Notes
to Consolidated Financial Statements
August
31, 2017
NOTE
1 – NATURE OF OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization
PetLife
Pharmaceuticals, Inc. (the “Company,” “we,” “our,” “PetLife”) was incorporated
in the State of Nevada on April 5, 2002 as Aztek Ventures Inc. Effective November 13, 2007, we filed a Certificate of Amendment
to our Articles of Incorporation to change our name to Genesis Uranium Corp. Effective April 21, 2008, we amended our Articles
of Incorporation to change our name to Vault Technology, Inc. to reflect the change in our business focus beyond solely that of
uranium exploration. Effective July 10, 2009, we filed a Certificate of Amendment to our Articles of Incorporation to change our
name to “Modern Renewable Technologies, Inc. (“Modern”). On May 27, 2011, Modern, merged with Eco Ventures Group,
Inc., and the name of the Company was changed to Eco Ventures Group, Inc. On July 15, 2013, the Company entered into an Agreement
and Plan of Merger with Clear TV Ventures, Inc. Under the terms of the merger, Clear TV became the surviving corporation. On June
26, 2014, Eco Ventures Group, Inc. entered into an Agreement and Plan of Merger with its subsidiary, PetLife Pharmaceuticals,
Inc., a Nevada corporation, with PetLife Pharmaceuticals, Inc. being the surviving entity. As part of that merger, the name of
the Company was changed to PetLife Pharmaceuticals, Inc. and each 15 shares of our common stock were exchanged for one share in
the surviving company. Effective August 12, 2014, we completed the closing of the Share Exchange Agreement and the acquisition
of PetLife and changed our name to PetLife Pharmaceuticals, Inc. On July 20, 2016, PetLife Pharmaceuticals, Inc. entered into
an Agreement and Plan of Merger with its wholly-owned subsidiary, PetLife Merger Subsidiary, Inc., a Nevada corporation, with
PetLife Merger Subsidiary, Inc. being the surviving entity. As part of that merger, the name of the PetLife Merger Subsidiary
was changed back to PetLife Pharmaceuticals, Inc. The purpose of the subsidiary merger was to effectuate a 1 for 5 reverse exchange
of PetLife’s common stock pursuant to the terms of the merger. The combined entities continue on public markets pursuant
to Rule 12g-3 of the Securities Exchange Act of 1934, as amended.
On
April 19, 2017, the Company organized in the State of Maryland a wholly-owned subsidiary, Dr. Geoff’s by PetLife, Inc. (“Dr.
Geoff’s by PetLife”), to operate the Company’s pet food division. See Note 2.
Nature
of Operations
PetLife
is a registered U.S. Veterinary Pharmaceutical company whose mission is to bring its scientifically proven medication and nutraceuticals,
Vitalzul™, to the world of veterinary oncology. The Company specializes in the research, development, sales and support
of advanced drugs and nutraceuticals for pet cancer and autoimmune related diseases such as arthritis. The Company will also introduce
a line of natural pet food and other complementary products.
Basis
of Presentation
The
Company prepares its consolidated financial statements in conformity with generally accepted accounting principles in the United
States of America.
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 and 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 in the accompanying financial
statements include the amortization period for intangible assets, valuation and impairment valuation of intangible assets, allowance
for accounts receivable, depreciable lives of the web site and fixed assets, and valuation of share-based payments.
Principles
of Consolidation
The
consolidated financial statements include the accounts of PetLife and its wholly-owned subsidiary, Dr. Geoff’s by PetLife.
All significant inter-company balances and transactions have been eliminated in consolidation.
Cash
and Cash Equivalents
The
Company considers all highly liquid investments with an original maturity of three months or less when purchased to be cash equivalents.
Property,
Equipment and Depreciation
Property
and equipment is recorded at cost. Depreciation is computed using the straight-line method based on the estimated useful lives
of the related assets of three years for computer equipment, five years for office furniture and fixtures, and the lesser of the
lease term or the useful life of the leased equipment. Leasehold improvements, if any, would be amortized over the lesser of the
lease term or the useful life of the improvements. Expenditures for maintenance and repairs along with fixed assets below our
capitalization threshold are expensed as incurred.
