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TABLE OF CONTENTS
This Annual Report on Form 10-K contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and are subject to the safe harbor created by those sections. For more information, see “Cautionary Statement Regarding Forward-Looking Statements.”
As used in this report, the terms “we,” “us,” “our,” “PetVivo,” and the “Company” mean PetVivo Holding Company, Inc. and our consolidated wholly-owned subsidiaries, unless the context indicates another meaning.
Except as otherwise specifically indicated, all information in this Annual Report on Form 10-K has been retroactively adjusted to give effect to a 1-for-4 reverse stock split (“Reverse Stock Split”) that was effective as of December 29, 2020.
The information contained on or connected to our website is not incorporated by reference into this report.
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Cautionary Statement Regarding Forward-Looking Information
This Annual Report of PetVivo Holdings, Inc. on Form 10-K contains forward-looking statements, particularly those identified with the words, “anticipates,” “believes,” “expects,” “plans,” “intends,” “objectives,” and similar expressions. These statements reflect management’s best judgment based on factors known at the time of such statements. The reader may find discussions containing such forward-looking statements in the material set forth under “Management’s Discussion and Analysis and Plan of Operations,” generally, and specifically therein under the captions “Liquidity and Capital Resources” as well as elsewhere in this Annual Report on Form 10-K. Actual events or results may differ materially from those discussed herein. The forward-looking statements specified in the following information have been compiled by our management on the basis of assumptions made by management and considered by management to be reasonable. Our future operating results, however, are impossible to predict and no representation, guaranty, or warranty is to be inferred from those forward-looking statements. The assumptions used for purposes of the forward-looking statements specified in the following information represent estimates of future events and are subject to uncertainty as to possible changes in economic, legislative, industry, and other circumstances. As a result, the identification and interpretation of data and other information and their use in developing and selecting assumptions from and among reasonable alternatives require the exercise of judgment. To the extent that the assumed events do not occur, the outcome may vary substantially from anticipated or projected results, and, accordingly, no opinion is expressed on the achievability of those forward-looking statements. No assurance can be given that any of the assumptions relating to the forward-looking statements specified in the following information are accurate, and we assume no obligation to update any such forward-looking statements.
PART I
ITEM 1. BUSINESS
Overview
PetVivo Holdings, Inc. (the “Company,” “PetVivo,” “we” or “us) is an emerging biomedical device company focused on the manufacturing, commercialization and licensing of innovative medical devices and therapeutics for animals. The Company has a pipeline of seventeen products for the treatment of animals. A portfolio of nineteen patents protects the Company’s biomaterials, products, production processes and methods of use. The Company began commercialization of its lead product Spryng™ with OsteoCushion™ Technology, a veterinarian-administered, intraarticular injection for the management of lameness and other joint afflictions such as osteoarthritis in dogs and horses, in the second quarter of its fiscal year ended March 31, 2022.
In August 2021, we received net proceeds of approximately $9.7 million in a registered public offering (“Public Offering”) of 2.5 million units at a 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. 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
The Company was incorporated in March 2009 under Nevada law. The Company operates as one segment from its corporate headquarters in Edina, Minnesota. For further information, see Note 1, Description of the Business, in the note to the consolidated financial statements in Part II, Item 8.
Business Description
The Company is primarily engaged in the business of commercializing and licensing products in the veterinary market to treat and/or manage afflictions of companion animals such as dogs and horses. Most of our technology was developed for human biomedical applications, and we intend to leverage the investments already expended in their development to commercialize treatments for pets in a capital and time-efficient way.
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Many of the Company’s products are derived from proprietary biomaterials that simulate a body’s cellular tissue by virtue of their reliance upon natural protein and carbohydrate compositions which incorporate such “tissue building blocks” as collagen, elastin and heparin. Since these are naturally-occurring in the body, we believe they have an enhanced biocompatibility with living tissues compared to synthetic biomaterials such as those based upon alpha-hydroxy polymers (e.g PLA, PLGA and the like) and other “natural” biomaterials that may lack the multiple proteins incorporated into our biomaterials. These proprietary protein-based biomaterials appear to mimic the body’s tissue thus allowing integration and tissue repair in long-term implantation in certain applications.
Our initial product, Spryng™ is a veterinary medical device designed to help reinforce articular cartilage tissue for the management of lameness and other joint related afflictions, such as osteoarthritis, in companion animals. Spryng™ is an intra-articular injectible product of biocompatible and insoluble particles that are slippery, wet-permeable, durable and resilient to enhance the force cushioning function of the synovial fluid and cartilage. The particles mimic natural cartilage in composition, structure and hydration. Multiple joints can be treated simultaneously. Our particles are comprised of collagen, elastin and heparin, similar components found in natural cartilage. These particles show an effectiveness to reinforce and augment the cartilage, which enhances the functionality of the joint (e.g. provide cushion or shock-absorbing features to the joint and to provide joint lubricity).
Osteoarthritis, a common inflammatory joint disease in both dogs and horses, is a chronic, progressive, degenerative joint disease that is caused by a loss of synovial fluid and/or the deterioration of joint cartilage. Osteoarthritis affects approximately 14 million dogs and 1 million horses in the $11 billion companion animal veterinary care and product sales market.
Despite the market size, veterinary clinics and hospitals have very few treatments and/or drugs for use in treating osteoarthritis in dogs, horses and other pets. As there is no cure for osteoarthritis, current solutions treat symptoms, but do not manage the cause. The current treatment for osteoarthritis in dogs generally consists of the use of nonsteroidal anti-inflammatory drugs (or “NSAIDs”) which are approved to alleviate pain and inflammation but present the potential for side effects relating to gastrointestinal, kidney and liver damage and do not halt or slow joint degeneration. The Company offers an alternative to traditional treatments that only address the symptoms of the affliction. Spryng™ with OsteoCushion™ technology addresses the affliction, loss of synovial fluid and/or the deterioration of joint cartilage, rather than treating just the symptoms and, to the best our knowledge, has elicited minimal adverse side effects in dogs and horses. Spryng™-treated dogs and horses have shown an increase in activity even after they no longer are receiving pain medication or other treatments. Other treatments for osteoarthritis include steroid and/or hyaluronic acid injections, which are used for treating pain, inflammation and/or joint lubrication, but can be slow acting and/or short lasting.
We believe Spryng™ is an optimal solution to safely improve joint function in animals for several reasons:
| ● | Spryng™ addresses the underlying problems which relate to deterioration of cartilage causing bones to contact each other and a lack of synovial fluid. Spryng™ provides a biocompatible lubricious cushion to the joint, which establishes a barrier between the bones, thereby protecting the remaining cartilage and bone. | |
| ● | Spryng™ is easily administered with the standard intra-articular injection technique. Multiple joints can be treated simultaneously. | |
| ● | Case studies indicate many dogs and horses have long-lasting multi-month improvement in lameness after having been treated with Spryng™. | |
| ● | After receiving a Spryng™ injection, many canines are able to discontinue the use of NSAID’s, eliminating the risk of negative side effects. | |
| ● | Spryng™ is an effective and economical solution for treating osteoarthritis. A single injection of Spryng™ is approximately $600 to $900 per joint and typically lasts for at least 12 months. |
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 have recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace lost prescription revenues with safe and effective products. Spryng™ is a veterinarian-administered medical device that 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.
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Spryng™ is classified as a veterinary medical device under the United States Food and Drug Administration (“FDA”) rules and pre-market approval is not required by the FDA. Spryng™ completed a safety and efficacy study in rabbits in 2007. Since that time, more than 800 horses and dogs have been treated with Spryng™. We entered into a clinical trial services agreement with Colorado State University on November 5, 2020. We expect this university clinical study to be completed in November 2023. Additionally, the Company successfully completed an equine tolerance study in March 2022 and began a canine clinical study with Ethos Veterinary Health in May of 2022 with anticipated completion in fiscal 2023. We anticipate these and other studies that we plan to initiate will be primarily used to expand our distribution outlets since the large international and national distributors generally require a third-party university study and other third-party studies prior to including a product in their catalog of products.
We commenced sales of Spryng™ in the second quarter of fiscal 2022 and plan to increase our commercialization efforts of Spryng™ in the United States through the use of sales reps, clinical studies and market awareness to educate and inform key opinion leaders on the benefits of Spryng™. We plan to support our commercialization efforts with the use of social media and other methods to educate and inform key opinion leaders and decision makers at the top distributors and high prescriber veterinarians for companion animals of the availability and benefits of Spryng™.
We have established an ISO 7 certified clean room manufacturing facility located in our Minneapolis facility using a patented and scalable self-assembly production process, which reduces the infrastructure requirements and manufacturing risks to deliver a consistent, high-quality product while being responsive to volume requirements. We recently began manufacturing commercial quantities and anticipate our ISO 7 certified facility will be able to handle projected production in units for at least the next five years.
We also have a pipeline which includes 17 therapeutic devices for both veterinary and human clinical applications. Some such devices may be regulated by the FDA or other equivalent regulatory agencies, including but not limited to the Center for Veterinary Medicine (“CVM”). 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 may establish strategic out-licensing partnerships to provide secondary revenues.
Product Pipeline
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Below is a listing of applications of our technology that we plan to commercialize or out-license to strategic partners:
Dermal Filler
Our biomaterials are constructed from purified water, protein, and carbohydrate, tailored to simulate different body tissues that biologically integrate (bio-integration). Our biomaterials can be manufactured and used as a dermal filler for wrinkle treatment by injection. These formed, gel particles fill, integrate and rejuvenate dermal skin tissue to remove the wrinkle. This product was taken through an FDA clinical trial under the name CosmetaLife®, see the results here: www.clinicaltrials.gov (NCT00414544).
Cardiovascular Devices
Our blood-compatible biomaterial, which allows blood contact and bio-integrative processes to occur without clotting, platelet attachment, or thrombogenesis, is used to repair cardiovascular tissue. VasoGraft®, a blood vessel graft made from VasoCover™ material, is designed to mimic natural blood vessel tissue in almost every respect, including the components used.
Drug Delivery
Unique fabrication techniques allow us to homogeneously distribute drug in milligram to nanogram amounts, resulting in optimum performance and manufacturing capabilities for a variety of delivery methods, such as coatings, injectables, implantables or transmucosal delivery. The first planned transmucosal product has been optimized and tested with peptide drugs with better efficacy than oral dosing via swallowing.
Orthopedic Devices
Another of our materials can be used in a variety of shapes for orthopedic and dental applications. The first products, OrthoGelic™ and OrthoMetic™, will be aimed at difficult-to-heal, non-union broken bones, by using particles to fill the empty space. The orthopedic biomaterial, made to mimic the structural components of bone, can allow integration and healing to fill in the break and exclude non-bone tissue infiltration.
Intellectual Property
Our intellectual property portfolio is comprised of patents, patent applications, trademarks and trade secrets. We have ten issued United States Patents. In addition to the United States patent portfolio we also have eight patents granted in key markets around the world including Canada, Australia and countries within the European Union.
We believe we have developed a broad and deep patent portfolio around our biomaterials and manufacturing processes in addition to the application of these biomaterials for use as medical devices, medical device coatings and pharmaceutical delivery devices. The Company secures other technological know-how by trade secret law and also possesses several trademarks that are either registered or protected pursuant to trademark common law.
United States Patents:
| ● | 10,967,104 – Encapsulated or Coated Stent Systems | |
| ● | 10,850,006 – Protein Biomaterials and Bioacervates and Methods of Making and Using Thereof | |
| ● | 10,744,236 – Protein Biomaterial and Biocoacervate Vessel Graft Systems and Methods of Making and Using Thereof | |
| ● | 10,016,534 – Protein Biomaterial and Biocoacervate Vessel Graft Systems and Methods of Making and Using Thereof | |
| ● | 9,999,705 – Protein Biomaterials and Bioacervates and Methods of Making and Using Thereof | |
| ● | 9,107,937 – Wound Treatments with Crosslinked Protein Amorphous Biomaterials | |
| ● | 8,623,393 – Biomatrix Structural Containment and Fixation Systems and Methods of Use Thereof | |
| ● | 8,529,939 – Mucoadhesive Drug Delivery Devices and Methods of Making and Using Thereof | |
| ● | 8,465,537 – Encapsulated or Coated Stent Systems | |
| ● | 8,153,591 – Protein Biomaterials and Biocoacervates and Methods of Making and Using Thereof |
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8 Foreign Patents Granted & Allowed
7 Patent Apps Pending (US & Foreign)
To maximize the strength and value of our patent portfolio, many of the claims use the transitional term “comprising”, which is synonymous with “including,” This use of transitional language is inclusive or open-ended and does not exclude additional, unrecited elements or method steps. Our patents also include method claims covering many of the applications and uses of the biomaterials as medical devices and drug delivery systems. We believe our intellectual property portfolio strongly protects our proprietary technology, including the composition of raw elements used to produce our formulations, the fabricated biomaterials and their application in end products, thereby making our material and devices much more attractive to industry partners.
We will seek to protect our products and technologies through a combination of patents, regulatory exclusivity, and proprietary know-how. Our goal is to obtain, maintain and enforce patent protection for our products, formulations, processes, methods and other proprietary technologies, preserve our trade secrets, and operate without infringing on the proprietary rights of other parties, both in the United States and in other countries. Our policy is to actively seek to obtain, where appropriate, the broadest intellectual property protection possible for our current compounds and any future compounds developed. We also strenuously protect our proprietary information and proprietary technology through a combination of contractual arrangements, trade secrets and patents, both in the United States and abroad. However, even patent protection may not always afford us with complete protection against competitors who seek to circumvent our patents.
We depend upon the skills, knowledge and experience of our scientific and technical personnel, including those of our company, as well as that of our advisors, consultants and other contractors, none of which is patentable. To help protect our proprietary know-how, which may not be patentable, and inventions for which patents may be difficult to obtain or enforce, we rely on trade secret protection and confidentiality agreements to protect our interests. To this end, we generally require all of our employees, consultants, advisors and other contractors to enter into confidentiality agreements that prohibit disclosure of confidential information and, where applicable, require disclosure and assignment of ownership to us the ideas, developments, discoveries and inventions important to our business.
Companion Animal Market
Over the last several decades, we believe the animal health market and industry has a strong component in the overall U.S. economy and is more resistant to economic cycles. The veterinary sector is as an attractive area to participate in the growth of the broader healthcare industry without reimbursement risk. The American Pet Products Association (APPA) 2021-2022 National Pet Owners Survey indicates that $123.6 billion was spent on pets in the U. S. in 2021. Vet Care and product sales constitutes about $34.3 billion of the market. The growth in the U.S. companion animal market has been continuing to increase due to the increase in the number of pet-owning households.
The APPA 2021-2022 National Pet Owners Survey indicates U.S. pet ownership reached record levels in 2022. Specifically, 70% of all U.S. households owned a pet in 2022. That’s 90.5 million pet-owning households, up from 84.6 million in 2018. In 2022, dogs and cats were the most popular pet species, owned by 69% and 45% of U.S. households, respectively. APPA also reported that there were 69.0 million dogs and 45.3 million cats in the U.S. APPA reported that 3.5% of U.S. households owned horses in 2022. According to the American Horse Council, the total number of horses owned by U.S. households was 7.2 million.
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Osteoarthritis Market
Osteoarthritis, the most common inflammatory joint disease in both dogs and horses, is a progressive condition that is caused by a deterioration of joint cartilage. Over time, the joint cartilage deterioration creates joint stiffness from mechanical stress resulting in inflammation, pain and loss of range of motion, which may be referred to as lameness. Osteoarthritis joint stiffness and lameness worsens with time from gradual cartilage degeneration and an ongoing loss of protective cushion and lubricity (i.e., loss of slippery padding). As there is no cure for osteoarthritis, the various treatment methods are focused on managing the related symptoms of pain and inflammation. Veterinarians recommend several treatments depending on the severity of the disease, including a combination of rest, weight loss, physical rehabilitation, and a regimen of pain and anti-inflammatory drugs (NSAIDs). Non-steroidal anti-inflammatory drugs (NSAIDs) are used to alleviate the pain and inflammation caused by OA, but long-term NSAIDs cause gastric problems. Moreover, NSAIDs do not treat the cartilage degeneration issue to halt or slow progression of the OA condition.
The Morris Animal Foundation estimates that OA effects approximately 14 million adult dogs in the U.S. and owners consistently report it as a top concern.
Horse Osteoarthritis (Lameness)
Equine osteoarthritis is the most common cause of lameness in horses. Equine OA is expensive to manage, with estimated annual costs as high as $10,000-15,000 per horse to diagnose, treat, and medicate, researchers found in one study as referenced in the Horse – Equine Monthly.
As noted previously, the American Horse Council reported the total number of horses owned by U.S. households was 7.2 million. According to an annual National Equine Health Survey conducted in collaboration with the British Equine Veterinary Association in 2016, 26% of horses suffered from lameness. As referenced in the Horse – Equine Monthly (June 2020), studies show 60% of all lameness issues are related to OA. Based on the above assumptions we calculate that there are approximately 1.1 million horses suffering from OA.
Distribution
Most U.S. veterinarians buy a majority of their equipment and supplies from a preferred distributor. More than 75% of veterinarians name Covetrus North America/Butler Schein Animal Health, Inc., Patterson Veterinary, MWI, Midwest Veterinary Supply, Inc. or Victor Medical Company as their preferred distributor. Combined, these top-tier distributors sell more than 85%, by revenue, of the products sold to companion animal veterinarians in the U.S. Covetrus, Patterson and MWI are recognized by manufacturers, distributors and veterinarians as the pre-eminent national companion animal veterinary supply distributors in the US. There are no other distributors that provide equivalent levels of service to manufacturers and regularly visit veterinarians in as wide a geographic area as Covetrus, Patterson or MWI. Midwest and Victor are large, regional distributors. The above data in this paragraph was sourced from File No. 101 0023 at the U.S. Federal Trade Commission.
