Prepared remarks
Good afternoon, everyone. Thank you for joining us today to discuss our results for our Third Quarter and First 9 months of Fiscal 2026 ended December 31, 2025. Hosting our call today is our Chief Executive Officer, John Lai; and our Chief Financial Officer, Garry Lowenthal; as well as myself, John Dolan, PetVivo's Chief Business Development Officer and General Counsel. Following our remarks, we'll open the call to your questions. Then before we conclude today's call, I will provide some important cautions regarding the forward-looking statements made during the call. Before we begin, I'd like to remind everyone that the call is being recorded in order to make it available for replay later today. The replay link will be available in our Investor Relations section at our website at petvivo.com. Now turning to our results. Our third fiscal quarter represented another period of rapid transformation and platform advancement as we continue to intensify our focus and apply our limited resources on the greatest opportunities ahead of us.
Many of these new opportunities were introduced over the course of the past year, therefore, requiring extraordinary attention and focus to ensure their successful launch. Our primary objective has always been to create for our stakeholders the greatest opportunities for rapid growth and market expansion, including strong recurring revenues and to support the highest potential value for our company for the benefit of our stakeholders. The clinical validation and broad market adoption of our flagship product, Spryng, with OsteoCushion technology has brought us far along. And now over the course of the last year, it has set the stage for the launch of technology and products that promise to exceed even Spryng's greatest potential. Toward this goal, we have made tremendous progress with new strategic alliances and collaborations with several key partners. This includes Digital Landia, a leading pioneer in Agentic AI solutions.
As you know, we signed an exclusive 10-year white label licensing agreement with Digital Landia for its breakthrough next-generation AgenticPet AI technology. AgenticPet's highly valuable and innovative technology features 10 specialized diagnostic AI agents that are protected by proprietary IP and 5 patent-pending innovations. Among this technology's many capabilities, the solution addresses the critical challenges facing today's veterinary industry. This includes skyrocketing client acquisition costs and the difficulty in capturing the fastest-growing demographic of Gen Z pet parents. Following the signing with Digital Landia, we are moving quickly to publicly launch our new PetVivo AI veterinary practice platform that is exclusively powered by this AgenticPet AI technology. PetVivo AI is a new AI-powered Software-as-a-Service platform for veterinarians, which we believe is the first of its kind on the market, providing us what we believe to be a strong first-mover advantage.
We engaged an initial select group of veterinarians practices under a beta stage program for PetVivo AI who have been providing us tremendous positive feedback. PetVivo AI has demonstrated in this beta testing to deliver a remarkable 50% to 90% reduction in veterinary customer acquisition costs, lowering it from about $80 to $400 typically spent per new customer targets down to less than $43 per target customer. PetVivo AI then employs automated AI-powered engagement that intelligently converts the leads it generates into paying veterinary customers. This AI-powered solution greatly complements our existing medical device offerings, which we market to our existing network of thousands of veterinary clinics across North America and Europe. Perhaps most importantly, PetVivo AI has created a new recurring revenue stream, which has high 80% to 90% gross margins, combined with low CapEx scalability.
Interested veterinarians are able to request a free demo of this amazing solution on our newly launched PetVivo AI website where they can experience for themselves the power of this new platform that can transform their practice. In support of the launch of PetVivo AI during the quarter, Digital Landia published a comprehensive technical white paper documenting the AgenticPet AI framework that powers this technology. The paper validates the technical foundation underlying our new B2B platform. It provides veterinary professionals, investors, and industry stakeholders with detailed visibility into the multi-agent artificial intelligence architecture that enables transformative clinical and economic benefits for their practice. Given the strength of this report, we expect our PetVivo AI solution to rival mainstream AI applications in terms of adoption rates. We also expect it to create tremendous visibility for our brands, particularly Spryng with OsteoCushion technology and PrecisePRP and eventually, the other new solutions in our product pipeline.
The white paper is available to download from Digital Landia's website at digitallandia.com. For our part, during the quarter, we launched an online video explainer that walks you through the 2-part ecosystem of PetVivo AI. It shows how PetVivo AI intelligently connects pet parents with veterinary practices looking for new clients. The professionally produced video explains all 10 specialized AI agents from behavioral scientists to radiologists and demonstrates the complete user journey for both pet parents and vets. If you haven't yet watched it, we very much encourage you to do so as then you will understand why we are so excited about this new offering. Regarding other key new partners during the quarter, we joined forces with Austin, Texas-based Veterinary Growth Partners. As a management services organization, VGP supports veterinary practices with management and marketing tools, consulting and vendor relationships designed to improve their efficiency and profitability.
VGP has committed to actively promote our Spryng with OsteoCushion technology and PrecisePRP products to its expansive member network of more than 7,300 veterinary clinic members across the United States.
