ITEM
2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
GENERAL
We
are a biomedical device company engaged in the business of developing, manufacturing and commercializing biomedical technology
and related healthcare patented products to treat pets and other animals suffering from arthritis and other painful afflictions.
Our initial product, which is now being commercialized, is a medical device featuring the injection of patented gel-like protein-based
biomaterials into the afflicted body parts of dogs, horses, and other pets and animals suffering from osteoarthritis.
We
were incorporated in Nevada in 2009 under a former name. In 2014, we entered our current business through a reverse merger with
PetVivo Inc., a Minnesota corporation founded in 2013. From this merger, PetVivo Inc. became our wholly owned subsidiary, and
concurrently we changed our Nevada corporate name to PetVivo Holdings, Inc. Our common stock is publicly traded in the over-the-counter
(OTC) market under the symbol “PETV.”
Merger
With Gel-Del
Through
a lengthy negotiation and merger process commenced in late 2014, we eventually acquired Gel-Del Technologies, Inc., a Minnesota
corporation (“Gel-Del”) effective in April 2017. Prior to this Gel-Del merger, we had licensed Gel-Del’s biomedical
technology for use in treatment of pets and other animals. While working together incident to this licensing arrangement, we and
Gel-Del determined to merge and combine the two companies into one entity producing, marketing and selling medical products based
on Gel-Del technology for both humans and animals.
Our
merger with Gel-Del was effected through a statutory merger transaction resulting in an exchange by the shareholders of Gel-Del
on a pro rata basis of 100% of all outstanding capital stock of Gel-Del in exchange for 5,450,000 shares of our restricted common
stock, which represented approximately 30% of our total outstanding common shares post-merger. This merger became effective upon
its filing with the Secretary of State of Minnesota on April 10, 2017, resulting in Gel-Del becoming our wholly owned subsidiary.
Upon the effectiveness of this merger, each common share of Gel-Del outstanding immediately prior to consummation of the merger
was converted into the right to receive 0.798 of a common share of our Company. Gel-Del did not have any outstanding options,
warrants or other derivative securities or rights.
From
this merger, we acquired all Gel-Del technology and related patents and other intellectual property (IP) rights and production
techniques, as well as Gel-Del’s modern development and operational facilities being established in Edina, Minnesota. All
of our management, development, marketing and administrative operations are now conducted from this suburban Minneapolis headquarters.
Gel-Del
is a biomaterial and medical device development and manufacturing company founded in 1999. Gel-Del’s proprietary patented
biomaterials simulate a body’s cellular tissue and thus can be readily and effectively utilized to manufacture implantable
therapeutic medical devices. The chief advantage of Gel-Del biomaterials is their enhanced biocompatibility with living tissues
throughout the body. We are first commercializing Gel-Del’s technology in the veterinary field for the treatment of osteoarthritis.
Gel-Del has also successfully completed a pivotal clinical trial using novel Gel-Del biomaterial as a dermal filler for human
cosmetic applications. Gel-Del’s core competencies relate to the development and production of medical devices containing
its proprietary thermoplastic protein-based biomaterials that mimic the body’s tissue to allow integration, tissue repair,
and regeneration for long-term implantation. Gel-Del biomaterials are produced using a patented and scalable self-assembly production
process.
PLANNED
BUSINESS OPERATIONS
We
are an emerging biomedical device company focused on the licensing and commercialization of innovative medical devices and therapeutics
for pets, based in suburban Minneapolis, Minnesota. We operate in the $15 billion US veterinary care market that has grown at
a CAGR of 6.4% over the past five years according to the American Pet Products Association. Despite the market size, veterinary
clinics and hospitals have very few treatments and/or drugs for use in pets and other animals.
The
role of pets in the family has greatly evolved in recent years. Many pet owners consider their pets an important member of the
family. They are now willing to spend greater amounts of money on their pets to maintain their health and quality of life.
We
intend to leverage investments already expended in the development of human therapeutics to commercialize treatments for pets
in a capital and time efficient way. A key component of this strategy is the accelerated timeline to revenues for veterinary medical
devices, which enter the market earlier than the more stringently regulated veterinary pharmaceuticals or human therapeutics.
