NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS
Nature
of Business
The
Company, prior to December 12, 2011, was involved in the business of exploiting new technologies for the production of clean energy.
The Company was then moving in the direction of a diversified biotechnology company. The mission of the Company is to evaluate
potential acquisition candidates operating in the life sciences technology space. The Company’s revenue in fiscal 2016,
presented in discontinued operations, was generated from its natural wellness cannabis complement line launched in August 2014.
The
Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding,
success in developing and marketing its products and the level of competition.
Bacterial
Robotics
On
October 29, 2013, the Company entered into a strategic alliance with Bacterial Robotics, LLC (Bacterial Robotics). Bacterial Robotics
owns certain patents and/or other intellectual property related to the development of genetically modified micro-organisms (GMOs)
and GMOs tailored to perform one or more specific functions, one such GMO being adopted to clean polluting molecules from nuclear
waste, such GMO being referred herein as the existing BactoBot Technology (the BR Technology). Bacterial Robotics is developing
a whitepaper to deliver to the Company for acceptance. Upon acceptance by the Company, the parties will form a strategic relationship
through the formation of a joint venture in which the Company will be the majority and controlling owner which will use the NuclearBot
Technology to further the growth of the nuclear wastewater treatment market. The intent is for Bacterial Robotics to issue a 10-year
license agreement. In connection with the strategic alliance agreement, the Company issued a warrant to purchase 75,000,000 shares
of its common stock (of which 23,134,118 warrants were cancelled pursuant to the December 22, 2016 transfer agreement with Open
Therapeutics, LLC) valued at $1,100,000 and paid an additional $50,000 in cash. The Company fully impaired this as of March 31,
2014, as there was no value in the agreement.
Pilus
Energy
On
November 25, 2013, the Company executed a definitive agreement to acquire Pilus Energy, LLC (“Pilus”), an Ohio limited
liability company and a developer of alternative cleantech energy platforms using proprietary microbial solutions that creates
electricity while consuming polluting molecules from wastewater. Pilus is converging digester, fermenter, scrubber, and other
proven technologies into a scalable Electrogenic Bioreactor (“EBR”) platform. This technology is the basis of the
Pilus Cell™. The EBR harnesses genetically enhanced bacteria, also known as bacterial robots, or BactoBots™, that
remediate water, harvest direct current (“DC”) electricity, and produce economically important gases. The EBR accomplishes
this through bacterial metabolism, specifically cellular respiration of nearly four hundred carbon and nitrogen molecules. Pilus’
highly metabolic bacteria are non-pathogenic. Because of the mediated biofilm formation, these wastewater-to-value BactoBots resist
heavy metal poisoning, swings of pH, and survive in a 4-to-45-degree Celsius temperature range. Additionally, the BactoBots are
anaerobically and aerobically active, even with low BOD/COD.
On
January 28, 2014, the Company acquired patents from Pilus. As a condition of the acquisition, Pilus will get one seat on the board
of directors, and the shareholders of Pilus received a warrant to purchase 100,000,000 shares of common stock of the Company,
which represented a fair market value of approximately $2,000,000. In addition, the Company paid Bacterial Robotics, LLC (“BRLLC”),
formerly the parent company of Pilus, $50,000 on signing the memorandum of understanding and $50,000 at the time of closing. The
only asset Pilus had on its balance sheet at the time of the acquisition was a patent. The Company determined that the value of
the acquisition on January 28, 2014 would be equal to the value of cash paid to Pilus plus the value of the 100,000,000 warrants
they issued to acquire Pilus. Through March 31, 2014, the Company amortized the patent over its estimated useful life, then on
March 31, 2014, the Company conducted its annual impairment test and determined that the entire unamortized balance should be
impaired as the necessary funding to further develop the patent was not available at that time.
On
December 22, 2016, the Company, entered in a membership interest transfer agreement with Open Therapeutics, LLC, an Ohio limited
liability company (“Open Therapeutics” formerly Bacterial Robotics LLC and Microbial Robotics, LLC), whereby the Company
sold 80% of its membership interest in Pilus which included the patents. Open Therapeutics agreed to terminate and cancel 80%
of the unexercised portion of the warrant to purchase 28,917,647 shares (or 23,134,118 warrants) of the Company’s common
stock (issued on January 28, 2014). Open Therapeutics will pay 20% of the net profit generated, to the Company from the previous
year’s earnings after the initial $75,000 of profit (reflected as a contingent liability on the consolidated balance sheet).
The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics
votes its membership interest on all matters for which a member vote is required. Through March 31, 2017, there has been no activity
recorded by Open Therapeutics, LLC with respect to these patents, thus the $75,000 remains contingently owed to them.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
ColluMauxil
On
November 15, 2016, the Company announced that it will form a new wholly owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary will be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief - “collum” and “auxilium.” The Company has filed for
trademarks in association with the business with the United States Patent and Trademark Office. The Company plans to develop,
market, distribute and potentially license a broad array of products and technologies that may help individuals who are affected
by muscle tension. The Company has already identified potential products and technologies of interest and is actively working
towards the goal of creating an innovative product line to launch the business activities of ColluMauxil. The Company believes
that one of its most important strengths is its access to and relationships with potentially substantial distribution systems
and networks. The Company intends to capitalize on distribution opportunities and will continually update shareholders on such
developments. The Company intends on developing a product that specifically targets muscle tension in the neck, shoulder, and
upper back. The Company envisions that this product will incorporate a roll-on delivery system (“Roll-On Product”)
which is easier to apply to a specific area on the body. The Company also plans to develop a Roll-On Product that incorporates
CBD Oil (“Cannabis Oil”), which is a legal alternative to THC oil, and it is available for sale in all states as well
as around the world. Cannabis Oil is widely believed to provide relief to individuals who suffer from muscle tension, tenderness,
and pain. Both contemplated Roll-On Products will be branded under the ColluMauxil.
Cupuacu
Butter Lip Balm
On December 23, 2016,
the Company, entered into a non-exclusive, 12 month, license agreement (the “License Agreement”) with Cleveland, Ohio
based cosmetics products firm Ice + Jam LLC (“Ice + Jam”). Under terms of the License Agreement, the Company will market
Ice + Jam’s proprietary Cupuacu Butter lip balm, sold under the trademark HERMAN and the two companies will evenly share
(“50% / 50%”) any profits through the Company’s marketing, sales, and distribution efforts. The Company will
pay the production costs for all product it sells to retail customers or distributors. The Company paid a one-time upfront non-refundable
license fee of $9,810 in cash and agreed to an additional payment of common shares of Company stock. The Company agreed to issue
5,000,000 common shares which had a value of $27,500, based on the closing price of the stock on the day the Company entered into
the agreement ($0.005 per share). The cost of the shares will be prorated over the life of the license. The Company further paid
$2,190 as a prepaid deposit on future inventory for the purchase of 1,500 units at unit cost of $1.46. As of March 31, 2017, none
of the units have been completed therefore the Company has recorded the payment as a prepaid asset. The agreement may be extended
for an additional 12 months based on mutual agreement. The two companies reserve the right to request amendment of the License
Agreement at any point during the effective duration.
On June 27, 2017, the Company wired
$20,000 to Ice + Jam as an advanced payment on initial inventory base of 10,000-15,000 units with completed display cases and
promotional literature for the contemplated launch. The Company has focused its efforts on securing potential distribution
channels to the retail marketplace, as well as the improvement of the HERMAN product; inclusive of the label and graphics. The
Company plans a mid to late autumn 2017 launch period to capitalize on the potential market demand associated with seasonality.
Certain
additional risk factors relating to the new business line are further described in Part I, Item 1A “Risk Factors”
above in this Annual Report on Form 10-K.
Going
Concern
As
indicated in the accompanying consolidated financial statements, the Company has incurred net losses of $2,271,300 and $2,569,153
for the years ended March 31, 2017 and 2016, respectively. Management’s plans include the raising of capital through equity
markets to fund future operations and cultivating new license agreements or acquiring ownership in technology companies. Failure
to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements
or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful,
there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations. The Company has used $651,129 and $395,536 of cash in operating activities which is substantially
lower than the net loss for these respective years. The Company has continued to use their common stock when able to continue
operating. These matters raise substantial doubt about the Company’s ability to continue as a going concern. However, the
accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization
of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include
any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary
should the Company be unable to continue as a going concern.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Consolidated
Financial Statements
The
consolidated financial statements include the accounts and activities of Tauriga Sciences, Inc. and its wholly-owned Canadian
subsidiary, Tauriga Canada, Inc. All inter-company transactions have been eliminated in consolidation.
Revenue
Recognition
Revenue
is recognized when realized or realizable, and when the earnings process is complete, which is generally upon the shipment of
products.
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP 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 reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign
Currency Translation
Commencing
with the quarter ended June 30, 2012, the Company considers the U.S. dollar to be its functional currency. Prior to March 31,
2012, the Company considered the Canadian dollar to be its functional currency. Assets and liabilities were translated into U.S.
dollars at year-end exchange rates. Statement of operations amounts were translated using the average rate during the year. Gains
and losses resulting from translating foreign currency financial statements were included in accumulated other comprehensive gain
or loss, a separate component of stockholders’ deficit.
Cash
Equivalents
For
purposes of reporting cash flows, cash equivalents include investment instruments purchased with an original maturity of three
months or less. At March 31, 2017, the Company had no cash at any financial institution which exceeded the total FDIC insurance
limit of $250,000. To reduce its risk associated with the failure of such financial institution, the Company evaluates at least
annually the rating of the financial institution in which it holds deposits. The Company had no cash equivalents as of March 31,
2017.
Inventory
Inventory
consisted of raw materials, production in progress and finished goods and is stated at the lower of cost or market determined
by the first-in, first-out method. The Company sold off all of its segments that had inventory during the year ended March 31,
2016. As of March 31, 2017, the Company has prepaid $2,190 worth of product that has not been delivered. It is reflected in prepaid
expenses on the Consolidated Balance Sheet.
Property
and Equipment
Property
and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life
of the assets are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.
Intangible
Assets
Intangible
assets consisted of licensing fees and a patent prior to being impaired which were stated at cost. Licenses were amortized over
the life of the agreement and patents were amortized over the remaining life of the patent at the date of acquisition.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Net
Loss Per Common Share
The
Company computes per share amounts in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) Topic 260 Earnings per Share (“EPS”) which requires presentation of basic and diluted
EPS. Basic EPS is computed by dividing the income (loss) available to Common Stockholders by the weighted-average number of common
shares outstanding for the period. Diluted EPS is based on the weighted-average number of shares of Common Stock and Common Stock
equivalents outstanding during the periods; however, potential common shares are excluded for period in which the Company incurs
losses, as their effect is anti-dilutive. For the years ended March 31, 2017 and 2016 the basic and fully diluted earnings per
share were the same as the Company had a loss in each of these years.
