Notes
to Financial Statements
June
30, 2019
(Unaudited)
NOTE
1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND ORGANIZATION
(A)
Organization and Description
The
Company is in the business of production, marketing and distribution of 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.
The
accompanying condensed consolidated financial statements are unaudited. These unaudited interim financial statements have been
prepared in accordance with accounting principles generally accepted in the United States (“GAAP”) and pursuant to
the rules and regulations of the SEC. Certain information and note disclosures, which are included in annual financial statements,
have been omitted pursuant to these rules and regulations. We believe the disclosures made in these interim unaudited financial
statements are adequate to make the information not misleading.
Although
these interim financial statements at June 30, 2019 and for the three months ended June 30, 2019 and 2018 are unaudited, in the
opinion of our management, such statements include all adjustments (consisting of normal recurring entries) necessary to present
fairly our financial position, results of operations and cash flows for the periods presented. The results for the three months
ended June 30, 2019 are not necessarily indicative of the results to be expected for the year ended March 31, 2020 or for any
future period.
These
unaudited interim financial statements should be read and considered in conjunction with our audited financial statements and
the notes thereto for the year ended March 31, 2019, included in our annual report on Form 10-K filed with the SEC.
(C)
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts of the Company and its two wholly-owned Minnesota corporations.
All intercompany accounts have been eliminated upon consolidation.
(D)
Use of Estimates
In
preparing financial statements in conformity with generally accepted accounting principles, management is required to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the financial statements and revenues and expenses during the reported period. Actual results could differ from
those estimates. Significant estimates include 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.
At June 30, 2019, the Company had $65,641 in cash and no cash equivalents. At March 31, 2019, the Company had $6,460 in cash and
no cash equivalents.
(F)
Concentration-Risk
The
Company maintains its cash with various financial institutions, which at times may exceed limits insured by the Federal Deposit
Insurance Corporation (FDIC). At June 30, 2019, cash did not exceed the FDIC uninsured balances and management believes the Company
is not exposed to any significant credit risk on cash.
(G)
Property & Equipment
Property
and equipment are recorded at cost less accumulated depreciation. Expenditures for major additions and betterments are capitalized.
Maintenance and repairs are charged to operations as incurred. Depreciation is computed by the straight-line method (after taking
into account their respective estimated residual values) over the asset’s estimated useful life of (3) years for equipment,
(5) years for automobile, and (7) years for furniture and fixtures.
(H)
Patents and Trademarks
The
Company capitalizes direct costs for the maintenance and advancement of their patents and trademarks and amortizes these costs
over the lesser of a useful life of 60 months or the life of the patent. We evaluate the recoverability of intangible assets periodically
by taking into account events or circumstances that may warrant revised estimates of useful lives or that indicate the asset may
be impaired.
(I)
Loss Per Share
Basic
loss per share is computed by dividing net loss by weighted average number of shares of common stock outstanding during each period.
Diluted loss per share is computed by dividing net loss by the weighted average number of shares of common stock, common stock
equivalents and potentially dilutive securities outstanding during the period.
The
Company has 4,370,736 warrants outstanding as of June 30, 2019 with varying exercise prices ranging from $3.50 to $.30/share.
The weighted average exercise price for these warrants is $.48/share. These warrants are excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company has 4,243,236 warrants outstanding as of March 31, 2019 with varying exercise prices ranging from $3.50 to $.30/share.
The weighted average exercise price for these warrants is $.50/share. These warrants are excluded from the weighted average number
of shares because they are considered anti-dilutive.
The
Company uses the guidance in ASC 260 to determine if-converted loss per share detailed in Note 14. 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.
(J)
Revenue Recognition
The
Company will recognize revenue on arrangements in accordance with FASB ASC No. 606, “Revenue From Contracts With Customers”.
Revenue is recognized upon transfer of control of promised products or services to customers in an amount that reflects the consideration
we expect to receive in exchange for those products or services. The Company adopted the guidance on April 1, 2018 using the cumulative
catch-up transition method. This change in accounting did not have any material effect on the Company’s financial statements.
(K)
Research and Development
The
Company expenses research and development costs as incurred.