We plan to have our product distribution leverage the existing supply chain and veterinary clinic and clinician relationships already established by these large distributors. We intend to support and supplement this distribution channel with regional business development & training representatives. We plan to have our business development representatives provide product training to distribution representatives, veterinarians and other veterinary staff. In addition, we intend to have our representatives and veterinarian partners exhibit at key veterinary conferences as well as support ongoing case studies. All of these sales, distribution, marketing and education efforts will also be supported by both veterinarian and pet owner product education and treatment awareness campaigns that will be conducted utilizing a variety of digital media tools. The unique nature and the anticipated benefits provided by our Spryng™ product are expected to generate significant consumer response.
Particle Devices
Orthopedic Joint Treatments
Our lead product, Spryng™, is a treatment for joint pain, which is made of injected, protein-based, biocompatible particles. In vivo studies indicate that the biocompatible particle device can easily be combined with synovial fluid in a rabbit knee to form a joint cushion, buffering the adjacent bones/cartilage where no damage was caused to the cartilage from replacing the synovial fluid. The particles show an effectiveness to augment and reinforce the tissue, cartilage, ligaments and/or bone and/or enhance the functionality of the joint (e.g. reinforce deteriorated components present in the joint to provide cushion or shock-absorbing features to the joint and to provide joint lubricity).
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We retained AppTec Laboratories, an independent research organization, to conduct a gel-particle rabbit study in New Zealand in 2007. In this study, six white rabbits (6) were injected in both stifle joints (knees) to fill but not extend the synovial space (~0.5 cc GDP/site). Rabbits were tested every other day for abnormal clinical signs including range of motion and joint observations until sacrifice. Behavioral testing revealed no abnormal scores for range of motion, withdrawal response, or joint observations (all animals were 100% normal). At one week and at four weeks the animals were sacrificed. AppTec pathologists evaluated knee joint histology. The reported cartilage surfaces of the femoral and tibia condyles and the menisci were grossly and histologically 100% normal for all animals and test sites. The test particles were found in all of the injection sites.
The test particle did not cause changes in the articular cartilage of the femur or tibia when injected into the stifle joint of rabbits. The test article and control rabbit knees were not different for either 1 or 4-week time points for all histological measurements. In conclusion, the particles do not cause inflammation or damage to knee joint and will stick to exposed tissues and biologically integrate with those tissues. The particles were not found to stick to articular cartilage in any sample.
Regenerative Characteristics
The particle devices for joint injections have been extensively studied for a broad range of applications including the treatment of wrinkles as dermal filler. Here is an overview of the pre-clinical and clinical studies completed for CosmetaLife, which is the name used for the particle device when it was used as a dermal filler.
CosmetaLife is an easy-to-inject, water-protein-based dermal filler that not only fills nasolabial wrinkle depressions but also helps rejuvenate the dermal tissues, counteracting damage that causes wrinkles. The dermal cells are attracted to the CosmetaLife gel-particles, attach to them, and then slowly replace them with natural dermal material (extracellular matrix). The natural biological replacement process of CosmetaLife to collagen is estimated to take 6-12 months. CosmetaLife clinical trial on nasolabial folds supports this estimate.
CosmetaLife injections allow the body to create more natural dermal structure in and around every particle. Enhancing the natural process of dermal tissue construction with CosmetaLife allows for long-term dermal contouring, corrections, and rejuvenation with little to no adverse side effects noted in clinical trials.
Particle Device Clinical Studies
The Company has conducted several biocompatibility animal studies. In the implantation study, no abnormal clinical signs were noted for any of the rabbits. The results of the sensitization study in guinea pigs showed a sensitization response equivalent to the negative controls.
A Food and Drug Administration (FDA) IDE approved pivotal human clinical trial began with CosmetaLife late in 2006. The clinical trial was a randomized, double-blind, parallel assignment, multi-center comparison of the safety and efficacy of CosmetaLife versus Restylane® (Control) for the correction of nasolabial folds. One hundred seventy-one patients were skin tested and 145 were treated at six trial sites. The number of study exits after treatment totaled four subjects. This clinical trial was reported and published at www.clinicaltrials.gov (NCT00414544).
The feedback from physician investigators was positive with respect to CosmetaLife injection qualities, cosmetic appearance, and its feel to the touch. During the first three to four months of the study, CosmetaLife showed no decrease in efficacy, as compared to Restylane that showed an 11 percent decrease in efficacy. The FDA/IDE approved human clinical trial for the CosmetaLife product through twelve months was found to be the same as compared to control hyaluronic acid product, Restylane (for each interval the consensus of the blinded subjects tested preferred CosmetaLife or showed no preference at 3, 6, 9 and 12 months).
We use existing, scalable processes to reduce the infrastructure requirements and manufacturing risks to deliver a consistent, high-quality product while being responsive to volume requirements. We are able to scale the manufacturing process having made batches in up to 2.0-kilogram quantities to near GMP (Good Manufacturing Practices) standards.
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Particles Safety Study
Patients injected with CosmetaLife were found to have no or mild inflammatory, irritation, or immunogenic responses. These results suggest the particles are biocompatible because it closely matches the skin structure, composition, and moisture content. The no-to-low immunogenic responses are attributed to the tight cross-linking of the CosmetaLife matrix, which prevents immunogenic progenitor cells from producing antibodies to the matrix.
In the clinical trial, the incidence of possible reaction to a skin test was 2.55 percent, with only one subject showing a reaction to a second test or 0.6%, (1 out of 171). We also have a study report by AppTec, Inc., our Contract Research Organization, that [CosmetaLife] did not produce an antibody response during the clinical trial further supporting our belief that it is safe to use.
CosmetaLife is composed of materials that approximately meet the Generally Regarded As Safe (GRAS) requirements of the FDA. CosmetaLife contains materials from certified bovine and porcine tissue sources that do not harbor prion disease or BSE. Additionally, steps in the manufacturing process have been validated for deactivating all viruses.
Extrusion force testing and the Clinical Trial usage both demonstrate the consistent and easy injection of CosmetaLife. Twenty-five month stability testing shows that CosmetaLife is stable at room temperature conditions. Moreover, CosmetaLife has been shown to be stable at 40 °C (104 °F) conditions for at least 3 months.
Competition
The development and commercialization of new animal health medicines is highly competitive, and we expect considerable competition from major pharmaceutical, biotechnology and specialty animal health medicines companies. As a result, there are, and likely will continue to be, extensive research and substantial financial resources invested in the discovery and development of new animal health medicines. Our potential competitors include large animal health companies, such as Zoetis, Inc.; Merck Animal Health, the animal health division of Merck & Co., Inc.; Merial, the animal health division of Sanofi S.A.; Elanco, the animal health division of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; NAH, the animal health division of Novartis AG; Boehringer Ingelheim Animal Health, the animal health division of Boehringer Ingelheim GmbH; Virbac Group; Ceva Animal Health; Vetoquinol and Dechra Pharmaceuticals PLC. We are also aware of several smaller early stage animal health companies, such as Kindred Bio, Aratana Therapeutics Inc. (recently acquired by Elanco), NextVet and VetDC that are developing products for use in the pet therapeutics market.
Regulation – Human and Veterinary Use
Our lead product, Spryng™ and a number of the medical devices that we may manufacture for veterinary applications and human applications, are subject to regulation by numerous regulatory bodies, including the FDA and comparable international regulatory agencies. These agencies require manufacturers of medical devices to comply with applicable laws and regulations governing the development, testing, manufacturing, labeling, marketing and distribution of medical devices. Medical devices are generally subject to varying levels of regulatory control, the most comprehensive of which requires that a clinical evaluation program be conducted before a device receives approval for commercial distribution.
In the EU, medical devices are required to comply with the Medical Devices Directive and obtain CE Mark certification in order to market medical devices. The CE Mark certification, granted following approval from an independent Notified Body, is an international symbol of adherence to quality assurance standards and compliance with applicable European Medical Devices Directives. Distributors of medical devices may also be required to comply with other foreign regulations such as Ministry of Health Labor and Welfare approval in Japan. The time required to obtain these foreign approvals to market our products may be longer or shorter than that required in the U.S., and requirements for those approvals may differ from those required by the FDA. In Europe, our devices are classified as Class IIa or IIb, and will need to conform to the Medical Devices Directive.
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In the U.S., specific permission from the FDA to distribute a new device is usually required (that is, other than in the case of very low risk devices), and we expect that some form of marketing authorization will be necessary for our devices. Marketing authorization is generally sought and obtained in one of two ways. The first process requires that a pre-market notification (510(k) Submission) be made to the FDA to demonstrate that the device is as safe and effective as, or “substantially equivalent” to, a legally-marketed device that is not subject to pre-market approval (“PMA”). A legally-marketed device is a device that (i) was legally marketed prior to May 28, 1976, (ii) has been reclassified from Class III to Class II or I, or (iii) has been found to be substantially equivalent to another legally-marketed device following a 510(k) Submission. The legally-marketed device to which equivalence is drawn is known as the “predicate” device. Applicants must submit descriptive data and, when necessary, performance data to establish that the device is substantially equivalent to a predicate device. In some instances, data from human clinical studies must also be submitted in support of a 510(k) Submission. If so, these data must be collected in a manner that conforms with specific requirements in accordance with federal regulations including the Investigational Device Exemption (IDE) and human subjects protections or “Good Clinical Practice” regulations. After the 510(k) application is submitted, the applicant cannot market the device unless FDA issues “510(k) clearance” deeming the device substantially equivalent. After an applicant has obtained clearance, the changes to existing devices covered by a 510(k) Submission which do not significantly affect safety or effectiveness can generally be made without additional 510(k) Submissions, but evaluation of whether a new 510(k) is needed is a complex regulatory issue, and changes must be evaluated on an ongoing basis to determine whether a proposed change triggers the need for a new 510(k), or even PMA. The 510(k) clearance pathway is not available for all devices: whether it is a suitable path to market depends on several factors, including regulatory classifications, the intended use of the device, and technical and risk-related issues for the device.
The second, more rigorous, process requires that an application for PMA be made to the FDA to demonstrate that the device is safe and effective for its intended use as manufactured. This approval process applies to most Class III devices. A PMA submission includes data regarding design, materials, bench and animal testing, and human clinical data for the medical device. Again, clinical trials are subject to extensive FDA regulation. Following completion of clinical trials and submission of a PMA, the FDA will authorize commercial distribution if it determines there is reasonable assurance that the medical device is safe and effective for its intended purpose. This determination is based on the benefit outweighing the risk for the population intended to be treated with the device. This process is much more detailed, time-consuming, and expensive than the 510(k) process. Also, FDA may impose a variety of conditions on the approval of a PMA.
Both before and after a device for the U.S. market is commercially released, we would have ongoing responsibilities under FDA regulations. The FDA reviews design and manufacturing practices, labeling and record keeping, and manufacturers’ required reports of adverse experiences and other information to identify potential problems with marketed medical devices. We would also be subject to periodic inspection by the FDA for compliance with the FDA’s quality system regulations, which govern the methods used in, and the facilities and controls used for, the design, manufacture, packaging, and servicing of all finished medical devices intended for human use. In addition, the FDA and other U.S. regulatory bodies (including the Federal Trade Commission, the Office of the Inspector General of the Department of Health and Human Services, the Department of Justice (DOJ), and various state Attorneys General) monitor the manner in which we promote and advertise our products. Although physicians are permitted to use their medical judgment to employ medical devices for indications other than those cleared or approved by the FDA, we are prohibited from promoting products for such “off-label” uses and can only market our products for cleared or approved uses. If the FDA were to conclude that we are not in compliance with applicable laws or regulations, or that any of our medical devices are ineffective or pose an unreasonable health risk, the FDA could require us to notify health professionals and others that the devices present unreasonable risks of substantial harm to the public health, order a recall, repair, replacement, or refund of such devices, detain or seize adulterated or misbranded medical devices, or ban such medical devices. The FDA may also impose operating restrictions, enjoin and/or restrain certain conduct resulting in violations of applicable law pertaining to medical devices, including a hold on approving new devices until issues are resolved to its satisfaction, and assess civil or criminal penalties against our officers, employees, or us. The FDA may also recommend prosecution to the DOJ. Conduct giving rise to civil or criminal penalties may also form the basis for private civil litigation by third-party payers or other persons allegedly harmed by our conduct.
The delivery of our devices in the U.S. market would be subject to regulation by the U.S. Department of Health and Human Services and comparable state agencies responsible for reimbursement and regulation of health care items and services. U.S. laws and regulations are imposed primarily in connection with the Medicare and Medicaid programs, as well as the government’s interest in regulating the quality and cost of health care.
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The process of obtaining clearance to market products is costly and time-consuming in virtually all of the major markets in which we expect to sell products and may delay the marketing and sale of our products. Countries around the world have recently adopted more stringent regulatory requirements, which are expected to add to the delays and uncertainties associated with new product releases, as well as the clinical and regulatory costs of supporting those releases. No assurance can be given that any of our other medical devices will be approved on a timely basis, if at all. In addition, regulations regarding the development, manufacture and sale of medical devices are subject to future change. We cannot predict what impact, if any, those changes might have on our business. Failure to comply with regulatory requirements could have a material adverse effect on our business, financial condition and results of operations.
Pertaining to our Spryng™ product (offered for veterinary use only), in the U.S., the FDA does not require submission of a 510(k), PMA, or any pre-market approval for devices used in veterinary medicine. Device manufacturers who exclusively manufacture or distribute veterinary devices are not required to register their establishments and list veterinary devices and are exempt from post-marketing reporting. The FDA does have regulatory oversight over veterinary devices and can take appropriate regulatory action if a veterinary device is misbranded or adulterated. It is the responsibility of the manufacturer and/or distributor of these articles to assure that these animal devices are safe, effective, and properly labeled.
Exported devices are subject to the regulatory requirements of each country to which the device is exported. Some countries do not have medical device regulations, but in most foreign countries medical devices are regulated. Frequently, medical device companies may choose to seek and obtain regulatory approval of a device in a foreign country prior to application in the U.S. given the differing regulatory requirements. However, this does not ensure approval of a device in the U.S.
Research and Development
The Company is currently pursuing advancements in the composition, methods of manufacture and use for its proprietary biomaterials. It is anticipated that within the next twelve months the Company will pursue additional third-party studies related to the use of Spryng™ for the treatment of osteoarthritis in canine and equine patients. The Company also anticipates that resources will be expended to advance and improve the manufacturing systems for Spryng™ that will increase product volume and overall efficiency. Finally, the Company anticipates that research and testing will be conducted in the next eighteen months involving the existing Spryng™ formulation and other variations to identify and determine the next commercial product(s) that may be administered to the digital cushion of horses for the treatment of navicular disease.
Employees and Human Capital
As of June 28, 2022, we had 15 employees. We also engage outside consultants to assist with research and development, clinical development and regulatory matters, investor relations, operations, and other functions from time to time.
The Company believes that its success depends on the ability to attract, develop, and retain key personnel. It also believes that the skills, experience, and industry knowledge of its employees significantly benefits its operations and performance. The Company believes that it offers competitive compensation and other means of attracting and retaining key personnel. None of our employees are represented by a labor union and we believe that our relationships with our employees are good.
Insurance
We currently maintain a “life science” commercial insurance policy with coverage in the amount of $5 million for our products and operations. The policy has been designed for those engaged in the life science business. We may face claims in excess of the limits of such insurance. As well, claims made against us may fall outside of our coverage. The policy is a “claims made” policy. Thus, our coverage must be maintained at the time a claim is made for us to be entitled to seek coverage from the issuer of the policy for such claims.
Available Information
The Company files annual, quarterly and current reports, proxy statements and all amendments to these reports and other information with the SEC. The Company makes available free-of-charge, on or through its website at http://www.petvivo.com, the Company’s Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, proxy statements and all amendments to those filings, as soon as reasonably practicable after such material is electronically filed with or furnished to the SEC. The information on the Company’s website is not incorporated by reference in this Annual Report on Form 10-K. Reports, proxy statements and other information regarding issuers that file electronically with the SEC, including the Company’s filings, are also available to the public from the SEC’s website at http://www.sec.gov.
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ITEM 1A. RISK FACTORS
An investment in our common stock and warrants involves a high degree of risk. You should carefully consider the following described risks together with all other information included in this prospectus before making an investment decision with regard to this offering. If one or more of the following risks occurs, our business, financial condition, and results of operations uld be materially harmed, which most likely would result in a decline in the trading price of our common stock and warrants and investors losing part or even all of their investment.
Risks Relating to Our Financial Condition
We have incurred substantial losses to date and could continue to incur such losses.
We have incurred substantial losses since commencing our current business. For the year ended March 31, 2022, we lost approximately $5 million without obtaining any significant commercial revenues and had an accumulated deficit of approximately $63 million. In order to achieve and sustain future revenues, we must succeed in our current efforts to commercialize Spryng™ for treatment of dogs and horses suffering from osteoarthritis. That will require us to produce our products effectively in commercial quantities, establish adequate sales and marketing systems, conduct clinical trials and tests which show the safety and efficacy of Spryng™ in dogs and horses and gain significant support from veterinarians in the use of our products. We expect to continue to incur losses until such time, if ever, as we succeed in significantly increasing our revenues and cash flow beyond what is necessary to fund our ongoing operations and pay our obligations as they become due. We may never generate revenues sufficient to become profitable or to sustain profitability.
If we are unable to obtain sufficient funding, we may have to reduce materially or even discontinue our business.
As of March 31, 2022, we had cash or cash equivalents of $6.1 million. We anticipate that our cash on hand will be adequate to satisfy operational and capital requirements for the next ten months. If we are unable to realize substantial revenues in the near future, we will need to seek additional financing beyond this ten month period to continue our operations. We also most likely will require additional financing to develop additional new products or to expand into foreign markets. Accordingly, our ability to commercialize Spryng™ and other products may be dependent on our receipt of the net proceeds from our future financings
Along with establishing effective production, marketing, sales, and distribution of Spryng™ and other products, we believe that our future capital requirements depend upon the timing and costs of many factors with some of them beyond our control, including our ability to establish an adequate base of veterinarian clinics using our products, costs in obtaining patents and any required regulatory approvals for future products, costs of any future target animal studies, costs related to new product development, costs of finished product inventory, expenses to attract and retain skilled personnel as needed, increased costs related to being a listed public company, and the costs of any future acquisitions of existing companies or IP technologies. There is no assurance that future additional capital will be available to us as needed, or if available upon terms acceptable to us.
Risks Relating to Our Business and Industry
We have no operating history upon which to base an evaluation of our prospects.
We have had no material commercial operations, since our primary efforts and resources have been directed toward acquiring our technology to produce and sell proprietary products for the animal market. Our lack of an operating history makes an evaluation of our business and prospects very difficult. Our prospects must be considered speculative, especially considering the risks, expenses and difficulties frequently encountered in the establishment of an early-stage company. Our ability to operate our business successfully remains unknown and untested. If we cannot commercialize our products effectively, or are significantly delayed or limited in doing so, our business and operations will be harmed substantially, and we may even need to cease operations.
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We are substantially dependent upon the success of Spryng™ and any failure of Spryng™ to achieve market acceptance would harm us significantly.
Our recent efforts and financial resources have primarily been directed toward commercialization of
Spryng™ for the treatment of dogs and horses suffering from osteoarthritis. Accordingly, our prospects rely heavily on the successful launch and follow-up marketing of this products. In addition to establishing effective production, marketing, sales, distribution and training for the use of Spryng™, we believe its successful commercialization will depend on other material factors including our ability to educate and convince veterinarians and pet owners about the benefits, safety and effectiveness of Spryng™, the occurrence and severity of any side effects to pets from use of our products, maintaining regulatory compliance and effective quality control for our products, our ability to maintain and enforce our patents and other intellectual property rights, any increased manufacturing costs from third-party contractors or suppliers, and the availability, cost and effectiveness of treatments offered by competitors.
Our products will face significant competition in our industry, and our failure to compete effectively may prevent us from achieving any significant market penetration.
The development and commercialization of animal care products is highly competitive, including significant competition from major pharmaceutical, biotechnology, and specialty animal health medical companies. Our competitors include Zoetis, Inc.; Merck Animal Health, the animal health division of Merck & Co., Inc.; Merial, the animal health division of Sanofi, S.A.; Elanco, the animal health division of Eli Lilly and Company; Bayer Animal Health, the animal health division of Bayer AG; Novartis Animal Health, the animal health division of Novartis AG; Boehringer Ingelheim Animal Health; Virbac Group; Ceva Animal Health; Vetaquinol; and Dechra Pharmaceuticals PLC. There also are several smaller stage animal health companies which have recently emerged in our industry and are developing therapeutics products that may compete with our products, including Kindred Bio, Aratana Therapeutics, Next Vet, and VetDC.
Since we are an early-stage company with limited operations and financing, virtually all our competitors have substantially more financial, technical and personnel resources than us. Most of them also have established brands and substantial experience in the development, production, regulation and commercialization of animal health care products. Regarding our development of any new products or technology, we also compete with academic institutions, governmental agencies and private organizations that conduct research in the field of animal health medicines. We expect that competition in our industry is based on several factors including primarily product reliability and effectiveness, product pricing, product branding, adequate patent and other IP protection, safety of use, and product availability.
Although for the foreseeable future, our efforts and financial resources will continue to focus on successfully commercializing Spryng™, our future business strategy plan includes the identification of additional animal care products we may license, acquire or develop, and then commercializing such products into a branded product portfolio along with Spryng™. Even if we successfully license, acquire or develop such animal care products from our proprietary technology, or acquire any such new products, we may still fail to commercialize them successfully for various reasons, including competitors offering alternative products which are more effective than ours, our discovery of third-party IP rights already covering the products, harmful side effects caused to animals by the products, inability to produce products in commercial quantities at an acceptable cost, or the products not being accepted by veterinarians and pet owners as being safe or effective. If we fail to successfully obtain and commercialize future new animal care products, our business and prospects may be harmed substantially.
We will rely on third-parties to conduct studies of our current and new products, and if these third parties do not successfully perform their contracted commitments effectively or substantially fail to meet expected study deadlines, we could be delayed from effectively commercializing our future products.
We entered into canine clinical study agreements with Colorado State University on November 25, 2020 and Ethos Veterinary Health in May of 2022. In the future, we may engage other third parties to conduct studies of Spryng™ and other products to be introduced by us. We expect to have limited control over the timing and resources that such third parties will devote to the studies. Although we must rely on the third parties to conduct our studies, we remain responsible for ensuring any of our studies are conducted in compliance with protocols, regulations and standards set by industry regulatory authorities and commonly referred to as current good clinical practices (“cGCPs”) and good laboratory practices (“GLPs”). These required clinical and laboratory practices include many items regarding the conducting, monitoring, recording and reporting the results of target animal studies to ensure that the data and results of these studies are objective and scientifically credible and accurate.
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Our success is highly dependent on the clinical advancement of our products and adverse results in clinical trials and other studies could prevent us from effectively commercializing our future products
There can be no assurance that clinical trials or studies of Spryng™ and our other products will demonstrate the safety and efficacy of such products in a statistically significant manner. Failure to show efficacy or adverse results in clinical trials or studies could significantly harm our business. While some clinical trials and studies of our product candidates may show indications of safety and efficacy, there can be no assurance that these results will be confirmed in subsequent clinical trials or studies or provide a sufficient basis for regulatory approval, if required. In addition, side effects observed in clinical trials or studies, or other side effects that appear in later clinical trials or studies, may adversely affect our or our distributors’ ability to market and commercialize our products.
Our operations will rely on third parties to produce our raw materials to produce our products.
We will rely on independent third parties to produce the raw materials (e.g. collagen, elastin and heparin) that we use to produce our Spryng™ products. As such, we will be dependent upon their services and will not be in a position to control their operations as we might if we directly produced these raw materials. While we believe the raw materials used to manufacture Spryng™ products are readily available and can be obtained from multiple reliable sources on a timely basis, circumstances outside our control may impair our ability to have an adequate supply of raw materials to produce our Spryng™ products.
If we experience the rapid commercial growth we anticipate, we may not be able to manage such growth effectively.
We contemplate rapid growth for our business as we bring our Spryng™ products to market and anticipate that will place significant new demands on our management and our operational and financial resources. Our organizational structure will become more complex as we add additional personnel, and we would likely require more financial and staff resources to support and continue our growth. If we are unable to manage our growth effectively, our business, financial condition and results of operations may be materially harmed.
We have a limited marketing and sales organization, and if our current marketing and sales personnel are insufficient or inadequate to support the current introduction of our Spryng™ products, we may not be able to sell these products in quantities to become commercially successful.
We have a limited marketing and sales organization, and we have minimal prior experience in the marketing, sale and distribution of pet care products. There are significant risks involved in our building and managing an effective sales organization, including our ability to hire, adequately train, maintain and motivate qualified individuals, generate sufficient sales leads and other contacts, and establish effective product distribution channels. Any failure or substantial delay in the development of our internal sales, marketing and distribution capabilities would adversely impact our business and financial condition.
Our business will depend significantly on the sufficiency and effectiveness of our marketing and product promotional programs and incentives.
Due to the highly competitive nature of our industry, we must effectively and efficiently promote and market our products through internet, television and print advertising, social media, and through trade promotions and other incentives to sustain and improve our competitive position in our market. Moreover, from time to time we may have to change our marketing strategies and spending allocations based on responses from our veterinarian customers and pet owners. If our marketing, advertising and trade promotions are not successful to create and sustain consistent revenue growth or fail to respond to marketing strategy changes in our industry, our business, financial condition and results of operations may be adversely affected.
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Any damage to our reputation or our brand may materially harm our business.
Developing, maintaining and expanding our reputation and brand with veterinarians, pet owners and others will be critical to our success. Our brand may suffer if our marketing plans or product initiatives are unsuccessful. The importance of our brand and demand for our products may decrease if competitors offer products with benefits similar to or as effective as our products and at lower costs to consumers. Although we maintain procedures to ensure the quality, safety and integrity of our products and their production processes, we may be unable to detect or prevent product and/or ingredient quality issues such as contamination or deviations from our established procedures. If any of our products cause injury to animals, we may incur material expenses for product recalls, and may be subject to product liability claims, which could damage our reputation and brand substantially.
If we fail to attract and retain qualified management and key scientific personnel, we may be unable to successfully commercialize our current products or develop new products effectively.
Our success will significantly be dependent upon our current management and key scientific technicians, and also on our ability to attract, retain and motivate future management and employees. We are highly dependent upon our current management and technology personnel, and the loss of the services of any of them could delay or prevent the successful commercialization or development of current or future products. Competition to obtain qualified personnel in the animal health field is intense due to the limited number of individuals possessing the skills and experience required by our industry. We may not be able to attract or retain qualified personnel as needed on acceptable terms, or at all, which would harm our business and operations.
Natural disasters and other events beyond our control could materially adversely affect us.
Natural disasters or other catastrophic events may cause damage or disruption to our operations, international commerce and the global economy, and thus could have a strong negative effect on us. Our business operations are subject to interruption by natural disasters, fire, power shortages, pandemics (including the ongoing Coronavirus (COVID-19) epidemic) and other events beyond our control. Although we maintain crisis management and disaster response plans, such events could make it difficult or impossible for us to deliver our services to our customers, and could decrease demand for our services.
Risks relating to Manufacturing
We may not be able to manage our manufacturing and supply chain effectively, which would harm our results of operations.
We must accurately forecast demand for our products in order to have adequate product inventory available to fill customer orders timely. Our forecasts will be based on multiple assumptions that may cause our estimates to be inaccurate, and thus affect our ability to ensure adequate manufacturing capability to satisfy product demand. Any material delay in our ability to obtain timely product inventories from our manufacturing facility and our ingredient suppliers could prevent us from satisfying increased consumer demand for our products, resulting in material harm to our brand and business. In addition, we will need to continuously monitor our inventory and product mix against forecasted demand to avoid having inadequate product inventory or having too much product inventory on hand. If we are unable to manage our supply chain effectively, our operating costs may increase materially.
Risks relating to our Intellectual Property
Failure to protect our intellectual property could harm our competitive position or cause us to incur significant expenses and personnel resources to enforce our rights.
Our success will depend significantly upon our ability to protect our intellectual property (“IP”) rights, including patents, trademarks, trade secrets, and process know-how, which valuable assets support our brand and the perception of our products. We rely on patent, trademark, trade secret and other intellectual property laws, as well as non-disclosure and confidentiality agreements to protect our intellectual property. Our non-disclosure and confidentiality agreements may not always effectively prevent disclosure of our proprietary IP rights, and may not provide an adequate remedy in the event of an unauthorized disclosure of such information, which could harm our competitive position. We also may need to engage in costly litigation to enforce or protect our patent or other proprietary IP rights, or to determine the validity and scope of proprietary rights of others. Any such litigation could require us to expend significant financial resources and also divert the efforts and attention of our management and other personnel from our ongoing business operations. If we fail to protect our intellectual property, our business, brand, financial condition and results of operations may be materially harmed.
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We may be subject to intellectual property infringement claims, which could result in substantial damages and diversion of the efforts and attention of our management.
We must respect prevailing third-party intellectual property, and the procedures and steps we take to prevent our misappropriation, infringement or other violation of the intellectual property of others may not be successful. If third parties assert infringement claims against us, our suppliers, or veterinarians using our products and technology, we could be required to expend substantial financial and personnel resources to respond to and litigate or settle any such third-party claims. Although we believe our patents, manufacturing processes and products do not infringe in any material respect on the intellectual property rights of other parties, we could be found to infringe on such proprietary rights of others. Any claims that our products, processes or technology infringe on third-party rights, regardless of their merit or resolution could be very costly to us and also materially divert the efforts and attention of our management and technical personnel. Any adverse outcome to us from one or more such claims against us could, among other things, require us to pay substantial damages, to cease the sale of our products, to discontinue our use of any infringing processes or technology, to expend substantial resources to develop non-infringing products or technology, or to license technology from the infringed party. If one or more of such adverse outcomes occur, our ability to compete could be affected significantly and our business, financial condition and results of operations could be harmed substantially.
Risks related to Regulation
We may be unable to obtain required regulatory approvals for future products timely or at all, and the denial or substantial delay of any such approval could delay materially or even prevent our efforts to commercialize new products, which could adversely impact our ability to generate future revenues.
Based on our determination that our Spryng™ products is a device for the treatment of animals rather than being a pharmaceutical product, we believe we are not required to obtain regulatory approval to produce and market them for their current intended uses. However, we have not received confirmation from any regulatory authority that our determination is correct. The production, marketing and sale of any future products for the treatment of animals based on our proprietary technology may be require us to obtain regulatory approval from the Center for Veterinarian Medicine (“CVM”), a branch of the FDA, and/or the USDA, and also certain state regulatory authorities. Any substantial delay or inability to obtain required regulatory approvals for any new products developed by us could substantially delay or even prevent their commercialization, which would materially adversely impact our business and prospects.
Moreover, at such future time that we commence business internationally, our products will need to obtain regulatory approval for labeling, marketing and sale in foreign countries from authorities such as the European Commission (“EU”) or the European Medicine Agency (“EMA”). Any substantial delay or inability to obtain any necessary foreign regulatory approvals for our products could harm our business and prospects materially.
Risks relating to our Information Technology
A failure of one or more key information technology systems, networks or processes may harm our ability to conduct our business effectively.
The effective operation of our business and operations will depend significantly on our information technology and computer systems. We will rely on these systems to effectively manage our sales and marketing, accounting and financial, and legal and compliance functions, new product development efforts, research and development data, communications, supply chain and product distribution, order entry and fulfillment, and other business processes. Any material failure of our information technology systems to perform satisfactorily, or their damage or interruption from circumstances beyond our control such as power outages or natural disasters, could disrupt our business materially and result in transaction errors, processing inefficiencies, and even the loss of sales and customers., causing our business and results of operations to suffer materially.
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Risks Related to our Company
Ownership and control of our Company is concentrated in our management.
As of June 1, 2022, our officers and directors beneficially own or control approximately 30% of our outstanding shares of common stock. This concentrated ownership and control by our management could adversely affect the status and perception of our common stock and/or warrants. In addition, any material sales of common stock of our management, or even the perception that such sales will occur, could cause a material decline in the trading price of our common stock and/or warrants.
Due to this ownership concentration, our management has the ability to control all matters requiring stockholder approval including the election of all directors, the approval of mergers or acquisitions, and other significant corporate transactions. Any person acquiring our common stock most likely will have no effective voice in the management of our company. This ownership concentration also could delay or prevent a change of control of the Company, which could deprive our stockholders from receiving a premium for their common shares.
The market price of our common stock is highly volatile because of several factors, including a limited public float.
The market price of our common stock has been volatile in the past and the market price of our common stock and our warrants is likely to be highly volatile in the future. You may not be able to resell shares of our common stock following periods of volatility because of the market’s adverse reaction to volatility.
Other factors that could cause such volatility may include, among other things:
| ● | actual or anticipated fluctuations in our operating results; | |
| ● | the absence of securities analysts covering us and distributing research and recommendations about us; | |
| ● | we may have a low trading volume for a number of reasons, including that a large portion of our stock is closely held; | |
| ● | overall stock market fluctuations; | |
| ● | announcements concerning our business or those of our competitors; | |
| ● | actual or perceived limitations on our ability to raise capital when we require it, and to raise such capital on favorable terms; | |
| ● | conditions or trends in the industry; | |
| ● | litigation; | |
| ● | changes in market valuations of other similar companies; | |
| ● | future sales of common stock; | |
| ● | departure of key personnel or failure to hire key personnel; and | |
| ● | general market conditions. |
Any of these factors could have a significant and adverse impact on the market price of our common stock. In addition, the stock market in general has at times experienced extreme volatility and rapid decline that has often been unrelated or disproportionate to the operating performance of particular companies. These broad market fluctuations may adversely affect the trading price of our common stock and/or warrants, regardless of our actual operating performance.
Our common stock has in the past been a “penny stock” under SEC rules, and if our common stock is deemed to be a “penny stock,” it will be more difficult to resell our securities.
In the past, our common stock was a “penny stock” under applicable Securities and Exchange Commission (“SEC”) rules (generally defined as non-exchange traded stock with a per-share price below $5.00). While our common stock is currently not considered a “penny stock,” if we do not continue to satisfy the requirements to be exempt from the “penny stock” rules, it will be more difficult to resell our securities. “Penny stock” rules impose additional sales practice requirements on broker-dealers that recommend the purchase or sale of penny stocks to persons other than those who qualify as “established customers” or “accredited investors.” For example, broker-dealers must determine the appropriateness for non-qualifying persons of investments in penny stocks. Broker-dealers must also provide, prior to a transaction in a penny stock not otherwise exempt from the rules, a standardized risk disclosure document that provides information about penny stocks and the risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, disclose the compensation of the broker-dealer and its salesperson in the transaction, furnish monthly account statements showing the market value of each penny stock held in the customer’s account, provide a special written determination that the penny stock is a suitable investment for the purchaser, and receive the purchaser’s written agreement to the transaction.
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Legal remedies available to an investor in “penny stocks” may include the following:
| ● | If a “penny stock” is sold to the investor in violation of the requirements listed above, or other federal or states securities laws, the investor may be able to cancel the purchase and receive a refund of the investment. | |
| ● | If a “penny stock” is sold to the investor in a fraudulent manner, the investor may be able to sue the persons and firms that committed the fraud for damages. |
These requirements may have the effect of reducing the level of trading activity, if any, in the secondary market for a security that becomes subject to the penny stock rules. The additional burdens imposed upon broker-dealers by such requirements may discourage broker-dealers from effecting transactions in our securities, which could severely limit the market price and liquidity of our securities. These requirements may restrict the ability of broker-dealers to sell our common stock or our warrants and may affect your ability to resell our common stock and our warrants.
Many brokerage firms will discourage or refrain from recommending investments in penny stocks. Most institutional investors will not invest in penny stocks. In addition, many individual investors will not invest in penny stocks due, among other reasons, to the increased financial risk generally associated with these investments. For these reasons, penny stocks may have a limited market and, consequently, limited liquidity. We can give no assurance that our common stock will not be classified as a “penny stock” in the future.
If we fail to maintain effective internal control over financial reporting, the price of our securities may be adversely affected.
