Notes
to Consolidated Financial Statements
March
31, 2019
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
Basis of Presentation
PetVivo
Holdings, Inc. (the “Company”) was incorporated in Nevada under a former name in 2009 and entered its current business
in 2014 through a stock exchange reverse merger with PetVivo, Inc., a Minnesota corporation. This merger resulted in Minnesota
PetVivo becoming a wholly-owned subsidiary of the Company.
In
April 2017, the Company acquired another Minnesota corporation, Gel-Del Technologies, Inc., through a statutory merger, which
is also a wholly-owned subsidiary of the Company.
The accompanying consolidated financial statements
have been prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant
to the rules and regulations of the Securities and Exchange Commission (“SEC”).
The
Company is in the business of distribution of medical devices and biomaterials for the treatment of afflictions and diseases in
animals. The Company’s management, development, and other operations are conducted from its headquarter facilities in suburban
Minneapolis, Minnesota.
(B)
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota corporations.
All intercompany accounts have been eliminated upon consolidation.
The
accounting for the acquisition of Gel-Del Technologies, Inc. began with the Security Exchange Agreement on April 10, 2015 which
was uncompleted, and as adjusted for completion pursuant to the Agreement and Plan of Merger effective April 10, 2017 (the “Merger”).
To complete the Merger, the Company issued 5,450,000 shares valued at market at $0.40 per share, which equaled $2,180,000;
please see Note 11 to the financial statements.
(C)
Use of Estimates
In
preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from
those estimates. Significant estimates include estimated useful lives and potential impairment of property and equipment, estimate
of fair value of share-based payments and derivative instruments and recorded debt discount, valuation of deferred tax assets
and valuation of in-kind contribution of services and interest.
(D)
Cash and Cash Equivalents
The
Company considers all highly-liquid, temporary cash investments with an original maturity of three months or less to be cash equivalents.
At March 31, 2019, and March 31, 2018 the Company had no cash equivalents.
(E)
Concentration-Risk
The
Company maintains its cash with various financial institutions, which at times may exceed federally insured limits.
(F)
Property & Equipment
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 taking into account 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.
(G)
Patents and Trademarks
The
Company capitalizes direct costs for the maintenance and advancement of their patents and trademarks and amortizes these
costs over the lesser of a useful life of 60 months or the life of the patent. We evaluate the recoverability
of intangible assets periodically by taking into account events or circumstances that may warrant revised estimates of useful
lives or that indicate the asset may be impaired.
(H)
Loss Per Share
Basic
loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period.
Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock
equivalents and potentially dilutive securities outstanding during the period.
The
Company has 4,243,236 warrants outstanding as of March 31, 2019 with varying exercise prices ranging from $3.50 to $0.30 per share.
The weighted average exercise price for these warrants is $0.50 per share. These warrants are antidilutive and have been excluded
from the weighted average number of shares.
(I)
Revenue Recognition
The
Company will recognize revenue on arrangements in accordance with FASB ASC No. 606, “Revenue Recognition”. In all
cases, revenue is recognized only when the price is fixed and determinable, persuasive evidence of an arrangement exists, the
service is performed and collectability of the resulting receivable is reasonably assured. Revenues are expected to consist of
Kush product sales to veterinary clinics.
(J)
Research and Development
The
Company expenses research and development costs as incurred.
(K)
Fair Value of Financial Instruments
The
Company applies the accounting guidance under FASB ASC 820-10,
“Fair Value Measurements”
, as well as certain
related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact business and considers assumptions that marketplace participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
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Level
1 - quoted market prices in active markets for identical assets or liabilities.
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Level
2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
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Level
3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
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The
Company’s financial instruments consist of accounts payable, accrued expenses, accrued expenses – related party, notes
payable, and notes payable - related party. The carrying amount of the Company’s financial instruments approximates their
fair value as of March 31, 2019 and March 31, 2018, due to the short-term nature of these instruments.
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. The carrying amount
of the Company’s financial instruments approximates their fair value as of March 31, 2019 and March 31, 2018, 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, 2019 and March 31, 2018.
(L)
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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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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Expected
volatility of the entity’s shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii)
a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable
for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has
selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index.
The Company uses the average historical volatility of the comparable companies over the expected contractual life of the share
options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly
price observations would generally be more appropriate than the use of daily price observations as the volatility calculation
using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes
and lack of consistent trading in the market.
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Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual
term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend
yield is based on the Company’s current dividend yield as the best estimate of projected dividend yield for periods
within the expected term of the share options and similar instruments.
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Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used.
The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the
expected term of the share options and similar instruments.
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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.
(M)
Income Taxes
The
Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740. Deferred tax assets and liabilities
are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
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.
(N) Inventory
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 and capitalize costs on a project basis as they occur. The current marketed
shelf life of our Kush inventory is 2 years. However, management reserves the right to review and adjust this as appropriate.
(O)
Recent Accounting Pronouncements
The
FASB issued ASC 606 as guidance on the recognition of revenue from contracts with customers in May 2014 with amendments in 2015
and 2016. Revenue recognition will depict the transfer of promised goods or services to customers in an amount that reflects the
consideration to which the entity expects to be entitled in exchange for those goods or services. The guidance also requires disclosures
regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The guidance
permits two methods of adoption: retrospectively to each prior reporting period presented, or retrospectively with the cumulative
effect of initially applying the guidance recognized at the date of initial application (the cumulative catch-up transition method).