(L)
Fair Value of Financial Instruments
The
Company applies the accounting guidance under FASB ASC 820-10,
“Fair Value Measurements”
, as well as certain
related FASB staff positions. This guidance defines fair value as the price that would be received from selling an asset or paid
to transfer a liability in an orderly transaction between market participants at the measurement date. When determining the fair
value measurements for assets and liabilities required to be recorded at fair value, the Company considers the principal or most
advantageous market in which it would transact business and considers assumptions that marketplace participants would use when
pricing the asset or liability, such as inherent risk, transfer restrictions, and risk of nonperformance.
The
guidance also establishes a fair value hierarchy for measurements of fair value as follows:
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Level
1 - quoted market prices in active markets for identical assets or liabilities.
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Level
2 - inputs other than Level 1 that are observable, either directly or indirectly, such as quoted prices in active markets
for similar assets or liabilities, quoted prices for identical or similar assets or liabilities in markets that are not active,
or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the
assets or liabilities.
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Level
3 - unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the
assets or liabilities.
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The
Company’s financial instruments consist of investments – equity securities receivable, notes payable and accrued interest,
notes payable and accrued interest - related party, and convertible notes payable. The carrying amount of the Company’s
financial instruments approximates their fair value as of June 30, 2019 and March 31, 2019, due to the short-term nature of these
instruments and the Company’s borrowing rate of interest.
In
instances where the determination of the fair value measurement is based on inputs from different levels of the fair value hierarchy,
the level in the fair value hierarchy within which the entire fair value measurement falls is based on the lowest level input
that is significant to the fair value measurement in its entirety. The Company’s assessment of the significance of a particular
input to the fair value measurement in its entirety requires judgment, and considers factors specific to the asset or liability.
The valuation of the Company’s notes recorded at fair value is determined using Level 3 inputs, which consider (i) time
value, (ii) current market and (iii) contractual prices.
The
Company measured its investments – equity securities receivable at fair value at June 30, 2019, see Note 5 to the financial
statements included in this Form 10-Q.
The
Company had no assets and liabilities measured at fair value on a recurring basis at March 31, 2019.
(M)
Stock-Based Compensation - Non-Employees
Equity
Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services
The
Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under 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.
(N)
Income Taxes
The
Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740. Deferred tax assets and liabilities
are determined based upon differences between financial reporting and tax bases of assets and liabilities and are measured using
the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is provided
when it is more likely than not that some portion or all of a deferred tax asset will not be realized.
The
Company accounts for income taxes under Accounting Standards Codification (ASC) Topic 740.
As
required by ASC Topic 740, the Company recognizes the financial statement benefit of a tax position only after determining that
the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not
threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood
of being realized upon ultimate settlement with the relevant tax authority. The Company applied ASC Topic 740 to all tax positions
for which the statute of limitations remained open. As a result of the implementation of ASC Topic 740, the Company did not recognize
any change in the liability for unrecognized tax benefits.
The
Company is not currently under examination by any federal or state jurisdiction.
The
Company’s policy is to record tax-related interest and penalties as a component of operating expenses.
(O)
Inventory
Inventories
are recorded in accordance with ASC 330 and are stated at the lower of cost 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.
(P)
Recently Issued and Adopted 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. 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 adopted ASU 2016-02 on April 1, 2019.
In
January 2016, the FASB issued ASU No. 2016-01 Financial Instruments (Subtopic 825) to enhance the reporting model for financial
instruments to provide users of financial statements with more decision-useful information. The amendments in this Update affect
all entities that hold financial assets or owe financial liabilities. The amendments are meant to improve financial reporting
by providing relevant information about an entity’s equity investments and reducing the number of items that are recognized
in other comprehensive income since this Update requires equity securities to be measured at fair value with changes in the fair
value recognized through net income. For public business entities, the amendments in this Update are effective for fiscal years
beginning after December 15, 2017, including interim periods within those fiscal years. The Company adopted ASU 2016-01 on April
1, 2018.
