Quarterly Report (10-q)

Date : 02/19/2019 @ 7:45PM
Source : Edgar (US Regulatory)
Stock : Vilacto Bio Inc. (PC) (VIBI)
Quote : 0.0001  0.0 (0.00%) @ 4:11PM

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 December 31, 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: 165,337,316 common shares as of February 13, 2019

 

   

 

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 9

 

  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 December 31, 2018 (unaudited) and March 31, 2018;
F-2 Statements of Operations for the three and nine months ended December 31, 2018 and 2017 (unaudited);
F-3 Statement of Stockholders’ Deficit as of December 31, 2018;
F-4 Statements of Cash Flows for the nine months ended December 31, 2018 and 2017 (unaudited); and
F-5 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 December 31, 2018 are not necessarily indicative of the results that can be expected for the full year.

 

  3  

 

VILACTO BIO INC.

BALANCE SHEETS

(UNAUDITED)  

 

    December 31, 2018     March 31, 2018
ASSETS              
Current assets              
Cash   $ 127,890     $ 148,767
Accounts receivable     43       36
Inventory     121,544       100,413
Prepaid expenses     10,684       59,658
Total current assets     260,161       308,874
               
Fixed assets, net     11,902       —  
Intangible assets, net     139,532       896
               
Total assets     411,595       309,770
               
LIABILITIES AND STOCKHOLDERS' DEFICIT              
Current liabilities              
Accounts payable and accrued liabilities   $ 168,184     $ 35,780
Due to related parties     68,106       240,952
Convertible loans     535,662       32,607
Derivative liabilities     1,635,995       729,737
Loans     174,000       174,000
Loans from related parties     2,032,608       32,608
Total current liabilities     4,614,555       1,245,684
               
Total liabilities     4,614,555       1,245,684
               
Stockholders' equity (deficit)              
Common stock; $0.001 par value; 1,125,000,000 shares authorized; 110,440,000 and 90,000,000 shares issued and outstanding as of December 31, 2018 and  March 31, 2018, respectively     110,440       90,000
Additional paid-in capital     2,034,619       (22,000)
Accumulated earnings (deficit)     (6,348,019 )     (1,003,914)
Total stockholders' equity (deficit)     (4,202,960 )     (935,914)
               
Total liabilities and stockholders' equity (deficit)   $ 411,595     $ 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 Nine Months Ended
    December 31, 2018   December 31, 2017   December 31, 2018   December 31, 2018
                 
Revenues   $ 1,260     $ 322     $ 2,640     $ —  
                               
Cost of revenues     659       103       1,544       —  
                               
 Gross profit     601       219       1,096       —  
                               
Operating expenses                              
 Royalty expense     10,000       30,000       70,000       90,000
 Professional fees     356,337       22,247       407,476       57,029
 General and administrative expenses     99,684       46,784       216,857       81,037
 Depreciation and amortization expense     3,392       9       4,066       9
Total operating expenses     469,413       99,040       698,399       228,075
                               
Loss from operations     (468,812 )     (98,821 )     (697,303 )     (228,075)
                               
Other income (expense)                              
 Gain (loss) on derivative liabilities     1,010,257       —         (633,658 )     —  
 Loss on disposal of assets     (6,118 )     —         (6,118 )     —  
 Loss on aquistion of related party assets     (3,242,070 )     —         (3,242,070 )     —  
 Loss on debt modification     —         —         (37,500 )     —  
 Interest expense     (365,194 )     (2,625 )     (727,456 )     (5,481)
Total other income (expense)     (2,603,125 )     (2,625 )     (4,646,802 )     (5,481)
                               
Net income (loss)   $ (3,071,937 )   $ (101,446 )   $ (5,344,105 )   $ (233,556)
                               
Basic income (loss) per common share   $ (0.03 )   $ (0.00 )   $ (0.06 )   $ (0.00)
                               
Basic weighted average common shares outstanding     97,770,330       90,000,000       92,571,273       90,000,000

 

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

  F- 2  

 

 VILACTO BIO INC.