The
company is planning to aggressively launch its lead product Kush
™
Canine during the first half of 2018. Kush
™
Canine is a veterinarian-administered joint injection for the treatment of osteoarthritis in dogs. The Kush Canine device
is made from natural components that perform like cartilage for the treatment of pain and inflammation associated with osteoarthritis.
We
believe that Kush Canine is a superior treatment that safely improves joint function. The reparative Kush Canine particles are
lubricious, cushioning and long lasting. The spongy protein-based particles in Kush Canine mimic the composition and protective
function of cartilage (i.e., providing both a slippery cushion and healing scaffolding). The Kush Canine particles protect the
joint as an artificial cartilage. Based on industry sources, we estimate osteoarthritis afflicts 20 million owned dogs in the
United States and the European Union, which we believe makes canine osteoarthritis a $2.3 billion market opportunity.
Osteoarthritis
is a condition with degenerating cartilage, creating joint stiffness from mechanical stress resulting in inflammation and pain.
The lameness caused by osteoarthritis worsens with time from the ongoing loss of protective cushion and lubricity (i.e., loss
of slippery padding). There is no effective current treatment for osteoarthritis, only palliative pain therapy or joint replacement.
Non-steroidal anti-inflammatory drugs (NSAIDS) are used to alleviate the pain and inflammation, but long-term use has been shown
to cause gastric problems. NSAIDS do not treat the cartilage degeneration issue to halt or slow the progression of the osteoarthritis
condition.
We
believe that our Kush Canine osteoarthritis treatment is far superior to current treatments of using NSAID’s. NSAID’s
have many side effects, especially in canines, whereas the company’s injected Kush Canine treatment has been found to elicit
no adverse side effects. Remarkably, Kush treated dogs show an increase in activity even after they no longer are receiving pain
drugs. No special training is required for the administration of the Kush Canine devices. The treatment is injected into synovial
joint space using standard intra-articular injection technique and multiple joints can be treated simultaneously. Kush Canine
immediately treats the effects of osteoarthritis and no special post treatment care is required.
Historically,
industry data has shown that drug sales represent up to 30% of revenues at a typical veterinary practice. And we believe that
revenues and margins at veterinary practices are being eroded because online, big box and traditional pharmacies recently started
filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. Our treatments
expand practice revenues & margins because they are veterinarian-administered. Our Kush Canine device is veterinarian-administered
to expand practice revenues and margins. We believe that the increased revenues and margins provided by Kush Canine will accelerate
its adoption rate and propel it forward as the standard of care for canine osteoarthritis.
We
also intend to launch in 2018 our Kush Equine device for the treatment of equine lameness in horses. The Kush Equine product has
similar features and benefits as our Kush Canine device.
We
estimate that 1 million owned horses in the United States and European Union suffer from lameness and/or other joint/bone disease
each year, making the treatment of such afflicted horses an annual market opportunity worth $600 million.
We
plan to commercialize our products in the United States through distribution relationships supported by regional and national
distributors and veterinary associations and other groups as complemented by the use of social media to educate and inform pet
owners, and in Europe and rest of world through collaborating commercial partners and distributors.
We
believe most veterinarians in the United States buy a majority of their equipment and supplies from one of several large veterinary
products distributors. Our product distribution will leverage the existing supply chain and veterinary clinic and clinician relationships
already established by these large distributors, and we plan to support this distribution channel with regional sales representatives.
Our representatives will support our distributors and the veterinary clinics and hospitals. We will also target pet owners with
product education and treatment awareness campaigns utilizing a variety of social media tools. The unique nature and the anticipated
benefits provided by our Kush products are expected to generate significant consumer response.
RESULTS
OF OPERATIONS
We
are a development stage company with no history of commercial revenues, and we have incurred recurring substantial losses since
inception. The following discussion should be read in conjunction with our unaudited financial statements and related notes included
in this report.