In
August 2016, the FASB issued ASU No. 2016-15 Statement of Cashflows (Topic 230) to reduce diversity in practice in how certain
cash receipts and cash payments are presented and classified in the statement of cash flows. The amendments in this Update apply
to all entities, including both business entities and not-for-profit entities that are required to present a statement of cash
flows under Topic 230. This Update addresses eight specific cash flow issues and their presentations in the statement of cash
flows. The amendments in this Update are effective for public business entities for fiscal years beginning after December 15,
2017, and interim periods within those fiscal years. The Company adopted ASU 2016-15 on April 1, 2018.
All
other newly issued accounting pronouncements but not yet effective have been deemed either immaterial or not applicable.
NOTE
2 - 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 $500,887 for the three-month period ended June 30, 2019 and had net cash used in operating activities
of $173,797 for the same period. Additionally, the Company has an accumulated deficit of $53,006,799 and working capital deficit
of $1,408,592 at June 30, 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
3 – 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.
As
of March 31, 2019, a
reserve of approximately $67,000 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 $20,000 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 $5,166, which
was a work-in-process when contamination was discovered.
Total
Inventory is broken out as follows:
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June 30, 2019
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March 31, 2019
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Finished Goods
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$
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67,310
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$
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77,936
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Reserve for Obsolete Inventory
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(67,310
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(77,936
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)
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Work in Process
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-0-
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-0-
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Manufacturing Supplies
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3,127
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3,127
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Raw Materials
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9,368
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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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$
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12,495
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NOTE
4 – LEASE AND COMMITMENTS
Rent
expense for the three months ended June 30, 2019 and 2018 was $14,546 and $14,607, respectively.
On
July 2
nd
, 2018 the Company gave its manufacturing contractor in Rochester, MN a 90-day notice to cancel the lease and
agreement under which the Company was renting manufacturing and office space; the financial impact of this cannot be fully
measured. Subsequently, the Company entered into an one-year agreement on July 13, 2018 with a 60-day notice of termination 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 $2,078 per month and the Company is responsible for its proportional
share of common space expenses, property taxes, and building insurance. This lease is terminable by the landlord if damage causes
the property to no longer be utilized as an integrated whole and by the Company if damage causes the facility to be unusable for
a period of 45 days.
The
following is a maturity analysis of the annual undiscounted cash flows of the operating lease liabilities as of June 30, 2019:
Year Ended March 31,
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2020
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$
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18,702
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2021
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24,936
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2022
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24,936
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2023
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24,936
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2024
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10,390
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$
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103,900
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In
compliance with ASC 842 the Company adopted new guidance in relation to lease accounting on April 1, 2019 whereby we recognized
operating lease right-to-use assets and corresponding and equal operating lease liabilities. The planned future base rent lease
payments total $103,900, which has been discounted to $101,269 using a the 52-week treasury bill coupon equivalent discount
rate of 2.18% and a present value model. The Company only had one operating lease so that the weighted average remaining lease
term and weighted average discount rate are approximately 4.2 years and 2.18%, respectively.
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June 30, 2019
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Present value of future base rent lease payments
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$
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101,269
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Base rent payments included in prepaid expenses
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(2,070
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)
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Present value of future base rent lease payments – net
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99,199
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As
of June 30, 2019, the present value of future base rent lease payments – net is classified between current and non-current
assets and liabilities as follows:
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June 30, 2019
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Operating lease right-of-use current asset
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$
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-
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Operating lease right-of-use other asset
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99,199
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Total operating lease assets
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99,199
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Operating lease current liability
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22,652
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Operating lease other liability
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76,547
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Total operating lease liabilities
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$
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99,199
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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
5 – INVESTMENTS – EQUITY SECURITIES
On
June 28, 2019, the Company entered into a purchase agreement with a third-party to purchase 1,500,000 shares of Emerald Organic
Products, Inc. (OTC Pink: “EMOR”) common stock for consideration of $1,500. The Company applied guidance from ASU
No. 2016-01 Financial Instruments – Overall – Recognition and Measurement of Financial Assets and Financial Liabilities
and ASC 820 to arrive at a fair value at June 30, 2019 of $1,500. The Company took into account many factors when determining
the stock’s fair value including, but not limited to, the nature and duration of the restriction on the stock, the extent
to which potential buyers would be limited by the restriction, and qualitative and quantitative factors specific to both the instrument
and the issuer.
