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EX-32 - PetLife Pharmaceuticals, Inc. | ex32.htm |
EX-31 - PetLife Pharmaceuticals, Inc. | ex31.htm |
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 November 30, 2017
[ ] | TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
Commission file number: 000-52445
PetLife Pharmaceuticals, Inc.
(Name of registrant as specified in its charter)
Nevada | 33-1133537 | |
(State or other jurisdiction of | (I.R.S. Employer | |
incorporation or organization) | Identification No.) | |
38 West Main Street Hancock, MD |
21750 | |
(Address of principal executive offices) | (Zip Code) |
(844) 473-8543
(Registrant’s telephone number, including area code)
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. Yes [X] 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 during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes [X] No [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
(Check one): | ||||
Large accelerated filer | [ ] | Accelerated filer | [ ] | |
Non-accelerated filer | [ ] | Smaller reporting company | [X] |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes [ ] No [X]
The number of shares of the registrant’s common stock issued, issuable, and outstanding as of January 15, 2018 was 73,951,435 shares.
PETLIFE PHARMACEUTICALS, INC.
FORM 10-Q
NOVEMBER 30, 2017
INDEX
Page No. | ||
PART I – FINANCIAL INFORMATION | ||
Item 1. | Financial Statements (unaudited) | 3 |
Item 2. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 14 |
Item 3. | Quantitative and Qualitative Disclosures About Market Risk | 16 |
Item 4. | Controls and Procedures | 16 |
PART II – OTHER INFORMATION | ||
Item 1. | Legal Proceedings | 17 |
Item 1A. | Risk Factors | 17 |
Item 2. | Unregistered Sales of Equity Securities and Use of Proceeds | 17 |
Item 3. | Defaults Upon Senior Securities | 17 |
Item 4. | Mine Safety Disclosures | 17 |
Item 5. | Other Information | 17 |
Item 6. | Exhibits | 18 |
SIGNATURES | 19 |
2 |
PETLIFE PHARMACEUTICALS, INC.
and Subsidiary
Condensed Consolidated Balance Sheets
(unaudited)
November 30, 2017 | August 31, 2017 | |||||||
ASSETS | ||||||||
Current assets | ||||||||
Cash | $ | 54,312 | $ | 54,254 | ||||
Prepaid expense | 3,329 | 750 | ||||||
Total current assets | 57,641 | 55,004 | ||||||
Total assets | $ | 57,641 | $ | 55,004 | ||||
LIABILITIES AND STOCKHOLDERS' DEFICIT | ||||||||
Current liabilities | ||||||||
Convertible notes payable, net of discounts | $ | 110,528 | $ | 57,318 | ||||
Notes payable | 297,000 | 312,000 | ||||||
Notes payable to related parties | 336,358 | 336,358 | ||||||
Due to shareholder | 10,000 | 10,000 | ||||||
Loan from officer | 11,500 | 11,500 | ||||||
Accounts payable | 290,068 | 307,478 | ||||||
Accounts payable to related parties | 80,000 | 70,000 | ||||||
Accrued expenses | 221,897 | 223,897 | ||||||
Accrued expenses to related parties | 25,025 | 5,526 | ||||||
Derivative liabilities | 447,626 | 102,377 | ||||||
Total current liabilities | 1,830,002 | 1,436,454 | ||||||
Total liabilities | 1,830,002 | 1,436,454 | ||||||
Commitments and contingencies | ||||||||
Stockholders' deficit | ||||||||
Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,250,000 and 3,250,000 shares issued and outstanding at November 30, 2017 and August 31, 2017, respectively | 3,250 | 3,250 | ||||||
Common stock, $0.001 par value, 750,000,000 shares authorized, 73,951,435 and 73,842,320 shares issued, issuable, and outstanding at November 30, 2017 and August 31, 2017, respectively | 73,951 | 73,842 | ||||||
Additional paid-in capital | 29,005,278 | 28,929,638 | ||||||
Accumulated deficit | (30,854,840 | ) | (30,388,180 | ) | ||||
Total stockholders' deficit | (1,772,361 | ) | (1,381,450 | ) | ||||
Total liabilities and stockholders' deficit | $ | 57,641 | $ | 55,004 |
See accompanying notes to unaudited condensed consolidated financial statements.
