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PetVivo Holdings, Inc. - Quarter Report: 2021 December (Form 10-Q)

 

 

 

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

Mark One

 

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

 

For the quarterly period ended December 31, 2021

 

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

 

For the transition period from _______ to _______

 

Commission File No. 000-55167

 

PetVivo Holdings Inc.

(Name of small business issuer in its charter)

 

Nevada   99-0363559

(State or other jurisdiction of

incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

5251 Edina Industrial Blvd.

Edina, Minnesota 55439

(Address of principal executive offices)

 

(952) 405-6216

(Issuer’s telephone number)

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol(s)   Name of each exchange on which registered
Common Stock, par value $0.001   PETV   The Nasdaq Stock Market LLC
Warrants to purchase Common Stock   PETVW   The Nasdaq Stock Market LLC

 

Indicate by checkmark whether the issuer: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 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). Yes ☒ No ☐

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act..

 

  Large accelerated filer Accelerated filer
  Non-accelerated filer Smaller reporting company
      Emerging Growth Company

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

 

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the most practicable date:

 

Class   Outstanding as of February 8, 2022
Common Stock, $0.001   9,775,228

 

 

 

 
 

 

PETVIVO HOLDINGS, INC.

FORM 10-Q

FOR THE PERIOD ENDED December 31, 2021

 

INDEX

 

    Page
     
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS   3
       
PART I. FINANCIAL INFORMATION   4
       
Item 1. Financial Statements   4
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   25
Item 3. Quantitative and Qualitative Disclosures About Market Risk   31
Item 4. Controls and Procedures   31
     
PART II. OTHER INFORMATION   32
     
Item 1. Legal Proceedings   32
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   32
Item 3. Defaults Upon Senior Securities   32
Item 4. Mine Safety Disclosure   32
Item 5. Other information   32
Item 6. Exhibits   33
       
SIGNATURES   34

 

2
 

 

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995

 

Information included in this Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (“Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (“Exchange Act”). This information may involve known and unknown risks, uncertainties and other factors which may cause the actual results, performance or achievements of PetVivo Holdings Inc. (the “Company”), to be materially different from future results, performance or achievements expressed or implied by any forward-looking statements. Forward-looking statements, which involve assumptions and describe future plans, strategies and expectations of the Company, are generally identifiable by use of the words “may,” “will,” “should,” “expect,” “anticipate,” “estimate,” “believe,” “intend,” or “project” or the negative of these words or other variations on these words or comparable terminology. These forward-looking statements are based on assumptions that may be incorrect, and there can be no assurance that these projections included in these forward-looking statements will come to pass. Actual results of the Company could differ materially from those expressed or implied by the forward-looking statements as a result of various factors, including those risk factors contained in the Company’s Form 10-K filed with the SEC on June 29, 2021 and risks discussed in other SEC filings. Except as required by applicable laws, the Company has no obligation to update publicly any forward-looking statements for any reason, even if new information becomes available or other events occur in the future.

 

3
 

 

PART I.

ITEM 1. FINANCIAL STATEMENTS

 

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

 

   December 31, 2021 (Unaudited)   March 31, 2021 
Assets:        
Current Assets          
Cash and cash equivalents  $7,553,738   $23,578 
Accounts receivable   3,186    - 
Inventory, net   104,965    - 
Prepaid expenses and other assets   373,505    123,575 
Total Current Assets   8,035,394    147,153 
           
Property and Equipment, net   269,226    214,038 
           
Other Assets:          
Deferred offering costs   -    280,163 
Operating lease right-of-use asset   137,921    157,760 
Patents and trademarks, net   40,738    27,932 
Security deposits   12,830    8,201 
Total Other Assets   191,489    474,056 
Total Assets  $8,496,109   $835,247 
           
Liabilities and Stockholders’ Equity (Deficit)          
Current Liabilities          
Accounts payable  $263,267   $408,873 
Accrued expenses   805,937    554,012 
Convertible notes and accrued interest   -    235,671 
Accrued expenses – related parties   -    36,808 
Operating lease liability – current portion   27,011    26,582 
PPP Loan and accrued interest   3,769    39,020 
Notes payable and accrued interest - directors   -    20,000 
Notes payable and accrued interest – related party   -    44,554 
Note payable and accrued interest (current portion)   6,456    39,528 
Total Current Liabilities   1,106,440    1,405,048 
Other Liabilities          
Note payable and accrued interest (net of current portion)   28,837    - 
Operating lease liability (net of current portion)   110,910    131,178 
Share-settled debt obligation – related party, net of debt discount   -    196,000 
Total Other Liabilities   139,747    327,178 
Total Liabilities   1,246,187    1,732,226 
Commitments and Contingencies (see Note 13)   -      
Stockholders’ Equity (Deficit):          
Preferred stock, par value $0.001, 20,000,000 shares authorized, issued 0 and 0 shares outstanding at December 31, 2021 and March 31, 2021   -      
Common stock, par value $0.001, 250,000,000 shares authorized, issued 9,757,728 and 6,799,113 shares outstanding at December 31, 2021 and March 31, 2021, respectively   9,758    6,799 
Additional Paid-In Capital   68,589,822    57,207,648 
Accumulated Deficit   (61,349,658)   (58,111,426)
Total Stockholders’ Equity (Deficit)   7,249,922    (896,979)
Total Liabilities and Stockholders’ Equity (Deficit)  $8,496,109   $835,247 

 

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

 

4
 

 

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

 

   2021   2020   2021   2020 
  

Three Months Ended

December 31,

  

Nine Months Ended

December 31,

 
   2021   2020   2021   2020 
Revenues  $51,004   $507   $60,126   $7,303 
                     
Cost of Sales   98,997    -    104,048    350 
Gross Profit (Loss)   (47,993)   507    (43,922)   6,953 
                     
Operating Expenses:                    
                     
Sales and Marketing   404,462    24,484    689,960    106,745 
Research and Development   34,326    30,265    287,643    30,265 
General and Administrative   1,170,870    331,148    2,258,001    1,515,968 
                     
Total Operating Expenses   1,609,658    385,897    3,235,604    1,652,978 
                     
Operating Loss   (1,657,651)   (385,390)   (3,279,526)   (1,646,025)
                     
Other Income (Expense)                    
Gain on Sale of Asset   -    -    -    482 
Gain on Debt Restructuring   -    -    -    516 
Gain on Debt Extinguishment   -    366,903    -    366,903 
Forgiveness of PPP loan and accrued interest   -    -    31,680    - 
Derivative Expense   -    (970,600)   -    (1,702,100)
Interest Income (Expense)   15,522    (48,666)   9,614    (219,539)
Total Other Income (Expense)   15,522    (652,363)   41,294    (1,553,738)
                     
Net Loss before taxes   (1,642,129)   (1,037,753)   (3,238,232)   (3,199,763)
                     
Income Tax Provision   -    -    -    - 
                     
Net Loss  $(1,642,129)  $(1,037,753)  $(3,238,232)  $(3,199,763)
                     
Net Loss Per Share:                    
Basic and Diluted  $(0.17)  $(0.16)  $(0.38)  $(0.53)
                     
Weighted Average Common Shares Outstanding:                    
Basic and Diluted   9,756,945    6,442,549    8,426,135    6,006,382 

 

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

Shares retroactively restated for 1-for-4 reverse stock split in December of 2020.

 

5
 

 

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

 

Nine Months Ended December 31, 2021

 

   Shares   Amount   Capital   Deficit   Total 
   Common Stock   Additional Paid-in   Accumulated     
   Shares   Amount   Capital   Deficit   Total 
Balance at March 31, 2021   6,799,113   $6,799   $57,207,648   $(58,111,426)- $(896,979)
Common stock sold   49,014    50    343,048    -    343,098 
Cash paid to exercise warrants   4,500    4    39,996    -    40,000 
Stock issued for debt conversion   80,522    80    232,578    -    232,658 
Cashless warrant exercises   160,006    160    (160)   -    - 
Stock-based compensation   -    -    55,674    -    55,674 
Net loss   -    -    -    (490,629)-  (490,629)
Balance at June 30, 2021   7,093,155   $7,093   $57,878,784   $(58,602,055)- $(716,178)
                          
Common stock sold   2,511,000    2,511    4,966,020    -    4,968,531 
Warrants sold   -    -    4,889,252    -    4,889,252 
Cash paid to exercise warrants   1,594    1    2,030    -    2,031 
Cashless warrant exercise   40,038    40    (40)   -    - 
Stock issued for investor relations services   42,000    42    209,958    -    210,000 
Stock-based compensation   -    -    104,092    -    104,092 
Stock and warrants granted for debt conversion   43,556    44    195,956    -    196,000 
Net loss   -    -    -    (1,105,474)-  (1,105,474)
Balance at September 30, 2021   9,731,343   $9,731   $68,246,052   $(59,707,529)- $8,548,254 
                          
Stock issued for services   26,085    27    71,053    -    71,080 
Vesting of restricted stock units   300    -    -    -    - 
Stock-based compensation   -    -    272,717    -    272,717 
Net loss   -    -    -    (1,642,129)-  (1,642,129)
Balance at December 31, 2021   9,757,728   $9,758   $68,589,822   $(61,349,658)- $7,249,922 

 

Nine Months Ended December 31, 2020

 

