PetVivo Holdings, Inc. - Annual Report: 2019 (Form 10-K)

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, 2019

[  ] 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)

(952) 405-6216

(Registrant’s Telephone Number, Including Area Code)

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

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

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.

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— $13,624,010.

As of July 30, 2019, there were 22,074,667 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

PART I

Forward-Looking Information

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

ITEM 1. BUSINESS

BACKGROUND

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

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

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

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

In 2013, PetVivo entered into an exclusive worldwide license for the commercialization of a patented biomaterials technology developed by Gel-Del Technologies Inc., a Minnesota corporation (“Gel-Del”). Gel-Del was a biomaterials development and manufacturing company focused on human and companion animal applications of its biomaterials technology; our initial product, Kush®, is derived from the licensed technology. Kush is comprised of a patented, gel-like, protein-based biomaterial which may be injected into the afflicted body parts of companion animals suffering from osteoarthritis. Kush’s predecessor formulation completed a Gel-Del-sponsored 145 patient First-in-Man IDE clinical trial using the novel thermoplastic biomaterial as dermal filler for human cosmetic applications

Gel-Del Technologies, Inc. Acquisition

In exchange for 1,450,000 shares of the Company’s common stock the Company entered into a certain exclusive license agreement and manufacturing and supply agreement dated August 2, 2013 (the “License Agreement”) with Gel-Del pertaining to the manufacture and supply of products by Gel-Del derived from certain technology, including protein-based biomaterials and devices, which are beneficial for the veterinary treatment of animals having orthopedic joint afflictions (the “Technology”). We have since terminated the License Agreement based upon consummation of the Gel-Del merger as indicated in this section Gel-Del Technologies, Inc. Acquisition.

In 2014, subsequent to the securities exchange agreement between PetVivo Holdings, Inc. and PetVivo, Inc., and the execution of the License Agreement with Gel-Del Technologies, Inc., PetVivo Holdings’ management and the management of Gel-Del entered into discussion to combine the two companies and produce, market and sell medical products based on Gel-Del technology for both human and animal indications.

In November 2014 the respective Boards of Directors and executive officers of our company and of Gel-Del entered into a merger agreement between our company and Gel-Del, subject to approval of our shareholders and Gel-Del shareholders. Shareholder approval of this merger was obtained from shareholders of Gel-Del in March 2015 and from our shareholders in April 2015, and concurrently we also appointed the directors of Gel-Del to our Board of Directors. We then controlled Gel-Del, combined all Gel-Del operations with ours, and were responsible to provide future funding for Gel-Del. Accordingly, we concluded that Gel-Del was a variable interest entity (VIE) for which we were the primary beneficiary and that for accounting purposes, we would consolidate our financial statements with those of Gel-Del with the assets and liabilities of Gel-Del stated at their fair value. We also determined the fair value of the Gel-Del assets and liabilities was based on the $4.02 per share trading price of our common stock at April 10, 2015, resulting in the total purchase consideration being $18,978,462.

We were unable to consummate the 2014 merger agreement with Gel-Del in a timely fashion due primarily to a substantial decline in the value of our publicly-traded common stock during 2015-2016. In order to complete the Gel-Del merger, in early 2017 we agreed to provide Gel-Del an additional 31.3% of our common shares than was required in the initial merger agreement. Accordingly, our management and Gel-Del management revised the structure and terms of the Gel-Del merger to provide for the issuance of these additional shares to Gel-Del and to effect the transaction through a statutory triangular merger. 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 5,450,000 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 5,450,000 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 $0.40 per share, resulting in total consideration of $2,180,000. Incident to completion of the Merger, we also recorded an impairment loss of approximately $14,700,000 in order to account for the decline in our initial valuation of Gel-Del in 2015. For additional information regarding our accounting treatment of the Gel-Del merger and the related large impairment loss recorded in 2017 due to the decline in value of Gel-Del from the initial uncompleted merger transaction and the 2017 completed merger transaction, see Note 11 to the financial statements included in this Annual Report on Form 10-K.

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 commercial sale in the veterinary market to treat companion animals such as dogs, horses and cats, and other animals suffering from arthritis and other afflictions. Our initial product, Kush, is an injectable 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. The inherent thermoplastic properties of these biomaterials are then utilized to manufacture or coat implantable devices or as use as stand-alone injectables. These biomaterials are produced using a patented and scalable self-assembly production process. We are commercializing the technology in the veterinary field for the treatment of osteoarthritis.

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, based in Minneapolis, Minnesota. We operate in the $19 billion US veterinary care market that has grown at a CAGR of 4.8% over the past five years according to the American Pet Products Association. Despite the market size, veterinary clinics and hospitals have very few treatments and/or drugs for use in treating osteoarthritis in pets and other animals.   The role of pets in the family has greatly evolved in recent years. Many pet owners consider their pets an important member of the family. They are now willing to spend greater amounts of money on their pets to maintain their health and quality of life.

We intend to leverage investments already expended in the development of human therapeutics to commercialize treatments for pets in a capital and time-efficient way. A key component of this strategy is the accelerated timeline to revenues for veterinary medical devices, which 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 $4 billion market opportunity if selling the product at $200 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 (i.e., loss of slippery padding). There are currently very few, if any, treatments for osteoarthritis; some of which are palliative pain therapy and joint replacement. Non-steroidal, anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation, but long-term use has been shown to cause gastric problems. NSAIDs do not treat the cartilage degeneration issue to halt or slow the progression of the osteoarthritis condition.

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

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

Historically, drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at veterinary practices are being eroded because online, big-box and traditional pharmacies recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. Our treatments expand practice revenues and margins because they are veterinarian-administered. The Kush device is veterinarian-administered to 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.

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.”

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

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 anticipates establishing 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 rest of world through commercial partners.

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

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

Dermal Filler

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

Cardiovascular Devices

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

Drug Delivery

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

Orthopedic Devices

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

Intellectual Property

Our intellectual property portfolio is comprised of patents, patent applications, trademarks and trade secrets. We have eight issued United States Patents. In addition to the United States patent portfolio we also have nine 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.

Our patent portfolio is currently held in the assignee name of PetVivo Holdings, Inc. and was previously held in our wholly-owned subsidiary Gel-Del Technologies. 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   9 Foreign Patents Granted & Allowed   5 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. With eight issued or allowed United States Patents that contain 287 claims, our intellectual property portfolio strongly protects our proprietary technology, including the composition of raw elements used to produce our formulations, the fabricated biomaterials and their application in end products, thereby making our material and devices much more attractive to industry partners.

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

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

Companion Animal Market

Over the last several decades, we believe the animal health market and industry has a strong component in the overall U.S. economy and is more resistant to economic cycles. The veterinary sector is as an attractive area to participate in the growth of the broader healthcare industry without reimbursement risk. Based on our best knowledge, U.S. consumers will spend an estimated $75 billion on pets this year—a number that leads to a CAGR of more than 5% over the 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.

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 particles. In vivo studies indicate that the gel particle device can easily be combined with synovial fluid in a rabbit knee to form a joint cushion, buffering the adjacent bones/cartilage where no damage was caused to the cartilage from replacing the synovial fluid. The particles show an effectiveness to repair, reconstitute or remodel the tissue, cartilage, ligaments and/or bone and/or enhance the functionality of the joint (e.g. repair deteriorated components present in the joint to provide cushion or shock-absorbing features to the joint and to provide joint lubricity)   AppTec Laboratories accomplished a gel-particle rabbit study. In short, New Zealand white rabbits (6) were injected in both stifle joints (knees) to fill but not extend the synovial space (~0.5 cc GDP/site). Rabbits were tested every other day for abnormal clinical signs including range of motion and joint observations until sacrifice. Behavioral testing revealed no abnormal scores for range of motion, withdrawal response, or joint observations (all animals were 100% normal). At one week and at four weeks the animals were sacrificed. AppTec pathologists evaluated knee joint histology. The reported cartilage surfaces of the femoral and tibia condyles and the menisci were grossly and histologically 100% normal for all animals and test sites. The test particles were found in all of the injection sites.

