Notes to Financial Statements
June 30, 2021
(Unaudited)
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
AND ORGANIZATION
(A)
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Organization and Description
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The Company is in the business of licensing and commercializing
our proprietary medical devices and biomaterials for the treatment of afflictions and diseases in animals, initially for dogs and horses.
The Company’s operations are conducted from its headquarter facilities in suburban Minneapolis, Minnesota.
(B)
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Basis of Presentation
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PetVivo Holdings, Inc. (the “Company”)
was incorporated in Nevada under a former name in 2009 and entered its current business in 2014 through a stock exchange reverse merger
with PetVivo, Inc., a Minnesota corporation. This merger resulted in Minnesota PetVivo becoming a wholly-owned subsidiary of the Company.
In April 2017, the Company acquired another Minnesota corporation, Gel-Del Technologies, Inc., through a statutory merger, which is also
a wholly-owned subsidiary of the Company.
In October 2020, the Company approved a 1-for-4 reverse
split of our outstanding shares of common stock that was effectuated on December 29, 2020; concurrently, the Company increased its authorized
shares of common stock from 225,000,000 to 250,000,000; all share and per share data has been retroactively adjusted for this reverse
split for all periods presented.
(C)
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Principles of Consolidation
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The accompanying consolidated financial statements
include the accounts of the Company and its two wholly-owned Minnesota corporations, Gel-Del Technologies, Inc. and PetVivo, Inc. All
intercompany accounts have been eliminated upon consolidation.
In preparing financial statements in conformity with
generally accepted accounting principles, management is required to make estimates and assumptions that affect the reported amounts of
assets and liabilities and the disclosure of contingent assets and liabilities at the date of the financial statements and revenues and
expenses during the reported period. Actual results could differ from those estimates. Significant estimates include estimated useful
lives and potential impairment of property and equipment, estimate of fair value of share-based payments and derivative instruments and
recorded debt discount, valuation of deferred tax assets and valuation of in-kind contribution of services and interest.
(E)
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Cash and Cash Equivalents
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The Company considers all highly-liquid, temporary
cash investments with an original maturity of three months or less to be cash equivalents. The Company had no cash equivalents at June
30, 2021 and March 31, 2021.
The Company maintains its cash with various financial
institutions, which at times may exceed federally insured limits. As of June 30, 2021 and March 31, 2021, the Company did not have any
cash balances in excess of the federally insured limits.
Property and equipment are recorded at cost. Expenditures
for major additions and betterments are capitalized. Maintenance and repairs are charged to operations as incurred. Depreciation is computed
by the straight-line method (after considering their respective estimated residual values) over the assets estimated useful life of (3)
years for equipment, (5) years for automobile, and (7) years for furniture and fixtures.
(I)
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Patents and Trademarks
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The Company capitalizes direct costs for the maintenance
and advancement of their patents and trademarks and amortizes these costs over the lesser of a useful life of 60 months or the life of
the patent. We evaluate the recoverability of intangible assets periodically by considering events or circumstances that may warrant revised
estimates of useful lives or that indicate the asset may be impaired.
Basic loss per share is computed by dividing net loss
by weighted average number of shares of common stock outstanding during each period. Diluted loss per share is computed by dividing net
loss by the weighted average number of shares of common stock, common stock equivalents and potentially dilutive securities outstanding
during the period.
The Company has 731,444 warrants outstanding as of
June 30, 2021, with varying exercise prices ranging from $1.20 to $10.00 per share. The weighted average exercise price for these warrants
is $2.15 per share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.
The Company has 1,288,937 warrants outstanding as
of June 30, 2020, with varying exercise prices ranging from $1.33 to $17.28 per share. The weighted average exercise price for these warrants
is $2.27 per share. These warrants are excluded from the weighted average number of shares because they are considered antidilutive.
The Company uses the guidance in Accounting Standards
Codification 260 (“ASC 260”) to determine if-converted loss per share. ASC 260 states that convertible securities should be
considered exercised at the later date of the first day of the reporting period’s quarter or the inception date of the debt instrument.
Also, the if-converted method shall not be applied for the purposes of computing diluted EPS if the effect would be antidilutive.
At June 30, 2021, the Company has a Share-Settled Debt Obligation to a
Related Party of $196,000 which will convert into common shares at the stock price of our S-1 offering currently being conducted. Although
the number of shares is yet to be determined, the obligation is potentially dilutive. The if-converted method shall not be applied for
the purposes of computing EPS as the effect would be antidilutive.
The Company recognizes revenue on arrangements in
accordance with FASB ASC No. 606, “Revenue From Contracts With Customers”. Revenue is recognized upon shipment of our pet
care products to our customers in an amount that reflects the consideration we expect to receive in exchange for those products or services.
(L)
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Research and Development
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The Company expenses research and development costs
as incurred.