Results
of Operations for the Three Months Ended September 30, 2017 and 2016
Revenue
– Revenue was $327 for the three months ended September 30, 2017 compared to $2,907 for the three months ended September
30, 2016. Revenue in both of these three-month periods consisted of Kush product sample sales to veterinary clinics.
Cost
of Sales
– We did not incur any cost of sales for either three month period ended September 30, 2017 and 2016, and
accordingly our gross profit was the same as our revenue for both periods
Operating
Expenses
– Operating expenses for the three months ended September 30, 2017 were $313,429 compared to $14,743,086
for the three months ended September 30, 2016, which substantial decrease of $14,429,657 for the 2017 three-month period
compared to the same period of 2016 was due to our adjustment for the valuation of goodwill and trademark/patent IP related to
the Gel-Del merger. Research and development expenses were $22,293 for the three months ended September 30, 2017 compared to $69,546
for the comparable 2016 period, which decrease in 2017 was due to our development activities being substantially completed in
2016. Most of our expenses in both of these quarters were general and administrative expenses, which were $291,136 for
the three months ended September 30, 2017 compared to $14,673,540 for the comparable three-months of 2016, which substantial decrease
in the 2017 period was due to our adjustment for the valuation of goodwill and intellectual property (IP) related to the Gel-Del
merger.
Other
Income(Expenses)
– There were no other income items for either second quarter of 2017 and 2016. Other expenses consisted
of interest expense of $8,354 for the three months ended September 30, 2017 compared to interest expense of $6,854 for the comparable
quarter of 2016.
Net
Loss
– Our net loss for the three months
ended September 30, 2017 was $(321,456) compared to $(14,747,033) for the three months ended September 30, 2016, which
substantial decrease for the second quarter of 2017 compared to the second quarter of 2016 was due primarily to our adjustment
in 2016 for the valuation of goodwill and IP in the Gel-Del merger.
Results
of Operations for the Six Months Ended September 30, 2017 and 2016
Revenue
– Revenue was $1,510 for the six months ended September 30, 2017 compared to $4,916 for the six months ended September
30, 2016. Revenue in both six-month periods consisted of Kush product sample sales to veterinary clinics.
Cost
of Sales
– We did not incur any cost of sales for either six-month period ended September 30, 2017 and 2016, and
accordingly our gross profit was the same as revenue for both periods.
Operating
Expenses
– Operating expenses for the six months ended September 30, 2017 were $797,933 compared to $15,219,848
for the six months ended September 30, 2016, which decrease of $14,421,915 in the 2017 first two quarters was due primarily
to adjustment for the valuation of goodwill and trademarks and patents in the 2016 first two quarters. Research and development
expenses decreased from $75,043 in the 2016 first two quarters to $46,159 in the 2017 first two quarters. Most of our expenses
in both six month periods were general and administrative expenses, which were $751,774 for the six months ended September
30, 2017 compared to $15,144,805 for the six months ended September 30, 2016 due to our valuation before adjustment of intellectual
property (IP) and goodwill.
Other
Income (Expenses)
– Other income for the six months ended September 30, 2017 was $-0- compared to $24,460 for the
six months ended September 30, 2016 from gain on a debt settlement. Other expenses consisted of interest expense of $26,064 for
the first two quarters of 2017 compared to interest expense of $167,016 for the first two quarters of 2016, which decrease was
due to considerably less debt during the 2017 period.
Net
Loss
– Our net loss for the six months
ended September 30, 2017 was $(822,487) compared to $(15,357,488) for the six months ended September 30, 2016, which decrease
of $14,535,001 for the 2017 first two quarters was attributable primarily to the adjustment for the valuation of goodwill
and trademark and patents in 2016.
Liquidity
and Capital Resources
Our
financial position and future prospects depend significantly on our access to financing to fund our operations during our development
stage. Much of our current cost structure is based on costs related to personnel and facilities, and not subject to material variability.
In order to fund our operations and working capital needs, we historically have utilized loans from accredited investors and others,
equity sales of common stock to accredited investors and others having pre-existing relationships with us, and substantial issuances
of stock-based compensation to satisfy outstanding debt and pay for development, management, financial, professional and other
services.