Stock-Based
Compensation
The
Company accounts for Stock-Based Compensation under ASC 718 “Compensation-Stock Compensation”, which addresses the
accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on
transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement
of cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant
date must be recognized.
The
Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to
Non-Employees. Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted
on the grant date as either the fair value of the consideration received or the fair value of the equity instruments issued, whichever
is more reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and an offset to additional
paid-in capital in stockholders’ equity/(deficit) over the applicable service periods using variable accounting through
the vesting dates based on the fair value of the options or warrants at the end of each period.
The
Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value on the
grant date of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for
services over the term of the related services.
Comprehensive
Income (Loss)
The
Company has adopted ASC 220 effective January 1, 2012 which requires entities to report comprehensive income (loss) within a continuous
statement of comprehensive income.
Comprehensive
income (loss) is a more inclusive financial reporting methodology that includes disclosure of information that historically has
not been recognized in the calculation of net income (loss).
Reclassifications
Certain prior year amounts
have been reclassified to conform to the current period presentation. The reclassifications had no effect on the net loss or cash
flows of the Company.
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. The Company will perform a periodic assessment of assets for impairment in the
absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline
in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived
assets to be held and used, the Company would recognize an impairment loss only if its carrying amount is not recoverable through
its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated
fair value.
Research
and Development
The
Company expenses research and development costs as incurred. Research and development costs were $108,942 and $0 for the years
ended March 31, 2017 and 2016. The Company is continually evaluating products and technologies in the natural wellness space,
including its focus on muscle tension. As the Company investigates and develops relationships in these areas resultant expenses
for trademark filings, license agreements, product development and design materials will be expensed as research and development.
Some costs will be accumulated for subsidiaries prior to formation of entities.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
Value Measurements
ASC
820 Fair Value Measurements defines fair value, establishes a framework for measuring fair value in generally accepted accounting
principles, and expands disclosure about fair value measurements.
The
following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which fair value is observable:
Level
1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level
2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level
3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Financial
instruments classified as Level 1 - quoted prices in active markets include cash.
These
consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are
highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in
economic conditions may also dramatically affect the estimated fair values.
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management as
of March 31, 2017 and 2016. The respective carrying value of certain financial instruments approximated their fair values due
to the short-term nature of these instruments. These financial instruments include cash, accounts payable and accrued expenses.
Derivative
Financial Instruments
Derivatives
are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible debentures are embedded
derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized
during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives
are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing
models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s
judgment and may impact net income (loss). During the years ended March 31, 2017 and 2016, the Company utilized an expected life
ranging from 91 days to 311 days based upon the look-back period of its convertible debentures and notes and volatility of 125%.
On
May 28, 2015, the Company entered into a 7% Convertible Redeemable Note with a principal amount of $104,000 with a maturity date
of May 28, 2016 (the “Union Note”) which contains an anti-ratchet clause for the conversion of this Union Note, the
Company recorded a derivative liability in the amount of $200,058 (as a result the entire note was discounted). During the year
ended March 31, 2017, the noteholder (Union Capital) has converted $49,800 of principal and $18,167 in accrued interest into 56,639,501
shares of common stock. As a result of these conversions, the derivative liability was adjusted by $37,350 with a corresponding
adjustment to additional paid in capital.
On
July 14, 2015, the Company entered into a 12% Convertible Redeemable Note with the principal amount of $96,000 issued with an
original issue discount of $16,000. The derivative liability recorded on this note was $153,326 (as a result the entire note was
discounted).
On
August 3, 2016, the Company entered into a 12% Convertible Redeemable Note with the principal amount of $48,000 issued with an
original issue discount of $8,000. The derivative liability recorded on this note was $48,871 (as a result the entire note was
discounted).
As
a result of the issuance of this note containing more beneficial terms of conversion, the Union Note will now be convertible at
the lower of the lesser of (a) sixty percent (60%) multiplied by the lowest closing price as of the date a notice of conversion
is given (which represents a discount rate of forty percent (40%)) or (b) one half penny ($0.005). On November 7, 2016, the noteholder
(Group 10) converted this note into 44,000,000 common shares at a total value of $50,160 ($0.00114) which included $2,160 of accrued
interest. As a result of this conversion the derivative liability was eliminated with a corresponding adjustment to additional
paid in capital in the amount of $15,540 after taking effect to all fair value adjustments up through the date of conversion.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative
Financial Instruments (Continued)
On
November 7, 2016, the Company entered into a 12% Convertible Redeemable Note with the principal amount of $45,000 issued with
an original issue discount of $7,000. The derivative liability recorded on this note was $45,820 (as a result the entire note
was discounted).
In
the years ended March 31, 2017 and 2016, the Company recognized a loss on the fair value of the derivative liability in the amount
of $86,088 and $277,700, respectively. In addition, the Company recognized derivative expense on the initial recognition of the
derivative liabilities in the years ended March 31, 2017 and 2016 of $9,691 and $197,800, respectively. As of March 31, 2017,
and 2016, the derivative liability amounted to $722,707 and $670,577, respectively.
Income
Taxes
Income
taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in
the financial statement carrying amounts of assets and liabilities and their respective tax bases.
Future
tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset
is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is
recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are
considered more likely than not to be realized.
ASC
740 “Income Taxes” clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial
statements. This standard requires a company to determine whether it is more likely than not that a tax position will be sustained
upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a company must
measure the tax position to determine the amount to recognize in the financial statements.
As
a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with
recognition and measurement standards established by ASC 740 and concluded that the tax position of the Company does not meet
the more-likely-than-not threshold as of March 31, 2017.
Recent
Accounting Pronouncements
In
January 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-04
Intangibles – Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment.
The amendments in this update are required for public business
entities that have goodwill reported in their financial statements and have not elected the private company alternative for the
subsequent measurement of goodwill. The update is intended to simplify the annual or interim goodwill impairment test. A public
business entity that is a U.S. SEC filer should adopt the amendments in this update for its annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is assessing the impact, if
any, of implementing this guidance on its financial position and results of operations.
In
January 2017, the FASB issued ASU 2017-01
Business Combinations (Topic 805), Clarifying the Definition of a Business.
The
amendments in this update are required for public business entities that have goodwill reported in their financial statements
and have not elected the private company alternative for the subsequent measurement of goodwill. The update is intended to clarify
the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should
be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting
including acquisitions, disposals, goodwill, and consolidation. Public business entities should apply the amendments in this update
to annual periods beginning after December 15, 2017. Early application is permitted under certain conditions. The Company is assessing
the impact, if any, of implementing this guidance on its financial position and results of operations.
In
August 2016, the FASB issued ASU No. 2016-15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts
and Cash Payments”
. The amendments in this update provided guidance on eight specific cash flow issues. This update
is to provide specific guidance on each of the eight issues, thereby reducing the diversity in practice in how certain transactions
are classified in the statement of cash flows. ASU 2016-15 is effective for fiscal years and interim periods beginning after December
31, 2017. Early adoption is permitted. The Company is assessing the impact, if any, of implementing this guidance on its financial
position, results of operations and liquidity.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (Continued)
In
March 2016, the FASB issues ASU No. 2016-09, “Compensation - Stock Compensation (Topic 718)”, or ASU No. 2016-09.
The amendments of ASU No. 2016-09 were issues as part of the FASB’s simplification initiative focused on improving areas
of GAAP for which cost and complexity may be reduced while maintaining or improving the usefulness of information disclosed within
the financial statements. The amendments focused on simplification specifically with regard to share-based payment transactions,
including income tax consequences, classification of awards as equity or liabilities and classification on the statement of cash
flows. The guidance in ASU No. 2016-09 is effective for fiscal years beginning after December 15, 2016, and interim periods within
those annual periods. Early adoption is permitted. The Company will evaluate the effect of ASU 2016-09 for future periods as applicable.
In
February 2016, FASB issued ASU 2016-02, Leases (Topic 842). The new standard requires lessees to apply a dual approach, classifying
leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase
by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or
on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability
for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less
will be accounted for similar to existing guidance for operating leases. The new guidance will be effective for annual reporting
periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively.
Early adoption is permitted. We are currently in the process of assessing the impact the adoption of this guidance will have on
the Company’s consolidated financial statements.
In
August 2014, FASB issued ASU No. 2014-15, “Presentation of Financial Statements-Going Concern” (“ASU No. 2014-15”).
The provisions of ASU No. 2014-15 require management to assess an entity’s ability to continue as a going concern by incorporating
and expanding upon certain principles that are currently in U.S. auditing standards. Specifically, the amendments (1) provide
a definition of the term substantial doubt, (2) require an evaluation every reporting period including interim periods, (3) provide
principles for considering the mitigating effect of management’s plans, (4) require certain disclosures when substantial
doubt is alleviated as a result of consideration of management’s plans, (5) require an express statement and other disclosures
when substantial doubt is not alleviated, and (6) require an assessment for a period of one year after the date that the financial
statements are issued (or available to be issued). The amendments in this ASU are effective for the annual period ending after
December 15, 2016, and for annual periods and interim periods thereafter. The Company is currently assessing the impact of this
ASU on the Company’s consolidated financial statements.
In
May 2014, August 2015 and May 2016, the FASB issued ASU 2014-09,
“Revenue from Contracts with Customers”
, ASU
2015-14,
“Revenue from Contracts with Customers, Deferral of the Effective Date”
, and ASU 2016-12,
“Revenue
from Contracts with Customers, Narrow-Scope Improvements and Practical Expedients”
, respectively, which implement ASC
Topic 606. ASC Topic 606 outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition guidance under US GAAP, including industry-specific guidance. It
also requires entities to disclose both quantitative and qualitative information that enable financial statements users to understand
the nature, amount, timing, and uncertainty of revenue and cash flows arising from contracts with customers. The amendments in
these ASUs are effective for annual periods beginning after December 15, 2017, and interim periods therein. Early adoption is
permitted for annual periods beginning after December 15, 2016. These ASUs may be applied retrospectively with a cumulative adjustment
to retained earnings in the year of adoption. The Company s assessing the impact, if any, of implementing this guidance on its
financial position, results of operations and liquidity.
There
are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has
been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have
a material impact on the Company’s consolidated financial position or operating results.
