PTLF Petlife Pharmaceuticals Inc (CE)

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(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 was to effectuate a 1 for 5 reverse exchange of PetLife’s common stock pursuant to the terms of the merger. The combined entities continue on public markets pursuant to Rule 12g-3 of the Securities Exchange Act of 1934, as amended.

On April 19, 2017, the Company organized in the State of Maryland a wholly-owned subsidiary, Dr. Geoff’s by PetLife, Inc. (“Dr. Geoff’s by PetLife”), to operate the Company’s pet food division.

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 February 28, 2018 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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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.

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.

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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

Level 2: Inputs other than quoted prices that are observable, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.

Level 3: Unobservable inputs in which little or no market data exists, therefore developed using estimates and assumptions developed by us, which reflect those that a market participant would use.

Revenue Recognition

The Company recognizes revenue for our services in accordance with ASC 605-10, “Revenue Recognition in Financial Statements.” Under these guidelines, revenue is recognized on transactions when all of the following exist: persuasive evidence of an arrangement did exist, delivery of service has occurred, the sales price to the buyer is fixed or determinable and collectability is reasonably assured. The Company has no revenue streams at this time.

Stock-Based Compensation

The Company accounts for stock-based instruments issued to employees in accordance with ASC Topic 718. ASC Topic 718 requires companies to recognize in the statement of operations the grant-date fair value of stock options and other equity-based compensation issued to employees. The Company accounts for non-employee share-based awards in accordance with ASC Topic 505-50. The value of the portion of an award that is ultimately expected to vest is recognized as an expense over the requisite service periods using the straight-line attribution method. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model. The Company estimates the fair value of each stock option at the grant date by using the Black-Scholes option-pricing model.

Income Taxes

The Company adopted the provisions of ASC 740-10, “Accounting for Uncertain Income Tax Positions.” When tax returns are filed, it is highly certain that some positions taken would be sustained upon examination by the taxing authorities, while others are subject to uncertainty about the merits of the position taken or the amount of the position that would be ultimately sustained. In accordance with the guidance of ASC 740-10, the benefit of a tax position is recognized in the financial statements in the period during which, based on all available evidence, management believes it is more likely than not that the position will be sustained upon examination, including the resolution of appeals or litigation processes, if any. Tax positions taken are not offset or aggregated with other positions. Tax positions that meet the more-likely-than-not recognition threshold are measured as the largest amount of tax benefit that is more than 50 percent likely of being realized upon settlement with the applicable taxing authority. The portion of the benefits associated with tax positions taken that exceeds the amount measured as described above should be reflected as a liability for unrecognized tax benefits in the accompanying balance sheets along with any associated interest and penalties that would be payable to the taxing authorities upon examination. The Company believes its tax positions are all highly certain of being upheld upon examination. As such, the Company has not recorded a liability for unrecognized tax benefits. As of February 28, 2018, 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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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 February 28, 2018 through the date these audited financial statements were issued.

In February 2016, the Financial Accounting Standards Board (“FASB”) issued an ASU on lease accounting. The ASU requires the lease rights and obligations arising from lease contracts, including existing and new arrangements, to be recognized as assets and liabilities on the balance sheet. The ASU is effective for reporting periods beginning after December 15, 2018 with early adoption permitted. While the Company is still evaluating the ASU, the Company does not expect the adoption of the ASU to have a material effect on the Company’s financial condition due to the recognition of the lease rights and obligations as assets and liabilities. The Company does not expect the ASU to have a material effect on the Company’s results of operations, and the ASU will have no effect on cash flows.

NOTE 2 – GOING CONCERN

The Company has a net loss for the six months ended February 28, 2018 of $893,724 and working capital deficit as of February 28, 2018 of $1,973,114 and has used cash in operations of $282,396 for the six months ended February 28, 2018. In addition, as of February 28, 2018, the Company had a stockholders’ deficit and accumulated deficit of $1,973,114 and $31,281,904, 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.

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 February 28, 2018, $3,740 of interest has been accrued. On July 27, 2017, the note was extended to July 27, 2018.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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 February 28, 2018, $3,069 of interest has been accrued.

On July 18, 2017, the Company executed a convertible promissory note with Luke Hoppel (“Hoppel”) for $75,000. The note has a maturity date of July 18, 2018 and bears interest of 8% which accrues. As of February 28, 2018, $3,715 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 shares were valued at $0.047 per share, or $20,752. On February 7, 2018, Hoppel converted $10,500 of principal into 2,000,000 shares of common stock valued at $0.019 per share, or $38,000. On February 23, 2018, Hoppel converted $14,350 of principal into 3,500,000 shares of common stock valued at $0.014 per share, or $49,000.

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 February 28, 2018, $3,224 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.

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 was required to issue 123,875 shares of common stock to Auctus which were an inducement for the financing. As of February 28, 2018, the 123,875 shares of common stock have not been issued and are valued at approximately $12,000. As of February 28, 2018, $5,104 of interest has been accrued.

On January 5, 2018, the Company entered into a convertible promissory note for $135,000 with EMA Financial, LLC (“EMA”). The note matures on January 5, 2019 and bears interest of 12%. The conversion feature provides for a discount of 40% resulting in a debt discount of $89,168. The Company issued 123,250 shares of common stock to EMA which were an inducement for the financing. The shares were valued at $6,150. As of February 28, 2018, $2,485 of interest has been accrued.