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

Regenerative Characteristics

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

Particle Integration after 12 Weeks   The image at left shows collagen in blue, fibroblasts in red and CosmetaLife in gray. Note the typical cellularization and integration of collagen within the CosmetaLife matrix perimeter. Also notice the fibroblasts (collagen producers) are integrated throughout the injection site. Microvascularization, indicated by arrowheads, is also present in several locations. There is little to no sign of inflammation.   Trichrome Stain - 20x Objective   CosmetaLife Particles

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

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

Particle Device Clinical Studies

The Company has conducted several biocompatibility animal studies. In the implantation study, no abnormal clinical signs were noted for any of the rabbits. The results of the sensitization study in guinea pigs showed a sensitization response equivalent to the negative controls.   The results of the histological report on the rabbit skin biopsies clearly demonstrate structural integration of the particles into the host tissues by week 12. Evaluators observed the particle material integration with normal tissue, remodeled and/or new collagen, and fibroblasts throughout the injected particles, mild to no inflammation, and new collagen-matrix production.

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

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

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

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

Particles Safety Study

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

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.

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.

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

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

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

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

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

ITEM 1A. RISK FACTORS

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

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

We have incurred substantial losses since commencing our business. For our fiscal years ended March 31, 2019 and 2018, we lost approximately $4.76 million and $2.34 million, respectively, without obtaining any commercial revenues. And as of March 31, 2019, we had an accumulated deficit of approximately $52.51 million. In order to achieve and sustain future revenue growth, we must succeed in our current commercialization of our Kush product for treatment of companion animal osteoarthritis or find other methods of obtaining material cash flows. That will likely require us to produce our products effectively in commercial quantities, establish adequate sales and marketing systems, and gain significant support from veterinarians in the use of our products. We expect to continue to incur losses until such time, if ever, as we succeed in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. We may never generate revenues sufficient to become profitable or to sustain profitability.

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, 2019 and 2018 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 raise capital from this offering, we may not be able to continue as a going concern.

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

Our Articles of Incorporation authorize the issuance of 250,000,000 shares of common stock and 20,000,000 shares of preferred stock. The Board of Directors has the authority to issue additional shares of our capital stock to provide additional financing in the future, or for other matters in their discretion, and the issuance of any such shares may result in a reduction of the book value or market price of the then outstanding shares of our common stock. If we do issue any such additional shares in the future, such issuance also will cause a reduction in the proportionate ownership and voting power of current stockholders.

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

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

ITEM 2. PROPERTIES

Property held by us. As of March 31, 2019, we do not own any interests in real estate. We rent our Edina, Minnesota office in suburban Minneapolis under the provisions of a long-term lease.

Our Facilities. Our executive, administrative and operating offices are located at 5251 Edina Industrial Blvd., Edina, Minnesota 55439. In addition, the Company rents on a monthly basis a small production facility in White Bear Lake, Minnesota. We believe that our facilities are adequate for our needs and that additional suitable space will be available on acceptable terms as required.

ITEM 3. LEGAL PROCEEDINGS

We are not currently a party to any legal proceedings.

ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

PART II

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

MARKET INFORMATION

During the fiscal years ended March 31, 2018 and 2019, our common stock was listed for quotation on the OTC Pink Sheets and OTCQB markets under the symbol “PETV.” The following table sets forth the high and low bid prices relating to our common stock on a quarterly basis for the periods indicated as quoted by the OTC Pink Sheets and OTCQB markets. These quotations reflect inter-dealer prices without retail mark-up, mark-down, or commissions, and may not reflect actual transactions.

Stockholders

The approximate number of stockholders of record at March 31, 2019 was 224. The number of stockholders of record does not include beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers and other fiduciaries.

Dividend Policy

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

RECENT SALES OF UNREGISTERED SECURITIES

During fiscal year ended March 31, 2019 and to date, we issued an aggregate of 3,795,592 shares of unregistered common stock, shown quarter-by-quarter below.

During the first quarter ended June 30, 2018 there were issuances of 1,904,134 shares of common stock as follows:

i) 478,662 were issued to the Company’s President, John Lai, to replace shares he placed into escrow in 2017 valued at $861,592;

ii) 520,749 shares were to reduce debt valued at $296,521, 485,287 of these shares valued at $181,967 were recorded in our financial statements during fiscal year ended March 31, 2018;

iii) 200,000 were issued as compensation to the Company’s CEO, Wesley Hayne, valued at $42,000, these shares were granted and recorded to expense and Additional Paid in Capital during the fiscal year ended March 31, 2018;

iv) 310,000 were issued for cash valued at $310,000, 250,000 were from a private offering to one individual in December of 2017 for $250,000, and 60,000 were from a private offering to one individual in September of 2016 for $60,000;

v) 60,000 were issued for cash amounting to $60,000 pursuant to warrant agreements whereby they were exercised at $1.00 per share;

vi) 334,723 were issued for services valued at $599,500, 324,723 shares valued at $584,500 were issued to the Company’s President, John Lai, to replace shares given up to obtain financing in 2015, while 10,000 shares valued at $15,000 were issued to a service provider for business consulting services.

During the second quarter ended September 30, 2018 there were issuances of 334,879 shares of common stock as follows:

i) 27,093 were issued for services valued at $27,450 for services provided, 25,000 shares valued at $24,750 were issued for marketing services while 2,093 valued at $2,700 were issued for website consulting;

ii) 307,786 were issued for cash amounting to $153,893 pursuant to warrant agreements whereby they were exercised at $.50 per share.

During the third quarter ended December 31, 2018 there were issuances of 25,000 shares of common stock as follows:

i) 25,000 were issued for cash amounting to $12,500 pursuant to warrant agreements whereby they were exercised at $.50 per share.

During the fourth quarter ended March 31, 2019 there were issuances of 1,531,579 shares of common stock as follows:

i) 778,241 were issued for cash amounting to $233,472 pursuant to warrant agreements whereby they were exercised at $.30 per share;

ii) 753,338 were issued pursuant to note conversion agreements whereby principal and interest in the amounts of $220,000 and $6,001, respectively, were converted into common stock at a rate of $.30 per share.

Unregistered sales of our equity securities agreed upon, but not issued the year ended March 31, 2019 are recorded in common stock to be issued and are as follows:

i) 86,333 shares of common stock pursuant to a production services agreement with CytoMedical Design Group (CMDG) whereby CMDG is to manufacture Kush in exchange for 10,000 shares of common stock per month valued at $1.00 per share.

On June 7, 2017 the Company’s President, John Lai, entered into an escrow agreement with the Company’s former CEO, Wesley Hayne, whereby John transferred 1,250,000 shares valued at $370,000 of his personally-owned common stock into escrow to be issued to Wesley as incentive for performing the tasks of CEO. These shares were to be issued to Wesley ratably over a two-year period. This transaction was recorded in fiscal quarter four of the year ended March 31, 2018 as an expense on behalf of the company and recorded against Additional Paid in Capital. Upon termination of Wesley Hayne as CEO of PetVivo Holdings, Inc. and review of the aforementioned escrow agreement, it was determined that 600,000 shares of common stock were to return to treasury and a reduction of expense was accounted for during the year ended March 31, 2019.

SECURITIES AUTHORIZED FOR ISSUANCE UNDER EQUITY COMPENSATION PLANS.

As of the date of this Annual Report, we have no compensation plans under which our equity securities were authorized for issuance.

ITEM 6. SELECTED FINANCIAL DATA

Not applicable.

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

The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements for the year ended March 31, 2019, together with notes thereto as included in this Annual Report on Form 10-K. The following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in our forward-looking statements. Our audited financial statements are stated in United States Dollars and are prepared in accordance with United States Generally Accepted Accounting Principles.

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

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

RESULTS OF OPERATION

For Fiscal Year Ended March 31, 2019 Compared to Fiscal Year Ended March 31, 2018

Total Revenues. For fiscal year ended March 31, 2019, we earned $-0- in revenue compared to $1,510 earned in product sold during fiscal year ended March 31, 2018 (a decrease of $1,510).

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

Total Cost of Sales. For fiscal year ended March 31, 2019, we incurred $77,936 in expense compared to $-0- in fiscal year ended March 31, 2018. Cost of sales during the year ended March 31, 2019 was made up of a reserve for obsolete inventory taken based on an analysis of the expiration date of our Kush product, current product status being in a quarantine phase due to contamination that occurred in calendar year 2018, and lack of material sales that occurred when product was available.

Operating Expenses. Operating expenses for fiscal year ended March 31, 2019 were $4,594,872 compared to $2,286,827 for fiscal year ended March 31, 2018 (an increase of $2,308,045). For fiscal year ended March 31, 2019, our operating expenses consisted of: (i) $200,982 (2018: $118,940) in research and development, (ii) $38,348 in sales and marketing (2018: $-0-), (iii) $4,251,742 (2018: $2,167,887) in general and administrative and (iv) $103,800 in intangible impairment (2018: $-0-). The major differences in general and administrative expenses was the large increase in other general and administrative expenses mainly attributable to $861,592 in common stock issued to John Lai to replace shares he gave up into escrow, and $584,501 in common stock issued to John Lai to replace shares he gave up to secure funding in 2015. General and administrative expenses generally include corporate overhead, financial and administrative contracted services, marketing, and consulting costs.

Thus, our operating loss for fiscal year ended March 31, 2019 was $4,672,808 compared to an operating loss of $2,337,338 for fiscal year ended March 31, 2018.

Other Income (Expense). Other Income (Expense) for fiscal year ended March 31, 2019 was ($84,950) (2018: ($52,021)). Other expenses consisted of: (i) gain on settlement of debt of $-0- (2018: $22,000) and (ii) interest expense of ($84,950) (2018: ($74,021)).

Net Loss before Taxes and Net Loss. Our net loss before taxes for fiscal year ended March 31, 2019 was ($4,757,758) or ($.23) as compared to ($2,337,338) or ($.14) for fiscal year ended March 31, 2018. Net loss generally increased primarily due to the following differences in fiscal year ended March 31, 2019: increased expense related to sales and marketing of $38,348, an increase in expense related to research and development of $82,042, an increase in Intangible impairment of $103,800,and an increase in general and administrative expenses of $2,083,855. The weighted average number of shares outstanding during fiscal year ended March 31, 2019 was 20,501,997 compared to 16,943,892 for fiscal year ended March 31, 2018.

LIQUIDITY AND CAPITAL RESOURCES

Fiscal Year Ended March 31, 2019

As of March 31, 2019, our current assets were $55,782 and our current liabilities were $1,535,966 which resulted in a working capital deficit of $1,480,184.

As of March 31, 2019, our current assets were comprised of: (i) $6,460 in cash and cash equivalents; (ii) $12,495 in inventory; (iii) $2,500 in employee advance; and (iv) $34,327 in prepaids. As of March 31, 2019, our total assets were $691,149 comprised of: (i) current assets of $55,782; (ii) $37,349 in property and equipment (valued at $149,802 less depreciation of $112,453); (iii) $8,201 in a security deposit; and (iv) $589,817 in trademark and patents – net.

As of March 31, 2019, our current liabilities were comprised of: (i) $854,990 in accounts payable and accrued expenses; (ii) $576,393 in accrued expenses – related party; (iii) $18,831 in notes payable and accrued interest; and (iv) $85,752 in notes payable and accrued interest – related party.

Stockholders’ equity decreased from $136,648 on March 31, 2018 to ($844,817) on March 31, 2019.

At the present time the Company does not have sufficient funds to continue initial commercial operations, scale manufacturing, and launch an in-depth sales and marketing campaign. The Company has entered into letters of intent with multiple independent distributors, but does not have a manufacturing facility, team, or consulting group currently capable of producing product. To effectively commercialize our products, the Company will need to raise substantial capital, which there is no assurance will happen. During the year ended March 31, 2019 the Company added several new independent board members and has enhanced its corporate governance through increased activity from its audit, compensation, and nominating and governance committees.

Cash Flows from Operating Activities. We have not generated positive cash flows from operating activities due to a lack of a source of revenues. For the fiscal year ended March 31, 2019, net cash flows used in operating activities was ($736,445) (2018: ($575,248)). Net cash flows used in operating activities during fiscal year ended March 31, 2019 consisted primarily of a net loss of ($4,757,758) (2018: ($2,337,338)), which was primarily adjusted by: (i) ($177,600) of common stock returned to treasury from escrow (2018: $-0-); (ii) $1,446,093 in common stock issued to replace shares given up into escrow (2018: $-0-); (iii) $1,642,869 in stock-based compensation (2018: $862,261); and (iv) $646,921 (2018: $643,388) in depreciation and amortization. The increased stock-based compensation expenses including warrant and common stock issuances helped us to operate the business with minimal amounts of cash on hand at any given time during the year.

Net cash flows used in operating activities during fiscal year ended March 31, 2019 was also changed by a $182,482 (2018: $124,080) increase in accounts payable and accrued expenses.

Cash Flows from Investing Activities. For fiscal year ended March 31, 2019, net cash flows used by investing activities was ($103,807) (2018: ($62,919)) consisting of: (i) a $1,999 (2018: (10,200)) decrease in security deposit and other assets; (ii) ($27,119) (2018: ($19,179)) in purchases of equipment; (iii) ($78,687) (2018: ($33,540)) in patents and trademarks.

Cash Flows from Financing Activities. We have financed our operations primarily from debt or the issuance of equity instruments. For fiscal year ended March 31, 2019, net cash flows provided from financing activities was $609,377 (2018: $850,068) consisting of: (i) $399,865 (2018: $877,000) in common stock issued for cash; (ii) $215,000 in proceeds from notes payable, which was partially offset by ($50,482) (2018: $-0-) in repayments; and (iii) $70,000 in proceeds from notes payable – related parties, which was offset by ($25,006) (2018: ($7,861)) in repayments.

MATERIAL COMMITMENTS

Related Party Accrued Salaries and Accounts Payable

We are indebted to related parties. At March 31, 2019, we are obligated for current and former unpaid officer and director salaries and payables  and related payroll taxes payable of $576,393. This amount is included in accounts payable and accrued expenses – related parties.

OFF-BALANCE SHEET ARRANGEMENTS

As of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

GOING CONCERN

The independent auditors’ report accompanying our March 31, 2019 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a working capital accumulated deficit, and are currently in default of the payment terms of certain note agreements. These factors raise substantial doubt about our ability to continue as a going concern.

RECENTLY ISSUED ACCOUNTING STANDARDS

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

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

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

IITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

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

PetVivo Holdings, Inc.

Consolidated Financial Statements

March 31, 2019 and 2018

TABLE OF CONTENTS

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Stockholders and Board of Directors

PetVivo Holdings, Inc.

Opinion on the Consolidated Financial Statements

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

Explanatory Paragraph – Going Concern

The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 9 to the financial statements, the Company had a net loss and cash used from operations of approximately $4,758,000 and $736,000, respectfully, for the year ended of March 31, 2019 and a working capital deficit of approximately $1,408,000 as of March 31, 2019. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regards to these matters are also described in Note 9. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

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

We conducted our audit in accordance with the auditing standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting. As part of our audit, 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 audit included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provide a reasonable basis for our opinion.

/s/ Assurance Dimensions

Certified Public Accountants

We have served as the Company’s auditor since 2019.

Coconut Creek, Florida

July 31, 2019

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors

and Stockholders of PetVivo Holdings, Inc.

Opinion on the Financial Statements

We have audited the accompanying balance sheet of PetVivo Holdings, Inc. (the Company) as of March 31, 2018 and the related statements of income, changes in stockholders’ equity, and cash flows for the year then ended March 31, 2018, and the related notes (collectively referred to as the financial statements). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2018, and the results of its operations and its cash flows for the year ended March 31, 2018, in conformity with accounting principles generally accepted in the United States of America.

Going Concern

The accompanying financials have been prepared assuming the Company will continue as a going concern. As of March 31, 2018, the Company had accumulated losses of approximately $47,748,000, has generated limited revenue, and may experiences losses in the near term. These factors and the need for additional financing in order for the Company to meet its business plan, raise substantial doubt about its ability to continue as a going concern. Management’s plan to continue as a going concern is also described in Note 4. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

Basis for Opinion

These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s financial statements based on our audit. 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 audit 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 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 audit, 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 audit included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audit also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that our audit provides a reasonable basis for our opinion.

/s/ Soles, Heyn & Company, LLP

Soles, Heyn & Company, LLP

We have been the Company’s auditor since

2015 West Palm Beach, Florida

August 13, 2018

PETVIVO HOLDINGS, INC.

CONSOLIDATED BALANCE SHEETS

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

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

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

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

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

PETVIVO HOLDINGS, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

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

PetVivo Holdings, Inc.

Notes to Consolidated Financial Statements

March 31, 2019

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) 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.

The accompanying consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”).

The Company is in the business of distribution of medical devices and biomaterials for the treatment of afflictions and diseases in animals. The Company’s management, development, and other operations are conducted from its headquarter facilities in suburban Minneapolis, Minnesota.

(B) Principles of Consolidation

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

The accounting for the acquisition of Gel-Del Technologies, Inc. began with the Security Exchange Agreement on April 10, 2015 which was uncompleted, and as adjusted for completion pursuant to the Agreement and Plan of Merger effective April 10, 2017 (the “Merger”). To complete the Merger, the Company issued 5,450,000 shares valued at market at $0.40 per share, which equaled $2,180,000; please see Note 11 to the financial statements.

(C) 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.

(D) Cash and Cash Equivalents

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. At March 31, 2019, and March 31, 2018 the Company had no cash equivalents.

(E) Concentration-Risk

The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits.

(F) Property & Equipment

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

(G) Patents and Trademarks

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

(H) Loss Per Share

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

The Company has 4,243,236 warrants outstanding as of March 31, 2019 with varying exercise prices ranging from $3.50 to $0.30 per share. The weighted average exercise price for these warrants is $0.50 per share. These warrants are antidilutive and have been excluded from the weighted average number of shares.

(I) Revenue Recognition

The Company will recognize revenue on arrangements in accordance with FASB ASC No. 606, “Revenue Recognition”. In all cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the resulting receivable is reasonably assured. Revenues are expected to consist of Kush product sales to veterinary clinics.

(J) Research and Development

The Company expenses research and development costs as incurred.

(K) 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:

The Company’s financial instruments consist of accounts payable, accrued expenses, accrued expenses – related party, notes payable, and notes payable - related party. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2019 and March 31, 2018, due to the short-term nature of these instruments.

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. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2019 and March 31, 2018, 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, 2019 and March 31, 2018.

(L) 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:

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.

(M) 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.

(N) Inventory

Inventories are recorded in accordance with ASC 330 and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology and capitalize costs on a project basis as they occur. The current marketed shelf life of our Kush inventory is 2 years. However, management reserves the right to review and adjust this as appropriate.

(O) Recent Accounting Pronouncements

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 catchup transition method. The transition adjustment was not material.

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

In 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. For public companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company expects to recognize ROU assets and related obligations upon adoption of ASU 2016-02. The Company does not expect the adoption on this new standard to have any material effect upon the financial statements. At June 30, 2019, the Company expects to realize an operating lease right-of-use asset and a corresponding, equal and offsetting operating lease liability valued at approximately $96,801.

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

P) Reclassification

As of March 31, 2019, the Company reclassified transactions relating to the fiscal years ended March 31, 2018 to conform to March 31, 2019 that are included in the statement of equity for presentation purposes as well as expense categories. The purpose of this reclassification within the statement of equity are included to summarize the activity that took place during the fiscal year for presentation purposes as well as changes in expense categories to separate out depreciation and amortization from other general and administrative expenses.

NOTE 2 – INVENTORY

On November 1, 2018 the Company and its independent contract quality control organization discovered a possible contamination in vials produced from lots #1, #2 and #3 of three separate lots that were included in inventory. No vials derived from lots #2 and #3 have been distributed to customers. No evidence of contamination of vials distributed from lot #1 has been identified to date. No adverse events arising from use of product from lot #1 have been reported to the Company. The identified lots and vials were produced by the Company’s former third-party contract manufacturer. On November 5, 2018 we issued a formal Notice of Product Quarantine and Product Monitoring Period whereby we asked for any unused vials to be quarantined while the Company’s scientific team and third-party contract testing organization coordinated and performed testing on lots #1 and #2, and analyzed the events leading to this situation.

A reserve of approximately $78,000 in inventory has been taken in relation to this event due to the lack of sales when product was available leading to substantial doubt in the Company’s ability to obtain material sales if the product gets cleared for release, the amount of time it has taken the Company to analyze whether release of product is appropriate leaving little time before the product’s expiration date arrives, and the level of uncertainty as it relates to how pervasive any unidentified contamination may be in existing units of Kush in lots #1 and #2. Approximately $10,000 in inventory has been written off in relation to additional third-party product testing of lot #1 and approximately $5,000 in relation to lot #2. We also wrote-down the entirety of lot #3 in the amount of $5,166, which was a work-in-process when contamination was discovered.

The $12,495 of Total Inventory is broken out as follows:

NOTE 3 – PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:

During fiscal years 2019 and 2018, depreciation expense was $8,342 and $1,117, respectively.

NOTE 4 – INTANGIBLE ASSETS

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

During fiscal years 2019 and 2018, amortization expense was $638,579 and $642,271, respectively.  The Company performed an annual intangible impairment analysis as of March 31, 2019 and concluded that approximately $104,000 in patents needed to be impaired. We conducted this analysis pursuant to ASC 350 and ASC 360.

NOTE 5 - RELATED PARTY NOTES PAYABLE

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

During the year ended March 31, 2019, the Company entered into bridge note agreements with related parties totaling $70,000 in principal. Upon entering into these bridge note agreements, the note-holders were issued one warrant for every $2.00 in principal loaned to the Company. These warrants were exercisable at $1.00 for a term of three years and vested immediately. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on the debt was $15,677. The note terms dictate 12% simple interest, compounding daily based on a 365-day year, paid out 6 months from the date of the note along with the principal amount loaned to the Company; these notes were to mature in calendar Q1 of 2019. The entire $70,000 in principal and $1,722 in accrued interest was converted into 239,073 shares of common stock at a rate of $.30 per share pursuant to bridge note conversion agreements in December of 2018.

An additional $13,333 in equity issuance expense was recognized due to a beneficial conversion feature whereby $20,000 of the $70,000 in principal was converted at $.30 per share when the stock price on the date of the conversion agreement was $.50 per share.

Also, pursuant to the bridge note conversion agreements, for every $2.00 in outstanding balance converted into equity the note-holder received one warrant exercisable at $.30 per share through December 31, 2018; 35,861 of these warrants were issued. The entire balance remaining in debt discount of $15,677 was charged to interest expense upon conversion of these notes.

At March 31, 2018, the Company was obligated for related party notes payable and accrued interest in the total amount of $103,279. As of March 31, 2018, monthly payments were $1,000 per month, which increased to $3,100 when the Company reached total financing of $1,400,000 within a 24-month period subsequent to the note amendment’s inception; this occurred during the year ended March 31, 2019.

NOTE 6 – NOTES PAYABLE

At March 31, 2019 the Company is obligated for one note payable and accrued interest in the total amount of $18,831 and $-0-, respectively. The note terms dictate 12% simple interest, compounding daily based on a 365-day year, paid out 6 months from the date of the note and the issuance of a detachable warrant for purchase of half of the principal amount in shares exercisable at $1.00 per share for a 3-year term. All debt discount associated with the warrants issued in conjunction with this note was charged to interest expense as of the maturity date of the note in February of 2019. Upon maturity of the note we entered into a note amendment whereby instead of paying out the entire outstanding balance of principal and interest, we were to pay an initial installment of $5,000 and then monthly payments of $3,000 until the amended maturity date of September 30, 2019, at which time the entire outstanding balance will be paid.

During the year ended March 31, 2019 the Company entered into bridge note agreements with several bridge note holders in the principal amount of $215,000. There were 107,500 detachable warrants issued in conjunction with bridge notes entered into in the year ending March 31, 2019. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on the debt is $49,880; this amount was amortized to interest expense on a straight-line basis over the term of the loans.

During the year ended March 31, 2019 and pursuant to bridge note conversion agreements, $150,000 in principal and $4,280 in accrued interest was converted into 514,264 shares of common stock at a rate of $.30 per share. Pursuant to the conversion of the notes, each note-holder who converted their note(s) received a warrant for purchase of half of the outstanding balance in shares exercisable at $.30 per share through December 31, 2018; 77,140 of these warrants were issued.