Intangible
Assets
On
May 10, 2017, the Company acquired certain intangible assets from Healthy Life Pets, LLC (“Healthy Life Pets”), which
included the intellectual property of Healthy Life Pets’ product line, including the trademarked brand, “Dr. Geoff’s
Real Pet Food.” The purchase price of the assets was 1,500,000 shares of common stock of the Company, 500,000 of which were
issued at execution, with the remaining 1,000,000 shares of common stock vesting over two years. The Company has valued the assets
at the value of the 1,500,000 shares of common stock issued, or $270,000 of which $252,085 are intangible assets. The Company
has yet to commercially use the intellectual property as of the date of this report. The Company impaired the assets acquired
during the year ended August 31, 2017.
Accounting
for Derivatives
The
Company evaluates its convertible debt, options, warrants or other contracts to determine if those contracts or embedded components
of those contracts qualify as derivatives to be separately accounted for. The result of this accounting treatment is that under
certain circumstances the fair value of the derivative is marked-to-market each balance sheet date and recorded as a liability.
In the event that the fair value is recorded as a liability, the change in fair value is recorded in the statement of operations
as other income or expense. Upon conversion or exercise of a derivative instrument, the instrument is marked to fair value at
the conversion date and then that fair value is reclassified to equity. Equity instruments that are initially classified as equity
that become subject to reclassification under this accounting standard are reclassified to liability at the fair value of the
instrument on the reclassification date.
Impairment
of Long-Lived Assets
The
Company accounts for long-lived assets in accordance with the provisions of Statement of Financial Accounting Standards ASC 360-10,
“Accounting for the Impairment or Disposal of Long-Lived Assets.” This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying
amount of an asset to future undiscounted net cash flows expected to be generated by the asset. If such assets are considered
to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the
fair value of the assets. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to
sell.
Fair
Value of Financial Instruments
The
Company measures its financial assets and liabilities in accordance with generally accepted accounting principles. For certain
of our financial instruments, including cash, accounts payable, accrued expenses, and short-term loans the carrying amounts approximate
fair value due to their short maturities.
We
follow accounting guidance for financial and non-financial assets and liabilities. This standard defines fair value, provides
guidance for measuring fair value and requires certain disclosures. This standard does not require any new fair value measurements,
but rather applies to all other accounting pronouncements that require or permit fair value measurements. This guidance does not
apply to measurements related to share-based payments. This guidance discusses valuation techniques, such as the market approach
(comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to
replace the service capacity of an asset or replacement cost). The guidance utilizes a fair value hierarchy that prioritizes the
inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those
three levels:
Level
1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
Level
2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar
assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not
active.
Level
3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed
by us, which reflect those that a market participant would use.
Revenue
Recognition
The
Company recognizes revenue for our services in accordance with ASC 605-10, “Revenue Recognition in Financial Statements.”
Under these guidelines, revenue is recognized on transactions when all of the following exist: persuasive evidence of an arrangement
did exist, delivery of service has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably
assured. The Company has no revenue streams at this time.
Stock-Based
Compensation
The
Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies
to recognize in the statement of operations the grant-date fair value of stock options and other equity based compensation issued
to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50. The value of the portion
of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line
attribution method. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing
model. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.
Income
Taxes
The
Company adopted the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are
filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others
are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained.
In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the
period during which, based on all available evidence, management believes it is more likely than not that the position will be
sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset
or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the
largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing
authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above
should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated
interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions
are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax
benefits. As of August 31, 2017, tax years 2012 - 2016 remain open for IRS audit. The Company has received no notice of audit
from the IRS for any of the open tax years.
Company
adopted ASC 740-10,
“
Definition of Settlement in FASB Interpretation No. 48” (“ASC 740-10”), which
was issued on May 2, 2007. ASC 740-10 amends FIN 48 to provide guidance on how an entity should determine whether a tax position
is effectively settled for the purpose of recognizing previously unrecognized tax benefits. The term “effectively settled”
replaces the term “ultimately settled” when used to describe recognition, and the terms “settlement” or
“settled” replace the terms “ultimate settlement” or “ultimately settled” when used to describe
measurement of a tax position under ASC 740-10. ASC 740-10 clarifies that a tax position can be effectively settled upon the completion
of an examination by a taxing authority without being legally extinguished. For tax positions considered effectively settled,
an entity would recognize the full amount of tax benefit, even if the tax position is not considered more likely than not to be
sustained based solely on the basis of its technical merits and the statute of limitations remains open. The adoption of ASC 740-10
did not have an impact on the accompanying financial statements.