As
of September 30, 2017, our current assets were $211,747 including approximately $193,159 in cash and cash equivalents.
In comparison, our current liabilities as of that date were $1,647,497 consisting of $1,210,410 of accounts payable/accrued expenses
and $437,087 of notes payable. Our working capital deficiency as of September 30, 2017 was $1,435,750.
We
will need to raise substantial additional capital through private or public offerings of our equity or debt securities, or a combination
thereof, and we may have to use a material portion of any capital raised to repay past due debt obligations. To the extent any
capital raised is insufficient both satisfy operational working capital needs and meet any required debt payments, we will most
likely need to either extend, refinance or convert to equity our outstanding indebtedness.
We
currently have some cash to support our operations and projected commercial growth, although we will require substantial additional
financing to fund our operational working capital for at least the next 12 months. Financing may be sought by us from a number
of sources such as private or public sales of our equity or convertible debt securities, and/or loans from affiliates, banks or
other financial institutions. In the event we cannot obtain any such financing when needed on terms acceptable to us, if at all,
our business would suffer substantially.
Liquidity
represents the ability of a company to generate sufficient cash to provide for its immediate cash needs, which our continued losses
have made it difficult for us to accomplish. Over the past couple years; we have continued to incur substantial losses without
any source of revenues or liquid assets, which has caused a serious and harmful effect to our liquidity and a substantial strain
on our ongoing business operations.
We
have not generated any operating cash flows since we are a development stage company which has not yet realized any commercial
revenues.
Net Cash Provided by (Used in) Operating
Activities
-- We provided $77,506 of net cash in operating activities for the six months ended September 30, 2017
compared to cash used of $(80,378) for the six months ended September 30, 2016. This increase in cash provided in operating activities
during the 2017 first two quarters was attributable primarily to an increase in accounts payable and accrued expenses.
Net Cash Used in Investing Activities
– We used $(18,602) of net cash in investing activities in the six months ended September 30, 2017, consisting of a security
deposit increase of $8,201 and a capitalized patent cost of $10,401, compared to $(27,478) net cash used in investing activities
in the six months ended September 30, 2016 which consisted of capitalized patent cost of $27,478.
Net Cash Provided by Financing Activities
– During the six months ended September 30, 2017, funds were provided by financing activities with an amount of
net cash of $108,821 consisting of common stock subscribed of $74,562, an increase in convertible notes of $7,491,
repayments of loans and line of credit of $(15,232) and proceeds from common stock sales of $42,000. In comparison, during the
six months ended September 30, 2016, we were provided by financing activities with net cash of $113,113 including proceeds from
sales of common stock of $99,750, proceeds of loans of $7,500, common stock subscribed of $60,000 offset by aggregate repayments
of $54.137 on notes, loans and a line of credit.
MATERIAL
COMMITMENTS
Accrued
Salary
We
are indebted to related parties. At September 30, 2017, we are obligated for unpaid officers’ salaries and advances of $399,794.
This amount is included in accounts payable and accrued expenses.
Notes
Payable
As
of September 30, 2017, we are obligated on the following notes:
|
1.
|
|
Third
Party Individual
|
|
$
|
78,493
|
|
|
2.
|
|
Bank
Credit Line
|
|
|
43,333
|
|
|
|
|
Total
|
|
$
|
121,826
|
|
OFF-BALANCE
SHEET ARRANGEMENTS
As
of September 30, 2017 and as of the date of this Quarterly Report, we do not have any off balance sheet arrangements that have
or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to investors.
GOING
CONCERN
The
independent auditors’ report accompanying our March 31, 2017 and March 31, 2016 financial statements contains an explanatory
paragraph expressing substantial doubt about our ability to continue as a going concern. The financial statements have been prepared
“assuming that we will continue as a going concern,” which contemplates that we will realize our assets and satisfy
our liabilities and commitments in the ordinary course of business. We have suffered recurring losses from operations, have a
working capital deficit and are currently in default of the payment terms of certain note agreements. These factors raise substantial
doubt about our ability to continue as a going concern.