Thank you, John. Good afternoon, everyone. Thank you for joining us today to discuss our results for the first 9 months of fiscal year 2026. For this reporting period, we'd like to focus on the results for the 9-month period as a better reflection of our progress, particularly given the change in sales mix during the period resulting from new product introductions. Revenues for the 9 months ended December 31, 2025, totaled $887,000, decreasing only 2% from the same year ago period. Revenues for the period consist of sales of our Spryng products totaling $400,800 and PrecisePRP products totaling $486,000. This compared to the same year ago period where sales consist entirely of Spryng. The slight decrease in our revenues for the period was primarily due to a decrease in Spryng product sales, offset by an increase in sales of PrecisePRP. In the year ago period, we had a special promotion with our distributors and vet clinics at the Annual American Association of Practitioners Conference held in December.
In the fiscal third quarter that was not repeated in the fiscal third quarter of 2026 that just ended in December. This contributed to the lower sales of Spryng in this most recent period. Going forward, though, we plan to reimplement special promotions to incentivize our distributors and veterinary clinics whereby improving sales of our Spryng product. We believe the decrease in Spryng sales was also due to customers opting to use PrecisePRP alone not in conjunction with Spryng. However, we believe the best outcomes would be created by using these 2 products together. We believe renewed efforts to better educate our customers on the benefits of using both products together will help drive greater sales of Spryng in future quarters. Gross profit in the first 9 months totaled $551,500 or 62.2% of revenues, which was a decrease of $812,000 or 89% of revenues in the same period a year ago due to the lower gross margins of the PrecisePRP product line.
We were able to maintain our high gross margin despite increased purchases of lower-margin PrecisePRP finished goods associated with the exclusive license agreement with VetStem, Incorporated and the consequent greater proportion of this lower-margin product in our sales mix. We are exploring ways to improve our gross margin with the PrecisePRP product as well as improve our product mix to include a higher Spryng gross margin. Total operating expenses decreased 2% to $6.7 million compared to the same year-ago period. The improvement was due to reduced general and administrative costs and research and development costs, with this reflecting the strategic cost reduction and restructuring program we implemented last year. Likewise, operating loss increased 2% to $6.1 million from $6 million in the same year-ago period. The increase was primarily due to the increase in sales and marketing expenses related to the rollout of our new PrecisePRP product line, which has been well received by veterinarians in our network.
Net loss for the first 9 months was $7.5 million or $0.27 per share as compared to a net loss of $6 million or $0.30 a share for the same year-ago period. The increase in net loss was primarily due to unrealized loss on change in derivative liabilities, loss on disposal of certain assets, amortization of debt discount, and interest expense on our convertible notes. Net cash used in operating activities during the 9 months totaled $5.3 million. This cash used in operating activities was primarily attributed to our decrease of accounts payable and accrued expenses of $840,000 and the increase in PrecisePRP production and inventory purchases as we ramped up the market demand for this new product line. Now let's turn to the balance sheet. Our current assets totaled $1.4 million at the end of the period ended December 31, '25. In comparison, our current liabilities were significantly reduced to only $980,000 from the same period last year of $4.2 million.
As of December 31, our working capital totaled $395,000. Subsequent to the end of the period, since January 1 of this year, we raised additional capital from the exercise of warrants and the sale of equity securities, bringing in an additional $477,500 of proceeds. Notably, our total liabilities decreased to $1 million at December 31, down from $5.1 million on just March 31 in this 9-month period. The substantial 81% decrease in total liabilities in just 9 months was primarily due to the conversion of all convertible notes into common stock, extinguishment of our derivative liabilities related to these convertible notes as well as a major reduction in accounts payables due to the settlement with vendors and trade vendors. The reduction of accrued expenses and the termination of a 10-year lease obligation. In fact, our accounts payable decreased 53% from $821,000 in just March of this past year, at the end of our fiscal year, to less than $386,000 by the end of December. This highlights our strongest balance sheet in many years. Now this completes our financial review for the period.
Thank you, Garry. As I mentioned earlier, the combination of Spryng with PrecisePRP has been receiving very favorable reports from veterinarians, especially regarding their ease of use and effectiveness in the management of osteoarthritis in horses and companion animals. Our successful results led to Health Canada recently acknowledging Spryng with OsteoCushion technology as a veterinary medical device for use in Canada. Canada has recognized how this veterinarian administered intra-articular injection device can support joint health and aid in the management of lameness and other joint-related afflictions in animals. This action represents a major milestone in our global commercialization strategy as the first such recognition by an international regulatory body. As such, it has opened up a large new international market opportunity. The Canadian animal health care market is reportedly growing at 6.8% CAGR to exceed $4.4 billion by 2031.