(M)
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Fair Value of Financial Instruments
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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 receivable, accounts payable, accrued expenses, accrued expenses – related parties, notes payable and accrued interest,
and notes payable and accrued interest - related party, notes payable – directors and others. The carrying amount of the Company’s
financial instruments approximates their fair value as of June 30, 2021 and March 31, 2021, 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 June 30, 2021 and March 31, 2021.
(N)
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Stock-Based Compensation - Non-Employees
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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:
● 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.
● 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.
● Expected
annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall
disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the
Company’s current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options
and similar instruments.
● Risk-free
rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free
interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share
options and similar instruments.
Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9,
an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period
of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any
measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the
goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset,
expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise
expires unexercised.
The Company accounts for income taxes under Accounting
Standards Codification (ASC) Topic 740. Deferred tax assets and liabilities are determined based upon differences between financial reporting
and tax bases of assets and liabilities and are measured using the enacted tax rates and laws that will be in effect when the differences
are expected to reverse. A valuation allowance is provided when it is more likely than not that some portion or all of a deferred tax
asset will not be realized.
As required by ASC Topic 450, the Company recognizes
the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain
the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial
statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant
tax authority. At the adoption date, the Company applied ASC Topic 740 to all tax positions for which the statute of limitations remained
open. As a result of the implementation of ASC Topic 740, the Company did not recognize any change in the liability for unrecognized tax
benefits.
The Company is not currently under examination by
any federal or state jurisdiction.
The Company’s policy is to record tax-related interest
and penalties as a component of operating expenses.
Inventories are recorded in accordance with ASC 330
and are stated at the lower of cost or net realizable value. We account for inventories using the first in first out (FIFO) methodology.
(Q)
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Recent Accounting Pronouncements
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In February 2016, the FASB issued ASU No. 2016-02,
Leases (Topic 842) to increase transparency and comparability among organizations by recognizing lease assets and lease liabilities on
the balance sheet and disclosing key information about leasing arrangements. Topic 842 affects any entity that enters into a lease, with
some specified scope exemptions. The guidance in this ASU supersedes Topic 840, Leases. The core principle of Topic 842 is that a lessee
should recognize the assets and liabilities that arise from leases. A lessee should recognize in the statement of financial position a
liability to make lease payments (the lease liability) and a right-of-use (“ROU”) asset representing its right to use the
underlying asset for the lease term. The Company adopted Topic 842 on April 1, 2019 and resulted in a right of use asset and liability
of $154,917.
All other newly issued accounting pronouncements but
not yet effective have been deemed either immaterial or not applicable.
NOTE 2 – INVENTORY
As of June 30, 2021 and March 31, 2021, the Company
had inventory of $41,468 and $47,068 of inventory, respectively, however, reserves of equal amounts for each respective period were taken
because of the substantial doubt in the Company’s ability to utilize this inventory to obtain material sales.
The inventory components are as follows:
SCHEDULE OF INVENTORY
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June 30, 2021
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March 31, 2021
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Finished Goods
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$
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34,123
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$
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36,973
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Raw Materials
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6,273
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8,773
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Manufacturing Supplies
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1,072
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1,322
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Inventory, Gross
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41,468
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47,068
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Reserve for Obsolete Inventory
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(41,468
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)
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(47,068
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)
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Total Net
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$
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—
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$
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—
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The Company recognized income of $3,289 related to
the change in the reserve of obsolete inventory for the year ended March 31, 2021.
NOTE 3 – PREPAID EXPENSES AND DEFERRED
OFFERING COSTS
As of June 30, 2021, the Company had $102,550 in prepaid
expenses and other assets consisting of approximately $84,000 in marketing services, $10,000 in insurance costs and $6,000 in rent. The
Company also had deferred offering costs of $305,353 consisting of legal and accounting costs incurred related to our S-1 and S-1/A filings
with the Securities and Exchange Commission on October 13, 2020, December 31, 2020, March 29, 2021 and July 13 2021, respectively, which
will be recorded as a reduction of proceeds should we be successful in raising capital through this S-1 offering or expensed if not.
As of March 31, 2021, the Company had $123,575 in
prepaid expenses and other assets consisting of approximately $78,000 in marketing services, $9,000 in annual OTC listing license and
$9,000 in insurance costs. The Company also had deferred offering costs of $280,163 consisting of legal and accounting costs incurred
related to our S-1 and S-1/A filings with the Securities and Exchange Commission on October 13, 2020, December 31, 2020 and March 29,
2021, respectively, which will be recorded as a reduction of proceeds should we be successful in raising capital through this S-1 offering
or expensed if not.