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 February 28, 2018, the balance of the note was $278,000 and the accrued interest was $7,296. 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 February 28, 2018 and August 31, 2017, as follows:

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

On August 31, 2017, 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. See Note 4.

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. See Note 4.

On March 18, 2017, the Company executed a promissory note with Salvagno for $24,830. The note converted various payables to Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. See Note 4.

On May 31, 2017, the Company executed a promissory note with Salvagno for $98,664. The note converted various payables to Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. See Note 4.

On January 26, 2018, the Company executed a promissory note with Salvagno for $3,500 of accrued expenses related to expenses paid by Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. As of February 28, 2018, $13 of interest has been accrued.

On January 26, 2018, the Company executed a secured convertible promissory note with Salvagno for $361,487 which converted all of the promissory notes with Salvagno from August 31, 2016 through May 31, 2017, totaling $336,357, and accrued expenses related to expenses paid by Salvagno in the amount of $25,130. The note is convertible after six months from the date of the note or after ninety days following the removal of Salvagno as the CEO of the Company, which was done on March 22, 2018. The conversion terms are at the rate of $0.008 per share, based on a 20% discount on the date of this note. The Company recorded a discount for the beneficial conversion of $72,297 and recorded discount amortization of $6,536 for the period ended February 28, 2018. The note is secured by the assets of the Company. The note is due on January 26, 2019 and bears interest at 12% per annum which accrues. As of February 28, 2018, $4,041 of interest has been accrued. See Note 4.

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 February 28, 2018, $10,000 remains outstanding.

As of February 28, 2018, the Company has a loan from an officer of $11,500. The loan is unsecured, non-interest bearing, and due on demand.

As of February 28, 2018, and August 31, 2017, there are related party accounts payable and accrued expenses of $54,965 and $75,526, respectively, related to payments, consulting services and accrued interest.

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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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. On March 25, 2018, the Company and Healthy Life Pets terminated this agreement. See Note 9.

On January 26, 2018, the Company executed a promissory note with Salvagno for $3,500 of accrued expenses related to expenses paid by Salvagno. The note is due on demand and bears interest at 4% per annum which accrues. As of February 28, 2018, $13 of interest has been accrued.

On January 26, 2018, the Company executed a secured convertible promissory note with Salvagno for $361,487 which converted all of the promissory notes with Salvagno from August 31, 2016 through May 31, 2017, totaling $336,357, and accrued expenses related to expenses paid by Salvagno in the amount of $25,130. The note is convertible after six months from the date of the note or after ninety days following the removal of Salvagno as the CEO of the Company, which was done on March 22, 2018. The conversion terms are at the rate of $0.008 per share, based on a 20% discount on the date of this note. The note is secured by the assets of the Company. The note is due on January 26, 2019 and bears interest at 12% per annum which accrues. As of February 28, 2018, $4,041 of interest has been accrued. See Note 3.

On January 30, 2018, the Company and Salvagno agreed to an amendment of Salvagno’s employment agreement. The amendment ratified his salary of $1 per year. Additionally, the amendment included a cash bonus of $100,000 per year of service (portions of a year are prorated) in the event of a change of control. As of March 22, 2018, the Company had a change of control. Therefore, on the date of the change of control, the Company would have a liability to Salvagno for $175,000 for his one year and nine months of service but, the Company and Salvagno agreed on a discounted liability of $80,000. See Notes 5 and 9.

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 February 28, 2018, 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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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 six months ended February 28, 2018, the Company issued or had issuable 349,594 common shares valued at approximately $24,000 for legal services and approximately $91,000 of stock-based compensation.

On January 19, 2018, the Company issued Hoppel 441,538 shares of common stock for a true up adjustment related to the original inducement for note payable.

Employment Agreements

On January 30, 2018, the Company and Salvagno agreed to an amendment of Salvagno’s employment agreement. The amendment ratified his salary of $1 per year. Additionally, the amendment included a cash bonus of $100,000 per year of service (portions of a year are prorated) in the event of a change of control. As of March 22, 2018, the Company had a change of control. Therefore, on the date of the change of control, the Company would have a liability to Salvagno for $175,000 for his one year and nine months of service but, the Company and Salvagno agreed on a discounted liability of $80,000. See Notes 4 and 9.

The Company terminated all employment agreements as of August 31, 2017. Subsequently, the Company negotiated a new employment agreement with Salvagno. The Company, upon sufficient additional funding, will renegotiate other employment agreements accordingly.

Stock Option Plan

On June 9, 2016, the Board of Directors approved the 2016 Stock Option Plan which reserved 20,000,000 shares of common stock.

The Company has granted options to an employee and to a consultant. Options activity for the six months ended February 28, 2018 is as follows:

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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 February 28, 2018, 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:

Rent expense for the six months ended February 28, 2018 and 2017 was $4,500 and $4,500, 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 February 28, 2018. There have been no losses in these accounts through February 28, 2018.

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.

PETLIFE PHARMACEUTICALS, INC.

Notes to Condensed Consolidated Financial Statements

February 28, 2018

(unaudited)

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 February 28, 2018 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:

The following reflects the initial fair value on the note inception date and changes in fair value through February 28, 2018: