payable and accrued expenses of $106,319, stock compensation expense of $432,483 and stock issued for services of $71,080.
Net Cash Used in Investing Activities – We used $111,062 of net cash in investing activities for the nine months ended December 31, 2021, consisting of purchase of equipment of $91,908 and costs capitalized to patents and trademarks of $19,154.
Net Cash Provided by Financing Activities – During the nine months ended December 31, 2021, we were provided with net cash of $10,446,702 from financing activities consisting of $10,242,912 in stock and warrants sale proceeds and a decrease in deferred offering costs of $280,163, which were partially offset by $76,373 in repayments of note payable, including those to directors and a related party.
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 December 31, 2021, the Company’s inventory has a carrying value of $104,965 and is broken down into $8,520 of finished goods, $31,424 of work in process and $65,021 in raw material.
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.
MATERIAL COMMITMENTS
Note Payable and Accrued Interest
As of December 31, 2021, we are obligated on notes and accrued interest of $35,293.
OFF-BALANCE SHEET ARRANGEMENTS
As of December 31, 2021, and as of the date of this Quarterly 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. In August 2021, we raised approximately $9,781,000 from the sale of units in a Public Offering. Our working capital at December 31, 2021 was $6,895,440. We believe this working capital is sufficient to fund operations for the next twelve months (see Liquidity and Capital Resources above).
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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 – Summary of Significant Accounting Policies and Organizations in Part I - Item 1 Financial Statements of this 10-Q and 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
All newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not required
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE 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 December 31, 2021, 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.
Changes in internal control over financial reporting.
There were no significant changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
From time to time, we may become involved in legal proceedings arising in the ordinary course of our business, the resolution of which we do not anticipate would have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.
ITEM 1A. RISK FACTORS
The business, results of operations, financial condition, cash flow, and stock price of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March 31 2021 under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition, operating results and cash flow to vary materially from past, or from anticipated future, financial condition operating results and cash flow.
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
(a) | Recent Sales of Unregistered Securities |
From October 1, 2021 through December of 2021, the Company issued a total of 26,385 shares of common stock as follows:
(i) | issued 25,585 shares of common stock to members of the Board of Directors as compensation, and | ||
(ii) | issued 800 shares of common stock to a provider of consulting services. |
All of these transactions described above were exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. The purchasers of securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to offer or sell, in connection with any distribution of the securities, and appropriate legends were affixed to the share certificates and instruments issued in such transactions.
(ii) | Use of Proceeds from IPO |
On August 13, 2021, we completed our Public Offering pursuant to which we issued and sold an aggregate of 2,500,000 units at the public offering price of $4.50 per unit. Each unit consisted of one share of our common stock and one warrant to purchase one share of our common stock at an exercise price of $5.625 per share. The shares of common stock and warrants were transferable separately immediately upon issuance. At the closing of the Public Offering, the underwriter exercised its over-allotment option to purchase an additional 375,000 warrants for an aggregate purchase price of $3,850.
The offer and sale of all of the units in our Public Offering were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-249452), which was declared effective by the SEC on August 10, 2021 (“Registration Statement”) . ThinkEquity, a division of Fordham Financial Management, Inc. acted as the sole book-running manager for the offering. In connection with the Public Offering, the Company’s common stock and warrants were registered under Section 12(b) of the Exchange Act and began trading on The Nasdaq Capital Market, LLC under the symbols “PETV” and “PETVW,” respectively.
We received aggregate gross proceeds from our Public Offering of $11,253,850 (inclusive of the underwriter’s exercise of its overallotment option to purchase warrants). After deducing underwriting discounts and commissions and other offering expenses, we received net proceeds of approximately $9,781,000 from the Public Offering.
As disclosed in the Registration Statement, we used a portion of the net proceeds from the Public Offering for debt repayment of $101,400 consisting of (i) $36,808 in accrued salary and expenses relating to the CEO; (ii) $20,000 in a note payables to four directors, which accrued interest at a rate of 6.5% per annum and matured in September 2021; and (iii) repayment of $44,554 in a note payable to our former Director of Science and Technology and a director, which accrued interest at a rate of 8% per annum, and maturity date of June 30, 2022.
There has been no material change in our intended use of proceeds from our Public Offering as described in the Prospectus filed with the SEC pursuant to Rule 424(b)(4) on August 13, 2021.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
Not required.
ITEM 4. MINE SAFETY DISCLOSURES
Not required.
ITEM 5. OTHER INFORMATION
None
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ITEM 6. EXHIBITS
The following exhibits are filed as part of this Quarterly Report.
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PETVIVO HOLDINGS, INC.
SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
February 10, 2022 | By: | /s/ John Lai |
John Lai | ||
Its: | CEO, President and Director (Principal Executive Officer) | |
February 10, 2022 | By: | /s/ Robert J. Folkes |
Robert J. Folkes | ||
Its: | Chief Financial Officer (Principal Financial and Accounting Officer) |
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