NOTE 4 –PROPERTY AND EQUIPMENT
The components of property and equipment were as follows:
SCHEDULE OF PROPERTY AND EQUIPMENT
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June 30, 2021
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March 31, 2021
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Leasehold improvements
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$
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198,015
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$
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198,015
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Production equipment
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128,849
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128,849
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R&D equipment
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25,184
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25,184
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Furniture
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10,130
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10,130
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Total, at cost
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362,178
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362,178
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Accumulated depreciation
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(160,010
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)
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(148,140
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)
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Total Net
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$
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202,168
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$
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214,038
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Depreciation expense was $11,870 and $6,489 for the
three months ended June 30, 2021 and 2020, respectively.
NOTE 5 – INTANGIBLE ASSETS
The components of intangible assets, all of which
are finite-lived, were as follows:
SCHEDULE OF INTANGIBLE ASSETS
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June 30, 2021
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March 31, 2021
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Patents
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$
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3,846,967
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$
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3,840,903
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Trademarks
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26,142
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26,142
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Total at cost
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3,873,109
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3,867,045
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Accumulated Amortization
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(3,840,842
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)
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(3,839,113
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)
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Total net
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$
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32,267
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$
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27,932
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Amortization expense was $1,729 and $45,316 for the
three months ended June 30, 2021 and 2020, respectively. The Company recorded an intangible impairment charge of $3,606 in the three months
ended June 30, 2020.
NOTE 6 – ACCOUNTS PAYABLE AND ACCRUED
EXPENSES
The components of accounts payable and accrued expenses
were as follows:
SCHEDULE OF ACCOUNTS PAYABLE AND ACCRUED EXPENSES
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June 30, 2021
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March 31, 2021
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Accounts payable
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$
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905,736
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$
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741,111
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Accrued payroll and related taxes
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243,304
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221,774
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Total
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$
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1,149,040
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$
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962,885
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NOTE 7 - RELATED PARTY NOTES PAYABLE
At June 30, 2021 and March 31, 2021, the Company is
obligated for a related party note payable and accrued interest in the total amount of $48,267 and $44,554, respectively; the maturity
date of this note was June 30, 2022. The related party note payable terms are accrual of interest at eight percent annually with payments
of $3,100 per month, which are applied to interest first, then principal. The terms also include a stipulation that if the Company receives
additional financing during any 24-month period from the date of the note in the amount greater than $3,500,000, the Company will immediately
pay the officer the principal amount of the note along with all interest due. Please see Note 9 to these financial statements for more
information on this note.
The Company entered into notes payable with four directors
in March 2021 which accrue interest at a rate of 6% annually and are due in September 2021. At June 30, 2021 and March 31, 2021, the principal
and accrued interest outstanding on these notes is $20,300 and $20,000, respectively.
NOTE 8 – NOTES PAYABLE AND CONVERTIBLE
NOTES
In January 2020, the Company entered into a lease
amendment for our corporate office facility whereby the lease term was extended through November of 2026 in exchange for a loan of $42,500.
The note payable accrues interest at a rate of 6% per annum. At June 30, 2021 and March 31, 2021, the amount outstanding on the note was
$37,860 and $39,528, respectively. The note is classified as a current liability as the Company has not been current on its loan payments
as of June 30, 2021 and March 31, 2021.
On May 1, 2020, the Company received $38,665 in loan
proceeds pursuant to the Paycheck Protection Program enacted by the 2020 US Federal government Coronavirus Aid, Relief, and Economic Security
Act. At March 31, 2021, the Company was obligated for the outstanding balance of $39,020. The principal and accrued interest may be forgivable
and the Company has applied for forgiveness. The loan accrues interest at a rate of 1% per annum and matures on May 1, 2022; if not forgiven
prior to December 1, 2020, the Company is required to pay monthly installments toward principal and interest until the note is paid in
full. In June 2021, the Company received forgiveness of principal and accrued interest of $31,680. The remaining principal balance of
$7,436 will be paid monthly beginning August 1, 2021 to May 1, 2022 at a monthly payment of $738.
At March 31, 2021, the Company was obligated for several
convertible notes payable in the total amount of $235,671 made up of $230,000 in principal and $5,671 in interest. These notes and accrued
interest of $2,658 were converted in April 2021 into 80,522 shares of common stock at a conversion price of $2.89 per share. These convertible
notes accrue interest at a rate of 10%. Accrued interest is due and payable each calendar quarter in cash; during the three months ended
June 30, 2021 and 2021, the Company paid out interest of $3,093 and $3,397, respectively, to these convertible note holders.