Subsequent
Events
In
accordance with ASC 855 “Subsequent Events” the Company evaluated subsequent events after the balance sheet date through
the date of issuance.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – DISCONTINUED OPERATIONS
On
August 11, 2015, the Company formally divested (discontinued) its Natural Wellness Business. The business mainly consisted of
a CBD infused topical lotion called TopiCanna as well as a line of Cannabis Complement products that were intended to compliment
individuals who were consistently using medicinal cannabis related product. On August 11, 2015, the Company sold the balance of
its inventory of TopiCanna and Cannabis Complement products for a one-time cash payment of $20,462. As a result of the disposal
of this business, the Company reported a loss on disposal of $104,957, as reflected in the chart below:
|
|
For
the Years Ended March 31,
|
|
|
|
2017
|
|
|
2016
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
51,062
|
|
Cost
of goods sold
|
|
|
-
|
|
|
|
14,472
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
36,590
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General
and administrative
|
|
|
-
|
|
|
|
26,790
|
|
Depreciation
and amortization expense
|
|
|
-
|
|
|
|
803
|
|
Total
operating expenses
|
|
|
-
|
|
|
|
27,593
|
|
|
|
|
|
|
|
|
|
|
Income from discontinued
operations
|
|
$
|
-
|
|
|
|
8,997
|
|
The
consolidated statement of operations was restated to reflect the reclassification of the discontinued operations.
There
were no assets or liabilities from discontinued operations the years ended March 31, 2017 and 2016.
The
Company recognized a loss on the disposal of the Natural Wellness subsidiary:
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
Loss
on disposal of Natural Wellness (subsidiary)
Cash
|
|
$
|
19,219
|
|
Inventory, at cost
|
|
|
81,198
|
|
Prepaid expenses
|
|
|
16,461
|
|
Property and equipment,
net
|
|
|
8,541
|
|
Less
cash received for sale of inventory
|
|
|
(20,462
|
)
|
Loss
on disposal of continuing operations
|
|
$
|
104,957
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company’s property and equipment is as follows:
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
|
Estimated
Life
|
|
|
|
|
|
|
|
|
|
Computers,
office furniture and equipment
|
|
$
|
57,023
|
|
|
$
|
55,942
|
|
|
3-5 years
|
|
|
|
|
|
|
|
|
|
|
|
Less: accumulated
depreciation
|
|
|
(56,062
|
)
|
|
|
(49,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
961
|
|
|
$
|
6,914
|
|
|
|
Depreciation
expense for the years ended March 31, 2017 and 2016 was $7,034 and $9,832, respectively.
NOTE
5 – COMMITMENT
On December 23,
2016, the Company, entered into a non-exclusive, 12 month, license agreement with Cleveland, Ohio based cosmetics products firm
Ice + Jam LLC (“Ice + Jam”). The Company will market Ice + Jam’s proprietary Cupuacu Butter lip balm, sold under
the trademark HERMAN. The Company will pay the production costs for all product it sells to retail customers or distributors.
The Company further paid $2,190 as a prepaid deposit on future inventory for the purchase of 1,500 units at unit cost of $1.46.
As of March 31, 2017, none of the units have been completed therefore the Company has recorded the payment as a prepaid expense.
On June 27, 2017, the Company wired $20,000
to Ice + Jam as an advanced payment on initial inventory base of 10,000-15,000 units with completed display cases and promotional
literature for the contemplated launch. The Company has focused its efforts on securing potential distribution channels to
the retail marketplace, as well as the improvement of the HERMAN product; inclusive of the label and graphics. The Company
plans a mid to late autumn 2017 launch period to capitalize on the potential market demand associated with seasonality.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – INTANGIBLE ASSETS
License
Agreements:
Immunovative
Therapies, Ltd.
On
December 12, 2011, the Company entered into a License Agreement (the “License Agreement”) with Immunovative Therapies,
Ltd., an Israeli Corporation (“ITL”), pursuant to which the Company received an immediate exclusive and worldwide
license to commercialize all product candidates (the “Licensed Products”) based on ITL’s current and future
patents and a patent in-licensed from the University of Arizona. The license granted covers two experimental products for the
treatment of cancer in clinical development called AlloStim TM and Allo Vaz TM (“Licensed Products”).
On
January 8, 2013, the Company received from ITL, a notice by which ITL purported to terminate the License Agreement dated December
9, 2011 between the Company and ITL (the “ITL Notice”), along with alleged damages. It is the Company’s position
that ITL breached the License Agreement by delivering the ITL Notice and, that prior to the ITL Notice, the License Agreement
was in full force and, on January 17, 2013 and that the Company had complied in all material respect with the License Agreement
therefore the Company believes that there are no damages to ITL. As such, on January 17, 2013, the Company filed a lawsuit against
ITL, which included the request for various injunctive relief against ITL for damages stemming from this breach. On February 19,
2013, the Company and ITL entered into a settlement agreement whereby the parties have agreed to the following: (1) the Company
submitted a letter to the Court advising the Court that the parties had reached a settlement and that the Company is withdrawing
its motion, (2) ITL paid the Company $20,000, (3) ITL issued to the Company, ITL’s share capital equivalent to 9% of the
issued and outstanding shares of ITL (3,280,000 shares), (4) the Company changed its name and (5) the settling parties agree that
the license agreement is terminated. No value has been assigned to the ITL shares received, as they are deemed to be worthless.
The Company, based upon its evaluation of the ITL financial statement, considered its investment in ITL to be impaired as the
ITL Company had negative net worth and the funds advanced were being utilized for research, development and testing. During the
year ended March 31, 2016, the Company sold the 3,280,000 shares for $125,000 which is recorded in the consolidated statements
of operations.
Bacterial
Robotics, LLC
On
October 29, 2013, the Company entered into a strategic alliance agreement between the Company and Bacterial Robotics, LLC (the
Parties) to develop a relationship for the research and development of the NuclearBot Technology that will be marketed and monetized
pursuant to a definitive agreement. Accordingly, subject to the terms of this agreement, (a) Bacterial Robotics agreed to develop
a whitepaper which may be delivered as a readable electronic file, on the subject of utilizing the NuclearBot Technology in the
cleansing of nuclear wastewater created in the operation of a nuclear power plant (the “Whitepaper”), which Bacterial
Robotics shall deliver to the Company within ninety (90) days of the agreement, which may be extended upon mutual agreement based
upon unexpected complexities, and (b) the parties agreed to use commercially reasonable efforts in good faith to (1) identify
prospective pilot programs, projects and opportunities for the NuclearBot Technology for the Parties to strategically and jointly
pursue, (2) enter into a joint venture, in which the Company will be the majority and controlling owner, for the purpose of (A)
marketing and selling products and services utilizing the NuclearBot Technology, (B) sublicensing the NuclearBot Technology and
(C) owning all improvements to the NuclearBot Technology, and other inventions and intellectual property, jointly developed by
the Parties and (3) negotiate terms and conditions of Definitive Agreements. As consideration for the strategic alliance, the
Company issued a $25,000 deposit upon signing the agreement. Additionally, the Company issued a 5-year warrant for up to 75,000,000
shares of the Company’s common stock with a value of $1,139,851 and an additional $25,000 in cash. The Company amortizes
the fee of $1,189,851 over the ten-year life of the licensing agreement, and through March 31, 2014 the accumulated amortization
amounted to $48,952. At March 31, 2014, the Company determined that it was not going to pursue the market nor invest additional
capital to fund the commercialization and accordingly, considered the remaining net value to be impaired recording an impairment
charge of $1,140,899.
On
December 22, 2016, the Company, entered in a membership interest transfer agreement with Open Therapeutics, LLC, an Ohio limited
liability company (“Open Therapeutics” formerly Bacterial Robotics LLC and Microbial Robotics, LLC), whereby the Company
sold 80% of its membership interest in Pilus which included the patents. Open Therapeutics agreed to terminate and cancel 80%
of the unexercised portion of the warrant to purchase 28,917,647 shares (or 23,134,118 warrants) of the Company’s common
stock (issued on January 28, 2014). Open Therapeutics will pay 20% of the net profit generated, to the Company from the previous
year’s earnings after the initial $75,000 of profit (reflected as a contingent liability on the consolidated balance sheet).
The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics
votes its membership interest on all matters for which a member vote is required. Through March 31, 2017, there has been no activity
recorded by Open Therapeutics, LLC with respect to these patents, thus the $75,000 remains contingently owed to them.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
6 – INTANGIBLE ASSETS (CONTINUED)
Breathe
Ecig Corp
On
March 31, 2015, the Company entered into a license agreement with Breathe Ecig Corp. (which has subsequently changed its name
of White Fox Ventures, Inc.) (“Breathe”) whereby the Company issued 10,869,565 shares of its common stock, valued
at $100,000, to Breathe for certain licensing rights, as defined in the agreement. Amortization of the license fee will commence
on April 1, 2015 over the two-year term of the agreement (See Note 12). As Breathe is worthless as of the date of this report,
the Company has written off the entire $100,000 value as of March 31, 2015.
License
agreements consist of the cost of license fees with Breathe Ecig Corp. ($100,000), Green Hygienics, Inc. ($250,000) and Bacterial
Robotics, LLC ($1,189,851) at March 31, 2015.
Patents:
Pilus
Energy, LLC
The
Company, through the acquisition of Pilus Energy on January 28, 2014, acquired a patent to develop cleantech energy using proprietary
microbiological solution that creates electricity while consuming polluting molecules from wastewater.
As a result of the December
22, 2016 sale of the patents to Open Therapeutics, under the license agreement discussed above, the Company had fully
impaired the value of the patents prior to the sale, and the warrants canceled as a result of this transaction was valueless as
there is no intrinsic value to them. The Company recorded no gain or loss. Upon Open Therapeutics profitability with respect to
this technology, the Company will be the beneficiary of a profit split as noted in the agreement, and will recognize revenue from
that in the future.
The
cost of the patent and related amortization at December 22, 2016 is as follows, prior to the sale:
|
|
Fair
Value
|
|
|
Estimated
Life
|
Cash
advanced on signing the memorandum of understanding and closing agreement
|
|
$
|
100,000
|
|
|
16.5
years
|
Fair value of the
warrant for 100,000,000 shares of the Company’s common stock
|
|
|
1,710,000
|
|
|
|
Total
|
|
|
1,810,000
|
|
|
|
Less amortization
in the year ended March 31, 2015
|
|
|
18,540
|
|
|
|
Net value at March
31, 2015 prior to impairment
|
|
$
|
1,791,460
|
|
|
|
Impairment in the
year ended March 31, 2015
|
|
|
1,791,460
|
|
|
|
Net value for the
year ended March 31, 2016 and at December 22, 2016
|
|
|
—
|
|
|
|
NOTE
7 – CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES
The
Company entered into several financial instruments, which consist of notes payable, containing various conversion features. Generally,
the financial instruments are convertible into shares of the Company’s common stock; at prices that are either marked to
the volume weighted average price of the Company’s intended publicly traded stock or a static price determinative from the
financial instrument agreements. These prices may be at a significant discount to market determined by the volume weighted average
price once the Company completes its reverse acquisition with the intended publicly traded company. The Company for all intent
and purposes considers this discount to be fair market value as would be determined in an arm’s length transaction with
a willing buyer.