STATEMENT OF STOCKHOLDERS DEFICIT

(UNAUDITED)

 

    Common Stock                      
      Shares       Amount       Additional Paid-in Capital       Accumulated Deficit       Total Stockholders' Deficit
Balance, March 31, 2017     90,000,000       90,000       (22,000.00 )     (110,797 )     (42,797)
Net loss     0       0       0       (893,117 )     (893,117)
Balance, March 31, 2018     90,000,000       90,000       (22,000 )     (1,003,914 )     (935,914)
Shares issued to related party to acquire intangible assets     8,500,000       8,500       1,368,500       —         1,377,000
Shares issued upon conversion of debts     4,440,000       4,440       367,386       —         371,826
Shares issued for services     7,500,000       7,500       320,733       —         328,233
Net loss     0       0       0       (5,344,105 )     (5,344,105)
Balance, December 31, 2018     110,440,000       110,440       2,034,619       (6,348,019 )     (4,202,960)

 

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

  F- 3  

 

VILACTO BIO INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

 

    For the Nine Months Ended
    December 31, 2018   December 31, 2017
Cash Flows from Operating Activities              
Net income (loss)   $ (5,344,105 )   $ (233,337)
Adjustments to reconcile net loss to net cash provided by operating activities:              
Depreciation and amortization     4,066       9
Loss on acquisition of related party assets     3,242,070       —  
Loss on derivative liability     633,658       —  
Loss on disposal of assets     6,118       —  
Loss on debt modification     37,500       —  
Stock based compensation     328,233       —  
Amortization of debt discount     617,086       —  
Changes in assets and liabilities              
(Increase) decrease in accounts receivable     (7 )     (70)
(Increase) decrease in prepaid expense     48,974       (64,775)
(Increase) decrease in inventory     (21,131 )     (133,876)
Increase (decrease) in accounts payable     (35,337 )     211,379
Net cash from operating activities     (482,875 )     (220,670)
               
Cash Flows from investing              
Purchase of fixed assets     (19,292 )     —  
Purchase of intangible assets     (6,500 )     (920)
Net cash used in investing activities     (25,792 )     (920)
               
Cash Flows from Financing Activities              
Proceeds from promissory notes     —         151,500
Proceeds from convertible notes, net of debt issuance costs     530,050       —  
Payments on convertible notes     (60,000 )     —  
Advance from related parties     17,740       55,389
Net cash from financing activities     487,790       206,889
               
Net increase (decrease) in Cash     (20,877 )     (14,701)
               
Beginning cash balance     148,767       22,020
               
Ending cash balance   $ 127,890     $ 7,319
               
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- 4  

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 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 $6,348,019 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- 5  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2018

(UNAUDITED)

 

Revenue Recognition – Upon adoption of ASC Topic 606, the Company revised its accounting policy on revenue recognition from the policy provided in the Notes to Consolidated Financial Statements included in our March 31, 2018 10-K. The revised accounting policy on revenue recognition is provided below.

 

We recognize revenue on agreements for the products we sell on a standardized basis for sale to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good. We use proof of delivery for large orders, whereas the delivery of most of our products is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).

 

In situations where arrangements include customer acceptance provisions based on seller or customer-specified objective criteria, we recognize revenue when we have concluded that the customer has control of the goods and that acceptance is likely to occur. We generally do not provide for anticipated losses on point in time transactions prior to transferring control of the equipment to the customer.

 

For the nine months ended December 31, 2018 and 2017 the Company reported revenues of $2,640 and $322 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 $0 and $36 at December 31, 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 $127,890 and $148,767 in cash and no cash equivalents as of December 31, 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 December 31, 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- 6  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 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 December 31, 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 December 31, 2018, and March 31, 2018, no such reserve had been recorded.

 

  F- 7  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 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  – In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning October 1, 2019. We do not expect the adoption of the standard will impact our financial position or results of operations.

 

The Company has evaluated all other recent accounting pronouncements, and believes that none of them will have a material effect on the Company's financial position, results of operations or cash flows.

 

4. INVENTORY

 

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

 

    December 31, 2018   March 31, 2018
Raw materials   $ —       $ —  
Finished Goods     121,544       100,413
 Total   $ 121,544     $ 100,413

 

5. PREPAID EXPENSES

 

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

 

    December 31, 2018   March 31, 2018
Prepaid Marketing   $ 10,684     $ 59,568
Total prepaid expenses   $ 10,684     $ 59,568

 

  F- 8  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2018

(UNAUDITED)

 

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 December 31, 2018 and March 31, 2018:

 

    December 31, 2018   March 31, 2018
Patents and trademarks     135,850       920
Website     6,500       —  
Less: accumulated amortization     (2,818 )     (24)

Intangible assets, net of accumulated amortization 

    139,532       896

 

Amortization expense for the nine months ended December 31, 2018 and 2017 was $2,794 and $9, respectively. The Company expects to incur approximately $13,724 in amortization expense related to its intangible assets on an annual basis over the next 10 years.

 

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.

 

In accordance with US GAAP the Company recorded the assets on the books of the Company at costs basis due to fact that our CEO commonly controlled both entities involved in the transaction. The difference between the historical costs basis of the assets and the fair value of the consideration paid has been recorded as a loss on assets acquired from related parties of $3,242,070.

 

The Note matures in five years from execution. Interest is due and payable on a semi annual basis with the first payment due on January 1, 2019 and future payments due every six-months afterwards until maturity. At the sole option of the note holder interest may be converted into the Company’s common stock. The conversion price shall be equal to the average of the closing market prices for the Company’s common stock on the OTCQB during the five (5) trading days immediately preceding the due date for such payment. The note 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- 9  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2018

(UNAUDITED)

 

7. CONVERTIBLE NOTES PAYABLE

 

Convertible Notes Payable at consists of the following:   December 31, 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.

 

As of December 31, 2018, the note holder had converted $13,775 in Principal and $19,115 in interest and fees into 1,140,000 shares of the Company’s common stock. (See note 9 for additional details.)

 

During the nine months ending December 31, 2018 the Company recorded interest of $16,612.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $147,472 during the nine months ended December 31, 2018.

 

  $ 167,750
Unamortized debt discount     —  
Total, net of unamortized discount     154,005

 

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 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. As a result of claimed defaults, the promissory notes discount conversion rate was increased to a 80% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion

 

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.

 

During the three months ending December 31, 2018 the Company incurred penalties of approximately $120,533 which were added to the principal total owed under the promissory note.

 

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

 

As of December 31, 2018, the note holder had converted $61,841 in Principal and $6,350 in interest and fees into 8,300,000 shares of the Company’s common stock. (See note 9 for additional details.)

 

During the nine months ending December 31, 2018 the Company recorded interest of $11,173.

 

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 $138,936 during the nine months ended December 31, 2018.

    176,747
Unamortized debt discount     (11,235)
Total, net of unamortized discount     165,512
       

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 nine months ending December 31, 2018 the Company recorded interest of $8,712.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $74,795 during the nine months ended December 31, 2018.

 

    150,000
Unamortized debt discount     (75,205)
Total, net of unamortized discount     74,795
       

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 nine months ending December 31, 2018 the Company recorded interest of $6,118.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $52,137 during the nine months ended December 31, 2018.

 

 

    110,000
Unamortized debt discount     (57,863)
Total, net of unamortized discount     52,137
       

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 nine months ending December 31, 2018 the Company recorded interest of $5,315.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $44,932 during the nine months ended December 31, 2018.

 

    100,000
Unamortized debt discount     (55,069)
Total, net of unamortized discount     44,932
       

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 nine months ending December 31, 2018 the Company recorded interest of $2,616.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $22,055 during the nine months ending December 31, 2018.

 

 

    50,000
Unamortized debt discount     (27,945)
Total, net of unamortized discount     22,055
       

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.

 

During the nine months ending December 31, 2018 the Company recorded interest of $3,002.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $27,997 during the nine months ending December 31, 2018.

    128,000
Unamortized debt discount     (100,003)
Total, net of unamortized discount     27,997
       

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.

 

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

 

During the nine months ending December 31, 2018 the Company recorded interest of $987.

 

The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $8,726 during the nine months ending December 31, 2018.

    53,000
Unamortized debt discount     (44,274)
Total, net of unamortized discount     8,726
       
Total   $ 550,158

 

  F- 10  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 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 December 31, 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     530,050
Initial loss recorded     473,113
Adjustment to derivative liability due to debt settlement     (288,950)
Change in fair market value of derivative liabilities     192,045
Balance December 31, 2018   $ 1,635,995

 

The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible notes, at March 31, 2018 and at December 31, 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 October 15, 2018 November 6, 2018

December 31, 2018

Risk free interest rate 2.02% 2.03%   2.09% 2.34% 2.36% 2.41% 2.42% 2.67% 2.72% 2.56%
Expected term (years) 1.0 .75   0.66 -.90 1.0 1.0 1.0 1.0 1.0 1.0 0.01-0.84
Expected volatility 188.62% 188.72%   199.58% 170.90% 171.08% 172.31% 172.42% 198.49% 202.93% 202.35%
Expected dividends 0 0   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 nine months ending December 31, 2018 the Company recorded interest of $7,269.

 

  F- 11  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2018

(UNAUDITED)

 

9. STOCKHOLDERS’ EQUITY

 

Overview

 

As of December 31, 2018, 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 December 31, 2018, there were 110,440,000 shares of common stock issued and outstanding.

 

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.