The official acknowledgment by Health Canada paves the way for commercial launch in the country. Preparations are underway, and we're currently planning for the official launch at the beginning of the third calendar quarter of 2026. Meanwhile, we will continue to expand the awareness of the benefits of both of these innovative products among key decision-makers, including presenting them at a number of major conferences. As previously mentioned, we exhibited at the American Association of Equine Practitioners Conference in December. Then just last week, we exhibited at the Florida Veterinary Medical Association, Ocala Equine Conference held at the World Equestrian Center in Ocala, Florida. And currently, we are exhibiting at the Western Veterinary Conference in Las Vegas, Nevada. At these events, we demonstrated the research-backed benefits of Spryng and PrecisePRP to veterinarians, including leading surgeons, sports medicine, and rehabilitation experts in the veterinary industry.
We are planning to exhibit at 2 more major conferences this spring, which are typically significant drivers of product adoption and new sales. The conferences also present the opportunity to share recent studies like our canine elbow study, as well as other completed and well-published studies that we have done. We currently have additional canine and equine studies for tolerating and efficacy of Spryng and PrecisePRP in the initial stages of development. We also continue to advance our pipeline of new products. This includes new functional biomaterial and bone mimicking biomaterials that may be used to enhance the delivery of pharmacological agents and/or promote the regeneration, restoration, and/or remodeling of damaged or injured tissue and bone in animals and humans.
Thank you, John. I would like to now open it up to our Q&A session formally. And operator, could you please provide the necessary instructions for our participants to be able to ask questions.
Questions and answers
John, can you discuss the guidance you provided during the last conference call and how you view that guidance in light of this quarter's results?
I'm going to let Garry answer that question because I can't recall what guidance we gave. I don't think we gave a guidance. Garry?
I believe it was around $2 million to $2.5 million for the fiscal year.
I don't recall the guidance you're referring to. Is that in a previous call or a press release?
Last quarter's conference call?
Okay. Well, we just explained in our half-hour conversation of why the revenues were down for the last 90 days. And we have a brand-new product. And like we had said that some of the veterinarians were ordering either Spryng or the PrecisePRP. And now our job is to show through studies that we've already done that having both products work together has better results. We've also got involved in some acquisitions through Digital Landia as well, and that revenue won't actually kick in the first quarter of our next fiscal year being April 1. And then we have some whole new product pipeline that's actually going to monetize in the middle of the year.
So are you pushing out the uptick in sales? Should we expect the previous guidance that was given to be reflected on the next conference call? How should we think about that?
I wouldn't focus on events from 90 days ago. In the past, we've had significant promotions for our sales team in December every year, but this past December, we implemented a new model that didn't work as we expected. We depend heavily on revenue from the largest distributor in our industry, and we typically would load up their orders in December, which inflated our numbers for that month and the third quarter. We've decided to distribute sales more evenly across the fourth quarter and into the upcoming first quarter. Additionally, we're outsourcing to a third-party organization that specializes in inside sales across various distributors, which will enhance our overall sales organization.
Can you discuss the capital expenditures needed to implement the education of the veterinarian system related to the Digital Landia platform?
I'm going to let John Lai answer that.
And who's going to be responsible for that rollout?
There are several elements involved in this. One significant development is the competition among accreditation organizations. We now have four webinars available that provide continuing education credits for veterinary doctors, and we've begun onboarding the VGP Group, which consists of more than 7,300 clinics. This onboarding process is now underway on the Digital Landia side for PetVivo.ai. As part of this, we will integrate our existing clinics into the system so they can experience its efficiency. The open architecture platform allows them to install the app on any existing system they use to collect data, significantly reducing onboarding time. Veterinarians won't need to switch between various applications for different tasks, such as accessing x-rays or urine analysis. Our platform consolidates these functions, enabling vets to focus on actual diagnostic work. Furthermore, as veterinarians seek to attract new clients, they can easily identify potential cases of osteoarthritis in pets within a 5-mile radius.
The system will generate a detailed list of these potential customers, allowing vets to contact them with promotional offers on vaccines or relevant products. A significant part of this process will be driven by influencers, who will earn a residual commission from the B2C side as they bring new clients in. This creates a synergistic dual ecosystem currently in development, with over 30,000 users having signed up. While I don't know the exact number of active users, access is currently limited to 100 users per day through access codes to experience the full features of the B2C system. However, we are close to launching our B2B initiative.
And PetVivo is going to recognize revenues from the implementation from the vets implementing.
Yes. Yes, correct. Yes, because we're able to show the vets, they're saving significant costs. So it's a true SaaS model that has the economics, financials, and convenience for the vet that we believe we're changing the ecosystem for them and the clinic ownership's revenue source or potential earnings source is greatly enhanced using the PetVivo.ai system.
