Quarterly Report (10-q)

Date : 11/19/2018 @ 10:51PM
Source : Edgar (US Regulatory)
Stock : Vilacto Bio Inc. (PC) (VIBI)
Quote : 0.000001  -0.000049 (-98.00%) @ 2:29PM

Quarterly Report (10-q)

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

   
[X] Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
   
  For the quarterly period ended September 30, 2018
   
[  ] Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934
   
For the transition period from __________ to__________
   
Commission File Number: 000-55023

 

Vilacto Bio, Inc.

(Exact name of registrant as specified in its charter)

   
Nevada 46-3883208
(State or other jurisdiction of incorporation or organization) (IRS Employer Identification No.)
 

Fabriksvej 48

4700 Naestved, Denmark

(Address of principal executive offices)
 
+1 (646) 893-7895
(Registrant’s telephone number)

 

_______________________________________________________

(Former name, former address and former fiscal year, if changed since last report)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. 

[X] Yes [ ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  [X] Yes [ ] No

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company.

 

   
[  ] Large accelerated filer [  ] Accelerated filer
[  ] Non-accelerated filer [X] Smaller reporting company
[X] Emerging growth company  

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). 

[ ] Yes [X] No

 

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 98,500,000 common shares as of November 19, 2018

 

   

 

TABLE OF CONTENTS
    Page

 

PART I – FINANCIAL INFORMATION

 

Item 1: Financial Statements 3
Item 2: Management’s Discussion and Analysis of Financial Condition and Results of Operations 4
Item 3: Quantitative and Qualitative Disclosures About Market Risk 7
Item 4: Controls and Procedures 7

 

PART II – OTHER INFORMATION

 

Item 1: Legal Proceedings 8
Item 1A: Risk Factors 8
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds 8
Item 3: Defaults Upon Senior Securities 8
Item 4: Mine Safety Disclosures 8
Item 5: Other Information 8
Item 6: Exhibits 8

 

  2  

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

 

Our financial statements included in this Form 10-Q are as follows:

 

F-1 Balance Sheets as of September 30, 2018 (unaudited) and March 31, 2018;
F-2 Statements of Operations for the three and six months ended September 30, 2018 and 2017 (unaudited);
F-3 Statements of Cash Flows for the six months ended September 30, 2018 and 2017 (unaudited); and
F-4 Notes to Financial Statements.

 

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended September 30, 2018 are not necessarily indicative of the results that can be expected for the full year.

 

  3  

 

VILACTO BIO INC.

BALANCE SHEETS

(UNAUDITED)

 

    September 30, 2018   March 31, 2018
Assets              
Current assets              
Cash   $ 143,180     $ 148,767
Accounts receivable     143       36
Inventory     99,727       100,413
Prepaid expenses     27,068       59,658
Total current assets     270,118       308,874
               
Fixed assets, net     8,038       —  
Intangible assets, net     5,368       896
               
Total assets     283,524       309,770
               
LIABILITIES AND STOCKHOLDERS' DEFICIT              
Current liabilities              
Accounts payable and accrued liabilities   $ 53,501     $ 35,780
Due to related parties     169,094       240,952
Convertible loans     302,201       32,607
Derivative liabilities     2,760,202       729,737
Loans     174,000       174,000
Loans from related parties     32,608       32,608
Total current liabilities     3,491,606       1,245,684
               
Total liabilities     3,491,606       1,245,684
               
Stockholders' equity (deficit)              
Common stock; $0.001 par value; 1,125,000,000 shares authorized; 90,000,000 and 90,000,000 shares issued and outstanding as of September 30, 2018 and  March 31, 2018, respectively     90,000       90,000
Additional paid-in capital     (22,000 )     (22,000)
Accumulated earnings (deficit)     (3,276,082 )     (1,003,914)
Total stockholders' equity (deficit)     (3,208,082 )     (935,914)
               
Total liabilities and stockholders' equity (deficit)   $ 283,524     $ 309,770

The accompanying notes are an integral part of these financial statements.

  F- 1  

 

VILACTO BIO INC.

STATEMENT OF OPERATIONS

(UNAUDITED) 

 

    For the Three Months Ended   For the Six Months Ended
    September 30, 2018   September 30, 2017   September 30, 2018   September 30, 2017
                 
Revenues   $ 950     $ —       $ 1,380     $ —  
                               
Cost of revenues     655       —         885       —  
                               
 Gross profit     295       —         495       —  
                               
Operating expenses                              
 Royalty expense     30,000       30,000       60,000       60,000
 Professional fees     30,244       11,997       51,139       34,782
 General and administrative expenses     50,587       15,238       117,173       34,253
 Depreciation and amortization expense     475       —         674       —  
Total operating expenses     111,306       57,235       228,986       129,035
                               
Loss from operations     (111,011 )     (57,235 )     (228,491 )     (129,035)
                               
Other income (expense)                              
 Gain (loss) on derivative liabilities     (1,912,729 )     —         (1,643,915 )     —  
 Loss on debt modification     (37,500 )     —         (37,500 )     —  
 Interest expense     (263,441 )     (1,626 )     (362,262 )     (2,856)
Total other income (expense)     (2,213,670 )     (1,626 )     (2,043,677 )     (2,856)
                               
Net income (loss)   $ (2,324,681 )   $ (58,861 )   $ (2,272,168 )   $ (131,891)
                               
Basic income (loss) per common share   $ (0.03 )   $ (0.00 )   $ (0.03 )   $ (0.00)
                               
Basic weighted average common hares outstanding     90,000,000       90,000,000       90,000,000       90,000,000

 

The accompanying notes are an integral part of these financial statements.

  F- 2  

 

VILACTO BIO INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    For the Six Months Ended
    September 30, 2018   September 30, 2017
Cash Flows from Operating Activities              
Net income (loss)   $ (2,272,168 )   $ (131,891)
Adjustments to reconcile net loss to net cash provided by operating activities:              
Depreciation and amortization     674       —  
Loss on derivative liability     1,643,915       —  
Loss on debt modifcation     37,500       —  
Amortization of debt discount     279,064       —  
Amortization of original issue discount     20,661       —  
Amortization of debt issuance costs     29,869       —  
Changes in assets and liabilities              
(Increase) decrease in accounts receivable     (107 )     —  
(Increase) decrease in prepaid expense     32,590       225
(Increase) decrease in inventory     686       (133,284)
Increase (decrease) in accounts payable     (68,928 )     164,799
Net cash from operating activities     (296,244 )     (100,151)
               
Cash Flows from investing              
Purchase of fixed assets     (8,184 )     —  
Purchase of intangible assets     (5,000 )     —  
Net cash used in investing activities     (13,184 )     —  
               
Cash Flows from Financing Activities              
Proceeds from promissory notes     —         42,500
Proceeds from convertible notes, net of debt issuance costs     349,050       —  
Payments on convertible notes     (60,000 )     —  
Advance from related parties     14,791       37,859
Net cash from financing activities     303,841       80,359
               
Net increase (decrease) in Cash     (5,587 )     (19,792)
               
Beginning cash balance     148,767       22,020
               
Ending cash balance   $ 143,180     $ 2,228
               
Supplemental disclosure of cash flow information              
Cash paid for interest   $ —       $ —  
Cash paid for tax   $ —       $ —  

 

The accompanying notes are an integral part of these financial statements.

  F- 3  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

1. ORGANIZATION AND LINE BUSINESS

 

The Company was originally incorporated under the laws of the state of Nevada on February 25, 2013. The Company is devoting substantially all of its present efforts to establish a new business and has had minimal revenues from operations to date.

 

On April 4, 2017, the Company entered into a license agreement (the “License Agreement”) with Pharma GP APS, a Company controlled by our CEO. (“Pharma GP”) and acquired an exclusive license to sell certain cosmetic products or ingredients covered by United States Patent No. US 8,637,075 in the territory of the United States.

 

As a result of the License Agreement, the Company is currently marketing a line of skin care products on its website at www.vilacto.com. These products include, lotions, skin care creams and gels, lip balms, foot creams and oils, and similar items.

 

2. BASIS OF PRESENTATION AND GOING CONCERN

 

The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the audited financial statements and notes thereto contained in the Company’s most recent Annual Financial Statements filed with the SEC on Form 10-K. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim period presented have been reflected herein. The results of operations for the interim period are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements which would substantially duplicate the disclosures contained in the audited financial statements for the most recent fiscal period, as reported in the Form 10-K, have been omitted.

 

Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $3,276,082 since its inception and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

 

3. SUMMARY OF SIGNIFICANT POLICIES

 

This summary of significant accounting policies of Vilacto Bio Inc. is presented to assist in understanding the Company’s financial statements. The financial statements and notes are representations of the Company’s management, who are responsible for their integrity and objectivity. These accounting policies conform to accounting principles generally accepted in the United States of America and have been consistently applied in the preparation of the financial statements.

 

Use of estimates The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Significant estimates include estimates used to review the Company’s goodwill, impairments and estimations of long-lived assets, revenue recognition on percentage of completion type contracts, allowances for uncollectible accounts, inventory valuation, and the valuations of non-cash capital stock issuances. The Company bases its estimates on historical experience and on various other assumptions that are believed to be reasonable in the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources.  Actual results may differ from these estimates under different assumptions or conditions.

 

  F- 4  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

Revenue Recognition – The Company recognizes revenue related to product sales when (i) the seller’s price is substantially fixed, (ii) shipment has occurred causing the buyer to be obligated to pay for product, (iii) the buyer has economic substance apart from the seller, and (iv) there is no significant obligation for future performance to directly bring about the resale of the product by the buyer as required by ASC 605 – Revenue Recognition. Cost of sales, rebates and discounts are recorded at the time of revenue recognition or at each financial reporting date. For the six months ended September 30, 2018 and 2017 the Company reported revenues of $1,380   and $0, respectively, respectively.

 

Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $143 and $36 at September 30, 2018, and March 31, 2018, respectively.

 

Cash and cash equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There was $143,180 and $148,767 in cash and cash equivalents as of September 30, 2018, and March 31, 2018, respectively.

 

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of September 30, 2018, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

 

Fair Value of Financial Instruments – The carrying amounts reflected in the balance sheets for cash, accounts payable and accrued expenses approximate the respective fair values due to the short maturities of these items. The Company does not hold any investments that are available-for-sale.

 

As required by the Fair Value Measurements and Disclosures Topic of the FASB ASC, fair value is measured based on a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value as follows: (Level 1) observable inputs such as quoted prices in active markets; (Level 2) inputs, other than the quoted prices in active markets, that are observable either directly or indirectly; and (Level 3) unobservable inputs in which there is little or no market data, which require the reporting entity to develop its own assumptions.

 

The three levels of the fair value hierarchy are described below:

 

Level 1: Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;

 

Level 2: Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability;

 

Level 3: Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).

 

  F- 5  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “ Compensation-Stock Compensation, ” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. As of September 30, 2018, the Company has not implemented an employee stock-based compensation plan.

 

Non-Employee Stock Based Compensation – The Company accounts for stock-based compensation awards issued to non-employees for services, as prescribed by ASC 718-10, at either the fair value of the services rendered, or the instruments issued in exchange for such services, whichever is more readily determinable, using the measurement date guidelines enumerated in ASC 505-50. The Company may issue compensatory shares for services including, but not limited to, executive, management, accounting, operations, corporate communication, financial and administrative consulting services.

 

Earnings (loss) per share – The Company reports earnings (loss) per share in accordance with Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification (“ASC”) 260-10 “ Earnings Per Share, ” which provides for calculation of “basic” and “diluted” earnings per share. Basic earnings per share includes no dilution and is computed by dividing net income or loss available to common stockholders by the weighted average common shares outstanding for the period. Diluted earnings per share reflect the potential dilution of securities that could share in the earnings of an entity. The calculation of diluted net loss per share gives effect to common stock equivalents; however, potential common shares are excluded if their effect is anti-dilutive.

 

Long-lived Assets – In accordance with the Financial Accounting Standards Board ("FASB") Accounts Standard Codification (ASC) ASC 360-10, "Property, Plant and Equipment," the carrying value of intangible assets and other long-lived assets is reviewed on a regular basis for the existence of facts or circumstances that may suggest impairment. The Company recognizes impairment when the sum of the expected undiscounted future cash flows is less than the carrying amount of the asset. Impairment losses, if any, are measured as the excess of the carrying amount of the asset over its estimated fair value.

 

Derivative Financial Instruments – The Company accounts for derivative instruments in accordance with the provisions of ASC 815 - Derivatives Hedging: Embedded Derivatives. ASC 815 establishes accounting and reporting standards for derivative instruments, including certain derivative instruments embedded in other contracts and for hedging activities.

 

The Company does not use derivative instruments to hedge exposures to cash flow, market or foreign currency risk. Terms in agreements are reviewed to determine whether or not they contain embedded derivatives that are required under ASC 815 to be accounted for and separated from the host contract, and recorded on the balance sheet at fair value. The fair value of derivative liabilities is required to be revalued at each reporting date, with the corresponding changes in fair value recorded in current period operating results.

 

Inventory  – Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market. The cost of our inventory includes the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product to our distribution centers.  Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The Company evaluates potentially excess and slow-moving inventories on a quarterly basis by evaluating turn rates, inventory levels and other factors, and records lower of cost or market reserves for such identified excess and slow-moving inventories. As of September 30, 2018, and March 31, 2018, no such reserve had been recorded.

 

  F- 6  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

Income taxes  – The Company accounts for its income taxes in accordance with FASB Codification Topic ASC 740-10, “ Income Taxes ”, which requires recognition of deferred tax assets and liabilities for future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and tax credit carry-forwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. 

 

Segment Reporting  – Operating segments are defined as components of an enterprise for which separate financial information is available and evaluated regularly by the chief operating decision maker, or decision-making group, in deciding the method to allocate resources and assess performance. The Company currently has one reportable segment for financial reporting purposes, which represents the Company's core business.

 

Recently Issued Accounting Pronouncements  – The Company has evaluated the all recent accounting pronouncements through ASU 2018-18, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows except as discussed below.

 

Revenue from Contracts with Customers . In May 2014, the FASB issued Accounting Standards Update No. 2014-09 (“ASU 2014-09”), which supersedes nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration to which an entity expects to be entitled for those goods or services. ASU 2014-09 defines a five-step process to achieve this core principle and, in doing so, more judgment and estimates may be required within the revenue recognition process than are required under existing U.S. GAAP. Additionally, the new guidance requires enhanced disclosures about the nature, amount, timing, and uncertainty of revenue and cash flows arising from customer contracts, including revenue recognition policies to identify performance obligations, assets recognized from costs incurred to obtain and fulfill a contract, and significant judgments in measurement and recognition.

 

In July 2015, the FASB made a decision to defer the effective date of the new standard for one year and permit early adoption as of the original effective date.  The Company has reviewed its revenue streams and does not believe that the adoption of this standard has a material effect on its revenue recognition in 2017 or 2018.

 

4. INVENTORY

 

Inventory consist of the following as of September 30, 2018 and March 31, 2018:

 

    September 30, 2018   March 31, 2018
Raw materials   $ —       $ —  
Finished Goods     99,727       100,413
 Total   $ 99,727     $ 100,413

 

5. PREPAID EXPENSES

Prepaid expenses consist of the following as of September 30, 2018 and March 31, 2018:

 

    September 30, 2018   March 31, 2018
Prepaid Marketing   $ 27,068     $ 59,568
Total prepaid expenses   $ 27,068     $ 59,568

 

6. INTANGIBLE ASSETS

 

Patents and trademarks and other intangible assets are capitalized at their historical cost and are amortized over their estimated useful lives.

 

Intangible assets consist of the following as of September 30, 2018 and March 31, 2018:

 

    September 30, 2018   March 31, 2018
Patents and trademarks     920       920
Website     5,000       —  
Less: accumulated depreciation     (552 )     (24)
Fixed assets, net of accumulated depreciation     5,368       896

 

Amortization expense for the six months ended September 30, 2018 and 2017 was $528 and $0, respectively.

 

  F- 7  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

7. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:   September 30, 2018
     

Auctus Fund, LLC

On February 26, 2018, we entered into a Securities Purchase Agreement (the “Auctus SPA”), under which we agreed to sell a 12% convertible promissory note in an aggregate principal amount of $167,750 (the “Auctus Note”) to Auctus Fund, LLC (“Auctus”). The Auctus Note will bear interest at a rate of 12% per annum and will mature on November 26, 2018. The net proceeds of the sale of the Auctus Note, after deducting the expenses payable by were $150,000.

 

At any time after the issue date of the Auctus Note, Auctus has the option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the Auctus Note into shares of our common stock at the Conversion Price. The “Conversion Price” will be the lesser of (i) the lowest trading price of our common stock during the twenty-five-day trading period prior to the issue date of the Auctus Note and (ii) 50% of the lowest trading price of our common stock during the twenty-five-day trading period prior to the conversion. The Conversion Price is subject to further reduction upon certain events specified in the Auctus Note.

 

We have the right to prepay the Auctus Note at any time until the 180th calendar day after the issue date of the Auctus Note, in an amount equal to 150% (or 135% if we prepay the Auctus Note on or before the date that is 90 days after the issue date of the Auctus Note) of the outstanding balance of the Auctus Note (including principal and accrued and unpaid interest). We may not prepay the Auctus Note after the 180th calendar day after the issue date of the Auctus Note. We will be subject to a liquidated damages charge of 25% of the outstanding principal amount of the Auctus Note if we effect certain exchange transactions in accordance with, based upon or related or pursuant to Section 3(a)(10) of the Securities Act. In addition, the Auctus Note grants Auctus the right to update the terms of the Auctus SPA and the Auctus Note to incorporate the terms of any future transaction document related to a security issuance by us to a third party that are more favorable to the third party than the terms of the Auctus SPA and the Auctus Note.

