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 June 30, 2019

[ ]	Transition Report pursuant to 13 or 15(d) of the Securities Exchange Act of 1934

	For the transition period from __________ to__________

	Commission File Number: 000-55023

Vilacto Bio, Inc.

(Exact name of registrant as specified in its charter)


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

The Seagram Building, 375 Park Avenue Suite 2607 New York City, NY 10152
(Address of principal executive offices)

+1 (646) 893-7895
(Registrant’s telephone number)
_______________________________________________________
(Former name, former address and former fiscal year, if changed since last report)

Securities registered pursuant to Section 12(b) of the Act: None

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

[X] Yes [ ] No

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such fi les).Yes [X] No [ ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and "emerging growth company" in Rule 12b-2 of the Exchange Act.

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

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

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

[ ] Yes [X] No

State the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date: 2,137,022,424 common shares as of August 19, 2019

Table of Contents

TABLE OF CONTENTS
		Page
PART I – FINANCIAL INFORMATION
Item 1:	Financial Statements	3
Item 2:	Management’s Discussion and Analysis of Financial Condition and Results of Operations	4
Item 3:	Quantitative and Qualitative Disclosures About Market Risk	7
Item 4:	Controls and Procedures	7
PART II – OTHER INFORMATION
Item 1:	Legal Proceedings	8
Item 1A:	Risk Factors	8
Item 2:	Unregistered Sales of Equity Securities and Use of Proceeds	8
Item 3:	Defaults Upon Senior Securities	9
Item 4:	Mine Safety Disclosures	9
Item 5:	Other Information	9
Item 6:	Exhibits	9

Table of Contents

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements

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

F-1	Balance Sheets as of June 30, 2019 (unaudited) and March 31, 2019;
F-2	Statements of Operations for the three months ended June 30, 2019 and 2018 (unaudited);
F-3	Statement of Stockholders’ Deficit as of June 30, 2019;
F-4	Statements of Cash Flows for the three months ended June 30, 2019 and 2018 (unaudited); and
F-5	Notes to Financial Statements.

These financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and the SEC instructions to Form 10-Q. In the opinion of management, all adjustments considered necessary for a fair presentation have been included. Operating results for the interim period ended June 30, 2019 are not necessarily indicative of the results that can be expected for the full year.

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VILACTO BIO INC.

BALANCE SHEETS

(UNAUDITED)

	June 30, 2019			March 31, 2019
ASSETS
Current assets
Cash	$	120,731		$	257,218
Accounts receivable		—			23
Inventory		121,415			119,045
Prepaid expenses		3,792			—
Total current assets		245,938			376,286

Fixed assets, net		10,695			11,302
Intangible assets, net		145,685			150,080

Total assets		402,318			537,668

LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities
Accounts payable and accrued liabilities	$	49,065		$	76,023
Due to related parties		233,229			176,026
Convertible loans		76,303			274,688
Derivative liabilities		348,484			1,227,041
Loans		174,000			174,000
Loans from related parties		2,032,608			2,032,608
Total current liabilities		2,913,689			3,960,386

Total liabilities		2,913,689			3,960,386

Stockholders' equity (deficit)
Preferred stock; $0.001 par value; 10,000,000 shares authorized; 3,000,000 and 0 shares issued and outstanding as of June 30, 2019 and March 31, 2018, respectively		3,000			3,000
Common stock; $0.001 par value; 4,000,000,000 shares authorized; 1,914,431,324 and 90,000,000 shares issued and outstanding as of June 30, 2019 and March 31, 2018, respectively		1,914,429			597,065
Stock payable		7,642			15,029
Additional paid-in capital		4,032,328			3,820,233
Accumulated earnings (deficit)		(8,468,770	)		(7,858,045)
Total stockholders' equity (deficit)		(2,511,371	)		(3,422,718)

Total liabilities and stockholders' equity (deficit)	$	402,318		$	537,668

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

F-1

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VILACTO BIO INC.

STATEMENT OF OPERATIONS

(UNAUDITED)

	For the Three months Ended
	June 30, 2019			June 30, 2018

Revenues	$	5,167		$	430

Cost of revenues		4,237			230

Gross profit		930			200

Operating expenses
Royalty expense		—			30,000
Professional fees		7,198			20,895
General and administrative expenses		140,581			66,586
Depreciation and amortization expense		5,002			199
Total operating expenses		152,781			117,680

Loss from operations		(151,851	)		(117,480)

Other income (expense)
Gain (loss) on derivative liabilities		(184,834	)		268,814
Interest expense		(274,040	)		(98,821)
Total other income (expense)		(458,874	)		169,993

Net income (loss)	$	(610,725	)	$	52,513

Basic income (loss) per common share	$	(0.00	)	$	0.00

Basic weighted average common shares outstanding		783,415,437			90,000,000

The accompanying notes are an integral part of these financial statements

F-2

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VILACTO BIO INC.

STATEMENT OF STOCKHOLDERS DEFICIT

(UNAUDITED)

For the Three Months Ended June 30, 2018
	Preferred Stock				Common Stock
	Shares		Amount		Shares		Amount		Additional Paid-in Capital			Stock Payable		Accumulated Deficit			Total Stockholders' Deficit
Balance, March 31, 2018		—		—		90,000,000		90,000		(22,000	)		—		(1,003,914	)		(935,914)
Net income		—		—		—		—		—			—		52,513			52,513
Balance, June 30, 2018		—		—		90,000,000		90,000		(22,000	)		—		(951,401	)		(883,401)

For the Three Months Ended June 30, 2019
	Preferred Stock		Common Stock
	Shares	Amount	Shares	Amount	Additional Paid-in Capital	Stock Payable		Accumulated Deficit		Total Stockholders' Deficit
Balance, March 31, 2019	3,000,000	3,000	597,064,715	597,065	3,820,233	15,029		(7,858,045	)	(3,422,718)
Shares issued upon conversion of debts	—	—	1,317,366,609	1,317,364	212,095	(7,387	)	—		1,522,072
Net loss	—	—	—	—	—	—		(610,725	)	(610,725)
Balance, June 30, 2019	3,000,000	3,000	1,914,431,324	1,914,429	4,032,328	7,642		(8,468,770	)	(2,511,371)

The accompanying notes are an integral part of these financial statements

F-3

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VILACTO BIO INC.

STATEMENT OF CASH FLOWS

(UNAUDITED)

	For the Three Months Ended
	June 30, 2019			June 30, 2019
Cash Flows from Operating Activities
Net income (loss)		(610,725	)	$	52,513
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization		5,002			199
Loss on derivative liability		184,834			(268,814)
Amortization of debt discount		207,731			87,081
Changes in assets and liabilities
(Increase) decrease in accounts receivable		23			(8)
(Increase) decrease in prepaid expense		(3,792	)		16,206
(Increase) decrease in inventory		(2,370	)		196
Increase (decrease) in accounts payable		66,310			10,692
Net cash from operating activities		(152,987	)		(101,935)

Cash Flows from investing
Purchase of intangible assets		—			(5,000)
Net cash used in investing activities		—			(5,000)

Cash Flows from Financing Activities
Advance from related parties		16,500			6,907
Net cash from financing activities		16,500			6,907

Net increase (decrease) in Cash		(136,487	)		(100,028)

Beginning cash balance		257,218			148,767

Ending cash balance	$	120,731		$	48,739

Supplemental disclosure of cash flow information
Cash paid for interest	$	—		$	—
Cash paid for tax	$	—		$	—

The accompanying notes are an integral part of these financial statements

F-4

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

1. ORGANIZATION AND LINE BUSINESS

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

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

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

On November 8, 2018, we entered into an Asset Purchase Agreement with 9 Heroes APS, a Denmark corporation that is controlled by our CEO, Gert Andersen, to purchase certain patents applications and intellectual property. We formed a new wholly owned subsidiary, Vilacto BioIP, LLC, to hold the assets acquired in the Asset Purchase Agreement. (See Note 6 for additional details)

The patent applications and intellectual property include the following:

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

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

2. BASIS OF PRESENTATION AND GOING CONCERN

The accompanying financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the period presented have been reflected herein.

Going concern – The accompanying financial statements have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The Company has incurred cumulative net losses of $8,468,770 since its inception, has incurred recurring operating losses, has negative working capital at June 30, 2019 and requires capital for its contemplated operational and marketing activities to take place. The Company’s ability to raise additional capital through future issuances of common stock is unknown. The obtainment of additional financing, the successful development of the Company’s contemplated plan of operations, and its transition, ultimately, to the attainment of profitable operations are necessary for the Company to continue operations. The ability to successfully resolve these factors raises substantial doubt about the Company’s ability to continue as a going concern. The financial statements of the Company do not include any adjustments that may result from the outcome of these aforementioned uncertainties.

F-5

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

3. SUMMARY OF SIGNIFICANT POLICIES

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

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

Revenue Recognition – We recognize revenue in accordance with ASC 606. On agreements for the products we sell on a standardized basis for sale to the market at a point in time. We recognize revenue at the point in time that the customer obtains control of the good. We use proof of delivery for large orders, whereas the delivery of most of our products is estimated based on historical averages of in-transit periods (i.e., time between shipment and delivery).

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

For the three months ended June 30, 2019 and 2018 the Company reported revenues of $5,167 and $430 respectively.

Accounts Receivable – Accounts receivable is comprised of uncollateralized customer obligations due under normal trade terms. The Company performs ongoing credit evaluation of its customers and management closely monitors outstanding receivables based on factors surrounding the credit risk of specific customers, historical trends, and other information. The carrying amount of accounts receivable is reviewed periodically for collectability. If management determines that collection is unlikely, an allowance that reflects management’s best estimate of the amounts that will not be collected is recorded. Accounts receivable are presented net of an allowance for doubtful accounts of $0 and $23 at June 30, 2019, and March 31, 2019, respectively.

Cash and cash equivalents – For purposes of the statement of cash flows, the Company considers all highly liquid investments and short-term instruments with original maturities of three months or less to be cash equivalents. There was $120,731 and $48,739 in cash and no cash equivalents as of June 30, 2019, and June 30, 2018, respectively.

Concentration Risk

At times throughout the year, the Company may maintain cash balances in certain bank accounts in excess of FDIC limits. As of June 30, 2019, the cash balance in excess of the FDIC limits was $0. The Company has not experienced any losses in such accounts and believes it is not exposed to any significant credit risk in these accounts.

F-6

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

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

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

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

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

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

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

Stock-based compensation – The Company follows the guidelines in FASB Codification Topic ASC 718-10 “Compensation-Stock Compensation,” which provides investors and other users of financial statements with more complete and neutral financial information, by requiring that the compensation cost relating to share-based payment transactions be recognized in the financial statements. That cost will be measured based on the fair value of the equity or liability instruments issued. ASC 718-10 covers a wide range of share-based compensation arrangements, including share options, restricted share plans, performance-based awards, share appreciation rights and employee share purchase plans. On November 15, 2018, our Board of Directors adopted a 2018 Incentive Plan (the “Plan”) The Plan is designed to attract, retain and motivate employees, officers, directors, consultants, agents, advisors and independent contractors of our company by providing them the opportunity to acquire a proprietary interest in our company and to align their interests and efforts to the long-term interests of our stockholders. As of June 30, 2019, the Company has reserved 9,850,000 shares of common stock under the Plan.