The Company adopted the guidance on April 1, 2018 and applied the cumulative catchup transition method. The transition adjustment
was not material.
In July 2018, the FASB issued ASU 2018-07,
Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting, an accounting standard
update to improve non-employee share-based payment accounting. The accounting standard update more closely aligns the accounting
for employee and non-employee share-based payments. The accounting standards update is effective as of the beginning of 2019 with
early adoption permitted. We have elected to adopt this standard as of April 1, 2018, the beginning of our 2019 fiscal year, with
the main reason for adoption being comparability between both employee and non-employee share-based payments. The adoption of
this standard did not have any material effect on the Company’s financial statements or any component of stockholder’s
equity.
In
February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) to increase transparency and comparability among organizations
by recognizing lease assets and lease liabilities on the balance sheet and disclosing key information about leasing arrangements.
Topic 842 affects any entity that enters into a lease, with some specified scope exemptions. The guidance in this ASU supersedes
Topic 840, Leases. The core principle of Topic 842 is that a lessee should recognize the assets and liabilities that arise from
leases. A lessee should recognize in the statement of financial position a liability to make lease payments (the lease liability)
and a right-of-use (“ROU”) asset representing its right to use the underlying asset for the lease term. For public
companies, the amendments in this ASU are effective for fiscal years beginning after December 15, 2018, including interim periods
within those fiscal years. The Company expects to recognize ROU assets and related obligations upon adoption of ASU 2016-02. The
Company does not expect the adoption on this new standard to have any material effect upon the financial statements. At June
30, 2019, the Company expects to realize an operating lease right-of-use asset and a corresponding, equal and offsetting operating
lease liability valued at approximately $96,801.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
P) Reclassification
As of March 31, 2019, the Company reclassified
transactions relating to the fiscal years ended March 31, 2018 to conform to March 31, 2019 that are included in the statement
of equity for presentation purposes as well as expense categories. The purpose of this reclassification within the statement of
equity are included to summarize the activity that took place during the fiscal year for presentation purposes as well as changes
in expense categories to separate out depreciation and amortization from other general and administrative expenses.
NOTE
2 – INVENTORY
On
November 1, 2018 the Company and its independent contract quality control organization discovered a possible contamination in
vials produced from lots #1, #2 and #3 of three separate lots that were included in inventory. No vials derived from lots #2 and
#3 have been distributed to customers. No evidence of contamination of vials distributed from lot #1 has been identified to date.
No adverse events arising from use of product from lot #1 have been reported to the Company. The identified lots and vials were
produced by the Company’s former third-party contract manufacturer. On November 5, 2018 we issued a formal Notice of Product
Quarantine and Product Monitoring Period whereby we asked for any unused vials to be quarantined while the Company’s scientific
team and third-party contract testing organization coordinated and performed testing on lots #1 and #2, and analyzed the events
leading to this situation.
A
reserve of approximately $78,000 in inventory has been taken in relation to this event due to the lack of sales when product was
available leading to substantial doubt in the Company’s ability to obtain material sales if the product gets cleared for
release, the amount of time it has taken the Company to analyze whether release of product is appropriate leaving little time
before the product’s expiration date arrives, and the level of uncertainty as it relates to how pervasive any unidentified
contamination may be in existing units of Kush in lots #1 and #2. Approximately $10,000 in inventory has been written off in relation
to additional third-party product testing of lot #1 and approximately $5,000 in relation to lot #2. We also wrote-down the entirety
of lot #3 in the amount of $5,166, which was a work-in-process when contamination was discovered.
The
$12,495 of Total Inventory is broken out as follows:
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March 31, 2019
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Finished Goods
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$
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77,936
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Reserve for Obsolete Inventory
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(77,936
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Work in Process
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-0-
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Manufacturing Supplies
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3,127
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Raw Materials
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9,368
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Total Inventory
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$
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12,495
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NOTE
3 – PROPERTY AND EQUIPMENT
The
components of property and equipment were as follows:
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As of March 31
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2019
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2018
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Leasehold improvements
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$
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4,602
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$
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4,602
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Furniture and office equipment
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10,130
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5,278
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Production equipment
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108,882
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78,397
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R&D equipment
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26,188
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34,405
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Total, at cost
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149,802
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122,682
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Accumulated depreciation
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(112,453
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(104,111
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Total, net
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$
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37,349
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$
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18,571
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During
fiscal years 2019 and 2018, depreciation expense was $8,342 and $1,117, respectively.
NOTE
4 – INTANGIBLE ASSETS
The
components of intangible assets, all of which are finite-lived, were as follows:
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As of March 31
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2019
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2018
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Patents
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$
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3,820,374
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$
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3,845,847
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Trademarks
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22,829
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22,469
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Total, at cost
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3,843,203
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3,868,316
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Accumulated Amortization
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(3,253,386
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(2,614,806
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Total, net
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$
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589,817
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$
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1,253,510
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During
fiscal years 2019 and 2018, amortization expense was $638,579 and $642,271, respectively. The Company performed an annual intangible impairment analysis as of March 31, 2019 and concluded that
approximately $104,000 in patents needed to be impaired. We conducted this analysis pursuant to ASC 350 and ASC 360.
NOTE
5 - RELATED PARTY NOTES PAYABLE
At
March 31, 2019, the Company is obligated for a related party note payable and accrued interest in the total
amount of $85,752; the maturity date of this note is April 30, 2020. 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.
During
the year ended March 31, 2019, the Company entered into bridge note agreements with related parties totaling $70,000 in principal.
Upon entering into these bridge note agreements, the note-holders were issued one warrant for every $2.00 in principal loaned
to the Company. These warrants were exercisable at $1.00 for a term of three years and vested immediately. Pursuant to ASC 470
the relative fair value of the warrants attributable to a discount on the debt was $15,677. The note terms dictate 12%
simple interest, compounding daily based on a 365-day year, paid out 6 months from the date of the note along with the principal
amount loaned to the Company; these notes were to mature in calendar Q1 of 2019. The entire $70,000 in principal and $1,722
in accrued interest was converted into 239,073 shares of common stock at a rate of $.30 per share pursuant to bridge note conversion
agreements in December of 2018.
An
additional $13,333 in equity issuance expense was recognized due to a beneficial conversion feature whereby $20,000 of the
$70,000 in principal was converted at $.30 per share when the stock price on the date of the conversion agreement was $.50
per share.
Also,
pursuant to the bridge note conversion agreements, for every $2.00 in outstanding balance converted into equity the note-holder
received one warrant exercisable at $.30 per share through December 31, 2018; 35,861 of these warrants were issued. The entire
balance remaining in debt discount of $15,677 was charged to interest expense upon conversion of these notes.
At
March 31, 2018, the Company was obligated for related party notes payable and accrued interest in the total amount of $103,279.
As of March 31, 2018, monthly payments were $1,000 per month, which increased to $3,100 when the Company reached total
financing of $1,400,000 within a 24-month period subsequent to the note amendment’s inception; this occurred during the
year ended March 31, 2019.
NOTE
6 – NOTES PAYABLE
At
March 31, 2019 the Company is obligated for one note payable and accrued interest in the total amount of $18,831 and $-0-,
respectively. The note terms dictate 12% simple interest, compounding daily based on a 365-day year, paid out 6 months from the
date of the note and the issuance of a detachable warrant for purchase of half of the principal amount in shares exercisable at
$1.00 per share for a 3-year term. All debt discount associated with the warrants issued in conjunction with this note was charged
to interest expense as of the maturity date of the note in February of 2019. Upon maturity of the note we entered into
a note amendment whereby instead of paying out the entire outstanding balance of principal and interest, we were to pay an initial
installment of $5,000 and then monthly payments of $3,000 until the amended maturity date of September 30, 2019, at which
time the entire outstanding balance will be paid.
During
the year ended March 31, 2019 the Company entered into bridge note agreements with several bridge note holders in the principal
amount of $215,000. There were 107,500 detachable warrants issued in conjunction with bridge notes entered into in the year ending
March 31, 2019. Pursuant to ASC 470 the relative fair value of the warrants attributable to a discount on the debt is $49,880;
this amount was amortized to interest expense on a straight-line basis over the term of the loans.
During
the year ended March 31, 2019 and pursuant to bridge note conversion agreements, $150,000 in principal and $4,280 in accrued interest
was converted into 514,264 shares of common stock at a rate of $.30 per share. Pursuant to the conversion of the notes, each note-holder
who converted their note(s) received a warrant for purchase of half of the outstanding balance in shares exercisable at $.30 per
share through December 31, 2018; 77,140 of these warrants were issued.
An
additional $33,822 in equity issuance expense was recognized due to a beneficial conversion feature whereby $50,734 in principal
and interest was converted at $.30 per share when the stock price on the date of the conversion agreement was $.50 per share.
During
the year ended March 31, 2019, $46,169 in principal was repaid, and $4,313 in accrued interest was paid out.
Each
of the warrants issued pursuant to conversion of these notes, if exercised, qualified for 1 additional share of common stock transferred
from a founder of the Company for every 3 shares received through exercising of these warrants; 33,351 shares were transferred
to these note-holders by a founder. During the year ended March 31, 2019 the entire total of $49,880 in debt discount has been
relieved to interest expense due to amortization and the conversions.
At
March 31, 2018 the Company had no outstanding notes payable.
During
the year ended March 31, 2018 the Company repaid $45,088 in a bank credit line, while the remainder of $18,333 was forgiven.
During
the year ended March 31, 2018 the Company repaid $16,524 in credit card debt, while the remainder of $3,667 was forgiven.
During
the year ended March 31, 2018 the Company converted $66,230 in principal and accrued interest of a note payable into 96,614 shares
of common stock at a rate of $.70 per share.
During
the year ended March 31, 2018 the Company converted $13,209 in principal and accrued interest of two notes payable into 37,740
shares of common stock at a rate of $.35 per share.
NOTE
7 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At
March 31, 2019, the Company is obligated to pay $854,990 in accounts payable and accrued expenses. Of the total, $524,273
is made up of accounts payable, while the $330,717 in accrued expenses is made up of past employee’s accrued salaries
and related payroll taxes payable. The Company has not paid the related payroll taxes, consisting primarily of Social Security
and Medicare taxes. As a result, the Company has established an accrued liability for the unpaid salaries, along with related
taxes of approximately $58,124 and $-0- at March 31, 2019 and 2018, respectively.
At
March 31, 2018, the Company was obligated to pay $767,970 in accounts payable and accrued expenses. Of the total, $526,001 was
made up of accounts payable, while $241,969 was made up of past employee’s accrued salaries.
NOTE
8 – ACCRUED EXPENSES – RELATED PARTY
At
March 31, 2019, the Company is obligated to pay $576,393 in accrued expenses due to related parties. Of the total, $89,186
is made up of accounts payable, while $487,207 is made up of accrued salaries and payroll taxes payable.