Our internal controls over financial reporting have weaknesses and conditions that require correction or remediation. For the year ended March 31, 2022, we identified three material weaknesses in our assessment of the effectiveness of and procedures. We have (i) deficiencies in the segregation of duties, (ii) deficiencies in the staffing of our financial accounting department and (iii) limited checks and balances in processing cash and other transactions. Any failure by us to implement the changes necessary to maintain an effective system of internal controls could harm our operating results materially and cause investors and financial analysts to lose confidence in our reported financial information. Any such loss of confidence in the investment community would have a negative effect on the trading and price of our common stock and warrants.
We are required to comply with certain provisions of Section 404 of the Sarbanes-Oxley Act of 2002, as amended (the “Sarbanes-Oxley Act”) and if we fail to continue to comply, our business could be harmed, and the price of our securities could decline.
Rules adopted by the SEC pursuant to Section 404 of the Sarbanes-Oxley Act require an annual assessment of internal controls over financial reporting, and for certain issuers, an attestation of this assessment by the issuer’s independent registered public accounting firm. The standards that must be met for management to assess the internal controls over financial reporting as effective are evolving and complex, and require significant documentation, testing, and possible remediation to meet the detailed standards. We expect to incur significant expenses and to devote resources to Section 404 compliance on an ongoing basis. It is difficult for us to predict how long it will take or costly it will be to complete the assessment of the effectiveness of our internal controls over financial reporting for each year and to remediate any deficiencies in our internal control over financial reporting. As a result, we may not be able to complete the assessment and remediation process on a timely basis. In the event that our Chief Executive Officer or Chief Financial Officer determines that our internal controls over financial reporting are not effective as defined under Section 404, we cannot predict how regulators will react or how the market prices of our securities will be affected; however, we believe that there is a risk that investor confidence and the market value of our securities may be negatively affected.
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We do not anticipate paying any dividends on our common stock for the foreseeable future.
We have not paid any dividends on our common stock to date, and we do not anticipate paying any such dividends in the foreseeable future. We anticipate that any earnings experienced by us will be retained to finance the implementation of our operational business plan and expected future growth.
The elimination of monetary liability against our directors and executive officers under Nevada law and the existence of indemnification rights held by them granted by our bylaws could result in substantial expenditures by us.
Our Articles of Incorporation eliminate the personal liability of our directors and officers to the Company and its stockholders for damages for breach of fiduciary duty to the maximum extent permissible under Nevada law. In addition, our Bylaws provide that we are obligated to indemnify our directors or officers to the fullest extent authorized by Nevada law for costs or damages incurred by them involving legal proceedings brought against them relating to their positions with the Company. These indemnification obligations could result in our incurring substantial expenditures to cover the cost of settlement or damage awards against our directors or officers.
Our Articles of Incorporation, Bylaws, and Nevada law may have anti-takeover effects that could discourage, delay or prevent a change in control, which may cause our stock price to decline.
Our Articles of Incorporation, Bylaws, and Nevada law could make it more difficult for a third party to acquire us, even if closing such a transaction would be beneficial to our stockholders. We are authorized to issue up to 1,000,000 shares of preferred stock. This preferred stock may be issued in one or more series, the terms of which may be determined at the time of issuance by our board of directors without further action by stockholders. The terms of any series of preferred stock may include voting rights (including the right to vote as a series on particular matters), preferences as to dividend, liquidation, conversion and redemption rights, and sinking fund provisions. None of our preferred stock will be outstanding at the closing of this offering. The issuance of any preferred stock could materially adversely affect the rights of the holders of our common stock, and therefore, reduce the value of our common stock. In particular, specific rights granted to future holders of preferred stock could be used to restrict our ability to merge with, or sell our assets to, a third party and thereby preserve control by the present management.
Provisions of our Articles of Incorporation, Bylaws, and Nevada law also could have the effect of discouraging potential acquisition proposals or making a tender offer or delaying or preventing a change in control, including changes a stockholder might consider favorable. Such provisions may also prevent or frustrate attempts by our stockholders to replace or remove our management. In particular, our certificate of incorporation and by-laws and Delaware law, as applicable, among other things:
| ● | provide the board of directors with the ability to alter the by-laws without stockholder approval; | |
| ● | establishing advance notice requirements for nominations for election to the board of directors or for proposing matters that can be acted upon at stockholder meetings; and | |
| ● | provide that vacancies on the board of directors may be filled by a majority of directors in office, although less than a quorum. |
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
We do not own any real estate. We lease approximately 3,600 square feet of office, laboratory and warehouse space at 5251 Edina Industrial Blvd. Edina, Minnesota. This lease will expire in November 2026.
In January 2022, we leased an additional 2,400 square feet of office space near the location above. This lease will expire in March 2027. Refer to Note 9. Commitments and Contingencies, in the Notes to Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, for further information regarding our leases.
The Company believes that the current facilities are suitable and adequate to meet the Company’s current needs and that suitable additional space will be available as and when needed on acceptable terms.
ITEM 3. 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.
Refer to Note 9. Commitments and Contingencies, in the Notes to Consolidated Financial Statements set forth in Part II, Item 8. Financial Statements and Supplementary Data of this Annual Report, for further information regarding legal contingencies.
ITEM 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
Market Information
The Company’s common stock is publicly traded on the Nasdaq Capital Market under the symbol “PETV.”
Number of Stockholders
As of March 31, 2022, there were approximately 287 stockholders of record. The number of stockholders of record does not include certain beneficial owners of our common stock, whose shares are held in the names of various dealers, clearing agencies, banks, brokers, and other fiduciaries.
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Dividends
We have never declared or paid any cash dividends on our common stock and anticipate that for the foreseeable future all earnings will be retained for use rather than paid out as cash dividends
Unregistered Sales of Securities
From January 1, 2022 through March 31, 2022, the Company issued a total of 230,633 shares of its common stock as follows:
| (i) | issued 51,192 shares of common stock to members of the Board of Directors pursuant to vesting of restricted stock units, | |
| (ii) | issued 58,109 shares of common stock to providers of consulting services, and | |
| (iii) | issued 121,332 shares of common stock related to vesting of restricted stock units. |
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 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.
Purchases of Equity Securities by the Registrant and Affiliated Purchasers
None.
Securities Authorized for Issuance
The following table sets forth securities authorized for issuance under any equity compensation plan approved by our stockholders as well as any equity compensation plans not approved by our stockholders as of March 31, 2022.
| Equity Compensation Plan Information | ||||||||||||
| Plan category | Number of securities to be issued upon exercise of outstanding options, warrants and rights | Weighted average exercise price of outstanding options, warrants and rights | Number of Securities remaining available for future issuance under equity compensation plans (excluding securities reflect in table) | |||||||||
| Plans approved by shareholders(1) | 1,000,000 | 3.20 | 233,923 | |||||||||
| Plans not approved by shareholders(2) | 757,484 | $ | 2.29 | — | ||||||||
| (1) | PetVivo Holdings, Inc. 2020 Equity Incentive Plan. |
| (2) | Represents warrants granted to officers, directors, employees, financial advisors, consultants, investors, and other service providers pursuant to individual contracts, investments, awards or arrangements for compensatory purposes. |
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Use of proceeds from our initial public offering of common stock
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 Public 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 of March 31, 2022, we estimated that we have used approximately $3.7 million of the proceeds for the purposes disclosed in the Registration Statement. 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 6. RESERVED
Not applicable.
ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION
The following discussion of our financial condition and results of operations should be read in conjunction with our financial statements and related notes that appear elsewhere in this prospectus. In addition to historical consolidated financial information, the following discussion contains forward-looking statements that reflect our plans, estimates and beliefs. Our actual results could differ materially from those discussed in the forward looking statements. Factors that could cause or contribute to those differences include those discussed below and elsewhere in this prospectus, particularly in “RISK FACTORS.” We caution the reader not to place undue reliance on these forward-looking statements, which reflect management’s analysis only as of the date of this Annual Report.
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™, formerly known as Kush®. It will provide to veterinarians an innovative treatment for dogs and horses suffering from osteoarthritis.
The independent auditor’s report accompanying our March 31, 2022 financial statements contains an explanatory paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared “assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, and our working capital is insufficient to fund our operations for the next 12 months. These factors raise substantial doubt about our ability to continue as a going concern.
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RESULTS OF OPERATION
| For Fiscal Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | 115,586 | $ | 12,578 | ||||
| Total Cost of Sales | 201,154 | 10,695 | ||||||
| Total Operating Expenses | 4,970,960 | 1,960,871 | ||||||
| Total Other Income (Expense) | 41,533 | (1,563,792 | ) | |||||
| Net Loss | (5,014,995 | ) | (3,522,780 | ) | ||||
| Net loss per share - basic and diluted | $ | (.57 | )* | $ | (.57 | )* | ||
* In October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was made effective December 29, 2020. All share and per share data has been retroactively adjusted for this reverse split for all period presented.
For The Fiscal Year Ended March 31, 2022 (“fiscal 2022”) Compared to The Year Ended March 31, 2021 (“fiscal 2021”)
Total Revenues. Revenues increased to $115,586 in fiscal 2022 compared to $12,578 in fiscal 2021 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 $201,154 in fiscal 2022 compared to $10,695 for fiscal 2021. 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 and the negative gross margin are primarily attributed to our product costs and related product launch expenses from the commercialization of Spryng™ in September 2021.
Operating Expenses. Operating expenses increased to $4,970,960 in fiscal 2022 compared to $1,960,871 in fiscal 2021. 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 $3,148,494 and $1,767,664 in fiscal 2022 and 2021, 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 $1,347,585 and $94,997 in fiscal 2022 and 2021, respectively. Sales and marketing expenses include compensation, consulting, tradeshows and stock compensation costs to support the launch of our Spryng™ product.
Research and development (“R&D”) expenses were $474,881 and $98,230 in fiscal 2022 and 2021, respectively. The increase was related to clinical studies and efforts to support the launch of Spryng™.
Operating Loss. As a result of the foregoing, our operating loss was $5,056,528 and 1,958,988 in fiscal 2022 and 2021, respectively. 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 $41,533 in fiscal 2022 as compared to expense of $1,563,792 in fiscal 2021. Other income in fiscal 2022 consisted of the forgiveness of PPP Loan of $31,680 and net interest income of $9,853. Other expense in fiscal 2021 consisted primarily of derivative expense related to debt financing of $1,702,100 and interest expense of $228,595 partially offset by a gain on debt extinguishment of $366,903.
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Net Loss. Our net loss in fiscal 2022 was $5,014,995 or ($0.57) as compared to a net loss of $3,522,780 or ($0.57) per share in fiscal 2021. The weighted average number of shares outstanding was 8,760,877 compared to 6,198,717 for fiscal 2022 and 2021, 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 March 31, 2022, our current assets were $6,755,400 including $6,106,827 in cash and cash equivalents. In comparison, our current liabilities as of that date were $1,173,486 including $1,107,759 of accounts payable and accrued expenses. Our working capital as of March 31, 2022 was $5,581,914.
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 10 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.
Net Cash Used in Operating Activities – We used $4,174,957 of net cash in operating activities in fiscal 2022. This cash used in operating activities was primarily attributable to our net loss of $5,014,995, forgiveness of PPP loan and accrued interest of $31,680 an increase in inventory of $98,313 and an increase in prepaid expenses and other assets of $208,668 partially offset by an increase in accounts payable and accrued expenses of $144,874, stock compensation expense of $702,896 stock issued for services of $84,130 and investor relations services paid in stock of $220,050.
Net Cash Used in Investing Activities – We used $183,183 of net cash in investing activities in fiscal 2022 consisting of purchase of equipment of $154,030 and costs capitalized to patents and trademarks of $29,154.
Net Cash Provided by Financing Activities – During fiscal 2022, we were provided with net cash of $10,441,390 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 $81,685 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 March 31, 2022, the Company’s inventory has a carrying value of $98,313 and is broken down into $11,889 of finished goods, $22,960 of work in process and $63,464 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 March 31, 2022, we are obligated on notes and accrued interest of $33,750.
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PURCHASE COMMITMENTS
The Company issued purchase orders in fiscal year ended March 31, 2022 totaling $250,000 for inventory that we expect to receive within the next year.
OFF-BALANCE SHEET ARRANGEMENTS
As of March 31, 2022, and as of the date of this Annual Report, we do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
GOING CONCERN
The independent auditors’ report accompanying our March 31, 2022 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 March 31, 2022 was $5,581,914. We believe this working capital is sufficient to fund operations for the next ten months (see Liquidity and Capital Resources above).
CRITICAL ACCOUNTING POLICIES
We prepare our consolidated financial statements in accordance with generally accepted accounting standards in the United States of America. Our significant accounting policies are described in Note 1 to our consolidated financial statements attached hereto. We believe the following critical accounting policies involve the most significant judgments and estimates used in the preparation of the consolidated financial statements.
RECENTLY ISSUED ACCOUNTING STANDARDS
The 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.
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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements for the years ended March 31, 2022 and 2021 are being filed with this report and commence on page F-1, immediately following the signature page.
ITEM 9. CHANGES AND DISAGREEMENT WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES EVALUATION OF DISCLOSURE CONTROLS AND PROCEDURES
We maintain controls and procedures that are designed to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management including our principal executive and principal financial officers, as appropriate, to allow timely decisions regarding required disclosures. Based upon their evaluation of those controls and procedures performed as of the end of the period covered by this report, our principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were not effective.
Management’s annual report on internal control over financial reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting as defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles (GAAP) and includes those policies and procedures that:
| ● | Pertain to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of our assets; | |
| ● | Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of our management and our directors; and | |
| ● | Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. |
Because of its inherent limitations, our internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Our management assessed the effectiveness of our internal control over financial reporting as of March 31, 2022. In making this assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”) in Internal Control — Integrated Framework (revised 2013). This assessment included an evaluation of the design and procedures of our control over financial reporting.
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Based on our assessment, our management concluded that as of March 31, 2022, our internal control over financial reporting was not effective due to certain material weaknesses including:
| ● | Deficiencies in Segregation of Duties. Lack of proper segregation of functions, duties and responsibilities with respect to our cash and control over the disbursements related thereto due to our very limited staff, including our accounting personnel; | |
| ● | Deficiencies in the staffing of our financial accounting department. The number of our qualified accounting personnel with experience in public company SEC reporting and GAAP is limited; and | |
| ● | Limited checks and balances in processing cash and other transactions. |
The existence of the material weaknesses in our internal control over financial reporting increases the risks that our financial statements may be misleading materially or even need to be restated. We are committed to improving our financial and oversight organization and procedures.
Our Annual Report does not include an attestation report of the Company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the Company’s registered public accounting firm pursuant to the rules of the SEC that permit the Company to provide only management’s report in this Annual Report on Form 10-K.
Changes in internal control over financial reporting
In the fourth quarter of fiscal 2022, the Company hired a part-time controller to provide our Chief Financial Officer with more time to perform oversight and supervisory functions. We also believe this new hire is the first step in addressing our material weaknesses relating to lack of segregation of duties and deficiencies in the staffing or our accounting department. We intend on hiring additional personnel for our accounting department in the next year. Other than as discussed above, there have been no changes in our internal control over financial reporting in the fourth quarter of 2022.
ITEM 9B. OTHER INFORMATION
None.
ITEM 9C. DISCLOSURE REGARDING FOREIGN JURISDICTION THAT PREVENTS INSPECTIONS
Not Applicable.
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
DIRECTORS AND EXECUTIVE OFFICERS
Our executive officers are appointed by and serve at the discretion of our board of directors. The following table includes the names, ages and positions held by our executive officers and directors as of June 24, 2022:
| Name | Age | Management and/or Director Positions | ||
| John Lai | 59 | Chief Executive Officer, President and Director | ||
| Robert J. Folkes | 60 | Chief Financial Officer | ||
| Randall A. Meyer | 59 | Chief Operating Officer | ||
| John F. Dolan | 58 | Vice President Business Development, General Counsel, and Secretary | ||
| Gregory Cash | 65 | Chairman | ||
| David Deming | 62 | Director | ||
| Joseph Jasper | 57 | Director | ||
| Scott Johnson | 57 | Director | ||
| James Martin | 83 | Director | ||
| Robert Rudelius | 66 | Director |
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John Lai, has served as a director and senior executive officer since March 2014, serving in various capacities that include serving as our Chief Financial Officer from May 2018 through December 2018 and serving as our Chief Executive Officer from March 2014 to May 2017 and June 2019 to present. From March 2012 to April 2016, Mr. Lai also was Chief Executive Officer and a director of Blue Earth Resources, Inc., a small public company which acquired and managed working interests in producing oil and gas leases in Louisiana. Mr. Lai has over thirty years of senior executive and operational management and financial experience while holding key executive positions with several public companies in various industries. In 1992, Mr. Lai founded, and until December 2012 was the principal owner and President of Genesis Capital Group, Inc., which provided significant consulting services to many public and private companies in powersports, technology and other industries, while advising its clients in corporate development, mergers and acquisitions, and private and public capital-raising through equity offerings. Mr. Lai’s role as a co-founder of the company and his many years of experience as a chief executive officer of many public or private companies are material factors regarding his qualifications to serve on our Board of Directors.
Robert J. Folkes, has served as our Chief Financial Officer since April 14, 2021. Prior to joining us, he served as the Chief Operating Officer from February 2015 until September, 2020 and as the Chief Financial Officer from 2005 until April 2016 of Tactile Systems Technology, Inc. (NASDAQ: TCMD), a manufacturer and developer of at-home therapy devices that treat chronic swelling conditions such as lymphedema and chronic venous insufficiency. Since September 2020 through the current date, Mr. Folkes was a financial consultant. Prior to joining TCMD in 2004, Mr. Folkes was the Chief Financial Officer for Advanced Respiratory, a medical device company, from 1997 until its sale in 2003. Prior to joining Advanced Respiratory, Mr. Folkes was an Audit Senior Manager for Ernst & Young LLP. He served as Ernst & Young’s Senior Manager of the Entrepreneurial Services Group, and was involved with numerous SEC registrations, mergers and acquisitions. Mr. Folkes is a Certified Public Accountant and earned a B.A. in Accounting from the University of Minnesota – Carlson School of Management.
Randall A. Meyer. Mr. Meyer has served as a director since April 2015, and served as our Chief Operating Officer from April 2015 to November 2017. From January 2009 to April 2015, Mr. Meyer served as Chief Operating Officer of Gel-Del Technologies, Inc. while being in charge of all operational and marketing activities of Gel-Del. Prior to joining Gel-Del, Mr. Meyer’s substantial medical device industry management experience included being Chief Operating Officer of Softscope Medical Technologies, Inc. and being Chief Executive Officer of Tactile Systems Technology, Inc. Mr. Meyer’s role as the senior operational officer of Gel-Del for many years and his long experience as an executive officer of several companies in the medical device industry are material factors regarding his qualifications to serve on our Board of Directors.
John F. Dolan. Mr. Dolan has served as a director since March 2014, and he served as our Chief Financial Officer from March 2014 to November 2017. Since March 2013, Mr. Dolan also has served as corporate and intellectual property counsel for KILO, Inc. and TerraCOH, Inc., both alternative energy companies. Mr. Dolan has also served as general counsel for Traust IP Finance, LLC since June, 2019. From June 2000 to July 2012, Mr. Dolan was a shareholder in the intellectual property group of the Minneapolis law firm of Fredrikson & Byron, where he specialized in securing and protecting domestic and foreign patent and other IP rights for various clients including biomaterials technology and products. During the past five years, Mr. Dolan also has provided consulting services to several early-stage companies on all aspects of IP asset protection as well as new technology and corporate development. His extensive career in the intellectual property field includes serving as a patent examiner with the U.S. Patent and Trademark Office. Mr. Dolan’s role as a cofounder of the Company and his extensive experience in intellectual property, mergers and acquisitions, private equity, corporate governance, and general corporate law are material factors which demonstrate his qualifications to serve on our Board of Directors.
Gregory Cash. Mr. Cash has served as a director of the Company since July 2019. He has more than 35 years senior management and/or key sales and marketing executive experience in the life sciences industry, including being Chief Executive Officer or Division President of publicly traded and privately held cardiovascular medical device companies. Since 2011, he has been the Chief Executive Officer and principal owner of Argent International LLC, Minneapolis, MN, a consulting firm he founded to provide management, marketing and financial consulting services to start-up and established companies in the life sciences industry. Prior to founding Argent, Mr. Cash served for over thirty years in senior executive management or marketing roles with leading medical device companies, including five years with Boston Scientific Corporation and over fourteen years with Medtronic, Incorporated. His many industry achievements also feature extensive and high-level overseas experience including being Chief Executive Officer or a senior marketing executive of both start-up and established international medical device companies in European countries including The United Kingdom, France and Italy, as well as serving for several years as the Marketing Manager in Asia for all Medtronic product lines. Mr. Cash’s many years of experience as an executive in the medical device industry are material factors regarding his qualification to serve on our Board of Directors.
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David Deming. Mr. Deming has served as a director of the Company since September 2017. Mr. Deming has over 35 years of institutional investment management experience with pensions, endowments, family offices and high net worth investors. He is currently serving as the Chief Investment Officer of Onward for Business, a main street business brokerage firm, which he joined in January 2020. He served for over 19 years as the Director of Business Development at Arbor Capital Management, LLC from January 1997 until October 2016. Subsequent thereto, he served as the Director of Marketing and Investor Relations at BCCM Advisors, an alternative investment platform, from August 2018 to March 2020 and as the Director of Business Development, Chief Compliance Officer and Partner at Asymmetric Capital Management from October 2016 until August 2018. Prior thereto, he held positions with brokerage and trading firms, including, Merrill Lynch, Paine Webber and Leuthold Weeden Capital Management and was a floor trader at the Chicago Board of Trade. Mr. Deming’s extensive experience in the finance industry is a material factor which demonstrates his qualifications to serve on our Board of Directors.
Joseph Jasper. Mr. Jasper has served as a director of the Company since August 20, 2018. He is a CFA who since 2005 has been Chief Executive Officer of Vermillion Capital Management, an institutional investment firm. From 2002 to 2005, Mr. Jasper was Managing Director and Director of Fixed Income Strategy and Marketing for Piper Jaffray Company. Prior to 2002, he spent 20 years managing, structuring and selling fixed income and equity securities at several leading investment banking firms, including U.S. Bancorp Libra and UBS PaineWebber. Mr. Jasper also serves as Vice Chairman of the Board of Directors of MicroNet, Inc. and as a director of GroundCloud, Inc. both privately-held companies. He has previously served as a director or principal advisor to many operating and venture-stage companies across a broad range of industries. Mr. Jasper received an MBA degree from the University of St. Thomas, where he also has served as its Adjunct Professor of Finance. Mr. Jasper’s extensive financing and accounting expertise are material factors which demonstrate his qualifications to serve on our Board of Directors.
Scott Johnson. Mr. Johnson has served as a director of the Company since July 2019. He is a licensed professional engineer with over 30 years experience in the life sciences industry. He has been a leader in cross-functional engineering, risk management, design controls, production engineering, quality control, auditing and FDA compliance for numerous manufacturers. Since 2012, he has been the President and principal owner of Stratego, Inc., a life sciences consulting corporation he founded to provide client services for the remediation of significant challenges with the FDA. Significant engagements of Stratego include risk management and post-market surveillance services for defibrillator products at Philips Healthcare, risk management and quality audit services for combination products at Baxter and Hospira, a subsidiary of Pfizer, quality remediation management for implantable medical devices at St. Jude Medical, a product regulatory roadmap for Varuna Biomedical and engineering PMA submissions content at Zimmer Biomet –Biologics. Mr. Johnson’s lengthy past employment include five years of employment with SciMed Life Systems, four years systems engineering, testing and compliance liaison for PumpWorks, and Part 11 compliance project manager for automated production and test systems at Boston Scientific. His engineering projects for the production of medical devices include substantial domestic and foreign facility experience. Mr. Johnson’s many years of experience as an executive in the life science industries and expertise with medical product design and regulatory issues are material factors which demonstrate his qualifications to serve on our Board of Directors.
James Martin. Mr. Martin has served as a director of the Company since July 2019. He is a retired Certified Public Accountant (“CPA”) and attorney whose career included his responsibility as Partner in Charge of KPMG’s tax practice for its Newport Beach, California office. In that role he provided and oversaw the rendition of tax services for numerous clients in varied industries including those for which KPMG provided a certified audit. He retains his AICPA membership and holds Accounting and Law Degrees from the University of Washington and, on a Fellowship, received a Master of Laws Degree from New York University. Mr. Martin’s extensive accounting expertise is a material factor which demonstrate his qualifications to serve on our Board of Directors.
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Robert Rudelius. Mr. Rudelius has served as a director of the Company since August 2018. Currently, he is the Chief Executive Officer and Managing Director of Noble Ventures, LLC, a company he founded in 2001 that provides advisory and consulting services to early and mid-stage companies in the information technology, communications, medical technology and social e-commerce industries. He is also the co-founder, President & CEO of MedicaMetrix, Inc., a company that is building a commercialization engine that will launch a stream of medical devices aimed at delivering transformative healthcare solutions for unmet medical needs. From April 1999 through May 2001, when it was acquired by StarNet L.P., Mr. Rudelius was the founder and CEO of Media DVX, Inc., a start-up business that provided a satellite-based, IP-multicasting alternative to transmitting television commercials via analog videotapes to television stations, networks and cable television operators throughout North America. From April 1998 to April 1999, Mr. Rudelius was the President and Chief Operating Officer of Control Data Systems, Inc., during which time Mr. Rudelius reorganized and re-positioned the software company as a professional technology services company, resulting in the successful sale of the company to British Telecom. From October 1995 through April 1998, Mr. Rudelius was the founding Managing Partner of AT&T Solutions, Inc., a subsidiary of AT&T Inc. (NYSE: T) and headed the Media, Entertainment & Communications industry practice. From January 1990 through September 1995, Mr. Rudelius was a partner in McKinsey & Company’s information, technology and systems practice, during which time he headed the practice in Japan and the United Kingdom. Mr. Rudelius began his career at Arthur Andersen & Co. where he was a leader in the firm’s financial accounting systems consulting practice. Mr. Rudelius served as a member of the Axogen, Inc. (NASDAQ: AXGN) Board of Directors for ten years from September 2010 through September 30, 2020, where he served on the audit committee and as a member of the compensation committee. Mr. Rudelius has an M.B.A. from the Kellogg School of Management at Northwestern University and a B.S. in mathematics and economics from Gustavus Adolphus College in St. Peter, Minnesota. Mr. Rudelius’ qualifications to serve on our Board of Directors include his extensive executive leadership and financial experience, particularly in connection with rapid growth technology businesses, and his experience as a director of publicly traded companies.
There are no family relationships between any of our executive officers and directors.
Delinquent Section 16(a) Reports
Section 16(a) of the Securities Exchange Act requires our executive officers and directors, and persons who own more than 10% of our common stock, to file reports regarding ownership of, and transactions in, our securities with the Securities and Exchange Commission and to provide us with copies of those filings. To the Company’s knowledge, based solely on a review of the Form 3’s, 4’s and 5’s electronically filed with the SEC during fiscal 2022, all such filing requirements applicable to the Company’s directors, executive officers and greater than 10% beneficial owners were complied with, except Mr. Folkes filed his Form 3 late due to administrative issues with securing the filing codes.
Committees of the Board of Directors
We have an Audit Committee, Compensation Committee, and Nominating Committee. Our Audit Committee consists of three independent directors who are David Deming, James Martin and Joseph Jasper, with Mr. Martin considered as an “audit committee financial expert” within the meaning of Regulation S-K of the SEC. Our Compensation Committee consists of three independent directors who are David Deming, Scott Johnson and Robert Rudelius. Our Nominating Committee consists of three independent directors who are Greg Cash, Joseph Jasper and Robert Rudelius.
Code of Ethics
We have adopted a Code of Ethics which applies to our board of directors, executive officers and other employees. Our Code of Ethics outlines the broad principles of ethical business conduct we have adopted, including subject areas such as confidentiality, conflicts of interest, corporate opportunities, public disclosure reporting, protection of company assets, and compliance with applicable laws. A copy of our Code of Ethics is available without charge to any person by written request to us at our principal offices at 5251 Edina Industrial Blvd., Edina, MN 55439.
Director Compensation
Directors who are not employees of the Company are paid director’s fees, in cash, stock, or a combination thereof. In fiscal 2022, we did not pay any cash compensation to our non-employee directors. All compensation was paid with stock and RSU’s, which ½ of the compensation paid with stock on October 1, 2021, the date of grant, and the remaining RSU’s vesting six months from the date of grant. In fiscal 2022, our non-employee directors received the following compensation for their services: each non-employee director received an annual retainer of $40,000; the Chairman received an additional $10,000; each non-employee director serving as a chair of a standing committee received an additional $5,000 and each non-employee director who served on two or more committee received an additional $2,500 per year.
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The following table provides information on compensation paid to our non-employee directors for their services as members of our board of directors during our fiscal year ended March 31, 2022:
| Name of Director | Fees paid in cash | Stock awards ($)(1) | Warrant awards ($)(2) | All other compensation ($) | Total ($) | |||||||||||||||
| Gregory Cash | $ | — | $ | 51,999 | $ | — | $ | 130,000 | (3) | $ | 181,999 | |||||||||
| David Deming | $ | — | $ | 39,901 | $ | — | $ | 81,000 | (3) | $ | 120,901 | |||||||||
| Joseph Jasper | $ | — | $ | 22,499 | $ | — | $ | — | $ | 22,499 | ||||||||||
| Scott M. Johnson | $ | — | $ | 38,899 | $ | — | $ | — | $ | 38,899 | ||||||||||
| James Martin | $ | — | $ | 22,499 | $ | — | $ | — | $ | 22,499 | ||||||||||
| Dr. David Masters(4) | $ | — | $ | 19,999 | $ | — | $ | 77,218 | (3) | $ | 97,217 | |||||||||
| Robert Rudelius | $ | — | $ | 22,499 | $ | — | $ | — | $ | 22,499 | ||||||||||
| (1) | The value in this column reflects the aggregate grant date fair value of the stock award as computed in accordance with ASC Topic 718. Information regarding the valuation assumptions used in the calculations is included in “Note 15 – Stockholder’s Equity” to our audited consolidated financial statements included in our 2022 Form 10-K. |
| (2) | The value in this column reflects the aggregate grant date fair value of the warrants as computed in accordance with ASC Topic 718. Information regarding the valuation assumptions used in the calculations is included in “Note 15 – Stockholder’s Equity” to our audited consolidated financial statements included in our 2021 Form 10-K. As of March 31, 2022, the aggregate number of outstanding warrants held by Mr. Cash was 27,099; for Mr. Deming was 57,354; for Mr. Jasper was 48,225; for Mr. Johnson was 25,376, for Mr. Martin was 39,800 and for Mr. Rudelius was 44,135.
|
| (3) | Represents consulting fees paid to these directors. |
| (4) | Mr. Masters was no longer a member of the Board effective as of March 5, 2022. |
ITEM 11. EXECUTIVE COMPENSATION
The Company qualifies as a “smaller reporting company” under rules adopted by the SEC. Accordingly, the Company has provided scaled executive compensation disclosure that satisfies the requirements applicable to the Company in its status as a smaller reporting company. Under the scaled disclosure obligations, the Company is not required to provide, among other things, a compensation discussion and analysis or a compensation committee report, and certain other tabular and narrative disclosures relating to executive compensation.
Our named executive officers (“Named Executive Officers” or “NEO’s”) for fiscal year ended March 31, 2022 (“fiscal 2022”) were as follows:
| ● | John Lai, our Chief Executive Officer and President; | |
| ● | Robert Folkes, our Chief Financial Officer; and | |
| ● | Randall Meyer, our Chief Operating Officer. |
Certain information regarding the compensation of our Named Executive Officer for our fiscal years ended March 31, 2022 (“fiscal 2022”) and March 31, 2021 (“fiscal 2021”) is provided on the following pages.
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SUMMARY COMPENSATION TABLE
The following table sets forth information regarding the compensation paid to or earned by our Named Executive Officers for fiscal 2022 and 2021.
Name and Principal Position | Year | Salary ($) | Bonus ($)(1) | Stock Awards ($)(2) | Non-Equity Incentive Plan Compensation ($) | All Other Compensation ($)(3) | Total ($) |
| ||||||||||||||||||
| John
Lai | 2022 | 202,083 | 20,000 | 481,500 | — | $ | 6,160 | $ |
709,743 | |||||||||||||||||
| CEO and President | 2021 | 91,668 | — | 148,602 | — | — | $ | 240,270 | ||||||||||||||||||
Robert J. Folkes Chief Financial Officer(4) | 2022 | 211,250 | 100,000 | 173,340 | — | $ | 3,348 | $ | 487,938 | |||||||||||||||||
Randall Meyer Chief Operating Officer(5) | 2022 | 128,333 | 30,000 | 208,650 | — | — | $ | 366,983 | ||||||||||||||||||
| (1) | Amounts reported represents discretionary bonus payments on amounts earned in fiscal 2022, which will be paid after the Company files its Annual Report on 10-K for fiscal 2022 with the SEC. |
| (2) | Amounts shown represents grant date fair value computed in accordance with ASC Topic 718, with respect to restricted stock awards (based on the closing price of our common stock on the grant date) and stock option awards. Information regarding the valuation assumptions used in the calculations are included in “Note 15 – Stockholder’s Equity” of our audited consolidated financial statements included in our 2022 Form 10-K. |
| (3) | Represents the payment of health insurance premiums by the Company for Mr. Lai and Mr. Folkes. |
| (4) | Mr. Folkes was appointed to serve as the Company’s Chief Financial Officer on April 14, 2021. |
| (5) | Mr. Meyer was appointed to serve as the Company’s Chief Operating Officer on September 10, 2021. |
Narrative Disclosure to the Summary Compensation table
The following is a discussion of certain terms that we believe are necessary to understand the information disclosed in the Summary Compensation Table.
Base Salaries
The Company’s Named Executive Officers receive a base salary for services rendered to the Company, which is set forth in their respective employment agreements. The base salary payable to each Named Executive Officer is intended to provide a fixed component of compensation reflecting the executive’s skill set, experience, role, and responsibilities. From April 1, 2020, through September 8, 2021, Mr. Lai received a base salary of $100,000 which was increased to $275,000, effective as of September 1, 2022. Mr. Folkes joined the Company on April 14, 2021, and his initial salary was $190,000 per year, which was increased to $240,000 per year effective as of September 1, 2022. Mr. Meyer joined the Company, as its Chief Operating Officer, on September 1, 2021 and his base salary is $220,000 per year.
Bonuses
In November 2021, the Company established a bonus plan for its executives and employees, with a performance target based on total revenues. If the Company achieved the performance target, each employee would receive a bonus equal to a certain percentage of his or her salary. The Company realized that the performance target would not be achieved because the Company’s ability to sell its lead product, Spryng™, was limited because it did not have canine and equine studies which distributors and other vendors needed to review before purchasing the Company’s products. The Compensation Committee determined that the performance target was unrealistic and not an appropriate target for the Company at this time. The Compensation Committee believed that the executives and other employees had done exceptional work in transitioning the Company from being a start-up company to a revenue-producing company. As such, the Compensation Committee awarded discretionary bonuses to the executives and other employees. The Compensation Committee awarded discretionary bonuses to Mr. Lai, Mr. Folkes, and Mr. Meyers for their services in fiscal 2022 in the amounts of $20,000, $100,000, and $30,000, respectively. The Company will not make these bonus payments to the Named Executive Officers until its files its 10-K for its fiscal year ended March 31, 2022.
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Equity Compensation
Our Compensation Committee administers our 2020 Equity Incentive Plan (the “Equity Incentive Plan”) and approves the amount of, and terms applicable to, grants of stock options, restricted stock units, and other types of equity awards to employees, including the Named Executive Officers. The Equity Incentive Plan permits the grant of incentive stock options, non-statutory stock options, stock appreciation rights, restricted stock, restricted stock units (“RSU’s), and stock bonus awards (all such types of awards, collectively, “equity awards”), although incentive stock options may only be granted to employees.
On April 14, 2021, the Company granted 34,000 RSU’s to Mr. Folkes pursuant to the terms of his employment agreement. These RSU’s vest over a three year period, with 10,000 RSU’s vesting on January 1, 2022, 10,000 vesting on January 1, 2023, and 14,000 vesting on January 1, 2024. Furthermore, these RSU grants are subject to Mr. Folkes remaining employed at the Company.
On September 9, 2021, the Compensation Committee granted RSU’s to our Named Executive Officers for their exceptional performance in assisting the Company in closing its public offering in which it raised $11.2 million in gross proceeds and listed its common stock and warrants on the NASDAQ Capital Market. The Named Executive Officers received the following RSU grants (“November 2021 RSU Grants”): Mr. Lai – 150,000 RSU’s, Mr. Folkes – 54,000 RSU’s, and Mr. Meyer – 65,000 RSU’s. These RSU’s vest in three installments, with 1/3 vesting on March 31, 2022, 1/3 vesting on March 31, 2023 and 1/3 vesting on March 31, 2024, based upon continued employment with the Company.
For the grant date fair values of the options and RSU’s, please see the Summary Compensation Table above.
Perquisites
We offer health insurance to our Named Executive Officers on the same basis that these benefits are offered to our other eligible employees. We offer a 401(k) plan to all eligible employees. The Company also provides other benefits to its Named Executive Officers on the same basis as provided to all of its employees, including vacation and paid holidays.
OUTSTANDING EQUITY AWARDS AT FISCAL YEAR END 2022
The following table sets forth for each Named Executive Officer, information regarding outstanding equity awards as of March 31, 2022. The option awards and per share amounts for all periods reflect our 1-for-4 reverse stock split, which was effective December 29, 2020. Market value is based on the closing stock price of $2.04 on March 31, 2022.
| Option Awards | Stock Awards | |||||||||||||||||||||||
| Name | Number of securities underlying unexercised options exercisable (#) | Number of securities underlying unexercised options unexercisable (#) | Option exercise price ($) | Option expiration date | Number of shares or units of stock that have not vested (#) | Market value of shares or units of stock that have not vested ($)(1) | ||||||||||||||||||
| John Lai | 75,000 | (1) | 60,000 | (1) | 2.24 | 10/31/2024 | 100,000 | (2) | $ | 204,000 | ||||||||||||||
| 19,847 | — | 1.95 | 12/31/2024 | — | — | |||||||||||||||||||
| 24,253 | — | 1.27 | 3/31/2025 | — | — | |||||||||||||||||||
| 7,441 | — | 1.60 | 6/30/2025 | — | — | |||||||||||||||||||
| Robert J. Folkes | — | — | — | — | 60,000 | (3) | $ | 122,400 | ||||||||||||||||
| — | — | — | — | — | — | |||||||||||||||||||
| Randall Meyer | 10,547 | — | 1.20 | 1/15/2029 | 43,333 | (4) | $ | 88,399 | ||||||||||||||||
| 1,213 | — | 1.95 | 12/31/2024 | — | — | |||||||||||||||||||
| 1,104 | — | 1.27 | 3/31/2025 | — | — | |||||||||||||||||||
| 559 | — | 1.60 | 6/30/2025 | — | — | |||||||||||||||||||
| — | — | — | — | — | — | |||||||||||||||||||
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| (1) | Mr. Lai was granted a warrant to purchase up to 135,000 shares of our common stock at an exercise price of $2.24 per share pursuant to his employment agreement. The warrants have a five-year term and 90,000 warrants vest quarterly over a three-year term and 45,000 warrants vest based on certain performance conditions; 22,500 of which have expired and 22,500 of which vest if the Company completes a successful listing on the Exchange and sustains a stock price of at least $16.00 for the thirty consecutive days of trading. |
| (2) | Comprised of 100,000 unvested shares underlying an RSU award granted on September 9, 2021, which will vest in equal installments on March 31, 2023, and March 31, 2024, subject to the executive’s continued employment with the Company. The RSU’s will vest automatically if there is a Change of Control (as defined in our Equity Incentive Plan). |
| (3) | Comprised of 24,000 unvested shares underlying an RSU award granted on April 14, 2021, with 10,000 shares vesting on January 1, 2023, and 14,000 shares vesting on January 1, 2024, and 36,000 unvested shares underlying an RSU award granted on September 9, 2021, which will vest in equal installments on March 31, 2023, and March 31, 2024, with both RSU awards subject to the executive’s continued employment with the Company. The RSU’s will vest automatically if there is a change of control (as defined in our Equity Incentive Plan.) |
| (4) | Comprised of 43,333 unvested shares underlying an RSU award granted on September 9, 2021, which will vest in equal installments on March 31, 2023, and March 31, 2024, subject to the executive’s continued employment with the Company. The RSU’s will vest automatically if there is a Change of Control ( as defined in our Equity Incentive Plan). |
Executive Employment Agreements
Prior Employment Agreements
The Company entered into an employment agreement (“2019 Agreement”) with John Lai on October 1, 2019, to serve as the Company’s Chief Executive Officer for a term of 3 years. Mr. Lai’s annual base salary was a minimum of $100,000 or such higher amount, as determined by the Board. Mr. Lai could be terminated for Cause or without cause upon ten (10) days advance written notice. Mr. Lai was eligible to receive discretionary bonuses, as determined by the Board, and eligible for all employee benefits provided to executives of similar tenure. His 2019 Agreement contained customary confidentiality and non-competition provisions which survived for a period of one year after his employment with the Company was terminated. As discussed below, Mr. Lai’s 2019 Agreement was replaced with a new employment agreement on November 10, 2021.
The Company entered into an employment agreement (“April 2021 Agreement”) with Robert Folkes on April 14, 2021, to serve as the Company’s Chief Financial Officer. The employment agreement was for a term of approximately two years and nine months and terminated on January 31, 2024. Mr. Folkes’ annual base salary was $190,000 per year and he was eligible to receive a bonus of up to 50% of his base salary based upon the achievement of performance goals developed by the Compensation Committee. He could be terminated for cause or without cause upon ten (10) days advance written notice. His employment agreement contained customary confidentiality and non-competition provisions which survived for a period of one year after his employment with the Company was terminated. As discussed below, Mr. Folkes April 2021 Agreement was replaced with a new employment agreement on November 10, 2021
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Current Employment Agreements
Effective as of November 10, 2021, the Company entered into new employment agreements with Mr. Lai, which replaced his 2019 Agreement, and Mr. Folkes which replaced his April 2021 Agreement. In addition, the Company entered into a new employment agreement with Randall Meyer to serve as the Company’s Chief Operating Officer effective as of November 10, 2021. With the exception of salary and severance payments, the employment agreements are substantially similar.
All of these employment agreements expire on September 30, 2024. Messrs. Lai, Folkes, and Meyer each have annual base salaries of $275,000, $240,000 and $220,000, respectively, subject to potential increase or decrease from time to time as determined by the Compensation Committee of the Board of Directors. The employment agreements also provide for a target annual bonus as determined by the Compensation Committee. In addition to an annual salary and bonus, the employment agreements provide that the executive officers are entitled to participate in any equity and/or long-term compensation programs established by the Company for senior executive officers and all of the Company’s retirement, group life, health, and disability insurance plans and any other employee benefit plans.
The employment agreements provide for termination of the executive officers at any time by the Company for Cause (as defined in the employment agreements) or without Cause. If an executive officer is terminated for Cause, he will receive his salary through the termination date and reimbursement of any unpaid expenses and accrued but unused vacation/paid time off (“Accrued Obligations”). If the executive officer’s employment is terminated by the Company without Cause, subject to the execution of a release of any and all claims or potential claims against the Company, the executive officer will be entitled to receive a severance payment, his accrued but unpaid bonus, if any, and any Accrued Obligations owed through the termination date, in a lump sum payment within 10 days after the termination date. Mr. Folkes will receive a severance payment equal to 6 months of his base salary. Mr. Lai and Mr. Meyer will each receive a severance payment equal to 1 month’s base salary. If the executive’s employment is terminated as a result of his death or disability, he or his estate will receive his compensation through the date of termination, his accrued and unpaid bonus, if any, and Accrued Obligations through the date of termination.
Each executive officer is required to agree to non-competition, non-solicitation, and confidentiality obligations. The confidentiality covenants are perpetual, while the non-compete and non-solicitation covenants apply during the term of the new employment agreements and for 12 months following the executive officer’s termination.
Potential Payments on Change in Control or Termination without Cause under November RSU Grants
The employment agreements for Mr. Lai, Mr. Folkes, and Mr. Meyer do not contain any provisions providing for the acceleration of any salary or bonus payments if there is a change in control. The RSU Grants awarded to Mr. Lai, Mr. Folkes, and Mr. Meyer on September 9, 2021, and to Mr. Folkes on April 14, 2021 pursuant to our Equity Incentive Plan contain provisions that provide for accelerated vesting of the RSU’s if there is a change of control of the Company (as such term is defined in the Equity Incentive Plan). In addition, if Mr. Lai, Mr. Folkes, or Mr. Meyer is terminated without cause, any RSU’s that would have vested on or before the first anniversary of such termination had the executive remained employed shall be accelerated and deemed to have vested as of the termination date. Any time-based Restricted Shares that have not vested as described above may not be transferred and will be forfeited on the date the Named Executive Officer’s employment with the Company terminates.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS
As of June 1, 2022 (the “Record Date”), we had 9,988,361 shares of our common stock issued and outstanding. The following table sets forth, as of the Record Date, information concerning the beneficial ownership of shares of our common stock held by our directors, our named executive officers, our directors and executive officers as a group, and each person known by us to be a beneficial owner of more than 5% of our outstanding common stock. Unless otherwise indicated, the business address of each of our directors, executive officers and beneficial owners of more than 5% of our outstanding common stock is c/o PetVivo Holdings, Inc., 5251 Edina Industrial Blvd., Edina, MN 55439. Each person has sole voting and investment power with respect to the shares of our common stock, except as otherwise indicated. Beneficial ownership consists of a direct interest in the shares of common stock, except as otherwise indicated.
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As used in this section, the term “beneficial ownership” with respect to a security is defined by Rule 13d-3 under the Securities Exchange Act of 1934, as amended, as consisting of sole or shared voting power (including the power to vote or direct the vote) and/or sole or shared investment power (including the power to dispose of or direct the disposition of) with respect to the security through any contract, arrangement, understanding, relationship or otherwise, subject to community property laws where applicable. Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission which provide that shares of our common stock which may be acquired upon exercise of stock options or warrants which are currently exercisable or become exercisable within 60 days of the date of the table are deemed beneficially owned by their holders. Subject to community property laws, where applicable, the persons or entities named in the table above have sole voting and investment power with respect to all shares of our common stock indicated as beneficially owned by them.
| Name of Officers, Directors, and Beneficial Owners | Amount and Nature of Beneficial Owner | Percent of Class | ||||||
Named Executive Officers and Directors John Lai | 1,092,307 shares | (1) | 10.94 | % | ||||
| Robert J. Folkes | 41,000 shares | (2) | * | |||||
| Randall A. Meyer | 581,767 shares | (3) | 5.78 | % | ||||
| Scott Johnson | 200,941 shares | (4) | 2.01 | % | ||||
| Gregory Cash | 62,149 shares | (5) | * | |||||
| David Deming | 87,244 shares | (6) | * | |||||
| James Martin | 142,318 shares | (7) | 1.42 | % | ||||
| Joseph Jasper | 65,767 shares | (8) | * | |||||
| Robert Rudelius | 189,468 shares | (9) | 1.90 | % | ||||
| All directors and named executive (officers as a group 9 persons) | 2,458,185 shares | (10) | 24.61 | % | ||||
| 5% Stockholders | ||||||||
| John F. Dolan | 581,767 shares | (11) | 5.82 | % | ||||
| Stanley Cruden | 757,372 shares | (12) | 7.58 | % | ||||
| David B. Masters | 1,155,782 shares | (13) | 8.39 | % | ||||
* Less than 1%.
| (1) | Amount consists of 957,992 shares owned directly by Mr. Lai, and warrants to purchase 126,815 shares that are vested or will vest within 60 days of the Record Date. |
| (2) | Amount consists of 41,000 shares directly owned by Mr. Folkes. |
| (3) | Amount consists of 563,568 shares that are owned directly by Mr. Meyer and includes warrants to purchase 13,423 shares that are vested or will vest within 60 days of the Record Date. |
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| (4) | Amount consists of 175,565 shares held by Mr. Johnson directly and includes warrants to purchase 25,376 shares that are vested or will vest within 60 days of the Record Date. |
| (5) | Amount consists of 35,050 shares held by Mr. Cash directly and warrants to purchase 27,099 shares that are vested or will vest within 60 days of the Record Date. |
| (6) | Amount consists of 29,890 shares held by Mr. Deming directly or with his spouse and warrants to purchase 57,354 shares that are vested or will vest within 60 days of the Record Date. |
| (7) | Amount consists of 102,518 shares held by Mr. Martin directly, his two IRA accounts, by Martinmoore Holdings, LLP, a company controlled by Mr. Martin who exercises sole voting and dispositive power over the shares, warrants to purchase 39,800 shares that are vested or will vest within 60 days of the Record Date. |
| (8) | Amount includes 17,542 shares held directly by Mr. Jasper and warrants to purchase 48,225 shares that are vested or will vest within 60 days of the Record Date. |
| (9) | Amount includes 145,333 shares held by Mr. Rudelius directly, in his IRA, and by Noble Ventures, LLC, a company controlled by Mr. Rudelius and warrants to purchase 44,135 shares that are vested or will vest within 60 days of the Record Date. |
| (10) | Amount includes warrants owned by all of our named executive officers and directors, as a group, to purchase an aggregate of 389,727 shares that are vested or will vest within 60 days of the Record Date. |
| (11) | Amount consists of 497,905 shares held directly by Mr. Dolan and warrants to purchase 83,862 shares that are vested or will vest within 60 days of the Record Date. |
| (12) | As reported in Mr. Cruden’s Amendment No. 8 to his Schedule 13G filed with the SEC on May 20, 2022. |
| (13) | Amount consists of 1,114,082 shares held directly by Dr. Masters and warrants to purchase 41,700 shares that are vested or will vest within 60 days of the Record Date. |
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE
The following is a summary of the transactions since April 1, 2020 between the Company and its executive officers, directors, nominees for directors, principal shareholders and related parties involves amounts in excess of $120,000 or that the Company has chosen to voluntarily disclose.
David Masters
Note and Settlement Agreement
Effective September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant to (i) an Amendment to Promissory Note (“Amendment”) which amended certain outstanding promissory notes dated September 5, 2013, February 11, 2014 and August 14, 2014 (collectively, the “Outstanding Notes”) issued by Gel-Del, the Company’s wholly-owned subsidiary, with an aggregate amount owed of $65,700 and (ii) a Promissory Note (“Note”) having a principal amount of $195,000, which represents accrued salary owed to Dr. Masters. The Amendment extends, for up to an additional two years and under the same terms as originally entered into, the Outstanding Notes. The Company also entered into a Settlement and General Release (“Settlement Agreement”) with Dr. Masters that provides for the settlement and general release of any and all past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters may have had, may currently have or may acquire against the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial condition of Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters and his affiliates and the Company on or prior to the September 1, 2020 or (c) the employment of Dr. Masters by the Company (except for claims directly relating to the breach of the Amendment, the Note or the Consulting Agreement).
Effective October 15, 2020 we entered into a note conversion agreement with David B. Masters in which he agreed to convert his Promissory Note having an outstanding principal amount of $192,500 plus a conversion fee of $3,500 into units (the “Units”) consisting of one share of the Company’s common stock and one warrant to purchase one share of Common Stock, as part of the Company’s public offering of Units.
At the closing of the Company’s public offering on August 13, 2021, the Note was converted into 43,556 Units, which consisted of 43,556 shares of the Company’s common stock and warrant to purchase 43,556 shares of our common stock. The warrants have an exercise price of $5.625 per share and expire on August 13, 2026. The Company also repaid the outstanding balance under the Amendment, which was $25,954 as of the closing date of the public offering.
| 38 |
As of May 11, 2022, the Company believed that it had satisfied all of its obligations to Dr. Masters in full. However, the Company received correspondence from an attorney representing Dr. David Masters, alleging, among other items, that the Company breached the Settlement Agreement and Consulting Agreement with him and owes him additional monies pursuant to these agreements. The Company believes that Dr. Master’s claims are without merit and has retained legal counsel to respond to these allegations. The Company does not believe that this matter will have a material impact on its financial position or results of operations.
Warrants
On September 4, 2020, the Company granted warrants for 30,000 shares of its common stock valued at $96,000 to David Masters for production and manufacturing consulting services, at a price of $1.40 per share, vesting in equal monthly amounts over the four-month period ending December 31, 2020 for a term of 5 years from the date of the grant.
John Lai
On December 16, 2019, PetVivo, John Lai, Wesley Hayne and Edward Wink entered into an escrow agreement (“Escrow Agreement”) which replaced the prior escrow agreement dated June 7, 2017 between the parties. Pursuant to the Escrow Agreement, the escrow agent held 254,018 shares of the Company’s common stock registered in the name of Mr. Lai in escrow, which shares would be released when (i) PetVivo obtains equity financing in an amount of at least $5 million and (ii) PetVivo’s listed on Nasdaq, the New York Stock Exchange or an equivalent securities exchange. This condition was met on August 13, 2021 and the shares were released to Mr. Lai.
In February of 2020, the Company issued John Lai 15,349 shares of common stock pursuant to his cashless conversion of an outstanding warrant for 42,188 shares of common stock with a strike price of $1.48 per share.
On October 30, 2020, Mr. Lai converted 42,188 warrants into common stock with an exercise and conversion price of $1.33 per share into 32,347 shares of our common stock on a cashless basis pursuant to the warrant’s cashless conversion feature. In January 2021, Mr. Lai converted 42,188 warrants into common stock with an exercise and conversion price of $1.33 per share into 38,516 shares of our common stock on a cashless basis pursuant to the warrant’s cashless conversion feature.
In May 2021, Mr. Lai converted 42,188 warrants into common stock with an exercise and conversion price of $1.33 per share into 36,915 shares of our common stock on a cashless basis pursuant to the warrants cashless conversion feature.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The following table presents the fees for professional audit services rendered by Assurance for the audit of the Company’s annual financial statements for the fiscal years ended March 31, 2022 and 2021, and fees for other services rendered by Assurance during those periods:
| Fee Category | Fiscal 2022 | Fiscal 2021 | ||||||
| Audit Fees | $ | 73,605 | $ | 45,130 | ||||
| Audit-Related Fees | 0 | 0 | ||||||
| Tax Fees | 0 | 0 | ||||||
| All Other Fees | 0 | 0 | ||||||
| Total Fees | $ | 73,605 | $ | 45,130 | ||||
Audit Fees. Audit fees consist of fees related to professional services rendered in connection with the audit of our annual audited financial statements and review of our quarterly unaudited financial statements or services that are normally provided by the accountant in connection with statutory and regulatory filings during these time periods.
Audit-Related Fees. Audit-related fees, which were not incurred, would consist of fees billed for services reasonably related to the performance of the audit or review of the financial statements outside of those fees disclosed under “Audit Fees.”
Tax Fees. Tax fees, which were not incurred, would include fees for professional services for tax compliance, tax advice, and tax planning work.
All Other Fees. All Other fees, which were not incurred, would include fees for products and services other than the services reported above.
Pre-Approval Policies and Procedures
Prior to engaging our accountants to perform a particular service, our Board of Directors obtains an estimate for the service to be performed. All of the services described above were approved by the Board of Directors in accordance with its procedures.
| 39 |
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
| (a) | Financial Statements. |
Included in Item 8
| (b) | Exhibits required by Item 601. |
| 40 |
*Filed herewith
+ Indicates compensatory plan
ITEM 16. FORM 10-K SUMMARY
Not Applicable.
| 41 |
ITEM 17.
SIGNATURES
Pursuant to the requirements of the Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
PetVivo Holdings, Inc., a Nevada corporation | ||
| June 24, 2022 | By: | /s/ John Lai |
| John Lai | ||
| Its: | CEO, President and Director (Principal Executive Officer) | |
| June 24, 2022 | By: | /s/ Robert J. Folkes |
| Robert J. Folkes | ||
| Its: | Chief Financial Officer (Principal Financial and Accounting Officer) | |
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated.
| /s/ John Lai | June 24, 2022 | |
| John Lai | ||
| CEO, President and Director | ||
| (Principal Executive Officer) | ||
| /s/ Robert J. Folkes | June 24, 2022 | |
| Robert J. Folkes | ||
| Chief Financial Officer | ||
| /s/ Robert Rudelius | June 24, 2022 | |
| Robert Rudelius | ||
| Director |
| /s/ David Deming | June 24, 2022 | |
| David Deming | ||
| Director | ||
| /s/ Joseph Jasper | June 24, 2022 | |
| Joseph Jasper | ||
| Director | ||
| /s/ Scott Johnson | June 24, 2022 | |
| Scott Johnson | ||
| Director | ||
| /s/ Gregory Cash | June 24, 2022 | |
| Gregory Cash | ||
| Director | ||
| /s/ James Martin | June 24, 2022 | |
| James Martin | ||
| Director |
| 42 |
PETVIVO HOLDINGS, INC.
INDEX TO FINANCIAL STATEMENTS
| Audited Financial Statements for the Years Ended March 31, 2022 and 2021 | |
| Report of Independent Registered Public Accounting Firm PCAOB ID: |
F-2 |
| Consolidated Balance Sheets – March 31, 2022 and 2021 | F-3 |
| Consolidated Statements of Operations for the Years Ended March 31, 2022 and 2021 | F-4 |
| Consolidated Statements of Changes in Stockholders’ Equity (Deficit) | F-5 |
| Consolidated Statements of Cash Flows for the Years Ended March 31, 2022 and 2021 | F-6 |
| Notes to Consolidated Financial Statements | F-7 |
| F-1 |
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Stockholders and Board of Directors
of Petvivo Holdings, Inc.
Opinion on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of Petvivo Holdings, Inc. (the Company) as of March 31, 2022 and 2021, and the related consolidated statements of operations, changes in stockholders’ equity (deficit) and cash flows for each of the two years in the period ended March 31, 2022 and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of March 31, 2022 and 2021, and the results of its operations and its cash flows for each of the two years in the period ended March 31, 2022, in conformity with accounting principles generally accepted in the United States of America.
Explanatory Paragraph- Going Concern
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 14 to the consolidated financial statements, the Company has suffered recurring losses for the year ended March 31, 2022. For the year ended March 31, 2022, the Company had a net loss of $5,014,995 and net cash used in operating activities of $4,174,957; and as of March 31, 2022 an accumulated deficit of $63,126,421. These factors raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 14. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
Critical Audit Matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
We did not identify any critical audit matters that need to be communicated.
| /s/
|
|
| We have served as the Company’s auditor since 2019. | |
June 24, 2022 |
| F-2 |
PETVIVO HOLDINGS, INC.
CONSOLIDATED BALANCE SHEETS
| March 31, 2022 | March 31, 2021 | |||||||
| Current Assets | ||||||||
| Cash and cash equivalents | $ | $ | ||||||
| Accounts receivable | ||||||||
| Inventory, net | ||||||||
| Prepaid expenses and other assets | ||||||||
| Total Current Assets | ||||||||
| Property and Equipment, net | ||||||||
| Other Assets: | ||||||||
| Deferred offering costs | ||||||||
| Operating lease right-of-use asset | ||||||||
| Patents and trademarks, net | ||||||||
| Security deposits | ||||||||
| Total Other Assets | ||||||||
| Total Assets | $ | $ | ||||||
| Liabilities and Stockholders’ Equity (Deficit) | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | $ | ||||||
| Accrued expenses | ||||||||
| Convertible notes and accrued interest | ||||||||
| Accrued expenses – related parties | ||||||||
| Operating lease liability – current portion | ||||||||
| PPP Loan and accrued interest | ||||||||
| Notes payable and accrued interest - directors | ||||||||
| Notes payable and accrued interest – related party | ||||||||
| Note payable and accrued interest (current portion) | ||||||||
| Total Current Liabilities | ||||||||
| Other Liabilities | ||||||||
| Note payable and accrued interest (net of current portion) | ||||||||
| Operating lease liability (net of current portion) | ||||||||
| Share-settled debt obligation – related party, net of debt discount | ||||||||
| Total Other Liabilities | ||||||||
| Total Liabilities | ||||||||
| Commitments and Contingencies (see Note 13) | ||||||||
| Stockholders’ Equity (Deficit): | ||||||||
| Preferred stock, par value $, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021 | ||||||||
| Common stock, par value $, shares authorized, and shares issued and outstanding at March 31, 2022 and March 31, 2021, respectively | ||||||||
| Additional Paid-In Capital | ||||||||
| Accumulated Deficit | ( | ) | ( | ) | ||||
| Total Stockholders’ Equity (Deficit) | ( | ) | ||||||
| Total Liabilities and Stockholders’ Equity (Deficit) | $ | $ | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-3 |
PETVIVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended March 31, | ||||||||
| 2022 | 2021 | |||||||
| Revenues | $ | $ | ||||||
| Cost of Sales | ||||||||
| Gross Profit (Loss) | ( | ) | ||||||
| Operating Expenses: | ||||||||
| Sales and Marketing | ||||||||
| Research and Development | ||||||||
| General and Administrative | ||||||||
| Total Operating Expenses | ||||||||
| Operating Loss | ( | ) | ( | ) | ||||
| Other Income (Expense) | ||||||||
| Gain on Debt Extinguishment | ||||||||
| Forgiveness of PPP loan and accrued interest | ||||||||
| Derivative Expense | ( | ) | ||||||
| Interest Income (Expense) | ( | ) | ||||||
| Total Other Income (Expense) | ( | ) | ||||||
| Net Loss before taxes | ( | ) | ( | ) | ||||
| Income Tax Provision | ||||||||
| Net Loss | $ | ( | ) | $ | ( | ) | ||
| Net Loss Per Share: | ||||||||
| Basic and Diluted | $ | ( | ) | $ | ( | ) | ||
| Weighted Average Common Shares Outstanding: | ||||||||
| Basic and Diluted | ||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
Shares retroactively restated for 1-for-4 reverse stock split in December of 2020.
| F-4 |
PETVIVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY(DEFICIT)
| Shares | Amount | Capital | Deficit | Issued | Total | |||||||||||||||||||
| Year Ended March 31, 2022 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Common Stock to be | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Issued | Total | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | ( | ) | ||||||||||||||||
| Common stock sold | ||||||||||||||||||||||||
| Warrants sold | - | |||||||||||||||||||||||
| Cash paid to exercise warrants | ||||||||||||||||||||||||
| Cashless warrant exercise | ( | ) | ||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock issued for debt conversion | ||||||||||||||||||||||||
| Vesting of restricted stock units | ( | ) | ||||||||||||||||||||||
| Stock and warrants granted for debt conversion | ||||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2022 | $ | $ | $ | ( | ) | $ | ||||||||||||||||||
| Year Ended March 31, 2021 | ||||||||||||||||||||||||
| Common Stock | Additional Paid-in | Accumulated | Common Stock to be | |||||||||||||||||||||
| Shares | Amount | Capital | Deficit | Issued | Total | |||||||||||||||||||
| Balance at March 31, 2020 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
| Adjustment for | ||||||||||||||||||||||||
| Common stock sold | ( | ) | ||||||||||||||||||||||
| Cash paid to exercise warrants | ||||||||||||||||||||||||
| Stock issued for services | ||||||||||||||||||||||||
| Warrants issued with convertible debt | - | |||||||||||||||||||||||
| Stock-based compensation | - | |||||||||||||||||||||||
| Stock issued for debt conversion | ||||||||||||||||||||||||
| Cashless warrant exercises | ( | ) | ||||||||||||||||||||||
| Net loss | - | ( | ) | ( | ) | |||||||||||||||||||
| Balance at March 31, 2021 | $ | $ | $ | ( | ) | $ | $ | ( | ) | |||||||||||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-5 |
PETVIVO HOLDINGS, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
| For the Year Ended | ||||||||
| March 31, 2022 | March 31, 2021 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES | ||||||||
| Net Loss For The Period | $ | ( | ) | $ | ( | ) | ||
| Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities: | ||||||||
| Derivative expense | ||||||||
| Stock-based compensation | ||||||||
| Stock issued for services | ||||||||
| Investor relations services paid in stock | ||||||||
| Depreciation and amortization | ||||||||
| Amortization of debt discount | ||||||||
| Forgiveness of PPP loan and accrued interest | ( | ) | ||||||
| (Gain) on debt extinguishment | ( | ) | ||||||
| Changes in Operating Assets and Liabilities | ||||||||
| (Increase) decrease in prepaid expenses and other assets | ( | ) | ||||||
| Increase in accounts receivable | ( | ) | ||||||
| Increase in inventories | ( | ) | ||||||
| Interest accrued on convertible notes payable | ( | ) | ( | ) | ||||
| Interest accrued on notes payable - related party | ||||||||
| Interest accrued on notes payable - directors | ||||||||
| Interest accrued on PPP Loan | ||||||||
| Increase (decrease) in accounts payable and accrued expense | ||||||||
| Increase (decrease) in accrued expenses - related party | ( | ) | ( | ) | ||||
| Net Cash Used In Operating Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM INVESTING ACTIVITIES | ||||||||
| Purchase of equipment | ( | ) | ( | ) | ||||
| Disbursements for patents and trademarks | ( | ) | ( | ) | ||||
| Net Cash Used in Investing Activities | ( | ) | ( | ) | ||||
| CASH FLOWS FROM FINANCING ACTIVITIES | ||||||||
| Proceeds from stock and warrants sold | ||||||||
| Proceeds from exercise of warrants | ||||||||
| Decrease (Increase) in deferred offering costs | ( | ) | ||||||
| Equity sale proceeds receivable | ||||||||
| Proceeds from PPP loan | ||||||||
| Proceeds from notes payable - directors | ||||||||
| Proceeds from notes payable | ||||||||
| Proceeds from convertible notes | ||||||||
| Repayments of notes payable | ( | ) | ( | ) | ||||
| Repayments of PPP loan | ( | ) | ||||||
| Repayments of notes payable - related party | ( | ) | ( | ) | ||||
| Repayments of notes payable - directors | ( | ) | ||||||
| Net Cash Provided by Financing Activities | ||||||||
| Net Increase in Cash and Cash Equivalents | ||||||||
| Cash and Cash Equivalents at Beginning of Year | ||||||||
| Cash and Cash Equivalents at End of Year | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION | ||||||||
| Cash Paid During The Year For: | ||||||||
| Interest | $ | $ | ||||||
| SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES | ||||||||
| Derivative treated as debt discount | $ | $ | ||||||
| Stock granted for debt conversion | $ | $ | ||||||
| Warrants issued in debt financing | $ | $ | ||||||
| Stock granted for share-settled debt obligation conversion | $ | |||||||
| Stock granted for investor relations services | $ | $ | ||||||
| Increase to operating lease right of use asset and operating lease liability | $ | $ | ||||||
| Accounts payable – related party converted to share-settlement debt obligation – related party | $ | $ | ||||||
| Leasehold improvements included in accounts payable | $ | $ | ||||||
| Warrants converted | $ | $ | ||||||
| Note payable – related party converted into common stock | $ | $ | ||||||
The accompanying notes are an integral part of these audited consolidated financial statements.
| F-6 |
PetVivo Holdings, Inc.
Notes to Consolidated Financial Statements
March 31, 2022 and 2021
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, in which Gel-Del and its wholly-owned subsidiary, Cosmeta, Inc. became wholly-owned subsidiaries of the Company.
In
October 2020,
| (C) | Principles of Consolidation |
The accompanying consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota corporations, Gel-Del Technologies, Inc. and PetVivo, Inc. All intercompany accounts have been eliminated upon consolidation.
| (D) | Use of Estimates |
In preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from those estimates. Significant estimates include inventory obsolescence, 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, lease assets and liabilities and valuation of deferred tax assets.
| (E) | Cash and Cash Equivalents |
The
Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents.
The Company had
| (F) | Concentration-Risk |
The Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of March 31, 2022, 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.
| (G) | 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 (
| F-7 |
| (H) | 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 useful life of
| (I) | 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 warrants outstanding as of March 31, 2022, with varying exercise prices ranging from $ to $ per share. The weighted average exercise price for these warrants is $ per share. These warrants are excluded from the weighted average number of shares because they are considered anti-dilutive.
The Company has restricted stock units outstanding as of March 31, 2022, with varying exercise prices ranging from $ to $ per share. The weighted average exercise price for these restricted stock units is $ per share. These restricted stock units are excluded from the weighted average number of shares because they are considered anti-dilutive.
The Company has options outstanding as of March 31, 2022, with varying exercise prices ranging from $ to $ per share. The weighted average exercise price for these options is $ per share. These options are excluded from the weighted average number of shares because they are considered anti-dilutive.
The Company has warrants outstanding as of March 31, 2021, with varying exercise prices ranging from $ to $ per share. The weighted average exercise price for these warrants is $ per share. These warrants are excluded from the weighted average number of shares because they are considered anti-dilutive.
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 anti-dilutive.
At
March 31, 2021, the Company had $
| (J) | 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 cost charged to customers are reported as an offset to the respective shipping cost. The Company does not have any significant financing components as payment is received at or shortly after the point of sale.
| F-8 |
| (K) | 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.
| (L) | Research and Development |
The Company expenses research and development costs as incurred.
| (M) | Fair Value of Financial Instruments |
The Company applies the accounting guidance under FASB ASC 820-10, “Fair Value Measurements”, as well as certain related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The guidance also establishes a fair value hierarchy for measurements of fair value as follows:
| ● | Level 1 - quoted market prices in active markets for identical assets or liabilities. | |
| ● | Level 2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. | |
| ● | Level 3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. |
The Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, accrued expenses – related parties, notes payable and accrued interest, and notes payable and accrued interest - related party, notes payable – directors and others. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2022 and 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
| F-9 |
| (N) | Stock-Based Compensation - Non-Employees |
Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
● Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder’s expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder’s expected exercise behavior. If the Company is a newly formed corporation or shares of the Company are thinly traded the contractual term of the share options and similar instruments is used as the expected term of share options and similar instruments as the Company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.
● Expected volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.
● Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments.
● 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.
| F-10 |
| (O) | Income Taxes |
The Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740. Deferred tax assets and liabilities are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
As required by ASC Topic 450, the Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. At the adoption date, the Company applied ASC Topic 740 to all tax positions for which the statute of limitations remained open. As a result of the implementation of ASC Topic 740, the Company did not recognize any change in the liability for unrecognized tax benefits.
The Company is not currently under examination by any federal or state jurisdiction.
The Company’s policy is to record tax-related interest and penalties as a component of operating expenses.
| (P) | Inventory |
Inventories are recorded in accordance with ASC 330, 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.
| (Q) | 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.
| F-11 |
| (R) | Reclassifications |
Certain accounts in the prior year financial statements have 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. In addition, the change in deferred offering costs is classified as a financing activity in the statement of cash flows. There was no effect on the change in net assets or net increase in cash and cash equivalents from these reclassifications.
NOTE 2 – INVENTORY
As
of March 31, 2022 and March 31, 2021, the Company had inventory of $
The inventory components are as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Finished Goods | $ | $ | ||||||
| Work in Process | ||||||||
| Raw Materials | ||||||||
| Manufacturing Supplies | ||||||||
| Reserve for Obsolete Inventory | ( | ) | ||||||
| Total Net | $ | $ | ||||||
At
March 31, 2022, both the inventory cost of $
The
Company recognized a benefit to cost of sales of $
For the year ended March 31, 2022, the Company reported a negative gross margin on sales as a result of production costs to build inventory levels to support the launch of our product in October 2021.