Net
Earnings (Loss) Per Share
In
accordance with ASC 260-10, “Earnings Per Share,” basic net earnings (loss) per common share is computed by dividing
the net earnings (loss) for the period by the weighted average number of common shares outstanding during the period. Diluted
earnings (loss) per share are computed using the weighted average number of common stock shares outstanding during the period.
Reclassifications
For
comparability, certain prior period amounts have been reclassified, where appropriate, to conform to the financial statement presentation
used in 2017. The reclassifications have no impact on net loss.
Effect
of Recent Accounting Pronouncements
The
Company reviews new accounting standards and updates as issued. No new standards or updates had any material effect on these unaudited
financial statements. The accounting pronouncements and updates issued subsequent to the date of these audited financial statements
that were considered significant by management were evaluated for the potential effect on these audited financial statements.
Management does not believe any of the subsequent pronouncements will have a material effect on these audited financial statements
as presented and does not anticipate the need for any future restatement of these audited financial statements because of the
retro-active application of any accounting pronouncements issued subsequent to August 31, 2017 through the date these audited
financial statements were issued.
In
February 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU on lease accounting. The ASU requires
the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets
and liabilities on the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2018 with early
adoption permitted. While the Company is still evaluating the ASU, the Company does not expect the adoption of the ASU to have
a material effect on the Company’s financial condition due to the recognition of the lease rights and obligations as assets
and liabilities. The Company does not expect the ASU to have a material effect on the Company’s results of operations, and
the ASU will have no effect on cash flows.
NOTE
2 – DEFINITIVE AGREEMENTS
On
May 10, 2017, Dr. Geoff’s by PetLife, a subsidiary of PetLife, entered into an asset purchase agreement and a supply agreement
with Healthy Life Pets, LLC (“Healthy Life Pets”) to acquire certain assets, including the intellectual property of
Healthy Life Pets’ product line, including the trademarked brand, “Dr. Geoff’s Real Pet Food,” and to
purchase product for a period of time from Healthy Life Pets. The purchase price of the assets was 1,500,000 shares of common
stock of the Company, 500,000 of which were issued at execution, with the remaining 1,000,000 shares of common stock vesting over
two years. All shares of Company common stock to be issued pursuant to these agreements are subject to restrictions on resale
pursuant to a leak out agreement. In connection with the agreement, the Company recorded $17,915 of inventory and $252,085 of
intangible assets for the issuance of common stock. The inventory and intangible assets were impaired during the year ended August
31, 2017.
NOTE
3 – GOING CONCERN
The
Company has a net loss for the year ended August 31, 2017 of $23,655,379 and negative working capital as of August 31, 2017 of
$1,381,450, and has used cash in operations of $318,918 for the year ended August 31, 2017. In addition, as of August 31,
2017, the Company had a stockholders’ deficit and accumulated deficit of $1,381,450 and $30,388,180, respectively. These
conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The
accompanying consolidated financial statements have been prepared in conformity with U.S. GAAP, which contemplate continuation
of the Company as a going concern and the realization of assets and satisfaction of liabilities in the normal course of business.
The ability of the Company to continue its operations is dependent on the execution of management’s plans, which include
the raising of capital through the debt and/or equity markets, until such time that funds provided by operations are sufficient
to fund working capital requirements. If the Company were not to continue as a going concern, it would likely not be able to realize
its assets at values comparable to the carrying value or the fair value estimates reflected in the balances set out in the preparation
of the consolidated financial statements.
There
can be no assurances that the Company will be successful in generating additional cash from the equity/debt markets or other sources
to be used for operations. The consolidated financial statements do not include any adjustments relating to the recoverability
of assets and classification of assets and liabilities that might be necessary. Based on the Company’s current resources,
the Company will not be able to continue to operate without additional immediate funding. Should the Company not be successful
in obtaining the necessary financing to fund its operations, the Company would need to curtail certain or all operational activities
and/or contemplate the sale of its assets, if necessary.