   Shares   Amount   Capital   Deficit   Issued   Total 
   Common Stock   Additional Paid-in   Accumulated   Common Stock to be     
   Shares   Amount   Capital   Deficit   Issued   Total 
Balance at March 31, 2020   5,727,965   $5,728   $53,494,747   $(54,588,645)  $         52,000   $(1,036,170)
Common stock and warrants sold   20,000    20    51,980    -    (54,000)   - 
Warrants issued with convertible debt   -    -    91,500    -    -    91,500 
Stock-based compensation   30,000    30    183,214    -    -    183,244 
Net loss   -    -    -    (814,008)   -    (814,008)
Balance at June 30, 2020   5,777,965   $5,788   $53,821,442   $(55,402,653)   -   $(1,575,433)
                               
Common stock sold   226,072    226    316,274    -    -    316,500 
Stock-based Compensation   174,752    175    653,688    -    -    653,863 
Stock granted for debt conversion   25,002    25    25,357    -    -    25,382 
Cashless warrant exercises   15,257    15    (15)   -    -    - 
Net loss   -    -    -    (1,348,002)   -    (1,348,002)
Balance at September 30, 2020   6,219,048   $6,219   $54,816,746   $(56,750,655)  $-   $(1,927,690)
                               
Cash paid to exercise warrants   202,499    202    449,791    -    -    449,993 
1-for-4 reverse split rounding   724    1    (1)   -    -    - 
Stock-based Compensation   -    -    52,490    -    -    52,490 
Stock issued for services   -    -    72,000    -    -    72,000 
Stock issued for debt conversion   263,568    264    1,728,741    -    -    1,729,005 
Cashless warrant exercises   33,140    33    (33)   -    -    - 
Net loss   -    -    -    (1,037,753)   -    (1,037,753)
Balance at December 31, 2020   6,718,979   $6,719   $57,119,733   $(57,788,408)  $-   $(661,956)

 

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

 

6
 

 

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 

   December 31, 2021   December 31, 2020 
   For the Nine Months Ended 
   December 31, 2021   December 31, 2020 
CASH FLOWS FROM OPERATING ACTIVITIES          
Net Loss For The Period  $(3,238,232)  $(3,199,763)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:          
Derivative expense   -    1,702,100 
Stock-based compensation   432,483    889,597 
Stock issued for services   71,080    72,000 
Depreciation and amortization   43,168    73,062 
Amortization of debt discount   -    173,174 
Forgiveness of PPP loan and accrued interest   (31,680)   - 
Intangible impairment   -    23,930 
Gain on debt restructuring   -    (516)
Gain on sale of asset   -    (482)
Changes in Operating Assets and Liabilities          
Increase in prepaid expenses and other assets   (44,659)   (120,408)
Increase in accounts receivable   (3,186)   (1,250)
Increase in inventories   (104,965)   (9,971)
Interest accrued on convertible notes payable   (3,013)   37,150 
Interest accrued on notes payable - related party   4,013    7,011 
Interest accrued on notes payable   -    2,823 
Increase (decrease) in accounts payable and accrued expense   106,319    (10,924)
Increase (decrease) in accrued expenses - related party   (36,808)   (47,475)
Net Cash Used In Operating Activities   (2,805,480)   (776,845)
           
CASH FLOWS FROM INVESTING ACTIVITIES          
Sale of equipment   -    482 
Purchase of equipment   (91,908)   (118,424)
Disbursements for patents and trademarks   (19,154)   (39,817)
Net Cash Used in Investing Activities   (111,062)   (157,759)
           
CASH FLOWS FROM FINANCING ACTIVITIES          
Proceeds from stock and warrants sold   10,200,881    316,500 
Proceeds from exercise of warrants   42,031    449,993 
Decrease in deferred offering costs   280,163    - 
Equity sale proceeds receivable   -    52,000 
Proceeds from PPP loan   -    38,665 
Proceeds from notes payable   -    27,500 
Proceeds from convertible notes   -    322,500 
Repayments of convertible notes   -    (28,077)
Repayments of notes payable   (4,235)   (4,190)
Repayments of PPP loan   (3,571)   - 
Repayments of notes payable - related party   (48,267)   (19,900)
Repayments of notes payable - directors   (20,300)   - 
Net Cash Provided by Financing Activities   10,446,702    1,154,991 
           
Net Increase in Cash and Cash Equivalents   7,530,160    220,837 
Cash and Cash Equivalents at Beginning of Period   23,578    10,582 
Cash and Cash Equivalents at End of Period  $7,553,738   $230,969 
           
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION          
Cash Paid During The Period For:          
Interest  $9,071   $45,850 
           
SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES          
Derivative treated as debt discount  $-   $352,941 
Stock granted for debt conversion  $232,658   $1,729,005 
Stock granted for share-settled debt obligation conversion  $196,000   $- 
Stock granted for investor relations services  $210,000   $- 
Note payable – related party granted for release of claim to accrued salary  $-   $196,000 
Note payable – related party converted into common stock  $-   $25,382 

 

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

 

7
 

 

PetVivo Holdings, Inc.

Notes to Financial Statements

December 31, 2021

(Unaudited)

 

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

 

(A) Organization and Description

 

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

 

(B) Basis of Presentation

 

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

 

In October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was effectuated on December 29, 2020; concurrently, the Company increased its authorized shares of common stock from 225,000,000 to 250,000,000; all share and per share data has been retroactively adjusted for this reverse split for all periods presented.

 

(C) Principles of Consolidation

 

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

 

(D) Use of Estimates

 

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

 

(E) Cash and Cash Equivalents

 

The Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at March 31, 2021.

 

(F) Concentration-Risk

 

The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of December 31, 2021, the Company did have cash balances in excess of the federally insured limits. At March 31, 2021, the Company did not have any cash balances in excess of the federally insured limits.

 

8
 

 

(H) Property & Equipment

 

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

 

(I) Patents and Trademarks

 

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

 

(J) Loss Per Share

 

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

 

The Company has 3,754,484 warrants outstanding as of December 31, 2021, with varying exercise prices ranging from $1.20 to $6.67 per share. The weighted average exercise price for these warrants is $4.95 per share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.

 

The Company has 1,124,803 warrants outstanding as of December 31, 2020, with varying exercise prices ranging from $1.20 to $15.53 per share. The weighted average exercise price for these warrants is $1.99 per share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.

 

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

 

At December 31, 2020, the Company had $280,000 in convertible notes principal and $-0- in interest outstanding that mature in our fiscal quarter ended June 30, 2021. If converted, the $280,000 in outstanding principal and $-0- in accrued interest would convert into 96,924 shares of common stock at a rate of $2.89 per share. Also at December 31, 2020, the Company had a share-settled debt obligation with a related party wherein $196,000 in principal will be converted into units of one share of common stock and one warrant for a share of common stock with the exact number of units to be determined by the terms of an S-1 offering that as of this filing has yet to take place. See Note 8 to these financial statements for more information on the convertible notes discussed in this paragraph.

 

(K) Revenue Recognition

 

The Company derives revenue from the sale of pet care products to its veterinarian customers in the Unites States. For performance obligations related to the sale of our pet care products, control transfers to the customer at a point in time. Revenue is recognized upon shipment, which is when control of these products is transferred to our customers and in an amount that reflects the consideration the Company expects to receive for these products. Shipping costs charged to customers are not reported within revenue. The Company does not have any significant financing components as payment is received at or shortly after the point of sale.

 

(L) Accounts Receivable

 

Accounts receivable are recorded at management’s assessment of the expected consideration to be received, based on a detailed review of historical pricing adjustments and collections. Management relies on the results of the assessment, which includes payment history of the applicable customer as a primary source of information in estimating the collectability of our accounts receivable. We update our assessment on a quarterly basis, which to date has not resulted in any material adjustments to the valuation of our accounts receivable. We believe the assessment provides reasonable estimates of our accounts receivable valuation, and therefore believe that substantially all accounts receivable are fully collectible.

 

9
 

 

(M) Research and Development

 

The Company expenses research and development costs as incurred.

 

(N) Fair Value of Financial Instruments

 

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

 

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

 

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

 

The Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, accrued expenses – related parties, notes payable and accrued interest, and notes payable and accrued interest - related party, notes payable – directors and others. The carrying amount of the Company’s financial instruments approximates their fair value as of December 31, 2021 and March 31, 2021, due to the short-term nature of these instruments and the Company’s borrowing rate of interest.

 

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

 

The Company had no assets and liabilities measured at fair value on a recurring basis at December 31, 2021 and March 31, 2021.

 

(O) 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.

 

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

 

● Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

● Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

● Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.

 

● Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

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

 

(P) Income Taxes

 

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

 

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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.

 

(Q) Inventory

 

Inventories are recorded in accordance with ASC 330, Inventory, and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology.

 

(R) Recent Accounting Pronouncements

 

The Company has reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted accounting principles and do not believe that any new or modified principles will have a material impact on the Company’s reported financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s financial management.

 

In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP. Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of the standard on the consolidated financial statements.

 

In May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently evaluating the impact this new guidance will have on its financial statements.

 

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

 

(S) Reclassifications

 

A certain account in the prior year financial statements has been reclassified for comparative purposes to conform with the presentation in the current year financial statements. Accrued expenses is reported separately from accounts payable in the balance sheet since the amounts are material. There was no effect on the change in net assets resulting from the reclassifications.

