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.
In
May 2011, the Company had entered into an exclusive memorandum of understanding with Immunovative Therapies, Ltd. (“ITL”)
(an Israeli company) whereby the Company would acquire a subsidiary of ITL. On December 12, 2011, the Company terminated this
memorandum of understanding and entered into a License Agreement (the “License Agreement”) with ITL, pursuant to which
the Company received an immediate exclusive and worldwide license to commercialize all 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 Vax TM (“Licensed Products”).
On May 8, 2012, the Company changed its name to Immunovative, Inc. to better reflect its new direction on the development and
commercialization of the next generation of immunotherapy treatments.
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 respects with the License Agreement
and 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
will submit a letter to the Court advising the Court that the parties have reached a settlement and that the Company is withdrawing
its motion, (2) ITL will pay the Company $20,000, (3) ITL will issue to the Company, ITL’s share capital equivalent to 9%
of the issued and outstanding shares of ITL (3,280,000) (4) the Company will change its name and (5) the settling parties agree
that the license agreement will be terminated. The Company had valued these shares at $0 since they deemed the investment to be
worthless. During the three months ended September 30, 2015, the Company sold the 3,280,000 shares for $125,000 which is recorded
in the consolidated statements of operations.
On
March 13, 2013, the Company changed its name to Tauriga Sciences, Inc. to better reflect its new direction. The Company traded
under the symbol “TAUG” beginning April 9, 2013.
On
May 31, 2013, the Company signed a Licensing Agreement with Green Hygienics, Inc. (“GHI”) to enable the Company, on
an exclusive basis for North America, to market and sell 100% tree-free, bamboo-based, biodegradable, hospital grade wipes, as
well as other similar products. The Company contracted to pay $250,000 for the licensing rights. In addition, the Company issued
4,347,826 shares of its common stock to GHI whereas GHI’s parent company, Green Innovations Ltd. (“GNIN”) has
issued the Company 625,000 shares of common stock of GNIN, valued at $250,000. The Company paid $143,730 in cash to GHI and, in
lieu of the remaining $106,270 to be paid in cash the Company issued an additional 2,500,000 shares of its common stock for the
licensing rights. See Note 5.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
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 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, and the Company would not pursue any of the technology associated with the patents.
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 transformative 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 acquisition was completed.
Pilus will be a wholly-owned subsidiary of the Company. As a condition of the acquisition, Pilus will get one seat on the board
of directors, and the shareholders of Pilus will receive 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
March 10, 2014, the Company entered into a definitive agreement to acquire California based Honeywood, LLC (“Honeywood”),
a developer of a tropical medicinal cannabis product which is a therapeutic cream that currently sells in numerous dispensaries
across the State of California. This definitive agreement was valid for a period of 120 days and the Company advanced to Honeywood
approximately $175,000 in cash and incurred legal fees and other costs of approximately $249,000 through September 24, 2014. The
Company wrote off all costs associated with this at March 31, 2014 and 2015 as the Company is not pursuing any operations that
Honeywood has the technology for.
On
July 15, 2014, the Company completed its acquisition of California-based medicinal cannabis firm Honeywood LLC, the formulator
for Doc Green’s topical cannabis cream and for other products. Under terms of the completed acquisition agreement, Honeywood
will operate as a wholly owned subsidiary of the Company. The final acquisition terms result in stakeholders of Honeywood receiving
15.5% of Tauriga Sciences non-diluted shares of common stock outstanding immediately prior to closing. Honeywood’s principals
have the opportunity to collectively earn up to an additional aggregate equal to 10% of Tauriga’s common stock outstanding
(utilizing the same initial Closing Date) upon achieving the following gross revenue based milestones: upon the generation and
receipt of $2,000,000 USD of gross revenues derived strictly from the sale and licensing of Honeywood’s products, the three
Honeywood principals shall each be issued either restricted stock or stock options equal to 1.6666% shares of Common Stock of
Tauriga; upon the generation and receipt of an additional $2,000,000 USD ($4,000,000 USD total gross revenues by Honeywood), its
three principals shall each be issued an additional 1.6666% shares of Common Stock of Tauriga (each such additional issuance to
be set off the outstanding shares immediately prior to the Closing Date).
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
In
connection with the Honeywood acquisition, the Company entered into employment agreements with three Honeywood executives effective
upon closing. The agreements are for a term of three years and provide for monthly payments of $7,000 each, an aggregate of $21,000,
and commissions based on new business generated, as defined in the agreements.
On
September 24, 2014, the Company, Honeywood, and each of the Honeywood executives entered into an agreement to unwind the acquisition
and the transactions entered into therewith, including a refund of certain advances made by the Company to Honeywood. As a result,
the acquisition agreement and employment agreements with the Honeywood executives were terminated and Honeywood issued a secured
promissory note to the Company in the amount of $170,000. The note is to be paid, together with interest thereon of 6% from October
1, 2014, in six quarterly installments commencing on March 31, 2015 and ending on June 30, 2016. The promissory note is secured
by all of the assets of Honeywood, as defined in the security agreement. The Company and Honeywood also entered into a license
agreement (See Note 10). The initial payment pursuant to the promissory note of $33,462 was due March 31, 2015 and was never paid.
Based on the financial position of Honeywood, the Company believes that the potential legal costs to enforce its rights pursuant
to the terms of the promissory note will be in excess of any compensation it will potentially receive and has deemed the promissory
note worthless at March 31, 2015. An amount of $175,100, representing the principal balance of the note and accrued interest income
of $5,100 has been recorded as a charge to operations at March 31, 2015.
Going
Concern
As
indicated in the accompanying consolidated financial statements, the Company has incurred net operating losses of $2,569,153 and
$5,088,956 for the years ended March 31, 2016 and 2015, 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 and generate adequate revenues, 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. 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.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
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.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2016, 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 financial institutions, the Company evaluates at least annually
the rating of the financial institution in which it holds deposits.
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.
Property
and Equipment and Depreciation
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.
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. A fully diluted calculation is not presented since the results would
be anti-dilutive.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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
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 shareholders’ 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 of the
consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of
the common stock is measured at the earlier of (1) the date at which a firm commitment for performance by the counterparty to
earn the equity instruments is reached or (2) the date at which the counterparty’s performance is complete. The Company
recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for 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).
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 $0 and $78,883 in the years ended
March 31, 2016 and 2015, respectively.
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, 2016 and 2015. 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 fair value of our derivatives is the Monte Carlo Pricing
Model. 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. During the year ended March 31, 2016, the Company utilized an expected life ranging from 73
days to 365 days based upon the look-back period of its convertible debentures and notes and volatility in the of 125%. During
the year ended March 31, 2015, the Company utilized an expected life ranging from 66 days to 325 days based upon the look-back
period of its convertible debentures and notes and volatility in the range of 166% to 196%.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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, 2016.
Recent
Accounting Pronouncements
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 Accounting Standards Update (“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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (Continued)
In
August 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-15, Presentation of Financial Statements
– Going Concern, that outlines management’s responsibility in evaluating whether there is substantial doubt about
a company’s ability to continue as a going concern within one year from the date the financial statements are issued. The
amendment is effective for the annual period ending after December 15, 2016, and for annual periods and interim periods thereafter.
Early application is permitted. The Company is currently assessing the impact that this standard will have on its consolidated
financial statements.
In
June 2014, the FASB issued ASU No. 2014-10, “Development Stage Entities (Topic 915): Elimination of Certain Financial Reporting
Requirements, Including an Amendment to Variable Interest Entities Guidance in Topic 810, Consolidation” (ASU 2014-10).
ASU 2014-10 removes all incremental financial reporting requirements regarding development-stage entities, including the removal
of Topic 915 from the FASB Accounting Standards Codification. In addition, ASU 2014-10 adds an example disclosure in Risks and
Uncertainties (Topic 275) to illustrate one way that an entity that has not begun planned operations could provide information
about risks and uncertainties related to the company’s current activities. ASU 2014-10 also removes an exception provided
to development-stage entities in Consolidations (Topic 810) for determining whether an entity is a variable interest entity. Effective
with the first quarter of our fiscal year ended March 31, 2015, the presentation and disclosure requirements of Topic 915 will
no longer be required. The revisions to Consolidation (Topic 810) are effective the first quarter of our fiscal year ended March
31, 2017. The Company early adopted the provisions of ASU 2014-10 effective for the year ended March 31, 2015.
In
May 2014, the FASB issued ASU No. 2014-09, “Revenue from Contracts with Customers” (Topic 606) (ASU 2014-09), which
supersedes the revenue recognition requirements in ASC Topic 605, “Revenue Recognition”, and most industry-specific
guidance. ASU 2014-09 is based on the principle that revenue is recognized to depict the transfer of goods or services to customers
in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services.