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

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

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

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

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

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

Inventory – Substantially all inventory consists of finished goods and are valued based upon first-in first-out ("FIFO") cost, not in excess of market. The cost of our inventory includes the amount we pay to our suppliers to acquire inventory, freight costs incurred in connection with the delivery of product to our distribution centers. Net realizable value represents the estimated selling price less all estimated costs of completion and costs to be incurred in marketing, selling and distribution. The Company evaluates potentially excess and slow-moving inventories on a quarterly basis by evaluating turn rates, inventory levels and other factors, and records lower of cost or market reserves for such identified excess and slow-moving inventories. As of March 31, 2019, and March 31, 2018, no such reserve had been recorded.

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

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

Recently Issued Accounting Pronouncements – In February 2016, the FASB issued ASU 2016-02, “Leases” (“ASC 842”). The guidance requires lessees to recognize almost all leases on their balance sheet as a right-of-use asset and a lease liability. For income statement purposes, the FASB retained a dual model, requiring leases to be classified as either operating or finance. Lessor accounting is similar to the current model, but updated to align with certain changes to the lessee model and the new revenue recognition standard. Existing sale-leaseback guidance, including guidance for real estate, is replaced with a new model applicable to both lessees and lessors. ASC 842 is effective for fiscal years beginning after December 15, 2018.

We adopted ASC 842 effective January 1, 2019 using the optional transition method of recognizing a cumulative-effect adjustment to the opening balance of retained earnings on April 1, 2019. Therefore, comparative financial information was not adjusted and continues to be reported under the prior lease accounting guidance in ASC 840. We elected the transition relief package of practical expedients, and as a result, we did not assess 1) whether existing or expired contracts contain embedded leases, 2) lease classification for any existing or expired leases, and 3) whether lease origination costs qualified as initial direct costs. We elected the short-term lease practical expedient by establishing an accounting policy to exclude leases with a term of 12 months or less, as well as the land easement practical expedient for maintaining our current accounting policy for existing or expired land easements.

In June 2018, the FASB issued ASU 2018-07, "Compensation-Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting," which modifies the accounting for share-based payment awards issued to nonemployees to largely align it with the accounting for share-based payment awards issued to employees. ASU 2018-07 is effective for us for annual periods beginning April 1, 2019. Management evaluated ASU 2018-07 and determined that the adoption of this new accounting standard did not have a material impact on the Company’s consolidated financial statements.

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

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

4. INVENTORY

Inventory consist of the following as of June 30, 2019 and March 31, 2019:

	June 30, 2019		March 31, 2019
Raw materials	$	6,607	$	—
Finished Goods		114,808		119,045
Total	$	121,415	$	119,045

5. PREPAID EXPENSES

Prepaid expenses consist of the following as of June 30, 2019 and March 31, 2019:

	June 30, 2019		March 31, 2019
Prepaid Marketing	$	3,792	$	—
Total prepaid expenses	$	3,792	$	—

6. INTANGIBLE ASSETS

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

Intangible assets consist of the following as of June 30, 2019 and March 31, 2019:

	June 3, 2019			March 31, 2019
Patents and trademarks		135,850			135,850
Website		21,394			21,394
Less: accumulated amortization		(11,559	)		(7,164)
Intangible assets, net of accumulated amortization		145,685			150,080

Amortization expense for the three months ended June 30, 2019 and 2018 was $4,395 and $199, respectively.

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

The patent applications and intellectual property include the following:

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

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

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

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

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

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

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VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

7. CONVERTIBLE NOTES PAYABLE

Convertible Notes Payable at consists of the following:	June 30,			March 31,
	2019			2019