NOTE
4 – NOTES PAYABLE
The
Company has notes payable as of August 31, 2017 and 2016 are as follows:
Notes
payable and
|
|
August
31, 2017
|
|
|
August
31, 2016
|
|
|
|
|
convertible
notes payable
|
|
|
|
|
Debt
|
|
|
|
|
|
|
|
|
|
|
|
Debt
|
|
|
|
|
|
|
Principal
|
|
|
Discount
|
|
|
OID
|
|
|
Principal
|
|
|
Principal
|
|
|
Discount
|
|
|
Principal
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shelton
Davis (1)
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
25,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
Steven
Sass (1)
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
25,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Alkmini
Anastasiadou
|
|
|
312,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
312,000
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Luke
Hoppel (1)
|
|
|
75,000
|
|
|
|
(59,697
|
)
|
|
|
(18,331
|
)
|
|
|
(3,028
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
PowerUp
(1)
|
|
|
53,000
|
|
|
|
(42,654
|
)
|
|
|
-
|
|
|
|
10,346
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
490,000
|
|
|
$
|
(102,351
|
)
|
|
$
|
(18,331
|
)
|
|
$
|
369,318
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(1)
Convertible
On
July 27, 2016, the Company executed a convertible promissory note with Shelton Avery Davis, as part of a private offering, for
$25,000. The note has a maturity date of July 27, 2017 and bears interest of 10% which accrues. The note converts into common
stock at $0.25 per share. As of August 31, 2017, $2,500 of interest has been accrued. On July 27, 2017, the note was extended
to July 27, 2018.
On
September 30, 2016, the Company executed a convertible promissory note with William Bodenheimer III (“Bodenheimer”),
as part of a private offering, for $30,000. The note has a maturity date of September 30, 2017 and bears interest of 10% which
accrues. The note converts into common stock at $0.25 per share. On July 22, 2017, Bodenheimer and the Company agreed to convert
the principal and accrued interest into 266,000 shares of common stock. The common shares have not been issued as of August
31, 2017.
On
October 4, 2016, the Company executed a convertible promissory note with Peter Sherman (“Sherman”), as part of a private
offering, for $12,500. The note has a maturity date of October 4, 2017 and bears interest of 10% which accrues. The note converts
into common stock at $0.25 per share. On July 22, 2016, Sherman and the Company agreed to convert the principal and accrued interest
into 133,000 shares of common stock. The common shares have not been issued as of August 31, 2017.
On
December 8, 2016, the Company executed a convertible promissory note with Steven Sass, as part of a private offering, for $25,000.
The note has a maturity date of December 8, 2017 and bears interest of 10% which accrues. The note converts into common stock
$0.25 per share. As of August 31, 2017, $1,829 of interest has been accrued.
On
July 18, 2017, the Company executed a convertible promissory note with Luke Hoppel for $75,000. The note has a maturity date of
July 18, 2018 and bears interest of 8% which accrues. As of August 31, 2017, $740 of interest has been accrued. The note is
convertible at 60% of the average of the three lowest daily traded prices during the 25 consecutive trading days immediately preceding
the applicable conversion date.
On
August 28, 2017, the Company executed a convertible promissory note with PowerUp for $53,000. The note has a maturity date of
May 30, 2018 and bears interest of 12% which accrues. As of August 31, 2017, $70 of interest has been accrued. The note is
convertible at 58% of the average of the three lowest daily traded prices during the 10 consecutive trading days immediately preceding
the applicable conversion date.
Note
payable
On
May 15, 2017, the Company entered into a settlement agreement with Arthur G. Mikaelian, et al (see Note 7 for all parties, the
“Settlement Agreement”). Mikaelian had a financial obligation to Alkmini Anastasiadou (“Anastasiadou”),
which was unrelated to the Company. As part of the Settlement Agreement, the Company would assume the debt of Mikaelian to Anastasiadou,
as settlement between them, of $322,000, in a promissory note (the “Anastasiadou Note”). The terms of the Anastasiadou
Note are 3% interest, with installment payments of $5,000 monthly beginning June 1, 2017 with payment in full by December 31,
2017. As of August 31, 2017, the balance of the note was $312,000 and the accrued interest was $2,858. In connection with the
settlement, the Company issued $322,000 in notes payable, reversed accounts payable of $110,400 and recorded a loss of $211,600.