3 |
PETLIFE PHARMACEUTICALS, INC.
and Subsidiary
Condensed Consolidated Statements of Operations
For the Three Months Ended November 30,
(unaudited)
2017 | 2016 | |||||||
Revenue, net | $ | - | $ | - | ||||
Operating expenses | ||||||||
General and administrative | 117,559 | 908,148 | ||||||
Stock-based compensation | 75,749 | 18,205,318 | ||||||
Operating loss | (193,308 | ) | (19,113,466 | ) | ||||
Other income (expense) | ||||||||
Interest expense | (86,893 | ) | (2,166 | ) | ||||
Change in fair value of derivative liabilities | (186,459 | ) | - | |||||
Net loss | $ | (466,660 | ) | $ | (19,115,632 | ) | ||
Net loss per share - basic and diluted | $ | (0.01 | ) | $ | (0.88 | ) | ||
Weighted average number of shares outstanding - basic and diluted | 73,874,467 | 21,645,754 |
See accompanying notes to unaudited condensed consolidated financial statements.
4 |
PETLIFE PHARMACEUTICALS, INC.
and Subsidiary
Condensed Consolidated Statements of Cash Flows
For the Three Months Ended November 30,
(unaudited)
2017 | 2016 | |||||||
Cash flows from operating activities: | ||||||||
Net loss | $ | (466,660 | ) | $ | (19,115,632 | ) | ||
Adjustments to reconcile net loss to net cash used in operations: | ||||||||
Change in derivative liability | 186,459 | - | ||||||
Stock compensation | 75,749 | 18,205,318 | ||||||
Amortization of debt discount | 77,000 | - | ||||||
Changes in operating assets and liabilities: | ||||||||
Prepaid expenses | (2,579 | ) | - | |||||
Accounts payable and accrued expenses | (19,410 | ) | 139,666 | |||||
Accounts payable and accrued expenses to related parties | 29,499 | - | ||||||
Stock payable | - | 588,120 | ||||||
Net cash used in operating activities | (119,942 | ) | (182,528 | ) | ||||
Cash flows from financing activities: | ||||||||
Proceeds from note payable to related party | - | 150,000 | ||||||
Proceeds from officer | - | 60,352 | ||||||
Payments on note payable | (15,000 | ) | - | |||||
Proceeds from notes payable | 135,000 | - | ||||||
Net cash provided by financing activities | 120,000 | 210,352 | ||||||
Net increase in cash | 58 | 27,824 | ||||||
Cash at beginning of period | 54,254 | 1,172 | ||||||
Cash at end of period | $ | 54,312 | $ | 28,996 | ||||
Supplemental disclosure of cash flow information: | ||||||||
Cash paid for interest | $ | - | $ | - | ||||
Cash paid for taxes | $ | - | $ | - | ||||
Non-cash investing and financing activities: | ||||||||
Common stock returned to treasury and cancelled | $ | - | $ | 21,583 | ||||
Common stock for accounts payable | $ | - | $ | 80,933 | ||||
Common stock returned to treasury and cancelled | $ | - | $ | 3,538 |
See accompanying notes to unaudited condensed consolidated financial statements.
5 |
PETLIFE PHARMACEUTICALS, INC.
Notes to Condensed Consolidated Financial Statements
November 30, 2017
(unaudited)
NOTE 1 – NATURE OF BUSINESS AND PRESENTATION
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 fwas 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.
Nature of Operations
PetLife is a registered U.S. Veterinary Pharmaceutical company whose mission is to bring its scientifically proven, potentiated bioactive 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 accompanying unaudited condensed consolidated financial statements of PetLife Pharmaceuticals, Inc. have been prepared in accordance with U.S. generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and done under §240.13(a) of the Securities Act. The results of operations for the interim period ended November 30, 2017 shown in this report are not necessarily indicative of results to be expected for the full fiscal year ending August 31, 2018. In the opinion of the Company’s management, the information contained herein reflects all adjustments (consisting of normal recurring adjustments) necessary for a fair presentation of the Company’s results of operations, financial position and cash flows. The unaudited interim financial statements should be read in conjunction with the audited financial statements in the Company’s Form 10-K for the year ended August 31, 2017, filed on December 14, 2017 and Management’s Discussion and Analysis of Financial Condition and Results of Operations.
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.
6 |
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 will continue to ascertain the value of the intangible assets before the fiscal year end. The intangible assets were impaired 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.
7 |
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 November 30, 2017, tax years 2012 - 2017 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 November 30, 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.
8 |
NOTE 2 – GOING CONCERN
The Company has a net loss for the three months ended November 30, 2017 of $466,660 and working capital deficit as of November 30, 2017 of $1,772,359, and has used cash in operations of $107,867 for the three months ended November 30, 2017. In addition, as of November 30, 2017, the Company had a stockholders’ deficit and accumulated deficit of $1,772,359 and $30,854,840, respectively. These conditions raise substantial doubt about the Company’s ability to continue as a going concern.
The accompanying condensed 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 3 – NOTES PAYABLE
The Company has notes payable as of November 30, 2017 are as follows:
Notes payable and convertible notes payable | November 30, 2017 | August 31, 2017 | ||||||||||||||||||||||||||||||
Debt | Debt | |||||||||||||||||||||||||||||||
Principal | Discount | OID | Principal | Principal | Discount | OID | Principal | |||||||||||||||||||||||||
Shelton Davis (1) | $ | 25,000 | $ | - | $ | - | $ | 25,000 | $ | 25,000 | $ | - | $ | - | $ | 25,000 | ||||||||||||||||
Steven Sass (1) | 25,000 | - | - | 25,000 | 25,000 | - | - | 25,000 | ||||||||||||||||||||||||
Alkmini Anastasiadou | 297,000 | - | - | 297,000 | 312,000 | - | - | 312,000 | ||||||||||||||||||||||||
Luke Hoppel (1) | 75,000 | (50,957 | ) | - | 24,043 | 75,000 | (59,697 | ) | (18,331 | ) | (3,028 | ) | ||||||||||||||||||||
PowerUp (1) | 53,000 | (28,383 | ) | - | 24,617 | 53,000 | (42,654 | ) | - | 10,346 | ||||||||||||||||||||||
Auctus (1) | 135,000 | (123,132 | ) | - | 11,868 | - | - | - | - | |||||||||||||||||||||||
$ | 610,000 | $ | (202,472 | ) | $ | - | $ | 407,528 | $ | 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 November 30, 2017, $3,123 of interest has been accrued. On July 27, 2017, the note was extended to July 27, 2018.
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 November 30, 2017, $2,452 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 November 30, 2017, $2,236 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. The Company recorded a debt discount of $67,880. As of November 30, 2017, $16,923 has been amortized.
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 November 30, 2017, $1,655 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. The Company recorded a debt discount of $43,124. As of November 30, 2017, $14,741 has been amortized.
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% resulting in a debt discount of $135,000. The Company is required to issue 123,875 shares of common stock to Auctus which were an inducement for the financing. As of November 30, 2017, the 123,875 shares of common stock which has not been issued and valued at approximately $12,000. As of November 30, 2017, $1,110 of interest has been accrued. As of November 30, 2017, $11,868 has been amortized.
9 |
Note payable
On May 15, 2017, the Company entered into a settlement agreement with Arthur G. Mikaelian, et al (see Note 6 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 November 30, 2017, the balance of the note was $297,000 and the accrued interest was $5,069. 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. On December 27, 2017, the Company and Anastasiadou executed a replacement promissory note (the “Anastasiadou Replacement Note”) which modified the monthly payments to $7,000 beginning on January 1, 2018 with a balloon payment on July 1, 2018.
The Company has notes payable to related parties, net of discounts, as of November 30, 2017 and August 31, 2017, as follows:
November 30, 2017 | August 31, 2017 | |||||||||||||||||||||||||||||||
Notes payable to related | Debt | Debt | ||||||||||||||||||||||||||||||
parties, net of discounts | Principal | Discount | OID | Principal | Principal | Discount | OID | Principal | ||||||||||||||||||||||||
Ralph Salvagno | $ | 153,011 | $ | - | $ | - | $ | 153,011 | $ | 153,011 | $ | - | $ | - | $ | 153,011 | ||||||||||||||||
Ralph Salvagno | 59,852 | - | - | 59,852 | 59,852 | - | - | 59,852 | ||||||||||||||||||||||||
Ralph Salvagno | 24,830 | - | - | 24,830 | 24,830 | - | - | 24,830 | ||||||||||||||||||||||||
Ralph Salvagno | 98,665 | - | - | 98,665 | 98,665 | - | - | 98,665 | ||||||||||||||||||||||||
$ | 336,358 | $ | - | $ | - | $ | 336,358 | $ | 336,358 | $ | - | $ | - | $ | 336,358 |
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 November 30, 2017, $3,823 of interest has been accrued. See Note 5.
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 November 30, 2017, $2,105 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 November 30, 2017, $702 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 November 30, 2017, $995 of interest has been accrued. See Note 5.
NOTE 4 – 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 November 30, 2017, $10,000 remains outstanding.
As of November 30, 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 November 30, 2017, and August 31, 2017, there are related party accounts payable and accrued expenses of $105,025 and $75,526, 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 November 30, 2017, $3,823 of interest has been accrued. See Note 3.
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 3.
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 November 30, 2017, $2,105 of interest has been accrued. See Note 3.
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 November 30, 2017, $702 of interest has been accrued. See Note 3.
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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 November 30, 2017, $995 of interest has been accrued. See Note 3.
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.
NOTE 5 - 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 are entitled, by reason of their ownership of Preferred Stock, to receive the preferential amount, prior and in preference to any distribution of any of the assets of the Corporation to the holders of 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.
During the three months ended November 30, 2017, the Company issued 109,115 common shares valued at $12,000 for legal services.
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 that were vested as of August 31, 2017 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 terminated the agreement effective August 31, 2017. The Company is obligated to issue 150,000 common shares that were vested as of August 31, 2017 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.
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The Company has granted options to an employee and to a consultant. Options activity for the three months ended November 30, 2017 is as follows:
Weighted | ||||||||||||||||
Weighted | Average | |||||||||||||||
Average | Remaining | Aggregate | ||||||||||||||
Number | Exercise | Contractual | Intrinsic | |||||||||||||
of Options | Price | Terms | Value | |||||||||||||
Outstanding at August 31, 2017 | 4,000,000 | $ | 0.25 | |||||||||||||
Granted | - | $ | - | |||||||||||||
Exercised | - | $ | - | |||||||||||||
Forfeited | - | $ | - | |||||||||||||
Expired | - | $ | - | |||||||||||||
Outstanding at November 30, 2017 | 4,000,000 | $ | 0.25 | 1.52 | $ | 369,200 | ||||||||||
Exercisable at November 30, 2017 | 4,000,000 | $ | 0.25 |
NOTE 6 – 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 November 30, 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. On December 27, 2017, the Company and Anastasiadou executed a replacement promissory note (the “Anastasiadou Replacement Note”) which modified the monthly payments to $7,000 beginning on January 1, 2018 with a balloon payment on July 1, 2018. See Note 3.
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.
Future minimum lease payments are as follows:
2018 | $ | 4,500 | ||
2019 | - | |||
2020 | - | |||
2021 | - | |||
2022 | - | |||
Future | - | |||
Total | $ | 4,500 |
Rent expense for the three months ended November 30, 2017 and 2016 was $2,250 and $2,250, respectively.
NOTE 7 – 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 November 30, 2017. There have been no losses in these accounts through November 30, 2017.
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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. The Company impaired the assets during the year ended August 31, 2017.
NOTE 8 – 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 November 30, 2017 and 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 | August 31, | November 30, | ||||||||||
Date | 2017 | 2017 | ||||||||||
Volatility | 180% - 350% | 291 | % | 190 | % | |||||||
Expected Term | 0.75 - 0.88 years | 0.33 - 0.88 years | 0.5 - 1.02 years | |||||||||
Risk-Free Interest Rate | 1.07% - 1.40% | 1.23 | % | 1.44 | % |
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 fiscal year 2017 | (8,627 | ) | ||
Embedded conversion option derivative liability fair value on August 31, 2017 | 102,377 | |||
Note inception date fair value allocated to debt discount | 158,790 | |||
Change in fair value in fiscal year 2018 | 186,459 | |||
Embedded conversion option derivative liability fair value on November 30, 2017 | $ | 447,626 |
NOTE 9 – SUBSEQUENT EVENTS
On December 1, 2017, the Company has 49,080 shares of common stock issuable to the Company’s legal counsel.
On December 27, 2017, the Company and Anastasiadou executed the Anastasiadou Replacement Note which modified the monthly payments to $7,000 beginning on January 1, 2018 with a balloon payment on July 1, 2018.
On January 1, 2018, the Company has 73,828 shares of common stock issuable to the Company’s legal counsel.
On January 5, 2018, the Company executed a $135,000 convertible note. The note matures on January 5, 2019 and bears interest of 12% which accrues. The conversion feature provides for a discount of 40%.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
SPECIAL NOTE CONCERNING FORWARD-LOOKING STATEMENTS
We believe that it is important to communicate our future expectations to our security holders and to the public. This report, therefore, contains statements about future events and expectations which are “forward-looking statements” within the meaning of Sections 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including the statements about our plans, objectives, expectations and prospects under the heading “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” You can expect to identify these statements by forward-looking words such as “may,” “might,” “could,” “would,” “will,” “anticipate,” “believe,” “plan,” “estimate,” “project,” “expect,” “intend,” “seek” and other similar expressions. Any statement contained in this report that is not a statement of historical fact may be deemed to be a forward-looking statement. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved.
Important factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended August 31, 2017 and in our subsequent filings with the Securities and Exchange Commission. The following discussion of our results of operations should be read together with our financial statements and related notes included elsewhere in this report.
Company Overview
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.
PetLife is a registered U.S. Veterinary Pharmaceutical company whose mission is to bring its scientifically proven, potentiated bioactive 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.
Plan of Operations
We will be developing nutraceuticals and FDA approved prescription drugs for veterinary use for retail sales and distribution throughout the world.
PetLife’s primary goal is to bring its scientifically proven, potentiated bioactive medication and nutraceuticals to the world of veterinary oncology, with the ultimate goal of extending the life of pets with cancer and improving their quality of life. In the process of achieving these objectives, PetLife will transition into a world renowned, professionally respected veterinary pharmaceutical company that will create new industry standards as well as being profitable and innovative.
The following Management Discussion and Analysis should be read in conjunction with the financial statements and accompanying notes included in this Form 10-Q.
Results of Operations
For the three months ended November 30, 2017 and 2016
Revenue
The Company has no revenues for the three months ended November 30, 2017 and 2016.
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Operating expenses
For the three months ended November 30, 2017 we incurred $193,310 in operating expenses as compared to $19,113,466 in operating expenses we incurred for the three months ended November 30, 2016. Operating expenses for the three months ended November 30, 2017 decreased primarily due to the decrease in stock-based compensation and decrease in salary expense of $137,500. Stock-based compensation made up $75,751 and $18,793,439 of operating expenses for the three months ended November 30, 2017 and 2016, respectively.
Net loss
We incurred a net loss of $466,660 for the three months ended November 30, 2017 as compared to $19,115,632 for the three months ended November 30, 2016. Net loss for the three months ended November 30, 2017 decreased primarily due to the decrease in stock-based compensation. Additionally, the Company incurred approximately $87,000 in interest expense and $186,500 in change in derivatives due to debt financing for the three months ended November 30, 2017.
Liquidity and Capital Resources
We used cash in operations of $119,942 for the three months ended November 30, 2017 compared to cash used in operations of $182,528 for the three months ended November 30, 2016. The negative cash flow from operating activities for the three months ended November 30, 2016 is attributable to general and administrative costs such as professional fees and travel. Cash used in operations for the three months ended November 30, 2017 is attributable to the Company’s net loss of $466,660 offset primarily by change in derivative liabilities.
We used cash in investing activities of $0 and $0 for the three months ended November 30, 2017 and 2016, respectively.
We had cash provided by financing activities of $120,000 for the three months ended November 30, 2017, compared to $210,352 for the three months ended November 30, 2016. During the three months ended November 30, 2017, the Company paid $15,000 on a note payable and received $135,000 from convertible notes payable.
We will have to raise funds to pay for our expenses. We may have to borrow money from shareholders or issue debt or equity or enter into a strategic arrangement with a third party. There can be no assurance that additional capital will be available to us. We currently have no arrangements or understandings with any person to obtain funds through bank loans, lines of credit or any other sources. Since we have no such arrangements or plans currently in effect, our inability to raise funds for our operations will have a severe negative impact on our ability to remain a viable company.
Going Concern
The Company has no revenues for the three months ended November 30, 2017, has a net loss for the three months ended November 30, 2017 of $466,660, and working capital deficit as of November 30, 2017 of $1,772,359, and used cash in operations of $107,867 for the three months ended November 30, 2017. In addition, as of November 30, 2017, the Company had a stockholders’ deficit and accumulated deficit of $1,772,359 and $30,854,840, 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.
Off-Balance sheet Arrangements
We currently have no off-balance sheet arrangements that have or are reasonably likely to have a current or future material effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.
Critical Accounting Policies
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make a number of 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. Such estimates and assumptions affect the reported amounts of revenues and expenses during the reporting period. We base our estimates on historical experiences and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions and conditions. We continue to monitor significant estimates made during the preparation of our financial statements. On an ongoing basis, we evaluate estimates and assumptions based upon historical experience and various other factors and circumstances. We believe our estimates and assumptions are reasonable in the circumstances; however, actual results may differ from these estimates under different future conditions.
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See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and Note 1, “Summary of Significant Accounting Policies” in our audited financial statements for the year ended August 31, 2017, included in our Annual Report on Form 10-K as filed on December 14, 2017, for a discussion of our critical accounting policies and estimates.
Item 3. Quantitative and Qualitative Disclosures about Market Risk
A smaller reporting company, as defined by Item 10 of Regulation S-K, is not required to provide the information required by this item.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and interim chief financial officer to allow timely decisions regarding disclosure.
As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:
1. | The Company intends to appoint additional independent directors; | |
2. | Lack of in-house personnel with the technical knowledge to identify and address some of the reporting issues surrounding certain complex or non-routine transactions. With material, complex and non-routine transactions, management has and will continue to seek guidance from third-party experts and/or consultants to gain a thorough understanding of these transactions; | |
3. | Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting; | |
4. | Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes. |
To remediate our internal control weaknesses, management intends to implement the following measures:
● | The Company will add sufficient number of independent directors to the board and appoint additional member(s) to the Audit Committee. | |
● | The Company will add sufficient accounting personnel to properly segregate duties and to effect a timely, accurate preparation of the financial statements. | |
● | The Company will hire staff technically proficient at applying U.S. GAAP to financial transactions and reporting. | |
● | Upon the hiring of additional accounting personnel, the Company will develop and maintain adequate written accounting policies and procedures. |
The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt and the results of its operations. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.
Changes in Internal Control Over Financial Reporting
There are no changes in our internal controls over financial reporting other than as described elsewhere herein.
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Limitations on the Effectiveness of Controls
The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.
There are no pending legal proceedings in which we are a party or in which any of our directors, officers or affiliates, any owner of record or beneficiary of more than 5% of any class of our voting securities is a party adverse to us or has a material interest adverse to us. Our property is not the subject of any pending legal proceedings.
Not required by smaller reporting companies.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.
During the quarter ending November 30, 2017, the Company issued the following unregistered securities. These securities were issued in reliance upon the exemption from registration provided by Section 4(2) of the Securities Act of 1933, as amended, Regulation D promulgated thereunder as there was no general solicitation, and the transactions did not involve a public offering.
During the three months ended November 30, 2017, the Company issued 109,115 common shares valued at $12,000 for legal services.
On December 1, 2017, the Company has 49,080 shares of common stock issuable to the Company’s legal counsel.
On January 1, 2018, the Company has 73,828 shares of common stock issuable to the Company’s legal counsel.
Item 3. Defaults Upon Senior Securities.
None.
Item 4. Mine Safety Disclosures.
Not applicable.
None.
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The following exhibits are filed as part of this quarterly report on Form 10-Q:
(1) Filed herewith
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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.
Dated: January 22, 2018 | PetLife Pharmaceuticals, Inc. | |
(the registrant) | ||
By: | /s/ Ralph T. Salvagno | |
Ralph T. Salvagno | ||
Chief Executive Officer and Chief Financial Officer |
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