Notes
to Consolidated Financial Statements
March
31, 2021
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
|
Organization
and Description
|
The
Company is in the business of licensing and commercializing our proprietary medical devices and biomaterials for the treatment of afflictions
and diseases in animals, initially for dogs and horses. The Company’s operations are conducted from its headquarter facilities
in suburban Minneapolis, Minnesota.
(B)
|
Basis
of Presentation
|
PetVivo
Holdings, Inc. (the “Company”) was incorporated in Nevada under a former name in 2009 and entered its current business in
2014 through a stock exchange reverse merger with PetVivo, Inc., a Minnesota corporation. This merger resulted in Minnesota PetVivo becoming
a wholly-owned subsidiary of the Company. In April 2017, the Company acquired another Minnesota corporation, Gel-Del Technologies, Inc.,
through a statutory merger, which is also a wholly-owned subsidiary of the Company.
In
November 2019, the Company effected a 9-for-10 reverse split of our authorized and outstanding shares of common stock. Pursuant to this
reverse stock split, each ten (10) shares of PetVivo’s outstanding common stock, $.001 par value per share, was combined and converted
into nine (9) post-split outstanding shares of common stock, $.001 par value per share; 24,974,518 pre-reverse-split shares of common
stock were combined during the 9-for-10 reverse split into 22,477,320 shares of post-reverse-split shares of common stock with 254 shares
being issued for fractional shares through the date of the balance sheet.
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.
(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 estimated useful lives and potential impairment of property and equipment, estimate of fair value of share-based
payments and derivative instruments and recorded debt discount, valuation of deferred tax assets and valuation of in-kind contribution
of services and interest.
(E)
|
Cash
and Cash Equivalents
|
The
Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents.
The Company had no cash equivalents at March 31, 2021 and March 31, 2020.
The
Company maintains its cash with various financial institutions, which at times may exceed federally insured limits. As of March 31, 2021,
the Company did not have any 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) years for equipment, (5) years for automobile, and (7) years for furniture and fixtures.
(I)
|
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 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 has 1,081,668 warrants outstanding as of March 31, 2021, with varying exercise prices ranging from $1.20 to $10.00/share. The
weighted average exercise price for these warrants is $2.02/share. These warrants are excluded from the weighted average number of shares
because they are considered antidilutive.
The
Company has 1,234,295 warrants outstanding as of March 31, 2020, with varying exercise prices ranging from $1.20 to $15.56/share. The
weighted average exercise price for these warrants is $2.12/share. These warrants are excluded from the weighted average number of shares
because they are considered antidilutive.
The
Company uses the guidance in Accounting Standards Codification 260 (“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
March 31, 2021, the Company had $230,000 in convertible notes and $5,671 in accrued interest outstanding, these notes mature in our fiscal
quarter ended June 30, 2021; see Note 8 to these financial statements for more information on these convertible notes. If converted,
the $235,671 in outstanding principal and accrued interest would convert into 81,579 shares of common stock at a rate of $2.89 per share.
At
March 31, 2020, the Company had $280,000 in convertible notes and $6,981 in accrued interest outstanding. If converted, the $286,981
in outstanding principal and accrued interest would convert into 99,301 shares of common stock at a rate of $2.89 per share.
At
March 31, 2021, the Company has a Share-Settled Debt Obligation to a Related Party of $196,000 which will convert into common shares
at the stock price of our S-1 offering currently being conducted. Although the number of shares is yet to be determined, the obligation
is potentially dilutive. The if-converted method shall not be applied for the purposes of computing EPS as the effect would be antidilutive.
The
Company recognizes revenue on arrangements in accordance with FASB ASC No. 606, “Revenue From Contracts With Customers”.
Revenue is recognized upon shipment of our pet care products to our customers in an amount that reflects the consideration we expect
to receive in exchange for those products or services.
(L)
|
Research
and Development
|
The
Company expenses research and development costs as incurred.
(M)
|
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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●
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Level
1 - quoted market prices in active markets for identical assets or liabilities.
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|
|
|
|
●
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Level
2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets for similar
assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs
that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.
|
|
●
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Level
3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets
or liabilities.
|
The
Company’s financial instruments consist of accounts receivable, accounts payable, accrued expenses, accrued expenses – related
parties, notes payable and accrued interest, and notes payable and accrued interest - related party, notes payable – directors
and others. The carrying amount of the Company’s financial instruments approximates their fair value as of March 31, 2021 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 had no assets and liabilities measured at fair value on a recurring basis at March 31, 2021 and March 31, 2020.