ASU 2014-09 also requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising
from customer contracts, including significant judgments and changes in judgments and assets recognized from costs incurred to
obtain or fulfill a contract. The amendments in ASU 2014-09 will be applied using one of two retrospective methods. The effective
date will be the first quarter of our fiscal year ended March 31, 2018. We have not determined the potential effects on our consolidated
financial statements.
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.
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. The charts below show income and loss as well as assets
and liabilities from discontinued operations for the years ended March 31, 2016 and 2015.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – DISCONTINUED OPERATIONS (CONTINUED)
|
|
For the Years Ended
|
|
|
|
March 31,
|
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
51,062
|
|
|
$
|
96,161
|
|
Cost of goods sold
|
|
|
14,472
|
|
|
|
41,802
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
36,590
|
|
|
|
54,359
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
26,790
|
|
|
|
178,002
|
|
Impairment of notes receivable
|
|
|
-
|
|
|
|
-
|
|
Impairment of license agreements
|
|
|
-
|
|
|
|
-
|
|
Impairment of patents
|
|
|
-
|
|
|
|
-
|
|
Depreciation and amortization expense
|
|
|
803
|
|
|
|
1,757
|
|
Total operating expenses
|
|
|
27,593
|
|
|
|
179,759
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations
|
|
$
|
8,997
|
|
|
|
(125,400
|
)
|
TAURIGA SCIENCES, INC. AND SUBSIDIARY
|
BALANCE SHEET FROM DISCONTINUED OPERATIONS
|
|
|
|
|
|
|
|
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
|
|
|
|
|
|
|
|
Assets of discontinued operations
|
|
$
|
-
|
|
|
$
|
90,987
|
|
|
|
|
|
|
|
|
|
|
Liabilities of discontinued operations
|
|
|
-
|
|
|
|
-
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company’s property and equipment is as follows:
|
|
March 31, 2016
|
|
|
March 31, 2015
|
|
|
Estimated Life
|
|
|
|
|
|
|
|
|
|
|
|
Computers, office furniture and equipment
|
|
$
|
55,942
|
|
|
$
|
55,942
|
|
|
3-5 years
|
Technical equipment
|
|
|
-
|
|
|
|
11,099
|
|
|
5 years
|
Total
|
|
|
55,942
|
|
|
|
67,041
|
|
|
|
Less: accumulated depreciation
|
|
|
(49,028
|
)
|
|
|
(41,755
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
6,914
|
|
|
$
|
25,286
|
|
|
|
Depreciation
expense in the years ended March 31, 2016 and 2015 amounted to $9,832 and $9,529, respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – 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.
Green
Hygienics, Inc.
On
May 31, 2013, the Company executed a licensing agreement with GHI (see Notes 1 and 8). The Licensing Agreement with GHI will enable
the Company, on an exclusive basis for North America, to market and sell 100% tree-free, bamboo-based, biodegradable, hospital
grade wipes, as well as other similar products to commercial entities including medical facilities, schools, and more. The Company
agreed to pay $250,000 for the licensing rights. In addition, the Company issued 4,347,826 shares of its common stock to GHI whereas
GHI’s parent company, Green Innovations Ltd. (“GNIN”) has issued the Company 625,000 shares of common stock
of GNIN, valued at $250,000. The terms of the Licensing Agreement provide for the equal recognition of profits between the Company
and GHI on the sales by the Company.
The
Company has paid $143,730 of the $250,000 licensing fee in cash and issued 2,500,000 shares of its common stock in lieu of the
remaining $106,270. The Company was amortizing the licensing fee over the five-year life of the licensing agreement, and through
March 31, 2014 the accumulated amortization amounted to $34,911. At March 31, 2014, the Company determined not to pursue the marketability
for the related products and considered the remaining net value to be impaired, recording an impairment charge of $215,089.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – INTANGIBLE ASSETS (CONTINUED)
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.
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 10). 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, 2016 and March 31, 2015. All licenses were fully impaired for the years ended March 31,
2016 and 2015. An analysis of the cost is as follows:
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
|
|
March 31, 2015
|
|
|
Estimated Life
|
|
|
|
|
|
|
Licensing fee
|
|
$
|
1,539,851
|
|
|
1 - 7.5 years
|
Less: accumulated amortization
|
|
|
83,863
|
|
|
|
|
|
|
1,455,988
|
|
|
|
Net impairment
|
|
|
(1,455,988
|
)
|
|
|
Balance
|
|
$
|
—
|
|
|
|
All
licensing fees were fully impaired as of March 31, 2015.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – INTANGIBLE ASSETS (CONTINUED)
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. On July 15, 2016, the Company
was notified by its patent attorney, that the maintenance fee is due in the issue of US Patent # 8,354,267. The final deadline
to pay the fee to avoid abandonment is January 15, 2017. If the Company does not make this payment it will lose the patent permanently.