 

Stock issued for services.

 

On December 3, 2018, the Company issued a total of 1,500,000 shares of the Company’s common stock to a consultant for services to be rendered over 12 months. The shares were valued at $0.115 per share or $172,500. The Company will record the expense evenly over the 12 month service period. During the nine months ended December 31, 2018 the Company recorded $13,232 as professional fees expense.

 

On December 11, 2018, the Company issued a total of 6,000,000 shares of the Company’s common stock to three directors of the Company for services rendered. The shares were evenly distributed and as a result each director received 2,000,000 shares. The shares were valued at $0.0525 per share or $315,000 which was recorded as professional fees expense.

 

Stock issued upon conversion of debts.

 

On November 20, 2018, a Lender converted a total of $5,996 of principal, interest and fees associated with a Convertible Promissory note into 200,000 shares of the Company’s common stock at an effective conversion price of $0.03 per share.

 

On November 23, 2018, a Lender converted a total of $6,000 of principal, interest and fees associated with a Convertible Promissory note into 100,000 shares of the Company’s common stock at an effective conversion price of $0.06 per share.

 

On December 4, 2018, a Lender converted a total of $6,370 of principal, interest and fees associated with a Convertible Promissory note into 140,000 shares of the Company’s common stock at an effective conversion price of $0.0455 per share.

 

On December 4, 2018, a Lender converted a total of $10,920 of principal, interest and fees associated with a Convertible Promissory note into 600,000 shares of the Company’s common stock at an effective conversion price of $0.0182 per share.

 

On December 7, 2018, a Lender converted a total of $33,100 of principal, interest and fees associated with a Convertible Promissory note into 2,500,000 shares of the Company’s common stock at an effective conversion price of $0.0132 per share.

 

On December 11, 2018, a Lender converted a total of $13,240 of principal, interest and fees associated with a Convertible Promissory note into 400,000 shares of the Company’s common stock at an effective conversion price of $0.0331 per share.

 

On December 20, 2018, a Lender converted a total of $7,250 of principal, interest and fees associated with a Convertible Promissory note into 500,000 shares of the Company’s common stock at an effective conversion price of $0.0145 per share.

 

  F- 12  

 

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

DECEMBER 31, 2018

(UNAUDITED)

 

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 nine months ending December 31, 2018 the Company recorded interest of $2,725.

 

During the nine months ending December 31, 2018, Gert Anderson, the President and CEO of the Company advanced $17,740 to the Company to pay expenses on behalf of the Company. As of December 31, 2018, $68,106 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.

 

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 nine months ending December 31, 2018, the Company recorded royalty expense of $70,000 related to this agreement.

 

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

 

On November 8, 2018, the Royalty agreement was cancelled as a result of the assets purchase described in Note 6. (See note 6 for additional details.)

 

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.

 

On January 3, 2019, a Lender converted a total of $7,500 of principal, interest and fees associated with a Convertible Promissory note into 2,500,000 shares of the Company’s common stock at an effective conversion price of $0.003 per share.

 

On January 28, 2018, the Company filed a certificate of amendment (the “Amendment”) with the Nevada Secretary of State to increase the Company’s authorized common stock, par value $0.001 per share, from 1,125,000,000 shares to 4,000,000,000 shares. The Amendment also created a class of 10,000,000 shares of blank check preferred stock, par value $0.001 per share.

 

On January 29, 2019, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 3,000,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 1,000 votes for each share held. Holders of Series A Preferred Stock are entitled to convert each share held for 10 shares of common stock.

 

On January 29, 2019, we issued to Mr. Gert Andersen 3,000,000 shares of our newly created Series A Preferred Stock in exchange for 30,000,000 shares of common stock held by Mr. Andersen.

 

On January 29, 2019, a Lender converted a total of $10,675 of principal, interest and fees associated with a Convertible Promissory note into 2,500,000 shares of the Company’s common stock at an effective conversion price of $0.0043 per share.

 

  F- 13  

 

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. Interest is due and payable on a semi annual basis with the first payment due on January 1, 2019 and future payments due evary six-months afterwards until maturity. At the sole option of the note holder interest may be converted into the Company’s common stock. The conversion price shall be equal to the average of the closing market prices for the Company’s common stock on the OTCQB during the five (5) trading days immediately preceding the due date for such payment. The note is secured by the current and future assets of the 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 and Nine Months Ended December 31, 2018 and 2017

 

Revenues

 

We generated $1,260 in revenue for the three months ended December 31, 2018, as compared with $322 for the three months ended December 31, 2017. We generated $2,640 in revenue for the nine months ended December 31, 2018, as compared with $322 for the nine months ended December 31, 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 $469,413 for the three months ended December 31, 2018 from $99,040 for the three months ended December 31, 2017. Operating expenses increased to $698,399 for the nine months ended December 31, 2018 from $228,075 for the nine months ended December 31, 2017.