The
Company accounts for the fair value of the conversion feature in accordance with ASC 815-15, Derivatives and Hedging; Embedded
Derivatives, which requires the Company to bifurcate and separately account for the conversion features as an embedded derivative
contained in the Company’s convertible debt and original issue discount notes payable. 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
in its results of operations. The Company valued the embedded derivatives using eight steps to determine fair value under ASC
820. (1) Identify the item to be valued and the unit of account. (2) Determine the principal or most advantageous market and the
relevant market participants. (3) Select the valuation premise to be used for asset measurements. (4) Consider the risk assumptions
applicable to liability measurements. (5) Identify available inputs. (6) Select the appropriate valuation technique(s). (7) Make
the measurement. (8) Determine amounts to be recognized and information to be disclosed.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES (CONTINUED)
Convertible
notes payable containing derivative liabilities consisted of the following as of March 31:
|
|
|
|
2017
|
|
|
2016
|
|
Convertible
note payable – Union Capital – (May 15)
|
|
(a)
|
|
$
|
121,800
|
|
|
$
|
104,000
|
|
Convertible note payable
- Group 10 - (Jul 15)
|
|
(b)
|
|
|
113,280
|
|
|
|
96,000
|
|
Convertible note payable
- Group 10 - (Aug 16)
|
|
(c)
|
|
|
-
|
|
|
|
-
|
|
Convertible note payable
- Group 10 - (Nov 16)
|
|
(d)
|
|
|
45,000
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total convertible notes
payable, current
|
|
|
|
|
280,080
|
|
|
|
200,000
|
|
Less discounts:
reflected as derivative liabilities
|
|
|
|
|
(280,080
|
)
|
|
|
(200,000
|
)
|
Total convertible notes
payable, net of discounts
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
Twelve-month
$104,000 convertible note, dated May 28, 2015 bearing interest at the rate of 7% per annum, and having a default rate of 24%.
The note matured in May 2016. The Company granted noteholder 12,500,000 shares of Company common stock for a commitment fee
in consideration of the note. Under the note, the Company entered into default on July 15, 2015 with the delisting from the
OTCQB Exchange resulting from failure to timely file the Company’s annual report with the Securities and Exchange Commission
(“SEC”) violating Regulation SX, Rule 2-01 as a direct result of the Company not being able to obtain properly
audited financial statements. Due to the breach of delisting the outstanding principal due under this note was increased by
50% to $156,000, then increased again another 10% to $171,600. Pursuant to the terms of the Union Note, at any time Union
may convert any principal and interest due to it at a 20% discount to the lowest closing bid price of Company common stock
for the five trading days prior to the conversion notice. Additionally, the discount will be adjusted on a ratchet basis in
the event the Company offers a more favorable discount rate or look-back period to a third party during the term of the Union.
As of March 31, 2017, Union has converted $49,800 of principal and $18,167 of interest of this note. As of March 31, 2017,
this note had accrued interest of $48,504. As of March 31, 2017, the value of the derivative liability related to this note
is $109,498. Subsequent to March 31, 2017, the noteholder converted $64,350 of principal and $27,354 of accrued interest
for 109,500,026 common shares.
|
|
|
(b)
|
Twelve-month
$96,000 convertible note, bearing 20% OID, dated July 14, 2015 bearing interest at the rate of 12% per annum, and having a
default rate of 18%. The note matured in May 2016. The Company granted noteholder 15,000,000 shares of Company common stock
for a commitment fee in consideration of the note. Under the note, the Company entered into default on July 15, 2015 with
the delisting from the OTCQB Exchange resulting from failure to timely file the Company’s annual report with the Securities
and Exchange Commission (“SEC”) violating Regulation SX, Rule 2-01 as a direct result of the Company not being
able to obtain properly audited financial statements. Due to the breach of delisting the outstanding principal due under this
note was increased by 18% to $113,280. The holder has the right, but not the obligation, to convert all or any portion of
the outstanding principal amount, accrued interest and fees due and payable thereon into fully paid and non-assessable shares
of common stock of borrower at the conversion price, (the “conversion shares”) which shall mean the lesser of
(a) fifty percent (50%) multiplied by the lowest closing price as of the date a notice of conversion is given (which represents
a discount rate of fifty percent (50%)) or (b) one half penny ($0.005). If the market capitalization of the borrower is less
than one million dollars ($1,000,000) on the day immediately prior to the date of the notice of conversion, then the conversion
price shall be twenty-five percent (25%) multiplied by the lowest closing price as of the date a notice of conversion is given
(which represents a discount rate of seventy-five percent (75%). Additionally, if the closing price of the borrower’s
common stock on the day immediately prior to the date of the notice of conversion is less than $0.001 then the conversion
price shall be twenty-five percent (25%) multiplied by the lowest closing price as of the date a notice of conversion is given
(which represents a discount rate of seventy-five percent (75%). As of March 31, 2017, this note had accrued interest of $34,891.
On December 6, 2016, Group 10 formally notified the Company of the amount of the default penalty being charged under their
default penalty clause. This penalty resulted in the amount of $348,000. The current amount as demanded by the note holder
was recorded as interest expense. As of March 31, 2017 the value of the derivative liability related to this note is $467,419.
Subsequent to March 31, 2017, the noteholder converted $67,500 of principal for 175,000,000 common shares.
|
|
|
(c)
|
Twelve-month
$48,000 convertible note, with OID in the amount of $8,000, dated August 3, 2016 bearing interest at the rate of 12% per annum,
and having a default rate of 18%. The note matured in May 2016. The Company granted noteholder 8,000,000 shares of Company
common stock for a commitment fee in consideration of the note. For the period of October 1, 2016 to December 5, 2016, the
Company was not current with its reporting responsibilities under Section 13 of the Exchange Act and failed to timely file,
when due, any SEC reports (10K and 10Q’s) was considered an event of default. Following the occurrence and during the
continuance of an event of default, the Company agreed to pay to the holder in the amount equal to one thousand dollars ($1,000)
per business day commencing the business day following the date of the event of default. The default penalty of $45,000 for
the period of 45 days was settled for 10,000,000 common shares of Company stock ($0.0045 per share). This amount was recorded
as interest expense. On November 7, 2016, the holder converted $50,160 ($0.00114 per share) into 44,000,000 common shares.
The note had a face value of $48,000 with accrued interest of $2,160.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND DERIVATIVE LIABILITIES (CONTINUED)
(d)
|
Twelve-month
$45,000 convertible note, with OID in the amount of $7,000, dated November 7, 2016 bearing interest at the rate of 12% per
annum, and having a default rate of 18%. The note will mature in November 2017. The Company granted noteholder 8,000,000 shares
of Company common stock for a commitment fee in consideration of the note. If any event of default occurs, the outstanding
principal shall be increased to one hundred eighteen percent (118%) of the outstanding principal. The holder has the right,
but not the obligation, to convert all or any portion of the outstanding principal amount, accrued interest and fees due and
payable thereon into fully paid and non-assessable shares of common stock of borrower at the conversion price, (the “conversion
shares”) which shall mean the lesser of (a) fifty percent (50%) multiplied by the lowest closing price as of the date
a notice of conversion is given (which represents a discount rate of fifty percent (50%)) or (b) three tenths of a penny ($0.003).
If the market capitalization of the borrower is less than one million dollars ($1,000,000) on the day immediately prior to
the date of the notice of conversion, then the conversion price shall be twenty-five percent (25%) multiplied by the lowest
closing price as of the date a notice of conversion is given (which represents a discount rate of seventy-five percent (75%).
Additionally, if the closing price of the borrower’s common stock on the day immediately prior to the date of the notice
of conversion is less than $0.001 then the conversion price shall be twenty-five percent (25%) multiplied by the lowest closing
price as of the date a notice of conversion is given (which represents a discount rate of seventy-five percent (75%). This
note may be prepaid in cash by the Company after 180 days until maturity including a prepayment penalty of) one hundred forty-five
percent (145%) of the prepayment amount. As of March 31, 2017 accrued interest was $2,130. As of March 31, 2017 the value
of the derivative liability related to this note is $152,272.
|
Additionally,
as of March 31, 2015, the value of the derivative liability associated with the convertible notes was $90,000 associated with
the Class B warrants issued to Hanover Holdings I, LLC, as the warrants had been converted into shares of common stock during
the three months ended June 30, 2015.
NOTE
8 – NOTES PAYABLE TO INDIVIDUALS AND COMPANIES
Notes
payable to individuals and companies consisted of the following as of March 31:
|
|
|
|
2017
|
|
|
2016
|
|
Convertible
note payable - Group 10 - (Mar 17)
|
|
(a)
|
|
$
|
-
|
|
|
$
|
-
|
|
Alternative Strategy
Partners PTE Ltd.
|
|
(b)
|
|
|
90,000
|
|
|
|
90,000
|
|
ADAR Bays -Dec 2016
|
|
(c)
|
|
|
67,045
|
|
|
|
-
|
|
ADAR Bays -Feb 2017
|
|
(d)
|
|
|
27,500
|
|
|
|
-
|
|
Eagle Equities, LLC
- Jan 2017
|
|
(e)
|
|
|
18,000
|
|
|
|
-
|
|
Eagle Equities, LLC
- Mar 2017
|
|
(f)
|
|
|
35,000
|
|
|
|
-
|
|
Individuals – June 2015
|
|
(g)
|
|
|
20,000
|
|
|
|
115,000
|
|
Individuals –
Feb to April 2013
|
|
(h)
|
|
|
48,775
|
|
|
|
48,775
|
|
|
|
|
|
|
|
|
|
|
|
|
Total notes payable
and convertible notes
|
|
|
|
|
306,320
|
|
|
|
253,775
|
|
Less
- current portion of these notes
|
|
|
|
|
(306,320
|
)
|
|
|
(253,775
|
)
|
Total
notes payable and convertible notes, net discounts
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
Twelve-month
$40,000 convertible note with OID in the amount of $5,000 dated March 31, 2017. As additional consideration for the purchase
of the note, the Company shall issue 15,000,000 commitment shares. This note bears 12% interest per annum with a default interest
rate of 18%. In the event default occurs, the outstanding principal amount of this debenture shall increase to one hundred
eighteen percent (118%) of the outstanding principal amount of this debenture. The holder shall have the right to convert
any portion of the outstanding principal amount, accrued interest and fees due and payable thereon into fully paid and non-assessable
shares of common stock of borrower at the conversion price, (the “conversion shares”) which shall mean the lesser
of (a) sixty percent (50%) multiplied by the lowest closing price during the thirty-five (35) trading days prior to the notice
of conversion is given (which represents a discount rate of forty percent (50%)) or (b) two-tenths of a penny ($0.002). If
the market capitalization of the borrower is less than 1 million dollars ($1,000,000) or the closing price of the borrower’s
common stock is below one-tenth of a penny ($0.001) on the day immediately prior to the date of the notice of conversion,
then the conversion price shall be twenty-five percent (25%) multiplied by the lowest closing price during the thirty-five
(35) trading days prior to the date a notice of conversion is given (which represents a discount rate of seventy-five percent
(75%)). Borrower may prepay in cash the principal amount of this debenture and accrued interest thereon, with a premium payment
equal to one hundred forty-five percent (145%) of the prepayment amount. Prepayments after one hundred eighty (180) days but
before maturity are subject to the approval of holder. The note was effective as of March 31, 2017 however not funded as of
March 31, 2017. Funding occurred April 3, 2017, therefore this amount is not included in the balance of notes payable and
there was no accrued interest reflected as of March 31, 2017.
On
June 26, 2017, the Company settled this note in full for a one time cash payment in the amount of $59,659. The Company will
record, as interest expense, a prepayment penalty of $18,594 in addition to the repayment of accrued interest of $1,065.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – NOTES PAYABLE TO INDIVIDUALS AND COMPANIES (CONTINUED)
(b)
|
Three-month
$180,000 non-convertible note dated September 23, 2015 bearing and interest rate of 11.50% per annum. The note matured in
December 2015. The Company received cash from the note of $90,000 ($75,000 wired directly to the Company and $15,000 wired
directly from ASP to compensate a consultant). The balance of this note ($90,000) was to be wired directly to a Japanese based
consumer product firm called Eishin, Inc., but there was never any documentation provided to support this $90,000. The Company
is in dispute with the noteholder, and has not recorded this liability as of March 31, 2017 or 2016. If the proper documentation
is provided to the Company, they will record the liability at that time. The Company has not received any type of default
notice with respect to this $180,000 non-convertible debenture. Additionally, the Company has not received any shares in Eishin
Co., Ltd. up to this point. The Company did follow up with Eishin in March 2017, and it was noted that Eishin did not reflect
the Company as having this ownership. As a result, the additional $90,000 has not been recognized as outstanding. As of March
31, 2017, the Company has accrued interest $15,738.
|
|
|
(c)
|
Fifty-eight
day $60,950 convertible note dated December 19, 2016, with OID in the amount of $7,950 bearing an interest rate of 12% with
a default interest rate of 24%. As additional consideration for the purchase of the note, the Company issued the note holder
5,000,000 common share as commitment shares recorded at a value of $32,000 ($0.0065 per share). The holder of this note is
entitled to convert any amount of the principal face amount of this note then outstanding into shares of the Company’s
common stock at a conversion price for each share of Common Stock equal to 80% of the lowest trading price (20% discount)
of the common stock of the lowest trading price of the common stock for the twenty trading days immediately preceding the
delivery of a notice of conversion. If the note is still outstanding on the 6-month anniversary, then the conversion discount
shall be increased from 20% to 35% such that the conversion price will be equal to 65%. On February 15, 2017, the note entered
into default for failure to timely pay principal and interest upon maturity. Since this note was not paid at maturity, the
outstanding principal due under this note increased by 10% to $67,045. This note is further guaranteed by Seth Shaw, Chief
Executive Officer of the Company. Mr. Shaw pledged 37,500,000 shares of his Common Stock as collateral for payment obligation
under this note. As of March 31, 2017, the Company has accrued interest $3,126. On June 21, 2017, the Company issued 53,461,538
common shares of stock at $0.00052 per share under a conversion notice submitted by the note holder, retiring $27,800 of principal.
|
|
|
(d)
|
Twelve-month $27,500 convertible note dated February 8, 2017, with 10% OID in the amount of $2,500 bearing
an interest rate of 8% with a default rate of 24%. The holder of this note is entitled to convert any amount of the principal face
amount of this note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common
Stock equal to 60% of the lowest trading price (40% discount) of the common stock of the lowest trading price of the common stock
for the twenty trading days immediately preceding the delivery of a notice of conversion. During the first one hundred eighty (180)
days, borrower may prepay the principal amount of this debenture and accrued interest thereon, with a premium, as set forth below
(“prepayment premium”), such redemption must be closed and funded within three (3) days. The amount of each prepayment
premium shall be as follows: (a) one hundred fifteen percent (115%) for redemptions in the first 30 days after the note issuance;
(b) one hundred twenty percent (120%) of the prepayment amount if such prepayment is made at any time from thirty-one (31) days
after the issuance date until sixty (60) days after the issuance date; (c) one hundred twenty-five percent (125%) of the prepayment
amount if such prepayment is made at any time from sixty-one (61) days after the issuance date until ninety (90) days after the
issuance date made; (d) one hundred thirty percent (130%) of the prepayment amount if such prepayment is made at any time from
ninety-one (91) days after the issuance date until one hundred twenty (120) days after the issuance date made; and (e) one hundred
thirty five percent (135%) of the prepayment amount if such prepayment is made at any time from one hundred twenty (121) days after
the issuance date until one hundred fifty (150) days after the issuance (f) one hundred forty percent (140%) of the prepayment
amount if such prepayment is made at any time from one hundred twenty (151) days after the issuance date until one hundred eighty
(180) days after the issuance date made. This note may not be prepaid after one hundred (180) eighty days. If this Note is not
paid at maturity, the outstanding principal due under this Note shall increase by 10%. As of March 31, 2017, the Company has accrued
interest of $307.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – NOTES PAYABLE TO INDIVIDUALS AND COMPANIES (CONTINUED)
(e)
|
Twelve-month
$18,000 convertible note dated January 27, 2017 bearing an interest rate of 8% with a default interest rate of 24%. The holder
of this note may convert any amount of the principal face amount of this note then outstanding into shares of the Company’s
common stock at a conversion price for each share equal to 75% of the lowest closing bid price as future for the ten (10)
prior trading days. As additional consideration for the purchase of the note, the Company issued note holder 3,500,000 shares
of restricted common stock valued at $15,750 ($0.0045 per share). During the first one hundred eighty (180) days, borrower
may prepay the principal amount of this debenture and accrued interest thereon, with a premium, as set forth below (“prepayment
premium”), such redemption must be closed and funded within three (3) days. The amount of each prepayment premium shall
be as follows: (a) there will be no payment penalty for redemptions in the first 30 days after the note issuance; (b) one
hundred ten percent (110%) of the prepayment amount if such prepayment is made at any time from thirty-one (31) days after
the issuance date until sixty (60) days after the issuance date; (c) one hundred fifteen percent (115%) of the prepayment
amount if such prepayment is made at any time from sixty-one (61) days after the issuance date until ninety (90) days after
the issuance date made; (d) one hundred twenty percent (120%) of the prepayment amount if such prepayment is made at any time
from ninety-one (91) days after the issuance date until one hundred twenty (120) days after the issuance date made; and (e)
one hundred twenty five percent (125%) of the prepayment amount if such prepayment is made at any time from one hundred twenty
(120) days after the issuance date until one hundred eighty (180) days after the issuance date made. This note may not be
prepaid after one hundred (180) eighty days. In the event of default whereby the Company shall have its common stock delisted
from an exchange the outstanding principal due under this note shall increase by 50%. If this note is not paid at maturity,
the outstanding principal due under this note shall increase by 10%. Further, if a breach of Company becoming delinquent in
its periodic report filings with the Securities and Exchange Commission occurs or is continuing after the 6 month anniversary
of the Note, then the Holder shall be entitled to use the lowest closing bid price during the delinquency period as a base
price for the conversion. As of March 31, 2017, the Company has accrued interest of $249.
|
|
|
(f)
|
Two-twelve-month
convertible notes
as part of a securities purchase agreement, dated March 20, 2017, to sell one year 8%
convertible notes totaling $70,000 ($35,000 each). As additional consideration
for the purchase of the note, the Company issued note holder 16,000,000 shares of restricted
common stock valued at $43,200 ($0.0027 per share.) Both notes mature on March 20,
2018. On March 22, 2017, the noteholder funded the first note through the direct
payment of cash to third parties. The holder of the notes is entitled to
convert any amount of the principal face amount of this note then outstanding into shares
of the Company’s common stock at a conversion price for each share equal to 75%
of the lowest closing bid price for the ten (10) prior trading days. During the first
one hundred eighty (180) days, borrower may prepay the principal amount of this debenture
and accrued interest thereon, with a premium, as set forth below (“prepayment premium”),
such redemption must be closed and funded within three (3) days. The amount of each prepayment
premium shall be as follows: (a) there will be no payment penalty for redemptions in
the first 30 days after the note issuance; (b) one hundred ten percent (110%) of the
prepayment amount if such prepayment is made at any time from thirty-one (31) days after
the issuance date until sixty (60) days after the issuance date; (c) one hundred fifteen
percent (115%) of the prepayment amount if such prepayment is made at any time from sixty-one
(61) days after the issuance date until ninety (90) days after the issuance date made;
(d) one hundred twenty percent (120%) of the prepayment amount if such prepayment is
made at any time from ninety-one (91) days after the issuance date until one hundred
twenty (120) days after the issuance date made; and (e) one hundred twenty five percent
(125%) of the prepayment amount if such prepayment is made at any time from one hundred
twenty (120) days after the issuance date until one hundred eighty (180) days after the
issuance date made. This note may not be prepaid after one hundred (180) eighty days.
If this note is not paid at maturity, the outstanding principal due under this note shall
increase by 10%. As of March 31, 2017, the Company has accrued interest of $84.
On
June 8, 2017, the noteholder advanced funds in the amount of $8,623 in the form of a
direct payment to a third party. On June 15, 2017, the Company was advanced $8,000 towards
the second note. On June 26, 2017 the note holder fully funded the second note with a
payment to the Company in the amount of $16,377. Legal fees in the amount of $2,000 were
deducted from the proceeds.
|
|
|
(g)
|
On
June 1, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with various
accredited investors for the sale of certain debentures with aggregate gross proceeds to the Company of $133,000 ($18,000
of which was to a related party). Pursuant to the terms of the agreement, the investors were granted 13,300,000 shares of
Company common stock for a commitment fee. These shares were issued on June 15, 2016. Additionally, the Company was required
to repay the amounts raised under the Purchase Agreement prior to December 1, 2015 except as described below. The Purchase
Agreement provided the Company with the following prepayment options: (i) if prepaid prior to August 31, 2015, the Company
must pay each investor the amount invested plus a 10% premium and (ii) if prepaid after August 31, 2015 but prior to December
1, 2015, the Company must pay each investor the amount invested plus a 20% premium. Because the Company did not repay the
amounts as described above, on December 1, 2015 the Company had the option to convert all amounts raised under the Purchase
Agreements into shares of common stock based on a 20% discount to the Company’s VWAP (as defined in the Purchase Agreement)
for the three Trading Days (as defined in the Purchase Agreement) prior to December 1, 2015, which the Company has done. Excluding
the 13,300,000 commitment shares, in May 2016 the Company agreed to issue 33,900,000 shares of its common stock, which were
issued on June 15, 2016 to settle all obligations under these Purchase Agreements with the exception of one individual note
holder in the amount of $20,000, which remains outstanding as of March 31, 2017. Accrued interest on this note as of March
31, 2017 is $4,000.
|
|
|
(h)
|
Individual
notes issued to 6 individuals bearing an interest rate of 8%. These notes were issued from February through April 2013. The
notes are convertible into common stock of the Company at $0.025 per share. During the years ended March 31, 2017 and 2016
no notes were converted to common stock. Accrued interest on these notes as of March 31, 2017 is $17,127.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
8 – NOTES PAYABLE TO INDIVIDUALS AND COMPANIES (CONTINUED)
Interest
expense for the years ended March 31, 2017 and 2016 was $721,408 and $83,456. Included in interest expense for these years
are fees related to default fees and value attributable to commitment fees for the various notes. Accrued interest at March 31,
2017 and 2016 was $122,887 and $86,812, respectively.
See
Note 15 for additional long-term debt transactions that occurred subsequent to March 31, 2017.
NOTE
9 – RELATED PARTIES
On
May 27, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Lawrence May
Enterprises, an accredited investor for the sale of a debenture with aggregate gross proceeds to the Company of $18,000. Pursuant
to the terms of the agreement, the investor was granted 1,800,000 shares of Company common stock as a commitment fee. These shares
were issued on June 15, 2016. Additionally, the Company was required to repay the amounts raised under the Purchase Agreement
prior to December 1, 2015 except as described below. The Purchase Agreement provides the Company with the following prepayment
options: (i) if prepaid prior to August 31, 2015, the Company must pay each investor the amount invested plus a 10% premium and
(ii) if prepaid after August 31, 2015 but prior to December 1, 2015, the Company must pay each investor the amount invested plus
a 20% premium. In the event the Company has not repaid the amounts as described above, on December 1, 2015 the Company has the
option to convert all amounts raised under the Purchase Agreements into shares of common stock based on a 20% discount to the
Company’s VWAP (as defined in the Purchase Agreement) for the three trading days (as defined in the Purchase Agreement)
prior to December 1, 2015.
On
June 15, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $95,000. This investment is structured
as an equity private placement of 76,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
On
June 21, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $55,000. This investment is structured
as an equity private placement of 44,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
NOTE
10 – STOCKHOLDERS’ DEFICIT
Common
Stock
As of March 31, 2017, the Company is
authorized to issue 2,500,000,000 shares of its common stock. As of March 31, 2017, 1,734,920,049 shares of common stock are outstanding.
On
July 9, 2015, the Company’s Board of Directors (“BOD”) approved an amendment to the Company’s Articles
of Incorporation to increase the Company’s authorized common stock from 1,000,000,000 to 2,500,000,000 shares and on July
17, 2015, the Company filed Schedule 14A with the Securities and Exchange Commission calling for a special meeting of the stockholders
that was held on July 27, 2015 to approve the amendment.
On
April 27, 2017, the Company’s Board of Directors (“BOD”) approved an amendment to the Company’s Articles
of Incorporation to increase the Company’s authorized common stock from 2,500,000,000 to 7,500,000,000 shares and on May
26, 2017, the Company filed Schedule DEF 14A with the Securities and Exchange Commission calling for a special meeting
of the stockholders that was held on June 28, 2017 to approve the amendment. The articles of amendment were filed with the
Florida Secretary of State on June 29, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
Fiscal
Year 2016
On
June 27, 2014, $250,000 in cash was released from escrow pursuant to a securities purchase agreement with Hanover Holdings I,
LLC (“Hanover I”), as amended April 17, 2014, associated with the Company’s acquisition of Honeywood (see Note
1) and filing of a registration statement registering Company securities, whereby the Company agreed to issue shares of its common
stock under a Class A and Class B warrant, as defined in the amended agreement. The Class A warrant provided for a fixed exercise
price of $0.05 per share; the Class B warrant provided for an initial exercise price of $0.05, however, upon a drop of the market
price below $0.05 based on the closing price of the Company’s common stock for a period of three consecutive trading days,
the Class B warrant shall carry a call option premium of 135% and shall require payment of the shares within 5 business days in
the form of either cash or a conversion into shares of the Company’s common stock based on the closing share price on the
three days prior. As the securities purchase agreement was entered into in anticipation of the Honeywood acquisition and the filing
of a registration statement, neither of which occurred, the Company and Hanover I informally have agreed to regard the $250,000
investment as an exercise under the terms of the Class B warrant. As a result, shares of Company common stock are to be issued,
based on the call option premium amount of $337,500, upon the request of Hanover I. During the year ended March 31, 2015, 12,211,400
shares of common stock with a value of $147,500 have been issued to Hanover I. As of March 31, 2015, common stock valued at $190,000,
29,188,403 shares, is issuable to Hanover I. These shares have been issued as of June 3, 2015.
During
the year ended March 31, 2016, the Company issued 27,500,000 common shares as commitment shares valued at $191,000, in conjunction
with the issuance on two convertible notes in the aggregate amount of $200,000 ($104,000 and $96,000), each convertible note payable
matures one-year after issuance, bearing interest rates of 7 - 12% annual interest, increasing to 18-24% default interest.
During
the year ended March 31, 2016, the Company issued 38,340,000 shares of common stock to the Chief Executive Officer and V.P. Strategic
Planning from $0.003 to $0.01, totaling $175,260.
During
the year ended March 31, 2016, the Company issued 30,035,000 shares of common stock as share based compensation at prices ranging
from $0.003 to $0.01, totaling $137,735.
During
the year ended March 31, 2016, the Company issued 191,750,000 shares of common stock for advisory and investor relation services
at prices ranging from $0.002 to $0.0045 per share, totaling $759,750.
During
the year ended March 31, 2016, the Company issued 4,000,000 shares of common stock along with $8,000 in cash to settle a liability
of a consultant who provided services for the Company from August 2013 through October 2013. The stock was valued at $0.002 per
share, totaling $8,000.
Fiscal
Year 2017
During
the year ended March 31, 2017, the Company issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per share) to
convert notes payable in the amount $113,000 (including a related party note in the amount of $18,000) plus a 20% conversion premium
which was recorded as interest expense in the amount $22,600.
During
the year ended March 31, 2017, the Company issued 104,375,000 shares of common stock ($0.004 per share) for proceeds of $428,500.
During
the year ended March 31, 2017, the Company issued 197,000,000 shares of common stock for services rendered and to be rendered
valued at $816,168 ($0.0029 to $0.0088 per share) which is reflected in stock-based compensation. Value represents contracts entered
into with various consultants, with the grant date fair value amortized over the life of the contracts.
During
the year ended March 31, 2017, the Company issued 63,800,000 shares of common stock for commitment shares to note holders at a
value of $378,550 ($0.0027 to $0.01 per share).
During
the year ended March 31, 2017, the Company issued 100,639,501 shares of common stock to convert principal and interest in the
amount of $118,126 ($0.00114 to $0.0012 per share).
On
November 18, 2016, the Company issued 15,384,615 common shares of Company stock to settle an outstanding payable in the amount
of $194,516. The Company recognized a gain on the settlement of this liability in the amount of $94,516, as the shares were valued
at $100,000.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Fiscal
Year 2017 (Continued)
In
connection with some of the consulting agreements and board advisory agreements the Company has entered into, as the following
clauses are part of the compensation arrangements: a) the consultant will be reimbursed for all reasonable out of pocket expenses,
b) to the extent the consultant introduces the Company to any sources of equity or debt arrangements, the Company agrees to pay
8% to 10% in cash and 8% to 10% in common stock of the Company of all cash amounts actually received by the Company and 2% for
debt arrangements, and c) the Company, in its sole discretion, may make additional cash payments and/or issue additional shares
of common stock to the consultant based upon the consultant’s performance.
Warrants
for Common Stock
The
following table summarizes warrant activity for the years ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31,
2015
|
|
|
106,941,932
|
|
|
$
|
0.02
|
|
|
|
4.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,188,403
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
77,303,529
|
|
|
$
|
0.02
|
|
|
|
3.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,350,000
|
|
|
|
0.01
|
|
|
|
2.44
Years
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(23,134,118
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable
at March 31, 2017
|
|
|
91,519,411
|
|
|
$
|
0.02
|
|
|
|
3.41
Years
|
|
|
$
|
-
|
|
The
warrants were valued utilizing the following assumptions employing the Black-Scholes Pricing Model:
|
|
Year
Ended
March 31, 2017
|
|
|
Year
Ended
March 31, 2016
|
|
Volatility
|
|
|
203
|
%
|
|
|
n/a
|
|
Risk-free rate
|
|
|
0.66
|
%
|
|
|
n/a
|
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
Expected life of
warrants
|
|
|
2.35
|
|
|
|
n/a
|
|
For
the year ended March 31, 2017, the Company entered into Stock Purchase agreements (“SPA’s”) with 20 qualified
investors, subsequently issuing 93,375,000 shares of common stock. In accordance with terms of the SPA’s, each investor
was awarded 1 Non-cashless Warrant (with a term of 36 months) for every 2.5 shares of stock purchased. The strike price of these
warrants is 1 cent per share. The total warrants of 37,350,000 are classified as additional paid in capital. The warrants are
classified as equity as they contain no provisions that would enable liability classification.
On
December 22, 2016, the Company, entered in a membership interest transfer agreement with Open Therapeutics, LLC, an Ohio limited
liability company (“Open Therapeutics” formerly Bacterial Robotics LLC and Microbial Robotics, LLC), whereby the Company
sold 80% of its membership interest in Pilus which included the patents. Open Therapeutics agreed to terminate and cancel 80%
of the unexercised portion of the warrant to purchase 28,917,647 shares (or 23,134,118 warrants) of the Company’s common
stock (issued on January 28, 2014). Open Therapeutics will pay 20% of the net profit generated, to the Company from the previous
year’s earnings after the initial $75,000 of profit (reflected as a contingent liability on the consolidated balance sheet).
The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics
votes its membership interest on all matters for which a member vote is required. Through March 31, 2017, there has been no activity
recorded by Open Therapeutics, LLC with respect to these patents, thus the $75,000 remains contingently owed to them.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Stock
Options
On
February 1, 2012, the Company awarded to each of two former executives options to purchase 5,000,000 common shares, an aggregate
of 10,000,000 shares. These options vested immediately and were for services performed. The Company recorded stock-based compensation
expense of $1,400,000 for the issuance of these options. The following weighted average assumptions were used for Black-Scholes
option-pricing model to value these stock options:
Volatility
|
|
|
220
|
%
|
Expected dividend
rate
|
|
|
-
|
|
Expected life of
options in years
|
|
|
10
|
|
Risk-free rate
|
|
|
1.87
|
%
|
The
following table summarizes option activity for the years ended March 31, 2017 and 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2015
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
6.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March
31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
4.85
Years
|
|
|
$
|
—
|
|
NOTE
11 – PROVISION FOR INCOME TAXES
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and
income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected
to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts
of assets and liabilities and their respective tax bases.
Deferred
tax assets consist of the following:
|
|
March
31, 2017
|
|
|
March
31, 2016
|
|
Net
operating losses
|
|
$
|
8,479,000
|
|
|
$
|
7,670,000
|
|
Valuation
allowance
|
|
|
(8,479,000
|
)
|
|
|
(7,670,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
March 31, 2017, the Company had a U.S. net operating loss carryforward in the approximate amount of $20 million available to offset
future taxable income through 2037. The Company established valuation allowances equal to the full amount of the deferred tax
assets due to the uncertainty of the utilization of the operating losses in future periods. The Company also has a Canadian carry
forward loss which approximates $700,000 and is available to offset future taxable income through 2037. The valuation allowance
increased by $809,000 and $580,000 in the years ended March 31, 2017 and 2016, respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
11 – PROVISION FOR INCOME TAXES (CONTINUED)
A
reconciliation of the Company’s effective tax rate as a percentage of income before taxes and the federal statutory rate
for the years ended March 31, 2017 and 2016 is summarized as follows.
|
|
2017
|
|
|
2016
|
|
Federal
statutory rate
|
|
|
(34.0
|
)%
|
|
|
(34.0
|
)%
|
State income taxes,
net of federal benefits
|
|
|
(3.3
|
)
|
|
|
(3.3
|
)
|
Foreign tax
|
|
|
(0.3
|
)
|
|
|
(0.3
|
)
|
Valuation
allowance
|
|
|
37.6
|
|
|
|
37.6
|
|
|
|
|
0
|
%
|
|
|
0
|
%
|
NOTE
12 – INVESTMENTS - AVAILABLE FOR SALE SECURITIES
The
Company’s investments in Green Innovations, Ltd is included within Current Assets as they are expected to be realized in
cash within one year. The investments are recorded at fair valve with unrealized gains and losses, net of applicable taxes, in
Other Comprehensive Income. The Company’s investment in Green Innovations, Ltd has a cost of $250,000, unrealized loss of
$249,375 and a fair value of $625 at March 31, 2017. At March 31, 2016, the unrealized loss was $249,250 and the fair value was
$750, respectively.
NOTE
13 – CURRENT LITIGATION
Lawsuit
Filed Against Cowan Gunteski & Co. PA
On
November 4, 2015, the Company filed a lawsuit against its predecessor audit firm Cowan Gunteski & Co. PA in Federal Court
— Southern District Florida (Miami, Florida) entitled “Tauriga Sciences, Inc. v. Cowan, Gunteski & Co., P.A. et
al”, Case No. 0:15-cv-62334. The case has since been transferred to the United States District Court for the District of
New Jersey. The case alleges, among other things, that Cowan Gunteski committed malpractice with respect to the audit of the Company’s
FY 2014 financial statements (as illustrated in the PCAOB Public Censure of July 23, 2015) and then misrepresented to the Company
with respect about its ability to re-issue an independent opinion for FY 2014 financial statements. On July 31, 2015, the Company
was delisted from the OTCQB Exchange to the OTC Pink Limited Information Tier due to its inability to file its FY 2015 Form 10K.
The lawsuit was expected by the Company and its counsel to take up to 18 months to complete, from the date it was filed (November
4, 2015).
The
Company in its lawsuit is seeking damages against Cowan Gunteski (and its malpractice insurance policy) expected to exceed $4,000,000.
There is no guarantee that the Company will be successful in this lawsuit.
Subsequent
to the filing of the lawsuit, the Company was notified that the lawsuit was temporarily suspended so that the Company and Cowan
can attempt to mediate this case based on the engagement letters between the parties. On December 30, 2015, the Company was notified
that Daniel F. Kolb was appointed as the mediator.
Mediation
commenced on February 3, 2016. During these efforts, the Company had been offered settlement amounts, but none that have been
satisfactory.
On
March 22, 2016, the Company decided that its good faith efforts to settle its ongoing litigation with Cowan Gunteski & Co.
P.A. have proven unsuccessful. Therefore, the Board of Directors of the Company unanimously agreed to proceed forward with the
litigation. The Company is continuing to seek the assistance of independent experts, to help ascribe dollar amounts for certain
damages suffered by the Company (“provable damages”). At this point in time, the Company has realized out of pocket
cash losses and liabilities (inclusive of liquidated damages) that exceed $850,000. Additional potential damages include but are
not limited to: inability to properly maintain Pilus Energy’s Intellectual Property (“Pilus IP”), the July 31,
2015 delisting of the Company shares from OTCQB to Pink Sheets, loss of market capitalization (“market cap”), loss
of trading liquidity (“trading volume”), and loss of substantial business opportunities. In aggregate the Company
intends to seek monetary award(s), during trial, in excess of $4,000,000. That figure is expected to continually increase as additional
time lapses.
On
September 29, 2016, the judge presiding over the case approved the ruled on the two outstanding motions filed on June 13, 2016.
The motion to transfer the case to United States District Court for the District of New Jersey was approved, however the judge
denied the defendants’ motion to dismiss the lawsuit. Depositions have commenced in this case.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – CURRENT LITIGATION (CONTINUED)
Lawsuit
Filed Against Cowan Gunteski & Co. PA (Continued)
On
May 23, 2017, the Company represented in person by Paul K. Silverberg and Seth M. Shaw at the Trenton Courthouse (New Jersey Federal
District Court) sought a trial date and a ruling concerning the Company's request for assignment of a Jury. On that date,
Judge Sheridan assigned the case a trial date of November 6, 2017, however, has not yet rendered a final ruling with respect
to assignment of a jury to this trial. The case has been focused most recently on completion of the discovery phase and
the Company has been taking numerous depositions and has furnished upon request, the documents requested by plaintiff's counsel.
The
Company has previously disclosed that it is seeking in excess of $4,000,000 in monetary damages at trial. While the specific
details are strictly confidential, the Company has recently held a new round of settlement talks with plaintiff and malpractice
insurance provider. These discussions may continue up till the trial date. The Company cannot predict whether or not the case
will settle prior to trial.
Lawsuit
with Crystal Research Associates
On December
9, 2015, Crystal Research Associates served the Company with a Lawsuit (filed in Supreme Court of the State of New York - County
of New York) (Index No. 161962/2015), alleging that the Company owed to Crystal Research a total of $48,000. This money
that Crystal Research alleged was owed is related to a March 13, 2014 "Public Relations Services" contract
entered into by the Company’s previous CEO, Dr. Stella M. Sung. The Company has carefully reviewed the complaint filed
by Crystal Research and believes that the contentions asserted by Crystal Research are incorrect. The case, as of June
30, 2017, is in discovery where a deadline has been set in next 60 days. At this time, there are ongoing settlement discussions
with a possibility that this case will be settled prior to trial.
NOTE
14 – FAIR VALUE MEASUREMENTS
The
following summarizes the company’s financial assets and liabilities that are measured at fair value on a recurring basis
at March 31, 2017 and 2016:
|
|
March
31, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-available-for-sale
security
|
|
$
|
625
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
—
|
|
|
|
|
|
|
$
|
722,707
|
|
|
$
|
722,707
|
|
|
|
March
31, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-available-for-sale
security
|
|
$
|
750
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
750
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
—
|
|
|
|
|
|
|
$
|
670,577
|
|
|
$
|
670,577
|
|
The
estimated fair values of the Company’s derivative liabilities are as follows:
|
|
Convertible
|
|
|
Derivative
|
|
|
|
|
|
|
Notes
|
|
|
Liability
|
|
|
Total
|
|
Liabilities
Measured at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
as of March 31, 2015
|
|
$
|
—
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain)
loss
|
|
|
—
|
|
|
|
472,777
|
|
|
|
472,777
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative expense
on new debt
|
|
|
—
|
|
|
|
197,800
|
|
|
|
197,800
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances,
net
|
|
|
—
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March
31, 2016
|
|
$
|
—
|
|
|
$
|
670,577
|
|
|
$
|
670,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain)
loss
|
|
|
—
|
|
|
|
101,688
|
|
|
|
101,688
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative expense
on new debt
|
|
|
—
|
|
|
|
9,691
|
|
|
|
9,691
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Original issue discount
reflect in derivative liability
|
|
|
—
|
|
|
|
(6,358
|
)
|
|
|
(6,358
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
expense on converted debt (recorded as APIC), net OID
|
|
|
—
|
|
|
|
(52,891
|
)
|
|
|
(52,891
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending
balance as of March 31, 2017
|
|
$
|
—
|
|
|
$
|
722,707
|
|
|
$
|
722,707
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 – SUBSEQUENT EVENTS
Common
Stock Issuances
On
April 3, 2017, the Company issued 19,252,740 common shares of stock at $0.0012 per share, to a noteholder, Union Capital, LLC,
in accordance with a conversion notice, retiring $16,500 of principal and $6,603 of interest for the note dated May 28, 2015,
having an original face value of $104,000.
On
April 6, 2017, the Company issued 50,000,000 common shares of stock to a noteholder at $0.00035 per share, Group 10 Holdings LLC,
in accordance with a conversion notice, retiring $17,500 of principal for the note dated July 14, 2015, having an original face
value of $96,000.
On
May 2, 2017, the Company issued 22,517,229 common shares of stock at $0.00104 per share, to a noteholder, Union Capital, LLC,
in accordance with a conversion notice, retiring $16,500 of principal and $6,918 of interest for the note dated May 28, 2015,
having an original face value of $104,000.
On
May 19, 2017, the Company issued 22,946,735 common shares of stock at $0.00072 per share, to a noteholder, Union Capital, LLC,
in accordance with a conversion notice, retiring $11,550 of principal and $4,972 of interest for the note dated May 28, 2015,
having an original face value of $104,000.
On
June 14, 2017, the Company issued 14,914,212
common shares of stock at $0.00064 per share, to a noteholder, Union Capital, LLC, in accordance with a conversion notice, retiring
$6,600 of principal and $2,945 of interest for the note dated May 28, 2015, having an original face value of $104,000.
On
June 15, 2017, the Company issued 50,000,000
common shares of stock to a noteholder at $0.0004 per share, Group 10 Holdings LLC, in accordance with a conversion notice, retiring
$20,000 of principal for the note dated July 14, 2015, having an original face value of $96,000.
On
June 15, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $95,000. This investment is structured
as an equity private placement of 76,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
On
June 16, 2017, the Company issued 29,869,110
common shares of stock at $0.00064 per share, to a noteholder, Union Capital, LLC, in accordance with a conversion notice, retiring
$13,200 of principal and $5,916 of interest for the note dated May 28, 2015, having an original face value of $104,000.
On
June 21, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $55,000. This investment is structured
as an equity private placement of 44,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
On
June 21, 2017, the Company issued 53,461,538 common shares of stock at $0.00052 per share to a noteholder, Adar Bays LLC, in accordance
with a conversion notice, retiring $27,800 of principal for the note dated December 19, 2016, having a face value of $60,950.
On June 29, 2017, the Company issued 75,000,000
common shares of stock to a noteholder at $0.0004 per share, Group 10 Holdings LLC, in accordance with a conversion notice, retiring
$30,000 of principal for the note dated July 14, 2015, having an original face value of $96,000.
Convertible
Notes
On
April 3, 2017, a noteholder, Group 10 Holdings LLC transferred, to the Company, cash in the amount of $35,000 to fund a 12%, $40,000
convertible debenture with OID in the amount of $5,000 dated March 31, 2017 (see Note 8).
May
2, 2017, GS Capital Partners, LLC funded a one year 8% $45,000 convertible note (the “GS Note”) dated On April 27,
2017. The GS Note has a maturity date of April 27, 2018. This note has a default interest rate of 24%. If the GS Note is not paid
at maturity, the outstanding principal due under the GS Note shall increase by 10%.
The
holder is entitled to convert any amount of the principal and accrued interest of then outstanding into shares of the Company’s
common stock at a price for each share of common stock equal to 70% of the lowest daily volume weighted average price (VWAP) of
the common stock for the fifteen (15) prior trading days. In the event the Company experiences a DTC “Chill” on its
shares, the conversion price shall be decreased to 60% instead of 70% while that “Chill” is in effect.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 – SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes (Continued)
During
the first six months the GS Note is in effect, the Company may redeem the note by paying to the holder an amount as follows: (i)
if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount
of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less
than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of the GS Note along
with any accrued interest. The GS Note may not be redeemed after 180 days.
On
May 11, 2017, the Company entered into an amendment agreement with a noteholder of three convertible notes (see Notes 7 and 8)
amending provisions of the note agreements relative to the conversion provisions. All changes to the underlying convertible notes
dated July 16, 2015; November 7, 2016 and March 31, 2017 are reflected in this document as amended.
The
noteholder (Group 10) agreed that the prevailing conversion price shall mean the lesser of (a) fifty percent (50%) multiplied
by the lowest closing price as of the date the notice of conversion is given (which represents a discount rate of fifty percent
(50%)) or (b) two-tenths of a penny ($0.002). The conversion rate as originally stated was (a) sixty percent (60%) multiplied
by the lowest closing price as of the date the notice of conversion is given (which represents a discount rate of forty percent
(40%)).
Further,
the conversion price will be adjusted in the case where the market capitalization of the borrower is less than one million dollars
($1,000,000) on the day immediately prior to the date of the notice of conversion, then the conversion price shall be twenty-five
percent (25%) multiplied by the lowest closing price as of the date a notice of conversion is given (which represents a discount
rate of seventy-five percent (75%)); and if the closing price of the borrower’s common stock on the day immediately prior
to the date of the notice of conversion is less than one tenth of a penny ($0.001) then the conversion price shall be twenty-five
percent (25%) multiplied by the lowest closing price as of the date a notice of conversion is given (which represents a discount
rate of seventy-five percent (75%)). The note as originally stated, the conversion price adjustment originally was to be triggered
once the market capitalization was below two million dollars or if the closing price of the borrower’s common stock on the
day immediately prior to the date of the notice of conversion is less than one tenth of a penny ($0.002) effectuating the conversion
price of twenty-five percent (25%) multiplied by the lowest closing price as of the date a notice of conversion is given (which
represents a discount rate of seventy-five percent (75%)).
Additionally,
the noteholder has waived clauses relative to the most favored nations clause and permitted indebtedness.
On
May 30, 2017, GS Capital Partners, LLC funded a one year 8% $45,000 convertible redeemable note in accordance with a securities
purchase agreement dated March 30, 2017. The GS Note has a maturity date of May 30, 2018. This note has a default interest rate
of 24%. If the GS Note is not paid at maturity, the outstanding principal due under the GS Note shall increase by 10%.
The
holder is entitled to convert any amount of the principal and accrued interest of then outstanding into shares of the Company’s
common stock at a price for each share of common stock equal to 70% of the lowest daily volume weighted average price (VWAP) of
the common stock for the fifteen (15) prior trading days. In the event the Company experiences a DTC “Chill” on its
shares, the conversion price shall be decreased to 60% instead of 70% while that “Chill” is in effect.
During
the first six months the GS Note is in effect, the Company may redeem the note by paying to the holder an amount as follows: (i)
if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount
of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less
than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of the GS Note along
with any accrued interest. The GS Note may not be redeemed after 180 days.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
15 – SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes (Continued)
On
June 15, 2017, Eagle Equities advanced the Company $8,000 as part of the back-end note under the securities purchase agreement,
dated March 20, 2017, to sell two one year 8% convertible note in the amount of $70,000 ($35,000 each) (see Note 8). This back-end
convertible note will mature in twelve-months. On June 8, 2017, the noteholder advanced funds in the amount of $8,623 to a third
party for administrative services. The holder of the first note is entitled to convert any amount of the principal face amount
of this note then outstanding into shares of the Company’s common stock at a conversion price for each share equal to 75%
of the lowest closing bid price for the ten (10) prior trading days. During the first one hundred eighty (180) days, borrower
may prepay the principal amount of this debenture and accrued interest thereon, with a premium, as set forth below (“prepayment
premium”), such redemption must be closed and funded within three (3) days. The amount of each prepayment premium shall
be as follows: (a) there will be no payment penalty for redemptions in the first 30 days after the note issuance; (b) one hundred
ten percent (110%) of the prepayment amount if such prepayment is made at any time from thirty-one (31) days after the issuance
date until sixty (60) days after the issuance date; (c) one hundred fifteen percent (115%) of the prepayment amount if such prepayment
is made at any time from sixty-one (61) days after the issuance date until ninety (90) days after the issuance date made; (d)
one hundred twenty percent (120%) of the prepayment amount if such prepayment is made at any time from ninety-one (91) days after
the issuance date until one hundred twenty (120) days after the issuance date made; and (e) one hundred twenty five percent (125%)
of the prepayment amount if such prepayment is made at any time from one hundred twenty (120) days after the issuance date until
one hundred eighty (180) days after the issuance date made. This note may not be prepaid after one hundred (180) eighty days.
If this note is not paid at maturity, the outstanding principal due under this note shall increase by 10%. On June 26, 2017
the note holder fully funded the second note with a payment to the Company in the amount of $16,377. Legal fees in the amount
of $2,000 were deducted from the proceeds.
On
June 26, 2017, the Company settled an outstanding convertible note in full with a noteholder, Group 10 LLC, for a one time cash
payment in the amount of $59,659. The convertible note dated March 31,2017 had a face value of $40,000. The Company will record,
as interest expense, a prepayment penalty of $18,594 in addition to the repayment of accrued interest of $1,065.
On June 27, 2017, the Company entered
into a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners, LLC. The noteholder is entitled, at its option, at any time after
cash payment, to convert any amount of the principal face amount of this note then outstanding into shares of the Company's
common stock at a price equal to $0.00125 per share. Upon an Event of Default, interest shall accrue at a default interest
rate of 24% per annum. If this Note is not paid at maturity, the outstanding principal due under this Note shall increase by
10%. Additionally, the Company will issue the noteholder 5,000,000 restricted shares as additional consideration for the
purchase of the note as well as 16,000,000 five-year cashless warrants with an exercise price of $0.0035 per share. All the
terms set forth, including but not limited to interest rate, prepayment terms, conversion discount or lookback period will be
adjusted downward (i.e. for the benefit of the Holder) if the Company offers a more favorable conversion discount (whether
via interest, rate OID or otherwise) or lookback period to another party or otherwise grants any more favorable terms to any
third party than those contained herein while this note is in effect. During the first six months this Note is in effect, the
Company may redeem this note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days
this note is in effect, then for an amount equal to 120% of the unpaid principal amount of this note along with any interest
that has accrued during that period, (ii) if the redemption is after the 91st day this note is in effect, but less than the
180th day this note is in effect, then for an amount equal to 133% of the unpaid principal amount of this note along with any
accrued interest. This note may not be redeemed after 180 days. This note was funded on June 30, 2017.
Legal
Matters
On
May 23, 2017, the Company represented in person by Paul K. Silverberg and Seth M. Shaw at the Trenton Courthouse (New Jersey Federal
District Court) sought a trial date and a ruling concerning the Company's request for assignment of a Jury. On that date,
Judge Sheridan assigned the case a trial date of November 6, 2017, however, has not yet rendered a final ruling with respect
to assignment of a jury to this trial. The case has been focused most recently on completion of the discovery phase and
the Company has been taking numerous depositions and has furnished upon request, the documents requested by plaintiff's counsel.
The
Company has previously disclosed that it is seeking in excess of $4,000,000 in monetary damages at trial. While the specific
details are strictly confidential, the Company has recently held a new round of settlement talks with plaintiff and malpractice
insurance provider. These discussions may continue up till the trial date. The Company cannot predict whether or not
the case will settle prior to trial.
Other Matters
On June 27, 2017, the Company wired $20,000
to Ice + Jam as an advanced payment on initial inventory base of 10,000-15,000 units with completed display cases and promotional
literature for the contemplated launch. The Company has focused its efforts on securing potential distribution channels to
the retail marketplace, as well as the improvement of the HERMAN product; inclusive of the label and graphics. The Company
plans a mid to late autumn 2017 launch period to capitalize on the potential market demand associated with seasonality.