Notes
to Consolidated Financial Statements
September
30, 2022
(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 began commercialization of its lead product Spryng™ with OsteoCushion™
Technology, a veterinarian-administered, intraarticular injection for the management of lameness and other joint afflictions such osteoarthritis
in dogs and horses, in September 2021. The Company has a pipeline of additional products for the treatment of animals in various stages
of development. A portfolio of nineteen patents protects the Company’s biomaterials, products, production processes and methods
of use. 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.
| (C) |
Principles
of Consolidation |
The
accompanying consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota corporations, Gel-Del
Technologies, Inc. and PetVivo, Inc. All intercompany accounts have been eliminated upon consolidation.
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, inventory obsolescence, estimated useful lives and
potential impairment of property and equipment and intangibles, estimate of fair value of share-based payments, future rebates
payable to a distributor, product refund liabilities, lease assets and liabilities and valuation of deferred tax assets.
| (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.
The
Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of September 30,
2022 and March 31, 2022, the Company did have cash balances in excess of the federally insured limits.
Property
and equipment are recorded at cost. 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 considering their respective estimated residual
values) over the assets estimated useful life of 3 to 5 years for production and computer equipment and furniture and 5 to 7 years for
leasehold improvements.
| (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 the useful life of 60 months or the life of the patent. We evaluate the recoverability of intangible assets periodically by
considering events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may be impaired.
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 had 3,686,320 warrants outstanding as of September 30, 2022, with varying exercise prices ranging from $1.20 to $6.67 per share.
The weighted average exercise price for these warrants is $5.02 per share. These warrants are excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company had 339,418 restricted stock units outstanding as of September 30, 2022 which are excluded from the weighted average number of
shares because they are considered anti-dilutive.
The
Company had 393,789 options outstanding as of September 30, 2022, with varying exercise prices ranging from $1.39 to $2.79 per share.
The weighted average exercise price for these options is $1.91 per share. These options are excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company had 3,764,798 warrants outstanding as of September 30, 2021, with varying exercise prices ranging from $1.20 to $6.67 per share.
The weighted average exercise price for these warrants is $4.95 per share. These warrants were excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company had 464,300 restricted stock units outstanding as of September 30, 2021 which were excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company uses the guidance in Accounting Standards Codification (“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 anti-dilutive.
The
Company derives revenue from the sale of our pet care products directly to its veterinarian customers in the United States. For performance
obligations related to the sale of our pet care products, control transfers to the customer at a point in time. Revenue is recognized
upon delivery to the customer, which is when control of these products is transferred and in an amount that reflects the consideration
the Company expects to receive for these products. Shipping costs charged to customers are reported as an offset to the respective shipping
costs. The Company does not have any significant financing components as payment is received at or shortly after the point of sale.
The
Company entered into a Distribution Services Agreement (the “Agreement”) with MWI Veterinary Supply Co. (the
“Distributor”) on June 17, 2022. Contracts are evidenced by individual executed purchase orders subject to the terms of
the Agreement. The contracts consist of a single performance obligation related to the sale of our pet care products. Control
transfers to the Distributor at a point in time. Revenue is recognized upon satisfaction of the performance obligation which is
delivery to the Distributor; payment is due within 60 days. The Agreement provides for a distribution fee payable to the Distributor
equal to 5%
of gross monthly sales payable in 45 days; the distribution fee is netted against revenue. The Agreement provides for a rebate
payable to the Distributor based on annual sales volume that is retroactively applied. The rebate is estimated under the expected
value method and is netted against revenue. Sales are subject to various right of return provisions; the Company uses an expected
value method to estimate returns and has determined that any returns would be immaterial. As a result, there is no refund liability
recorded. Shipping and handling costs are a fulfillment activity and are reported as cost of sales.
For
the three and six months ended September 30, 2022, the Company recognized revenue from product sales under the Agreement of $118,264.