Auctus Fund, LLC On February 26, 2018, we entered into a Securities Purchase Agreement (the “Auctus SPA”), under which we agreed to sell a 12% convertible promissory note in an aggregate principal amount of $167,750 (the “Auctus Note”) to Auctus Fund, LLC (“Auctus”). The Auctus Note bears interest at a rate of 12% per annum and matured on November 26, 2018. The net proceeds of the sale of the Auctus Note, after deducting the expenses payable, were $150,000. At any time after the issue date of the Auctus Note, Auctus has the option to convert all or any part of the outstanding and unpaid principal amount and accrued and unpaid interest of the Auctus Note into shares of our common stock at the Conversion Price. The “Conversion Price” is the lesser of (i) the lowest trading price of our common stock during the twenty-five-day trading period prior to the issue date of the Auctus Note and (ii) 50% of the lowest trading price of our common stock during the twenty-five-day trading period prior to the conversion. The Conversion Price is subject to further reduction upon certain events specified in the Auctus Note. We have the right to prepay the Auctus Note at any time until the 180th calendar day after the issue date of the Auctus Note, in an amount equal to 150% (or 135% if we prepay the Auctus Note on or before the date that is 90 days after the issue date of the Auctus Note) of the outstanding balance of the Auctus Note (including principal and accrued and unpaid interest). We may not prepay the Auctus Note after the 180th calendar day after the issue date of the Auctus Note. We will be subject to a liquidated damages charge of 25% of the outstanding principal amount of the Auctus Note if we effect certain exchange transactions in accordance with, based upon or related or pursuant to Section 3(a)(10) of the Securities Act. In addition, the Auctus Note grants Auctus the right to update the terms of the Auctus SPA and the Auctus Note to incorporate the terms of any future transaction document related to a security issuance by us to a third party that are more favorable to the third party than the terms of the Auctus SPA and the Auctus Note. Any amounts due and payable to Auctus under the terms of the Auctus Note, including any payment on an event of default, default interest, or agreed upon liquidated damages may, at the Auctus's option, be converted into shares of our common stock at the Conversion Price. Pursuant to a Registration Rights Agreement, we are required to register 30,000,000 shares into which the Auctus Note may be converted. As of June 30, 2019 the note holder had converted $167,750 in Principal and $54,741 in interest and fees into 608,658,450 shares of the Company’s common stock. (See note 9 for additional details.) During the three months ended June 30, 2019 and 2018 the Company recorded interest of $19,659 and $5,019, respectively. The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $0 and $55,197 during the three months ended June 30, 2019 and 2018 respectively.	$	—			167,750
Unamortized debt discount		—			—
Total, net of unamortized discount		—			154,005
EMA Financial, LLC On February 23, 2018 we entered into a Securities Purchase Agreement (“EMA SPA”) with EMA Financial, LLC, a Delaware limited liability company (“EMA”), pursuant to which we issued and sold to EMA a convertible promissory note, dated February 23, 2018 in the principal amount of $125,000 (the “EMA Note”). In connection with the foregoing, we also entered into a Registration Rights Agreement with the Purchaser dated February 23, 2018 (the “Registration Rights Agreement”). The EMA Note, as amended, was due February 23, 2019 and bears interest at the rate of 12% per annum. All principal and accrued interest on the EMA Note is convertible into shares of our common stock at the election of EMA at any time at a conversion price equal to the lesser of (i) the trading price for our common stock on the trading day prior to the closing date of the EMA Note, or (ii) a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We have no right to prepay the EMA Note more than 180 days after the closing date. The EMA Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. As a result of claimed defaults, the promissory notes discount conversion rate was increased to a 80% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion On July 6, 2018, the Company executed an amendment to the promissory note to cure certain events of default in which it agreed to increase the principal balance of the note by $37,500 and pay $25,000 in principal to the lender within 5 days of execution of the amendment. The company treated the amendment as a debt modification under ASC 470 and recorded a corresponding loss on debt modification of $37,500. During the year ended March 31, 2019 the Company incurred additional penalties of approximately $120,533 which were added to the principal total owed under the promissory note. As of June 30, 2019, the note holder had converted $223,033 in Principal and $37,509 in interest and fees into 488,726,857 shares of the Company’s common stock. (See note 9 for additional details.) During the three months ended June 30, 2019 and 2018 the Company recorded interest of $5,584 and $3,740, respectively. In July 2018, the Company made a cash payment of principal and interest of $60,000 on the then outstanding balance. The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $0 and $31,164 during the three months ended June 30, 2019 and 2018 respectively.		—			76,717
Unamortized debt discount		—			—
Total, net of unamortized discount		—			76,717

GS Capital Partners, LLC Convertible Note On July 11, 2018 we entered into a Convertible note with GS Capital Bays, LLC (“GS”) pursuant to which we issued a convertible promissory note, dated July 11, 2018 in the principal amount of $110,000 (the “GS Note”). The GS Note is due July 11, 2019 and bears interest at the rate of 10% per annum. All principal and accrued interest on the GS Note is convertible into shares of our common stock at the election of GS at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We have the right to prepay the GS Note within 60 days of the closing date at a premium of 125% of all amounts owed to GS and at a premium of 135% if prepaid more than 60 but less than 120 days following the closing date, at a premium of 145% if prepaid more than 120 but less than 180 days following the closing date. We have no right to prepay the GS Note more than 180 days after the closing date. The GS Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $1,292. As of June 30, 2019, the note holder had converted $110,000 in Principal and $7,025 in interest and fees into 95,049,338 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $18,000 during the three months ended June 30, 2019.		—			18,000
Unamortized debt discount		—			(18,000)
Total, net of unamortized discount		—			—

Adar Bays, LLC July 23, 2018 Secured Convertible Note On July 23, 2018 we entered into a Secured Convertible note with Adar Bays, LLC (“Adar”) pursuant to which we issued a convertible promissory note, dated July 23, 2018, in the principal amount of $50,000 (the “Adar Note”). The Adar Note is due July 23, 2019 and bears interest at the rate of 10% per annum. All principal and accrued interest on the Adar Note is convertible into shares of our common stock at the election of Adar at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We have the right to prepay the Adar Note within 90 days of the closing date at a premium of 135% of all amounts owed to Adar and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the Adar Note more than 180 days after the closing date. The Adar Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $260. As of June 30, 2019, the note holder had converted $50,000 in Principal and $3.698.06 in interest and fees into 82,612,401 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $15,616 during the three months ended June 30, 2019.		—			50,000
Unamortized debt discount		—			(15,616)
Total, net of unamortized discount		—			22,055

Power UP Lending Group Convertible Note – October 15, 2018 On October 15, 2018 we entered into a Convertible note with Power UP Lending Group LTD (“Power UP”) pursuant to which we issued a convertible promissory note, dated October 15, 2018 in the principal amount of $128,000 (the “Power UP Note”). The Power UP Note is due October 15, 2019 and bears interest at the rate of 8% per annum. All principal and accrued interest on the Power UP Note is convertible into shares of our common stock 180 days following October 15, 2018 at a conversion price equal to a 37% discount to the lowest trading or lowest closing bid price for our common stock during the 15-trading day period immediately prior to conversion. We have the right to prepay the Power UP Note within 30 days of the closing date at a premium of 112% of all amounts owed to Power UP and at a premium of 117% if prepaid more than 31 but less than 60 days following the closing date and at a premium of 122% if prepaid more than 61 but less than 90 days following the closing date and at a premium of 127% if prepaid more than 91 but less than 120 days following the closing date and at a premium of 132% if prepaid more than 121 but less than 150 days following the closing date and at a premium of 137% if prepaid more than 151 but less than 180 days following the closing date. We have no right to prepay the Power UP Note more than 180 days after the closing date. The Power UP Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $435. As of June 30, 2019, the note holder had converted $128,000 in Principal and $5,120 in interest and fees into 139,433,306 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $69,181 during the three months ended June 30, 2019.		—			128,000
Unamortized debt discount		—			(69,181)
Total, net of unamortized discount		—			58,819

Power UP Lending Group Convertible Note – November 6, 2018 On October 15, 2018 we entered into a Convertible note with Power UP Lending Group LTD (“Power UP”) pursuant to which we issued a convertible promissory note, dated October 15, 2018, in the principal amount of $53,000 (the “Power UP Note-2”). The Power UP Note-2 is due November 6, 2019 and bears interest at the rate of 8% per annum. All principal and accrued interest on the Power UP Note-2 is convertible into shares of our common stock 180 days following October 15, 2018 at a conversion price equal to a 39% discount to the lowest trading or lowest closing bid price for our common stock during the 15-trading day period immediately prior to conversion. We have the right to prepay the Power UP Note within 30 days of the closing date at a premium of 112% of all amounts owed to Power UP and at a premium of 117% if prepaid more than 31 but less than 60 days following the closing date and at a premium of 122% if prepaid more than 61 but less than 90 days following the closing date and at a premium of 127% if prepaid more than 91 but less than 120 days following the closing date and at a premium of 132% if prepaid more than 121 but less than 150 days following the closing date and at a premium of 137% if prepaid more than 151 but less than 180 days following the closing date. We have no right to prepay the Power UP Note more than 180 days after the closing date. The Power UP Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $436. As of June 30, 2019, the note holder had converted $53,000 in Principal and $2,120 in interest and fees into 262,055,556 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $30,137 during the three months ended June 30, 2019.		—			53,000
Unamortized debt discount		—			(30,137)
Total, net of unamortized discount		—			22,863

Adar Bays, LLC July 2, 2018 Secured Convertible Note- Back end note On July 2, 2018 we entered into a Secured Convertible note with Adar Bays, LLC (“Adar”) pursuant to which we issued a convertible promissory note, dated July 2, 2018, in the principal amount of $150,000 (the “July 2, 2018 Adar Back end Note”). On off-setting note was issued by the lender on July 2, 2018, which was released upon funding the July 2, 2018 Adar Back Note on March 2, 2019. The July 2, 2018 Adar Back Note is due July 2, 2019 and bears interest at the rate of 10% per annum. All principal and accrued interest on the July 2, 2018 Adar Note is convertible into shares of our common stock at the election of Adar six months after the issuance date at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We can pay the note in cash within the first six months of issuance, we have no right to prepay the July 2, 2018 Adar Note six months and one day after issuance. The July 2, 2018 Adar Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $3,351. As of June 30, 2019, the note holder had converted $57,807 in Principal into 51,813,209 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $37,398 during the three months ended June 30, 2019.		92,193			92,193
Unamortized debt discount		(54,795	)		(92,193)
Total, net of unamortized discount		37,398			—

Adar Bays, LLC July 23, 2018 Secured Convertible Note – Back End Note On July 23, 2018 we entered into a Secured Convertible note with Adar Bays, LLC (“Adar”) pursuant to which we issued a convertible promissory note, dated July 23, 2018, in the principal amount of $50,000 (the “July 23, 2018 Adar Back End Note”). On off-setting note was issued by the lender on July 2, 2018, which was released upon funding the July 23, 2018 Adar Back Note on March 20, 2019. The July 23, 2018 Adar Back End Note is due July 23, 2019 and bears interest at the rate of 10% per annum. All principal and accrued interest on the Adar Note is convertible into shares of our common stock at the election of Adar at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We have the right to prepay the Adar Note within 90 days of the closing date at a premium of 135% of all amounts owed to Adar and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the Adar Note more than 180 days after the closing date. The Adar Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $536. The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $12,466 during the year ended March 31, 2019.		50,000			50,000
Unamortized debt discount		(36,027	)		(48,493)
Total, net of unamortized discount		13,973			1,507

Eagle Equities, LLC Convertible Note – Back End Note On July 20, 2018 we entered into a Convertible note with Eagle Equities, LLC (“Eagle”) pursuant to which we issued a convertible promissory note, dated July 20, 2018, in the principal amount of $100,000 (the “Eagle Back End Note”). On off-setting note was issued by the lender on July 20, 2018, which was released upon funding the July 20, 2018 Eagle Back End Note on March 20, 2019. The Eagle Back End Note is due July 20, 2019 and bears interest at the rate of 10% per annum. All principal and accrued interest on the Eagle Note is convertible into shares of our common stock at the election of Eagle at any time at a conversion price equal to a 50% discount to the lowest trading or lowest closing bid price for our common stock during the 25-trading day period immediately prior to conversion. We have the right to prepay the Eagle Note within 90 days of the closing date at a premium of 135% of all amounts owed to GS and at a premium of 150% if prepaid more than 90 but less than 180 days following the closing date. We have no right to prepay the Eagle Note more than 180 days after the closing date. The Eagle Note contains customary default events which, if triggered and not timely cured, will result in default interest and penalties. During the three months ended June 30, 2019 the Company recorded interest of $1,746. As of June 30, 2019, the note holder had converted $30,000 in Principal and $29 in interest and fees into 33,072,177 shares of the Company’s common stock. (See note 9 for additional details.) The aggregate issue discount feature has been accreted and charged to interest expenses as a financing expense in the amount of $24,932 during the three months ended June 30, 2019.		70,000			70,000
Unamortized debt discount		(45,068	)		(70,000)
Total, net of unamortized discount		24,932			—

Total	$	76,303			274,688

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Table of Contents

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

8. FAIR VALUE OF FINANCIAL INSTRUMENTS AND DERIVATIVE LIABILITIES

The carrying value of cash, accounts payable and accrued expenses, and debt (See Note 7) approximate their fair values because of the short-term nature of these instruments. Management believes the Company is not exposed to significant interest or credit risks arising from these financial instruments. The carrying amount of the Company’s long-term debt is also stated at fair value of $2,000,000 since the stated rate of interest approximates market rates.

Fair value is defined as the exchange price that would be received for an asset or paid to transfer a liability (an exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. Valuation techniques used to measure fair value maximize the use of observable inputs and minimize the use of unobservable inputs. The Company utilizes a fair value hierarchy based on three levels of inputs, of which the first two are considered observable and the last unobservable.

●

Level 1

Quoted prices in active markets for identical assets or liabilities. These are typically obtained from real-time quotes for transactions in active exchange markets involving identical assets.

●

Level 2

Quoted prices for similar assets and liabilities in active markets; quoted prices included for identical or similar assets and liabilities that are not active; and model-derived valuations in which all significant inputs and significant value drivers are observable in active markets. These are typically obtained from readily-available pricing sources for comparable instruments.

●

Level 3

Unobservable inputs, where there is little or no market activity for the asset or liability. These inputs reflect the reporting entity’s own beliefs about the assumptions that market participants would use in pricing the asset or liability, based on the best information available in the circumstances.

The following table presents the derivative financial instruments, the Company’s only financial liabilities measured and recorded at fair value on the Company’s balance sheets on a recurring basis, and their level within the fair value hierarchy as of March 31, 2019:

	Amount		Level 1		Level 2		Level 3
Embedded conversion derivative liability	$	—	$	—	$	—	$	348,484
Warrant and option derivative liabilities	$	—	$	—	$	—	$	—
Total	$	—	$	—	$	—	$	348,484

The embedded conversion feature in the convertible debt instruments that the Company issued (See Note 7), was convertible at issuance which qualified them as a derivative instrument since the number of shares issuable under the note is indeterminate based on guidance in ASC Topic No. 815-15, “Derivatives and Hedging (“Topic No. 815-15”). Topic No. 815-15 requires the Company to bifurcate and separately account for the conversion features as an embedded derivative contained in the Company’s convertible debt. This convertible debt tainted all other equity linked instruments including all outstanding non-employee options and warrants on the date that the instrument became convertible. The Company is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair value as a component of results of operations.

The Black-Scholes model utilized the following inputs to value the derivative liabilities at the date of issuance of the convertible note through March 31, 2018 which was the date the derivative liability was terminated:

Fair value assumptions:	April 1, 2019 through June 30, 2019
Risk free interest rate		2.18-2.43%
Expected term (years)		0.01-1
Expected volatility		247.19%-267.97%
Expected dividends		0%

F-12

Table of Contents

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

The following table presents a summary of the Company’s derivative liabilities associated with its convertible notes as of June 30, 2019:

	Amount
Balance March 31, 2017	$	—
Debt discount originated from derivative liabilities		262,500
Initial loss recorded		170,924
Adjustment to derivative liability due to debt settlement		—
Change in fair market value of derivative liabilities		296,313
Balance March 31, 2018	$	729,737
Debt discount originated from derivative liabilities		824,050
Initial loss recorded		755,733
Adjustment to derivative liability due to debt settlement		(1,791,931)
Change in fair market value of derivative liabilities		709,452
Balance March 31, 2019	$	1,227,041
Debt discount originated from derivative liabilities		—
Initial loss recorded		—
Adjustment to derivative liability due to debt settlement		(1,063,391)
Change in fair market value of derivative liabilities		184,834
Balance June 30, 2019	$	348,484

9. LOANS PAYABLE

On January 8, 2018, the Company and four lenders assigned the rights and obligations of a total of $174,500 in promissory notes to a new lender. All the notes bear interest at a rate of 5% per annum and are due within two business days of demand notice all other terms we unchanged. During the three months ended June 30, 2019 the Company recorded interest of $2,169.

10. STOCKHOLDERS’ EQUITY

Overview

As of June 30, 2019, the Company is authorized to issue 4,000,000,000 shares of $0.001 par value common

stock and 10,000,000 shares preferred stock, par value $0.001 per share. All common stock shares have equal voting rights, are non-assessable and have one vote per share. Voting rights are not cumulative and, therefore, the holders of more than 50% of the common stock could, if they choose to do so, elect all of the directors of the Company.

As of June 30, 2019, there were 1,914,431,324 shares of common stock issued and outstanding.

As of June 30, 2019, there were 3,000,000 shares of Preferred stock issued and outstanding.

On January 28, 2019, pursuant to Article III of our Articles of Incorporation, our Board of Directors voted to designate a class of preferred stock entitled Series A Preferred Stock, consisting of up 3,000,000 shares, par value $0.001. Under the Certificate of Designation, holders of Series A Preferred Stock will participate on an equal basis per-share with holders of our common stock in any distribution upon winding up, dissolution, or liquidation. Holders of Series A Preferred Stock are entitled to vote together with the holders of our common stock on all matters submitted to shareholders at a rate of 1,000 votes for each share held. Holders of Series A Preferred Stock are entitled to convert each share held for 10 shares of common stock.

F-13

Table of Contents

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

Stock issued upon conversion of debts.

The following table presents a summary of the Company’s debt conversions associated with its convertible notes during the three months ended June 30, 2019:

Date of conversion	Effective conversion price	Principal and interest converted	Shares issued upon conversion of debts
4/1/2019	0.00052	15,493	29,793,500
4/1/2019	0.00065	19,292	29,680,076
4/2/2019	0.000455	13,423	29,500,000
4/8/2019	0.00065	22,860	35,169,231
4/10/2019	0.00065	10,891	16,755,385
4/10/2019	0.000455	15,925	35,000,000
4/22/2019	0.001	25,000	25,000,000
4/22/2019	0.001	25,000	25,000,000
4/23/2019	0.0011	25,000	22,727,273
4/24/2019	0.00095	25,000	26,315,789
4/25/2019	0.000455	19,793	43,500,000
4/26/2019	0.00082	15,000	18,292,683
4/29/2019	0.00065	19,947	30,687,785
4/29/2019	0.00082	18,120	22,097,561
5/1/2019	0.00048	14,400	30,000,000
5/2/2019	0.00035	17,150	49,000,000
5/6/2019	0.00032	17,315	54,110,000
5/8/2019	0.000245	12,985	53,000,000
5/13/2019	0.00024	14,269	59,454,800
5/15/2019	0.00014	8,540	61,000,000
5/16/2019	0.00016	10,474	65,465,500
5/20/2019	0.00024	10,600	44,166,667
5/20/2019	0.00024	10,600	44,166,667
5/21/2019	0.00024	10,600	44,166,667
5/22/2019	0.000105	7,245	69,000,000
5/22/2019	0.00018	7,900	43,888,889
5/23/2019	0.00018	8,000	44,444,444
5/28/2019	0.00016	13,311	83,194,900
5/28/2019	0.00018	7,420	41,222,222
5/28/2019	0.0008	15,029	18,786,463
5/31/2019	0.00008	7,152	89,403,250
6/4/2019	0.0001	2,336	33,376,857
6/28/2019	—	7,642	—
Total		1,198,110	1,797,522,235

95,530,100 shares of common stock issuable as a result of conversion of debt were not yet issued on June 30, 2019. The converted amount is thus included in stock payable at June 30, 2019.

F-14

Table of Contents

VILACTO BIO INC.

NOTES TO THE FINANCIAL STATEMENTS

JUNE 30, 2019

(UNAUDITED)

11. RELATED PARTY TRANSACTIONS

In connection with an assumption of the debt agreement the Company executed a $32,608 promissory note with Mr. Anderson which bears interest at a rate of 10% per annum. During the three months ended June 30, 2019 the Company recorded interest of $813.

During the three months ended June 30, 2019, Gert Anderson, the President and CEO of the Company advanced $16,500 to the Company to pay expenses on behalf of the Company. As of June 30, 2019, $84,606 in advances remain outstanding. The advances bear no interest, are unsecured, and are due on demand.

14. SUBSEQUENT EVENTS

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

Stock issued upon conversion of debts.

The following table presents a summary of the Company’s debt conversions associated with its convertible notes subsequent to June 30, 2019:

Date of Conversion	Effective conversion price	Principal and interest converted	Shares issued upon conversion of debts
7/1/2019	0.0001	7,642	95,530,100
7/12/19	0.0001	2,165	27,061,000
Total	—	9,807	1,222,591,100

F-15

Table of Contents

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

Forward-Looking Statements

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

Company Overview

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

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

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

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

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

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

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

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

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

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

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

The patent applications and intellectual property include the following:

	●	United States Patent Application # 8,637,075 entitled “Colostrum Composition”;

	●	European Patent Application # EP2341916 entitled “Colostrum Composition”;

	●	Canada Patent Application # 2,773,277 entitled “Colostrum Composition.” These pa

	●	Canada Patent Application # 2,773,277 entitled “Colostrum Composition.”

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

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

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

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

Results of Operation for Three Months Ended June 30, 2019 and 2018

Revenues

We generated $5,167 in revenue for the three months ended June 30, 2019, as compared with $430 for the three months ended June 30, 2018. We can provide no assurance that we will generate sufficient revenues from our skin care business to sustain a viable business operation. We recently entered into an Asset Purchase Agreement that we believe will increase our revenues as we are now able to reach internationally with products supported by our newly acquired patent applications. These new products are expected to include an anti-aging cosmetic line, creams for psoriasis and diabetes creams. We are also working in patch and glue for patch/band aids.

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Operating Expenses

Operating expenses increased to $152,781 the three months ended June 30, 2019 from $117,680 for the three months ended June 30, 2018.

Our operating expenses for the three months ended June 30, 2019 mainly consisted of general and administrative expenses of $140,581, professional fees of $7,198 and depreciation and amortization expense of $5,002. Our operating expenses for the three months ended June 30, 2018 mainly consisted of general and administrative expenses of $66,586, royalty expense of $30,000, professional fees of $20,895.

Other Expenses

We had other expenses of $458,874 for the three months ended June 30, 2019, compared with other income of $169,993 for the three months ended June 30, 2018.

Our other expenses for the three months ended June 30, 2019 is mainly the result of a $184,834 loss on derivative liabilities and $274,040 in interest expense. Our other income for the three months ended June 30, 2018 is mainly the result of a $268,814 gain on derivative liabilities, offset by $98,821 in interest expense.

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

Net Loss

We recorded a net loss for the three months ended June 30, 2019 of $610,725 compared to a net income of $52,513 for the three months ended June 30, 2018.

Liquidity and Capital Resources

As of June 30, 2019, we had current assets of $245,938 mainly consisting of cash and inventory. Our total current liabilities as of June 30, 2019 were $2,913,689 mainly consisting of related party loans. We therefore had a working capital deficit of $2,667,751 of June 30, 2019.

Operating activities used $152,987 in cash for the three months ended June 30, 2019, as compared with cash used of $101,935 for the same period ended 2018. Our negative operating cash flow for the three months ended June 30, 2019 was mainly the result of our net loss for the period, offset mainly by amortization of debt discounts and the loss on derivative liabilities. In contrast, our negative operating cash flow for the three month ended June 30, 2018 was mainly the result of losses on derivative liabilities.

Investing activities used $0 in cash for the three months ended June 30, 2019, as compared with $5,000 for the same period ended 2018, which was used for the purchase of intangible assets.

Financing activities provided $16,500 for the three months ended June 30, 2019, as compared with cash provided of $6,907 for the same period ended 2018. Our positive financing cash flow for the three months ended June 30, 2019 and 2018 was the result of related party advances.

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

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

Off Balance Sheet Arrangements

As of June 30, 2019, there were no off balance sheet arrangements.

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Going Concern

The accompanying financial statements have been prepared in conformity with generally accepted accounting principle, which contemplate our continuation as a going concern. However, we have limited revenues as of June 30, 2019. We currently have negative working capital, and have not completed our efforts to establish a stabilized source of revenues sufficient to cover operating costs over an extended period of time.

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

Critical Accounting Policies

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

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

Recently Issued Accounting Pronouncements

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

Item 3. Quantitative and Qualitative Disclosures About Market Risk

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

Item 4. Controls and Procedures

Disclosure Controls and Procedures

We carried out an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) as of June 30, 2019. This evaluation was carried out under the supervision and with the participation of our Chief Executive Officer and our Chief Financial Officer. Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2019, our disclosure controls and procedures were not effective due to the presence of material weaknesses in internal control over financial reporting.

A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or detected on a timely basis. Management has identified the following material weaknesses which have caused management to conclude that, as of June 30, 2019, our disclosure controls and procedures were not effective: (i) inadequate segregation of duties and effective risk assessment; and (ii) insufficient written policies and procedures for accounting and financial reporting with respect to the requirements and application of both US GAAP and SEC guidelines.

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

Our Company plans to take steps to enhance and improve the design of our internal controls over financial reporting. To remediate such weaknesses, we plan to implement the following changes during our fiscal year ending March 31, 2020: (i) appoint additional qualified personnel to address inadequate segregation of duties and ineffective risk management; and (ii) adopt sufficient written policies and procedures for accounting and financial reporting. The remediation efforts set out are largely dependent upon our securing additional financing to cover the costs of implementing the changes required. If we are unsuccessful in securing such funds, remediation efforts may be adversely affected in a material manner.

Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the three months ended June 30, 2019 that have materially affected, or are reasonable likely to materially affect, our internal control over financial reporting.

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PART II – OTHER INFORMATION

Item 1. Legal Proceedings

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

Item 1A. Risk Factors

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

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

Stock issued upon conversion of debts.

The following table presents a summary of the Company’s debt conversions associated with its convertible notes during the three months ended June 30, 2019:

Date of conversion	Effective conversion price	Principal and interest converted	Shares issued upon conversion of debts
4/1/2019	0.00052	15,493	29,793,500
4/1/2019	0.00065	19,292	29,680,076
4/2/2019	0.000455	13,423	29,500,000
4/8/2019	0.00065	22,860	35,169,231
4/10/2019	0.00065	10,891	16,755,385
4/10/2019	0.000455	15,925	35,000,000
4/22/2019	0.001	25,000	25,000,000
4/22/2019	0.001	25,000	25,000,000
4/23/2019	0.0011	25,000	22,727,273
4/24/2019	0.00095	25,000	26,315,789
4/25/2019	0.000455	19,793	43,500,000
4/26/2019	0.00082	15,000	18,292,683
4/29/2019	0.00065	19,947	30,687,785
4/29/2019	0.00082	18,120	22,097,561
5/1/2019	0.00048	14,400	30,000,000
5/2/2019	0.00035	17,150	49,000,000
5/6/2019	0.00032	17,315	54,110,000
5/8/2019	0.000245	12,985	53,000,000
5/13/2019	0.00024	14,269	59,454,800
5/15/2019	0.00014	8,540	61,000,000
5/16/2019	0.00016	10,474	65,465,500
5/20/2019	0.00024	10,600	44,166,667
5/20/2019	0.00024	10,600	44,166,667
5/21/2019	0.00024	10,600	44,166,667
5/22/2019	0.000105	7,245	69,000,000
5/22/2019	0.00018	7,900	43,888,889
5/23/2019	0.00018	8,000	44,444,444
5/28/2019	0.00016	13,311	83,194,900
5/28/2019	0.00018	7,420	41,222,222
5/28/2019	0.0008	15,029	18,786,463
5/31/2019	0.00008	7,152	89,403,250
6/4/2019	0.0001	2,336	33,376,857
6/28/2019	-	7,642	-
Total		1,198,110	1,797,522,235

95,530,100 shares of common stock issuable as a result of conversion of debt were not yet issued on June 30, 2019. The converted amount is thus included in stock payable at June 30, 2019. The above issuances were exempt from registration as a result of Section 3(a)(9) of the Securities Act of 1933, as amended.

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Item 3. Defaults upon Senior Securities

None

Item 4. Mine Safety Disclosures

N/A

Item 5. Other Information

None

Item 6. Exhibits


Exhibit Number	Description of Exhibit
31.1	Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32.1	Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
101**	The following materials from the Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2019 formatted in Extensible Business Reporting Language (XBRL).
	**Provided herewith

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SIGNATURES

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


	Vilacto Bio, Inc.
Date:	August 19, 2019
By:	/s/ Gert Andersen
	Gert Andersen
Title:	President, Chief Executive Officer, and Director

Vilacto Bio Inc. 10-Q