The
cost of the patent and related amortization at March 31, 2016 and 2015 is as follows:
|
|
Fair Value
|
|
|
Estimated Life
|
|
|
|
|
|
|
Cash advanced on signing the memorandum of understanding and closing agreement
|
|
$
|
100,000
|
|
|
15.5 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, 2014
|
|
|
18,540
|
|
|
|
Net value at March 31, 2014 prior to impairment
|
|
$
|
1,791,460
|
|
|
|
Impairment in the year ended March 31, 2014
|
|
|
1,791,460
|
|
|
|
Net value for the years ended March 31, 2016 and 2015
|
|
|
—
|
|
|
|
NOTE
6 – EMBEDDED DERIVATIVES – FINANCIAL INSTRUMENTS
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.
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. In the year ended March 31, 2016, as a result of the Union Note which contains an anti-rachet
clause, the Company recorded a derivative liability in the amount of $200,058 (as a result the entire note was discounted). In
the year ended March 31, 2016, the Company recognized a loss on the fair value of the derivative liability in the amount of $277,700
bringing the fair value of the derivative liability to $670,577.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE
Convertible
Notes Payable Institutions
During
the year ended March 31, 2014, the Company entered into a number (approximately 30) of convertible note debentures and recorded
gross proceeds of $2,037,000 with interest rates ranging from 5% to 12%. All of the note agreements had conversion features which
allow the note holder to convert the debenture into common stock of the Company. The conversion price, which is discounted, was
based upon either the lowest trading price for a period ranging between 20 and 25 days prior to the date of the notice of conversion
or an average of the previous 20 to 25 days prior to conversion. Due to the variable characteristic of the notes, the Company
had concluded that a derivative liability existed at the date of issuance and accordingly had recorded a derivative liability
for each note. During the year ended March 31, 2015, 14 notes were converted to common stock and one was paid in cash and as of
March 31, 2015 there were no convertible notes outstanding and no derivative liability associated with any of the notes payable.
As of March 31, 2014, fifteen convertible notes were outstanding. The balance of the convertible notes at March 31, 2014 was $263,917.
The related derivative liability was $1,581,119 at March 31, 2014.
During
the year ended March 31, 2015, 61,726,433 and shares of common shares, were issued to convert $1,497,594 in convertible notes,
derivative liabilities and accrued interest, respectively.
Union
Capital, LLC
On
May 28, 2015 the Company entered into a Securities Purchase Agreement (the “Union Purchase Agreement”) with Union
Capital, LLC (“Union”) for the purchase of a 7% Convertible Redeemable Note in the principal amount of $104,000 with
a maturity date of May 28, 2016 (the “Union Note”). The Company received gross proceeds of $100,000 under the Union
Note. The Company granted Union 12,500,000 shares of Company common stock for a commitment fee in consideration of the Union Note.
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 Note. Union will not be allowed to convert into shares of common stock that would
result in it beneficially owning more than 9.99% of the Company’s issued and outstanding common stock. The Company may prepay
the amounts under the Union Note as follows: (i) if prepaid within ninety days, the Company must pay a 15% premium on all principal
and interest outstanding and (ii) if prepaid after ninety days but before the one hundred and eighty-one day, the Company must
pay a 30% premium on all principal and interest outstanding. The Company intends to use its best efforts to repay the Union Note
within the first ninety days. The Company agreed to reserve 33,000,000 shares of its common stock to satisfy its obligations under
the Union Note. This reserve will be increased to three times the number of shares of common stock upon the approval of the Company’s
stockholders of an increase in the number of authorized shares of common stock. The Company agreed to call a special meeting solely
for such purpose with fifteen days of the Union Note. The $104,000 remains outstanding at March 31, 2016 (reflected as a derivative
liability), and the $4,000 discount was expensed in the three months ended June 30, 2015.
As
a provision of this note, the Company shall have its common stock delisted from a market (including the OTCQB marketplace) shall
be considered an event of default. As of July 15, 2015 with the Company’s delisting from the OTCQB Exchange resulting for
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 under common stock delisting from market the outstanding principal due under this note shall be increased by 50%.