At
March 31, 2018, the Company was obligated to pay $559,884 in accrued expenses due to related parties. Of the total, $89,820 was
made up of accounts payable, while $470,064 was made up of accrued salaries.
NOTE
9 - 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 $4,757,758
for the year ended March 31, 2019 and had net cash used in operating activities of $736,445 for the same period. Additionally,
the Company has an accumulated deficit of $52,505,912 at March 31, 2019. 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.
These
financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
NOTE
10 – COMMON STOCK AND WARRANTS
During
the fiscal year ended March 31, 2018 the Company issued 8,957,769 shares of common stock. Equity transactions including common
stock and warrants for purchase of the Company’s common stock during the fiscal year ended March 31, 2018 are as follows:
Common
Stock Issued
The
Company issued a total of 1,578,528 shares of common stock pursuant to agreements entered into in previous fiscal years. 1,418,528
shares were issued to executive officers to satisfy accrued salaries of $867,192 and 160,000 shares valued at $80,000 were issued
to an officer for service provided.
Originally,
pursuant to salary settlements entered into as of January 20, 2017, the Company planned to issue 2,100,128 shares for settlement
of $1,209,919 in accrued salaries; this was made up of 2,600,128 shares granted and adjusted for (500,000) shares (“Escrow
Shares”) that John Lai gave up into an escrow that he did not satisfy the conditions of and therefore the issuance of accrued
salary settlement shares was netted with the shares he gave up into escrow, which were released to him.
However,
on June 26, 2017, the Company entered into an accrued salary settlement amendment whereby the original $1,209,919 in accrued salary
settlements was adjusted to $867,192, resulting in an adjustment of ($342,727). The amended settlements’ amount was in consideration
of issuance of 1,368,220 shares; this was made up of 1,868,220 shares and adjusted for the (500,000) Escrow Shares described in
this section Common Stock Issued section above. Pursuant to the accrued salary settlement amendment, John Lai is to return 50,308
shares of common stock as follows: (500,000) Escrow Shares, 449,692 shares granted pursuant to the accrued salary settlement amendment.
The
Company also issued 160,000 shares to Wesley Hayne in consideration of his service as the former Chief Revenue Officer; this stock
was valued at $.50 per share which was the market price on the date of the grant, March 1, 2017, and led to $80,000 in expense
recorded on that date.
Common
Stock Sold
The
Company granted a total of 1,930,000 shares pursuant to warrant exercises and subscription agreements. 1,620,000 shares were issued
to accredited investors for cash of $567,000; 250,000 shares were granted but not issued during the fiscal year ended March 31,
2018 to an accredited investor for cash of $250,000; 60,000 shares were granted but not issued during the fiscal year ended March
31, 2018 to an accredited investor for cash of $60,000.
Stock-Based
Compensation
The
Company issued 271,500 shares valued at $134,825 to third parties for their legal, marketing, and management consulting services
incurred during the fiscal year ended March 31, 2018. The Company granted but did not issue 10,000 shares valued at $15,000 to
a third party for their services for management consulting. The Company granted but did not issue 200,000 shares valued at $42,000
to the former CEO, Wesley Hayne, during the fiscal year ended March 31, 2018 pursuant to his service as the former CEO.
The
Company also recognized $300,796 in expense related to warrant vesting that occurred during the fiscal year ended March 31, 2018
as follows:
|
i)
|
$35,714
in expense related to warrants issued pursuant to a conversion of a convertible note
payable and accrued interest in the total amount of $22,786;
|
|
ii)
|
$8,251
in expense related to warrants issued pursuant to services provided by our patent attorney;
|
|
iii)
|
$68,000
in expense related to vesting of warrants issued to employees;
|
|
iv)
|
$60,987
in expense related to vesting of warrants issued to directors;
|
|
v)
|
$74,961
in expense related to vesting of warrants issued to officers;
|
|
vi)
|
$51,000
in expense related to vesting of warrants issued to advisors.
|
During
the fiscal year ended March 31, 2018 John Lai, the Company’s President, entered into an escrow agreement with Wesley Hayne,
the Company’s former CEO, whereby John escrowed 1,250,000 shares of common stock valued at $.296 to be issued to Wesley
pursuant to the escrow agreement’s terms. Since the Company received benefit for the services that John paid for in stock,
the Company recognized expense with an offset to additional paid in capital in the amount of $370,000 for this transaction.
Stock
Granted for Debt Conversion
During
the fiscal year ended March 31, 2018 the Company
|
i)
|
granted
37,741 shares of common stock pursuant to conversions of convertible notes in the total
amount of $13,210;
|
|
ii)
|
granted
but didn’t issue 425,287 shares of common stock pursuant to the conversion of two
bridge notes with a total outstanding balance in principal and accrued interest of $181,966
|
Inducement
Dividend from Warrant Exercise
During
the fiscal year ended March 31, 2018 the Company induced one warrant holder into exercising their warrant to purchase 60,000
share of common stock by reducing the strike price from $1.50 per share to $1.00 per share; this resulted in $30,000 recorded
to additional paid in capital.
Change
in Ownership of Variable Interest Entity (“VIE”)
The
Company granted and issued 5,450,000 shares valued at $0.40/share to shareholders of Gel-Del on a pro rata basis incident to our
Gel-Del merger (See Note 11) for a total purchase price of $2,180,000.