An additional $33,822 in equity issuance expense was recognized due to a beneficial conversion feature whereby $50,734 in principal and interest was converted at $.30 per share when the stock price on the date of the conversion agreement was $.50 per share.

During the year ended March 31, 2019, $46,169 in principal was repaid, and $4,313 in accrued interest was paid out.

Each of the warrants issued pursuant to conversion of these notes, if exercised, qualified for 1 additional share of common stock transferred from a founder of the Company for every 3 shares received through exercising of these warrants; 33,351 shares were transferred to these note-holders by a founder. During the year ended March 31, 2019 the entire total of $49,880 in debt discount has been relieved to interest expense due to amortization and the conversions.

At March 31, 2018 the Company had no outstanding notes payable.

During the year ended March 31, 2018 the Company repaid $45,088 in a bank credit line, while the remainder of $18,333 was forgiven.

During the year ended March 31, 2018 the Company repaid $16,524 in credit card debt, while the remainder of $3,667 was forgiven.

During the year ended March 31, 2018 the Company converted $66,230 in principal and accrued interest of a note payable into 96,614 shares of common stock at a rate of $.70 per share.

During the year ended March 31, 2018 the Company converted $13,209 in principal and accrued interest of two notes payable into 37,740 shares of common stock at a rate of $.35 per share.

NOTE 7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

At March 31, 2019, the Company is obligated to pay $854,990 in accounts payable and accrued expenses. Of the total, $524,273 is made up of accounts payable, while the $330,717 in accrued expenses is made up of past employee’s accrued salaries and related payroll taxes payable. The Company has not paid the related payroll taxes, consisting primarily of Social Security and Medicare taxes. As a result, the Company has established an accrued liability for the unpaid salaries, along with related taxes of approximately $58,124 and $-0- at March 31, 2019 and 2018, respectively.

At March 31, 2018, the Company was obligated to pay $767,970 in accounts payable and accrued expenses. Of the total, $526,001 was made up of accounts payable, while $241,969 was made up of past employee’s accrued salaries.

NOTE 8 – ACCRUED EXPENSES – RELATED PARTY

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

At March 31, 2018, the Company was obligated to pay $559,884 in accrued expenses due to related parties. Of the total, $89,820 was made up of accounts payable, while $470,064 was made up of accrued salaries.

NOTE 9 - 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 $4,757,758 for the year ended March 31, 2019 and had net cash used in operating activities of $736,445 for the same period. Additionally, the Company has an accumulated deficit of $52,505,912 at March 31, 2019. 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.

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

NOTE 10 – COMMON STOCK AND WARRANTS

During the fiscal year ended March 31, 2018 the Company issued 8,957,769 shares of common stock. Equity transactions including common stock and warrants for purchase of the Company’s common stock during the fiscal year ended March 31, 2018 are as follows:

Common Stock Issued

The Company issued a total of 1,578,528 shares of common stock pursuant to agreements entered into in previous fiscal years. 1,418,528 shares were issued to executive officers to satisfy accrued salaries of $867,192 and 160,000 shares valued at $80,000 were issued to an officer for service provided.

Originally, pursuant to salary settlements entered into as of January 20, 2017, the Company planned to issue 2,100,128 shares for settlement of $1,209,919 in accrued salaries; this was made up of 2,600,128 shares granted and adjusted for (500,000) shares (“Escrow Shares”) that John Lai gave up into an escrow that he did not satisfy the conditions of and therefore the issuance of accrued salary settlement shares was netted with the shares he gave up into escrow, which were released to him.

However, on June 26, 2017, the Company entered into an accrued salary settlement amendment whereby the original $1,209,919 in accrued salary settlements was adjusted to $867,192, resulting in an adjustment of ($342,727). The amended settlements’ amount was in consideration of issuance of 1,368,220 shares; this was made up of 1,868,220 shares and adjusted for the (500,000) Escrow Shares described in this section Common Stock Issued section above. Pursuant to the accrued salary settlement amendment, John Lai is to return 50,308 shares of common stock as follows: (500,000) Escrow Shares, 449,692 shares granted pursuant to the accrued salary settlement amendment.

The Company also issued 160,000 shares to Wesley Hayne in consideration of his service as the former Chief Revenue Officer; this stock was valued at $.50 per share which was the market price on the date of the grant, March 1, 2017, and led to $80,000 in expense recorded on that date.

Common Stock Sold

The Company granted a total of 1,930,000 shares pursuant to warrant exercises and subscription agreements. 1,620,000 shares were issued to accredited investors for cash of $567,000; 250,000 shares were granted but not issued during the fiscal year ended March 31, 2018 to an accredited investor for cash of $250,000; 60,000 shares were granted but not issued during the fiscal year ended March 31, 2018 to an accredited investor for cash of $60,000.

Stock-Based Compensation

The Company issued 271,500 shares valued at $134,825 to third parties for their legal, marketing, and management consulting services incurred during the fiscal year ended March 31, 2018. The Company granted but did not issue 10,000 shares valued at $15,000 to a third party for their services for management consulting. The Company granted but did not issue 200,000 shares valued at $42,000 to the former CEO, Wesley Hayne, during the fiscal year ended March 31, 2018 pursuant to his service as the former CEO.

The Company also recognized $300,796 in expense related to warrant vesting that occurred during the fiscal year ended March 31, 2018 as follows:

During the fiscal year ended March 31, 2018 John Lai, the Company’s President, entered into an escrow agreement with Wesley Hayne, the Company’s former CEO, whereby John escrowed 1,250,000 shares of common stock valued at $.296 to be issued to Wesley pursuant to the escrow agreement’s terms. Since the Company received benefit for the services that John paid for in stock, the Company recognized expense with an offset to additional paid in capital in the amount of $370,000 for this transaction.

Stock Granted for Debt Conversion

During the fiscal year ended March 31, 2018 the Company

Inducement Dividend from Warrant Exercise

During the fiscal year ended March 31, 2018 the Company induced one warrant holder into exercising their warrant to purchase 60,000 share of common stock by reducing the strike price from $1.50 per share to $1.00 per share; this resulted in $30,000 recorded to additional paid in capital.

Change in Ownership of Variable Interest Entity (“VIE”)

The Company granted and issued 5,450,000 shares valued at $0.40/share to shareholders of Gel-Del on a pro rata basis incident to our Gel-Del merger (See Note 11) for a total purchase price of $2,180,000.

Equity transactions including common stock and warrants for purchase of the Company’s common stock during the fiscal year ended March 31, 2019 are as follows:

Common Stock Issued

The Company issued a total of 1,005,287 shares of common stock during the fiscal year ended March 31, 2019 pursuant to agreements entered into in previous years as follows:

Common Stock Returned

During the fiscal year ended March 31, 2018 the Company recognized $370,000 in expense for 1,250,000 shares valued at $.296 per share that were escrowed from John Lai to Wesley Hayne, both of which were our officers during that time. Pursuant to this escrow agreement Wesley Hayne vested and received 650,000 shares. During the fiscal year ended March 31, 2019 600,000 of these shares were returned to the Company’s treasury and a reduction of expense and corresponding reduction of additional paid in capital was recorded in the amount of ($177,600), which was based on the $.296 share price at the time of original valuation.

Common Stock Sold

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

Stock-Based Compensation Granted

During the fiscal year ended March 31, 2019, the Company issued 27,093 shares of common stock to two service providers as follows:

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

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

Finally, pursuant to a manufacturing and production agreement with CytoMedical Design Group (“CMDG”) the Company has granted but not issued CMDG 86,333 shares of common stock valued at $86,333 which has been recorded to general and administrative expense with an offset to stock to be issued.

Stock Granted for Debt Conversion

During the fiscal year ended March 31, 2019 the Company issued 95,462 shares of common stock to a third party to convert their accounts payable in the amount of $95,462. We also issued 753,339 shares of common stock pursuant to conversions of bridge notes with principal and accrued interest in the total amount of $226,002; some of these conversions took place on a date when the stock price was publicly-quoted at a price higher than that of the conversion price, which led to expense recognized due to these beneficial conversion features with an offset to additional paid in capital in the amount of $66,248.

