PetVivo Holdings, Inc. - FORM 10-Q

Attached files

file	filename
EX-32.2 - PetVivo Holdings, Inc.	ex32-2.htm
EX-32.1 - PetVivo Holdings, Inc.	ex32-1.htm
EX-31.2 - PetVivo Holdings, Inc.	ex31-2.htm
EX-31.1 - PetVivo Holdings, Inc.	ex31-1.htm

U.S. SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

Mark One

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

For the quarterly period ended June 30, 2020

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

For the transition period from _______ to _______

Commission File No. 000-55167

PetVivo Holdings Inc.

(Name of small business issuer in its charter)

Nevada

99-0363559

(State or other jurisdiction of

incorporation or organization)

(I.R.S. Employer

Identification No.)

5251 Edina Industrial Blvd.

Edina, Minnesota 55439

(Address of principal executive offices)

(952) 405-6216

(Issuer’s telephone number)

Securities registered pursuant to Section 12(b) of the Act:		Name of each exchange on which registered:
None

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

Common Stock, $0.001

(Title of Class)

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

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (Section 229.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files. Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filed, an accelerated filer, a non-accelerated filer, or a smaller reporting company.

	Large accelerated filer	[ ]	Accelerated filer	[ ]
	Non-accelerated filer	[ ]	Smaller reporting company	[X]

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

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

Class		Outstanding as of August 10, 2020
Common Stock, $0.001		23,212,884

PETVIVO HOLDINGS, INC.

FORM 10-Q

FOR THE PERIOD ENDED June 30, 2020

INDEX

		Page

SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS		3

PART I. FINANCIAL INFORMATION		4

Item 1.	Financial Statements	4
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19
Item 3.	Qualitative and Quantitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	24

PART II. OTHER INFORMATION		26

Item 1.	Legal Proceedings	26
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	26
Item 3.	Defaults Upon Senior Securities	26
Item 4.	Mine Safety Disclosure	26
Item 5.	Other information	26
Item 6.	Exhibits	27

SIGNATURES		28

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

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

PART I.

ITEM 1. FINANCIAL STATEMENTS

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

	June 30, 2020 (Unaudited)			March 31, 2020

Assets:
Current Assets
Cash and cash equivalents	$	128,564		$	888
Restricted cash		-			9,694
Accounts receivable		2,000			1,000
Equity sale proceeds receivable		-			52,000
Investments - equity securities		1,500			1,500
Prepaid expenses		136,370			132,023
Total Current Assets		268,434			197,105

Property and Equipment:
Property and equipment		262,730			221,493
Less: accumulated depreciation		(118,075	)		(111,586	)
Total Property and Equipment, net		144,655			109,907

Other Assets:
Operating lease right-of-use		142,854			148,693
Trademark and patents, net		14,825			58,611
Security deposit		8,201			8,201
Total Other Assets		165,880			215,505
Total Assets	$	578,969		$	522,517

Liabilities and Stockholders’ Equity (Deficit)

Current Liabilities
Accounts payable and accrued expenses	$	780,835		$	794,057
Accrued expenses - related party		239,372			252,607
Derivative liability		548,200			-
Convertible notes and accrued interest payable, net of debt discount		301,446			286,981
Convertible notes and accrued interest payable - related party		25,197			-
PPP loan – short term		15,947			-
Notes payable and accrued interest		15,325			15,095
Notes payable and accrued interest - related party		62,445			61,255
Operating lease liability – short term		24,791			24,791
Total Current Liabilities		2,013,558			1,434,786

Other Liabilities:
PPP loan (net of current)		22,783			-
Operating lease liability (net of current)		118,063			123,901
Total Other Liabilities		140,846			123,901
Total Liabilities	$	2,154,404		$	1,558,687

Commitments and Contingencies

Stockholders’ Equity (Deficit):
Preferred stock, par value $0.001, 20,000,000 shares authorized 0 and 0 shares outstanding at June 30, 2020 and March 31, 2020, respectively
Common stock, par value $0.001, 225,000,000 shares authorized 23,111,857 and 22,911,857 shares outstanding at June 30, 2020 and March 31, 2020, respectively		23,111			22,912
Common stock to be issued		-			52,000
Additional Paid-In Capital		53,804,107			53,477,563
Accumulated Deficit		(55,402,653	)		(54,588,645	)
Total Stockholders’ Deficit		(1,575,435	)		(1,036,170	)
Total Liabilities and Stockholders’ Deficit	$	578,969		$	522,517

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

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(UNAUDITED)

	Three Months Ended
	June 30,			June 30,
	2020			2019

Revenues	$	2,006		$	-

Cost of Sales		-			-

Gross Profit		2,006			-

Operating Expenses:

Sales and Marketing		46,682			2,796
Intangible impairment		3,606			-

General and Administrative:
Depreciation and Amortization		51,805			144,090
Other General and Administrative		341,981			346,835
Total General and Administration		393,786			490,925

Total Operating Expenses		444,074			493,721

Operating Loss	$	(442,068	)	$	(493,721	)

Other Income (Expense)
Gain on Sale of Asset		482			450
Derivative expense		(342,200	)		-
Interest Expense		(30,222	)		(7,616	)
Total Other Expense		(371,940	)		(7,166	)

Net Loss before taxes	$	(814,008	)	$	(500,887	)

Income Tax Provision		-			-

Net Loss		(814,008	)		(500,887	)

Net Loss Per Share:
Basic and Diluted	$	(0.04	)	$	(0.03	)

Weighted Average Common Shares Outstanding:
Basic and Diluted		22,938,231			19,867,200

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

Shares retroactively restated for 9-for-10 reverse stock split in November of 2019

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY

(UNAUDITED)

Three Months Ended June 30, 2020

	Common Stock				Additional Paid-in		Accumulated			Common Stock to
	Shares		Amount		Capital		Deficit			be Issued			Total
Balance at March 31, 2020		22,911,857	$	22,911	$	53,477,563	$	(54,588,645	)	$	52,000		$	(1,036,171	)
Common stock and warrants sold		80,000		80		51,920		-			(52,000	)		-
Warrants issued in conjunction with convertible debt		-		-		91,500		-			-			91,500
Stock-based compensation		120,000		120		183,124		-			-			183,244
Net loss		-		-		-		(814,008	)		-			(814,008	)
Balance at June 30, 2020		23,111,857	$	23,111	$	53,804,107	$	(55,402,653	)	$	-		$	(1,575,435	)