Equity
transactions including common stock and warrants for purchase of the Company’s common stock during the fiscal year ended
March 31, 2019 are as follows:
Common
Stock Issued
The
Company issued a total of 1,005,287 shares of common stock during the fiscal year ended March 31, 2019 pursuant to agreements
entered into in previous years as follows:
|
i)
|
425,287
shares pursuant to conversions of $181,966 in debt; $66,230 was converted into 94,614 shares at $.70 per share and $115,736
was converted into 330,673 shares at $.35 per share;
|
|
ii)
|
310,000
shares pursuant to subscription agreements for $310,000 in cash;
|
|
iii)
|
60,000
shares pursuant to a warrant exercise agreement for $60,000 in cash;
|
|
iv)
|
10,000
shares valued at $1.50 per share to a service provider for management consulting services rendered in the amount
of $15,000;
|
|
v)
|
200,000
shares valued based on the stock price on the date of the issuance on June 7, 2017 at $.21 per share for total
consideration of $42,000 to the Company’s former
CEO, Wesley Hayne, for serving in that capacity.
|
Common
Stock Returned
During the fiscal year ended March 31, 2018 the Company recognized $370,000 in expense for 1,250,000 shares
valued at $.296 per share that were escrowed from John Lai to Wesley Hayne, both of which were our officers during that time. Pursuant
to this escrow agreement Wesley Hayne vested and received 650,000 shares. During the fiscal year ended March 31, 2019 600,000 of
these shares were returned to the Company’s treasury and a reduction of expense and corresponding reduction of additional
paid in capital was recorded in the amount of ($177,600), which was based on the $.296 share price at the time of original valuation.
Common
Stock Sold
During
the fiscal year ended March 31, 2019, the Company
|
i)
|
issued
332,786 shares of common stock to several accredited investors in consideration of $166,393
in cash pursuant to warrant exercises;
|
|
ii)
|
issued
778,240 shares of common stock to several accredited investors in consideration of $233,472
in cash pursuant to discounted warrant exercise agreements whereby the company offered
all warrant holders the option to exercise their warrants at $.30 per share and they
would receive 1 share for every 3 shares received pursuant to the discounted warrant
exercise agreement from John Lai, the President of the Company.
|
Stock-Based
Compensation Granted
During
the fiscal year ended March 31, 2019, the Company issued 27,093 shares of common stock to two service providers as follows:
|
i)
|
2,093
shares of common stock valued at $2,700 for website services;
|
|
ii)
|
25,000
shares of common stock valued at $24,750 for marketing services.
|
Also,
stock-based compensation expense was recognized pursuant to several warrants’ vesting periods in the amount of $1,449,348
as follows:
|
i)
|
$99,882
in expense pursuant to vesting of warrants granted to service providers;
|
|
ii)
|
$258,031
in expense pursuant to vesting of warrants granted to advisors;
|
|
iii)
|
$780,181
in expense pursuant to vesting of warrants granted to directors;
|
|
iv)
|
$161,750
in expense pursuant to vesting of warrants granted to employees;
|
|
v)
|
$149,505
in expense pursuant to vesting of warrants granted to officers.
|
There
were also several warrants granted in conjunction with bridge notes that were entered into during the fiscal year ended March
31, 2019 that led to recognition of $14,181 in stock-based compensation expense. Also, warrants granted in conjunction with these
bridge notes led to the setup and subsequent amortization of a debt discount to interest expense in the amount of $65,557 with
the offset recorded in additional paid in capital.
Finally,
pursuant to a manufacturing and production agreement with CytoMedical Design Group (“CMDG”) the Company has granted
but not issued CMDG 86,333 shares of common stock valued at $86,333 which has been recorded to general and administrative expense
with an offset to stock to be issued.
Stock
Granted for Debt Conversion
During
the fiscal year ended March 31, 2019 the Company issued 95,462 shares of common stock to a third party to convert their accounts
payable in the amount of $95,462. We also issued 753,339 shares of common stock pursuant to conversions of bridge notes with principal
and accrued interest in the total amount of $226,002; some of these conversions took place on a date when the stock price was
publicly-quoted at a price higher than that of the conversion price, which led to expense recognized due to these beneficial conversion
features with an offset to additional paid in capital in the amount of $66,248.
Common
Stock Issued to Replace Shares to Officer
During
the fiscal year ended March 31, 2019, the Company issued 803,385 shares of common stock valued at $1,446,093 to John Lai, the
Company’s President, to replace shares he had previously given up as follows:
|
i)
|
324,723
shares of common stock valued at $584,501; these shares were issued to replace 324,723
shares given to a third party by John Lai in order to secure funding in 2015; this transaction is included in Common stock
issued to replace shares to officer on the statement of equity;
|
|
ii)
|
478,662
shares of common stock valued at $861,592; these shares were issued to virtually restore
500,000 shares of common stock John lost to escrow pursuant to its terms.
|
Common
Stock Issued by Officer
During
the fiscal year ended March 31, 2019, the Company recognized $77,354 in stock-based compensation expense with an offset to additional
paid in capital pursuant to stock transfer agreements whereby John Lai transferred 1 share for every three shares warrant holders
received pursuant to their discounted warrant exercises entered into in December of 2018 during our discounted warrant exercise
offering.; this is explained more in the below section titled Warrant Grants.