Common Stock Issued to Replace Shares to Officer

During the fiscal year ended March 31, 2019, the Company issued 803,385 shares of common stock valued at $1,446,093 to John Lai, the Company’s President, to replace shares he had previously given up as follows:

Common Stock Issued by Officer

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

Warrant Grants

During the fiscal year ended March 31, 2019 the Company granted warrants to purchase a total of 1,980,531 shares of common stock including:

i) warrants for 80,000 shares to two advisory board members for service, vested semi-annually over two years, and exercisable over a five-year term at $1.00/share and valued at $70,434;

ii) warrants for 230,000 shares to John Carruth, the Company’s Acting CFO, in consideration of his employment, vested quarterly over two years, with a strike price of $.30 per share and exercisable over a five-year term and valued at $69,072;

iii) warrants for 30,000 shares to a lawyer for general legal counsel, fully-vested and exercisable over a five-year term at $1.00/share valued at $52,818;

iv) warrants for 60,000 shares to various information technology service providers for IT services, vested as billed, exercisable over a five-year term, which are valued as earned and have not yet been earned;

v) warrants for 300,000 shares to three new Directors in consideration of their service, vested quarterly over two years, and exercisable over a five-year term at $1.00/share and valued at $259,920;

vi) warrants for 142,500 shares to several note holders pursuant to their bridge note agreements, vested immediately, and exercisable over a three-year term at $1.00/share and valued at $85,218;

vii) warrants for 113,031 shares to several note holders pursuant to their conversion of notes into equity, vested immediately, exercisable through December 31, 2018 at $.30/share and valued at $11,170;

viii) warrants for 1,025,000 shares to several board members, valued at $561,910, vested immediately, for a term of ten years with a strike price of $.30/share and a one-time protection against a reverse split whereby the strike price will not be adjusted upon combination of outstanding shares of stock, as follows:

Also, during the year ended March 31, 2019 the Company reduced the strike price of 587,500 warrants for members of the board of directors to $.30 per share. They also reduced the strike price of 80,000 warrants to $.30 per share issued to John Carruth, the Acting CFO. Pursuant to ASC 718-20-35-3 the Company did not realize any additional expense associated with these reductions in strike price, as the change in fair value of these instruments was not in excess of the original instrument.

During the fiscal year ended March 31, 2019 the Company cancelled previous grants of warrants to purchase 100,000 shares of common stock including:

i) warrants for 60,000 shares from a service provider due to the termination of a contract pursuant to its terms that were valued at $102,000;

ii) warrants for 40,000 shares from a former advisory board member due to the termination of a contract that were valued at $68,000.

During December 2018 the Company offered its warrant-holders the option to exercise their warrants at a discounted rate of $.30 per share if exercised within 15 days of the offer date. Pursuant to this discounted warrant exercise agreement (“DWEA”), warrant-holders were entitled to 1 share issued by way of stock transfer from a founder of the Company for every 3 shares received pursuant to the DWEA. Several warrant-holders entered into such agreements whereby they received 678,187 shares of newly-issued common stock and 226,062 shares of common stock from John Lai, a founder of the Company, in exchange for $203,456 in cash.

During December 2018, the Company offered its note-holders the option to convert their notes and receive 1 warrant for every $2.00 in outstanding balance of principal and interest converted. There were 113,031 of these warrants issued; 12,977 expired on December 31, 2018 and the remaining 100,054 were exercised in exchange for $30,016 in cash. Pursuant to these exercised warrants, each warrant-holder received 1 share of common stock from a founder, John Lai; the total number of shares transferred by John Lai to these warrant-holders was 33,351 shares, which were valued at $11,759.

During the fiscal year ended March 31, 2018 the Company granted warrants to purchase a total of 3,413,459 shares of common stock including:

i) warrants for 353,459 shares to lenders converting outstanding debt to common stock, fully vested, and exercisable over a three-year term at $0.50/share;

ii) warrants for 340,000 shares to various service providers for operational consulting and professional advisory services, fully vested, and exercisable over a five-year term at $1.00/share valued at $238,000;

iii) warrants for 60,000 shares to a law firm for patent services, vested and valued when billed, and exercisable over a three-year term at $1.00/share;

iv) warrants for 110,000 shares to key employees as incentive grants, fully vested, and exercisable over a five-year term at $1.00/share valued at $187,000;

v) warrants for 1,500,000 shares to accredited investors who purchased units at $.35/unit in a private placement that were comprised of 1 share of common stock and 1 warrant for purchase of common stock, fully vested, and exercisable over a three-year term at $0.50/share;

vi) warrants with five-year terms for 300,000 shares to three independent directors (100,000 apiece) for their agreements to become a member of the Board of Directors, vesting quarterly over a two-year period, with 200,000 shares exercisable at $0.35/share and 100,000 shares exercisable at $1.00/share, which were valued at $263,260; and

vii) warrants for 750,000 shares to the President of the Company for past management services, vesting semi-annually over a two-year period, and each vested tranche is exercisable at $0.30/share for a two-year term from its vesting date; this grant was valued at $224,886.

A summary of warrant activity for fiscal years ending March 31, 2018 and 2019 is as follows:

At March 31, 2019, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

It is expected that the Company will recognize expense after March 31, 2019 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as of March 31, 2019 in the amount of approximately $495,000.

The Company granted warrants during the fiscal years ended March 31, 2018 and 2019 based on the following ranges:

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

For the years ended March 31, 2019 and 2018, the total stock-based compensation on all instruments was $2,988,716 and $552,065, respectively.

NOTE 11 – MERGER AGREEMENT WITH GEL-DEL

On November 21, 2014, the respective Boards of Directors and executive officers of our Company and of Gel-Del Technologies, Inc., a Minnesota corporation (“Gel-Del”), entered into and agreed to a merger between our company and Gel-Del, subject to approval by our shareholders and the shareholders of Gel-Del. Approval of our shareholders of this initial merger was obtained by us on April 10, 2015 through a Written Consent pursuant to Nevada corporate statutes, and approval of Gel-Del shareholders was obtained through a meeting of its shareholders duly held on March 25, 2015 pursuant to Minnesota corporate statutes. Concurrent with obtaining full shareholder approval, we also appointed the directors of Gel-Del as directors of our company.

We then controlled Gel-Del, combined all Gel-Del operations with ours, and became responsible to provide future funding for Gel-Del. Accordingly, we concluded that Gel-Del was a VIE entity for which we were the primary beneficiary and that for accounting purposes, we would consolidate our financial statements with those of Gel-Del. As required by US GAAP accounting, our initial consolidation of this VIE was accounted for similar to a business combination with the assets and liabilities of Gel-Del stated at their fair value. In light of the pending merger, we determined the fair value of Gel-Del based on the agreed consideration of 4,150,000 common shares using the $4.02 per share trading price of our common stock at April 10, 2015. The assets of Gel-Del equaled $295,716 and its liabilities were $2,295,462 for a difference of $1,999,746 that resulted in a total purchase consideration of $18,978,462. We allocated $13,407,693 to goodwill and $5,570,769 to patents and trademarks. We recorded a non-controlling interest of $16,683,000.

We were unable to consummate the initial merger agreement with Gel-Del due primarily to a substantial public market decline in the trading value of our common stock. In order to complete our Gel-Del merger, in early 2017 we agreed to provide Gel-Del an additional 31.3% of our common shares than was provided for in the initial merger agreement. Accordingly, pursuant to an Agreement of Merger dated March 20, 2017, our management and Gel-Del management revised the structure and terms of the Gel-Del merger to provide for the issuance of these additional shares to Gel-Del and to effect the transaction through a statutory triangular merger. The revised 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 this 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 5,450,000 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 our Company; Gel-Del did not have any outstanding options, warrants, convertible debt, or other rights convertible into equity. The 5,450,000 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 $0.40 per share, resulting in total consideration of $2,180,000. Incident to completion of the Merger, we recorded an impairment loss of approximately $14,700,000 including $13,407,693 in goodwill and approximately $1,292,307 in patents and trademarks, in order to account for the decline in our initial valuation of Gel-Del. In accordance with authoritative guidance, the non-controlling interest associated with Gel-Del was reclassified to additional paid-in capital, including the difference between the non-controlling interest and the consideration paid.