NOTE
6 – PROPERTY AND EQUIPMENT
The
components of property and equipment were as follows:
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June 30, 2019
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March 31, 2019
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Leasehold improvements
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$
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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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10,130
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Production equipment
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108,882
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108,882
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R&D equipment
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25,184
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26,188
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Total, at cost
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148,798
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149,802
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Accumulated depreciation
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(118,430
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)
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(112,453
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)
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Total, net
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$
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30,368
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$
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37,349
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During
the three months ended June 30, 2019 and 2018, depreciation expense was $6,981 and $1,652, respectively.
NOTE
7 – INTANGIBLE ASSETS
The
components of intangible assets, all of which are finite-lived, were as follows:
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June 30, 2019
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March 31, 2019
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Patents
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$
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3,838,865
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$
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3,820,374
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Trademarks
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24,098
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|
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|
22,829
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Total, at cost
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3,862,963
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3,843,203
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Accumulated Amortization
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(3,390,495
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)
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(3,253,386
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)
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Total, net
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$
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472,468
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$
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589,817
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During
the three-month periods ended June 30, 2019 and 2018, amortization expense was $137,109 and $159,467, respectively.
NOTE
8 – CONVERTIBLE NOTES AND NOTES PAYABLE
At
June 30, 2019, the Company is obligated for several convertible notes payable in the total amount of $280,000. The Company entered
into these convertible notes during the quarter ended June 30, 2019. All of these convertible notes mature during the quarter
ended June 30, 2021, two years from their inception dates. These convertible notes accrue interest at a rate of 10%. Accrued interest
is due and payable each calendar quarter in cash; during the quarter ended June 30, 2019, the Company paid out $5,362 in accrued
interest to these convertible note holders. These convertible notes automatically convert into shares of common stock at a rate
of $.65 per share at the earlier of the maturity date or an uplift to a national securities exchange (e.g. NASDAQ or New York
Stock Exchange) provided that the Company’s stock price is at least $.78 at the time of the uplift. 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 $.65 per share.
At
June 30, 2019 the Company is obligated for one note payable and accrued interest in the total amount of $10,303. 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.
NOTE
9 – NOTES PAYABLE – RELATED PARTY
At
June 30, 2019 and March 31, 2019 the Company was obligated for a related party note payable and accrued interest in the total
amount of $75,941 and $85,752, respectively; the maturity date of this note is April 30, 2020. The related party note payable
terms are accrual of interest at 8% 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.
NOTE
10 – ACCOUNTS PAYABLE AND ACCRUED EXPENSES
At
June 30, 2019 and March 31, 2019, the Company is obligated to pay $849,668 and $854,990, respectively, in accounts payable and
accrued expenses. Of the total at June 30, 2019 of $849,668, $523,377 is made up of accounts payable, while the $326,291 in accrued
expenses is made up of past employee’s accrued salaries and related payroll taxes payable. Of the total at March 31, 2019
of $854,990, $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 $23,057 and $21,482 at June 30, 2019 and March 31, 2019, respectively.
NOTE
11 – ACCRUED EXPENSES – RELATED PARTY
At
June 30, 2019, the Company is obligated to pay $578,098 in accrued expenses due to related parties. Of the total, $76,918 is made
up of accounts payable, while $501,180 is made up of accrued salaries and payroll taxes payable.
At
March 31, 2019, the Company was 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.
NOTE
12 - COMMON STOCK AND WARRANTS
Common
Stock
During
the three-month period ended June 30, 2019 the Company did not issue any common stock.
Warrants
During
the three-month period ended June 30, 2019, the Company granted warrants to purchase a total of 300,000 shares of common stock
including:
i)
warrants for 300,000 shares, valued at $119,954 using the Black-Scholes model, to three new Directors, Messrs. Scott Johnson,
Gregory Cash, and James Martin, with 150,000 vested immediately and 150,000 vesting quarterly between August 2020 and May 2021,
and exercisable over a five-year term at $.30/share.