 

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NOTE 2 – INVENTORY

 

As of December 31, 2021 and March 31, 2021, the Company had inventory of $104,965 and $47,068 of inventory, respectively. At March 31, 2021, the Company has a reserve of $47,068 because of the substantial doubt in the Company’s ability to utilize this inventory to obtain material sales.

 

The inventory components are as follows:

 

   December 31, 2021   March 31, 2021 
Finished Goods  $8,520   $36,973 
Work in Process   31,424    - 
Raw Materials   65,021    8,773 
Manufacturing Supplies   -    1,322 
Inventory, Gross   104,965    47,068 
Reserve for Obsolete Inventory   -    (47,068)
Total Net  $104,965   $- 

 

At December 31, 2021, both the inventory cost of $47,068 and the related reserve were written off. There was no impact on the cost of sales as the reserve offset the cost.

 

The Company recognized a benefit to cost of sales of $3,289 related to the change in the reserve of obsolete inventory for the year ended March 31, 2021.

 

NOTE 3 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS

 

As of December 31, 2021, the Company had $373,505 in prepaid expenses and other assets consisting primarily of $245,000 in insurance costs, $82,000 in investor relations services, and $36,000 in tradeshows.

 

As of March 31, 2021, the Company had $123,575 in prepaid expenses and other assets consisting primarily of $78,000 in marketing services, $9,000 in annual OTC registration fee and $9,000 in insurance costs. The Company also had deferred offering costs of $280,163 consisting of legal and accounting costs incurred related to our S-1 and S-1/A filings with the Securities and Exchange Commission on October 13, 2020, December 31, 2020 and March 29, 2021, respectively, which was recorded as a reduction of proceeds as a result of the Company raising capital in its registered offering.

 

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NOTE 4 –PROPERTY AND EQUIPMENT

 

The components of property and equipment were as follows:

 

   December 31, 2021   March 31, 2021 
Leasehold improvements  $214,354   $198,015 
Production equipment   165,753    128,849 
R&D equipment   25,184    25,184 
Computer equipment and furniture   48,895    10,130 
Total, at cost   454,086    362,178 
Accumulated depreciation   (184,960)   (148,140)
Total Net  $269,226   $214,038 

 

During the three months ended December 31, 2021 and 2020, depreciation expense was $13,123 and $10,768, respectively. During the nine months ended December 31, 2021 and 2020, depreciation expense was $ 36,820 and $24,731, respectively.

 

NOTE 5 – INTANGIBLE ASSETS

 

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

 

   December 31, 2021   March 31, 2021 
Patents  $3,860,057   $3,840,903 
Trademarks   26,142    26,142 
Total at cost   3,886,199    3,867,045 
Accumulated Amortization   (3,845,461)   (3,839,113)
Total net  $40,738   $27,932 

 

During the three-month periods ended December 31, 2021 and 2020, amortization expense was $2,286 and $1,629, respectively. During the nine months ended December 31, 2021 and 2020, amortization expense was $6,348 and $8,353, respectively.

 

NOTE 6 – ACCRUED EXPENSES

 

The components of accrued expenses were as follows:

 

   December 31, 2021   March 31, 2021 
Accrued payroll and related taxes  $473,699   $221,774 
Accrued lease termination expense   332,238    332,238 
           
Total  $805,937   $554,012 

 

Pursuant to a lease wherein our subsidiary, Gel-Del Technologies, Inc., was the lessee until and through the lease’s termination in fiscal year 2017-2018, the Company had recorded as of those fiscal years approximately $332,000 as a potential payable to the lessor, which this liability remains as of December 31, 2021 and March 31, 2021 and is included in accrued expenses.

 

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NOTE 7 - RELATED PARTY NOTES PAYABLE

 

At December 31, 2021 and March 31, 2021, the Company is obligated for a related party note payable and accrued interest in the total amount of $0 and $44,554, respectively; the maturity date of this note was 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. Please see Note 10 to these financial statements for more information on this note. The Company repaid this related party note with net proceeds from its Public Offering. See Note 15 – Common Stock and Warrants – Units sold in Public Offering.

 

The Company entered into notes payable with four directors in March 2021 which accrue interest at a rate of 6% annually and are due in September 2021. At December 31, 2021 and March 31, 2021, the principal and accrued interest outstanding on these notes is $0 and $20,000, respectively. The Company repaid these director notes with net proceeds from its Public Offering.

 

NOTE 8 – NOTES PAYABLE AND CONVERTIBLE NOTES

 

In January 2020, the Company entered into a lease amendment for our corporate office facility whereby the lease term was extended through November of 2026 in exchange for a loan of $42,500. The note payable accrues interest at a rate of 6% per annum. At December 31, 2021 and March 31, 2021, the amount outstanding on the note was $35,100 and $39,528, respectively. At March 31, 2021, the note is classified as a current liability as the Company has not been current on its loan payments. At December 31, 2021, the Company is current on its loan payments and classified $6,456 as a current liability and $28,837 in other liabilities.

 

On May 1, 2020, the Company received $38,665 in loan proceeds pursuant to the Paycheck Protection Program enacted by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act. At March 31, 2021, the Company was obligated for the outstanding balance of $39,020. The principal and accrued interest may be forgivable and the Company applied for forgiveness. The loan accrues interest at a rate of 1% per annum and matures on May 1, 2022; if not forgiven prior to December 1, 2020, the Company is required to pay monthly installments toward principal and interest until the note is paid in full. In June 2021, the Company received forgiveness of principal and accrued interest of $31,680. The remaining principal balance of $3,769 will be paid in monthly payments of $738 ending May 1, 2022.

 

At March 31, 2021, the Company is obligated for several convertible notes payable in the total amount of $235,671 made up of $230,000 in principal and $5,671 in interest. These convertible notes accrue interest at a rate of 10%. Accrued interest is due and payable each calendar quarter in cash. In April 2021, these notes and accrued interest of $2,658 were converted into 80,522 shares of common stock at a conversion price of $2.89 per share. The remaining accrued interest was paid in cash. At December 31, 2021, there is no outstanding principal or accrued interest outstanding on these notes.

 

At September 30, 2020, the Company is obligated for one convertible note payable held by RedDiamond Partners, LLC (“RDCN”); the Company entered into the RDCN on June 15, 2020, whereby the note is convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $.28/share. The RDCN was issued in the principal amount of $352,941 with $52,941 being made up of a 15% Original Issue Discount (“OID”) and includes a conversion feature. However, this conversion feature’s exercise contingency can only be utilized if triggered by the occurrence of an Event of Default, which includes events that are outside the control of the Company (i.e. not based solely on the market for the Company’s stock or the Company’s own operations). Additionally, the RDCN accrues interest at a rate of 12.5% per annum, calculated on a 360-day-per-year-basis. At September 30, 2020, the Company owed $365,808 in outstanding balance whereby $352,941 was made up of principal and $12,867 was made up of accrued interest. This RDCN was issued alongside a warrant for purchase of 557,143 shares of Company common stock (“RDCN Warrants”) with a relative value of $91,500; see Note 15 for more information on these RDCN Warrants. Upon inception, the outstanding principal balance of the RDCN was reduced to $-0- by various discounts on the debt totaling ($352,941) as follows: i) the RDCN Warrants generated a discount on the debt of ($91,500) based on the relative value of the same; ii) $2,500 in investor legal costs was treated as a discount on the debt of ($2,500) since this was paid by the Company; iii) $52,941 of OID was treated as a discount on the debt of ($52,941); iv) a discount of ($206,000) was taken due to the conversion option being treated as a derivative. As of September 30, 2020, the Company had ($215,686) ($-0- at March 31, 2020) in unamortized debt discount remaining. In evaluating the various instruments and their components within this transaction (including issuance of the RDCN and RDCN Warrants) for treatment as a derivative and the respective accounting treatment of the same, the Company referenced ASC 470 and ASC 815 in conjunction with interpretive guidance. For the six months ended September 30, 2020, the Company amortized a pro-rata portion of the discount on the debt on a straight-line basis to interest expense in the amounts of $137,255. In conjunction with the RDCN and RDCN Warrants issuances, the Company also paid $30,000 and issued 75,000 warrants (“Think Warrants”) valued at $31,500 using the Black-Scholes model to Think Equity for soliciting the RedDiamond Partners, LLC transaction; see Note 15 for more information on these warrants. The total issuance costs paid to Think Equity of $61,500 of cash and warrants, which the Company recorded the relative value (as noted in Note 14) of $52,399 to expense since no further discount was available to be taken on the debt. For the year ended March 31, 2021, the Company amortized a pro-rata portion of the discount on the debt on a straight-line basis to interest expense in the amount of $173,174. At October 26, 2020, the Company entered into a note conversion agreement that converted the then outstanding balance of $368,995 made up of $352,941 in principal and $16,054 in accrued interest into 263,568 shares of common stock at a rate of $1.40 per share when the market price of the stock was $6.56. The settlement relieved a derivative liability in the amount of $1,908,100, outstanding principal and interest of $368,995, and debt discount in the amount of $181,187 in exchange for stock valued on the date of the settlement in the total amount of $1,729,005; this triggered a gain on debt extinguishment of $366,903. Please see Note 10 to these financial statements for more information on this conversion. As of March 31, 2021, the Company had $-0- in unamortized debt discount remaining and owed $-0- in principal and interest pursuant to the RDCN.

 

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NOTE 9 – SHARE-SETTLED DEBT OBLIGATION – RELATED PARTY

 

Effective September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant to an Amendment to Promissory Note and a Promissory Note. The Amendment to Promissory Note extends, for up to an additional two years and under the same terms as originally entered into, the original promissory notes which were issued by Gel-Del Technologies, Inc., a wholly owned subsidiary of the Company, to Dr. Masters. Because this Amendment to Promissory Note simply extended the term over which the Company is required to pay back the outstanding balance this change has been treated as a debt modification. The outstanding principal of $59,642 and interest balance of $6,058 of the original promissory notes was $65,700 at the time of execution of the Amendment to Promissory Note; the terms of this Amendment to Promissory Note are interest accrual at a rate of 8% on an annual basis or 20% if the note is in default. The Amendment to Promissory Note requires monthly payments of $3,100 and a maturity date of June 30, 2022, provided however that if the Company shall achieve $1,500,000 in equity sales or achieve gross product sales of $1,500,000, the Company must pay the outstanding balance at that time.

 

The Promissory Note was entered into with an effective date of September 1, 2020 in a principal amount of $195,000, which represented David Masters’ release of any claim to the $195,000 in past accrued salary he was owed, it accrues interest at a rate of 3% per annum, has a maturity date of August 31, 2022, and required payments of $4,000 per month beginning when the Company’s sale of products reach $3,500,000. The reclassification of the $195,000 was treated as a debt modification.

 

A Settlement and General Release (“Settlement Agreement”) was also executed by Dr. Masters to the benefit of the Company as a settlement and general release of any and all past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters ever had, may have or may acquire against the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial condition of the Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters’ and his affiliates and the Company on or prior to the effective date of the Settlement Agreement, or (c) the employment of Dr. Masters by the Company (except for claims directly relating to the breach of the Amendment to Promissory Note, the Promissory Note or the Consulting Agreement).

 

On October 15, 2020, the Company entered into a note conversion agreement with David Masters whereby the Company and Dr. Masters both agreed to convert his note payable in the then outstanding balance of $193,158 made up of $192,500 in principal and $658 in accrued interest into units, consisting of common stock and warrants, as of the date of the closing of the Company’s Public Offering. Pursuant to this conversion agreement the Company agreed to convert $196,000 made up of $192,500 in principal and a conversion fee of $3,500 and Dr. Masters agreed to forego the interest accrued in the amount of $658. The conversion fee of $3,500 was treated as a discount on the debt and the $658 was treated as a reduction of the discount on debt. As of March 31, 2021, the outstanding balance of $196,000 for this share-settled debt obligation had not yet been converted and is recorded as a liability due to the fact the Company had not yet been converted and is recorded as a liability as the Company had not agreed to terms of our S-1 offering currently being conducted. At the closing of the Company’s Public Offering on August 13, 2021, the outstanding balance of this debt obligation converted into 43,556 units, which consists of 43,556 shares of common stock and warrants to purchase 43,556 shares of the Company’s common stock.

 

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At December 31, 2021 and March 31, 2021, the Company was obligated for principal and accrued interest in the amounts of $-0- and $196,000, respectively, related to the Promissory Note and $0 and $44,554 respectively, related to the Amendment to Promissory Note.

 

NOTE 10 – DERIVATIVE LIABILITY AND EXPENSE

 

The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instruments, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.

 

The Company used the following assumptions for determining the fair value of the conversion feature in the RDCN referenced in Note 8 to these financial statements, under the binomial pricing model with Monte Carlo simulations at June 15, 2020, September 30, 2020 and October 26, 2020, the issuance, balance sheet, and conversion dates, respectively:

 

   June 15, 2020   September 30, 2020   October 26,2020 
Stock price on valuation date  $.42   $.80   $6.56 
Conversion price  $.28   $.28   $1.12 
Days to maturity   273    166    140 
Weighted-average volatility*   367%   327    197%
Risk-free rate   .18%   .12    .11%

 

The initial valuation of $526,800 at June 15, 2020, generated a discount on the debt of $206,000, which net the convertible note liability to $-0- and forced a recognition of derivative expense of $320,800 and a corresponding offset to derivative liability of $526,800. At September 30, 2020, the Company revalued the derivative liability at $937,500 and recognized $389,300 to derivative expense and derivative liability. On October 26, 2020, the Company entered into a conversion agreement whereby the RDCN was converted into 263,568 shares of common stock at a rate of $1.40 per share; this triggered a gain on extinguishment of debt in the amount of $366,903 as described in Note 8. There was no remaining derivative liability at December 31, 2020.

 

NOTE 11–ACCRUED EXPENSES – RELATED PARTY

 

At March 31, 2021, the Company was obligated to pay $36,808 in accrued expenses due to a related party. Of the total, $28,965 was made up of accounts payable, while $7,843 was made up of accrued salaries.

 

In August 2021, the total amount due to the related party was paid from the proceeds of its Public Offering and there is no remaining liability at December 31, 2021.

 

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NOTE 12–RETIREMENT PLAN

 

In February 2021, the Company established a 401(k)-retirement plan for its employees in which eligible employees can contribute a percentage of their compensation. The Company may also make discretionary contributions. The Company made contributions to the plan for the three and nine months ended December 31, 2021 of $2,350, respectively.

 

NOTE 13 – COMMITMENTS AND CONTINGENCIES

 

The Company entered into an eighty-four-month lease for 3,577 square feet of newly constructed office, laboratory and warehouse space located in Edina, Minnesota in May 2017. The base rent has annual increases of 2% and the Company is responsible for its proportional share of common space expenses, property taxes, and building insurance. In January 2020, the Company entered into a lease amendment whereby agreed to extend the lease term through November of 2026 in exchange for receipt of a loan of $42,500 recorded to notes payable and a grant of $7,500, which has been recorded to accrued expenses and will be amortized over the remainder of the lease term. The base rent as of December 31 and March 31, 2021 is $2,205.

 

Rent expense for the three-month periods ended December 31, 2021 and December 31, 2020 were $16,549 and $13,343, respectively. Rent expense for the nine months ended December 31, 2021 and December 31, 2020 were $50,952 and $40,479, respectively.

 

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2021:

 

      
2022  $6,745 
2023   27,167 
2024   27,710 
2025   28,265 
2026   28,830 
2027   19,475 
Total   138,192 
Less: amount representing interest   (271)
Total  $137,921 

 

In compliance with ASC 842, the Company recognized, based on the extended lease term to November 2026 and a treasury rate of 0.12%, an operating lease right-to-use assets for approximately $189,600 and corresponding and equal operating lease liabilities for the lease. As of December 31, 2021, the present value of future base rent lease payments based on the remaining lease term and weighted average discount rate are approximately 6 years and 0.12%, respectively, are as follows:

 

Present value of future base rent lease payments  $137,921 
Present value of future base rent lease payments – net  $137,921 

 

As of December 31, 2021, the present value of future base rent lease payments – net is classified between current and non-current assets and liabilities as follows:

Operating lease right-of-use asset  $137,921 
Total operating lease assets   137,921 
      
Operating lease current liability   27,011 
Operating lease other liability   110,910 
Total operating lease liabilities  $137,921 

 

The Company has employment agreements with its executive officers. As of December 31, 2021, these agreements contain severance benefits ranging from one month to six months if terminated without cause. As of March 31, 2021, the employment agreements to executive officers did not contain severance benefits if terminated without cause.

 

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The Company has received correspondence from an attorney representing Dr. David Masters, our former Chief Technology Officer and current director, alleging that the Company, among other items, breached its settlement and consulting agreement with him and owes him additional monies pursuant to these agreements. His attorney also alleges that the Company promised to enter into a new employment agreement with him and failed to fulfill that promise. The Company believes that Dr. Master’s claims are without merit and has retained legal counsel. The Company does not believe that this matter will have a material impact on its financial position or results of operations.

 

NOTE 14 - GOING CONCERN

 

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. In August 2021, we raised net proceeds of approximately $9,781,000 from the sale of 2,500,000 units to the public at a price of $4.50 unit in a registered public offering. Our working capital at December 31, 2021 was $6,928,954. The Company expects to incur losses in the future as we commercially launch Spryng.™ We believe this working capital is sufficient to fund operations for the next twelve months (see Liquidity and Capital Resources above).

 

The Company expects to incur losses in the future as its commercially launches its first product. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months after the date of issuance of these financial statements. Management intends to raise additional funds by selling securities in public or private offerings. Management believes that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern. While the Company believes in its viability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and raise additional funds.

 

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

 

NOTE 15 – COMMON STOCK AND WARRANTS

 

Equity Incentive Plan

 

On July 10, 2020, our Board of Directors unanimously approved the PetVivo Holdings, Inc “2020 Equity Incentive Plan” (the “2020 Plan”), subject to approval by our stockholders at a Meeting of Stockholders held on September 22, 2020, when it was approved by our stockholders and became effective. The number of shares of our common stock authorized under the 2020 Plan is 1,000,000 shares. Unless sooner terminated by the Board, the 2020 Plan will terminate at midnight on July 10, 2030. The number of shares available to grant under the Plan was 450,435 at December 31, 2021.

 

Employees, consultants and advisors of the Company (or any subsidiary), and non-employee directors of the Company will be eligible to receive awards under the 2020 Plan. In the case of consultants and advisors, however, their services cannot be in connection with the offer and sale of securities in a capital-raising transaction nor directly or indirectly promote or maintain a market for PetVivo securities.