At June 30, 2020, the Company is obligated for one
convertible note payable held by RedDiamond Partners, LLC (“RDCN”); the Company entered into the RDCN on June 15, 2020, whereby
the note is convertible on or after January 15, 2021 and before maturity on March 15, 2021 at a rate of $.28/share. The RDCN was issued
in the principal amount of $352,941 with $52,941 being made up of a 15% Original Issue Discount (“OID”) and included a conversion
feature because there are exercise contingencies triggered by the occurrence of an Event of Default, which includes events that are outside
the control of the Company (i.e. not based solely on the market for the Company’s stock or the Company’s own operations). Additionally,
the RDCN accrues interest at a rate of 12.5% per annum, calculated on a 360-day-per-year-basis. At June 30, 2020, the Company owed $354,779
in outstanding balance whereby $352,941 was made up of principal and $1,838 was made up of accrued interest. This RDCN was issued alongside
a warrant for purchase of 557,143 shares of Company common stock (“RDCN Warrants”) with a relative value of $91,500; see Note
15 for more information on these RDCN Warrants. The outstanding principal balance of the RDCN was reduced to $-0- by various discounts
on the debt totaling ($352,941) as follows: i) the RDCN Warrants generated a discount on the debt of ($91,500) based on the relative value
of the same; ii) $2,500 in investor legal costs was treated as a discount on the debt of ($2,500) since this was paid by the Company;
iii) $52,941 of OID was treated as a discount on the debt of ($52,941); iv) a discount of ($206,000) was taken due to the conversion option
being treated as a derivative. As of June 30, 2020, the Company had ($333,333) ($-0- at March 31, 2020) in unamortized debt discount remaining.
In evaluating the various instruments and their components within this transaction (including issuance of the RDCN and RDCN Warrants)
for treatment as a derivative and the respective accounting treatment of the same, the Company referenced ASC 470 and ASC 815 in conjunction
with interpretive guidance. Subsequently, at June 30, 2020, the Company amortized a pro-rata portion of the discount on the debt on a
straight-line basis to interest expense in the amount of $19,608. In conjunction with the RDCN and RDCN Warrants issuances, the Company
also paid $30,000 and issued 75,000 warrants (“Think Warrants”) valued at $31,500 using the Black-Scholes model to Think Equity
for soliciting the RedDiamond Partners, LLC transaction; see Note 15 for more information on these warrants. The total issuance costs
paid to Think Equity of $61,500 of cash and warrants, which the Company recorded the relative value (as noted in Note 15) of $52,399 to
expense since no further discount was available to be taken on the debt.
NOTE 9 – SHARE-SETTLED DEBT OBLIGATION
– RELATED PARTY
Effective September 1, 2020, the Company entered into
two debt settlement agreements with David B. Masters, a director of the Company, pursuant to an Amendment to Promissory Note and a Promissory
Note. The Amendment to Promissory Note extends, for up to an additional two years and under the same terms as originally entered into,
the original promissory notes which were issued by Gel-Del Technologies, Inc., a wholly owned subsidiary of the Company, to Dr. Masters.
Because this Amendment to Promissory Note simply extended the term over which the Company is required to pay back the outstanding balance
this change has been treated as a debt modification. The outstanding principal of $59,642 and interest balance of $6,058 of the original
promissory notes was $65,700 at the time of execution of the Amendment to Promissory Note; the terms of this Amendment to Promissory Note
are interest accrual at a rate of 8% on an annual basis or 20% if the note is in default. The Amendment to Promissory Note requires monthly
payments of $3,100 and a maturity date of June 30, 2022, provided however that if the Company shall achieve $1,500,000 in equity sales
or achieve gross product sales of $1,500,000, the Company must pay the outstanding balance at that time.
The Promissory Note was entered into with an effective
date of September 1, 2020 in a principal amount of $195,000, which represented David Masters’ release of any claim to the $195,000 in past
accrued salary he was owed, it accrues interest at a rate of 3% per annum, has a maturity date of August 31, 2022, and required payments
of $4,000 per month beginning when the Company’s sale of products reach $3,500,000. The reclassification of the $195,000 was treated as
a debt modification.
A Settlement and General Release (“Settlement
Agreement”) was also executed by Dr. Masters to the benefit of the Company as a settlement and general release of any and all
past claims, demands, damages, judgements, causes of action and liabilities that Dr. Masters ever had, may have or may acquire against
the Company and its subsidiaries, including, but not limited to any claims related to (a) the ownership, operation, business, or financial
condition of the Company or its business, (b) any promissory note, loan, contract, agreement or other arrangement, whether verbal or written,
including all unpaid interest charges, late fees, penalties or any other charges thereon, entered into or established between Dr. Masters’
and his affiliates and the Company on or prior to the Effective Date, or (c) the employment of Dr. Masters by the Company (except for
claims directly relating to the breach of the Amendment to Promissory Note, the Promissory Note or the Consulting Agreement).
On October 15, 2020, the Company entered into a note
conversion agreement with David Masters whereby the Company and Mr. Masters both agreed to convert his note payable in the then outstanding
balance of $193,158 made up of $192,500 in principal and $658 in accrued interest into common stock and warrants pursuant to terms identical
to what is agreed upon in our proposed S-1 offering. Pursuant to this conversion agreement the Company agreed to convert $196,000 made
up of $192,500 in principal and a conversion fee of $3,500 and Mr. Masters agreed to forego the interest accrued in the amount of $658.