 

Any amounts due and payable to Auctus under the terms of the Auctus Note, including any payment on an event of default, default interest, or agreed upon liquidated damages may, at the Auctus's option, be converted into shares of our common stock at the Conversion Price.

 

Pursuant to a Registration Rights Agreement, we are required to register 30,000,000 shares into which the Auctus Note may be converted.

 

During the six months ending September 30, 2018 the Company recorded interest of $10,093

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $112,447 during the six months ended September 30, 2018.

 

$ 167,750
Unamortized debt discount   (35,025)
Total, net of unamortized discount   132,725

 

EMA Financial, LLC

On February 23, 2018 we entered into a Securities Purchase Agreement (“EMA SPA”) with EMA Financial, LLC, a Delaware limited liability company (“EMA”), pursuant to which we issued and sold to EMA a convertible promissory note, dated February 23, 2018 in the principal amount of $125,000 (the “EMA Note”). In connection with the foregoing, we also entered into a Registration Rights Agreement with the Purchaser dated February 23, 2018 (the “Registration Rights Agreement”).

 

The EMA Note as amended, is due February 23, 2019, bears interest at the rate of 12% per annum. All principal and accrued interest on the EMA Note is convertible into shares of our common stock at the election of EMA at any time at a conversion price equal to the lesser of (i) the trading price for our common stock on the trading day prior to the closing date of the EMA Note, or (ii) a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion.

 

We have the right to prepay the EMA Note within 90 days of the closing date at a premium of 135% of all amounts owed to EMA and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the EMA Note more than 180 days after the closing date.

 

The EMA Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

Pursuant to the Registration Rights Agreement, we are required to register 30,000,000 shares into which the EMA Note may be converted.

 

During the six months ending September 30, 2018 the Company recorded interest of $5,901.

 

On July 6, 2018 the Company executed an amendment to the promissory note to cure certain events of default in which it agreed to increase the principal balance of the note by $37,500 and pay $25,000 in principal to the lender within 5 days of execution of the amendment. The company treated the amendment as a debt modification under ASC 470 and recorded a corresponding loss on debt modification of $37,500.

 

In July 2018, the Company made principal and interest payments of $60,000 on the outstanding convertible note with EMA financial, LLC.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $126,572   during the six months ended September 30, 2018.

  102,500  
Unamortized debt discount   (23,599)
Total, net of unamortized discount   78,901
     

Adar Bays, LLC July 2, 2018 Secured Convertible Note

On July 2, 2018 we entered into a Secured Convertible note with Adar Bays, LLC (“Adar”) pursuant to which we issued a convertible promissory note, dated July 2, 2018 in the principal amount of $150,000 (the “July 2, 2018 Adar Note”).

 

The July 2, 2018 Adar Note, is due July 2, 2019, bears interest at the rate of 10% per annum. All principal and accrued interest on the July 2, 2018 Adar Note is convertible into shares of our common stock at the election of Adar six months after the issuance date at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion.

 

We can pay the note in cash within the first six months of issuance, we have no right to prepay the July 2, 2018 Adar Note six months and one day after issuance.

 

The July 2, 2018 Adar Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

During the six months ending September 30, 2018 the Company recorded interest of $3,699.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $36,986 during the six months ended September 30, 2018.

 

 

  150,000
Unamortized debt discount   (113,014)
Total, net of unamortized discount   36,986
     

GS Capital Partners, LLC Convertible Note

On July 11, 2018 we entered into a Convertible note with GS Capital Bays, LLC (“GS”) pursuant to which we issued a convertible promissory note, dated July 11, 2018 in the principal amount of $110,000 (the “GS Note”).

 

The GS Note, is due July 11, 2019, bears interest at the rate of 10% per annum. All principal and accrued interest on the GS Note is convertible into shares of our common stock at the election of GS at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion.

 

We have the right to prepay the GS Note within 60 days of the closing date at a premium of 125% of all amounts owed to GS and at a premium of 135% if prepaid more than 60 but less than 120 days following the closing date, at a premium of 145% if prepaid more than 120 but less than 180 days following the closing date. We have no right to prepay the GS Note more than 180 days after the closing date.

 

The GS Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

During the six months ending September 30, 2018 the Company recorded interest of $2,441.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $24,411 during the six months ended September 30, 2018.

 

 

  110,000
Unamortized debt discount   (85,589)
Total, net of unamortized discount   24,411
     

Eagle Equities, LLC Convertible Note

On July 20, 2018 we entered into a Convertible note with Eagle Equities, LLC (“Eagle”) pursuant to which we issued a convertible promissory note, dated July 20, 2018 in the principal amount of $100,000 (the “Eagle Note”).

 

The Eagle Note, is due July 20, 2019, bears interest at the rate of 10% per annum. All principal and accrued interest on the Eagle Note is convertible into shares of our common stock at the election of Eagle at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion.

 

We have the right to prepay the Eagle Note within 90 days of the closing date at a premium of 135% of all amounts owed to GS and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the Eagle Note more than 180 days after the closing date.

 

The Eagle Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

During the six months ending September 30, 2018 the Company recorded interest of $1,973.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $19,726 during the six months ended September 30, 2018.

 

  100,000
Unamortized debt discount   (80,274)
Total, net of unamortized discount   19,726
     

Adar Bays, LLC July 23, 2018 Secured Convertible Note

On July 23, 2018 we entered into a Secured Convertible note with Adar Bays, LLC (“Adar”) pursuant to which we issued a convertible promissory note, dated July 23, 2018 in the principal amount of $50,000 (the “Adar Note”).

 

The Adar Note, is due July 23, 2019, bears interest at the rate of 10% per annum. All principal and accrued interest on the Adar Note is convertible into shares of our common stock at the election of Adar at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion.

 

We have the right to prepay the Adar Note within 90 days of the closing date at a premium of 135% of all amounts owed to Adar and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the Adar Note more than 180 days after the closing date.