A
summary of warrant activity for the year ending March 31, 2019 and three-month period ending June 30, 2019 is as follows:
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercisable
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
300,000
|
|
|
|
.30
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
172,500
|
|
|
|
.54
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2019
|
|
|
4,370,736
|
|
|
|
.48
|
|
|
|
3,831,986
|
|
|
|
.47
|
|
At
June 30, 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
|
|
|
3,739,986
|
|
|
|
.35
|
|
|
|
4.36
|
|
|
|
3,391,236
|
|
|
|
.36
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
.51-1.00
|
|
|
517,500
|
|
|
|
1.00
|
|
|
|
3.39
|
|
|
|
327,500
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1.01-3.50
|
|
|
113,250
|
|
|
|
2.35
|
|
|
|
2.08
|
|
|
|
113,250
|
|
|
|
2.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
4,370,736
|
|
|
|
.48
|
|
|
|
4.19
|
|
|
|
3,831,986
|
|
|
|
.47
|
|
For
the three-month periods ended June 30, 2019 and 2018, the total stock-based compensation on all instruments was $157,134 and $279,311,
respectively. It is expected that the Company will recognize expense after June 30, 2019 related to warrants issued, outstanding,
and valued using the Black Scholes pricing model as of June 30, 2019 in the amount of approximately $488,000.
NOTE
13 – INCOME TAXES
The
following table presents the net deferred tax assets as of June 30, 2019 and March 31, 2019:
|
|
June
30, 2019
|
|
|
March
31, 2019
|
|
Net operating loss carryforwards:
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(3,906,591
|
)
|
|
$
|
(3,801,404
|
)
|
State
|
|
|
(1,823,076
|
)
|
|
|
(1,773,989
|
)
|
Total net operating loss carryforwards
|
|
|
(5,729,666
|
)
|
|
|
(5,575,393
|
)
|
Total deferred tax assets
|
|
|
(5,729,666
|
)
|
|
|
(5,575,393
|
)
|
Valuation allowance
|
|
|
5,729,666
|
|
|
|
5,575,393
|
|
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
June 30, 2019 and March 31, 2019, respectively, the Company had net operating loss carryforwards of approximately $18,600,000
and $18,100,000. The deferred tax assets arising from the net operating loss carryforwards are approximately $5,730,000 and $5,580,000
as of June 30, 2019 and March 31, 2019, 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 net operating
loss carryforwards, if not utilized, will begin to expire in 2021 for federal and Minnesota purposes.
Of
the approximately $18,600,000 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 June 30, 2019 and 2018 is as follows:
|
|
2019
|
|
|
2018
|
|
Expected tax at 21% and 9.8%
|
|
$
|
(5,729,666
|
)
|
|
$
|
(5,477,233
|
)
|
Valuation allowance
|
|
|
5,729,666
|
|
|
|
5,477,233
|
|
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 June 30, 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 – LOSS PER SHARE
At
June 30, 2019, the Company had $280,000 in convertible notes outstanding that 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 $280,000 in outstanding
convertible notes would convert into 430,769 shares of common stock at a rate of $.65 per share. At June 30, 2019 our if-converted
weighted average number of shares outstanding was 22,347,532. Our if-converted loss per share remains consistent with our actual
loss per share at ($.02).
NOTE
15 – SUBSEQUENT EVENTS
On
July 31, 2019, the Company entered into an exclusive license agreement with Emerald Organic Products, Inc. (“Emerald”)
whereby PetVivo granted an exclusive license to Emerald to use PetVivo’s proprietary Technology in the formulation, manufacture
and sale of Emerald’s nutritional supplements including its hemp-based CBD wellness products.
The
Technology of PetVivo licensed to Emerald under the Agreement includes Patents and Know-how involved with protein-based active
agent delivery systems and related carrier formulations for utilization in human nutritional supplement applications.
The Company’s CEO and President, John Lai, owns approximately 3% of Emerald’s
outstanding common stock. The Company’s Secretary, John Dolan, owns approximately 2% of Emerald’s outstanding common
stock.