The
Company has notes payable to related parties, net of discounts, as of August 31, 2017 and August 31, 2016, as follows:
|
|
August
31, 2017
|
|
|
August
31, 2016
|
|
Notes
payable to related parties, net of discounts
|
|
Principal
|
|
|
Debt
Discount
|
|
|
OID
|
|
|
Principal
|
|
|
Principal
|
|
|
Debt
Discount
|
|
|
Principal
|
|
Ralph
Salvagno
|
|
$
|
153,011
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
153,011
|
|
|
$
|
153,011
|
|
|
$
|
-
|
|
|
$
|
153,011
|
|
Ralph
Salvagno
|
|
|
59,852
|
|
|
|
-
|
|
|
|
-
|
|
|
|
59,852
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ralph
Salvagno
|
|
|
24,830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
24,830
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Ralph
Salvagno
|
|
|
98,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
98,664
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
336,357
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
336,357
|
|
|
$
|
153,011
|
|
|
$
|
-
|
|
|
$
|
153,011
|
|
On
August 31, 2016, the Company executed a promissory note with Ralph Salvagno (“Salvagno”), the Company’s CEO
and Director, for $153,011. The note is due on demand and bears interest at 2% per annum which accrues. As of August 31, 2017,
$3,060 of interest has been accrued. See Note 5.
On
October 25, 2016, the Company executed a promissory note with Dreadnought 1906, Inc., which is controlled by Vyvyan Campbell (“Campbell”),
the Company’s Director, for $150,000. The note matures on November 1, 2017 and bears interest at 10% per annum which accrues.
As an incentive for the issuance of the note, 250,000 shares of common stock were issued and recorded as a debt discount. The
shares were valued at $150,000 for the debt discount. On August 26, 2017, Campbell and the Company agreed on a conversion for
the principal and accrued interest to be converted into 2,500,000 shares of common stock. See Note 5. The common shares have
not been issued as of August 31, 2017.
On
January 14, 2017, the Company executed a promissory note with Salvagno for $59,852. The note converted various payables to Salvagno.
The note is due on demand and bears interest at 4% per annum which accrues. As of August 31, 2017, $1,509 of interest has been
accrued. See Note 5.
On
March 18, 2017, the Company executed a promissory note with Salvagno for $24,830. The note converted various payables to Salvagno.
The note is due on demand and bears interest at 4% per annum which accrues. As of August 31, 2017, $454 of interest has been accrued.
See Note 5.
On
May 31, 2017, the Company executed a promissory note with Salvagno for $98,664. The note converted various payables to
Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. As of August 31, 2017, $503 of interest
has been accrued. See Note 5.
NOTE
5 – RELATED PARTY TRANSACTIONS
During
the year ended August 31, 2015, we received $10,000 from a shareholder advance which is unsecured, non-interest bearing, and due
on demand. As of August 31, 2017, $10,000 remains outstanding.
As
of August 31, 2017, the Company has a loan from an officer of $11,500. The loan is unsecured, non-interest bearing, and due on
demand.
As
of August 31, 2017, and 2016, there are related party accounts payable and accrued expenses of $75,526 and $383,974, respectively,
related to payments, consulting services and accrued interest.
On
August 31, 2016, the Company executed a promissory note with Salvagno, the Company’s CEO and Director, for $153,011. The
note is due on demand and bears interest at 2% per annum which accrues. As of August 31, 2017, $3,060 of interest has been accrued.
See Note 4.
On
October 25, 2016, the Company executed a promissory note with Dreadnought 1906, Inc., which is controlled by Vyvyan Campbell (“Campbell”),
the Company’s Director, for $150,000. The note matures on November 1, 2017 and bears interest at 10% per annum which accrues.
As an incentive for the issuance of the note, 250,000 shares of common stock were issued and recorded as a debt discount. The
shares were valued at $150,000 for the debt discount. On August 26, 2017, Campbell and the Company agreed on a conversion for
the principal and accrued interest to be converted into 2,500,000 shares of common stock. See Note 4. The common shares have
not been issued as of August 31, 2017.
On
January 14, 2017, the Company executed a promissory note with Salvagno for $59,852. The note converted various payables to Salvagno.
The note is due on demand and bears interest at 4% per annum and accrues monthly. As of August 31, 2017, $1,509 of interest has
been accrued. See Note 4.