Warrant
Grants
During
the fiscal year ended March 31, 2019 the Company granted warrants to purchase a total of 1,980,531 shares of common stock including:
i)
warrants for 80,000 shares to two advisory board members for service, vested semi-annually over two years, and exercisable over
a five-year term at $1.00/share and valued at $70,434;
ii)
warrants for 230,000 shares to John Carruth, the Company’s Acting CFO, in consideration of his employment, vested quarterly
over two years, with a strike price of $.30 per share and exercisable over a five-year term and valued at $69,072;
iii)
warrants for 30,000 shares to a lawyer for general legal counsel, fully-vested and exercisable over a five-year term at $1.00/share
valued at $52,818;
iv)
warrants for 60,000 shares to various information technology service providers for IT services, vested as billed, exercisable
over a five-year term, which are valued as earned and have not yet been earned;
v)
warrants for 300,000 shares to three new Directors in consideration of their service, vested quarterly over two years, and exercisable
over a five-year term at $1.00/share and valued at $259,920;
vi)
warrants for 142,500 shares to several note holders pursuant to their bridge note agreements, vested immediately, and exercisable
over a three-year term at $1.00/share and valued at $85,218;
vii)
warrants for 113,031 shares to several note holders pursuant to their conversion of notes into equity, vested immediately, exercisable
through December 31, 2018 at $.30/share and valued at $11,170;
viii)
warrants for 1,025,000 shares to several board members, valued at $561,910, vested immediately, for a term of ten years
with a strike price of $.30/share and a one-time protection against a reverse split whereby the strike price will not be
adjusted upon combination of outstanding shares of stock, as follows:
|
i) Sheryll Grisewood
|
187,500
|
|
ii) David Merrill
|
187,500
|
|
iii) John Dolan
|
187,500
|
|
iv) David Deming
|
93,750
|
|
v) Peter Vezmar
|
93,750
|
|
vi) Joseph Jasper
|
93,750
|
|
vii) Robert Rudelius
|
87,500
|
|
viii) David Masters
|
46,875
|
|
ix) Randall Meyer
|
46,875
|
Also,
during the year ended March 31, 2019 the Company reduced the strike price of 587,500 warrants for members of the board of directors
to $.30 per share. They also reduced the strike price of 80,000 warrants to $.30 per share issued to John Carruth, the Acting
CFO. Pursuant to ASC 718-20-35-3 the Company did not realize any additional expense associated with these reductions in strike
price, as the change in fair value of these instruments was not in excess of the original instrument.
During
the fiscal year ended March 31, 2019 the Company cancelled previous grants of warrants to purchase 100,000 shares of common
stock including:
i)
warrants for 60,000 shares from a service provider due to the termination of a contract pursuant to its terms that were
valued at $102,000;
ii)
warrants for 40,000 shares from a former advisory board member due to the termination of a contract that were valued at $68,000.
During
December 2018 the Company offered its warrant-holders the option to exercise their warrants at a discounted rate of $.30
per share if exercised within 15 days of the offer date. Pursuant to this discounted warrant exercise agreement (“DWEA”),
warrant-holders were entitled to 1 share issued by way of stock transfer from a founder of the Company for every 3 shares received
pursuant to the DWEA. Several warrant-holders entered into such agreements whereby they received 678,187 shares of newly-issued
common stock and 226,062 shares of common stock from John Lai, a founder of the Company, in exchange for $203,456 in cash.
During
December 2018, the Company offered its note-holders the option to convert their notes and receive 1 warrant for every $2.00 in
outstanding balance of principal and interest converted. There were 113,031 of these warrants issued; 12,977 expired on December
31, 2018 and the remaining 100,054 were exercised in exchange for $30,016 in cash. Pursuant to these exercised warrants, each
warrant-holder received 1 share of common stock from a founder, John Lai; the total number of shares transferred by John Lai to
these warrant-holders was 33,351 shares, which were valued at $11,759.
During
the fiscal year ended March 31, 2018 the Company granted warrants to purchase a total of 3,413,459 shares of common stock including:
i)
warrants for 353,459 shares to lenders converting outstanding debt to common stock, fully vested, and exercisable over a three-year
term at $0.50/share;
ii)
warrants for 340,000 shares to various service providers for operational consulting and professional advisory services, fully
vested, and exercisable over a five-year term at $1.00/share valued at $238,000;
iii)
warrants for 60,000 shares to a law firm for patent services, vested and valued when billed, and exercisable over a three-year
term at $1.00/share;
iv)
warrants for 110,000 shares to key employees as incentive grants, fully vested, and exercisable over a five-year term at $1.00/share
valued at $187,000;
v)
warrants for 1,500,000 shares to accredited investors who purchased units at $.35/unit in a private placement that were
comprised of 1 share of common stock and 1 warrant for purchase of common stock, fully vested, and exercisable over a three-year
term at $0.50/share;
vi)
warrants with five-year terms for 300,000 shares to three independent directors (100,000 apiece) for their agreements to become
a member of the Board of Directors, vesting quarterly over a two-year period, with 200,000 shares exercisable at $0.35/share and
100,000 shares exercisable at $1.00/share, which were valued at $263,260; and
vii)
warrants for 750,000 shares to the President of the Company for past management services, vesting semi-annually over a
two-year period, and each vested tranche is exercisable at $0.30/share for a two-year term from its vesting
date; this grant was valued at $224,886.