(N)
|
Stock-Based
Compensation - Non-Employees
|
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic
505-50 of the FASB Accounting Standards Codification (“Sub-topic 505-50”).
Pursuant
to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments
are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever
is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of
the date on which the performance is complete or the date on which it is probable that performance will occur. If the Company is a newly
formed corporation or shares of the Company are thinly traded the use of share prices established in the Company’s most recent
private placement memorandum (“PPM”), or weekly or monthly price observations would generally be more appropriate than the
use of daily price observations as such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
The
fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation
model. The ranges of assumptions for inputs are as follows:
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●
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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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●
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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.
|
Pursuant
to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable
by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee
achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the
same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with,
or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar
instrument that the counterparty has the right to exercise expires unexercised.
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.
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. At the adoption date, 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.
Inventories
are recorded in accordance with ASC 330 and are stated at the lower of cost or net realizable value. We account for inventories using
the first in first out (FIFO) methodology.
(Q)
|
Recent
Accounting Pronouncements
|
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations by
recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements. Topic
842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this ASU supersedes Topic 840,
Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from leases. A lessee
should recognize in the statement of financial position a liability to make lease payments (the lease liability) and a right-of-use (“ROU”)
asset representing its right to use the underlying asset for the lease term. The Company adopted Topic 842 on April 1, 2019 and resulted
in a right of use asset and liability of $154,917.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
A
certain account in the prior year financial statements has been reclassified for comparative purposes to conform with the presentation
in the current year financial statements. Investment in equity securities at cost has been combined with prepaid expenses and other assets
since the investment balance was not material. There was no effect on the change in net assets resulting from the reclassifications.
NOTE
2 – INVENTORY
As
of March 31, 2021 and March 31, 2020, the Company had inventory of $47,068 and $50,357 of inventory, respectively, however, reserves
of equal amounts for each respective period were taken because of the substantial doubt in the Company’s ability to utilize this
inventory to obtain material sales.
The
inventory components are as follows:
|
|
As of March 31
|
|
|
|
2021
|
|
|
2020
|
|
Finished Goods
|
|
$
|
36,973
|
|
|
$
|
50,357
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|
Raw Materials
|
|
|
8,773
|
|
|
|
—
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Manufacturing Supplies
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|
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1,322
|
|
|
|
—
|
|
|
|
|
47,068
|
|
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50,357
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|
Reserve for Obsolete Inventory
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|
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(47,068
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)
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|
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(50,357
|
)
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Total Net
|
|
$
|
—
|
|
|
$
|
—
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|
The
Company recognized income of $3,289 related to the change in the reserve of obsolete inventory for the year ended March 31, 2021. For
the year ended March 31, 2020, the Company recognized expense of $50,357 related to the reserve of obsolete inventory.
NOTE
3 – PREPAID EXPENSES AND DEFERRED OFFERING COSTS
As
of March 31, 2021, the Company had $123,575 in prepaid expenses and other assets consisting of approximately $78,000 in marketing services,
$9,000 in annual OTC listing license and $9,000 in insurance costs. The Company also had deferred offering costs of $280,163 consisting
of legal and accounting costs incurred related to our S-1 and S-1/A filings with the Securities and Exchange Commission on October 13,
2020, December 31, 2020 and March 29, 2021, respectively, which will be recorded as a reduction of proceeds should we be successful in
raising capital through this S-1 offering or expensed if not.
As
of March 31, 2020, the Company had $133,523 in prepaid expenses recorded consisting of approximately $100,000 in marketing services,
$10,000 in annual OTC listing license and $6,000 in insurance costs.