The conversion fee of $3,500 was treated as a discount on the debt and the $658 was treated as a reduction of the discount on debt. As
of June 30, 2021 and March 31, 2021, the outstanding balance of $196,000 for this share-settled debt obligation had not yet been converted
and is recorded as a liability due to the fact the Company had not agreed to terms of our S-1 offering currently being conducted.
At June 30, 2021 and March 31, 2021, the Company was
obligated for principal and accrued interest in the amounts of $-0- and $-0-, respectively, related to the Promissory Note and $48,267
and $44,554 respectively, related to the Amendment to Promissory Note.
NOTE 10 – DERIVATIVE LIABILITY AND EXPENSE
The Company evaluates its convertible instruments,
options, warrants or other contracts to determine if those contracts or embedded components of those contracts qualify as derivatives
to be separately accounted for under ASC Topic 815, “Derivatives and Hedging.” The result of this accounting treatment is
that the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability. In the event that the fair
value is recorded as a liability, the change in fair value is recorded in the statement of operation as other income (expense). Upon conversion
or exercise of a derivative instruments, the instrument is marked to fair value at the conversion date then that fair value is recognized
as a gain or loss on extinguishment. Equity instruments that are initially classified as equity that become subject to reclassification
under ASC Topic 815 are reclassified to liabilities at the fair value of the instrument on the reclassification date.
The Company used the following assumptions for determining
the fair value of the conversion feature in the RDCN referenced in Note 8 to these financial statements, under the binomial pricing model
with Monte Carlo simulations at June 15, 2020 and June 30, 2020, the issuance and balance sheet dates, respectively:
SCHEDULE OF DERIVATIVE LIABILITY ASSUMPTIONS
|
|
June 15, 2020
|
|
|
June 30, 2020
|
|
Stock price on valuation date
|
|
$
|
.42
|
|
|
$
|
.44
|
|
Conversion price
|
|
$
|
.28
|
|
|
$
|
.28
|
|
Days to maturity
|
|
|
273
|
|
|
|
258
|
|
Weighted-average volatility*
|
|
|
367
|
%
|
|
|
367
|
%
|
Risk-free rate
|
|
|
.18
|
%
|
|
|
.18
|
%
|
The initial valuation of $526,800 at June 15, 2020,
generated a discount on the debt of $206,000, which net the convertible note liability to $-0- and forced a recognition of derivative
expense of $320,800 and a corresponding offset to derivative liability of $526,800. At June 30, 2021 and 2020, the derivative liability
was $-0-. The Company recognized $-0- and $21,400 to derivative expense for the three months ended June 30, 2021 and 2020, respectively.
NOTE 11–ACCRUED EXPENSES – RELATED
PARTY
At June 30, 2021, the Company was obligated to pay
$50,898 in accrued expenses due to a related party. Of the total, $29,855 was made up of accounts payable, while $21,043 was made up of
accrued salaries.
At March 31, 2021, the Company was obligated to pay
$36,808 in accrued expenses due to a related party. Of the total, $28,965 was made up of accounts payable, while $7,843 was made up of
accrued salaries.
NOTE 12–RETIREMENT PLAN
In February 2021, the Company established a 401(k)
retirement plan for its employees in which eligible employees can contribute a percentage of their compensation. The Company may also
make discretionary contributions. The Company did not make any contributions to the plan for the three months ended June 30, 2021.
NOTE 13 – COMMITMENTS AND CONTINGENCIES
The Company entered into an eighty-four-month lease
for 3,577 square feet of newly constructed office, laboratory and warehouse space located in Edina, Minnesota in May 2017. The base rent
has annual increases of 2% and the Company is responsible for its proportional share of common space expenses, property taxes, and building
insurance. This lease is terminable by the landlord if damage causes the property to no longer be utilized as an integrated whole and
by the Company if damage causes the facility to be unusable for a period of 45 days. In January 2020, the Company entered into a lease
amendment whereby agreed to extend the lease term through November of 2026 in exchange for receipt of a loan of $42,500 recorded to notes
payable and a grant of $7,500, which has been recorded to accrued expenses and will be amortized over the remainder of the lease term.
The base rent as of June 30 and March 31, 2021 is $2,205.
Rent expense for the three months ended June 30, 2021
and 2020 were $11,511 and $13,568, respectively.