 

The Adar Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

During the six months ending September 30, 2018 the Company recorded interest of $945.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $9,452 during the six months ended September 30, 2018.

 

 

  50,000
Unamortized debt discount   (40,548)
Total, net of unamortized discount   9,452
     
Total $ 302,201

 

  F- 8  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

Derivative liability

The Company accounts for the fair value of the conversion features of its convertible debt in accordance with ASC Topic No. 815-15 “Derivatives and Hedging; Embedded Derivatives” (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations. The Company values the embedded derivatives using the Black-Scholes pricing model.

 

The following table presents a summary of the Company’s derivative liabilities associated with its convertible notes as of September 30, 2018:

 

    Amount
Balance March 31, 2017   —  
Debt discount originated from derivative liabilities     262,500
Initial loss recorded     170,924
Adjustment to derivative liability due to debt settlement     —  
Change in fair market value of derivative liabilities     296,313
Balance March 31, 2018   $ 729,737
Debt discount originated from derivative liabilities     349,050
Initial loss recorded     409,237
Adjustment to derivative liability due to debt settlement     —  
Change in fair market value of derivative liabilities     1,272,178
Balance September 30, 2018   $ 2,760,202

 

The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible notes and at March 31, 2018 and September 30, 2018:

 

Fair value assumptions – derivative notes:   February 23, 2018   February 26, 2018   March 31, 2018   July 2, 2018   July 11,   2018   July 20, 2018   July 23, 2018   September 30, 2018
Risk free interest rate     2.02 %     2.03 %     2.09 %     2.34 %     2.36 %     2.41 %     2.42 %     2.59%
Expected term (years)     1.0       .75       0.66 -.90       1.0       1.0       1.0       1.0       0.16-0.81
Expected volatility     188.62 %     188.72 %     199.58 %     170.90 %     171.08 %     172.31 %     172.42 %     192.16%
Expected dividends     0       0       0       0       0       0       0       0

 

8. LOANS PAYABLE

 

On January 8, 2018, the Company and four lenders assigned the rights and obligations of a total of $174,500 in promissory notes to a new lender, the terms of the note were unchanged. The notes bear interest at a rate of 5% per annum and is due within two business days of demand notice. During the six months ending September 30, 2018 the Company recorded interest of $4,361.

 

  F- 9  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

9. STOCKHOLDERS’ EQUITY

 

On March 6, 2017, our board of directors resolved to increase the number of authorized shares of our common stock, par value $0.001, from 75,000,000 shares to 1,125,000,000 shares. Correspondingly, our board of directors affirmed a forward split of 15 for 1 in which each shareholder will be issued 15 common shares in exchange for 1 common share of their currently issued common stock. In accordance with ASC 505-20 all stock-related information presented in these financial statements and accompanying footnotes has been retroactively adjusted to reflect the number of shares resulting from this action.

 

Prior to approval of the forward split, we had a total of 6,000,000 issued and outstanding common shares, par value $0.001. On the effective date of the forward split, we had a total of 90,000,000 issued and outstanding common shares, par value $0.001.

 

Overview

 

The Company is authorized to issue 1,125,000,000 shares of $0.001 par value common stock. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

 

As of September 30, 2018, there were 90,000,000 shares of common stock issued and outstanding.

 

Stock purchase agreement

On April 19, 2017, we entered into a Stock Purchase Agreement (the “Agreement”) with Pharma GP APS, a Denmark corporation controlled by our CEO (“Pharma GP”) and its sole shareholder, 9 Heroes APS, a Denmark corporation controlled by our CEO. In accordance with the terms of the Agreement, we agreed to purchase all of the outstanding shares of Pharma GP for the purchase price (the “Purchase Price”) of $6,000,000, payable as $3,000,000 in cash and the balance in shares of our common stock.

 

The foregoing description of the Agreement is qualified in its entirety by reference to the full text of the Agreement, which is included as an exhibit our Current Report on Form 8-K filed on April 20, 2017 and is incorporated by reference herein.

 

On November 8, 2018, the Company and Pharma GP APS, a Denmark corporation controlled by our CEO (“Pharma GP”) and its sole shareholder, 9 Heroes APS, a Denmark corporation controlled by our CEO entered into a release and termination agreement. In accordance with the agreement all parties are mutually released from there commitments under the April 19, 2017 agreement.

 

10. RELATED PARTY TRANSACTIONS

 

In connection with an assumption of the debt agreement the Company executed a $32,608 promissory note with Mr. Anderson which bears interest at a rate of 10% per annum. During the six months ending September 30, 2018 the Company recorded interest of $1,635.

 

During the six months ending September 30, 2018, Gert Anderson, the President and CEO of the Company advanced $14,791 to the Company to pay expenses on behalf of the Company. As of September 30, 2018, $65,157 in advances remain outstanding. The advances bear no interest, are unsecured, and are due on demand.

 

On July 16, 2018 the Company made a payment of $133,284 to Pharma GP, an entity controlled by our CEO to settle amounts owned under outstanding accounts payable.

 

  F- 10  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

11. ROYALTY AGREEMENT

 

License agreement

 

On April 4, 2017, we entered into a license agreement (the “License Agreement”) with Pharma GP APS, a Company controlled by our CEO. (“Pharma GP”) and acquired an exclusive license to sell certain cosmetic products or ingredients covered by United States Patent No. US 8,637,075 in the territory of the United States.

 

For the license, we agreed to pay to GP a royalty of eight percent (8%) on the selling price (irrespective of any taxes, custom duties, costs of insurance, transportation costs or other costs) for all licensed product we sell in the United States (if in excess of the agreed minimum royalty), or pay the agreed minimum royalty of $10,000 per month. During the six months ending September 30, 2018 , the Company recorded royalty expense of $60,000 related to this agreement.

 

Under the License Agreement, we have the ability to sublicense to third parties under the royalty arrangement described above.