NOTE
4 –PROPERTY AND EQUIPMENT
The
components of property and equipment were as follows:
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As of March 31
|
|
|
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2021
|
|
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2020
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Leasehold improvements
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|
$
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198,015
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|
|
$
|
98,706
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Production equipment
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|
|
128,849
|
|
|
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87,473
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R&D equipment
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|
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25,184
|
|
|
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25,184
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Furniture
|
|
|
10,130
|
|
|
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10,130
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Total, at cost
|
|
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362,178
|
|
|
|
221,493
|
|
Accumulated depreciation
|
|
|
(148,140
|
)
|
|
|
(111,586
|
)
|
Total Net
|
|
$
|
214,038
|
|
|
$
|
109,907
|
|
During
fiscal years 2021 and 2020, depreciation expense was $36,554 and $16,224, respectively.
NOTE
5 – INTANGIBLE ASSETS
The
components of intangible assets, all of which are finite-lived, were as follows:
|
|
As of March 31
|
|
|
|
2021
|
|
|
2020
|
|
Patents
|
|
$
|
3,840,903
|
|
|
$
|
3,822,542
|
|
Trademarks
|
|
|
26,142
|
|
|
|
25,023
|
|
Total at cost
|
|
|
3,867,045
|
|
|
|
3,847,565
|
|
Accumulated Amortization
|
|
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(3,839,113
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)
|
|
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(3,788,954
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)
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Total net
|
|
$
|
27,932
|
|
|
$
|
58,611
|
|
During
fiscal years 2021 and 2020, amortization expense was $50,158 and $543,320, respectively. The Company performed intangible impairment
analyses throughout the years ended March 31, 2021 and March 31, 2020 and concluded that approximately $-0- and $31,000 in patents were
impaired, respectively.
NOTE
6 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
The
components of accounts payable and accrued expenses were as follows:
|
|
As of March 31
|
|
|
|
2021
|
|
|
2020
|
|
Accounts payable
|
|
$
|
741,111
|
|
|
$
|
556,653
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|
Accrued payroll and related taxes
|
|
|
221,774
|
|
|
|
237,404
|
|
|
|
|
|
|
|
|
|
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Total
|
|
$
|
962,885
|
|
|
$
|
794,057
|
|
NOTE
7 - RELATED PARTY NOTES PAYABLE
At
March 31, 2021, the Company is obligated for a related party note payable and accrued interest in the total amount of $44,554 (2020:
$61,255); the maturity date of this note was April 30, 2020. As of June 28, 2021, we are in default on this note. The related
party note payable terms are accrual of interest at eight percent annually with payments of $3,100 per month, which are applied to
interest first, then principal. The terms also include a stipulation that if the Company receives additional financing during any
24-month period from the date of the note in the amount greater than $3,500,000, the Company will immediately pay the officer the
principal amount of the note along with all interest due. Please see Note 10 to these financial statements for more information on
this note.
The
Company entered into notes payable with three directors in May 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.
The
Company entered into notes payable with four directors in March 2021, in the aggregate principal amount of $20,000. The notes accrue
interest at a rate of 6% annually and are due in September 2021.
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES
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 (March 31, 2020 - $15,000). The note payable accrues interest at a rate of 6% per
annum. At March 31, 2021 and 2020, the amount outstanding on the note was $39,528 and $15,095, respectively. The note is classified as
a current liability as the Company has not been current on its loan payments as of March 31, 2021.
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 March 31, 2021, the Company was obligated for the outstanding balance
of $39,020. 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.
At
March 31, 2021, the Company is obligated for several convertible notes payable in the total amount of $235,671 made up of $230,000 in
principal and $5,671 in interest. All of these convertible notes mature during the quarter ended June 30, 2021. These convertible notes
accrue interest at a rate of 10%. Accrued interest is due and payable each calendar quarter in cash; during the years ended March 31,
2021 and 2020, the Company paid out interest of $23,063 and $18,536, respectively, to these convertible note holders. These convertible
notes automatically convert into shares of common stock at a rate of $2.88 per share at the earlier of the maturity date or an uplist
to a national securities exchange (e.g., Exchange or New York Stock Exchange) provided that the Company’s stock price is at least
$3.48 at the time of the uplist. The convertible 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 $2.88 per share. As of March 31, 2021, these
convertible notes did not include a beneficial conversion feature. All of these notes were converted in April 2021.
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 to 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 since this was paid by the Company; iii) $52,941
of OID was treated as a discount on the debt; 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. For the year ended March
31, 2021, the Company amortized a pro-rata portion of the discount on the debt on a straight-line basis to interest expense in the amount
of $173,174. 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 11 to these financial statements
for more information on this conversion. As of March 31, 2021, the Company had $-0- in unamortized debt discount remaining and owed $-0-
in principal and interest pursuant to the RDCN.
NOTE
9 – SHARE-SETTLED DEBT OBLIGATION – RELATED PARTY
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 proposed S-1 offering. 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. As of March 31, 2021, the outstanding balance of $196,000 for 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
March 31, 2021, the Company was obligated for principal and accrued interest in the amounts of $-0- and $-0-, respectively, related to
the Promissory Note and $44,554 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 9 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 year ended March 31, 2021, the Company recognized $1,702,100 to derivative expense and derivative liability.
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 Note 8.
The
Company recorded derivative liability transactions during the year ended March 31, 2021 as follows:
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 March 31, 2021
|
|
$
|
-0-
|
|
For
the years ended March 31, 2021 and 2020, the Company recognized $1,702,100 and $-0- to derivative expense and derivative liability, respectively.
NOTE
11–ACCRUED EXPENSES – RELATED PARTY
At
March 31, 2021, the Company was obligated to pay $36,808 in accrued expenses due to a related party. Of the total, $28,965 was made up
of accounts payable, while $7,843 was made up of accrued salaries.
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 was made up of accrued salaries.
NOTE
12–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. The Company did not make any contributions to the plan
to the year ended March 31, 2021.
NOTE
13 – COMMITMENTS AND CONTINGENCIES
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 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 base rent as of March 31, 2021 is $2,162.
Rent
expense for the years ended March 31, 2021 and March 31, 2020 were $56,646 and $51,292, respectively.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of March 31, 2021:
2022
|
|
$
|
26,634
|
|
2023
|
|
|
27,167
|
|
2024
|
|
|
27,710
|
|
2025
|
|
|
28,265
|
|
2026
|
|
|
28,830
|
|
2027
|
|
|
19,474
|
|
|
|
$
|
158,080
|
|
Less: amount representing interest
|
|
|
(320
|
)
|
Total
|
|
$
|
157,760
|
|
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. As of March
31, 2021, the present value of future base rent lease payments based on the remaining lease term and weighted average discount rate are
approximately 6 years and 0.12%, respectively, are as follows:
Present value of future base rent lease payments
|
|
$
|
157,760
|
|
Base rent payments included in prepaid expenses
|
|
|
-
|
|
Present value of future base rent lease payments – net
|
|
$
|
157,760
|
|
As
of March 31, 2021, the present value of future base rent lease payments – net is classified between current and non-current assets
and liabilities as follows:
Operating lease right-of-use asset
|
|
$
|
157,760
|
|
Total operating lease assets
|
|
|
157,760
|
|
|
|
|
|
|
Operating lease current liability
|
|
|
26,582
|
|
Operating lease other liability
|
|
|
131,178
|
|
Total operating lease liabilities
|
|
$
|
157,760
|
|
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 March 31, 2021 and 2020 and is included in accounts payable.
The
Company has employment agreements with the Chief Executive Officer and Chief Financial Officer. As of March 31, 2021, these agreements
do not contain severance benefits if terminated without cause.
NOTE
14 - 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 $3,522,780 for the year ended March 31, 2021 and had net cash used in operating activities of $1,047,329
for the same period. Additionally, the Company has an accumulated deficit of $58,111,426, negative working capital of $1,257,895, and
a stockholders’ deficit of $896,979, at March 31, 2021. These conditions raise substantial doubt about the Company’s ability
to continue as a going concern for a period of at least twelve months after the date of issuance on these financial statements. In view
of these matters, the Company’s ability to continue as a going concern is dependent upon the Company’s ability to achieve
a level of profitability and/or to obtain adequate financing through the issuance of debt or equity in order to finance its operations.
Management
intends to raise additional funds either through a private placement or public offering of its equity securities. Management believes
that the actions presently being taken to further implement its business plan will enable the Company to continue as a going concern.
While the Company believes in its viability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and raise
additional funds.
COVID-19
has had an impact on the global economy, which directly or indirectly may have an impact on our ability to continue as a going concern.
These
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
15 – COMMON STOCK AND WARRANTS
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.
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.
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.
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.
As
of March 31, 2021, the Company has not awarded any shares pursuant to the 2020 Plan.
Common
Stock
For
the year ended March 31, 2021 the Company issued 1,070,424 shares of common stock as follows:
i)
30,000 shares valued at $32,453 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 $25,382 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 2020 pursuant to conversion of $368,995 in principal and accrued interest of the RDCN valued at $1,729,005
as outlined in this Note 9;
ix)
32,347 shares in October 2020 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;
x)
202,499 shares in October, November and December to accredited investors pursuant to their exercising of warrants with strike prices
of $2.22 for cash proceeds of $449,993;
xi)
793 shares in October 2020 pursuant to a warrant holder’s cashless exercise of a warrants for purchase of 6,750 shares of
common stock at a strike price of $4.44 per share;
xii)
17,379 shares on January 2021 pursuant to a conversion of a $50,000 convertible note and $205 in accrued interest at a conversion rate
of $2.89 per share;
xiii)
38,516 shares in January 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;
xiv)
15,629 shares in January 2021 pursuant to a warrant holder’s cashless exercise of a warrant for purchase of 17,187 shares
of common stock at a strike price of $1.33 per share;
xv)
5,163 shares in February 2021 pursuant to a warrant holder’s cashless exercise of warrant for purchase of 9,000 shares of common
stock at a strike price of $4.44 per share;
xvi)
3,447 shares in March 2021 to a director pursuant to a warrant holder’s exercise of warrants for purchase with a strike price of
$1.60 per share for cash proceeds of $5,504.
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 & 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 numeral vi 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 vi 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 numeral vi above.
For
the year ended March 31, 2020, the Company issued 761,100 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)
42,015 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 to a service provider for $120,000 worth of services provided during the one-year period ended July 13, 2019 and valued
at $4.44 per share 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, which equates to a price per share
of $1.12 per share; and
vii)
67,500 shares on September 18, 2019 to a service provider valued at $102,000 whereby this service provider agreed to provide video production,
investor relations, and promotional services in exchange for 67,500 shares of common stock;
viii)
121,500 shares to various accredited investors in exchange for $135,000 in cash, which equates to a price per share of $1.12 per share;
and
ix)
22,500 shares to service providers for $55,000 of investor relations and marketing services performed by Barry Kaplan Associates during
the six-month period ending in April 2020; and
x)
On December 9, 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 1/2 warrant share wherein the common stock was recorded at its relative fair value of $69,391 and
the warrants are described below in this Form 10-K’s Note 13’s “Warrants” subsection; and
xi)
On December 31, 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.
xii)
15,784 shares of common stock to a former Director of the Company pursuant to a cashless conversion feature within the former Director’s
warrant for 42,188 shares, equating to a conversion rate of .37:1.00; and
xiii)
15,349 shares of common stock to a John Lai pursuant to a cashless conversion feature within his warrant for 42,188 shares, equating
to a conversion rate of .36:1.00.
The
transactions outlined directly above and enumerated i) through iii) yielded a reduction of $375,936 in Accrued Expenses – Related
Party that was owed and payable to them arising from services they provided in the past. The settlement of $80,029 explained in number
iv above for a former employee’s accrued salary 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 the transactions numbered i) through iv).
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.
After
the balance sheet date of March 31, 2020, the Company sold and agreed to issue 20,000 units in exchange for $52,000, which equates to
$2.60/unit, whereby a unit is made up of one share of common stock and 1/2 warrant share wherein the common stock was recorded at its
relative fair value of $34,709 and the 10,000 warrants are valued at $17,291 and are exercisable for 3 years from the date of the grant
at $4.00/share. The $52,000 was recorded as a receivable at March 31, 2020 pursuant to ASC 310-10-S99-2, which permits the Company to
record such a note as an asset if the note is collected prior to issuance of the financial statements; as outlined in Note 17, we received
the funds pursuant to this sale prior to the issuance of this Annual Report on Form 10-K.
Warrants
During
the year ended March 31, 2021, the Company issued warrants to purchase a total of 240,632 shares of common stock as follows:
i)
warrants issued for 10,000 shares, sold at $17,291 to one investor using the Black-Scholes model, 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 issued for 72,596 shares, valued at $160,307 using the Black-Scholes model, to directors, officers and consultants at exercise
prices between $1.40 and 1.60 per share with a weighted average price per share of $1.52 per share; and
iii)
warrants issued with debt 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 year ended March 31, 2021, the Company had warrants to purchase a total of 45,000 shares of common stock expire valued at $84,644
using the Black-Scholes model, $84,644 of unrecognized compensation which will not be recognized due to the expiration of this warrant
since it was not vested pursuant to the performance milestones included in the same.
During
the year ended March 31, 2020, the Company granted 90,000 warrants to management team members that vest upon achieving certain performance
conditions (milestones). These warrants were valued using the Black Scholes valuation model at $199,982. On a quarterly basis, the Company
evaluates the probability of these certain milestones being reached and recognizes expense relating to these warrants based on that probability
and other criteria. As of March 31, 2020, these milestones were not met and were not probable to occur and as a result the Company recognized
$-0- in expense related to these warrants that may or may not vest pursuant to their respective milestones.
During
the year ended March 31, 2020, the Company granted warrants to purchase a total of 476,425 shares of common stock valued using the Black-Scholes
model including:
i)
warrants for 67,500 shares, valued at $119,954, to three new Directors, Messrs. Scott Johnson, Gregory Cash, and James Martin, with 135,000
vested immediately and 135,000 vesting quarterly between August 2020 and May 2021, and exercisable over a five-year term at $1.32/share;
and
ii)
warrants for 55,125 shares, valued at $122,489, to John Dolan, whereby 10,125 were granted as a bonus and were vested immediately on
the October 31, 2019 grant date, 22,500 that vest upon a performance-based milestone, and 22,500 that vest quarterly over three years
starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $2.24 per share; and
iii)
warrants for 135,000 shares, valued at $299,973, to John Lai, whereby 45,000 vest upon performance-based milestones and 90,000 vest quarterly
over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $2.24 per share;
and
iv)
warrants for 112,500 shares, valued at $249,997, to John Carruth, whereby 22,500 vest upon performance-based milestones and 90,000 vest
quarterly over three years starting on October 1, 2019; and whereby all of these warrants are exercisable for a five-year term at $2.24
per share; and
v)
warrants for 10,313 shares, valued at $22,915, to David Deming, whereby they vest monthly during the eleven-month period ending August
31, 2020, have a strike price of $1.96 per share and a five-year term; and
vi)
warrants for 19,847 shares, valued at $38,744, to John Lai, whereby they vested on December 31, 2019, have a strike price of $1.95 per
share and a five-year term; and
vii)
warrants for 3,970 shares, valued at $7,749, to John Dolan, whereby they vested on December 31, 2019, have a strike price of $1.95 per
share and a five-year term; 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 per share and are vested immediately;
and
ix)
warrants to several directors for service to the Company, issued and vested on December 31, 2019, with a strike price of $1.96 per share,
and exercisable for a five-year term:
|
a.
|
1,765
to Gregory Cash valued at $3,445 and,
|
|
b.
|
1,434
to Robert Rudelius valued at $2,799 and,
|
|
c.
|
1,213
to Scott Johnson valued at $2,368 and,
|
|
d.
|
1,213
to Randall Meyer valued at $2,368 and,
|
|
e.
|
1,103
to David Deming valued at $2,153 and,
|
|
f.
|
1,103
to James Martin valued at $2,153 and,
|
|
g.
|
882
to Joseph Jasper valued at $1,722 and,
|
|
h.
|
662
to David Masters valued at 1,292.
|
x)
warrants for 24,523 shares, valued at $11,967, to John Lai, whereby they vested on March 31, 2020, have a strike price of $1.28 per share
and a five-year term; and
xi)
warrants for 8,829 shares, valued at $4,308, to John Dolan, whereby they vested on March 31, 2020, have a strike price of $1.27 per share
and a five-year term; and
xii)
warrants to several directors for service to the Company, issued and vested on March 31, 2020, with a strike price of $1.28 per share,
and exercisable for a five-year term:
|
a.
|
1,717
to Gregory Cash valued at $838 and,
|
|
b.
|
1,594
to Robert Rudelius valued at $778 and,
|
|
c.
|
1,104
to Scott Johnson valued at $539 and,
|
|
d.
|
1,104
to Randall Meyer valued at $539 and,
|
|
e.
|
1,226
to David Deming valued at $598 and,
|
|
f.
|
1,226
to James Martin valued at $598 and,
|
|
g.
|
981
to Joseph Jasper valued at $479 and,
|
|
h.
|
491
to David Masters valued at $239.
|
During
the year ended March 31, 2020, the Company cancelled warrants to purchase a total of 90,000 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 for 13,500 shares that were never originally valued, were to be vested upon billing from service providers, and were cancelled
because those services were never received; and
iii)
warrants for 9,000 shares, valued at $68,000 using the Black-Scholes model, $17,000 in expense of which had yet to be taken at the time
of cancellation were cancelled pursuant to the holder’s service agreement’s term lapsing and requisite clauses contained
therein.