The following is a maturity analysis of the annual
undiscounted cash flows of the operating lease liabilities as of June 30, 2021:
SCHEDULE OF ANNUAL UNDISCOUNTED OPERATING LEASE LIABILITY
|
|
|
2021
|
|
2022
|
|
$
|
20,020
|
|
2023
|
|
|
27,167
|
|
2024
|
|
|
27,710
|
|
2025
|
|
|
28,265
|
|
2026
|
|
|
28,830
|
|
2027
|
|
|
19,474
|
|
Total
|
|
$
|
151,466
|
|
Less: amount representing interest
|
|
|
(276
|
)
|
Total
|
|
$
|
151,190
|
|
In compliance with ASC 842, the Company recognized,
based on the extended lease term to November 2026 and a treasury rate of 0.12%, an operating lease right-to-use assets for approximately
$189,600 and corresponding and equal operating lease liabilities for the lease. As of June 30, 2021, the present value of future base
rent lease payments based on the remaining lease term and weighted average discount rate are approximately 6 years and 0.12%, respectively,
are as follows:
SCHEDULE OF BASE RENT LEASE PAYMENTS
|
|
|
|
|
Present value of future base rent lease payments
|
|
$
|
151,190
|
|
Base rent payments included in prepaid expenses
|
|
|
-
|
|
Present value of future base rent lease payments – net
|
|
$
|
151,190
|
|
As of June 30, 2021, the present value of future base
rent lease payments – net is classified between current and non-current assets and liabilities as follows:
SCHEDULE OF LEASE CURRENT AND NON-CURRENT ASSETS AND LIABILITIES
|
|
|
|
|
Operating lease right-of-use asset
|
|
$
|
151,190
|
|
Total operating lease assets
|
|
|
151,190
|
|
|
|
|
|
|
Operating lease current liability
|
|
|
26,754
|
|
Operating lease other liability
|
|
|
124,436
|
|
Total operating lease liabilities
|
|
$
|
151,190
|
|
Pursuant to a lease wherein our subsidiary, Gel-Del
Technologies, Inc., was the lessee until and through the lease’s termination in fiscal year 2017-2018, the Company had recorded as of those
fiscal years approximately $330,000 as a potential payable to the lessor, which this liability remains as of June 30, 2021 and March 31,
2021 and is included in accounts payable.
The Company has employment agreements with the Chief
Executive Officer and Chief Financial Officer. As of June 30, 2021 and March 31, 2021, these agreements do not contain severance benefits
if terminated without cause.
NOTE 14 - GOING CONCERN
The accompanying financial statements have been prepared
in conformity with accounting principles generally accepted in the United States of America, which contemplate continuation of the Company
as a going concern.
The Company incurred net losses of $490,629 for the
three months ended June 30, 2021 and had net cash used in operating activities of $255,861 for the same period. Additionally, the Company
has an accumulated deficit of $58,602,055, negative working capital of $1,094,921, and a stockholders’ deficit of $716,178, at June
30, 2021. These conditions raise substantial doubt about the Company’s ability to continue as a going concern for a period of at
least twelve months after the date of issuance on these financial statements. In view of these matters, the Company’s ability to
continue as a going concern is dependent upon the Company’s ability to achieve a level of profitability and/or to obtain adequate
financing through the issuance of debt or equity in order to finance its operations.
Management intends to raise additional funds either
through a private placement or public offering of its equity securities. Management believes that the actions presently being taken to
further implement its business plan will enable the Company to continue as a going concern. While the Company believes in its viability
to raise additional funds, there can be no assurances to that effect. The ability of the Company to continue as a going concern is dependent
upon the Company’s ability to further implement its business plan and raise additional funds.
COVID-19 has had an impact on the global economy,
which directly or indirectly may have an impact on our ability to continue as a going concern.
These financial statements do not include any adjustments
that might be necessary if the Company is unable to continue as a going concern.
NOTE 15 – COMMON STOCK AND WARRANTS
Equity Incentive Plan
On July 10, 2020, our Board of Directors unanimously
approved the PetVivo Holdings, Inc “2020 Equity Incentive Plan” (the “2020 Plan”), subject to approval by our
stockholders at the Regular Meeting of Stockholders held on September 22, 2020, when it was approved by our stockholders and became effective.
The number of shares of our common stock available and that may be issued as awards under the 2020 Plan is 1,000,000 shares. Unless sooner
terminated by the Board, the 2020 Plan will terminate at midnight on July 10, 2030.
Employees, consultants and advisors of the Company
(or any subsidiary), and non-employee directors of the Company will be eligible to receive awards under the 2020 Plan. In the case of
consultants and advisors, however, their services cannot be in connection with the offer and sale of securities in a capital-raising transaction
nor directly or indirectly promote or maintain a market for PetVivo securities.
The 2020 Plan will be administered by the Compensation
Committee of our Board of Directors (the “Committee”), which has full power and authority to determine when and to whom awards
will be granted, and the type, amount, form of payment, any deferral payment, and other terms and conditions of each award. Subject to
provisions of the 2020 Plan, the Committee may amend or waive the terms and conditions, or accelerate the exercisability, of an outstanding
award. The Committee also has the authority to interpret and establish rules and regulations for the administration of the 2020 Plan.
