Notes
to Financial Statements
December
31, 2017
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
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.
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 December 31, 2017 and for the nine months ended December 31, 2017 and 2016 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 nine
months ended December 31, 2017 are not necessarily indicative of the results to be expected for the year ended March 31, 2018
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, 2017, included in our annual report on Form 10-K filed with the SEC.
The Company is in the business of distribution
of medical devices and biomaterials for the treatment of afflictions and diseases in animals. The Company’s management development
and other operations are conducted from its headquarter facilities in suburban Minneapolis, Minnesota.
(B)
Principles of Consolidation
The
accompanying condensed consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota
corporations. All intercompany accounts have been eliminated upon consolidation.
The accounting for the acquisition of Gel-Del
Technologies, Inc. began with the Security Exchange Agreement on April 10, 2015 which was uncompleted and abandoned
in 2016, and as adjusted for completion pursuant to the Agreement and Plan of Merger effective April 10, 2017 (the
“Merger”). To complete the Merger, the Company issued 5,450,000 shares valued at market at $0.40 per share,
which equaled $2,180,000.
(C)
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.
(D)
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 December 31, 2017 and March 31,
2017, the Company had no cash equivalents.
(E)
Concentration-Risk
The
Company maintains its cash with various financial institutions, which at times may exceed federally insured limits.
(F)
Machinery & Equipment
Machinery
and equipment are recorded at cost. Expenditures for major additions and betterments are capitalized. Maintenance and repairs
are charged to operations as incurred. Depreciation of furniture fixtures and equipment is computed by the straight-line method
(after taking into account their respective estimated residual values) over the assets estimated useful life of five (3) years
for equipment, (5) years for automobile, and (7) years for furniture and fixtures.
(G)
Patents and Trademarks
The
company capitalizes direct costs for the maintenance and advancement of their patents and trademarks and amortizes these costs
over a useful life of 60 months.
(H)
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 2,646,036 warrants outstanding
as of December 31, 2017 with varying exercise prices ranging from $3.50 to $0.30/share. The weighted average exercise price for
these warrants is $ 0.52 per share. These warrants are antidilutive and have been excluded from the weighted average number
of shares.
(I)
Revenue Recognition
The
Company will recognize revenue on arrangements in accordance with FASB ASC No. 605, “Revenue Recognition”. In all
cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the
service is performed and collectability of the resulting receivable is reasonably assured. Revenues consist of Kush product sales
to veterinary clinics.
(J)
Research and Development
The
Company expenses research and development costs as incurred.
(K)
Fair Value of Financial Instruments
The
Company applies the accounting guidance under Financial Accounting Standards Board (“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:
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Level
1 - quoted market prices in active markets for identical assets or liabilities.
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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.
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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.
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The
Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, notes payable, notes
payable - related party, and convertible notes payable. The carrying amount of the Company’s financial instruments approximates
their fair value as of December 31, 2017 and March 31, 2017, due to the short-term nature of these instruments.
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The valuation of the Company’s notes recorded at fair value is determined using Level 3 inputs, which consider (i) time
value, (ii) current market and (iii) contractual prices.
The
Company had no assets and liabilities measured at fair value on a recurring basis at December 31, 2017 and March 31, 2017.
(L)Recent
Accounting Pronouncements
The FASB issued ASC 606 as guidance on the
recognition of revenue from contracts with customers in May 2014 with amendments in 2015 and 2016. Revenue recognition will depict
the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects
to be entitled in exchange for those goods or services. The guidance also requires disclosures regarding the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts with customers. The guidance permits two methods of adoption:
retrospectively to each prior reporting period presented, or retrospectively with the cumulative effect of initially applying
the guidance recognized at the date of initial application (the cumulative catch-up transition method). The company will adopt
the guidance on April 1, 2018 and apply the cumulative catchup transition method. The transition adjustment to be recorded to
stockholders’ equity upon adoption of the new standard is not expected to be material. The Company does not expect the
adoption on this new standard to have any material effect upon the financial statements.
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. For public companies, the amendments in this ASU
are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. The Company
expects to recognize ROU assets and related obligations upon adoption of ASU 2016-02. The Company does not expect the adoption
on this new standard to have any material effect upon the financial statements.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
NOTE
2 - CONVERTIBLE NOTES PAYABLE
The
Company has one convertible note outstanding as of December 31, 2017 in the amount of $105,000 plus accrued interest of $10,736.
The note terms include: twelve percent annual interest rate with the stipulation including upon completion of the Company’s
next qualified equity financing round the note holder shall be allowed to exchange this note pursuant to the same terms and conditions
offered in the qualified offering.
NOTE
3 - RELATED PARTY PAYABLE
At
December 31, 2017, the company is obligated for officers’ notes payable, accounts payable and accrued interest in the total
amount of $196,063. The note payable to officer terms are accrual of interest at eight percent annually, with a stipulation including
if the Company receives additional financing in the amount greater than $1,400,000, the Company will immediately pay the officer
the principal amount of the note along with all interest due.
NOTE
4 - NOTE PAYABLE
The
Company is obligated on the following notes at December 31, 2017:
1.
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Third Party Individuals
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$
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181,966
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2.
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Bank Credit Line
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18,333
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Total
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$
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200,299
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NOTE
5 - GOING CONCERN
As
reflected in the accompanying condensed consolidated financial statements, the Company had no significant revenue and had a negative
equity and recurring material losses. These factors raise substantial doubt about the Company’s ability to continue as a
going concern.
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.
These
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
6 - COMMON STOCK
From April 1, 2017 to December 31, 2017, the
Company issued 8,957,769 shares of common stock of which 1,418,528 were issued to reduce accrued salaries valued at $867,192;
431,500 shares were for services valued at market for $214,825; and 1,620,000 shares for cash of $567,000. In addition, 5,450,000
shares were issued as part of the Company’s merger of Gel-Del Technologies, Inc. In December, 2017, 37,741 shares
were issued to settle debt valued at $13,210.
As of December 31, 2017, the Company had 2,646,036
warrants outstanding. On August 5, 2015, 40,000 warrants were issued as settlement for business advising, management consulting,
fund raising and public relations consulting at exercise price of $3.50/share for a five year term. On April 11, 2016, 20,000 warrants
were issued as part of subscription agreements at an exercise price of $2.00/share for a term of five years. On June 7, 2016, 13,250
warrants were issued as part of a subscription agreement at an exercise price of $2.00/share for a term of five years.
On September 15, 2017, the Company issued
100,000 warrants to David Deming and 100,000 warrants to Peter Vezmar at an exercise price of $0.35/share for a five year term.
On September 19, 2016, 60,000 warrants were issued as part of a subscription agreement at an exercise price of $1.50/share for
a term of five years. On July 28, 2017, 750,000 warrants were issued to the President upon the transfer of his 1.25
million shares to the new CEO at an exercise price of $0.30/share for a vesting term of two years. On November 6, 2017, the
Company issued 100,000 warrants to David Merrill as a board member at an exercise price of $1.00/share for a five year term. On
December 7, 2017, the Company issued 1,500,000 warrants as part of subscription agreements at an exercise price of $0.50/share
for a three year term. On December 18, 2017, the Company issue 22,786 warrants as part of a conversion of a note payable at an
exercise price of $0.50/share for a three year term. On December 28, 2017, one warrant holder exercised 60,000 warrants at $1.00/share.
NOTE
7 – MERGER AGREEMENT WITH GEL-DEL
On
November 21, 2014, the respective Boards of Directors and executive officers of our company and of Gel-Del Technologies, Inc.,
a Minnesota corporation (“Gel-Del”), entered into and agreed to a merger between our company and Gel-Del, subject
to approval by our shareholders and the shareholders of Gel-Del. Approval of our shareholders of this initial merger was obtained
by us on April 10, 2015 through a Written Consent pursuant to Nevada corporate statutes, and approval of Gel-Del shareholders
was obtained through a meeting of its shareholders duly held on March 25, 2015 pursuant to Minnesota corporate statutes. Concurrent
with obtaining full shareholder approval, we also appointed the directors of Gel-Del as directors of our company.
We
then controlled Gel-Del, combined all Gel-Del operations with ours, and became responsible to provide future funding for Gel-Del.
Accordingly, we concluded that Gel-Del was a VIE entity for which we were the primary beneficiary and that for accounting purposes,
we would consolidate our financial statements with those of Gel-Del. As required by US GAAP accounting, our initial consolidation
of this VIE was accounted for similar to a business combination with the assets and liabilities of Gel-Del stated at their fair
value. In light of the pending merger, we determined the fair value of Gel-Del based on the agreed consideration of 4,150,000
common shares using the $4.02 per share trading price of our common stock at April 10, 2015. The assets of Gel-Del equaled $295,716
and its liabilities were $2,295,462 for a difference of $1,999,746 that resulted in a total purchase consideration of $18,978,462.