 

The 2020 Plan is administered by the Compensation Committee of our Board of Directors (the “Committee”), which has full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment, any deferral payment, and other terms and conditions of each award. Subject to provisions of the 2020 Plan, the Committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The Committee has the authority to interpret and establish rules and regulations for the administration of the 2020 Plan. In addition, the Board of Directors may also exercise the powers of the Committee.

 

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The aggregate number of shares of PetVivo common stock available and reserved to be issued under the 2020 Plan is 1,000,000 shares, but includes the following limits:

 

● the maximum aggregate number of shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will be 25,000 shares; provided that such limit will not apply to any election of a Non-Employee Director to receive shares of Common Stock in lieu of all or a portion of any annual Board, committee, chair or other retainer, or any meeting fees otherwise payable in cash.

 

Awards can be granted for no cash consideration or for any cash and other consideration as determined by the Committee. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares of PetVivo common stock, other securities or property, or any combination of these in a single payment, installments or on a deferred basis. The exercise price per share of any stock option and the grant price of any stock appreciation right may not be less than the fair market value of PetVivo common stock on the date of grant. The term of any award cannot be longer than ten years from the date of grant. Awards will be adjusted in the event of a stock dividend or other distribution, recapitalization, forward or reverse stock split, reorganization, merger or other business combination, or similar corporate transaction, in order to prevent dilution or enlargement of the benefits or potential benefits provided under the 2020 Plan.

 

The 2020 Plan permits the following types of awards: stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, other stock-based awards, and dividend equivalents.

 

Units – Public Offering

 

On August 13, 2021, the Company sold an aggregate of 2,500,000 units at a price to the public of $4.50 per unit (the “Public Offering”), each unit consisting of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $5.625 per share pursuant to an Underwriting Agreement we entered into with ThinkEquity, a division of Fordham Financial Management, Inc. (“ThinkEquity”) The shares of common stock and warrants were transferrable separately immediately after issuance. The Company also issued 43,556 units pursuant to a conversion of $196,000 shared-settled debt obligation in the Public Offering at a price of $4.50 per unit.

 

The Company received gross proceeds of $11,253,850 at the closing of the Public Offering, before deducting underwriting discounts and commissions of eight percent (8%), and expenses. The total expenses, which reduced the total proceeds included in the common stock and warrants sold in the statement of shareholders’ equity, of the Public Offering were $1,473,067, which included ThinkEquity’s expenses relating to the offering. The net proceeds were allocated between the common shares and warrants based on the relative fair values which was $4,891,531 and $4,889,252, respectively.

 

In addition, pursuant to the Underwriting Agreement, the Company granted ThinkEquity a 45-day option to purchase up to 375,000 additional shares of common stock, and/or 375,000 additional warrants, to cover over-allotments in connection with the Offering, which ThinkEquity partially exercised to purchase 375,000 warrants on the closing date.

 

Pursuant to the Underwriting Agreement, we issued warrants (the “Underwriter’s Warrants”) to ThinkEquity to purchase 125,000 shares of common stock (5% of the shares of common stock sold in the Public Offering). The Underwriter’s Warrants are exercisable at $5.625 per share of common stock and have a term of five years. The Underwriter’s Warrants are subject to a lock-up for 180 days from the commencement of sales in the Offering, including a mandatory lock-up period in accordance with FINRA Rule 5110(e), and will be non-exercisable for six (6) months after August 13, 2021.

 

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Common Stock

 

For the nine months ended December 31, 2021, the Company issued 2,958,615 shares of common stock as follows:

 

i) 80,522 shares in April 2021 pursuant to a conversion of a $230,000 convertible note and $2,658 in accrued interest at a conversion rate of $2.89 per share;

 

ii) 4,500 shares in April 2021 pursuant to the exercise of warrants with a strike price of $4.44 per share for cash proceeds of $40,000.

 

iii) 36,915 shares in May 2021 pursuant to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase of 42,188 shares of common stock at a strike price of $1.33 per share;

 

iv) 79,767 shares in May 2021 pursuant to a warrant holder’s cashless exercise of a warrants for purchase of 90,500 shares of common stock at a strike price of $1.40 per share;

 

v) 49,014 shares during May and June of 2021 in exchange for $343,098 in cash to accredited investors, including an officer and two directors of the Company at a price of $7.00 per share;

 

vi) 43,324 shares in June 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 56,250 shares of common stock at a strike price of $2.22 per share;

 

vii) 11,000 shares in July 2021 in exchange for $77,000 in cash to accredited investors at a price of $7.00 per share;

 

viii) 2,500,000 shares and warrants, as part of the units issued on August 13, 2021 in the Public Offering, at a price of $4.50 per unit;

 

ix) 43,556 shares and warrants in August 2021 pursuant to a conversion of $196,000 shared-settled debt obligation in the Public Offering at a price of $4.50 per unit;

 

x) 40,038 shares in August 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 48,786 shares of common stock at a strike price of $1.40 per share;

 

xi) 1,594 shares in September 2021 pursuant to a warrant holder’s exercise of warrants for purchase with a strike price of $1.27 per share for cash proceeds of $2,031;

 

xii) 42,000 shares in September 2021 to a service provider for future marketing and investor relations services valued at $210,000;

 

xiii) 25,585 shares in October 2021 to members of the Board of Directors valued at 69,080 as compensation for board service;

 

xiv) 500 shares in December 2021 to a service provider for consulting services valued at $2,000, and

 

xv) 300 shares in December 2021 related to vesting of restricted stock units.

 

For the nine months ended December 31, 2020, the Company issued 990,290 shares of common stock as follows:

 

i) i) 30,000 shares valued at $32,453 and recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term; and

 

ii) 20,000 shares with a relative value of $34,709 pursuant to a purchase of 20,000 units whereby a unit is made up of 1 share of common stock and ½ warrant. The value of $34,709 along with the relative value of the warrants associated with this transaction of $17,291 ($52,000 total) was recorded during the quarter ended March 31, 2020 to Common Stock Subscribed and moved to Additional Paid in Capital and Capital Stock upon receipt of funds and issuance of shares of common stock during the quarter ended June 30, 2020.

 

iii) 12,500 shares valued at $22,000 on July 1, 2020 to two service providers as follows: a) 10,000 to a marketing and investor relations service provider valued at $17,600; and b) 2,500 to a legal service provider valued at $4,400;

 

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iv) 15,257 shares valued at $12,053 on July 24, 2020 to one warrant holder whereby this warrant holder converted on a cashless basis 25,000 warrants into 15,257 shares of common stock and the warrant had an exercise price of $1.20 per share;

 

v) 226,071 shares during August and September of 2020 in exchange for $316,500 in cash to four accredited investors;

 

vi) 162,252 shares valued at $486,755 to directors and officers on September 14, 2020 as bonuses for work over the past two years as follows:

 

  a. 33,619 to John Lai
  b. 26,217 to John Carruth
  c. 22,993 to John Dolan
  d. 10,789 to Gregory Cash
  e. 10,711 to David Deming
  f. 10,627 to Robert Rudelius
  g. 10,550 to Randy Meyer
  h.  9,302 to Jim Martin
  i.  9,300 to Scott Johnson
  j.  9,209 to Joseph Jasper
  k.  8,935 to David Masters

 

vii) 25,003 shares valued at $25,383 to three directors on August 14, 2020, pursuant to their conversions of notes in the total outstanding balance amount of $25,382 made up of $25,000 in principal and $382 in accrued interest; these notes had a set conversion price of $1.02 per share;

 

viii) 263,568 shares in October 2020 pursuant to conversion of $368,995 in principal and interest of the RDCN valued at $1,729,005 as outlined in this Form 10-Q’s note 8;

 

ix) 32,347 shares in October 2020 pursuant to John Lai’s cashless exercise of a warrant for purchase of 42,188 shares of common stock at a strike price of $1.33 per share;

 

x) 202,499 shares in October, November and December to twenty accredited investors pursuant to their exercising of warrants with strike prices of $2.22 per share for cash proceeds of $449,993 recorded to cash paid to exercise warrants; and

 

xi) 793 shares in October 2020 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 6,750 shares of common stock at a strike price of $4.44 per share.

 

Time-Based Restricted Stock Units

 

We have granted time-based restricted stock units to certain participants under the 2020 Plan that are stock-settled with common shares. Time-based restricted stock units granted under the 2020 Plan vest over three years. Stock-based compensation expense included in the Condensed Consolidated Statements of Operations for time-based restricted stock units was $251,885 for the three months ended December 31, 2021 and $359,992 for the nine months ended December 31, 2021. At December 31, 2021, there were approximately $1,762,000 of total unrecognized pre-tax compensation expense related to time-based restricted stock units that is expected to be recognized over a weighted-average period of 1.8 years.

 

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Our time-based restricted stock unit activity for the nine months ended December 31, 2021 was as follows:

 

   Units
Outstanding
   Weighted Average Grant Date Fair Value Per Unit   Aggregate Intrinsic Value (1) 
             
Balance at March 31, 2021   -    -    - 
                
Granted   549,565   $3.86    - 
Vested   (300)   13.99      
Balance at December 31, 2021   549,265   $3.85   $2,071,000 

 

  (1) The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of this period.