NOTE 3 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS
As
of March 31, 2022, the Company had $
As
of March 31, 2021, the Company had $
| F-12 |
NOTE 4 –PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Leasehold improvements | $ | $ | ||||||
| Production equipment | ||||||||
| R&D equipment | ||||||||
| Computer equipment and furniture | ||||||||
| Total, at cost | ||||||||
| Accumulated depreciation | ( | ) | ( | ) | ||||
| Total Net | $ | $ | ||||||
During
the year ended March 31, 2022 and 2021, depreciation expense was $
NOTE 5 – INTANGIBLE ASSETS
The components of intangible assets, all of which are finite-lived, were as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Patents | $ | $ | ||||||
| Trademarks | ||||||||
| Total at cost | ||||||||
| Accumulated Amortization | ( | ) | ( | ) | ||||
| Total net | $ | $ | ||||||
During
the year ended March 31, 2022 and 2021, amortization expense was $
NOTE 6 – ACCRUED EXPENSES
The components of accrued expenses were as follows:
| March 31, 2022 | March 31, 2021 | |||||||
| Accrued payroll and related taxes | $ | $ | ||||||
| Accrued lease termination expense | ||||||||
| Total | $ | $ | ||||||
Pursuant
to a lease wherein our subsidiary, Gel-Del Technologies, Inc., was the lessee until and through the lease’s termination in fiscal
year 2017-2018, the Company had recorded as of those fiscal years approximately $
NOTE 7 - RELATED PARTY NOTES PAYABLE
At
March 31, 2022 and March 31, 2021, the Company is obligated for a related party note payable and accrued interest in the total amount
of $ and $
| F-13 |
The
Company entered into notes payable with four directors in March 2021 which accrue interest at a rate of
NOTE 8 – NOTES PAYABLE AND CONVERTIBLE NOTES
In
January 2020, the Company entered into a lease amendment for our corporate office facility whereby the lease term was extended through
November of 2026 in exchange for a loan of $
On
May 1, 2020, the Company received $
At
March 31, 2021, the Company is obligated for several convertible notes payable in the total amount of $
The
Company entered into a convertible note payable held by RedDiamond Partners, LLC (“RDCN”) on June 15, 2020, whereby the
RDCN was convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $/share. The RDCN was
issued in the principal amount of $
| F-14 |
Effective
September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant
to an Amendment to Promissory Note and a Promissory Note. The Amendment to Promissory Note extends, for up to an additional two years
and under the same terms as originally entered into, the original promissory notes which were issued by Gel-Del Technologies, Inc., a
wholly owned subsidiary of the Company, to Dr. Masters. Because this Amendment to Promissory Note simply extended the term over which
the Company is required to pay back the outstanding balance this change has been treated as a debt modification. The outstanding principal
of $
The
Promissory Note was entered into with an effective date of September 1, 2020 in a principal amount of $
A Settlement and General Release (“Settlement Agreement”) was also executed by Dr. Masters to the benefit of the Company as a settlement and general release of any and all past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters ever had, may have or may acquire against the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial condition of the Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters’ and his affiliates and the Company on or prior to the effective date of the Settlement Agreement, or (c) the employment of Dr. Masters by the Company (except for claims directly relating to the breach of the Amendment to Promissory Note, the Promissory Note or the Consulting Agreement).
On
October 15, 2020, the Company entered into a note conversion agreement with David Masters whereby the Company and Dr. Masters both agreed
to convert his note payable in the then outstanding balance of $
At
March 31, 2022 and March 31, 2021, the Company was obligated for principal and accrued interest in the amounts of $-
| F-15 |
NOTE 10 – DERIVATIVE LIABILITY AND EXPENSE
The Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instruments, the instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The Company used the following assumptions for determining the fair value of the conversion feature in the RDCN referenced in Note 8 to these financial statements, under the binomial pricing model with Monte Carlo simulations at June 15, 2020, September 30, 2020 and October 26, 2020, the issuance, balance sheet, and conversion dates, respectively:
| June 15, 2020 | September 30, 2020 | October 26, 2020 | ||||||||||
| Stock price on valuation date | $ | $ | $ | |||||||||
| Conversion price | $ | $ | $ | |||||||||
| Days to maturity | ||||||||||||
| Weighted-average volatility* | % | % | % | |||||||||
| Risk-free rate | % | % | % | |||||||||
The
initial valuation of $
NOTE 11–ACCRUED EXPENSES – RELATED PARTY
At
March 31, 2021, the Company was obligated to pay $
In
August 2021, the total amount due to the related party was paid from the proceeds of its Public Offering and there is
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 of $
NOTE 13 – COMMITMENTS AND CONTINGENCIES
Lease Obligations
The
Company entered into an eighty-four month lease for
| F-16 |
The
Company entered into an sixty-three month lease for
Rent
expense for the years ended March 31, 2022 and March 31, 2021 were $
The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2022:
| 2023 | $ | |||
| 2024 | ||||
| 2025 | ||||
| 2026 | ||||
| 2027 | ||||
| Less: amount representing interest | ( | ) | ||
| Total | $ |
In
connection with the lease that was added in January 2022, the Company recorded an operating lease right of use asset and corresponding
operating lease liability of $
| Present value of future base rent lease payments | $ | |||
| Present value of future base rent lease payments – net | $ |
As of March 31, 2022, the present value of future base rent lease payments – net is classified between current and non-current assets and liabilities as follows:
| Operating lease right-of-use asset | $ | |||
| Total operating lease assets | ||||
| Operating lease current liability | ||||
| Operating lease other liability | ||||
| Total operating lease liabilities | $ |
Employment Agreements
The Company has employment agreements with its executive officers. As of March 31, 2022, 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.
Legal Proceedings
The Company has received correspondence from an attorney representing Dr. David Masters, our former Chief Technology Officer and former 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.
| F-17 |
Purchase Commitment
We
issued purchase orders in the fiscal year ended March 31, 2022 totaling $
NOTE 14 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern. The financial statements have been prepared assuming that
we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in
the ordinary course of business. In August 2021, we raised net proceeds of approximately $
The Company expects to incur losses in the future as its commercially launches its first product. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months after the date of issuance of these consolidated 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 – STOCKHOLDERS’ EQUITY
Equity Incentive Plan
On July 10, 2020, our Board of Directors unanimously approved the PetVivo Holdings, Inc “2020 Equity Incentive Plan” (the “2020 Plan”), subject to approval by our stockholders at a Meeting of Stockholders held on September 22, 2020, when it was approved by our stockholders and became effective. The number of shares of our common stock authorized under the 2020 Plan is shares. Unless sooner terminated by the Board, the 2020 Plan will terminate at midnight on . The number of shares available to grant under the Plan was at March 31, 2022.
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.
| F-18 |
The aggregate number of shares of PetVivo common stock available and reserved to be issued under the 2020 Plan is shares, but includes the following limits:
| ● | the maximum aggregate number of shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will be shares; provided that such limit will not apply to any election of a Non-Employee Director to receive shares of Common Stock in lieu of all or a portion of any annual Board, committee, chair or other retainer, or any meeting fees otherwise payable in cash. |
Awards can be granted for no cash consideration or for any cash and other consideration as determined by the Committee. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares of PetVivo common stock, other securities or property, or any combination of these in a single payment, installments or on a deferred basis. The exercise price per share of any stock option and the grant price of any stock appreciation right may not be less than the fair market value of PetVivo common stock on the date of grant. The term of any award cannot be longer than ten years from the date of grant. Awards will be adjusted in the event of a stock dividend or other distribution, recapitalization, forward or reverse stock split, reorganization, merger or other business combination, or similar corporate transaction, in order to prevent dilution or enlargement of the benefits or potential benefits provided under the 2020 Plan.
The 2020 Plan permits the following types of awards: stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee director awards, other stock-based awards, and dividend equivalents.
Units – Public Offering
On
August 13, 2021, the Company sold an aggregate of units at a price to the public of $ 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 $
The
Company received gross proceeds of $
Pursuant
to the Underwriting Agreement, we issued warrants (the “Underwriter’s Warrants”) to ThinkEquity to purchase
Common Stock
For the year ended March 31, 2022, the Company issued shares of common stock as follows:
i)
shares in April 2021 pursuant to a conversion of a $
ii)
| F-19 |
iii)
shares in May 2021 pursuant to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase
of
iv)
shares in May 2021 pursuant to a warrant holder’s cashless exercise of a warrants for purchase of
v)
shares during May and June of 2021 in exchange for $
vi)
shares in June 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of
vii)
shares in July 2021 in exchange for $
viii)
shares and warrants, as part of the units issued on August 13, 2021 in the Public Offering, at a price of $
ix)
shares and warrants in August 2021 pursuant to a conversion of $
x)
shares in August 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of
xi)
shares in September 2021 pursuant to a warrant holder’s exercise of warrants for purchase with a strike price of $
xii)
shares in September 2021 to a service provider for future marketing and investor relations services valued at $
xiii)
shares in October 2021 to members of the Board of Directors valued at
xiv)
shares in December 2021 to a service provider for consulting services valued at $
xv) shares in December 2021 related to vesting of restricted stock units;
xvi) shares in January 2022 related to vesting of restricted stock units;
xvii)
shares in January 2022 to a service provider for consulting services valued at $
xviii)
shares in March 2022 to a service provider for future marketing and investor relations services valued at $
xix)
shares in March 2022 to service providers for consulting services valued at $
xx) shares in March 2022 related to vesting of restricted stock units.
For the year ended March 31, 2021, the Company issued shares of common stock as follows:
i) shares valued at $ and recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term;
ii)
shares with a relative value of $
| F-20 |
iii)
shares valued at $
iv)
shares valued at $
v)
shares during August and September of 2020 in exchange for $
vi) shares valued at $ to directors and officers on September 14, 2020 as bonuses for work over the past two years as follows:
| a. | to John Lai | |
| b. | to John Carruth | |
| c. | to John Dolan | |
| d. | to Gregory Cash | |
| e. | to David Deming | |
| f. | to Robert Rudelius | |
| g. | to Randy Meyer | |
| h. | to Jim Martin | |
| i. | to Scott Johnson | |
| j. | to Joseph Jasper | |
| k. | to David Masters |
vii)
shares valued at $
viii)
shares in October 2020 pursuant to conversion of $
ix)
shares in October 2020 pursuant to John Lai’s cashless exercise of a warrant for purchase of shares of common stock
at a strike price of $
x)
shares in October, November, and December to twenty accredited investors pursuant to their exercising of warrants with strike
prices of $
xi)
shares in October 2020 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of shares of common
stock at a strike price of $
xii)
shares on January 2021 pursuant to a conversion of a $
xiii)
shares in January 2021 pursuant to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase
of shares of common stock at a strike price of $
xiv)
shares in January 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of shares of common
stock at a strike price of $
xv)
shares in February 2021 pursuant to a warrant holder’s cashless exercise of warrant for purchase of shares of common
stock at a strike price of $
xvi)
shares in March 2021 to a director pursuant to a warrant holder’s exercise of warrants for purchase with a strike price of
$
| F-21 |
On October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention of escrowed shares that he never returned to the Company’s Treasury.
John
Lai (CEO & Director), Randall Meyer (Director), and John Dolan (Secretary & Director) are all related parties, and the reduction
of $
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
Consolidated Statements of Operations for time-based restricted stock units was $
Our time-based restricted stock unit activity for the year ended March 31, 2022 was as follows:
| Units Outstanding | Weighted Average Grant Date Fair Value Per Unit | Aggregate Intrinsic Value (1) | ||||||||||
| Balance at March 31, 2021 | ||||||||||||
| Granted | $ | |||||||||||
| Expired | ( | ) | $ | |||||||||
| Vested | ( | ) | ||||||||||
| Balance at March 31, 2022 | $ | $ | ||||||||||
| (1) |
Stock Options
Stock options issued to employees typically vest over and have a contractual term of . Stock-based compensation expense included in the Consolidated Statements of Operations for stock options was $ for the year ended March 31, 2022. options vested in the year ended March 31, 2022. At March 31, 2022, there was approximately $ of total unrecognized stock option expense which is expected to be recognized on a straight-line basis over a weighted-average period of years.
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Annually, we make predictive assumptions regarding future stock price volatility, dividend yield, expected term and forfeiture rate. The dividend yield assumption is based on expected annual dividend yield on a grant date. To date, no dividend on common stock has been paid by us. Expected volatility for grants is based on our average historical volatility over a similar period as the expected term assumption used for our options as the expected volatility. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected term of the options for each option group. We use the “simplified method” to determine the expected term of the stock option grants. We utilize this method because we do not have sufficient public company exercise date in which to make a reasonable estimate.
| F-22 |
The following table sets forth the estimated fair values of our stock options granted:
| Year Ended | ||||
| March 31, 2022 | ||||
| Expected term | ||||
| Expected volatility | - | % | ||
| Risk-free interest rate | – | % | ||
| Expected dividend yield | % | |||
| Fair value on the date of grant | $ | - $ | ||
Our stock option activity for the year ended March 31, 2022 was as follows:
| Options Outstanding | Weighted- Average Exercise Price Per Share (1) | Weighted-Average Remaining Contractual Life | Aggregate Intrinsic Value (2) | |||||||||||||
| Balance at March 31, 2021 | - | |||||||||||||||
| Granted | $ | - | ||||||||||||||
| Balance at March 31, 2022 | $ | years | $ | |||||||||||||
| (1) | |
| (2) |
There were options exercisable at March 31, 2022.
The following summarizes additional information about our stock options:
| Year Ended | ||||
| March 31, 2022 | ||||
| Number of: | ||||
| Non-vested options, beginning of year | ||||
| Non -vested options, end of year | ||||
| Vested options, end of year | ||||
| Year Ended | ||||
| March 31, 2022 | ||||
| Weighted-average grant date fair value of: | ||||
| Non-vested options, beginning of year | ||||
| Non-vested options, end of year | $ | |||
| Vested options, end of year | ||||
| Forfeited options, during the year | ||||
Warrants
During
the year ended March 31, 2022, the Company issued warrants to purchase an aggregate of
| ● | warrants
to purchase |
| F-23 |
| ● | warrants
to purchase | |
| ● | warrants
to purchase shares of the Company’s common stock at an exercise price of $ |
These warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:
i)
an expected volatility of the Company’s shares on the date of the grants of approximately
ii)
risk-free rate identical to the U.S. Treasury
During the year ended March 31, 2021, the Company issued warrants to purchase a total of shares of common stock as follows:
i)
warrants issued for
ii)
warrants issued for
iii)
warrants issued with debt for
iv)
warrants for
v)
warrants for
These warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:
| i) | an
expected volatility of the Company’s shares on the date of the grants of between approximately | |
| ii) | ii)
risk-free rates identical to the U.S. Treasury |
| F-24 |
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 | Warrants Exercisable | Weighted- Average Exercisable Price | |||||||||||||
| Outstanding, March 31, 2020 | $ | $ | ||||||||||||||
| Issued in conjunction with convertible debt | ||||||||||||||||
| Sold for Cash | ||||||||||||||||
| Issued and granted | ||||||||||||||||
| Exercised for cash | ( | ) | ( | ) | ||||||||||||
| Cashless warrant exercises | ( | ) | ( | ) | ||||||||||||
| Expired | ( | ) | ( | ) | ||||||||||||
| Outstanding, March 31, 2021 | ||||||||||||||||
| Issued and granted | ||||||||||||||||
| Exercised for cash | ( | ) | ( | ) | ||||||||||||
| Cashless warrant exercises | ( | ) | ( | ) | ||||||||||||
| Expired | ( | ) | ( | ) | ||||||||||||
| Cancelled | ( | ) | ( | ) | ||||||||||||
| Outstanding, March 31, 2022 | $ | $ | ||||||||||||||
| Warrants Outstanding | Warrants Exercisable | ||||||||||||||||||||
| Range of Warrant Exercise Price | Number of Warrants | Weighted- Average Exercise Price | Weighted-Average Remaining Contractual Life (Years) | Number of Warrants | Weighted- Average Exercise Price | ||||||||||||||||
| $-$ | $ | $ | |||||||||||||||||||
| - | |||||||||||||||||||||
| - | |||||||||||||||||||||
| Total | $ | $ | |||||||||||||||||||
For the year ended March 31, 2022 and 2021, the total stock based compensation on all instruments was $ and $, respectively. It is expected that the Company will recognize expense after March 31, 2022 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as in the amount of approximately $.
NOTE 16 – INCOME TAXES
The following table presents the net deferred tax assets as of March 31, 2022 and 2021:
| 2022 | 2021 | |||||||
| Net operating loss carryforwards | $ | $ | ||||||
| Stock compensation | ||||||||
| Other | ||||||||
| Total deferred tax assets | ||||||||
| Valuation allowance | ( | ) | ( | ) | ||||
| Net deferred tax assets | $ | $ | ||||||
| F-25 |
Current income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits) are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.
Deferred tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the differences are expected to affect taxable income. The Company’s deferred income taxes arise from the temporary differences between financial statement and income tax recognition of net operating losses. These loss carryovers would be limited under the Internal Revenue Code should a significant change in ownership occur within a three-year period.
At
March 31, 2022 and 2021, respectively, the Company had net operating loss carryforwards of approximately $
Of
the approximately $
Income tax expense (benefits) to the statutory rate of 21% for the years ended March 31, 2022 and 2021 is as follows:
| 2022 | 2021 | |||||||
| Tax benefits at statutory rate | % | % | ||||||
| State income tax benefit, net of federal | % | % | ||||||
| Tax rate adjustment to deferred tax assets | % | |||||||
| % | % | |||||||
| Valuation allowance | ( | %) | ( | %) | ||||
| Net effective rate | ||||||||
The
Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As
of March 31, 2022 and 2021, the Company had
The Company is subject to taxation in the U.S. and Minnesota. Our tax years for 2019 and forward are subject to examination by tax authorities. The Company is not currently under examination by any tax authority.
Management has evaluated tax positions in accordance with FASB ASC 740, and has not identified any tax positions, other than those discussed above, that require disclosure.
NOTE 17 – SUBSEQUENT EVENT
On June 17, 2022, the Company entered into an exclusive distribution agreement (“agreement”) with MWI Veterinary Supply Company. The term of the agreement is for two years and can be extended for a third year if certain milestones are achieved.
| F-26 |