Assets and liabilities under the Agreement were as follows at September 30, 2022:
SCHEDULE
OF RECOGNIZED REVENUE ASSETS AND LIABILITIES
| | |
| | |
| Accounts receivable | |
$ | 124,488 | |
| Rebate liability | |
| - | |
| Distribution fee payable | |
$ | 6,224 | |
| (K) |
Research
and Development |
The
Company expenses research and development costs as incurred.
| (L) |
Fair
Value of Financial Instruments |
The
Company applies the accounting guidance under FASB ASC 820-10, “Fair Value Measurements”, as well as certain related FASB
staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid to transfer a liability
in an orderly transaction between market participants at the measurement date. When determining the fair value measurements for assets
and liabilities required to be recorded at fair value, the Company considers the principal or most advantageous market in which it would
transact business and considers assumptions that marketplace participants would use when pricing the asset or liability, such as inherent
risk, transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
| |
● |
Level
1 - quoted market prices in active markets for identical assets or liabilities. |
| |
|
|
| |
● |
Level
2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities. |
| |
|
|
| |
● |
Level
3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities. |
The
Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses and note payable and accrued
interest. The carrying amount of the Company’s financial instruments approximates their fair value as of September 30, 2022 and
March 31, 2022, 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 note 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 September 30, 2022 and March 31, 2022.
| (M) |
Stock-Based
Compensation - Non-Employees |
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under the guidance of
Sub-topic 505-50 of the FASB ASC (“Sub-topic 505-50”).
Pursuant
to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of
the date on which the performance is complete or the date on which it is probable that performance will occur.
The
fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
| ● | Expected
term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i)
of the FASB ASC 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 the contractual term of the instruments and the holder’s expected
exercise behavior into the fair value (or calculated value) of the instruments. The Company
uses historical data to estimate the holder’s expected exercise behavior. |
| | | |
| ● | 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. |
| | | |
| ● | Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend
rates during the contractual term shall disclose the range of expected dividends used and
the weighted-average expected dividends. The expected dividend yield is based on the Company’s
current dividend yield as the best estimate of projected dividend yield for periods within
the expected term of the share options and similar instruments. |
| | | |
| ● | Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose
the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury
yield curve in effect at the time of grant for periods within the expected term of the share
options and similar instruments. |
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable
by the grantee only after a specified period of time or if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the
same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with,
or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar
instrument that the counterparty has the right to exercise expires unexercised.
The
Company accounts for income taxes under 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.
As
required by ASC Topic 450, 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 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.
Inventories
are recorded in accordance with ASC 330, Inventory, and are stated at the lower of cost or net realizable value. We account for inventories
using the first in first out (FIFO) methodology.
| (P) |
Recent
Accounting Pronouncements |
The
Company has reviewed the FASB issued ASU accounting pronouncements and interpretations thereof that have effectiveness dates during the
periods reported and in future periods. The Company has carefully considered the new pronouncements that alter previous generally accepted
accounting principles and does not believe that any new or modified principles will have a material impact on the Company’s reported
financial position or operations in the near term. The applicability of any standard is subject to the formal review of the Company’s
financial management.
In
August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging
- Contracts in Entity’s Own Equity (Subtopic 815-40) - Accounting for Convertible Instruments and Contracts on an Entity’s
Own Equity. The ASU simplifies accounting for convertible instruments by removing major separation models required under current GAAP.
Consequently, more convertible debt instruments will be reported as a single liability instrument with no separate accounting for embedded
conversion features. The ASU removes certain settlement conditions that are required for equity contracts to qualify for the derivative
scope exception, which will permit more equity contracts to qualify for the exceptions. The ASU also simplifies the diluted net income
per share calculation in certain areas. The new guidance is effective for fiscal years beginning after December 15, 2023, including interim
periods within those fiscal years, and early adoption is permitted. The Company is currently evaluating the impact of the adoption of
the standard on the consolidated financial statements.