NOTE 12 – LEASE AND COMMITMENTS

During the three months ended March 31, 2018 the Company entered into a lease with a 90-day notice clause for 500 square feet of manufacturing and office space in Rochester, MN. On July 2^nd, 2018 the Company gave its manufacturing contractor in Rochester, MN a 90-day notice to cancel the lease and agreement; the financial impact of this cannot be fully measured. Subsequently, the Company entered into a 1-year agreement with a 60-day notice clause for 1,000 square feet of manufacturing and office space in White Bear Lake, MN.

The Company entered into an eighty-four-month lease for 3,577 square feet of newly constructed office, laboratory and warehouse space located in Edina, Minnesota on May 3, 2017. The base rent is $2,078 per month and the Company is responsible for its proportional share of common space expenses, property taxes, and building insurance. Future minimum rental commitments are as follows:

During the years ended March 31, 2019 and 2018 the Company had $69,758 and $22,172, respectively in total lease expenses.

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

NOTE 13 – INCOME TAXES

The following table presents the net deferred tax assets as of March 31, 2019 and 2018:

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, 2019 and 2018, respectively, the Company had net operating loss carryforwards of approximately $18,100,000 and $13,800,000. The deferred tax assets arising from the net operating loss carryforwards are approximately $5,580,000 and $4,250,000 as of March 31, 2019 and 2018, 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, 2019 and 2018 was approximately $1,325,021 and ($1,685,083), respectively. The net operating loss carryforwards, if not utilized, will begin to expire in 2021 for federal and Minnesota purposes.

Of the approximately $18,100,000 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.

A reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total benefit for income taxes at March 31, 2019, 2018 is as follows:

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, 2019 and 2018, 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 2016 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 14 – SUBSEQUENT EVENTS

On June 3, 2019, shareholders owning a majority of our outstanding common stock approved the Election to our Board of Directors of the following ten persons to serve as directors of PetVivo Holdings, Inc. until their successors are elected and shall qualify: David B. Masters, John F. Dolan, Randall A. Meyer, James R. Martin, John Lai, Robert Rudelius, Scott M. Johnson, Joseph Jasper, David Deming, and Gregory D. Cash.

On the date of the written action the Company had 22,074,667 shares of voting common stock issued and outstanding. The consenting stockholders who approved these written actions own an aggregate of 14,486,591 shares of common stock, which represents approximately 65.6% of the voting rights associated with the Company’s outstanding shares of common stock. Each shareholder is entitled to one vote per share of common stock.

Each of the three newly-elected directors received a warrant for purchase of 100,000 shares of PetVivo common stock at $.30 per share, 50,000 vested immediately and 50,000 vested quarterly during the second year from the date of the warrant, exercisable for a term of 5 years.

On July 11, 2019, the Board of Directors voted to elect Gregory Cash as the Chairman of the Board, John Lai as the CEO, John Carruth as the CFO, and John Dolan as the Executive Director and Secretary. The Board elected the following individuals to be the sole members of the Company’s Nominating and Governance committee: John Dolan, Robert Rudelius, Joseph Jasper. The Board elected the following individuals to be the sole members of the Company’s Audit committee: James Martin, Joseph Jasper, David Deming. The Board elected the following individuals to be the sole members of the Company’s Compensation committee: Randall Meyer, Robert Rudelius, David Deming, Scott Johnson.

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

On October 24, 2017, the Company retained Soles, Heyn & Company, LLP, as its principal independent registered public accounting firm. This changed engagement was necessary due to the recent merger of our former registered public accounting firm, Patrick D. Heyn, CPA, P.A. with Soles, Heyn & Company, LLP.

On June 27, 2019, the Company retained Assurance Dimensions, LLP, as its principal independent registered public accounting firm. This changed engagement was necessary due to the recent acquisition by Assurance Dimensions, LLP of the book of SEC clients of our former public accounting firm, Soles, Heyn & Company, LLP. During the Company’s two most recent fiscal years and to the date of this report, the Company has not consulted with Assurance Dimensions, LLP regarding either: (i) the application of accounting principles to a specified transaction, either completed or proposed; or the type of audit opinion that might be rendered on the Company’s financial statements and neither a written report was provided to the Company or oral advice was provided to the Company that Assurance Dimensions, LLP, concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was the subject of a disagreement and required to be reported under Item 304(a) (1)(iv) of Regulation S-K and the related instructions thereto. Item 401(a) is not applicable since there was no resignation or dismissal of the registrant’s certifying accountant involved in this acquisition of assets.

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:

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.

Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2019. 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, 2019, our internal control over financial reporting was not effective due to certain material weaknesses including:

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. During the past fiscal year, we added three independent directors who have taken roles in our recently established compensation and nominating and governance committees, and we added a fulltime experienced CFO who is now responsible for helping to develop and implement our financial controls and procedures appropriate for the stage in which the Company is in.

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.

ITEM 9B. OTHER INFORMATION

None.

PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

DIRECTORS AND EXECUTIVE OFFICERS

All of our directors hold office until their successors have been elected and qualify. 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 March 31, 2019:

John Lai. Mr. Lai has been a director and senior executive officer since March 2014, including being our President since March 2014 and our Chief Financial Officer since April 2018, and serving as our Chief Executive Officer from March 2014 to May 2017. 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 the 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.

John Carruth. Mr. Carruth has spent several years in the accounting field with continually-progressing responsibilities. His areas of expertise include internal controls over financial reporting, SEC reporting, and GAAP compliance. He holds three degrees in accounting, including a Master of Accountancy degree from the University of Minnesota (2016) where the coursework surrounded navigating the SEC, SOX and the Dodd Frank Act. He has been employed at Merrill Corporation, where he worked on SEC reporting; at Prime Therapeutics, where he worked on special projects; and most recently at Supervalu focusing on GAAP compliance and emerging and special projects.

Sheryll Grisewood. Ms. Grisewood is a Chartered Financial Analyst (CFA), with over 35 years of securities industry experience in a broad range of investment banking, advisory and research-related activities while participating in over 85 major transactions for life science and medical device companies involving various public offerings, other private equity transactions, M&A and technology licensing. Most recently, Ms. Grisewood served for over five years as a Director, Chair of the Audit Committee and a member of the Compensation Committee of TapImmune Inc., (now Marker Therapeutics, Inc.) a NASDAQ-listed public company which is a leader in the development of cancer vaccine and cell-based immunotherapies, where she continues as a Special Consultant to the Audit Committee. Ms. Grisewood is also the co-founder and Director of Mobitech Regenerative Medicine, a private medical device company and former Board member and co-founder of BRTI Lifesciences, Inc., a private research tools company and a former Board member of Conception Technologies, Inc., a private women’s fertility diagnostic company.

From December 2012 to June 2017, Ms. Grisewood was associated with Dawson James Securities, Inc., first as Managing Director of Corporate Finance and later as Managing Partner, Life Science Research. For a 12-year period prior to Dawson James, she led Lifesciences investment banking practices for two New York investment banks and was an independent strategic advisor for various life science companies.

David E. Merrill. Mr. Merrill has been a director since November 2017. For many years Mr. Merrill served as a senior executive officer, sales representative or marketing consultant for several leading medical device companies. Since 2011 he has been the founder, principal owner and Chief Executive Officer of Merrill Family Enterprises, Inc., a medical device consulting and investment company based in Fort Worth, Texas, which provides management, marketing, and product distribution advisory services for its clients.

Mr. Merrill’s past extensive medical device industry experience includes being employed by Medtronic for thirteen years in key sales and marketing positions such as Medtronic’s Director of Sales Development and Support. His extensive domestic experience in the medical device industry also included ten years as Senior Director, Southwest Region, for the Cardiac Division of St. Jude Medical. He also has extensive international experience in the medical products industry, including serving for three years as Vice President of Medtronic’s Cardiac Rhythm Management—Asia-Pacific territory; and serving for ten years as Vice President, International of I-Flow Corporation while he successfully negotiated and obtained I-Flow product distribution agreements with leading international medical device distributor companies in Germany, Japan, Mexico and other countries. Mr. Merrill’s extensive medical device industry experience with leading medical device companies, while serving in senior marketing and sales management positions, as well as his background in international sales management and medical device distribution transactions, are material factors regarding his qualifications to serve on our Board of Directors.