During
the year ended March 31, 2020, the Company had warrants to purchase a total of 84,375 shares of common stock converted on a cashless
basis including:
i)
warrants for 42,188 shares, valued at $56,223 using the Black-Scholes model, $-0- in expense of which had yet to be taken at the time
of conversion, held and converted by John Lai into 15,349 shares of common stock at a conversion rate of .36:1.00; and
ii)
warrants for 42,187 shares, valued at $102,807 using the Black-Scholes model, $-0- in expense of which had yet to be taken at the time
of conversion were converted into 15,785 shares of common stock at a conversion rate of .37:1.00 by a former director of the Company.
A
summary of warrant activity 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
|
|
|
(90,000
|
)
|
|
|
2.32
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
1,234,295
|
|
|
|
2.12
|
|
|
|
1,027,092
|
|
|
|
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
|
|
|
(205,946
|
)
|
|
|
2.21
|
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
|
(142,313
|
)
|
|
|
1.64
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(45,000
|
)
|
|
|
3.78
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2021
|
|
|
1,081,668
|
|
|
$
|
2.02
|
|
|
|
881,982
|
|
|
$
|
2.00
|
|
At
March 31, 2021, 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
|
|
|
|
653,055
|
|
|
$
|
1.36
|
|
|
|
4.28
|
|
|
|
622,119
|
|
|
$
|
1.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01-4.00
|
|
|
|
320,438
|
|
|
|
2.39
|
|
|
|
3.43
|
|
|
|
151,688
|
|
|
|
2.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01-10.00
|
|
|
|
108,175
|
|
|
|
4.94
|
|
|
|
1.50
|
|
|
|
108,175
|
|
|
|
4.94
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
1,081,668
|
|
|
|
2.02
|
|
|
|
3.75
|
|
|
|
881,982
|
|
|
|
2.00
|
|
For
the years ended March 31, 2021 and 2020, the total stock-based compensation on all instruments was $452,674 and $962,678, respectively.
It is expected that the Company will recognize expense after March 31, 2021 related to warrants issued, outstanding, and valued using
the Black Scholes pricing model as of March 31, 2021 in the amount of approximately $235,000.
The
Company granted warrants during the fiscal years ended March 31, 2021 and 2020 based on the following ranges:
|
|
Fiscal
Year Ended March 31,
|
|
|
|
2021
|
|
|
2020
|
|
Stock
price on valuation date
|
|
$
|
1.54-1.76
|
|
|
$
|
.48-2.25
|
|
Exercise
price
|
|
$
|
1.32-1.60
|
|
|
$
|
1.28-2.24
|
|
Term
(years)
|
|
|
5.00
|
|
|
|
.003-10
|
|
Weighted-average
volatility*
|
|
|
344
|
%
|
|
|
348
|
%
|
Risk-free
rate
|
|
|
.3%
- .6
|
%
|
|
|
1.5%
- 2.4
|
%
|
*Weighted-average
volatility disclosed as opposed to a range
The
fair value of each warrant award is estimated on the date of grant using a Black-Scholes valuation model that uses the assumptions noted
in the table above. Because the Black-Scholes valuation model incorporates ranges of assumptions for inputs, those ranges are disclosed
in the table above. Implied volatilities are based on historical volatility of the Company’s stock. No reserve is taken for warrants
granted that we estimate will not vest as there is not enough historical data to come to a reasonable estimation of the same. The risk-free
rate for periods within the contractual lives of the warrants is based on the 13-week U.S. Treasury bill rates in effect at the time
of grants.
NOTE
16 – INCOME TAXES
The
following table presents the net deferred tax assets as of March 31, 2021 and 2020:
|
|
2021
|
|
|
2020
|
|
Net operating loss carryforwards
|
|
|
4,924,000
|
|
|
|
4,974,000
|
|
Stock compensation
|
|
|
307,000
|
|
|
|
189,000
|
|
Derivative expense
|
|
|
489,000
|
|
|
|
—
|
|
Other
|
|
|
44,000
|
|
|
|
160,000
|
|
Total deferred tax assets
|
|
|
5,764,000
|
|
|
|
5,323,000
|
|
Valuation allowance
|
|
|
(5,764,000
|
)
|
|
|
(5,323,000
|
)
|
Net deferred tax assets
|
|
$
|
—
|
|
|
$
|
—
|
|
Current
income taxes are based upon the year’s income taxable for federal and state tax reporting purposes. Deferred income taxes (benefits)
are provided for certain income and expenses, which are recognized in different periods for tax and financial reporting purposes.
Deferred
tax assets and liabilities are computed for differences between the financial statements and tax bases of assets and liabilities that
will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the period in which the
differences are expected to affect taxable income. The Company’s deferred income taxes arise from the temporary differences between
financial statement and income tax recognition of net operating losses. These loss carryovers would be limited under the Internal Revenue
Code should a significant change in ownership occur within a three-year period.
At
March 31, 2021 and 2020, respectively, the Company had net operating loss carryforwards of approximately $17,100,000 and $16,500,000.
The deferred tax assets arising from the net operating loss carryforwards are approximately $4,924,000 and $4,974,000 as of March 31,
2021 and 2020, respectively. The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income
during the periods in which those temporary differences become deductible. Management considers the scheduled reversal of deferred tax
liabilities, the projected future taxable income and tax planning strategies in making this assessment. Based on management’s analysis,
they concluded not to retain a deferred tax asset since it is uncertain whether the Company can utilize this asset in future periods.
Therefore, they have established a full reserve against this asset. The change in the valuation allowance during the years ended March
31, 2021 and 2020 was approximately $441,000 and ($252,000), respectively. The net operating loss carryforwards, if not utilized, generally
expire twenty years from the date the loss was incurred, beginning in 2021, and losses incurred after 2018 are carried forward indefinitely
and subject to annual limitations for federal and Minnesota purposes.
Of
the approximately $17,100,000 in net operating loss carryforwards, approximately $7,000,000 has been accumulated in our pre-merger operating
subsidiary, Gel-Del Technologies, Inc. IRC 382 provides guidance around whether or not the Company is able to utilize the pre-merger
Gel-Del Technologies, Inc. net operating loss of approximately $7,000,000. Management is currently analyzing whether or not these pre-merger
dollars will be allowable if our deferred tax asset is ever realized.
Income
tax expense (benefits) to the statutory rate of 21% for the years ended March 31, 2021 and 2020 is as follows:
|
|
2021
|
|
|
2020
|
|
Tax benefits at statutory rate
|
|
|
21.0
|
%
|
|
|
21.0
|
%
|
State income tax benefits, net of federal
|
|
|
7.7
|
%
|
|
|
7.7
|
%
|
Tax rate adjustment to deferred tax assets
|
|
|
3.2
|
%
|
|
|
–
|
|
Net effective rate
|
|
|
31.9
|
%
|
|
|
28.7
|
%
|
The
Company’s continuing practice is to recognize interest and/or penalties related to income tax matters in income tax expense. As
of March 31, 2021 and 2020, the Company had no accrued interest and penalties related to uncertain tax positions.
The
Company is subject to taxation in the U.S. and Minnesota. Our tax years for 2018 and forward are subject to examination by tax authorities.
The Company is not currently under examination by any tax authority.
Management
has evaluated tax positions in accordance with FASB ASC 740, and has not identified any tax positions, other than those discussed above,
that require disclosure.
NOTE
17 – SUBSEQUENT EVENTS
In
April through June of 2021, the Company issued a total of 250,718 shares of common stock as follows:
i)
issued 49,014 shares of common stock to various investors for total proceeds of $343,098; and
ii)
issued 4,500 shares upon the exercise of 4,500 warrants for total proceeds of $40,000; and
iii)
issued 80,522 shares upon conversion of debt totaling $232,658; and.
iv)
Issued 116,682 shares upon the cashless exercise of warrants to purchase 181,474 shares.