In
May 2021, the FASB issued ASU 2021-04, Earnings Per Share (Topic 260), Debt-Modifications and Extinguishments (Subtopic 470-50), Compensation-Stock
Compensation (Topic 718), and Derivatives and Hedging-Contracts in Entity’s Own Equity (Subtopic 815-40). The new ASU addresses
issuer’s accounting for certain modifications or exchanges of freestanding equity-classified written call options. This amendment
is effective for all entities, for fiscal years beginning after December 15, 2021, including interim periods within those fiscal years.
The adoption of the standard had no impact on the consolidated financial statements.
All
other new issued, but not yet effective, accounting pronouncements have been deemed either immaterial or not applicable.
NOTE
2 – INVENTORY
As
of September 30, 2022, and March 31, 2022, the Company had inventory of $304,967 and $98,313, respectively.
The
inventory components are as follows:
SCHEDULE OF INVENTORY
| | |
September 30, 2022 | | |
March 31, 2022 | |
| Finished goods | |
$ | 45,479 | | |
$ | 11,889 | |
| Work in process | |
| 21,525 | | |
| 22,960 | |
| Raw materials | |
| 237,963 | | |
| 63,464 | |
| Total Net | |
$ | 304,967 | | |
$ | 98,313 | |
NOTE
3 – PREPAID EXPENSES AND OTHER ASSETS
As
of September 30, 2022, the Company had $612,128 in prepaid expenses and other assets consisting primarily of $309,000 in insurance costs,
$99,000 in investor relations services, $75,000 in tradeshows, $38,000 in clinical studies, $33,000 in Nasdaq and FINRA fees and $33,000
in software subscription fees.
As
of March 31, 2022, the Company had $547,664 in prepaid expenses and other assets consisting primarily of $220,000 in investor relations
services, $148,000 in insurance costs, $71,000 in clinical studies, $46,000 in tradeshows and $45,000 in Nasdaq fees.
NOTE
4 –PROPERTY AND EQUIPMENT
The
components of property and equipment were as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
| | |
September 30, 2022 | | |
March 31, 2022 | |
| Leasehold improvements | |
$ | 216,159 | | |
$ | 216,159 | |
| Production equipment | |
| 250,738 | | |
| 197,967 | |
| R&D equipment | |
| 25,184 | | |
| 25,184 | |
| Computer equipment and furniture | |
| 107,693 | | |
| 76,898 | |
| Total, at cost | |
| 599,774 | | |
| 516,208 | |
| Accumulated depreciation | |
| (258,703 | ) | |
| (204,659 | ) |
| Total Net | |
$ | 341,071 | | |
$ | 311,549 | |
Depreciation
expense was $28,719 and $11,756 for the three months ended September 30, 2022 and 2021, respectively. Depreciation expense was $54,044
and $23,627 for the six months ended September 30, 2022 and 2021, respectively.
NOTE
5 – PATENTS AND TRADEMARKS
The
components of patents and trademarks, all of which are finite-lived, were as follows:
SCHEDULE OF COMPONENTS OF PATENTS
AND TRADEMARKS
| | |
September 30, 2022 | | |
March 31, 2022 | |
| Patents | |
$ | 3,870,057 | | |
$ | 3,870,057 | |
| Trademarks | |
| 26,142 | | |
| 26,142 | |
| Total at cost | |
| 3,896,199 | | |
| 3,896,199 | |
| Accumulated Amortization | |
| (3,852,213 | ) | |
| (3,847,747 | ) |
| Total net | |
$ | 43,986 | | |
$ | 48,452 | |
Amortization
expense was $2,240 and $2,333 for the three months ended June 30, 2022 and 2021, respectively. Amortization expense was $4,466 and $4,062
for the six months ended September 30, 2022 and 2021, respectively.