We allocated $13,407,693 to goodwill and $5,570,769 to patents and trademarks. We recorded a non-controlling interest of $16,683,000.
We
were unable to consummate the initial merger agreement with Gel-Del due primarily to a substantial public market decline in the
trading value of our common stock. In order to complete our Gel-Del merger, in early 2017 we agreed to provide Gel-Del an additional
31.3% of our common shares than was provided for in the initial merger agreement. Accordingly, pursuant to an Agreement of Merger
dated March 20, 2017, our management and Gel-Del management revised the structure and terms of the Gel-Del merger to provide for
the issuance of these additional shares to Gel-Del and to effect the transaction through a statutory triangular merger. The revised
merger was then completed under Minnesota Statutes whereby Gel-Del and a wholly-owned subsidiary of ours (which was incorporated
in Minnesota expressly for this transaction) completed this triangular merger (the “Merger”). Pursuant to the Merger,
Gel-Del was the surviving entity and concurrently became our wholly-owned subsidiary, resulting in our obtaining full ownership
of Gel-Del. Our primary reason to effect the Merger was to obtain 100% ownership and control of Gel-Del and its patented bioscience
technology, including ownership of Gel-Del’s Cosmeta subsidiary. The effective date for the Merger was April 10, 2017 when
the Merger was filed officially with the Secretary of State of Minnesota.
Pursuant
to the Merger, we issued a total of 5,450,000 shares of our common stock pro rata to the pre-merger shareholders of Gel-Del, resulting
in each outstanding common share of Gel-Del being converted into 0.788 common share of our company. Gel-Del did not have any outstanding
options, warrants, convertible debt, or other rights convertible into equity. The 5,450,000 shares represented approximately 30%
of our total post-merger outstanding common shares and were valued at the closing price of our common shares on the effective
date of the Merger of $0.40 per share, resulting in total consideration of $2,180,000. Incident to completion of the Merger, we
recorded an impairment loss of approximately $14,700,000 including $13,407,693 in goodwill and approximately $1,292,307 in patents
and trademarks, in order to account for the decline in our initial valuation of Gel-Del. In accordance with authoritative guidance,
the non-controlling interest associated with Gel-Del was reclassified to additional paid-in capital, including the difference
between the non-controlling interest and the consideration paid.
NOTE
8 – INCOME TAXES
The
Company has not filed tax returns for 2014, 2015, 2016, and 2017. The Company’s subsidiaries, Gel-Del Technologies, Inc.,
and Cosmeta Corp have not filed tax returns for tax years 2013, 2014, 2015, 2016, and 2017. It should be noted that the tax liability
for all the companies for those years is likely to be none or minimal as a result of net operating losses recorded in those years.
Gel-Del Technologies, Inc. and Cosmeta Corp file consolidated returns. There are penalties for not filing timely returns. These
penalties have not been determined at this time, however, due to the operating losses, penalties are expected to be minimal. The
Company is now in the process of filing all untimely returns, which will soon be submitted as required.
NOTE
9 – LEASE AND COMMITMENTS
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 base rent is $2,078 per month and the Company is responsible for its proportional
share of common space expenses, property taxes, and building insurance. Future minimum rental commitments are as follows:
2018
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$
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24,932
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2019
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24,932
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2020
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24,932
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2021
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24,932
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2022
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24,932
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2023
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24,932
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2024
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21,774
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$
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171,366
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NOTE
10 – SUBSEQUENT EVENTS
On
February 2018, the Company converted note payables in the amount of $181,966 into 425,287 shares of common stock and 330,673 purchase
warrants with an exercise price of $0.50 per share with a three year term.
In
February 2018, the Company granted 10,000 shares valued at $1.50 per share for consulting and business management services.
In
February 2018, the Company engaged a new patent law firm and granted 20,000 purchase warrants with an exercise price of $1.00
per share with a three year term.
All
of the foregoing securities issuances were unregistered and made as non-public transactions, and accordingly exempt from registration
in reliance on Section 4(a)(2) of the Securities Act of 1933, as amended.