On
March 18, 2017, the Company executed a promissory note with Salvagno for $24,830. The note converted various payables to Salvagno.
The note is due on demand and bears interest at 4% per annum which accrues. As of August 31, 2017, $454 of interest has been accrued.
See Note 4.
On
May 31, 2017, the Company executed a promissory note with Salvagno for $98,664. The note converted various payables to
Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. As of August 31, 2017, $503 of interest
has been accrued. See Note 4.
During
the year ended August 31, 2017, the Company has issued or is contractually obligated to issue, 40,000 shares of common stock for
board advisory services valued at $13,000 of which $13,000 has been recorded as stock-based compensation.
In
February 2017, the Company entered into a consulting agreement for a spokesman for the PetLife pet foods division. The agreement
is through January 2020. The Company issued 1,000,000 shares of restricted common stock which 27,778 shares of common stock vest
every month. The shares of common stock were valued at $160,000 and $31,111 was recorded as stock-based compensation for
the year ended August 31, 2017. The Company will record the remaining $128,889 over the service period or through January
2020.
During
the year ended August 31, 2017, the Company exchanged 3,250,000 common shares owned by officers and directors for 3,250,000 Series
A Preferred shares and valued the transaction at $121,875. The Series A Preferred Stock have voting rights of 1,000 votes for
each share of Series A Preferred Stock.
NOTE
6 - STOCKHOLDERS’ DEFICIT
Preferred
Stock
The
Company is authorized to issue up to 50,000,000 shares of preferred stock, par value $0.001 per share. Each share of preferred
stock is convertible into common stock on a one-for-one basis. As of August 31, 2017, there are 3,250,000 shares of preferred
stock issuable, and outstanding.
During
the year ended August 31, 2017, the Company exchanged 3,250,000 common shares owned by officers and directors for 3,250,000 Series
A Preferred shares and valued the transaction at $121,875. The Series A Preferred Stock have voting rights of 1,000 votes for
each share of Series A Preferred Stock.
The
Corporation will pay dividends or distributions equal to the amount of dividends or distributions per share of Common Stock if
and when declared.
In
the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the
Corporation's Preferred Stock entitled, by reason of their ownership of Preferred Stock, receive the preferential amount, prior
and in preference to any distribution of any of the assets of the Corporation to the holders of Series A Stock and Common Stock.
Common
Stock
The
Company was authorized to issue up to 750,000,000 shares of common stock, par value $0.001 per share. Each outstanding share of
common stock entitles the holder to one vote per share on all matters submitted to a stockholder vote. All shares of common stock
are non-assessable and non-cumulative, with no pre-emptive rights.
On
May 10, 2017, the Company issued 500,000 shares of common stock and will issue a 1,000,000 shares of common stock for the
acquisition of certain assets from Healthy Life Pets, LLC. The shares were valued at $270,000. See Note 2.
During
the year ended August 31, 2017, the Company has issued or is contractually obligated to issue, 58,918,898 common shares
for services valued at $24,310,040, of which $23,703,234 has been recorded as stock-based compensation. The Company
will amortize $606,806 over the remaining service period.
During
the year ended August 31, 2017, the Company issued 250,000 common shares to a shareholder for debt valued at $150,000. The Company
recorded the $150,000 in interest expense during the year ended August 31, 2017.
During
the year ended August 31, 2017, the Company issued 2,500,000 common shares to a shareholder for the conversion of debt valued
at $150,000. The Company recorded $162,500 in interest expense for the inducement during the year ended August 31, 2017.
During
the year ended August 31, 2017, the Company issued 399,000 common shares to a shareholder for the conversion of debt valued at
$42,500.
During
the year ended August 31, 2017, the Company issued 5,000,000 common shares to a shareholder for the settlement of accrued expenses
of $300,000. The Company valued the common stock at $625,000 and recorded $325,000 in stock compensation for the settlement during
the year ended August 31, 2017.
During
the year ended August 31, 2017, the Company issued 125,000 common shares valued at $20,950 to a shareholder for debt of $75,000.
The Company recorded the $20,950 in interest expense during the year ended August 31, 2017.
Employment
Agreements
Included
in the above paragraph, in January 2017, the Company entered into an employment agreement with our Vice-President of marketing.