NOTE
6 – ACCRUED EXPENSES
The
components of accrued expenses were as follows:
SCHEDULE OF COMPONENTS OF ACCRUED EXPENSES
| | |
September 30, 2022 | | |
March 31, 2022 | |
| Accrued payroll and related taxes | |
$ | 432,848 | | |
$ | 452,137 | |
| Accrued lease termination expense | |
| 332,238 | | |
| 332,238 | |
| Total | |
$ | 765,086 | | |
$ | 784,375 | |
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 approximately $332,000 as a potential payable to the lessor. This liability remains outstanding
as of September 30, 2022 and March 31, 2022 and is included in accrued expenses.
NOTE
7 – NOTE PAYABLE
In
January 2020, the Company entered into a lease amendment for our corporate office facility whereby the lease term was extended through
November of 2026 in exchange for a loan of $42,500. The note payable accrues interest at a rate of 6% per annum. At September 30, 2022
and March 31, 2022, the amount outstanding on the note was $30,605 and $33,750, respectively. At September 30, 2022, the Company classified
$6,737 as a current liability and $23,868 in other liabilities. At March 31, 2022, the Company classified $6,549 as a current liability
and $27,201 in other liabilities.
NOTE
8 – RETIREMENT PLAN
In
February 2021, the Company established a 401(k) retirement plan for its employees in which eligible employees can contribute a percentage
of their compensation. The Company may also make discretionary contributions. For the three months ended September 30, 2022 and 2021,
the Company made contributions to the plan of $8,183 and $0, respectively. For the six months ended September 30, 2022 and 2021, the
Company made contributions to the plan of $14,341 and $0, respectively.
NOTE
9 – COMMITMENTS AND CONTINGENCIES
Lease
Obligations
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 in May 2017. The base rent has annual increases of 2% and the Company is responsible for its proportional share of
common space expenses, property taxes, and building insurance. This lease is terminable by the landlord if damage causes the property
to no longer be utilized as an integrated whole and by the Company if damage causes the facility to be unusable for a period of 45 days.
In January 2020, the Company entered into a lease amendment to extend the lease term through November of 2026 in exchange for receipt
of a loan of $42,500 recorded to note payable. The monthly base rent as of September 30, 2022 and March 31, 2022 is $2,205.
The
Company entered into a sixty-three month lease for 2,400 square feet of office space located in Edina, Minnesota in January 2022. The
base rent has annual increases of 2.5% and the Company is responsible for its proportional share of common space expenses, property taxes,
and building insurance. The monthly base rent as of September 30, 2022 and March 31, 2022 is $2,673.
Rent
expense for the three months ended September 30, 2022 and 2021 was $25,541 and $22,892, respectively. Rent expense for the six months
ended September 30, 2022 and 2021 was $60,976 and $34,403, respectively.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of September 30, 2022:
SCHEDULE OF ANNUAL UNDISCOUNTED
OPERATING LEASE LIABILITY
| | |
| | |
| 2023 | |
$ | 29,711 | |
| 2024 | |
| 60,588 | |
| 2025 | |
| 61,964 | |
| 2026 | |
| 63,372 | |
| 2027 | |
| 55,103 | |
| Total | |
| 270,738 | |
| Less: amount representing interest | |
| (1,146 | ) |
| Total | |
$ | 269,592 | |
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 asset for approximately $189,600 and corresponding and equal operating lease liabilities for the lease. As of September
30, 2022, the present value of future base rent lease payments based on the remaining lease term and weighted average discount rate of
approximately 4.6 years and 0.28%, respectively, are as follows:
SCHEDULE OF BASE RENT LEASE PAYMENTS
| | |
| | |
| Present value of future base rent lease payments | |
$ | 269,592 | |
| Base rent payments included in prepaid expenses | |
| - | |
| Present value of future base rent lease payments – net | |
$ | 269,592 | |
As
of September 30, 2022, the present value of future base rent lease payments – net is classified between current and non-current
assets and liabilities as follows:
SCHEDULE OF LEASE CURRENT AND
NON-CURRENT ASSETS AND LIABILITIES
| | |
| | |
| Operating lease right-of-use asset | |
$ | 269,592 | |
| Total operating lease assets | |
$ | 269,592 | |
| | |
| | |
| Operating lease current liability | |
$ | 59,807 | |
| Operating lease other liability | |
$ | 209,785 | |
| Total operating lease liabilities | |
$ | 269,592 | |
Employment
Agreements
The
Company has employment agreements with its executive officers. As of September 30, 2022, these agreements contain severance benefits
ranging from one month to six months if terminated without cause.