John F. Dolan. Mr. Dolan has been 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 (IP) counsel for KILO, Inc., an alternative energy company. 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 technology field includes serving as a patent examiner with the U.S. Patent and Trademark Office (USPTO). Mr. Dolan’s role as a cofounder of the company and his extensive experience in processing patent and legal trademark applications through the USPTO are material factors regarding his qualifications to serve on our Board of Directors.

David B. Masters, Ph.D. Dr. Masters has been a director since April 2015, and he served as our Chief Technical Officer from April 2015 to December 2017. 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. Master’s 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.

Randall A. Meyer. Mr. Meyer has been a director since April 2015, and he 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.

Peter Vezmar. Mr. Vezmar has been a director since September 2017. Mr. Vezmar is the founder of and has served as Chief Executive Officer of Matula Enterprises, Inc. since May 2013. Matula Enterprises, Inc. is a holding company primarily focusing on investment opportunities in targeted middle-market companies. From January 1999 to May 2013, Mr. Vezmar was Chief Financial Officer of Andrie Trading, LLC, a private company engaged in options and futures transactions. Mr. Vezmar has over thirty-five years of diverse experience in business management and strategy, corporate finance including several IPOs, merger and acquisition transactions, public company financial reporting, tax and regulatory compliance, and corporate governance. His broad experience includes many industries including life sciences/biotech, IT technologies, insurance, renewable energy, transportation/logistics, advertising and others. Mr. Vezmar’s diverse senior management and operational experience with many public and private companies and his extensive experience with corporate finance, tax and regulatory compliance, and corporate governance of public companies including life sciences/biotech, are material factors regarding his qualifications to serve on our Board of Directors.

David Deming. Mr. Deming has been a director since September 2017. Mr. Deming is Director of Business Development and Investor Relations at BCCM Advisors, LLC. BCCM Advisors is a Minneapolis-based Hedge Fund Management firm. He was previously a Partner at Asymmetric Capital Management LLC, which provides money and investment management services to its clients, serving as its Director of Business Development from October 2016 to September 2018. From January 1997 to October 2016, Mr. Deming was Partner, Chief Operating Officer and Director of Business Development of Arbor Capital Management LLC, an investment banking and money management firm. Mr. Deming’s past service as a senior executive officer of institutional asset management firms and other commercial enterprises, in addition to his compliance, business development and management advisory services, are material factors regarding his qualifications to serve on our Board of Directors.

Robert Rudelius. Mr. Rudelius is the CEO 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. From April 1999 through May 2001, when it was acquired by StarNet L.P., Mr. Rudelius was the founder, Chairman 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 COO 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; Solution’s Media, Entertainment & Communications industry group.

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 has served as a member of the Axogen, Inc. (AXGN) Board of Directors since September 2010, where he is chairman of the audit committee and a member of the compensation committee.

Joseph Jasper. Mr. Jasper is a Chartered Financial Analyst (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 a MBA degree from the University of St. Thomas, where he also has served as its Adjunct Professor of Finance.

There are no family relationships between any of our executive officers and directors.

Section 16(a) Beneficial Ownership Reporting Compliance

Section 16(a) of the Exchange Act requires our officers, directors, and stockholders owning more than ten percent of our common stock, to file reports of ownership and changes in ownership with the SEC and to furnish us with copies of such reports.

Delinquent Section 16(a) Reports

Based solely on our review of Form 3, 4, and 5’s, the following is a list of such persons who have failed to file such reports on a timely basis for the fiscal year ended March 31, 2019: John Lai, 1 report(s) he failed to file covering 1 transaction(s); John Carruth, 2 late report(s) he failed to file timely covering 2 transaction(s); David Merrill, 1 late report(s) he failed to file timely covering 1 transaction(s); Peter Vezmar, 1 late report(s) he failed to file timely covering 1 transaction(s); David Deming, 1 late report(s) he failed to file timely covering 1 transaction(s); David Masters, 1 report(s) he failed to file covering 1 transaction(s); John Dolan, 1 late report(s) he failed to file timely covering 1 transaction(s); Randy Meyer, 1 late report(s) he failed to file timely covering 1 transaction(s); Sheryll Grisewood, 2 late report(s) she failed to file timely covering 2 transaction(s); Robert Rudelius, 3 late report(s) he failed to file timely covering 16 transaction(s); Joseph Jasper, 2 late report(s) he failed to file timely covering 2 transaction(s); Wesley Hayne, 1 report(s) he failed to file covering 1 transaction(s). 

Involvement in Certain Legal Proceedings

During the past ten years, none of our executive officers or directors have been involved in any legal proceeding concerning: (i) any bankruptcy petition filed by or against any business of which they were a general partner or executive officer either at the time of the bankruptcy or within two years prior to that time; (ii) any conviction in a criminal proceeding or being subject to a pending criminal proceeding (excluding traffic violations and other minor offenses); (iii) being subject to any order, judgment or decree, not subsequently reversed, suspended or vacated, of any court of competent jurisdiction permanently or temporarily enjoining, barring, suspending or otherwise limiting involvement in any type of business, securities, commodities, or banking activity, or acting as a futures commission merchant, introducing broker, commodity trading advisor, commodity pool operator, floor broker, leverage transaction merchant, any other person regulated by the Commodity Futures Trading Commission, or an associated person of any of the foregoing, or as an investment adviser, underwriter, broker or dealer in securities, or as an affiliated person, director or employee of any investment company, bank, savings and loan association or insurance company, or engaging in or continuing any conduct or practice in connection with such activity; (iv) being found by a court, the Securities and Exchange Commission or the Commodity Futures Trading Commission to have violated a federal or state securities or commodities law unless the judgment was reversed, suspended or vacated; (v) being subject of, or a party to, any Federal or State judicial or administrative order, judgement, decree, or finding, not subsequently reversed, suspended or vacated, relating to an alleged violation of: (a) any Federal or State securities or commodities law or regulation, (b) any law or regulation respecting financial institutions or insurance companies including, but not limited to, a temporary or permanent injunction, order of disgorgement or restitution, civil money penalty or temporary or permanent cease-and-desist order, or removal or prohibition order, or (c) any law or regulation prohibiting mail or wire fraud or fraud in connection with any business or entity; (vi) being subject of, or party to, any sanction or order, not subsequently reversed, suspended or vacated, of any self-regulatory organization (as defined in Section 3(a)(26) of the Exchange Act (15 U.S.C. 78c(a)(26))), any registered entity (as defined in Section 1(a)(29) of the Commodity Exchange Act (7 U.S.C. 1(a)(29))), or any equivalent exchange, association, entity or organization that has disciplinary authority over its members or persons associated with a member.

Board of Directors

Each of our directors will be elected at our annual meeting of stockholders and hold office until the next annual meeting of stockholders, or until a successor is elected and qualified. If any director resigns, dies or is otherwise unable to serve out the director’s term, or if the Board increases the number of directors, the Board may fill the vacancy by the vote of a majority of the directors then in office. A director elected to fill a vacancy shall serve for the unexpired term of such director’s predecessor.

Committees of the Board of Directors

We have an Audit Committee, Nominating and Governance Committee, and a Compensation Committee. As of March 31, 2019 our Audit Committee consisted of three independent directors who are David Deming, Peter Vezmar and David Merrill, with Mr. Vezmar considered as an “audit committee financial expert” within the meaning of Regulation S-K of the SEC. Our Nominating and Governance Committee consisted of three independent directors who are Sheryll Grisewood, Joseph Jasper, and Robert Rudelius. Our Compensation Committee consisted of two independent directors who are David Deming and David Merrill.

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. We currently have no formal policy for non-executive director compensation. Each of our current six independent directors has received warrants to purchase 100,000 shares of our common stock, vesting quarterly over a two-year period, and exercisable over a five-year term at a strike price of $.30 per share.

Our non-executive-officer directors received a total of 1,025,000 warrants during the fiscal year ended March 31, 2019; the overview of these warrants is included in Note 10 of our financial statements included herein.

The following table provides information paid to our independent directors for their services as members of our board of directors for our fiscal year ended March 31, 2019: