Notes
to Financial Statements
December
31, 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
October 2020, the Company approved a 1-for-4 reverse split of our outstanding shares of common stock that was made effective December
29, 2020; concurrently, the Company increased its authorized shares of common stock from 225,000,000 to 250,000,000; all share
and per share data has been retroactively adjusted for this reverse split for all period presented.
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, 2020 and for the nine months ended December 31, 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 nine
months ended December 31, 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 collectability of accounts receivable, estimated useful lives and potential impairment
of property and equipment and intangible assets, estimate of fair value of share-based payments and derivative instruments and
recorded debt discount, estimate of fair value of lease liabilities and related right of use asset, 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 December 31, 2020, the Company had $230,969 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 December 31, 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 1,124,803 warrants outstanding as of December 31, 2020 with varying exercise prices ranging from $1.20 to $15.56/share.
The weighted average exercise price for these warrants is $1.99/share. These warrants are excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company had 1,305,111 warrants outstanding as of December 31, 2019, with varying exercise prices ranging from $1.20 to $15.56/share.
The weighted average exercise price for these warrants was $2.16/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
December 31, 2020, the Company had $280,000 in convertible notes principal and $-0- in interest outstanding; at December 31, 2019,
the Company had $280,000 in convertible notes principal and $7,057 in interest outstanding; these notes mature in our fiscal quarter
ended June 30, 2021. If converted, the $280,000 in outstanding principal and $-0- in accrued interest would convert into 96,924
shares of common stock at a rate of $2.89 per share. Also at December 31, 2020, the Company had a share-settled debt obligation
with a related party wherein $196,000 in principal will be converted into units of one share of common stock and one warrant for
a share of common stock with the exact number of units to be determined by the terms of an S-1 offering that as of this filing
has yet to take place. See Note 8 to these financial statements for more information on the convertible notes 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.
The
Company recognizes revenue related to our sales of Kush product to veterinarians when the performance obligation is met, which
is when we have received an order and shipped the Kush product.
(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:
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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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●
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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 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 December 31, 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 December 31, 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, which are in level 3 of the
fair value hierarchy.
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 – Employees and Non-Employees
Equity
Instruments Issued to Employees and Non-Employees for Acquiring Goods or Services
On
June 20, 2018, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU) 2018-07, Compensation—Stock
Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting. ASU 2018-07 is intended to reduce cost and
complexity and to improve financial reporting for share-based payments to nonemployees (for example, service providers, external
legal counsel, suppliers, etc.). Under the new standard, companies will no longer be required to value non-employee awards differently
from employee awards. Meaning that companies will value all equity classified awards at their grant-date under ASC 718 and forgo
revaluing the award after this date.
The
Company accounts for employee stock-based compensation the same as non-employee stock-based compensation.
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:
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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.
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●
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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.
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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.
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●
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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.
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(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 and 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
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 consolidated 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 $3,199,763 for the nine-month period ended December 31, 2020 and had net cash used in operating
activities of $776,845 for the same period. Additionally, the Company has an accumulated deficit of $57,788,408, working capital
deficit of $821,219, and a stockholders’ deficit of $661,956 at December 31, 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 consolidated 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 through a private placement or public offering of its equity securities; this is evidenced by
the filing of Forms S-1 and S-1/A with the Securities and Exchange Commission on October 13, 2020, and December 31, 2020, respectively.
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
consolidated 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 December 31, 2020 and December 31, 2019 were $13,343 and $13,434, respectively. Rent
expense for the nine-month periods ended December 31, 2020 and December 31, 2019 were $40,479 and $37,679, 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 started
as $2,078 per month with 2% increases annually and the Company is responsible for its proportional share of common space expenses,
property taxes, and building insurance. The base rent as of December 31, 2020 is $2,162. 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. On January 8th, 2020, the Company entered into a lease amendment whereby agreed
to extend the lease term through November of 2026 in exchange for receipt of a loan of $42,500 recorded to notes payable and a
grant of $7,500, which has been recorded to accrued expenses and will be amortized over the remainder of the lease term.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of December 31, 2020:
Year Ended March 31,
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|
2021
|
|
$
|
6,614
|
|
2022
|
|
|
26,634
|
|
2023
|
|
|
27,167
|
|
2024
|
|
|
27,710
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|
2025
|
|
|
28,265
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|
Thereafter
|
|
|
48,305
|
|
|
|
$
|
164,695
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|
Less: Amount representing interest
|
|
|
(345
|
)
|
Present value of lease liabilities
|
|
$
|
164,350
|
|
In
compliance with ASC 842, the Company recognized, based on the extended lease term to November 2026 and a treasury rate of 0.12%,
an operating lease right-to-use assets for approximately $189,600 and corresponding and equal operating lease liabilities
for the lease of our facility in Edina, MN. As of December 31, 2020, the Company only had one operating lease so that the remaining lease term and weighted average discount
rate are approximately 6 years and 0.12%, respectively.
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|
December 31,
2020
|
|
Present value of future base rent lease payments
|
|
$
|
164,350
|
|
Base rent payments included in prepaid expenses
|
|
|
-
|
|
Present value of future base rent lease payments – net
|
|
$
|
164,350
|
|
As
of December 31, 2020, the present value of future base rent lease payments – net is classified between current and non-current
assets and liabilities as follows:
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|
December 31,
2020
|
|
Operating lease right-of-use asset
|
|
$
|
164,350
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|
Total operating lease assets
|
|
|
164,350
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|
|
|
|
|
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Operating lease current liability
|
|
|
26,450
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|
Operating lease other liability
|
|
|
137,900
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|
Total operating lease liabilities
|
|
$
|
164,350
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|
Pursuant to a lease wherein our subsidiary,
Gel-Del Technologies, Inc., was the lessee until and through the lease's termination in fiscal year 2017-2018,
the Company had recorded as of those fiscal years approximately $330,000 as a potential payable to the lessor,
which this liability remains as of December 31, 2020 and 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 December 31, 2020 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 and risk of non-performance.
NOTE
5 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS
At
December 31, 2020 and March 31, 2020, the Company had $252,431 and $132,023 in prepaid expenses and deferred offering costs, respectively.
At December 31, 2020 the total prepaids amount of $252,431 was made up primarily of $141,687 in prepaid expenses – short
term and $110,744 in deferred offering costs. Of the $141,687 classified as prepaid expenses – short term, approximately
$73,000 is made up of advertising and marketing services yet to be performed, and $25,000 is made up of a deposit for our canine
elbow osteoarthritis study to be performed by Colorado State University. The $110,744 classified as deferred offering expenses
is entirely made up of legal costs incurred related to our S-1 and S-1/A filings with the Securities and Exchange Commission on
October 13, 2020, and December 31, 2020, respectively, and will be recorded as a reduction of proceeds should we be successful
in raising capital through this S-1 offering or expensed if not.
NOTE
6 – PROPERTY AND EQUIPMENT
The
components of property and equipment were as follows:
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December 31,
2020
|
|
|
March 31,
2020
|
|
Leasehold improvements
|
|
$
|
177,184
|
|
|
$
|
98,706
|
|
Furniture and office equipment
|
|
|
10,130
|
|
|
|
10,130
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|
Production equipment
|
|
|
127,419
|
|
|
|
87,473
|
|
R&D equipment
|
|
|
25,184
|
|
|
|
25,184
|
|
Total, at cost
|
|
|
339,917
|
|
|
|
221,493
|
|
Accumulated depreciation
|
|
|
(136,318
|
)
|
|
|
(111,586
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)
|
Total, net
|
|
$
|
203,599
|
|
|
$
|
109,907
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|
During
the three months ended December 31, 2020 and 2019, depreciation expense was $10,768 and $2,438, respectively. During the nine
months ended December 31, 2020 and 2019, depreciation expense was $24,731 and $12,861, respectively. During the nine months ended
December 31, 2020, the Company received cash proceeds in the amount of $482 related to an insurance claim processed during the
three months ended March 31, 2020 for our modular cleanroom that was damaged during shipment to the buyer of the same. During
the nine months ended December 31, 2019, the Company recognized $450 gain on sale of asset related to the sale of a piece of equipment
that was originally purchased for $1,004, was fully depreciated at the time of the sale, and was sold for $450 in cash.
NOTE
7 – TRADEMARKS AND PATENTS, NET
The
components of intangible assets, all of which are finite-lived, were as follows:
|
|
December 31,
2020
|
|
|
March 31,
2020
|
|
Patents
|
|
$
|
3,836,911
|
|
|
$
|
3,822,542
|
|
Trademarks
|
|
|
26,142
|
|
|
|
25,023
|
|
Total, at cost
|
|
|
3,863,053
|
|
|
|
3,847,565
|
|
Accumulated Amortization
|
|
|
(3,837,284
|
)
|
|
|
(3,788,954
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)
|
Total, net
|
|
$
|
25,769
|
|
|
$
|
58,611
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|
During
the three-month periods ended December 31, 2020 and 2019, amortization expense was $1,629 and $134,283, respectively. During the
nine-month periods ended December 31, 2020 and 2019, amortization expense was $48,331 and $408,994, respectively.
During
the three-month periods ended December 31, 2020 and 2019, intangible impairment expense was $8,353 and $28,038, respectively.
During the nine-month periods ended December 31, 2020 and 2019, intangible impairment expense was $23,930 and $28,038, respectively.
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES
At
December 31, 2020, the Company is obligated for $129,720 in notes payable, notes payable – related parties and accrued interest
and $280,000 in convertible notes payable.
At
March 31, 2020, the Company is obligated for $76,350 in notes payable and accrued interest and $286,981 in convertible notes payable
and accrued interest.
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|
|
December 31, 2020
|
|
|
March 31, 2020
|
|
|
|
|
|
Notes Payable
|
|
|
Convertible
Notes Payable
|
|
|
Notes Payable
|
|
|
Convertible
Notes Payable
|
|
1.
|
|
Third Parties – Principal
|
|
$
|
79,634
|
|
|
$
|
280,000
|
|
|
$
|
15,000
|
|
|
$
|
280,000
|
|
|
|
Third Parties – Interest
|
|
|
260
|
|
|
|
-
|
|
|
|
95
|
|
|
|
6,981
|
|
|
|
Third Parties – Total
|
|
|
79,894
|
|
|
|
280,000
|
|
|
|
15,095
|
|
|
|
286,981
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.
|
|
Related Parties – Principal
|
|
|
49,826
|
|
|
|
-
|
|
|
|
59,642
|
|
|
|
-
|
|
|
|
Related Parties – Interest
|
|
|
-
|
|
|
|
-
|
|
|
|
1,613
|
|
|
|
-
|
|
|
|
Related Parties – Total
|
|
|
49,826
|
|
|
|
-
|
|
|
|
61,255
|
|
|
|
-
|
|
|
|
Total
|
|
$
|
129,720
|
|
|
$
|
280,000
|
|
|
$
|
76,350
|
|
|
$
|
286,981
|
|
Convertible
Notes Payable
The
Company entered into a convertible note payable held by RedDiamond Partners, LLC (“RDCN”) on June 15, 2020, whereby
the RDCN was convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $1.12/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. However, this conversion feature’s exercise contingency was only utilizable if triggered
by the occurrence of an Event of Default, which included events that were 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 accrued interest at
a rate of 12.5% per annum, calculated on a 360-day-per-year-basis. This RDCN was issued alongside a warrant for purchase of 139,286
shares of Company common stock (“RDCN Warrants”) with a relative fair value of $91,500. Upon inception, 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 fair 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.
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. 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. The total issuance costs paid to Think Equity of $61,500 of cash and warrants,
which the Company recorded the relative fair value of $52,399 to expense since no further discount was available to be taken on
the debt. As of December 31, 2020, the Company had $-0- in unamortized debt discount remaining and owed $-0- in principal and
interest pursuant to the RDCN. For the three and nine months ended December 31, 2020, the Company amortized a pro-rata portion
of the discount on the debt on a straight-line basis to interest expense in the amounts of $35,919 and $173,174, respectively.
At October 26, 2020, the Company entered into a note conversion agreement that converted the then outstanding balance of $368,995
made up of $352,941 in principal and $16,054 in accrued interest into 263,568 shares of common stock at a rate of $1.40 per share
when the market price of the stock was $6.56. The settlement relieved a derivative liability in the amount of $1,908,100, outstanding
principal and interest of $368,995, and debt discount in the amount of ($181,187) in exchange for stock valued on the date of
the settlement in the total amount of $1,729,005; this triggered a gain on debt extinguishment of $366,903. Please see Note 10
to these financial statements for more information on this conversion.
At
December 31, 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 December 31,
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 and nine months ended December 31, 2020, the Company paid out $14,115 and $28,077, respectively, in accrued interest
to these convertible note holders. During the three and nine months ended December 31, 2019, the Company paid out $-0- and $11,479,
respectively, in accrued interest to these convertible note holders.
These
AICNs automatically convert into shares of common stock at a rate of $2.89 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 $3.47 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 $2.89 per share. No AICN note holders
have converted their notes as of December 31, 2020.
Convertible
Notes Payable – Related Party
At
December 31, 2020 and March 31, 2020, the Company was not obligated for any related party convertible notes payable principal
and accrued interest. However, the Company entered into notes payable with three directors on May 14, 2020, in the aggregate principal
amount of $25,000. The notes with these three directors accrued interest at a rate of 6% annually, yielding a total amount of
accrued interest of $382 at August 14, 2020, the maturity date, and on that date the total outstanding balance of $25,382 was
converted at $1.02 per share into 25,003 shares of common stock valued at $25,383.
Notes
Payable
On
January 8th, 2020, 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 as described in Note 3 to these financial statements. The note payable accrues interest
at a rate of 6% per annum.
At
December 31, 2020, the Company was obligated for notes payable and accrued interest in the amounts of $40,969 and $-0-, respectively.
At March 31, 2020, the Company was obligated for notes payable and accrued interest in the amounts of $15,000 and $95, respectively.
During the three months ended December 31, 2020, the Company paid $559 in interest and $1,531 in principal pursuant to this note
payable.
PPP
Loan Payable
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 December 31, 2020, the Company was obligated for the
outstanding balance of $38,925, made up of $38,665 in principal and $260 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. However, through the date of this filing we are awaiting review and further guidance
from the loan issuer on our repayment status.
Notes
Payable – Related Party
At
December 31, 2020 and March 31, 2020, the Company was obligated for related party notes payable and accrued interest in the total
amount of $49,826 and $61,255, respectively. The balance of $49,826 outstanding at December 31, 2020, is described as the Amendment
to Promissory Note in the below Note 9 to these financial statements.
NOTE
9 – SHARE-SETTLED DEBT OBLIGATION – RELATED PARTY
At
December 31, and March 31, 2020, respectively, the Company is obligated for $194,579 in share-settled debt obligation –
related party made up of $196,000 in principal owed and ($1,421) in discount on the debt. During the three and nine months ended
December 31, 2020 the Company amortized $1,421 in debt discount to interest expense.
Effective
September 1, 2020, the Company entered into two debt settlement agreements with David B. Masters, a director of the Company, pursuant
to an Amendment to Promissory Note and a Promissory Note. The Amendment to Promissory Note extends, for up to an additional two
years and under the same terms as originally entered into, the original promissory notes which were issued by Gel-Del Technologies,
Inc., a wholly owned subsidiary of the Company, to Dr. Masters. Because this Amendment to Promissory Note simply extended the
term over which the Company is required to pay back the outstanding balance this change has been treated as a debt modification.
The outstanding principal of $59,642 and interest balance of $6,058 of the original promissory notes was $65,700 at the time of
execution of the Amendment to Promissory Note; the terms of this Amendment to Promissory Note are interest accrual at a rate of
8% on an annual basis or 20% if the note is in default. The Amendment to Promissory Note requires monthly payments of $3,100 and
a maturity date of June 30, 2022 provided however that if the Company shall achieve $1,500,000 in equity sales or achieve gross
product sales of $1,500,000, the Company must pay the outstanding balance at that time.
The
Promissory Note was entered into with an effective date of September 1, 2020 in a principal amount of $195,000, which represented
David Masters’ release of any claim to the $195,000 in past accrued salary he was owed, it accrues interest at a rate of
3% per annum, has a maturity date of August 31, 2022, and required payments of $4,000 per month beginning when the Company’s
sale of products reach $3,500,000. The reclassification of the $195,000 was treated as a debt modification.
A
Settlement and General Release (“Settlement Agreement”) was also executed by Dr. Masters to the benefit of
the Company as a settlement and general release of any and all past claims, demands, damages, judgements, causes of action and
liabilities that Dr. Masters ever had, may have or may acquire against the Company and its subsidiaries, including, but not limited
to any claims related to (a) the ownership, operation, business, or financial condition of the Company or its business, (b) any
promissory note, loan, contract, agreement or other arrangement, whether verbal or written, including all unpaid interest charges,
late fees, penalties or any other charges thereon, entered into or established between Dr. Masters’ and his affiliates and
the Company on or prior to the Effective Date, or (c) the employment of Dr. Masters by the Company (except for claims directly
relating to the breach of the Amendment to Promissory Note, the Promissory Note or the Consulting Agreement).
On
October 15, 2020, the Company entered into a note conversion agreement with David Masters whereby the Company and Mr. Masters
both agreed to convert his note payable in the then outstanding balance of $193,158 made up of $192,500 in principal and $658
in accrued interest into common stock and warrants pursuant to terms identical to what is agreed upon in our S-1 offering currently
being conducted. Pursuant to this conversion agreement the Company agreed to convert $196,000 made up of $192,500 in principal
and a conversion fee of $3,500 and Mr. Masters agreed to forego the interest accrued in the amount of $658. The conversion fee
of $3,500 was treated as a discount on the debt and the $658 was treated as a reduction of the discount on debt. Therefore, upon
inception the convertible balance of $196,000 was reduced by a discount on the debt of 2,842. As of December 31, 2020, the outstanding
balance of this share-settled debt obligation had not yet been converted and is recorded as a liability due to the fact the Company
had not agreed to terms of our S-1 offering currently being conducted.
At
December 31, 2020, the Company was obligated for principal and accrued interest in the amounts of $-0- and $-0-, respectively,
related to the Promissory Note and $49,826 and $-0-, respectively, related to the Amendment to Promissory Note.
NOTE
10 – DERIVATIVE LIABILITY AND EXPENSE
The
Company evaluates its convertible instruments, options, warrants or other contracts to determine if those contracts or embedded
components of those contracts qualify as derivatives to be separately accounted for under ASC Topic 815, “Derivatives and
Hedging.” The result of this accounting treatment is that the fair value of the derivative is marked-to-market each balance
sheet date and recorded as a liability. In the event that the fair value is recorded as a liability, the change in fair value
is recorded in the statement of operation as other income (expense). Upon conversion or exercise of a derivative instrument, the
instrument is marked to fair value at the conversion date then that fair value is reclassified to equity. Equity instruments that
are initially classified as equity that become subject to reclassification under ASC Topic 815 are reclassified to liabilities
at the fair value of the instrument on the reclassification date.
The
Company used the following assumptions for determining the fair value of the conversion feature in the RDCN referenced in Note
8 to these consolidated financial statements, under the binomial pricing model at June 15, 2020, September 30, 2020, and October
26, 2020, the issuance, balance sheet, and conversion dates, respectively:
|
|
June 15, 2020
|
|
|
September 30, 2020
|
|
|
October 26, 2020
|
|
Stock price on valuation date
|
|
$
|
1.68
|
|
|
$
|
1.60
|
|
|
$
|
6.56
|
|
Conversion price
|
|
$
|
1.12
|
|
|
$
|
1.12
|
|
|
$
|
1.12
|
|
Days to maturity
|
|
|
273
|
|
|
|
166
|
|
|
|
140
|
|
Weighted-average volatility*
|
|
|
367
|
%
|
|
|
327
|
%
|
|
|
197
|
%
|
Risk-free rate
|
|
|
.18
|
%
|
|
|
.12
|
%
|
|
|
.11
|
%
|
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 September 30, 2020, the Company revalued the derivative liability to $937,500. At October 26, 2020, the Company revalued the
derivative liability to $1,908,100. For the three months ended December 31, 2020 and 2019, the Company recognized $970,600 and
$-0- to derivative expense, respectively. For the nine months ended December 31, 2020 and 2019, the Company recognized $1,702,100
and $-0- to derivative expense and derivative liability, respectively. On October 26, 2020, the Company entered into a conversion
agreement whereby the RDCN was converted into 263,568 shares of common stock at a rate of $1.40 per share; this triggered a gain
on extinguishment of debt in the amount of $366,903 as described in these financial statements’ Note 8.
The
Company recorded derivative liability transactions during the nine-month period ended December 31, 2020 as follows:
|
|
Nine Months Ended
December 31, 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
|
|
|
|
|
|
|
Change in fair value
|
|
|
389,300
|
|
|
|
|
|
|
Balance at September 30, 2020
|
|
$
|
937,500
|
|
|
|
|
|
|
Change in fair value
|
|
|
970,600
|
|
|
|
|
|
|
Balance at October 26, 2020
|
|
$
|
1,908,100
|
|
|
|
|
|
|
Conversion of note on October 26,2020
|
|
|
(1,908,100
|
)
|
|
|
|
|
|
Balance at December 31, 2020
|
|
$
|
-0-
|
|
NOTE
11 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At
December 31, 2020 and March 31, 2020, the Company is obligated to pay $782,732 and $794,057, respectively, in accounts payable
and accrued expenses. Of the total at December 31, 2020, $555,960 is made up of accounts payable, while the $226,722 in accrued
expenses mainly 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
$14,198 and $22,025 at December 31, 2020 and March 31, 2020, respectively.
NOTE
12 – ACCRUED EXPENSES – RELATED PARTY
At
December 31, 2020, the Company is obligated to pay $9,615 in accrued expenses due to related parties. The total amount is made
up of paid time off accrued and owed to both John Lai and John Carruth in equal amounts of $4,807. During the quarter ended December
31, 2020, David Masters signed a settlement and general release giving up any right to his $195,000 in accrued salary –
related party. In exchange for this settlement and general release, the Company granted David Masters a note with a principal
amount of $195,000, which is described further in this Form 10-Q’s Note 9.
At
March 31, 2020, the Company was obligated to pay $252,607 in accrued expenses due to related parties. Of the total, $38,954 was
made up of accounts payable, while $213,653 is made up of accrued salaries and potential payroll taxes payable.
NOTE
13 - COMMON STOCK AND WARRANTS
On
October 23, 2020, the Company approved and declared a reverse stock split of all its outstanding common stock at a ratio of 1-for-4
shares; this reverse stock split was made effective on December 29, 2020. All references to number of shares and price per share
data have been retroactively adjusted for this reverse stock split for all periods presented.
Equity
Incentive Plan
On
July 10, 2020, our Board of Directors unanimously approved the PetVivo Holdings, Inc “2020 Equity Incentive Plan”
(the “2020 Plan”), subject to approval by our stockholders at the Regular Meeting of Stockholders held on September
22, 2020, when it was approved by our stockholders and became effective. The number of shares of our common stock available and
that may be issued as awards under the 2020 Plan is 1,000,000 shares. Unless sooner terminated by the Board, the 2020 Plan will
terminate at midnight on July 10, 2030.
Eligible
Participants – Employees, consultants and advisors of the Company (or any subsidiary), and non-employee directors of
the Company will be eligible to receive awards under the 2020 Plan. In the case of consultants and advisors, however, their services
cannot be in connection with the offer and sale of securities in a capital-raising transaction nor directly or indirectly promote
or maintain a market for PetVivo securities.
Administration
– The 2020 Plan will be administered by the Compensation Committee of our Board of Directors (the “Committee”),
which has full power and authority to determine when and to whom awards will be granted, and the type, amount, form of payment,
any deferral payment, and other terms and conditions of each award. Subject to provisions of the 2020 Plan, the Committee may
amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding award. The Committee also has the
authority to interpret and establish rules and regulations for the administration of the 2020 Plan. In addition, the Board of
Directors may also exercise the powers of the Committee.
Shares
Available for Awards – The aggregate number of shares of Petvivo common stock available and reserved to be issued under
the 2020 Plan is 1,000,000 shares, but includes the following limits:
●
the maximum aggregate number of shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will
be 10,000 shares; provided that such limit will not apply to any election of a Non-Employee Director to receive shares of Common
Stock in lieu of all or a portion of any annual Board, committee, chair or other retainer, or any meeting fees otherwise payable
in cash.
Types
of Awards – Awards can be granted for no cash consideration or for any cash and other consideration as determined by
the Committee. Awards may provide that upon the grant or exercise thereof, the holder will receive cash, shares of PetVivo common
stock, other securities or property, or any combination of these in a single payment, installments or on a deferred basis. The
exercise price per share of any stock option and the grant price of any stock appreciation right may not be less than the fair
market value of PetVivo common stock on the date of grant. The term of any award cannot be longer than ten years from the date
of grant. Awards will be adjusted in the event of a stock dividend or other distribution, recapitalization, forward or reverse
stock split, reorganization, merger or other business combination, or similar corporate transaction, in order to prevent dilution
or enlargement of the benefits or potential benefits provided under the 2020 Plan.
The
2020 Plan permits the following types of awards: stock options, stock appreciation rights, restricted stock awards, restricted
stock units, deferred stock units, performance awards, non-employee director awards, other stock-based awards, and dividend equivalents.
As
of December 31, 2020, the Company has not awarded any shares pursuant to the 2020 Plan.
Common
Stock
On
December 29, 2020, the Company effected a reverse stock split of all its outstanding common stock at a ratio of 1-for-4 shares.
Pursuant to this reverse stock split, each four (4) shares of PetVivo’s outstanding common stock, $.001 par value per share,
was combined and converted into one (1) post-split outstanding shares of common stock, $.001 par value per share. This reverse
stock split affected all PetVivo shareholders uniformly and accordingly did not alter any shareholder’s percentage interest
or ownership of PetVivo equity. Through the date of this filing, 724 shares of common stock have been issued due to rounding up
of fractional shares.
During
the nine-month period ended December 31, 2020 the Company issued 991,014 shares of common stock as follows:
i)
30,000 shares valued at $40,680 and recorded in Stock-based compensation to a service provider for video marketing services over
a 6-month term;
ii)
20,000 shares with a relative value of $34,709 pursuant to a purchase of 20,000 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;
iii)
12,500 shares valued at $22,000 on July 1, 2020 to two service providers as follows: a) 10,000 to a marketing and investor relations
service provider valued at $17,600 that was recorded to stock-based compensation; and b) 2,500 to a legal service provider valued
at $4,400 that was recorded to stock-based compensation;
iv)
15,257 shares valued at $12,053 on July 24, 2020 to one warrant holder whereby this warrant holder converted on a cashless basis
25,000 warrants into 15,257 shares of common stock and the warrant had an exercise price of $1.20 per share;
v)
226,071 shares during August and September of 2020 in exchange for $316,500 in cash to four accredited investors;
vi)
162,252 shares valued at $486,755 to directors and officers on September 14, 2020 as bonuses for work over the past two years
and recorded to stock-based compensation as follows:
|
a.
|
33,619
to John Lai
|
|
b.
|
26,217
to John Carruth
|
|
c.
|
22,993
to John Dolan
|
|
d.
|
10,789
to Gregory Cash
|
|
e.
|
10,711
to David Deming
|
|
f.
|
10,627
to Robert Rudelius
|
|
g.
|
10,550
to Randy Meyer
|
|
h.
|
9,302
to Jim Martin
|
|
i.
|
9,300
to Scott Johnson
|
|
j.
|
9,209
to Joseph Jasper
|
|
k.
|
8,935
to David Masters
|
vii)
25,003 shares valued at $25,383 to three directors on August 14, 2020, pursuant to their conversions of notes in the total outstanding
balance amount of $25,382 made up of $25,000 in principal and $382 in accrued interest; these notes had a set conversion price
of $1.02 per share.
viii)
263,568 shares in October of 2020 pursuant to conversion of $368,995 in principal and accrued interest of the RDCN valued at $1,729,005
as outlined in this Form 10-Q’s Note 8;
ix)
32,347 shares in October of 2020 pursuant to John Lai’s cashless exercise of a warrant for purchase of 42,188 shares of
common stock at a strike price of $1.33/sh;
x)
202,499 shares in October, November and December to 20 accredited investors pursuant to their exercising of warrants with strike
prices of $2.22 for cash proceeds of $449,993 recorded to cash paid to exercise warrants; and
xi)
793 shares in October of 2020 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 6,750 shares
of common stock at a strike price of $4.44/sh.
During
the nine months ended December 31, 2019, the Company issued 652,466 shares of common stock as follows:
i)
87,000 shares to John Lai pursuant to a Settlement Agreement whereby Mr. Lai agreed to release the Company of all claims through
the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $116,000 and hold
the shares for a period of at least 3 years;
ii)
143,952 shares to Randall Meyer pursuant to a Settlement Agreement whereby Mr. Meyer agreed to release the Company of all claims
through the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $191,936
and hold the shares for a period of at least 3 years;
iii)
51,000 shares to John Dolan pursuant to a Settlement Agreement whereby Mr. Dolan agreed to release the Company of all claims through
the date of the agreement, September 11, 2019, including accrued compensation he had earned in the amount of $68,000 and hold
the shares for a period of at least 3 years; and
iv)
42,014 shares to a former employee pursuant to a Settlement Agreement dated August 29, 2019, whereby this individual agreed to
release the Company of all claims, including compensation earned in the amount of $80,029; and
v)
27,000 shares valued at $120,000 to a service provider for production services provided during the one-year period ended July
13, 2019 and recognized over that period on a pro-rata basis; and
vi)
90,000 shares on September 13, 2019, to one shareholder that the Company sold in exchange for $100,000;
vii)
67,500 shares valued at $102,000 to a service provider on September 18, 2019, in exchange for 12 months of video production and
marketing services;
viii)
121,500 shares to various accredited investors in exchange for $135,000 in cash, which equates to a price per share of $.28/share;
ix)
22,500 shares to service providers for investor relations services to be performed by Barry Kaplan Associates during the six-month
period ending in April 2020;
x)
On December 9, 2019, the Company entered into an agreement whereby we agreed to issue 37,500 shares of common stock to a service
provider, Launchpad IR, at $1.68/share for total consideration of $70,500, for investor relations services. These shares remained
unissued at the balance sheet date, December 31, 2019;
xi)
On December 31, 2019, the Company received $104,000 in exchange for 40,000 units, which equates to $2.60/unit, whereby a unit
is made up of one share of common stock and ½ warrant share wherein the common stock was recorded at its relative fair
value of $69,391 and the warrants are described below in this Note 13’s “Warrants” subsection. These shares
remained unissued at the balance sheet date, December 31, 2019.
On
October 31, 2019, the Company’s Board of Directors also approved a compensation plan for John Lai that included his retention
of 150,000 escrowed shares that he never returned to the Company’s Treasury.
John
Lai (CEO, President & Director), Randall Meyer (Director), and John Dolan (Secretary & Director) are all related parties,
and the reduction of $375,936 as outlined in the above Roman numerals i through iii was included in Accrued Expenses – Related
Party. The settlement of $80,029 for a former employee’s accrued salary as outlined in the above Roman numeral iv was accounted
for as a reduction of Accounts Payable and Accrued Expenses. A loss on extinguishment of debt was recorded in the amount of $81,738
related to these transactions as indicated in Roman numerals i through iv above.
Warrants
During
the nine-month period ended December 31, 2020, the Company granted warrants to purchase a total of 240,632 shares of common stock
valued at $443,098, including:
i)
warrants for 10,000 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 on April 6, 2020, and further whereas the warrants vested immediately upon issuance and are exercisable at
$4.00 per share for 3 years from the grant date of April 6, 2020;
ii)
warrants for 72,596 shares, valued at $160,307 using the Black-Scholes model, to directors, officers and consultants at prices
between $1.40 and 1.60 per share with a weighted average price per share of $1.52 per share; and
iii)
warrants for 158,036 shares, valued at $265,500 using the Black-Scholes model, to an investor and broker, whereby the relative
value as described in Note 9 of $91,500 was recorded to Warrants issued in conjunction with convertible debt on the statement
of equity; the warrants have a cashless warrant exercise feature, are exercisable at $1.40 per share for a term of five years
from the date of the grant of June 15, 2020 and vested immediately.