Legal
Proceedings
The
Company has received correspondence from an attorney representing Dr. David Masters, our former Chief Technology Officer and former director,
alleging that the Company, among other items, breached its settlement and consulting agreement with him and owes him additional monies
pursuant to these agreements. His attorney also alleges that the Company promised to enter into a new employment agreement with him and
failed to fulfill that promise. The Company believes that Dr. Masters’ claims are without merit and has retained legal counsel.
The Company does not believe that this matter will have a material impact on its financial position or results of operations.
Purchase
Commitment
We
issued purchase orders as of September 30, 2022 totaling $100,000 for inventory that we expect to receive within the next six months.
NOTE
10 - GOING CONCERN
The
accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States
of America, which contemplate continuation of the Company as a going concern.
The
Company incurred net losses of $4,077,017 for the six months ended September 30, 2022, had net cash used in operating activities of $3,749,581
for the same period and has an accumulated deficit of $67,203,438 at September 30, 2022. 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 of these
financial statements. In view of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s
ability to achieve a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance
its operations.
Management
intends to raise additional funds through the 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
ability to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern
is dependent upon the Company’s ability to further implement its business plan and raise additional funds.
COVID-19
has had an impact on the global economy, which directly or indirectly may have an impact on our ability to continue as a going concern.
These
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
11 – STOCKHOLDERS’ EQUITY
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. The number of shares available to grant under the Plan was 143,850 at September 30, 2022.
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 to promote or maintain a market for PetVivo common stock.
The
2020 Plan is 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.
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. |
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.
Common
Stock
For
the six months ended September 30, 2022, the Company issued 106,914 shares of common stock as follows:
| i) | 24,217
shares in July 2022 pursuant to a warrant holder’s exercise of warrants for purchase
with a weighted average strike price of $1.33 per share for cash proceeds of $32,188; |
| ii) | 24,447
shares in August 2022 pursuant to a warrant holder’s exercise of warrants for purchase
with a weighted average strike price of $1.41 per share for cash proceeds of $34,370; |
| iii) | 25,000
shares in August 2022 to service providers for consulting services valued at $49,920; and |
| iv) | 33,250
shares in related to vesting of restricted stock units. |
For
the six months ended September 30, 2021, the Company issued 2,932,230 shares of common stock as follows:
| i) | 80,522
shares in April 2021 pursuant to a conversion of a $230,000 convertible note and $2,658 in
accrued interest at a conversion rate of $2.89 per share; |
| ii) | 4,500
shares in April 2021 pursuant to the exercise of warrants with a strike price of $4.44 per
share for cash proceeds of $40,000; |
| iii) | 36,915
shares in May 2021 pursuant to John Lai’s (CEO and a Director of the Company) cashless
exercise of a warrant for purchase of 42,188 shares of common stock at a strike price of
$1.33 per share; |
| iv) | 79,767
shares in May 2021 pursuant to a warrant holder’s cashless exercise of a warrant for
purchase of 90,500 shares of common stock at a strike price of $1.40 per share; |
| v) | 49,014
shares during May and June of 2021 in exchange for $343,098 in cash to accredited investors,
including an officer and two directors of the Company at a price of $7.00 per share; |
| vi) | 43,324
shares in June 2021 pursuant to a warrant holder’s cashless exercise of a warrant for
purchase of 56,250 shares of common stock at a strike price of $2.22 per share; |
| vii) | 11,000
shares in July 2021 in exchange for $77,000 in cash to accredited investors at a price of
$7.00 per share; |
| viii) | 2,500,000
shares and warrants, as part of the units issued on August 13, 2021 in the Public Offering,
in exchange for net proceeds of $9,780,783, at a price of $4.50 per unit; |
| ix) | 43,556
shares and warrants in August 2021 pursuant to a conversion of $196,000 share-settled debt
obligation in the Public Offering at a price of $4.50 per unit; |
| x) | 40,038
shares in August 2021 pursuant to a warrant holder’s cashless exercise of a warrant
for purchase of 48,786 shares of common stock at a strike price of $1.40 per share; |
| xi) | 1,594
shares in September 2021 pursuant to a warrant holder’s exercise of warrants for purchase
of 1,594 shares of common stock at a strike price of $1.27 per share for cash proceeds of
$2,031; and |
| xii) | 42,000
shares in September 2021 to a service provider for future marketing and investor relations
services valued at $210,000. |
Time-Based
Restricted Stock Units
We
have granted time-based restricted stock units to certain participants under the 2020 Plan that are stock-settled with common shares.
Time-based restricted stock units granted under the 2020 Plan vest over three years. Stock-based compensation expense included in the
Consolidated Statements of Operations for time-based restricted stock units was $182,377 and $79,064 for the three months ended September
30, 2022 and 2021, respectively and $364,754 and $108,108 for the six months ended September 30, 2022 and 2021, respectively. At September
30, 2022, there were approximately $1,323,000 of total unrecognized pre-tax compensation expense related to time-based restricted stock
units that is expected to be recognized over a weighted-average period of 1.8 years.
Our
time-based restricted stock unit activity for the year ended March 31, 2022, and the six month period ended September 30, 2022 is as
follows:
SCHEDULE OF TIME BASED RESTRICTED
STOCK UNITS
| | |
Units Outstanding | | |
Weighted Average Grant Date Fair Value Per Unit | | |
Aggregate Intrinsic Value (1) | |
| Balance at March 31, 2021 | |
| - | | |
| - | | |
| - | |
| Granted | |
| 549,565 | | |
$ | 3.86 | | |
| - | |
| Expired | |
| (4,073 | ) | |
$ | 2.70 | | |
| - | |
| Vested | |
| (172,824 | ) | |
$ | 3.44 | | |
| - | |
| Balance at March 31, 2022 | |
| 372,668 | | |
$ | 4.07 | | |
$ | 760,243 | |
| Vested | |
| (33,250 | ) | |
$ | 5.17 | | |
| | |
| Balance at September 30, 2022 | |
| 339,418 | | |
$ | 3.96 | | |
$ | 651,683 | |
| 1) |
The aggregate intrinsic value of restricted stock units outstanding was based on our closing stock price on the last trading day of the
period. |
Stock
Options
Stock
options issued to employees typically vest over three years and have a contractual term of seven years. Stock-based compensation expense
included in the Consolidated Statements of Operations for stock options was $102,763 for the three months ended September 30, 2022 and
$109,290 for the six months ended September 30, 2022. At September 30, 2022, there was approximately $327,000 of total unrecognized stock
option expense which is expected to be recognized on a straight-line basis over a weighted-average period of 2.4 years.
The
fair value of each option grant is estimated on the date of grant using the Black-Scholes option pricing model. Annually, we make predictive
assumptions regarding future stock price volatility, dividend yield, expected term and forfeiture rate. The dividend yield assumption
is based on expected annual dividend yield on a grant date. To date, no dividends on common stock have been paid by us. Expected volatility
for grants is based on our average historical volatility over a similar period as the expected term assumption used for our options as
the expected volatility. The risk-free interest rate is based on yields of U.S. Treasury securities with maturities similar to the expected
term of the options for each option group. We use the “simplified method” to determine the expected term of the stock option
grants. We utilize this method because we do not have sufficient public company exercise data in which to make a reasonable estimate.
The
following table sets forth the assumptions used to estimate fair values of our stock options granted:
SCHEDULE OF ESTIMATED FAIR VALUES ASSUMPTIONS
| | |
Six
Months Ended September 30, 2022 | | |
Year Ended
March 31, 2022 | |
| Expected
term | |
7
years | | |
7
years | |
| Expected
volatility | |
| 173.2%
- 207.8 | % | |
| 205.0%
- 210.5 | % |
| Risk-free
interest rate | |
| 2.96%
- 3.69 | % | |
| 1.47%
– 2.14 | % |
| Expected
dividend yield | |
| 0 | % | |
| 0 | % |
| Fair
value on the date of grant | |
$ | 1.87
- $2.79 | | |
$ | 1.39
- $1.99 | |
Our
stock option activity for the year ended March 31, 2022 and the six month period ended September 30, 2022 is as follows:
SCHEDULE OF STOCK OPTION ACTIVITY
| | |
Options
Outstanding | | |
Weighted- Average Exercise Price Per Share (1) | | |
Weighted-Average Remaining Contractual Life | | |
Aggregate Intrinsic Value (2) | |
| Balance at March 31, 2021 | |
| - | | |
| - | | |
| - | | |
| - | |
| Granted | |
| 195,000 | | |
$ | 1.56 | | |
| | | |
| - | |
| Balance at March 31, 2022 | |
| 195,000 | | |
$ | 1.56 | | |
| 6.9 years | | |
$ | 100,200 | |
| Granted | |
| 198,789 | | |
$ | 2.26 | | |
| | | |
| | |
| Balance at September 30, 2022 | |
| 393,789 | | |
$ | 1.91 | | |
| 6.6 years | | |
$ | 68,841 | |
| Options exercisable at September 30, 2022 | |
| 43,789 | | |
| | | |
| | | |
| | |
| (1) |
The
exercise price of each option granted during the period shown above was equal to the market price of the underlying stock on the
date of grant. |
| |
|
| (2) |
The
aggregate intrinsic value of stock options outstanding was based on our closing stock price on the last trading day of this period. |
The
following summarizes additional information about our stock options:
SCHEDULE OF ADDITIONAL INFORMATION
ABOUT STOCK OPTIONS
| | |
September 30, 2022 | |
| Number of: | |
| | |
| Non-vested options, beginning of period | |
| 195,000 | |
| Non-vested options, end of period | |
| 350,000 | |
| Vested options, end of period | |
| 43,789 | |
| | |
September 30, 2022 | |
| Weighted-average grant date fair value of: | |
| | |
| Non-vested options, beginning of period | |
$ | 1.56 | |
| Non-vested options, end of period | |
$ | 1.89 | |
| Vested options, end of period | |
$ | 2.07 | |
| Forfeited options, during the period | |
| - | |
Warrants
During
the three and six months ended September 30, 2022, no warrants were issued.
During
the six months ended September 30, 2021, the Company issued warrants to purchase an aggregate of 3,043,556 shares of common stock in
connection with its public offering of units, as follow:
| ● | warrants
to purchase 2,500,000 shares of the Company’s common stock with a relative value of
$4,805,528, at an exercise price of $5.625 per share for five years from the grant date of
August 10, 2021 issued to investors in the public offering as part of the units, |
| | | |
| ● | warrants
to purchase 43,556 shares of the Company’s common stock, pursuant to a conversion of
$196,000 share-settled debt obligation in the Public Offering, with a relative value of $83,724,
at an exercise price of $5.625 per share for five years from the grant date of August 10,
2021 to the Company’s former Director of Science and Technology and Director pursuant
to a note conversion in the public offering as part of the units, |
| | | |
| ● | warrants
to purchase 500,000 shares of the Company’s common stock at an exercise price of $5.625
per share for five years from the grant date of August 10, 2021 issued to ThinkEquity upon
exercise of its over-allotment option and pursuant to the Underwriting Agreement. These warrants
were considered issuance costs of the Public Offering which resulted in a zero impact on
additional paid-in capital. |
These
warrants’ values were arrived at by using the Black-Scholes option pricing model with the following assumptions:
i) an expected volatility of the Company’s shares on the date of the grants of approximately
315% based on historical volatility.
ii) risk-free rate identical to the U.S. Treasury 5-year treasury bill rate on the date of the
grants of 0.82%.
A
summary of warrant activity for the year ended March 31, 2022 and six month period ended September 30, 2022 is as follows:
SCHEDULE OF WARRANT ACTIVITY
| | |
Number of
Warrants | | |
Weighted-
Average
Exercise
Price | | |
Warrants
Exercisable | | |
Weighted-
Average
Exercisable
Price | |
| Outstanding, March 31, 2021 | |
| 1,081,668 | | |
$ | 2.02 | | |
| 881,982 | | |
$ | 2.00 | |
| Issued and granted | |
| 3,043,556 | | |
$ | 5.63 | | |
| | | |
| | |
| Exercised for cash | |
| (6,094 | ) | |
$ | (6.90 | ) | |
| | | |
| | |
| Cashless warrant exercises | |
| (237,724 | ) | |
$ | (1.58 | ) | |
| | | |
| | |
| Expired | |
| (15,922 | ) | |
$ | (5.27 | ) | |
| | | |
| | |
| Cancelled | |
| (108,000 | ) | |
$ | (1.79 | ) | |
| | | |
| | |
| Outstanding, March 31, 2022 | |
| 3,757,484 | | |
$ | 4.95 | | |
| 3,693,734 | | |
$ | 5.00 | |
| Exercised for cash | |
| (48,664 | ) | |
$ | (1.37 | ) | |
| | | |
| | |
| Expired | |
| (22,500 | ) | |
$ | (1.33 | ) | |
| | | |
| | |
| Outstanding, September 30, 2022 | |
| 3,686,320 | | |
$ | 5.02 | | |
| 3,641,320 | | |
$ | 5.06 | |
At
September 30, 2022, the range of warrant prices for shares under warrants and the weighted-average remaining contractual life is as follows:
SCHEDULE OF RANGE OF WARRANT PRICES
| | | | |
| 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 | | |
| 347,073 | | |
$ | 1.35 | | |
| 3.93 | | |
| 347,073 | | |
$ | 1.35 | |
| | | |
| | | |
| | | |
| | | |
| | | |
| | |
| $ | 2.01-4.00 | | |
| 207,938 | | |
$ | 2.48 | | |
| 1.84 | | |
| 162,938 | | |
$ | 2.55 | |
| | | | |
| | | |
| | | |
| | | |
| | | |
| | |
| $ | 4.01-6.67 | | |
| 3,131,309 | | |
$ | 5.60 | | |
| 3.76 | | |
| 3,131,309 | | |
$ | 5.60 | |
| | | | |
| | | |
| | | |
| | | |
| | | |
| | |
| | Total
| | |
| 3,686,320 | | |
$ | 5.02 | | |
| 3.67 | | |
| 3,641,320 | | |
$ | 5.06 | |
Stock-based
compensation expense included in the Consolidated Statements of Operations for warrants was $20,831 and $25,028 for the three months
ended September 30, 2022 and 2021, respectively. Stock-based compensation expense included in the Consolidated Statements of Operations
for warrants was $41,662 and $51,658 for the six months ended September 30, 2022 and 2021, respectively. At September 30, 2022, there
was no future unrecognized warrant expense.
For
the three months ended September 30, 2022 and 2021, the total stock-based compensation on all instruments was $284,475 and $104,092,
respectively. For the six months ended September 30, 2022 and 2021, the total stock-based compensation on all instruments was $515,706
and $159,766, respectively.
NOTE
12 – SUBSEQUENT EVENT
On
October 14, 2022, the stockholders of the Company approved the PetVivo Holdings, Inc. Amended and Restated 2020 Equity Incentive Plan
(the “Amended Plan”), which increased the number of shares of the Company’s common stock which may be granted under
the Amended Plan from 1,000,000 to 3,000,000.