In addition, the Board of Directors may also exercise the powers of the Committee.
The aggregate number of shares of Petvivo common stock
available and reserved to be issued under the 2020 Plan is 1,000,000 shares, but includes the following limits:
● the maximum aggregate number of
shares of Common Stock granted as an Award to any Non-Employee Director in any one Plan Year will be 10,000 shares; provided that such
limit will not apply to any election of a Non-Employee Director to receive shares of Common Stock in lieu of all or a portion of any annual
Board, committee, chair or other retainer, or any meeting fees otherwise payable in cash.
Awards can be granted for no cash consideration or
for any cash and other consideration as determined by the Committee. Awards may provide that upon the grant or exercise thereof, the holder
will receive cash, shares of PetVivo common stock, other securities or property, or any combination of these in a single payment, installments
or on a deferred basis. The exercise price per share of any stock option and the grant price of any stock appreciation right may not be
less than the fair market value of PetVivo common stock on the date of grant. The term of any award cannot be longer than ten years from
the date of grant. Awards will be adjusted in the event of a stock dividend or other distribution, recapitalization, forward or reverse
stock split, reorganization, merger or other business combination, or similar corporate transaction, in order to prevent dilution or enlargement
of the benefits or potential benefits provided under the 2020 Plan.
The 2020 Plan permits the following types of awards:
stock options, stock appreciation rights, restricted stock awards, restricted stock units, deferred stock units, performance awards, non-employee
director awards, other stock-based awards, and dividend equivalents.
As of June 30, 2021, the Company has granted 34,300
restricted shares pursuant to the 2020 Plan of which 300 are vested.
Common Stock
For the three months ended June 30, 2021, the Company
issued 294,042 shares of common stock as follows:
i) 80,522 shares in April 2021 pursuant
to a conversion of a $230,000 convertible note and $2,658 in accrued interest at a conversion rate of $2.89 per share;
ii) 4,500 shares in April 2021 pursuant
to a warrant holder’s exercise of warrants for purchase with a strike price of $4.44 per share for cash proceeds of $40,000.
iii) 36,915 shares in May 2021 pursuant
to John Lai’s (CEO and a Director of the Company) cashless exercise of a warrant for purchase of 42,188 shares of common stock at
a strike price of $1.33 per share;
iv) 79,767 shares in May 2021 pursuant to
a warrant holder’s cashless exercise of a warrants for purchase of 139,286 shares of common stock at a strike price of $1.40 per
share;
v) 49,014 shares during May and June of
2021 in exchange for $343,098 in cash to accredited investors, including an officer and two directors of the Company at a price of $7.00
per share; and
vi) 43,324 shares in June 2021 pursuant
to a warrant holder’s cashless exercise of a warrant for purchase of 56,250 shares of common stock at a strike price of $2.22 per
share.
For the three months ended June 30, 2020, the Company
issued 50,000 shares of common stock as follows:
i) i) 30,000 shares valued at $32,453 and
recorded in Stock-based compensation to a service provider for video marketing services over a 6-month term; and
ii) 20,000 shares with a relative value
of $34,709 pursuant to a purchase of 20,000 units whereby a unit is made up of 1 share of common stock and ½ warrant. The value
of $34,709 along with the relative value of the warrants associated with this transaction of $17,291 ($52,000 total) was recorded during
the quarter ended March 31, 2020 to Common Stock Subscribed and moved to Additional Paid in Capital and Capital Stock upon receipt of
funds and issuance of shares of common stock during the quarter ended June 30, 2020.
Warrants
During the three months ended June 30, 2021, no warrants
were issued.
During the three months ended June 30, 2020, the Company
issued warrants to purchase a total of 206,873 shares of common stock as follows:
i) warrants issued for 10,000 shares, sold
at $17,291 to one investor using the Black-Scholes model, whereas the warrants vested immediately upon issuance and are exercisable at
$4.00 per share for 3 years from the grant date of April 6, 2020;
ii) warrants issued for 38,837 shares, valued
at $57,717 using the Black-Scholes model, to directors, officers and consultants at exercise prices between $1.40 and 1.60 per share with
a weighted average price per share of $1.52 per share; and
iii) warrants issued with debt for 158,036
shares, valued at $265,500 using the Black-Scholes model, to an investor and broker, whereby the relative value as described in Note 8
of $91,500 was recorded to Warrants issued in conjunction with convertible debt on the statement of equity; the warrants have a cashless
warrant exercise feature, are exercisable at $1.40 per share for a term of five years from the date of the grant of June 15, 2020 and
vested immediately.
These warrants’ values were arrived at by using
the Black-Scholes valuation model with the following assumptions:
i) an expected volatility of the Company’s
shares on the date of the grants of between approximately 350% and 433%, based on historical volatility.
ii) risk-free rates identical to the U.S.