 

12. SUBSEQUENT EVENTS

 

The Company has evaluated events subsequent to the balance sheet through the issuance date of these financial statements in accordance with FASB ASC 855 and has determined that there are no such events that would require adjustment to, or disclosure in, the financial statements except as disclosed below.

 

Power UP Lending Group Convertible Note – October 15, 2018

On October 15, 2018 we entered into a Convertible note with Power UP Lending Group LTD (“Power UP”) pursuant to which we issued a convertible promissory note, dated October 15, 2018 in the principal amount of $128,000 (the “Power UP Note”).

 

The Power UP Note, is due October 15, 2019, bears interest at the rate of 8% per annum. All principal and accrued interest on the Power UP Note is convertible into shares of our common stock 180 days following October 15, 2018 at a conversion price equal to a 37% discount to the lowest trading or lowest closing bid price for our common stock during the 15-trading day period immediately prior to conversion.

 

We have the right to prepay the Power UP Note within 30 days of the closing date at a premium of 112% of all amounts owed to Power UP and at a premium of 117% if prepaid more than 31 but less than 60 days following the closing date and at a premium of 122% if prepaid more than 61 but less than 90 days following the closing date and at a premium of 127% if prepaid more than 91 but less than 120 days following the closing date and at a premium of 132% if prepaid more than 121 but less than 150 days following the closing date and at a premium of 137% if prepaid more than 151 but less than 180 days following the closing date. We have no right to prepay the Power UP Note more than 180 days after the closing date.

 

The Power UP Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

Power UP Lending Group Convertible Note – November 6, 2018

On October 15, 2018 we entered into a Convertible note with Power UP Lending Group LTD (“Power UP”) pursuant to which we issued a convertible promissory note, dated October 15, 2018 in the principal amount of $53,000 (the “Power UP Note-2”).

 

The Power UP Note-2, is due November 6, 2019, bears interest at the rate of 8% per annum. All principal and accrued interest on the Power UP Note-2 is convertible into shares of our common stock 180 days following October 15, 2018 at a conversion price equal to a 39% discount to the lowest trading or lowest closing bid price for our common stock during the 15-trading day period immediately prior to conversion.

 

We have the right to prepay the Power UP Note within 30 days of the closing date at a premium of 112% of all amounts owed to Power UP and at a premium of 117% if prepaid more than 31 but less than 60 days following the closing date and at a premium of 122% if prepaid more than 61 but less than 90 days following the closing date and at a premium of 127% if prepaid more than 91 but less than 120 days following the closing date and at a premium of 132% if prepaid more than 121 but less than 150 days following the closing date and at a premium of 137% if prepaid more than 151 but less than 180 days following the closing date. We have no right to prepay the Power UP Note more than 180 days after the closing date.

 

  F- 11  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

SEPTEMBER 30, 2018

(UNAUDITED)

 

The Power UP Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties.

 

Termination of Stock purchase agreement – November 8, 2018

As previously disclosed, on April 19, 2017, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Pharma GP APS, a Denmark corporation (“Pharma GP”) and its sole shareholder, 9 Heroes APS, a Denmark corporation, pursuant to which we agreed to purchase all of the outstanding shares of Pharma GP for the purchase price of $6,000,000.00, payable as $3,000,000.00 in cash and the balance in shares of our common stock.

 

The closing of the Purchase Agreement was originally scheduled to occur on May 31, 2017; however, we have been unable to raise money needed to pay the purchase price under the Purchase Agreement; As a result of the difficulties in raising capital to finance the Purchase Agreement transaction, the parties have decided to terminate and release each other and otherwise settle, compromise, dispose of, and release with finality, all claims, demands and causes of action, arising out of the Purchase Agreement dated April 19, 2017.

 

As such, on November 8, 2019, the parties entered into a Termination and Release Agreement (the “Termination Agreement”) to terminate the Purchase Agreement and release each other from the obligations under the Purchase Agreement.

 

Asset Purchase Agreement – November 8, 2018

 

Also on November 8, 2018, we entered into an Asset Purchase Agreement with 9 Heroes APS, a Denmark corporation that is controlled by our CEO, Gert Andersen, to purchase certain patents applications and intellectual property. We formed a new wholly owned subsidiary, Vilacto BioIP, LLC, to hold the assets acquired in the Asset Purchase Agreement.

 

The patent applications and intellectual property include the following:

 

  • United States Patent Application # 8,637,075 entitled “Colostrum Composition”;
  • European Patent Application # EP2341916 entitled “Colostrum Composition”;
  • Hong Kong Patent Application # HK1159997 entitled “Colostrum Composition”; and
  • Canada Patent Application # 2,773,277 entitled “Colostrum Composition.”

These patent applications are describing the particle, development and use, of a nanoparticle composition comprised of (1) colostrum and (2) at least one agent selected from a group of hydrocolloids , such as hyaluronic acid, which is useable for a wide range of applications. We also secured domains names including Lactoactive and Vilact.

 

In consideration for the assets, we agreed to pay 9 Heroes APS the purchase price of $3,360,000 USD, payable in an 8% secured promissory note (the “Note”) with a face amount of $2,000,000 and the balance in our common stock, consisting of 8,500,000 shares of our common stock. We closed the transaction on November 8 2018.

 

The Note matures in five years from execution, is convertible into common shares equal to the average of the closing market prices for our common stock on the OTCQB during five (5) trading days immediately preceding the due date for such payment, and is secured by all assets of our company.   

 

We plan to use the assets acquired to expand the reach of our opportunities in doing business internationally. We currently only have a license from Pharma GP to reach customers in the United States. By acquiring these patent applications, we are better presented as a company with international IP solutions, which we believe will make us more attractive as an international biotech/pharma company and developer.

 

  F- 12  

 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Forward-Looking Statements

Certain statements, other than purely historical information, including estimates, projections, statements relating to our business plans, objectives, and expected operating results, and the assumptions upon which those statements are based, are “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995, Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements generally are identified by the words “believes,” “project,” “expects,” “anticipates,” “estimates,” “intends,” “strategy,” “plan,” “may,” “will,” “would,” “will be,” “will continue,” “will likely result,” and similar expressions. We intend such forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements are based on current expectations and assumptions that are subject to risks and uncertainties which may cause actual results to differ materially from the forward-looking statements. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions, legislative/regulatory changes, availability of capital, interest rates, competition, and generally accepted accounting principles. These risks and uncertainties should also be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Further information concerning our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

 

Company Overview

 

We are a biotech company based in Denmark that has acquired a license to a patented molecule, known as the Lactoactive molecule, which has in numerous studies demonstrated above average effect in treating conditions such as inflammatory diseases, diabetics, psoriasis, and skin issues in different levels. We aim to further develop our Lactoactive molecule for the purpose of increasing the quality of our retail and medical skin cream products as well as developing products for medical applications.

 

We are currently marketing a line of our skin care products on our website at www.vilacto.com. These products include, lotions, skin care creams and gels, lip balms, foot creams and oils, and similar items. We have entered into an affiliate network program with Rakuten / LinkShare, whereby other websites in the industry will post links to our website.

 

We signed a license agreement with have Carmen Electra endorse our skin care products. On August 29, 2017, we signed an agreement with Rakuten Super Logistics (known as RSL) to handle our inventory, fulfillment and shipment. In June 2017, we upgraded our production facility to included additional storage containers, improved mixing machines and upscale filtration units. We have also attended skin care products to market our products to the industry.

 

On April 4, 2017, we entered into a license agreement (the “License Agreement”) with Pharma GP ApS. (“Pharma GP”) and acquired an exclusive license to sell certain cosmetic products or ingredients covered by United States Patent No. US 8,637,075 in the territory of the United States.

 

For the license, we agreed to pay to GP a royalty of eight percent (8%) on the selling price (irrespective of any taxes, custom duties, costs of insurance, transportation costs or other costs) for all licensed product we sell in the United States (if in excess of the agreed minimum royalty), or pay the agreed minimum royalty of USD$ 10,000 per month.

Under the License Agreement, we have the ability to sublicense to third parties under the royalty arrangement described above.

As previously disclosed, on April 19, 2017, we entered into a Stock Purchase Agreement (the “Purchase Agreement”) with Pharma GP APS, a Denmark corporation (“Pharma GP”) and its sole shareholder, 9 Heroes APS, a Denmark corporation, pursuant to which we agreed to purchase all of the outstanding shares of Pharma GP for the purchase price of $6,000,000.00, payable as $3,000,000.00 in cash and the balance in shares of our common stock.

The closing of the Purchase Agreement was originally scheduled to occur on May 31, 2017; however, we have been unable to raise money needed to pay the purchase price under the Purchase Agreement;

  4  

As a result of the difficulties in raising capital to finance the Purchase Agreement transaction, the parties have decided to terminate and release each other and otherwise settle, compromise, dispose of, and release with finality, all claims, demands and causes of action, arising out of the Purchase Agreement dated April 19, 2017.

As such, on November 8, 2018, the parties entered into a Termination and Release Agreement (the “Termination Agreement”) to terminate the Purchase Agreement and release each other from the obligations under the Purchase Agreement.

Also on November 8, 2018, we entered into an Asset Purchase Agreement with 9 Heroes APS, a Denmark corporation that is controlled by our CEO, Gert Andersen, to purchase certain patents applications and intellectual property. We formed a new wholly owned subsidiary, Vilacto BioIP, LLC, to hold the assets acquired in the Asset Purchase Agreement.

The patent applications and intellectual property include the following:

§ United States Patent Application # 8,637,075 entitled “Colostrum Composition”;
§ European Patent Application # EP2341916 entitled “Colostrum Composition”;
§ Hong Kong Patent Application # HK1159997 entitled “Colostrum Composition”; and
§ Canada Patent Application # 2,773,277 entitled “Colostrum Composition.”

These patent applications are describing the particle, development and use, of a nanoparticle composition comprised of (1) colostrum and (2) at least one agent selected from a group of hydrocolloids, such as hyaluronic acid, which is useable for a wide range of applications. We also secured domains names including Lactoactive and Vilact.

In consideration for the assets, we agreed to pay 9 Heroes APS the purchase price of $3,360,000 USD, payable in an 8% secured promissory note (the “Note”) with a face amount of $2,000,000 and the balance in our common stock, consisting of 8,500,000 shares of our common stock. We closed the transaction on November 8, 2018.

The Note matures in five years from execution, is convertible into common shares equal to the average of the closing market prices for our common stock on the OTCQB during five (5) trading days immediately preceding the due date for such payment, and is secured by all assets of our company.

We plan to use the assets acquired to expand the reach of our opportunities in doing business internationally. We currently only have a license from Pharma GP to reach customers in the United States. By acquiring these patent applications we are better presented as a company with international IP solutions, which we believe will make us more attractive as an international biotech/pharma company and developer.

We intend to focus on our new pharmaceutical product, LACTOACTIVE iTHER®, as another potential revenue stream for the company along with its Vilact® brand of skin creams. LACTOACTIVE iTHER® is a new LACTOACTIVE variant that combines potent immune-system enhancement with a proven nanoparticle drug delivery system.

 

Our own research suggests that LACTOACTIVE iTHER® could contribute significantly to emerging therapies for treating a number of diseases, including cancer, immunodeficiency disorders, osteoarthritis, psoriasis, thrombocytopenia and vitiligo. The product is currently in the development stage and has not been approved for use by the FDA or any foreign agency.

 

Results of Operation for Three Months Ended September 30, 2018 and 2017

 

Revenues

 

We generated $950 in revenue for the three months ended September 30, 2018, as compared with $0 for the three months ended September 30, 2017. We generated $1,380 in revenue for the six months ended September 30, 2018, as compared with $0 for the six months ended September 30, 2017. We can provide no assurance that we will generate sufficient revenues from our skin care business to sustain a viable business operation. We recently entered into an Asset Purchase Agreement that we believe will increase our revenues as we are now able to reach internationally with products supported by our newly acquired patent applications. These new products are expected to include an anti-aging cosmetic line, creams for psoriasis and diabetes creams. We are also working in patch and glue for patch/band aids.