The agreement is through February 2019. The Company will pay $6,300 per month and 1,500,000 shares of restricted common stock
which 100,000 vest immediately and 350,000 common shares vest every six months. The common shares were valued at $240,000 and
$56,000 was recorded as stock compensation for the year ended August 31, 2017. The Company terminated the agreement effective
August 31, 2017. The Company is obligated to issue 350,000 common shares in connection with the agreement.
Included
in the above paragraph, in January 2017, the Company entered into an employment agreement with the President of the pet foods
division. The agreement is through December 2018. The Company will pay $12,500 per month and 3,000,000 shares of restricted common
stock which 350,000 common shares vest every three months. The common shares were valued at $600,000 and $150,000 was recorded
as stock compensation for the year ended August 31, 2017. The Company will record the remaining $450,000 over the service
period or through December 2018. The Company is obligated to issue 150,000 common shares in connection with the agreement.
The
Company terminated all employment agreements as of August 31, 2017. The Company, upon sufficient additional funding, will renegotiate
employment agreements accordingly.
Stock
Option Plan
On
June 9, 2016, the Board of Directors approved the 2016 Stock Option Plan which reserved 20,000,000 shares of common stock.
The
Company has granted options to an employee and to a consultant. Options activity for the year ended August 31, 2017 is as follows:
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Weighted
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|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
Number
|
|
|
Exercise
|
|
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Contractual
|
|
|
Intrinsic
|
|
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|
of
Options
|
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|
Price
|
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Terms
|
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|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Outstanding
at August 31, 2016
|
|
|
4,000,000
|
|
|
$
|
0.25
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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Granted
|
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|
-
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$
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-
|
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Exercised
|
|
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-
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$
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-
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Forfeited
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-
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$
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-
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Expired
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|
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-
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$
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-
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at August 31, 2017
|
|
|
4,000,000
|
|
|
$
|
0.25
|
|
|
|
1.77
|
|
|
$
|
369,200
|
|
|
|
|
|
|
|
|
|
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|
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Exercisable
at August 31, 2017
|
|
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4,000,000
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|
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$
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0.25
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NOTE
7 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
From
time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business.
As of the date of this report, there were no pending or threatened lawsuits. The Company entered into a settlement agreement as
follows:
On
May 15, 2017, the Company entered into a settlement agreement with Arthur G. Mikaelian (a/k/a Arthur Grant Mikaelian, Artur Mikaelian,
collectively, “Mikaelian”), the Irrevocable de Fidecomison Confianza General De Familiar Artur Mikaelian (the “Mikaelian
Trust”), Artur Mikaelian, Jr., Tigran Mikaelian, Grant Mikaelian, Armani Minasyan, Medolife Corp. (“Medolife”),
and Alkmini Anastasiadou (“Anastasiadou”). Mikaelian, a former officer of the Company, the other parties, and the
Company finalized a settlement to sever all ties between the Company and all other parties (the “Settlement Agreement”).
Mikaelian had a financial obligation to Anastasiadou, which was unrelated to the Company. The Settlement Agreement provided the
following: a) full release between all parties, b) all common stock of the Company held by all parties, excluding Anastasiadou
(as they did not hold any common stock of the Company) would be returned to the Company as treasury stock (the “Treasury
Stock”), and c) the Company would assume the debt of Mikaelian to Anastasiadou, as settlement between them, of $322,000,
in a promissory note (the “Anastasiadou Note”). The Treasury Stock would be held in escrow until the Anastasiadou
Note is paid in full by the Company, which then would be retired by the Company. The Treasury Stock is 4,794,000 shares which,
as of August 31, 2017, constitutes 7.25% of the outstanding common stock of the Company. The terms of the Anastasiadou Note are
3% interest, with installment payments of $5,000 monthly beginning June 1, 2017 with payment in full by December 31, 2017. See
Note 4.
Lease
Commitment
On
February 1, 2016, the Company entered into a lease space effective June 1, 2016 through May 30, 2018. Lease payments of $750 per
month payable in advance on the first day of each month for total lease payments of $18,000.