So just to clarify, that means one needs to sign up to download the PetVivo Agentic AI system and benefit from that sign-up through new customers and the information gathered from those customers, right?
That's correct. Given our partnerships and Spryng users, we will likely start some early promotions to encourage them to join. Once they experience the system, we believe the conversion rate to paying customers will be quite high.
I guess my question is who's going to support that ecosystem?
That's all part of Digital Landia's contract. They provide ongoing updates and the functional system. Our capital expenditures are minimal in that area, so our spending will mainly involve promoting to veterinary clinic groups that have significant influence over a large number of clinics.
Do you have expectations for revenues and P&L a year or 2 years about?
No, no, not on the pet side because we have a general idea, but we're not giving any guidance yet.
And by the way, that revenue is a recurring revenue model. So it's monthly recurring revenue when it kicks in. So those that convert to the fee-paying will go from freemium to what's called premium model. And again, the important point that John Lai talked about was it's very little CapEx cost for us. That's Digital Landia. That's their responsibility.
Well, but it also will help reduce our cost to reach out to customers being the veterinary doctors of Spryng and PrecisePRP and other products that we'll be introducing into the network as well as using the B2C component where we will be able to push ads towards people that have osteoarthritis issues or lameness issues or potential rehab issues.
Okay. So you view Digital Landia or PetVivo's AI as a direct-to-consumer marketing.
No, that's one. It's more focused on veterinary doctors, but because it's a dual ecosystem, we can do both. As the vet identifies a severe case of osteoarthritis within a 10-mile radius, they can search that network to find potential customers who are not already their clients. They can offer these individuals a special promotion for an exam, which might cost $10. VCA has implemented a model where, upon opening a new clinic, the first visit is free to attract new clients and build long-term relationships. Our app will enhance the experience for both pet owners and veterinary doctors as they collaborate on the animal's health, making the diagnostics process clearer and fostering trust between the vet and the pet owner.
At the beginning of the call, you mentioned that Digital Landia's PetVivo.ai platform should have the same adoption rate as the current AI platforms. Are you referring to large language model platforms like ChatGPT or other platforms?
So subscription model platforms is generally around 20-some percent that actually end up paying for the system, like Sofie, which is a veterinary system. I think they have like 25% of the people that try the system will convert into a full-time regular customer.
Okay. So it's not based around AI models, it's based around subscription models. Correct?
Yes, it's a SaaS model, but it's based on AI where we're giving a much better outcome and platform and operating efficiency, but it's still you're selling a service. Is there any more questions?
It's a SaaS model, but it's based on AI where we're providing a much better outcome and platform and operating efficiency, but fundamentally, you're selling a service. Are there any more questions?
So if there's no more questions, operator, I would like to conclude the Q&A session. And then I would like to thank everyone for joining us on today's call and look forward to updating everyone again in the fourth quarter and full year results. As always, take care, and thank you for joining us. But before everybody goes, John Dolan, will you please go ahead and wrap up the call and give all the necessary disclosures.
Thank you, John. Now before we conclude today's call, I would like to provide the company's safe harbor statement that includes cautions regarding forward-looking statements made during today's call. The information that we have provided in this conference call includes forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including, but not limited to, statements regarding the company's future revenue, future plans, objectives, expectations, and events, assumptions and estimates. Forward-looking statements can be identified by the use of words or phrases usually containing the words believe, estimate, project, intend, expect, should, will, or similar expressions. Statements that are not historical facts are based on the company's current expectations, beliefs, assumptions, estimates, forecasts, and projections for its business and the industry and markets related to its business.
Any forward-looking statements made during this conference call are not guarantees of future performance and involve certain risks, uncertainties, and assumptions, which are difficult to predict. Actual outcomes and results may differ materially from what is expressed in such forward-looking statements. Factors that would cause or contribute to such differences include, but not limited to, various risks as detailed in the company's periodic report filings with the U.S. Securities and Exchange Commission. For more information about risks and uncertainties associated with the company's business, please refer to the Management's Discussion and Analysis of Financial Conditions and Results of Operations and Risk Factors sections of the company's SEC filings, including, but not limited to, our Annual Report on the Form 10-K and quarterly reports on the Form 10-Q. Any forward-looking statements made during the conference call speaks as of today's date.
The company expressly disclaims any obligations or undertaking to update or revise any forward-looking statements made during the conference call to reflect any changes in its expectations with regard thereto or any changes in its events, conditions, or circumstances of which any forward-looking statement is based, except as required by law. I would like to remind everyone that this call will be available for replay starting tomorrow. Please refer to today's earnings release for dial-in replay instructions available via the company's website at www.petvivo.com. Thank you for attending today's presentation. This concludes the conference call.