 

Warrants

 

During the nine months ended December 31, 2021, the Company issued warrants to purchase an aggregate of 3,043,556 shares of common stock in connection with its Public Offering of Units, as follow:

 

  warrants to purchase 2,500,000 shares of the Company’s common stock with a relative value of $4,805,528, at an exercise price of $5.625 per share for five years from the grant date of August 10, 2021 issued to investors in the public offering as part of the units,
     
  warrants to purchase 43,556 shares of the Company’s common stock, pursuant to a conversion of $196,000 shared-settled debt obligation in the Public Offering, with a relative value of $83,724, at an exercise price of $5.625 per share for five years from the grant date of August 10, 2021 to the Company’s former Director of Science and Technology and Director pursuant to a note conversion in the public offering as part of the units,
     
  warrants to purchase 500,000 shares of the Company’s common stock at an exercise price of $5.625 per share for five years from the grant date of August 10, 2021 issued to ThinkEquity upon exercise of its over-allotment option and pursuant to the Underwriting Agreement. These warrants were considered issuance costs of the Public Offering which resulted in a zero impact on additional paid-in capital.

 

These warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:

 

i) an expected volatility of the Company’s shares on the date of the grants of approximately 315% based on historical volatility.

 

ii) risk-free rate identical to the U.S. Treasury 5-year treasury bill rate on the date of the grants between 0.82%.

 

During the nine months ended December 31, 2020, the Company issued warrants to purchase a total of 240,627 shares of common stock as follows:

 

i) warrants issued for 10,000 shares, sold at $17,291 to one investor using the Black-Scholes model, whereas the warrants vested immediately upon issuance and are exercisable at $4.00 per share for 3 years from the grant date of April 6, 2020;

 

ii) warrants issued for 38,837 shares, valued at $57,717 using the Black-Scholes model, to directors, officers and consultants at exercise prices between $1.40 and 1.60 per share with a weighted average price per share of $1.52 per share; and

 

iii) warrants issued with debt for 158,036 shares, valued at $265,500 using the Black-Scholes model, to an investor and broker, whereby the relative value as described in Note 8 of $91,500 was recorded to Warrants issued in conjunction with convertible debt on the statement of equity; the warrants have a cashless warrant exercise feature, are exercisable at $1.40 per share for a term of five years from the date of the grant of June 15, 2020 and vested immediately.

 

iv) warrants for 3,750 shares for two directors board service on July 1, 2020, valued at $6,600 using the Black-Scholes model, whereby the value of the warrants was recorded to Stock-based compensation on the statement of equity and whereas the warrants vest monthly in equal installments for two months from the date of the grant and are exercisable for 5 years from the date of the grant at $1.20 per share

 

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v) warrants for 30,000 shares to a director for consulting services on September 1, 2020, valued at $96,000 using the Black-Scholes model, whereby the value of the warrants is recorded to Stock-based compensation on the statement of equity in equal monthly installments as they vest in equal monthly installments for four months from the date of the grant and are exercisable for 5 years from the date of the grant at $1.40 per share.

 

These warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:

 

i) an expected volatility of the Company’s shares on the date of the grants of between approximately 350% and 433%, based on historical volatility.

 

ii) risk-free rates identical to the U.S. Treasury 3-year and 5-year treasury bill rates on the date of the grants between 0.29% and 1.16%.

 

A summary of warrant activity for the year ending March 31, 2020 and nine-month period ending December 31, 2021 is as follows:

 

   Number of Warrants   Weighted- Average Exercise Price   Warrants Exercisable   Weighted- Average Exercisable Price 
                 
Outstanding, March 31, 2020   1,234,295   $2.12    1,027,092   $2.13 
                     
Issued in conjunction with convertible debt   158,036    1.40           
Sold for Cash   10,000    4.00           
Issued and granted   72,596    1.52           
Exercised for cash   (205,946)   (2.21)          
Cashless warrant exercises   (142,313)   (1.64)          
Expired   (45,000)   (3.78)          
Outstanding, March 31, 2021   1,081,668    2.02    881,982    2.00 
Issued and granted   3,043,556    5.63           
Exercised for cash   (6,094)   (6.90)          
Cashless warrant exercises   (237,724)   (1.58)          
Expired   (15,922)   (5.28)          
Cancelled   (108,000)   (1.80)          
Outstanding, December 31, 2021   3,757,484   $4.95    3,684,359   $5.01 

 

At December 31, 2021, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

 

    Warrants Outstanding    Warrants Exercisable 

Range of Warrant

Exercise Price

   Number of Warrants   Weighted- Average Exercise Price   Weighted- Average Remaining Contractual Life (Years)   Number of Warrants   Weighted- Average Exercise Price 
$1.20-$2.00    418,237   $1.35    4.18    418,237   $1.35 
                            
 2.01-4.00    207,938    2.48    2.58    134,813    2.62 
                            
 4.01-6.67    3,131,309    5.60    4.51    3,131,309    5.60 
                            
 Total    3,754,484    4.95    4.36    3,684,359    5.01 

 

For the three months ended December 31, 2021 and 2020, the total stock-based compensation on all instruments was $272,717 and $124,490, respectively. For the nine months ended December 31, 2021 and 2020, the total stock based compensation on all instruments was $432,483 and $889,597, respectively. It is expected that the Company will recognize expense after December 31, 2021 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as in the amount of approximately $62,000.

 

NOTE 16 – SUBSEQUENT EVENT

 

In October 2021, the Company entered into a new lease agreement of 2,376 square feet of office space with a commencement date of January 1, 2022, which is when the control and right of use for this lease asset will take place. The initial monthly base rent is $2,673 and has annual increases of 2.5%. The Company is also responsible for its proportional share of common space expenses, property taxes, and building insurance. The lease will terminate on March 31, 2027 and the Company has a renewal option for a period of three years.

 

In January 2022, the Company issued 17,500 shares of its common stock, 10,000 shares related to vesting of restricted stock units and 7,500 shares to a consultant for investor relations services.

 

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

 

GENERAL

 

We were incorporated in Nevada in 2009 under a former name. In 2014, we entered our current business through a reverse merger with PetVivo Inc., a Minnesota corporation founded in 2013. From this merger, PetVivo Inc. became our wholly-owned subsidiary, and concurrently we changed our Nevada corporate name to PetVivo Holdings, Inc.

 

On August 13, 2021, the Company sold an aggregate of 2,500,000 units at a price to the public of $4.50 per unit (the “Public Offering”), each unit consisting of one share of common stock, and a warrant to purchase one share of common stock at an exercise price of $5.625 per share pursuant to an Underwriting Agreement we entered into with ThinkEquity, a division of Fordham Financial Management, Inc. (“ThinkEquity”) The shares of common stock and warrants were transferrable separately immediately after issuance. In addition, pursuant to the Underwriting Agreement, the Company granted ThinkEquity a 45-day option to purchase up to 375,000 additional shares of common stock, and/or 375,000 additional warrants, to cover over-allotments in connection with the Offering, which ThinkEquity partially exercised to purchase 375,000 warrants on the closing date.

 

The Company received gross proceeds of $11,253,850 at the closing of the Public Offering, before deducting underwriting discounts, commissions of eight percent (8%), and offering expenses. The total net proceeds received by the Company in the Public Offering were approximately $9,781,000.

 

CURRENT BUSINESS OPERATIONS

 

We are an emerging biomedical device company based in Minneapolis, Minnesota, focused on the licensing and commercialization of innovative medical devices and therapeutics for pets. We operate in the $31.4 billion US veterinary care and products market (market size according to the American Pet Products Association, Morris Animal Foundation). Despite the market size, veterinary clinics and hospitals have very few treatments and/or drugs for use in treating osteoarthritis in pets and other animals. In addition, the role of pets in the family has greatly evolved in recent years as many pet owners consider their pets an important member of the family and are now willing to spend greater amounts of money on their pets to maintain their health and quality of life.

 

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

 

Our lead product, Spryng™ (formerly known as Kush®) was launched in September 2021. Spryng™ is a veterinarian-administered joint injection for the treatment of osteoarthritis and lameness in dogs and horses. The Spryng™ device is made from natural components that are lubricious and cushioning to perform like cartilage for the treatment of pain and inflammation associated with osteoarthritis.

 

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We believe that Spryng™ is an optimal treatment that safely improves joint function. The Spryng™ particles are lubricious, cushioning and long-lasting. The spongy, protein-based particles mimic the composition and protective function of cartilage (i.e., providing both a slippery cushion and healing scaffolding) and protect the joint as an artificial cartilage.

 

According to the 2019 State of Pet Health Report published by Banfield Pet Hospital, osteoarthritis has increased by 66% in dogs over the past 10 years. Using industry sources, we estimate osteoarthritis afflicts approximately 14 million owned dogs in the United States and the European Union, making canine osteoarthritis an estimated potential $4 billion market opportunity; this does not factor in any contra-lateral usage of the product by veterinarians. See Johnston, Spencer A. “Osteoarthritis. Joint anatomy, physiology, and pathobiology;” The Veterinary clinics of North America (1997):699-723; and http://www.americanpetproducts.org/press_industrytrends.asp.

 

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

 

Based on a variety of industry sources we estimate that 1 million owned horses in the United Stated and European Union suffer from lameness and/or navicular disease, making the equine lameness and navicular disease market an annual opportunity worth $550 million; this does not factor in any contra-lateral usage of the product by veterinarians. See Kane, Albert J., Josie Traub-Dargatz, Willard C. Losinger, and Lindsey P. Garber; “The occurrence and causes of lameness and laminitis in the US horse population” Proc Am Assoc Equine Pract. San Antonio (2000): 277-80; Seitzinger, Ann Hillberg, J. L. Traub-Dargatz, A. J. Kane, C. A. Kopral, P. S. Morley, L. P. Garber, W. C. Losinger, and G. W. Hill. “A comparison of the economic costs of equine lameness, colic, and equine protozoal myeloencephalitis (EPM).” In Proceedings, pp. 1048-1050. 2000; and Kilby, E. R. 10 CHAPTER, The Demographics of the U.S. Equine Population, The State of the Animals IV: 2007.

 

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

 

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

 

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

 

Historically, drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at veterinary practices are being eroded because online, big-box and traditional pharmacies recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. The Spryng™ device is veterinarian-administered and should expand practice revenues and margins. We believe that the increased revenues and margins provided by Spryng™ will accelerate its adoption rate and propel it forward as the standard of care for canine and equine lameness related to or due to synovial joint issues. If the Company has sufficient capital to commence commercial manufacturing of Spryng™, its challenge will be whether it can consistently operate effectively to manufacture Spryng™ and other products and market and sell them in quantities and prices sufficient to obtain a satisfactory and sustaining profit. We have not done this to date and our challenge is to do so going forward.

 

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

 

We plan to commercialize our products in the United States through distribution relationships supported by regional and national distributors and complemented by the use of digital marketing to educate and inform pet owners; and in Europe and the rest of the world through commercial partners. In September 2019, the Company entered into an agreement with a service provider to film a 12-part, monthly series of interviews with our CEO, John Lai, Company key opinion leaders, and other media content to be aired on Bloomberg Television Network alongside 96 commercials; this program started in August 2021.

 

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

 

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

 

RESULTS OF OPERATIONS

 

The following discussion of our results of operations and financial condition should be read in conjunction with the financial statements and the related notes included under Part I, Item 1 of this Quarterly Report on Form 10-Q. In addition, reference should be made to our audited Consolidated Financial Statements and notes thereto, and related Management’s Discussion and Analysis appearing in our Annual Report on Form 10-K for the year ended March 31, 2020. The following discussion includes forward-looking statements. For a discussion of important factors that could cause actual results to differ from results discussed in the forward-looking statements, see “Forward Looking Statements” below and the “Risk Factors” section in our Annual Report on Form 10-K for the year ended March 31, 2021.

 

We are a smaller reporting company and have not generated any material revenues to date and have incurred substantial losses in connection with our limited operations. We need substantial capital to pursue our current plans to bring our first products to market. The first of such products is a proprietary gel-like protein-based biomedical material for injection into the afflicted body parts of animals suffering from osteoarthritis or other impairments to be marketed under the trade name Spryng.™ It will provide to veterinarians an innovative treatment for dogs and horses suffering from osteoarthritis.

 

RESULTS OF OPERATIONS

 

   For the Three Months Ended December 31,   For the Nine Months Ended December 31, 
   2021   2020   2021   2020 
                 
Revenues  $51,004   $507   $60,126   $7,303 
                     
Total Cost of Sales   98,997    -    104,048    350 
                     
Total Operating Expenses   1,609,658    385,897    3,235,604    1,652,978 
                     
Total Other Income (Expense)   15,522    (652,363)   41,294    (1,553,738)
                     
Net Loss  $(1,642,129)  $(1,037,753)  $(3,238,232)  $(3,199,763)
                     
Net loss per share - basic and diluted  $(0.17)  $(0.16)  $(0.38)  $(0.53)

 

* In October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was made effective December 29, 2020. All share and per share data has been retroactively adjusted for this reverse split for all period presented.

 

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For The Three Months Ended December 31, 2021 Compared to The Three Months Ended December 31, 2020

 

Total Revenues. Revenues increased to $51,004 for the three months ended December 31, 2021 compared to $507 for the three months ended December 31, 2020, and consisted of sales of our Spryng™ product to veterinary clinics. The increase in revenues is due to the Company commercialization of its Spryng™ product in September 2021.

 

Total Cost of Sales. Cost of sales increased to $98,997 for the three months ended December 31, 2021 compared to $0 for the three months ended December 31, 2021 and 2020, respectively. The increase in s directly related to increased sales of the Spryng™ product. Cost of sales includes product costs related to the sale of products and labor and overhead costs.

 

Operating Expenses. Operating expenses increased to $1,609,658 for the three months ended December 31, 2021 compared to $385,897 for the three months ended December 31, 2020. Operating expenses consisted of general and administrative (“G&A”), sales and marketing, and research and development expenses. The increase is primarily due to increased G&A expenses and sales and marketing expenses related to the sale of our Spryng™ product.

 

G&A expenses increased to $1,170,870 for the three months ended December 31, 2021 compared to $331,148 for the three months ended December 31, 2020. General and administrative expenses include compensation and benefits, contracted services, consulting fees, stock compensation and incremental public company costs.

 

Sales and marketing expenses were $404,462 and $24,484 for the three months ended December 31, 2021 and 2020, respectively. Sales and marketing expenses include compensation, consulting, tradeshows and stock compensation costs to support the launch of Spryng™.

 

Research and development (“R&D”) expenses were $34,326 and $30,265 for the three months ended December 31, 2021 and 2020, respectively.

 

Operating Loss. As a result of the foregoing, our operating loss was $1,657,651 and $385,390 for the three months ended December 31, 2021 and 2020. The increase was related to the infrastructure costs to support the launch of Spryng™ and the incremental public company costs.

 

Other Income (Expense). Other income was $15,522 for the three months ended December 31, 2021 as compared to expense of $652,363 for the three months ended December 31, 2020. Other income in 2021 consisted of net interest expense. Other expense in 2020 consisted primarily of derivative expense related to debt financing of $970,600 and interest expense of $48,666 partially offset by a gain on extinguishment of debt of $366,903.

 

Net Loss. Our net loss for the three months ended December 31, 2021 was $1,642,129 or ($0.17) as compared to a net loss of $1,037,753 or ($0.16) per share for the three months ended December 31, 2020. The increase was related to the infrastructure costs to support the launch of Spryng™ and the incremental public company costs. The weighted average number of shares outstanding was 9,756,945 compared to 6,442,549 for the three months ended December 31, 2021 and 2020, respectively.

 

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For The Nine Months Ended December 31, 2021 Compared to The Nine Months Ended December 31, 2020

 

Total Revenues. Revenues increased to $60,126 for the nine months ended December 31, 2021 compared to $7,303 for nine months ended December 31, 2020, respectively, and consisted of sales to veterinary clinics. The Company began commercialization of its Spryng™ product in September 2021.

 

Total Cost of Sales. Cost of sales was $104,048 for the nine months ended December 31, 2021 compared to $350 for the nine months ended December 31, 2020. The increase is directly related to increased sales of the Spryng™ product. Cost of sales includes product costs related to the sale of products and labor and overhead costs. The increase is primarily attributed to our increased sales

 

Operating Expenses. Operating expenses increased to $3,235,604 for the nine months ended December 31, 2021 and $1,652,978 for the nine months ended December 31, 2020. Operating expenses consisted of general and administrative, sales and marketing, and research and development expenses. The increase is primarily due to increased G&A expenses and sales and marketing expenses related to the sale of our Spryng™ product.

 

General and administrative (“G&A”) expenses were $2,258,001 and $1,515,968 for the nine months ended December 31, 2021 and 2020, respectively. General and administrative expenses include compensation and benefits, contracted services, consulting fees, stock compensation and incremental public company costs.

 

Sales and marketing expenses were $689,960 and $106,745 for the nine months ended December 31, 2021 and 2020, respectively. Sales and marketing expenses include compensation, consulting, tradeshows and stock compensation costs to support the launch of Spryng™..

 

Research and development (“R&D”) expenses were $287,643 and $30,265 for the nine months ended December 31, 2021 and 2020, respectively. The increase was related to efforts to support the launch of Spryng™.

 

Operating Loss. As a result of the foregoing, our operating loss was $3,279,526 and 1,646,025 for the nine months ended December 31, 2021 and 2020. The increase was related to the costs to support the launch of Spryng™ and the incremental public company costs.

 

Other Income (Expense). Other income was $41,294 for the nine months ended December 31, 2021 as compared to expense of $1,553,738 for the nine months ended December 31, 2020. Other income in 2021 consisted of the forgiveness of PPP Loan of $31,680 and net interest income of $9,614. Other expense in 2020 consisted primarily of derivative expense related to debt financing of $1,702,100 and interest expense of $219,539.

 

Net Loss. Our net loss for the nine months ended December 31, 2021 was $3,238,232 or ($0.38) as compared to a net loss of $ 3,199,763 or ($0.53) per share for the nine months ended December 31, 2020. The weighted average number of shares outstanding was 8,426,135 compared to 6,006,382 for the nine months ended December 31, 2021 and 2020, respectively.

 

LIQUIDITY AND CAPITAL RESOURCES

 

On August 13, 2021, we closed an underwriting public offering of 2,500,000 units, at a price of $4.50 per unit. Net proceeds from the Public Offering were approximately $9,781,000, net of commissions and expenses of the offering. As of December 31, 2021, our current assets were $8,035,394 including $7,553,738 in cash and cash equivalents. In comparison, our current liabilities as of that date were $1,106,440 including $1,069,204 of accounts payable and accrued expenses. Our working capital as of December 31, 2021 was $6,928,954.