Treasury 3-year and 5-year Treasury Bill rates on the date of the grants between 0.29% and 1.16%.
A summary of warrant activity for the year ending
March 31, 2021 and three-month period ending June 30, 2021 is as follows:
SCHEDULE OF WARRANT ACTIVITY
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Warrants
Exercisable
|
|
|
Weighted-
Average
Exercisable
Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2020
|
|
|
1,234,295
|
|
|
$
|
2.12
|
|
|
|
1,027,092
|
|
|
$
|
2.13
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued in conjunction with convertible debt
|
|
|
158,036
|
|
|
|
1.40
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Sold
|
|
|
10,000
|
|
|
|
4.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issued and granted
|
|
|
72,596
|
|
|
|
1.52
|
|
|
|
|
|
|
|
|
|
Exercised for cash
|
|
|
(205,946
|
)
|
|
|
(2.21
|
)
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
|
(142,313
|
)
|
|
|
(1.64
|
)
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(45,000
|
)
|
|
|
(3.78
|
)
|
|
|
|
|
|
|
|
|
Outstanding, March 31, 2021
|
|
|
1,081,668
|
|
|
|
2.02
|
|
|
|
881,982
|
|
|
|
2.00
|
|
Exercised for cash
|
|
|
(4,500
|
)
|
|
|
(8.89
|
)
|
|
|
|
|
|
|
|
|
Cashless warrant exercises
|
|
|
(237,724
|
)
|
|
|
(1.58
|
)
|
|
|
|
|
|
|
|
|
Cancelled
|
|
|
(108,000
|
)
|
|
|
(1.80
|
)
|
|
|
|
|
|
|
|
|
Outstanding, June 30, 2021
|
|
|
731,444
|
|
|
$
|
2.15
|
|
|
|
557,069
|
|
|
$
|
2.17
|
|
At June 30, 2021, the range of warrant prices for
shares under warrants and the weighted-average remaining contractual life is as follows:
SCHEDULE OF RANGE OF WARRANT PRICES
|
|
|
Warrants Outstanding
|
|
|
Warrants Exercisable
|
|
Range of Warrant
Exercise Price
|
|
|
Number of
Warrants
|
|
|
Weighted-
Average Exercise
Price
|
|
|
Weighted-
Average
Remaining
Contractual Life
(Years)
|
|
|
Number of
Warrants
|
|
|
Weighted-
Average
Exercise
Price
|
|
$1.20-$2.00
|
|
|
|
419,831
|
|
|
|
$1.35
|
|
|
|
4.68
|
|
|
|
397,331
|
|
|
|
$1.35
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2.01-4.00
|
|
|
|
207,938
|
|
|
|
2.48
|
|
|
|
3.09
|
|
|
|
56,063
|
|
|
|
3.15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
4.01-10.00
|
|
|
|
103,675
|
|
|
|
4.77
|
|
|
|
1.32
|
|
|
|
103,675
|
|
|
|
4.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
731,444
|
|
|
|
2.15
|
|
|
|
3.75
|
|
|
|
557,069
|
|
|
|
2.17
|
|
For the three months ended June 30, 2021 and 2020,
the total stock-based compensation on all instruments was $55,674 and $183,244, respectively. It is expected that the Company will recognize
expense after June 30, 2021 related to warrants issued, outstanding, and valued using the Black Scholes pricing model as of June 30, 2021
in the amount of approximately $104,000.
NOTE 16 – SUBSEQUENT EVENTS
In July of 2021, the Company sold an aggregate of
11,000 shares of common stock to 2 investors at a purchase price of $7 per share for total proceeds of $77,000.
On August 13, 2021, the Company sold an aggregate
of 2,500,000 units to the public at a price of $4.50 per unit, for total net proceeds of approximately $9,800,000, net of commissions
and estimated offering costs pursuant to an certain underwriting agreement dated August 10, 2021 between the Company and ThinkEquity,
a division of Fordham Financial Management, Inc. (the “Underwriter”). Each unit consists of one common share and one warrant
to purchase one common share. The Company granted the Underwriter an option for a period of 45 days to purchase up to an additional 375,000
shares and/or warrants, in any combination, to cover over-allotments, if any. On August 13, 2021, the Underwriter exercised its over-allotment
option to purchase an additional 375,000 Warrants. The Underwriter has retained the right to exercise the balance of its over-allotment
option within the 45-day period. The Company also granted the Underwriter warrants to purchase up to 125,000 shares of our common stock
in connection with this offering. The warrants granted with this offering have an exercise price of $5.625 and expire August 10, 2026.
In connection with the offering, the Company’s common stock and warrants began trading on the Nasdaq Stock Market LLC under the
symbols “PETV” and “PETVW,” respectively.