 

  5  

 

Operating Expenses

 

Operating expenses increased to $111,306 for the three months ended September 30, 2018 from $57,235 for the three months ended September 30, 2017. Operating expenses increased to $228,986 for the six months ended September 30, 2018 from $129,035 for the six months ended September 30, 2017.

 

Our operating expenses for the six months ended September 30, 2018 mainly consisted of general and administrative expenses of $117,173, royalty expense of $60,000 and professional fees of $51,139. Our operating expenses for the six months ended September 30, 2017 consisted of royalty expense of $60,000, professional fees of $34,782 and general and administrative expenses of $34,253.

 

Other Expenses

 

We had other expenses of $2,213,670 for the three months ended September 30, 2018, compared with other expenses of $1,626 for the three months ended September 30, 2017. We had other expenses of $2,043,677 for the six months ended September 30, 2018, compared with other expenses of $2,856 for the six months ended September 30, 2017.

 

Our other expenses for the six months ended September 30, 2018 is mainly the result of a $1,643,915 loss on derivative liabilities and $362,262 in interest expense. Our other expenses for the same period ended 2017 is a result of interest expense.

 

We expect that interest expenses will increase in future quarters as we take on more debt to fund out operations.

 

Net Loss

 

We recorded a net loss for the three months ended September 30, 2018 of $2,324,681 compared to a net loss of $58,861 for the three months ended September 30, 2017. We recorded a net loss for the six months ended September 30, 2018 of $2,272,168 compared to a net loss of $131,891 for the six months ended September 30, 2017.

 

Liquidity and Capital Resources

 

As of September 30, 2018, we had current assets of $270,118 consisting of cash, accounts receivable, inventory and prepaid expenses. Our total current liabilities as of September 30, 2018 were $3,491,606. We therefore had a working capital deficit of $3,221,488 of September 30, 2018.

 

Operating activities used $296,244 in cash for the six months ended September 30, 2018, as compared with cash used of $100,151 for the same period ended 2017. Our negative operating cash flow for the six month ended September 30, 2018 was mainly the result of our net loss for the period, offset by the loss on derivative liability. In contract, our negative operating cash flow for the six month ended September 30, 2017 was mainly the result of an increase in inventory and net loss for the period, offset by a decrease in accounts payable.

 

Investing activities used $13,184 in cash for the six months ended September 30, 2018, as a result of the purchase of fixed and intangible assets. We had no cash used in investing activities for the same period ended 2017.

 

Financing activities provided $303,841 for the six months ended September 30, 2018, as compared with cash provided of $80,359 for the same period ended 2017. Our positive financing cash flow for the three months ended September 30, 2018 was mainly the result of proceeds from convertible notes and related party advances. Our positive financing cash flow for the six months ended September 30, 2017 was mainly the result of advances from related parties and proceeds from promissory notes.

 

The terms of the convertible promissory notes are contained in our footnotes to financial statements.

 

Despite the short term loans, we have insufficient cash to operate our business at the current level for the next twelve months and insufficient cash to achieve our business goals. The success of our business plan beyond the next 12 months is contingent upon us obtaining additional financing. We intend to fund operations through debt and/or equity financing arrangements, which may be insufficient to fund our capital expenditures, working capital, or other cash requirements. We do not have any formal commitments or arrangements for the sales of stock or the advancement or loan of funds at this time. There can be no assurance that such additional financing will be available to us on acceptable terms, or at all.

 

  6  

 

Off Balance Sheet Arrangements

 

As of September 30, 2018, there were no off balance sheet arrangements.

 

Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate our continuation as a going concern. However, we have limited revenues as of September 30, 2018. We currently have negative working capital, and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

Management anticipates that we will be dependent, for the near future, on additional investment capital to fund operating expenses. We intend to position the company so that we may be able to raise additional funds through the capital markets. In light of management’s efforts, there are no assurances that we will be successful in this or any of our endeavors or become financially viable and continue as a going concern.

 

Critical Accounting Policies

 

In December 2001, the SEC requested that all registrants list their most “critical accounting polices” in the Management Discussion and Analysis. The SEC indicated that a “critical accounting policy” is one which is both important to the portrayal of a company’s financial condition and results, and requires management’s most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain.

 

Our critical accounting policies are set forth in Note 3 to the financial statements.

 

Recently Issued Accounting Pronouncements

 

We do not expect the adoption of recently issued accounting pronouncements to have a significant impact on our results of operations, financial position or cash flow.

 

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

 

A smaller reporting company is not required to provide the information required by this Item.

 

Item 4.  Controls and Procedures

 

Disclosure Controls and Procedures

 

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of September 30, 2018.  This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer.  Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of September 30, 2018, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

 

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of September 30, 2018, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

 

Remediation Plan to Address the Material Weaknesses in Internal Control over Financial Reporting

 

Our Company plans to take steps to enhance and improve the design of our internal controls over financial reporting.   To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending March 31, 2019: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting during the three months ended September 30, 2018 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

 

  7  

PART II – OTHER INFORMATION

 

Item 1. Legal Proceedings

 

We are not a party to any pending legal proceeding. We are not aware of any pending legal proceeding to which any of our officers, directors, or any beneficial holders of 5% or more of our voting securities are adverse to us or have a material interest adverse to us.

 

Item 1A. Risk Factors

 

See risk factors included in our Annual Report on Form 10-K for 2018.

 

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

 

We issued 8.500,000 shares of our common stock to 9 Heroes APS in connection with the Asset Purchase Agreement we entered into on November 8, 2018.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

None

 

Item 6. Exhibits

 

   
Exhibit Number

Description of Exhibit

 

31.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101** The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended September 30, 2018 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

 

  8  

 

SIGNATURES

 

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

 

   
 

Vilacto Bio, Inc.

 

Date:

November 19, 2018

 

By: /s/ Gert Andersen
  Gert Andersen
Title: President, Chief Executive Officer, and Director

 

  9  

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