 

Our operating expenses for the nine months ended December 31, 2018 mainly consisted of professional fees of $407,476, general and administrative expenses of $216,857, royalty expense of $70,000 and depreciation and amortization expense of $4,066. Our operating expenses for the nine months ended December 31, 2017 consisted of royalty expense of $90,000, professional fees of $57,029 and general and administrative expenses of $81,037.

 

Other Expenses

 

We had other expenses of $2,603,125 for the three months ended December 31, 2018, compared with other expenses of $2,625 for the three months ended December 31, 2017. We had other expenses of $4,646,802 for the nine months ended December 31, 2018, compared with other expenses of $5,481 for the nine months ended December 31, 2017.

 

Our other expenses for the nine months ended December 31, 2018 is mainly the result of a $3,242,070 loss on the acquisition of related party assets, a $633,658 loss on derivative liabilities and $727,456 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 December 31, 2018 of $3,071,937 compared to a net loss of $101,446 for the three months ended December 31, 2017. We recorded a net loss for the nine months ended December 31, 2018 of $5,344,105 compared to a net loss of $233,556 for the nine months ended December 31, 2017.

 

Liquidity and Capital Resources

 

As of December 31, 2018, we had current assets of $260,161 consisting of cash, accounts receivable, inventory and prepaid expenses. Our total current liabilities as of December 31, 2018 were $4,614,555. We therefore had a working capital deficit of $4,354,394 of December 31, 2018.

 

Operating activities used $482,875 in cash for the nine months ended December 31, 2018, as compared with cash used of $220,670 for the same period ended 2017. Our negative operating cash flow for the nine month ended December 31, 2018 was mainly the result of our net loss for the period, offset mainly by the loss on our acquisition of related party assets. In contrast, our negative operating cash flow for the nine month ended December 31, 2017 was mainly the result of our net loss for the period along with an increase in inventory and prepaid expenses, offset by a decrease in accounts payable.

 

Investing activities used $25,792 in cash for the nine months ended December 31, 2018, as a result of the purchase of fixed and intangible assets. We had minimal cash used in investing activities for the same period ended 2017 for the purchase of intangible assets.

 

Financing activities provided $487,790 for the nine months ended December 31, 2018, as compared with cash provided of $206,889 for the same period ended 2017. Our positive financing cash flow for the nine months ended December 31, 2018 was mainly the result of proceeds from convertible notes and related party advances offset by payments made on convertible notes. Our positive financing cash flow for the nine months ended December 31, 2017 was mainly the result of proceeds from promissory notes and related party advances.

 

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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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 December 31, 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.

 

On December 11, 2018, the Company issued a total of 6,000,000 shares of the Company’s common stock to three directors of the Company for services rendered.

 

From November 20, 2018 to December 20, 2018, we issued an aggregate of 4,440,000 shares in connection with the conversion of convertible notes.

 

On January 3, 2019, a lender converted a total of $7,500 of principal, interest and fees associated with a Convertible Promissory note into 2,500,000 shares of the Company’s common stock at an effective conversion price of $0.003 per share.

 

On January 29, 2019, we issued to Mr. Gert Andersen 3,000,000 shares of our newly created Series A Preferred Stock in exchange for 30,000,000 shares of common stock held by Mr. Andersen.

 

On January 29, 2019, a lender converted a total of $10,675 of principal, interest and fees associated with a Convertible Promissory note into 2,500,000 shares of the Company’s common stock at an effective conversion price of $0.0043 per share.

 

Item 3. Defaults upon Senior Securities

 

None

 

Item 4. Mine Safety Disclosures

 

N/A

 

Item 5. Other Information

 

On January 29, 2019, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 3,000,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 1,000 votes for each share held. Holders of Series A Preferred Stock are entitled to convert each share held for 10 shares of common stock.

 

On January 29, 2019, we issued to Mr. Gert Andersen 3,000,000 shares of our newly created Series A Preferred Stock in exchange for 30,000,000 shares of common stock held by Mr. Andersen.

 

  8  

 

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 December 31, 2018 formatted in Extensible Business Reporting Language (XBRL).
 

 

**Provided herewith

 

  9  

 

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:

February 19, 2019

 

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

 

  10  

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