A
summary of warrant activity for fiscal years ending March 31, 2018 and 2019 is as follows:
|
|
Number of Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants Exercisable
|
|
|
Weighted-
Average
Exercisable
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2017
|
|
|
133,250
|
|
|
|
2.00
|
|
|
|
133,250
|
|
|
|
2.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
3,413,459
|
|
|
|
.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
60,000
|
|
|
|
1.50
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2018
|
|
|
3,486,709
|
|
|
|
.59
|
|
|
|
2,433,601
|
|
|
|
.57
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,980,531
|
|
|
|
.41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
1,111,027
|
|
|
|
.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
12,977
|
|
|
|
.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
100,000
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2019
|
|
|
4,243,236
|
|
|
|
.50
|
|
|
|
3,372,261
|
|
|
|
.49
|
|
At
March 31, 2019, 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
|
|
.30-.50
|
|
|
3,552,486
|
|
|
|
.35
|
|
|
|
1.24
|
|
|
|
2,949,986
|
|
|
|
.37
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.51-1.00
|
|
|
577,500
|
|
|
|
1.00
|
|
|
|
6.48
|
|
|
|
327,500
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.01-3.50
|
|
|
113,250
|
|
|
|
2.35
|
|
|
|
2.19
|
|
|
|
94,775
|
|
|
|
2.52
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,243,236
|
|
|
|
.50
|
|
|
|
4.35
|
|
|
|
3,372,261
|
|
|
|
.49
|
|
It
is expected that the Company will recognize expense after March 31, 2019 related to warrants issued, outstanding, and valued using
the Black Scholes pricing model as of March 31, 2019 in the amount of approximately $495,000.
The
Company granted warrants during the fiscal years ended March 31, 2018 and 2019 based on the following ranges:
|
|
Fiscal Year Ended March 31,
|
|
|
|
2019
|
|
|
2018
|
|
Stock price on valuation date
|
|
|
$.24
- $1.80
|
|
|
|
$.30
- $1.70
|
|
Exercise price
|
|
|
$.30
- $1.50
|
|
|
|
$.30
- $1.00
|
|
Term (years)
|
|
|
.003
- 10
|
|
|
|
2
- 5
|
|
Weighted-average volatility*
|
|
|
238
|
%
|
|
|
584
|
%
|
Risk-free rate
|
|
|
1.4%
- 2.4
|
%
|
|
|
1.0%
- 1.4
|
%
|
*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 below. Because the Black-Scholes valuation model incorporates ranges of assumptions for inputs, those ranges
are disclosed in the table below. 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.
For the years ended March 31, 2019 and 2018, the total stock-based compensation on
all instruments was $2,988,716 and $552,065, respectively.
NOTE
11 – MERGER AGREEMENT WITH GEL-DEL
On
November 21, 2014, the respective Boards of Directors and executive officers of our Company and of Gel-Del Technologies,
Inc., a Minnesota corporation (“Gel-Del”), entered into and agreed to a merger between our company and Gel-Del, subject
to approval by our shareholders and the shareholders of Gel-Del. Approval of our shareholders of this initial merger was obtained
by us on April 10, 2015 through a Written Consent pursuant to Nevada corporate statutes, and approval of Gel-Del shareholders
was obtained through a meeting of its shareholders duly held on March 25, 2015 pursuant to Minnesota corporate statutes. Concurrent
with obtaining full shareholder approval, we also appointed the directors of Gel-Del as directors of our company.
We
then controlled Gel-Del, combined all Gel-Del operations with ours, and became responsible to provide future funding for Gel-Del.
Accordingly, we concluded that Gel-Del was a VIE entity for which we were the primary beneficiary and that for accounting purposes,
we would consolidate our financial statements with those of Gel-Del. As required by US GAAP accounting, our initial consolidation
of this VIE was accounted for similar to a business combination with the assets and liabilities of Gel-Del stated at their fair
value. In light of the pending merger, we determined the fair value of Gel-Del based on the agreed consideration of 4,150,000
common shares using the $4.02 per share trading price of our common stock at April 10, 2015. The assets of Gel-Del equaled $295,716
and its liabilities were $2,295,462 for a difference of $1,999,746 that resulted in a total purchase consideration of $18,978,462.
We allocated $13,407,693 to goodwill and $5,570,769 to patents and trademarks. We recorded a non-controlling interest of $16,683,000.
We
were unable to consummate the initial merger agreement with Gel-Del due primarily to a substantial public market decline in the
trading value of our common stock. In order to complete our Gel-Del merger, in early 2017 we agreed to provide Gel-Del an additional
31.3% of our common shares than was provided for in the initial merger agreement. Accordingly, pursuant to an Agreement of Merger
dated March 20, 2017, our management and Gel-Del management revised the structure and terms of the Gel-Del merger to provide for
the issuance of these additional shares to Gel-Del and to effect the transaction through a statutory triangular merger. The revised
merger was then completed under Minnesota Statutes whereby Gel-Del and a wholly-owned subsidiary of ours (which was incorporated
in Minnesota expressly for this transaction) completed this triangular merger (the “Merger”). Pursuant to the Merger,
Gel-Del was the surviving entity and concurrently became our wholly-owned subsidiary, resulting in our obtaining full ownership
of Gel-Del. Our primary reason to effect the Merger was to obtain 100% ownership and control of Gel-Del and its patented bioscience
technology, including ownership of Gel-Del’s Cosmeta subsidiary. The effective date for the Merger was April 10, 2017 when
the Merger was filed officially with the Secretary of State of Minnesota.