 

The Company has continued to realize losses from operations. However, as a result of our Public Offering, we believe we will have sufficient cash to meet our anticipated operating costs and capital expenditure requirements for at least the next 12 months. We will need to raise additional capital in the future to support our efforts to commercialize Spryng™ and our ongoing operations. We expect to continue to raise additional capital through the sale of our securities from time to time for the foreseeable future to fund our business expansion. Our ability to obtain such additional capital will likely be subject to various factors, including our overall business performance and market conditions. There can be no guarantee that the Company will be successful in its ability to raise additional capital to fund its business plan.

 

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Net Cash Used in Operating Activities – We used $2,804,480 of net cash in operating activities for the nine months ended December 31, 2021. This cash used in operating activities was primarily attributable to our net loss of $3,238,232, forgiveness of PPP loan and accrued interest of $31,680, an increase in inventory of 104,965 and an increase in prepaid expenses and other assets of $44,559 partially offset by an increase in accounts payable and accrued expenses of $106,319, stock compensation expense of $432,483 and stock issued for services of $71,080.

 

Net Cash Used in Investing Activities – We used $111,062 of net cash in investing activities for the nine months ended December 31, 2021, consisting of purchase of equipment of $91,908 and costs capitalized to patents and trademarks of $19,154.

 

Net Cash Provided by Financing Activities – During the nine months ended December 31, 2021, we were provided with net cash of $10,446,702 from financing activities consisting of $10,242,912 in stock and warrants sale proceeds and a decrease in deferred offering costs of $280,163, which were partially offset by $76,373 in repayments of note payable, including those to directors and a related party.

 

Inventory

 

Inventories are stated at cost, subject to the lower of cost or net realizable value. Cost includes materials, labor, and manufacturing overhead related to the purchase and production of inventories. Net realizable value is the estimated selling price less estimated costs of completion, disposal, and transportation. We regularly review inventory quantities on hand through an inventory count.

 

At December 31, 2021, the Company’s inventory has a carrying value of $104,965 and is broken down into $8,520 of finished goods, $31,424 of work in process and $65,021 in raw material.

 

At March 31, 2021, the Company’s inventory has a carrying value of $0 and is broken down into $36,973 of finished goods inventory, $8,773 in raw material inventory, and $1,322 in packaging inventory offset by a reserve of $47,068.

 

MATERIAL COMMITMENTS

 

Note Payable and Accrued Interest

 

As of December 31, 2021, we are obligated on notes and accrued interest of $35,293.

 

OFF-BALANCE SHEET ARRANGEMENTS

 

As of December 31, 2021, and as of the date of this Quarterly Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.

 

GOING CONCERN

 

The independent auditors’ report accompanying our March 31, 2021 Form 10-K and financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. In August 2021, we raised approximately $9,781,000 from the sale of units in a Public Offering. Our working capital at December 31, 2021 was $6,895,440. We believe this working capital is sufficient to fund operations for the next twelve months (see Liquidity and Capital Resources above).

 

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CRITICAL ACCOUNTING POLICIES

 

We prepare our consolidated financial statements in accordance with generally accepted accounting standards in the United States of America. Our significant accounting policies are described in Note 1 – Summary of Significant Accounting Policies and Organizations in Part I - Item 1 Financial Statements of this 10-Q and to our consolidated financial statements attached hereto. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of the consolidated financial statements.

 

RECENTLY ISSUED ACCOUNTING STANDARDS

 

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

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

 

Not required

 

ITEM 4. CONTROLS AND PROCEDURES

 

DISCLOSURE CONTROLS AND PROCEDURES

 

Evaluation of disclosure controls and procedures.

 

We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures.

 

Based upon their evaluation of those controls and procedures performed as of December 31, 2021, the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective.

 

Changes in internal control over financial reporting.

 

There were no significant changes in our internal control over financial reporting during the quarter ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

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PART II. OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS

 

From time to time, we may become involved in legal proceedings arising in the ordinary course of our business, the resolution of which we do not anticipate would have, individually or in the aggregate, a material adverse effect on our business, financial condition or results of operations.

 

ITEM 1A. RISK FACTORS

 

The business, results of operations, financial condition, cash flow, and stock price of the Company can be affected by a number of factors, whether currently known or unknown, including but not limited to those described in Part I, Item 1A of our Annual Report on Form 10-K for the year ended March 31 2021 under the heading “Risk Factors,” any one or more of which could, directly or indirectly, cause the Company’s actual financial condition, operating results and cash flow to vary materially from past, or from anticipated future, financial condition operating results and cash flow.

 

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

 

  (a) Recent Sales of Unregistered Securities

 

From October 1, 2021 through December of 2021, the Company issued a total of 26,385 shares of common stock as follows:

 

  (i)   issued 25,585 shares of common stock to members of the Board of Directors as compensation, and
  (ii)   issued 800 shares of common stock to a provider of consulting services.

 

All of these transactions described above were exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended, as a transaction by an issuer not involving a public offering. The purchasers of securities in each of these transactions represented their intention to acquire the securities for investment only and not with a view to offer or sell, in connection with any distribution of the securities, and appropriate legends were affixed to the share certificates and instruments issued in such transactions.

 

  (ii)   Use of Proceeds from IPO

 

On August 13, 2021, we completed our Public Offering pursuant to which we issued and sold an aggregate of 2,500,000 units at the public offering price of $4.50 per unit. Each unit consisted of one share of our common stock and one warrant to purchase one share of our common stock at an exercise price of $5.625 per share. The shares of common stock and warrants were transferable separately immediately upon issuance. At the closing of the Public Offering, the underwriter exercised its over-allotment option to purchase an additional 375,000 warrants for an aggregate purchase price of $3,850.

 

The offer and sale of all of the units in our Public Offering were registered under the Securities Act pursuant to a registration statement on Form S-1, as amended (File No. 333-249452), which was declared effective by the SEC on August 10, 2021 (“Registration Statement”) . ThinkEquity, a division of Fordham Financial Management, Inc. acted as the sole book-running manager for the offering. In connection with the Public Offering, the Company’s common stock and warrants were registered under Section 12(b) of the Exchange Act and began trading on The Nasdaq Capital Market, LLC under the symbols “PETV” and “PETVW,” respectively.

 

We received aggregate gross proceeds from our Public Offering of $11,253,850 (inclusive of the underwriter’s exercise of its overallotment option to purchase warrants). After deducing underwriting discounts and commissions and other offering expenses, we received net proceeds of approximately $9,781,000 from the Public Offering.

 

As disclosed in the Registration Statement, we used a portion of the net proceeds from the Public Offering for debt repayment of $101,400 consisting of (i) $36,808 in accrued salary and expenses relating to the CEO; (ii) $20,000 in a note payables to four directors, which accrued interest at a rate of 6.5% per annum and matured in September 2021; and (iii) repayment of $44,554 in a note payable to our former Director of Science and Technology and a director, which accrued interest at a rate of 8% per annum, and maturity date of June 30, 2022.

 

There has been no material change in our intended use of proceeds from our Public Offering as described in the Prospectus filed with the SEC pursuant to Rule 424(b)(4) on August 13, 2021.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

 

Not required.

 

ITEM 4. MINE SAFETY DISCLOSURES

 

Not required.

 

ITEM 5. OTHER INFORMATION

 

None

 

32
 

 

ITEM 6. EXHIBITS

 

The following exhibits are filed as part of this Quarterly Report.

 

          Incorporated by Reference
Exhibit
No.
  Description   Filed Herewith   Form   Period
Ending
  Exhibit   Filing
Date
10.1   Employment Agreement dated November 10, 2021 by and between PetVivo Holdings, Inc. and John Lai       8-K       10.1   11-10-2021
10.2   Employment Agreement dated November 10, 2021 by and between PetVivo Holdings, Inc. and Robert J. Folkes       8-K       10.2   11-10-2021
10.3   Employment Agreement dated November 10, 2021 by and between PetVivo Holdings, Inc. and Randall Meyer       8-K       10.3   11-10-2021
10.4   Employment Agreement dated November 10, 2021 by and between PetVivo Holdings, Inc. and John Dolan       8-K       10.4   11-10-2021
31.1   Certification of Principal Executive Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002   X              
31.2   Certification of Principal Financial Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002   X              
32.1   Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X              
32.2   Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002   X              
101.ins   Inline XBRL Instance Document   X                
101.sch   Inline XBRL Taxonomy Schema   X                
101.cal   Inline XBRL Taxonomy Calculation Linkbase   X                
101.def   Inline XBRL Taxonomy Definition Linkbase   X                
101.lab   Inline XBRL Taxonomy Label Linkbase   X                
101.pre   Inline XBRL Taxonomy Presentation Linkbase   X                
104   Cover Page Interactive Data File (embedded within the Inline XBRL document)   X                

 

33
 

 

PETVIVO HOLDINGS, INC.

SIGNATURES

 

Pursuant to the requirements of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

February 10, 2022 By: /s/ John Lai
    John Lai
  Its:

CEO, President and Director

(Principal Executive Officer)

     
February 10, 2022 By: /s/ Robert J. Folkes
    Robert J. Folkes
  Its:

Chief Financial Officer

(Principal Financial and Accounting Officer)

 

34