These
warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:
i)
an expected volatility of the Company’s shares on the date of the grants of between approximately 350% and 433%, based
on historical volatility.
ii)
risk-free rates identical to the U.S. Treasury 3-year and 5-year treasury bill rates on the date of the grants between 0.29% and
1.16%.
During
the nine months ended December 31, 2019, the Company granted warrants to purchase a total of 433,633 shares of common stock valued
at $914,730 including:
i)
warrants for 413,633 shares, valued at $880,121 to directors and officers that vested immediately and over terms ending October
2022, and are exercisable over five-year terms between $1.33 and 2.22 per share; and
viii)
warrants for 20,000 shares, issued as a detachable warrant in purchased units with a relative fair value of $34,609, whereby an
accredited investor purchased 40,000 units for $104,000 at a rate of $2.60/unit and a unit equates to one share of common stock
and one-half warrant, and furthermore where the warrants are exercisable for a term of 3 years, have a strike price of $4.00/share
and vested immediately.
These
warrants’ values were arrived at by using the Black-Scholes valuation model with the following assumptions:
i)
an expected volatility of the Company’s shares on the date of the grants ranging between approximately 313% and 361%, which
was arrived at by taking the number of trading days during the year ended on the date of the grant multiplied by the standard
deviation of the percentage change in the closing market price on a day-by-day basis; and
ii)
a risk-free rate identical to the U.S. Treasury 13-week treasury bill rate on the date of the grants between 2.30% and 1.51%.
During
the nine months ended December 31, 2019, the Company cancelled 81,000 warrants to purchase a total of 81,000 shares of common
stock including:
i)
warrants for 67,500 shares, valued at $300,770 using the Black-Scholes model, $117,144 in expense of which had yet to be taken
at the time of cancellation were cancelled pursuant to the terms of such warrants dictating cancellation upon the two-month anniversary
of a cease of service; and
ii)
warrants for13,500 shares that were never originally valued, were to be vested upon billing from service providers, and were cancelled
due to termination of these relationships.
A
summary of warrant activity for the year ending March 31, 2020 and nine-month period ending December 31, 2020 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercisable
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2019
|
|
|
954,745
|
|
|
|
2.20
|
|
|
|
758,759
|
|
|
|
2.16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
476,425
|
|
|
|
2.07
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
|
(84,375
|
)
|
|
|
1.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(22,500
|
)
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(99,000
|
)
|
|
|
2.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
1,225,295
|
|
|
|
2.12
|
|
|
|
1,018,092
|
|
|
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued in conjunction with convertible debt
|
|
|
158,036
|
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold for cash
|
|
|
10,000
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and granted
|
|
|
72,596
|
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised for cash
|
|
|
(202,499
|
)
|
|
|
2.22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
|
(116,125
|
)
|
|
|
1.49
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(22,500
|
)
|
|
|
7.56
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, December 31, 2020
|
|
|
1,124,803
|
|
|
|
1.99
|
|
|
|
1,100,306
|
|
|
|
1.87
|
|
At
December 31, 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
|
|
1.20-2.00
|
|
|
696,190
|
|
|
|
1.36
|
|
|
|
4.61
|
|
|
|
850,568
|
|
|
|
1.34
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01-4.00
|
|
|
320,438
|
|
|
|
2.39
|
|
|
|
3.67
|
|
|
|
134,813
|
|
|
|
2.62
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01-10.00
|
|
|
108,175
|
|
|
|
4.94
|
|
|
|
1.75
|
|
|
|
114,925
|
|
|
|
4.91
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,124,803
|
|
|
|
1.99
|
|
|
|
4.07
|
|
|
|
1,100,306
|
|
|
|
1.87
|
|
For
the nine-month periods ended December 31, 2020 and 2019, the total stock-based compensation on all instruments was $889,597 and
$791,256, respectively. It is expected that the Company will recognize expense after December 31, 2020 related to warrants issued,
outstanding, and valued using the Black Scholes pricing model as of December 31, 2020 in the amount of approximately $287,000.
NOTE
14 – SUBSEQUENT EVENTS
On January 4, 2021, the Company issued
John Lai 38,516 shares pursuant to his cashless exercise of 42,188 warrants with a strike price of $1.33 per share.
On
January 15, 2021, the Company received a conversion notice from one of its convertible note holders whereby they converted $50,000
in convertible note principal and $205 in accrued interest into 17,379 shares of common stock at a conversion rate of $2.89/share.
On
January 29, 2021, one warrant holder exercised their warrant for 17,188 shares with a strike price of $1.20 per share on a cashless
basis and received 15,629 shares pursuant to the same.
On February 9, 2021, one warrant holder
exercised their warrant for 9,000 shares with a strike price of $4.44 per share on a cashless basis and received 5,163 shares
pursuant to the same.