Pursuant
to the Merger, we issued a total of 5,450,000 shares of our common stock pro rata to the pre-merger shareholders of Gel-Del, resulting
in each outstanding common share of Gel-Del being converted into 0.798 common share of our Company; Gel-Del did not have
any outstanding options, warrants, convertible debt, or other rights convertible into equity. The 5,450,000 shares represented
approximately 30% of our total post-merger outstanding common shares and were valued at the closing price of our common shares
on the effective date of the Merger of $0.40 per share, resulting in total consideration of $2,180,000. Incident to completion
of the Merger, we recorded an impairment loss of approximately $14,700,000 including $13,407,693 in goodwill and approximately
$1,292,307 in patents and trademarks, in order to account for the decline in our initial valuation of Gel-Del. In accordance with
authoritative guidance, the non-controlling interest associated with Gel-Del was reclassified to additional paid-in capital, including
the difference between the non-controlling interest and the consideration paid.
NOTE
12 – LEASE AND COMMITMENTS
During
the three months ended March 31, 2018 the Company entered into a lease with a 90-day notice clause for 500 square feet of manufacturing
and office space in Rochester, MN. On July 2
nd
, 2018 the Company gave its manufacturing contractor in Rochester,
MN a 90-day notice to cancel the lease and agreement; the financial impact of this cannot be fully measured. Subsequently, the
Company entered into a 1-year agreement with a 60-day notice clause for 1,000 square feet of manufacturing and office space in
White Bear Lake, MN.
The
Company entered into an eighty-four-month lease for 3,577 square feet of newly constructed office, laboratory and warehouse
space located in Edina, Minnesota on May 3, 2017. The base rent is $2,078 per month and the Company is responsible for its proportional
share of common space expenses, property taxes, and building insurance. Future minimum rental commitments are as follows:
Year Ended March 31,
|
|
|
|
2020
|
|
$
|
24,932
|
|
2021
|
|
|
24,932
|
|
2022
|
|
|
24,932
|
|
2023
|
|
|
24,932
|
|
2024
|
|
|
8,311
|
|
Total
|
|
$
|
108,039
|
|
During the years ended March 31, 2019 and
2018 the Company had $69,758 and $22,172, respectively in total lease expenses.
Pursuant to a lease wherein our subsidiary, Gel-Del Technologies, Inc. was the lessee
until the lease’s termination in 2017, the Company owes approximately $330,000 to the lessor as of the balance sheet date;
this amount is included in accounts payable.
NOTE
13 – INCOME TAXES
The following table presents the net deferred tax assets
as of March 31, 2019 and 2018:
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforwards:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,801,404
|
)
|
|
$
|
(2,897,981
|
)
|
State
|
|
|
(1,773,989
|
)
|
|
|
(1,352,391
|
)
|
Total net operating loss carryforwards
|
|
|
(5,575,393
|
)
|
|
|
(4,250,372
|
)
|
Total deferred tax assets
|
|
|
(5,575,393
|
)
|
|
|
(4,250,372
|
)
|
Valuation allowance
|
|
|
5,575,393
|
|
|
|
4,250,372
|
|
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, 2019 and 2018, respectively, the Company had net operating loss carryforwards of approximately $18,100,000 and
$13,800,000. The deferred tax assets arising from the net operating loss carryforwards are approximately $5,580,000
and $4,250,000 as of March 31, 2019 and 2018, 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, 2019 and 2018 was approximately $1,325,021
and ($1,685,083), respectively. The net operating loss carryforwards, if not utilized, will begin to expire in 2021 for
federal and Minnesota purposes.
Of the approximately $18,100,000 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.
A
reconciliation of the expected tax computed at the U.S. statutory federal income tax rate to the total benefit for income taxes
at March 31, 2019, 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
Expected tax at 21% and 9.8%
|
|
$
|
(5,575,393
|
)
|
|
$
|
(4,250,372
|
)
|
Valuation allowance
|
|
|
5,575,393
|
|
|
|
4,250,372
|
|
Provision for income taxes
|
|
$
|
–
|
|
|
$
|
–
|
|
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, 2019 and 2018, 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 2016 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
14 – SUBSEQUENT EVENTS
On
June 3, 2019, shareholders owning a majority of our outstanding common stock approved the Election to our Board of Directors of
the following ten persons to serve as directors of PetVivo Holdings, Inc. until their successors are elected and shall qualify:
David B. Masters, John F. Dolan, Randall A. Meyer, James R. Martin, John Lai, Robert Rudelius, Scott M. Johnson, Joseph Jasper,
David Deming, and Gregory D. Cash.
On
the date of the written action the Company had 22,074,667 shares of voting common stock issued and outstanding. The consenting
stockholders who approved these written actions own an aggregate of 14,486,591 shares of common stock, which represents approximately
65.6% of the voting rights associated with the Company’s outstanding shares of common stock. Each shareholder is entitled
to one vote per share of common stock.
Each
of the three newly-elected directors received a warrant for purchase of 100,000 shares of PetVivo common stock at $.30 per share,
50,000 vested immediately and 50,000 vested quarterly during the second year from the date of the warrant,
exercisable for a term of 5 years.
On
July 11, 2019, the Board of Directors voted to elect Gregory Cash as the Chairman of the Board, John Lai as the CEO, John Carruth
as the CFO, and John Dolan as the Executive Director and Secretary. The Board elected the following individuals to be the sole
members of the Company’s Nominating and Governance committee: John Dolan, Robert Rudelius, Joseph Jasper. The Board elected
the following individuals to be the sole members of the Company’s Audit committee: James Martin, Joseph Jasper, David Deming.
The Board elected the following individuals to be the sole members of the Company’s Compensation committee: Randall Meyer,
Robert Rudelius, David Deming, Scott Johnson.