Three Months Ended June 30, 2019

	Common Stock				Additional Paid-in		Accumulated			Common Stock to
	Shares		Amount		Capital		Deficit			be Issued		Total
Balance at March 31, 2019		19,867,200	$	22,074	$	51,552,688	$	(52,505,912	)	$	86,333	$	(844,817	)
Stock-based compensation		-		-		157,134		-			33,667		190,801
Net loss		-		-		-		(500,887	)		-		(500,887	)
Balance at June 30, 2019		19,867,200	$	22,074	$	51,709,822	$	(53,006,799	)	$	120,000	$	(1,154,903	)

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

Shares retroactively restated for 9-for-10 reverse stock split in November of 2019

PETVIVO HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended
	June 30, 2020			June 30, 2019
CASH FLOWS FROM OPERATING ACTIVITIES:

Net Loss For The Period	$	(814,008	)	$	(500,887	)
Adjustments to Reconcile Net Loss to Net Cash Used in Operating Activities:
Derivative expense		342,200			-
Stock-based compensation		183,244			190,801
Depreciation and amortization		51,805			144,090
Amortization of debt discount		19,608			-
Intangible impairment		3,606			-
Gain on sale of asset		(482	)		(450	)
Changes in Operating Assets and Liabilities
Increase in prepaid expenses		(4,347	)		(11,157	)
Increase in accounts receivable		(1,000	)		-
Interest accrued on convertible notes payable		8,819			5,362
Interest accrued on notes payable - related party		1,387			1,590
Interest accrued on notes payable		295			471
Decrease in accounts payable and accrued expense		(13,224	)		(5,322	)
Increase (decrease) in accrued expenses - related party		(13,234	)		1,705
Net Cash Used In Operating Activities		(235,331	)		(173,797	)

CASH FLOWS FROM INVESTING ACTIVITIES
Increase in investments - equity securities receivable		-			(1,500	)
Sale of equipment		482			-
Purchase of equipment		(41,236	)		-
Increase in patents and trademarks		(5,136	)		(19,760	)
Net Cash Used in Investing Activities		(45,890	)		(21,260	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock and warrants sale		52,000			-
Proceeds from PPP loan		38,665			-
Proceeds from convertible notes		322,500			280,000
Repayments of convertible notes		(13,962	)		(5,362	)
Repayments of notes payable		-			(9,000	)
Repayments of notes payable - related party		-			(11,400	)
Decrease in notes payable and accrued interest		-			-
Net Cash Provided by Financing Activities		399,203			254,238

Net Increase in Cash		117,982			59,181
Cash and Restricted Cash at Beginning of Period		10,582			6,460
Cash at End of Period	$	128,564		$	65,641

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash Paid During The Period For:
Interest	$	13,962		$	7,676
SUPPLEMENTAL DISCLOSURE ON NON-CASH FINANCING AND INVESTING ACTIVITIES
Derivative treated as debt discount	$	352,941		$	-

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

PetVivo Holdings, Inc.

Notes to Financial Statements

June 30, 2020

(Unaudited)

NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION

(A) Organization and Description

The Company is in the business of licensing and commercializing our 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 suburban Minneapolis, Minnesota.

(B) Basis of Presentation

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

In November 2019, the Company effected a 9-for-10 reverse split of our authorized and outstanding shares of common stock. Pursuant to this reverse stock split, each ten (10) shares of PetVivo’s outstanding common stock, $.001 par value per share, was combined and converted into nine (9) post-split outstanding shares of common stock, $.001 par value per share; 24,974,518 pre-reverse-split shares of common stock were combined during the 9-for-10 reverse split into 22,477,320 shares of post-reverse-split shares of common stock with 254 shares being issued for fractional shares through the date of the balance sheet. Accordingly, all references to number of shares of common stock and per share data have been adjusted retroactively where applicable to account for this reverse split.

The accompanying condensed consolidated financial statements are unaudited. These unaudited interim financial statements have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to the rules and regulations of the SEC. Certain information and note disclosures, which are included in annual financial statements, have been omitted pursuant to these rules and regulations. We believe the disclosures made in these interim unaudited financial statements are adequate to make the information not misleading.

Although these interim financial statements at June 30, 2020 and for the three months ended June 30, 2020 and 2019 are unaudited, in the opinion of our management, such statements include all adjustments (consisting of normal recurring entries) necessary to present fairly our financial position, results of operations and cash flows for the periods presented. The results for the three months ended June 30, 2020 are not necessarily indicative of the results to be expected for the year ended March 31, 2021 or for any future period.

These unaudited interim financial statements should be read and considered in conjunction with our audited financial statements and the notes thereto for the year ended March 31, 2020, included in our annual report on Form 10-K filed with the SEC on June 29, 2020.

(C) Principles of Consolidation

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

(D) Use of Estimates

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

(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. At June 30, 2020, the Company had $128,564 in cash and no cash equivalents. At March 31, 2020, the Company had $10,582 in cash and restricted cash and no cash equivalents.

(F) Concentration-Risk

The Company maintains its cash with various financial institutions, which at times may exceed limits insured by the Federal Deposit Insurance Corporation (FDIC). At June 30, 2020, cash did not exceed the FDIC uninsured balances and management believes the Company is not exposed to any significant credit risk on cash.

(G) Property & Equipment

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

(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 a useful life of 60 months or the life of the patent. We evaluate the recoverability of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.

(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 5,728,610 warrants outstanding as of June 30, 2020 with varying exercise prices ranging from $3.89 to $.30/share. The weighted average exercise price for these warrants is $.51/share. These warrants are excluded from the weighted average number of shares because they are considered anti-dilutive.

The Company had 3,933,663 warrants outstanding as of June 30, 2019, with varying exercise prices ranging from $3.89 to $.30/share. The weighted average exercise price for these warrants was $.53/share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.

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

At June 30, 2020 and 2019, the Company had $280,000 in convertible notes outstanding, these notes mature in our fiscal quarter ended June 30, 2021. If converted, the $280,000 in outstanding principal and accrued interest would convert into 387,693 shares of common stock at a rate of $.72 per share. Also at June 30, 2020, the Company had a 15% OID convertible note outstanding in the principal amount of $352,941 ($-0- at June 30, 2019) that had accrued $1,838 ($-0- at June 30, 2019) in accrued interest to yield an outstanding balance of $354,779 that is convertible into shares at a rate of $.28/share into 1,267,068 shares of common stock on or after December 15, 2020. See Note 7 to these financial statements for more information on the convertible notes discussed in this paragraph.

At June 30, 2020, the Company had $25,197 ($-0- at June 30, 2019) in convertible notes outstanding held by related parties, these notes mature August 14, 2021. If converted, the $25,197 in outstanding principal and accrued interest would convert into 99,279 shares of common stock at a rate of $.2538 per share. See Note 9 to these financial statements for more information on the convertible notes due to related parties discussed in this paragraph.

(J) Revenue Recognition

The Company recognizes revenue on arrangements in accordance with FASB ASC No. 606, “Revenue From Contracts With Customers.” Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. The Company adopted the guidance on April 1, 2018 using the cumulative catch-up transition method. This change in accounting did not have any material effect on the Company’s financial statements.

(K) Research and Development

The Company expenses research and development costs as incurred.

(L) 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 investments – equity securities receivable, notes payable and accrued interest, notes payable and accrued interest - related party, and convertible notes payable. The carrying amount of the Company’s financial instruments approximates their fair value as of June 30, 2020 and March 31, 2020, 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 measured its investments – equity securities receivable at fair value at June 30, 2020, and March 31, 2020, see Note 4 to the financial statements included in this Form 10-Q.

The Company accounts for derivative instruments in accordance with Accounting Standards Codification 815, Derivatives and Hedging (“ASC 815”), which establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts, and for hedging activities. ASC 815 requires that an entity recognize all derivatives as either assets or liabilities in the balance sheet and measure those instruments at fair value.

If certain conditions are met, a derivative may be specifically designated as a hedge, the objective of which is to match the timing of gain or loss recognition on the hedging derivative with the recognition of (i) the changes in the fair value of the hedged asset or liability that are attributable to the hedged risk or (ii) the earnings effect of the hedged forecasted transaction. For a derivative not designated as a hedging instrument, the gain or loss is recognized in income in the period of change.

(M) 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.

(N) 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.

The Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740.

As required by ASC Topic 740, 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. 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.

(O) Inventory

Inventories are recorded in accordance with ASC 330 and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology and capitalize costs on a project basis as they occur. The current marketed shelf life of our Kush inventory is 3 years. However, management reserves the right to review and adjust this as appropriate.

(P) Recently Issued and Adopted Accounting Pronouncements

In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this ASU supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. The Company adopted Topic 842 on April 1, 2019 and resulted in a right of use asset and liability of $154,917.

In January 2017, the FASB issued ASU No. 2017-04, “Intangibles and Other (Topic 350): Simplifying the Test for Goodwill Impairment”, which eliminates the requirement to calculate the implied fair value of goodwill, but rather requires an entity to record an impairment charge based on the excess of a reporting unit’s carrying value over its fair value. This amendment is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019. We adopted this ASU on April 1, 2020 and it did not have a material effect on our consolidated financial statements.

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurements (Topic 820): Disclosure Framework Changes to the Disclosure Requirements for Fair Value Measurement. The amendments in this update modify the disclosure requirements on fair value measurements in Topic 820. The ASU is effective for the Registrants for fiscal years beginning after December 15, 2019, and interim periods therein. The Company adopted this ASU on April 1, 2020 and it did not have a material impact on the financial statements.

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

NOTE 2 - GOING CONCERN

The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company as a going concern.

The Company incurred net losses of $814,008 for the three-month period ended June 30, 2020 and had net cash used in operating activities of $235,331 for the same period. Additionally, the Company has an accumulated deficit of $55,402,653, working capital deficit of $1,745,124, and a stockholders’ deficit of $1,575,435 at June 30, 2020. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at least twelve months after the date of issuance on these financial statements. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to achieve a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance its operations.

Management intends to raise additional funds either through a private placement or public offering of its equity securities. Management believes that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern. While the Company believes in its viability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and raise additional funds.

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.

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

NOTE 3 – LEASE AND COMMITMENTS

Rent expense for the three-month periods ended June 30, 2020 and June 30, 2019 were $13,568 and $14,546, respectively.

The Company entered into an eighty-four-month lease for 3,577 square feet of newly constructed office, laboratory and warehouse space located in Edina, Minnesota on May 3, 2017. The Company resided in the facility starting in November of 2017. The base rent is $2,078 per month and the Company is responsible for its proportional share of common space expenses, property taxes, and building insurance. This lease is terminable by the landlord if damage causes the property to no longer be utilized as an integrated whole and by the Company if damage causes the facility to be unusable for a period of 45 days. The Company entered into a lease amendment whereby the lease term was extended through November of 2026 in exchange for a loan of $42,500 and a grant of $7,500 for lease improvements. Through the balance sheet date, the Company has received $15,000 in loan proceeds and expects to receive the remaining loan amount of $27,500 and grant amount of $7,500 if certain criteria are met relating to the build out of our Edina facility; some of these criteria are not contingent upon the Company’s performance.

The following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of June 30, 2020:

Year Ended March 31,
2021	$	18,702
2022		24,936
2023		24,936
2024		24,936
2025		24,936
Thereafter		29,092
	$	147,538
Less: Amount representing interest		(4,684	)
Present value of lease liabilities	$	142,854

In compliance with ASC 842 the Company adopted new guidance in relation to lease accounting on April 1, 2019 whereby we recognized operating lease right-to-use assets and corresponding and equal operating lease liabilities for the lease of our facility in Edina, MN. As of June 30, 2020, planned future base rent lease payments total $147,538, which has been discounted to $142,854 using the 52-week treasury bill coupon equivalent discount rate of 2.18% and a present value model. As of June 30, 2020, the Company only had one operating lease so that the remaining lease term and weighted average discount rate are approximately 6 years and 2.18%, respectively.

	June 30, 2020
Present value of future base rent lease payments	$	142,854
Base rent payments included in prepaid expenses		-
Present value of future base rent lease payments – net	$	142,854

As of June 30, 2020, the present value of future base rent lease payments – net is classified between current and non-current assets and liabilities as follows:

	June 30, 2020
Operating lease right-of-use asset	$	142,854
Total operating lease assets		142,854

Operating lease current liability		24,791
Operating lease other liability		118,063
Total operating lease liabilities	$	142,854

Pursuant to a lease wherein our subsidiary, Gel-Del Technologies, Inc., was the lessee until the lease’s termination in 2017, the Company owes approximately $330,000 to the lessor as of June 30, 2020; this amount is included in accounts payable.

NOTE 4 – INVESTMENTS – EQUITY SECURITIES

On June 28, 2019, the Company entered into a purchase agreement with a third-party to purchase 1,500,000 shares of Emerald Organic Products, Inc. (OTC Pink: “EMOR”) common stock for consideration of $1,500. The Company applied guidance from ASU No. 2016-01 Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities and ASC 820 to arrive at a fair value at June 30, 2019 of $1,500. The Company took into account many factors when determining the stock’s fair value including, but not limited to, the nature and duration of the restriction on the stock, the extent to which potential buyers would be limited by the restriction, and qualitative and quantitative factors specific to both the instrument and the issuer.

NOTE 5 – PROPERTY AND EQUIPMENT

The components of property and equipment were as follows:

	June 30, 2020			March 31, 2020
Leasehold improvements	$	139,943		$	98,706
Furniture and office equipment		10,130			10,130
Production equipment		87,473			87,473
R&D equipment		25,184			25,184
Total, at cost		262,730			221,493
Accumulated depreciation		(118,075	)		(111,586	)
Total, net	$	144,655		$	109,907

During the three months ended June 30, 2020 and 2019, depreciation expense was $6,489 and $6,981, respectively.

NOTE 6 – INTANGIBLE ASSETS

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

	June 30, 2020			March 31, 2020
Patents	$	3,824,272		$	3,822,542
Trademarks		25,023			25,023
Total, at cost		3,849,295			3,847,565
Accumulated Amortization		(3,834,470	)		(3,788,954	)
Total, net	$	14,825		$	58,611

During the three-month periods ended June 30, 2020 and 2019, amortization expense was $45,316 and $137,109, respectively.

NOTE 7 – CONVERTIBLE NOTES AND NOTES PAYABLE

At June 30, 2020, the Company is obligated for $77,770 in notes payable and $326,643 in convertible notes payable.

At March 31, 2020, the Company is obligated for $66,350 in notes payable and $286,981 in convertible notes payable.

		June 30, 2020					March 31, 2020
		Notes Payable		Convertible Notes Payable			Notes Payable		Convertible Notes Payable
1.	Third Parties – Principal	$	15,000	$	632,941		$	15,000	$	280,000
	Third Parties – Unamortized Debt Discount		-		(333,333	)		-		-
	Third Parties – Interest		325		1,838			95		6,981
	Third Parties – Total		15,325		301,446			15,095		286,981

2.	Related Parties – Principal		59,642		25,000			59,642		-
	Related Parties – Interest		2,803		197			1,613		-
	Related Parties – Total		62,445		25,197			61,255		-
	Total	$	77,770	$	326,643		$	76,350	$	286,981

At June 30, 2020, the Company is obligated for one convertible note payable held by RedDiamond Partners, LLC (“RDCN”); the Company entered into the RDCN on June 15, 2020, whereby the note is convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $.28/share. The RDCN was issued in the principal amount of $352,941 with $52,941 being made up of a 15% Original Issue Discount (“OID”) and included a conversion feature because there are exercise contingencies triggered by the occurrence of an Event of Default, which includes events that are outside the control of the Company (i.e. not based solely on the market for the Company’s stock or the Company’s own operations). Additionally, the RDCN accrues interest at a rate of 12.5% per annum, calculated on a 360-day-per-year-basis. At June 30, 2020, the Company owed $354,779 in outstanding balance whereby $352,941 was made up of principal and $1,838 was made up of accrued interest. This RDCN was issued alongside a warrant for purchase of 557,143 shares of Company common stock (“RDCN Warrants”) with a relative value of $91,500; see Note 13 for more information on these RDCN Warrants. The outstanding principal balance of the RDCN was reduced to $-0- by various discounts on the debt totaling ($352,941) as follows: i) the RDCN Warrants generated a discount on the debt of ($91,500) based on the relative value of the same; ii) $2,500 in investor legal costs was treated as a discount on the debt of ($2,500) since this was paid by the Company; iii) $52,941 of OID was treated as a discount on the debt of ($52,941); iv) a discount of ($206,000) was taken due to the conversion option being treated as a derivative. As of June 30, 2020, the Company had ($333,333) ($-0- at March 31, 2020) in unamortized debt discount remaining. In evaluating the various instruments and their components within this transaction (including issuance of the RDCN and RDCN Warrants) for treatment as a derivative and the respective accounting treatment of the same, the Company referenced ASC 470 and ASC 815 in conjunction with interpretive guidance. Subsequently, at June 30, 2020, the Company amortized a pro-rata portion of the discount on the debt on a straight-line basis to interest expense in the amount of $19,608. In conjunction with the RDCN and RDCN Warrants issuances, the Company also paid $30,000 and issued 75,000 warrants (“Think Warrants”) valued at $31,500 using the Black-Scholes model to Think Equity for soliciting the RedDiamond Partners, LLC transaction; see Note 13 for more information on these warrants. The total issuance costs paid to Think Equity of $61,500 of cash and warrants, which the Company recorded the relative value (as noted in Note 13) of $52,399 to expense since no further discount was available to be taken on the debt.

At June 30, 2020 and March 31, 2020, the Company is/was obligated for several convertible notes payable held by accredited investors (“Accredited Investor Convertible Notes” or “AICN” or “AICNs”). At June 30, 2020 the total outstanding balance of these AICNs of $280,000 was made up of $280,000 in principal and $-0- in accrued interest. At March 31, 2020, the total outstanding balance of these AICNs of $286,981 was made up of $280,000 in principal and $6,981 in accrued interest. The Company entered into these AICNs during the quarter ended June 30, 2019. All of these AICNs mature during the quarter ended June 30, 2021, two years from their inception dates. These AICNs accrue interest at a rate of 10% annually. Accrued interest is due and payable each calendar quarter in cash; during the three-month periods ended June 30, 2020 and 2019, the Company paid out $13,962 and $5,362, respectively, in accrued interest to these AICN note holders. These AICNs automatically convert into shares of common stock at a rate of $.72 per share at the earlier of the maturity date or an uplist to a national securities exchange (e.g. NASDAQ or New York Stock Exchange) provided that the Company’s stock price is at least $.87 at the time of the uplist. The AICN note holders have the right to convert their outstanding principal and interest into shares of the Company’s common stock at any time during their note’s term at $.72 per share. No AICN note holders have converted their notes through the date of this report. As of June 30, 2020 and March 31, 2020, these AICNs did not include a beneficial conversion feature.

NOTE 8 – DERIVATIVE LIABILITY

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 7 to these financial statements, under the binomial pricing model with Monte Carlo simulations at June 15, 2020 and June 30, 2020, the issuance and balance sheet dates, respectively:

	June 15, 2020			June 30, 2020
Stock price on valuation date	$	.42		$	.44
Conversion price	$	.28		$	.28
Days to maturity		273			258
Weighted-average volatility*		367	%		367	%
Risk-free rate		.18	%		.18	%

The initial valuation of $526,800 at June 15, 2020, generated a discount on the debt of $206,000, which net the convertible note liability to $-0- and forced a recognition of derivative expense of $320,800 and a corresponding offset to derivative liability of $526,800. At June 30, 2020, the Company revalued the derivative liability at $548,200 and recognized $21,400 to derivative expense and derivative liability.

The Company recorded derivative liability transactions during the three-month period ended June 30, 2020 as follows:

	3 Months Ended June 30, 2020
Convertible note embedded derivative liability
Balance at March 31, 2020	$	-0-

Initial recognition of derivative liability		526,800

Change in fair value		21,400

Balance at June 30, 2020	$	548,200

NOTE 9 – CONVERTIBLE NOTES AND NOTES PAYABLE – RELATED PARTY

At June 30, 2020 and March 31, 2020, the Company was obligated for a related party note payable and accrued interest in the total amount of $62,445 and $61,255, respectively; the maturity date of this note was April 30, 2020 and the Company is in default on this note as of the date of this filing. The related party note payable terms are accrual of interest at 8% annually with payments of $3,100 per month, which are applied to interest first, then principal. The Company is currently in negotiations to resolve this note that is in default and payable to Dr. David Masters.

At June 30, 2020, the Company was obligated for related party convertible notes payable principal and accrued interest in the total amount of $25,000 and $197, respectively, recorded to the Convertible notes and accrued interest payable - related party account. At March 31, 2020, the Company was not obligated for any related party convertible notes payable or accrued interest. These notes were entered into on May 14, 2020, accrue interest at 6% per annum, are convertible at $.2538 per share, and mature on August 14, 2020.

NOTE 10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES

At June 30, 2020 and March 31, 2020, the Company is obligated to pay $780,835 and $794,057, respectively, in accounts payable and accrued expenses. Of the total at June 30, 2020 of $780,835, $543,430 is made up of accounts payable, while the $237,404 in accrued expenses is made up of past employee’s accrued salaries and related payroll taxes payable. Of the total at March 31, 2020 of $794,057, $556,653 is made up of accounts payable, while the $237,404 in accrued expenses is made up of past employee’s accrued salaries and related payroll taxes payable. The potential payroll taxes owed are not due until the accrued compensation has been paid. Since the Company has not paid these accrued wages, the Company has appropriately left the potential payroll taxes associated with these accrued wages unpaid. The Company has established an accrued liability for the potential taxes of approximately $22,025 and $22,025 at June 30, 2020 and March 31, 2020, respectively.

NOTE 11 – PPP LOAN

On May 1, 2020, the Company received $38,665 in loan proceeds pursuant to the Paycheck Protection Program enacted by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security Act. At June 30, 2020, the Company was obligated for the outstanding balance of $38,730, made up of $38,665 in principal and $65 in accrued interest. The principal and accrued interest may be forgivable and the Company has applied for forgiveness. The loan accrues interest at a rate of 1% per annum and matures on May 1, 2022; if not forgiven prior to December 1, 2020, the Company is required to pay monthly installments toward principal and interest until the note is paid in full.

NOTE 12 – ACCRUED EXPENSES – RELATED PARTY

At June 30, 2020, the Company is obligated to pay $239,372 in accrued expenses due to related parties. Of the total, $24,882 is made up of accounts payable, while $214,490 is made up of accrued salaries and potential payroll taxes payable.

At March 31, 2020, the Company was obligated to pay $252,607 in accrued expenses due to related parties. Of the total, $17,502 was made up of accounts payable, while $235,105 is made up of accrued salaries and potential payroll taxes payable.

NOTE 13 - COMMON STOCK AND WARRANTS

Common Stock

During the three-month period ended June 30, 2020 the Company issued 200,000 shares of common stock as follows:

i) 120,000 shares valued using the Black-Scholes model at $40,680 and recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term;

ii) 80,000 shares with a relative value of $34,709 pursuant to a purchase of 80,000 units whereby a unit is made up of 1 share of common stock and ½ warrant. The value of $34,709 along with the relative value of the warrants associated with this transaction of $17,291 ($52,000 total) was recorded during the quarter ended March 31, 2020 to Common Stock Subscribed and moved to Additional Paid in Capital and Capital Stock upon receipt of funds and issuance of shares of common stock during the quarter ended June 30, 2020.

During the three-month period ended June 30, 2019 the Company did not issue any stock.

Warrants

During the three-month period ended June 30, 2020, the Company granted warrants to purchase a total of 827,491 shares of common stock, which is included in the vested stock based compensation of approximately $184,000, including:

i) warrants for 40,000 shares, valued at $17,291 using the Black-Scholes model, to one investor, whereby the value was recorded during the quarter ended March 31, 2020 to Common Stock Subscribed and moved to Additional Paid in Capital upon receipt of funds and issuance of warrants during the quarter ended June 30, 2020 and further whereas the warrants vested immediately upon issuance and are exercisable at $1.00 per share for 3 years from the grant date of April 6, 2020;

ii) warrants for 90,000 shares, valued at $28,964 using the Black-Scholes model, to John Lai, whereby the value was recorded to Stock-based compensation and the warrants vest upon the Company raising $10,000,000 or more through an S-1 offering as long as that occurs prior to October 31, 2020; if these warrants vest they will be exercisable for a period of 5-years at $.35 per share;

iii) warrants for 557,143 shares (RDCN Warrants), valued at $234,000 using the Black-Scholes model, to RedDiamond Partners, LLC, whereby the relative value of $91,500 was recorded to Warrants issued in conjunction with convertible debt on the statement of equity; the warrants have a cashless conversion feature, are exercisable at $.35 per share for a term of five years from the date of the grant of June 15, 2020 when the Company entered into a securities purchase agreement and issued a convertible note as outlined in Note 7;

iv) warrants for 75,000 shares (Think Warrants), valued at $31,500 using the Black-Scholes model, whereby the relative value of the warrants was recorded to Stock-based compensation, whereas the warrants are exercisable for 5 years from the date of the grant of June 15, 2020 at an exercise price of $.35 per share. These were issued to Think Equity as a placement fee for soliciting the RedDiamond transaction as described in roman numeral iii above and Note 7 to these financial statements;

v) warrants for 27,237 shares, valued at $11,984 using the Black-Scholes model, whereby the value of the warrants was recorded to Stock-based compensation, whereas the warrants are exercisable for 5 years from the date of the grant at $.40 per share to various directors of the Company for services on various committees;

vi) warrants for 29,762 shares, valued at $13,095 using the Black-Scholes model, whereby the value of the warrants was recorded to Stock-based compensation on the statement of equity, whereas the warrants are exercisable for 5 years from the date of the grant at $.40 per share to John Lai;

vii) warrants for 8,349 shares, valued at $3,674 using the Black-Scholes model, whereby the value of the warrants was recorded to Stock-based compensation on the statement of equity, whereas the warrants are exercisable for 5 years from the date of the grant at $.40 per share to a service provider for various consulting services.

During the three-month period ended June 30, 2019, the Company granted warrants to purchase a total of 270,000 shares of common stock including:

i) warrants for 270,000 shares, valued at $119,954 using the Black-Scholes model, to three Directors, Messrs. Scott Johnson, Gregory Cash, and James Martin, with 135,000 vested immediately and 135,000 vesting quarterly between August 2020 and May 2021, and exercisable over a five-year term at $.33 per share.

A summary of warrant activity for the year ending March 31, 2020 and three-month period ending June 30, 2020 is as follows:

	Number of Warrants			Weighted- Average Exercise Price		Warrants Exercisable		Weighted- Average Exercisable Price

Outstanding, March 31, 2019		3,818,919			.55		3,035,035		.54

Granted		1,905,700			.52

Cashless conversions		(337,500	)		.32

Expired		(90,000	)		.56

Canceled		(396,000	)		.58

Outstanding, March 31, 2020		4,901,119			.53		4,072,369		.53

Issued in conjunction with convertible debt		632,143			.35

Sold		40,000			1.00

Granted		155,348			.37

Outstanding, June 30, 2020		5,728,610			.51		4,939,235		.51

At June 30, 2020, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:

	Warrants Outstanding						Warrants Exercisable
Range of Warrant Exercise Price	Number of Warrants		Weighted- Average Exercise Price		Weighted- Average Remaining Contractual Life (Years)		Number of Warrants		Weighted- Average Exercise Price
.30-.50		3,087,192		.37		4.71		3,182,817		.33

.51-1.00		2,145,739		.58		2.67		1,260,739		.60

1.01-3.89		495,679		1.42		2.11		495,679		1.42

Total		5,728,610		.51		3.72		4,939,235		.51

For the three-month periods ended June 30, 2020 and 2019, the total stock-based compensation on all instruments was $183,244 and $157,134, respectively. It is expected that the Company will recognize expense after June 30, 2020 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as of June 30, 2020 in the amount of approximately $431,000.

NOTE 14 – SUBSEQUENT EVENTS

Prior to the issuance date of this Form 10-Q and subsequent to the balance sheet date, the Company entered into an agreement to issue 10,000 shares of common stock to a service provider for legal services valued at $4,400; these shares remain unissued as of the date of filing of this Form 10-Q with the SEC.

Prior to the issuance date of this Form 10-Q and subsequent to the balance sheet date, the Company issued 40,000 shares of common stock to a service provider for investor relations services valued at $17,600.

Prior to the issuance date of this Form 10-Q and subsequent to the balance sheet date, the Company issued 61,027 shares of common stock pursuant to a warrant conversion whereby the warrant holder converted 168,750 warrants valued at $102,807 using the Black-Scholes pricing model into 61,027 shares of common stock.

On July 1, 2020, the Company issued 15,000 warrants to two directors of the Company, valued at $6,600, vesting in equal amounts over the two-month period ending August 31, 2020 at $.40 per share for a term of 5 years from the date of the grant.

On August 14, 2020, three directors, messrs Johnson, Martin, and Cash, who held convertible notes as detailed in Note 9, converted $25,382 in outstanding principal and interest into 100,008 shares of common stock.

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

GENERAL

We were incorporated in Nevada in 2009 under a former name. In 2014, we entered our current business through a reverse merger with PetVivo Inc., a Minnesota corporation founded in 2013. From this merger, PetVivo Inc. became our wholly-owned subsidiary, and concurrently we changed our Nevada corporate name to PetVivo Holdings, Inc. Our common stock is publicly traded in the over-the-counter (OTC) market under the symbol “PETV.”

CURRENT 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 Minneapolis, Minnesota. We operate in the $19 billion US veterinary care market that has grown at a CAGR of 4.8% between 2015 and 2019 according to the American Pet Products Association. Despite the market size, veterinary clinics and hospitals have very few treatments and/or drugs for use in treating osteoarthritis in pets and other animals. Also, 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.

Our lead product, Kush™, is scheduled for initial commercial launch later this year. Kush is a veterinarian-administered joint injection for the treatment of osteoarthritis and lameness in dogs and horses. The Kush device is made from natural components that are lubricious and cushioning to perform like cartilage for the treatment of pain and inflammation associated with osteoarthritis.

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

Using industry sources, we estimate osteoarthritis afflicts approximately 20 million owned dogs in the United States and the European Union, making canine osteoarthritis a $4 billion market opportunity if selling the product at $200 per canine unit; this does not factor in any contra-lateral usage of the product by veterinarians. See Johnston, Spencer A. “Osteoarthritis. Joint anatomy, physiology, and pathobiology.” The Veterinary clinics of North (1997):699-723;

http://www.humanesociety.org/issues/petoverpopulation/facts/pet_ownership_statistics.html;

and

http://www.americanpetproducts.org/press_industrytrends.asp.

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

Based on a variety of industry sources we estimate that 1 million owned horses in the United Stated and European Union suffer from lameness and/or navicular disease each year, making the equine lameness and navicular disease market an annual opportunity worth $600 million if selling the product at $600 per equine unit; this does not factor in any contra-lateral usage of the product by veterinarians. See Kane, Albert J., Josie Traub-Dargatz, Willard C. Losinger, and Lindsey P. Garber; “The occurrence and causes of lameness and laminitis in the US horse population” Proc Am Assoc Equine Pract. San Antonio (2000): 277-80; Seitzinger, Ann Hillberg, J. L. Traub-Dargatz, A. J. Kane, C. A. Kopral, P. S. Morley, L. P. Garber, W. C. Losinger, and G. W. Hill. “A comparison of the economic costs of equine lameness, colic, and equine protozoal myeloencephalitis (EPM).” In Proceedings, pp. 1048-1050. 2000; and Kilby, E. R. 10 CHAPTER, The Demographics of the U.S. Equine Population, The State of the Animals IV: 2007.

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

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

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

Historically, drug sales represent up to 30% of revenues at a typical veterinary practice (Veterinary Practice News). Revenues and margins at veterinary practices are being eroded because online, big-box and traditional pharmacies recently started filling veterinary prescriptions. Veterinary practices are looking for ways to replace the lost prescription revenues. The Kush device is veterinarian-administered and should expand practice revenues and margins. We believe that the increased revenues and margins provided by Kush will accelerate its adoption rate and propel it forward as the standard of care for canine and equine lameness related to or due to synovial joint issues

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

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

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

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

RESULTS OF OPERATIONS

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 June 30, 2020 and 2010

Revenue – Revenue was $2,006 for the three-month period ended June 30, 2020 (2019: $-0-) and consisted of Kush product sales to veterinary clinics.

Cost of Sales – Cost of sales was $-0- for both three-month periods ended June 30, 2020 and June 30, 2019.

Gross Profit – Gross profit was $2,006 for the three-month period ended June 30, 2020 (2019: $-0-).

Operating Expenses – Operating expenses for the three months ended June 30, 2020 were $444,074 compared to $493,721 for the three months ended June 30, 2019; the decrease of $49,647 was due primarily to a decrease in depreciation and amortization of $92,285 since several of our patents have become fully-amortized. The decrease in depreciation and amortization was partially offset by an increase in sales and marketing expense of $43,886 due to various stock-based agreements being relieved from prepaids to expense. The majority of our operating expenses in both of these quarters were general and administrative expenses. During the three-month period ended June 30, 2020, operating expenses were primarily made up of $51,805 (2019: $144,090) in depreciation and amortization and $183,244 (2019: $190,801) in stock-based compensation.

Other Expense – Other Expense for the three months ended June 30, 2020 of $371,940 is primarily due to a derivative liability in the amount of $324,200 as described in Note 8 to these financial statements. Other Expense for the three months ended June 30, 2019 of $7,166 was primarily made up of interest accrued on outstanding notes payable, notes payable – related party, and convertible notes payable in the amount of $7,616, which was partially offset by a ($450) gain on sale of asset that was fully depreciated at the time of the sale.

Net Loss before Taxes and Net Loss – Our net loss for the three months ended June 30, 2020 was ($814,008), or ($.04) per share, compared to ($500,887), or ($.03) per share for the three months ended June 30, 2019. The increased loss of $313,121 was attributable primarily to derivative expense of $342,200 recognized during the three months ended June 30, 2020. The weighted average number of shares outstanding during the three-month periods ended June 30, 2020 and June 30, 2019 were 22,938,231 and 19,867,200, respectively.

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 June 30, 2020, our current assets were $268,434 including approximately $128,564 in cash, $2,000 in accounts receivable, $1,500 in investment – equity securities, and $136,370 in prepaid expenses. In comparison, our current liabilities as of that date were $2,013,558 consisting of $780,835 of accounts payable and accrued expenses, $239,372 of accrued expenses – related party, $548,200 in derivative liability, $301,446 in convertible notes and accrued interest payable, net of debt discount, $25,197 in convertible notes and accrued interest – related party, $15,947 in PPP loan – short term, $15,325 in notes payable, $62,445 in notes payable and accrued interest – related party, and $24,791 in operating lease liability – short term. Our working capital deficiency as of June 30, 2020 was $1,745,124.

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 to 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 little cash to support our operations and projected commercial growth. Accordingly, 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 several years we have continued to incur substantial losses without any source of material 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 significant commercial revenues.

Net Cash Used in Operating Activities – We used ($235,331) of net cash in operating activities for the three months ended June 30, 2020 compared to using ($173,797) of net cash for the three months ended June 30, 2019. This increase in cash used in operating activities was attributable primarily to a decrease in the amount of depreciation and amortization recognized of $92,285.

Net Cash Used in Investing Activities – We used ($45,890) of net cash in investing activities in the three months ended June 30, 2020, consisting of ($5,136) of costs capitalized to intangible assets, $482 in sale of equipment, and ($41,236) of costs capitalized to property and equipment. This is compared to ($21,260) of net cash used in investing activities in the three months ended June 30, 2019, which was primarily due to ($19,760) of costs capitalized to intangible assets.

Net Cash Provided by Financing Activities – During the three months ended June 30, 2020, we were provided with net cash of $399,203 from financing activities consisting of $231,000 from entering into various convertible notes payable, $38,665 from PPP (Paycheck Protection Program) Loan proceeds, and $143,500 in stock and warrants sale proceeds, which was partially offset by a repayment of convertible notes in the amount of ($13,962). In comparison, during the three months ended June 30, 2019, we were provided by financing activities with net cash of $254,238 consisting of $280,000 in proceeds from entering into convertible notes payable, which was partially offset by ($25,762) in repayments of various notes, notes payable to related parties, and convertible notes payable.

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 June 30, 2020, the Company’s inventory has a carrying value of $-0- and is broken down into $43,744 of finished goods inventory, which is fully offset by a ($43,744) reserve for obsolete inventory.

At March 31, 2020, the Company’s inventory had a carrying value of $-0- and was broken down into $50,357 of finished goods inventory, which was fully offset by a ($50,357) reserve for obsolete inventory.

MATERIAL COMMITMENTS

Accrued Salary

We are indebted to related parties. At June 30, 2020, we are obligated for unpaid officer salaries and amounts payable to related parties of $239,372. This amount is included in accrued expenses – related party.

Notes and Convertible Notes Payable

As of June 30, 2020, we are obligated on the following notes:

		Notes Payable		Convertible Notes Payable
1.	Third Parties – Principal	$	15,000	$	632,941
	Third Parties – Unamortized Debt Discount		-		(333,333	)
	Third Parties – Interest		325		1,838
	Third Parties – Total		15,325		301,446

2.	Related Parties – Principal		59,642		25,000
	Related Parties – Interest		2,803		197
	Related Parties – Total		62,445		25,197
	Total	$	77,770	$	326,643

OFF-BALANCE SHEET ARRANGEMENTS

As of June 30, 2020, 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, 2020 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. We have suffered recurring losses from operations and have a working capital deficit. These factors raise substantial doubt about our ability to continue as a going concern.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Not applicable

ITEM 4. CONTROLS AND PROCEDURES

DISCLOSURE CONTROLS AND PROCEDURES

Evaluation of disclosure controls and procedures.

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

Based upon their evaluation of those controls and procedures performed as of 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 report on internal control over financial reporting.

Our chief executive officer and our chief financial officer are responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-15(f) and 15d-15(f) promulgated under the Securities Exchange Act of 1934 as a process designed by, or under the supervision of, our principal executive and principal financial officers and effected by our Board of Directors, management and other personnel, 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 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 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 June 30, 2020. 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.

	●	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 qualified accounting personnel with experience in public company SEC reporting and GAAP is limited.

	●	Limited checks and balances in processing cash and other transactions.

As part of the preparation of this report, we have applied compensating procedures and processes as necessary to attempt to ensure the reliability of our financial reporting. Accordingly, management believes, based on its knowledge, that (1) this report does not contain any untrue statement of a material fact or omit to state a material face necessary to make the statements made not misleading with respect to the period covered by this report, and (2) the financial statements, and other financial information included in this report, fairly present in all material respects our financial condition, results of operations and cash flows for the years and periods then ended.

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.

Changes in internal control over financial reporting.

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

AUDIT COMMITTEE

Our board of directors has established an audit committee consisting of three of our independent directors, Messrs James Martin (financial expert), Joseph Jasper, and David Deming. The audit committee’s primary function is to provide advice with respect to our financial matters and to assist our board of directors in fulfilling its oversight responsibilities regarding finance, accounting, and legal compliance. The audit committee’s primary duties and responsibilities are to: (i) serve as an independent and objective party to monitor our financial reporting process and internal control system; (ii) review and appraise the audit efforts of our independent accountants; (iii) evaluate our quarterly financial performance as well as its compliance with laws and regulations; (iv) oversee management’s establishment and enforcement of financial policies and business practices; and (v) provide an open avenue of communication among the independent accountants, management and our board of directors.

PART II. OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS

Management is not aware of any pending legal proceedings contemplated by any governmental authority or any other party involving our properties or the Company. As of the date of this Quarterly Report, no director, officer or affiliate is (i) a party adverse to us in any legal proceeding, or (ii) has an adverse interest to us in any legal proceedings.

ITEM 1A. RISK FACTORS

Not required

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

During the three months ended June 30, 2020, the Company issued 200,000 shares of common stock; 120,000 shares of common stock were issued to a service provider for video and marketing services while 80,000 shares were issued to an investor pursuant to an investment in units. During the three months ended June 30, 2019, the Company issued 827,491 warrants for purchase of common stock as follows: i) 40,000 to an investor pursuant to an investment in units; ii) 90,000 to John Lai to incentive him to raise $10,000,000 or more through an S-1 offering; iii) 557,143 to RedDiamond Partners LLC pursuant to their investment in the RDCN; iv) 75,000 to parties associated with Think Equity (Think Warrants); v) 29,762 to John Lai in lieu of accrued salary; vi) 27,237 to various directors of the Company for service on various committees and task forces of the board; and vii) 8,349 to a service provider for various production and manufacturing consulting services. All of the transactions discussed in this Item 2 were exempt from registration in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES

Not required.

ITEM 4. MINE SAFETY DISCLOSURES

Not required.

ITEM 5. OTHER INFORMATION

None

ITEM 6. EXHIBITS

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

Incorporated by Reference

Exhibit

No.

Description

Filed Herewith

Form

Period

Ending

Exhibit

Filing

Date

31.1

Certification of Principal Executive Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

31.2

Certification of Principal Financial Officer Required By Rule 13a-14(A) of the Securities Exchange Act of 1934, As Amended, As Adopted Pursuant To Section 302 of the Sarbanes-Oxley Act of 2002

32.1

Certification of Principal Executive Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

32.2

Certification of Principal Financial Officer, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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XBRL Instance Document

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XBRL Taxonomy Schema

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XBRL Taxonomy Calculation Linkbase

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XBRL Taxonomy Definition Linkbase

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XBRL Taxonomy Label Linkbase

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XBRL Taxonomy Presentation Linkbase

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XBRL Instance Document

PETVIVO HOLDINGS, INC.

SIGNATURES

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

August 14, 2020	By:	/s/ John Lai
		John Lai
	Its:	CEO, President and Director (Principal Executive Officer)

August 14, 2020	By:	/s/ John Carruth
		John Carruth
	Its:	Chief Financial Officer (Principal Financial and Accounting Officer)

Attached files

PetVivo Holdings, Inc. Reports

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