Future
minimum lease payments are as follows:
2018
|
|
$
|
6,750
|
|
2019
|
|
|
-
|
|
2020
|
|
|
-
|
|
2021
|
|
|
-
|
|
2022
|
|
|
-
|
|
Future
|
|
|
-
|
|
Total
|
|
$
|
6,750
|
|
Rent
expense for the years ended August 31, 2017 and 2016 was $9,000 and $23,825, respectively.
NOTE
8 – CONCENTRATIONS
Concentration
of Credit Risk
Financial
instruments, which potentially subject the Company to a concentration of credit risk, consist principally of temporary cash investments.
The
Company places its temporary cash investments with financial institutions insured by the Federal Deposit Insurance Corporation
(“FDIC”) for the United States. No amounts exceeded federally insured limits as of August 31, 2017. There have been
no losses in these accounts through August 31, 2017.
Concentration
of Intellectual Property
The
Company owns or has filed for the trademarks “Dr. Geoff’s Real Pet Food” as filed with the United States Patent
and Trademark Office.
NOTE
9 – INCOME TAX
The
Company follows ASC 740-10-50 “Accounting for Income Taxes.” Deferred income taxes reflect the net effect of (a) temporary
difference between carrying amounts of assets and liabilities for financial purposes and the amounts used for income tax reporting
purposes, and (b) net operating loss carry-forwards. No net provision for refundable Federal income tax has been made in the accompanying
statement of loss because no recoverable taxes were paid previously. Similarly, no deferred tax asset attributable to the net
operating loss carry-forward has been recognized, as it is not deemed likely to be realized.
The
provision for refundable federal income tax consists of the following for the years ending:
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For
the Years Ended
|
|
|
|
August
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Tax
expense (benefit) at the statutory rate
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
(7,907,000
|
)
|
|
$
|
(1,254,000
|
)
|
Change
in valuation allowance
|
|
|
7,907,000
|
|
|
|
1,254,000
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
-
|
|
|
$
|
-
|
|
The
cumulative tax effect at the expected rate of 34% of significant items comprising our net deferred tax amount is as follows:
|
|
August
31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Deferred
tax assets:
|
|
|
|
|
|
|
|
|
Net
operating loss carryforward
|
|
$
|
10,332,000
|
|
|
$
|
2,425,000
|
|
Less:
Deferred tax asset valuation allowance
|
|
|
(10,332,000
|
)
|
|
|
(2,425,000
|
)
|
|
|
|
|
|
|
|
|
|
Total
net deferred taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
At
August 31, 2017, the Company had an unused net operating loss carry-forward approximating $10,332,000 that is available
to offset future taxable income; the loss carry-forward will start to expire in 2037.
NOTE
13 – DERIVATIVES
Embedded
Conversion Option Derivatives
Due
to the conversion terms of certain promissory notes, the embedded conversion options met the criteria to be bifurcated and presented
as derivative liabilities. The Company calculated the estimated fair values of the liabilities for embedded conversion option
derivative instruments at the original note inception date and as of August 31, 2017 using the Black-Scholes option pricing model
using the share prices of the Company’s stock on the dates of valuation and using the following ranges for volatility, expected
term and the risk-free interest rate at each respective valuation date, no dividend has been assumed for any of the periods:
|
|
Note
Inception
Date
|
|
|
August
31, 2017
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
313%
- 350
|
%
|
|
|
291
|
%
|
Expected
Term
|
|
|
0.75
– 0.88 years
|
|
|
|
0.33
- 0.88 years
|
|
Risk
Free Interest Rate
|
|
|
1.07%
- 1.19
|
%
|
|
|
1.23
|
%
|
The
following reflects the initial fair value on the note inception date and changes in fair value through August 31, 2017:
Note
inception date fair value allocated to debt discount
|
|
$
|
111,004
|
|
Change
in fair value in 2017
|
|
|
(8,627
|
)
|
Embedded
conversion option derivative liability fair value on August 31, 2017
|
|
$
|
102,377
|
|
NOTE
14 – SUBSEQUENT EVENTS
The
Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and
Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in
the financial statements, except as stated herein.
On
November 6, 2017, the Company entered into a convertible promissory note for $135,000 with Auctus Fund, LLC (“Auctus”).
The note matures on August 6, 2018 and bears interest of 12%. The conversion feature provides for a discount of 40%. The Company
has to issue 123,875 shares of common stock to Auctus which were an inducement for the financing.