The new principal balance of the note increased to $156,000 with accrued interest of $27,524.
Upon
the event of default, interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted
by current law, then at the highest rate of interest permitted by law. Additionally, in the event of a breach of deliver to the
holder the common stock without restrictive legend shall include the penalty of $250 per day should the shares are not issued
beginning on the 4
th
day after the conversion notice was delivered to the Company. This penalty shall increase to $500
per day beginning on the 10th day.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
Group
10 Holdings LLC
On
July 14, 2015, the Company entered into a $96,000 20% OID convertible debenture with Group 10 Holdings LLC. Along with this note,
15,000,000 commitment shares were issued to the holder, earned in full upon purchase of debenture. This note bears 12% interest
per annum with a default interest rate of the lesser of 18% or the or the maximum rate permitted under applicable law, effective
as of the issuance date of this debenture (“default interest rate”.) If any event of default occurs, the outstanding
principal amount of this debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in respect thereof
through the date of acceleration, shall become, at holder’s election, immediately due and payable in cash in the sum of
(a) one hundred eighteen percent (118%) of the outstanding principal amount of this debenture plus one hundred percent (100%)
of accrued and unpaid interest thereon and (b) all other amounts, costs, expenses and liquidated damages due in respect of this
debenture (“Mandatory Default Amount”). After the occurrence of any event of default, the interest rate on this debenture
shall accrue at an interest rate equal the default interest rate.
Subject
to the approval of holder for prepayments after one hundred eighty (180) days, borrower may prepay in cash all or any portion
of the principal amount of this debenture and accrued interest thereon, with a premium, as set forth below (“prepayment
premium”), upon ten (10) business days prior written notice to holder. Holder shall have the right to convert all or any
portion of the principal amount and accrued interest thereon. The amount of each prepayment premium shall be as follows: (a) one
hundred twenty-five percent (125%) of the prepayment amount if such prepayment is made at any time from the issuance date until
thirty (30) days thereafter; (b) one hundred thirty-five percent (135%) of the prepayment amount if such prepayment is made at
any time from thirty-one (31) days after the issuance date until one hundred seventy-nine (179) days after the issuance date;
and (c) one hundred forty-five percent (145%) of the prepayment amount if such prepayment is made at any time after one hundred
eighty (180) days from the issuance date.
The
holder shall have the right, but not the obligation, at any time after the issuance date and until the maturity date, or thereafter
during an event of default, 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) 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).
If
the market capitalization of the borrower is less than eight hundred thousand dollars ($800,000) 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 $0.002 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%)).
Borrower
agrees to pay late fees to holder for late issuance of such shares in the form required pursuant to convertible debenture agreement
upon conversion thereof, in the amount equal to one thousand dollars ($1,000) per business day after the delivery date.
The
holder, shall reserve not less than five times the aggregate number of shares of the common stock that shall be issuable upon
the conversion of the outstanding principal amount of this debenture and payment of interest hereunder. Initially, the share reserve
shall be equal to two hundred million (200,000,000), and shall be adjusted by the transfer agent from time to time to comply with
the required reserve. The holder may request bi-monthly increases to reserve such amounts based on a conversion price equal to
the lowest closing price, as defined in the debenture, as of such date, by written instructions from the Holder to the Transfer
agent.
The
note also contains a most favored nations status provision whereby the borrower or any of its subsidiaries issue any security
(in an amount under one million dollars ($1,000,000)) with any term more favorable to the holder such more favorable term, at
holder’s option, shall become a part of the transaction documents with holder.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
Group
10 Holdings LLC (Continued)
As
of July 15, 2015 with the Company’s delisting from the OTCQB Exchange resulting for 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 under common stock delisting from market the outstanding principal due under this note shall be increased by 18%.
The new principal balance of the note increased to $113,280 with accrued interest of $14,500.
Convertible
Notes Payable to Individuals
The
Company at March 31, 2016 and 2015 had $181,775 ($18,000 of which is to a related party) and $48,775, respectively of notes payable
to individuals. The notes are convertible into common stock of the Company at $0.025 per share. The interest rates range between
3% and 8% per annum and the notes are unsecured. During the year ended March 31, 2016, no notes were converted to common stock.
During the year ended March 31, 2015, three notes were converted to common stock. One of the notes is to a related party –
see Note 8 in the amount of $18,000.
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. 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 have not
yet been issued. 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.
Excluding the 13,300,000 commitment shares, in May 2016 the Company agreed to issue 33,900,000 shares of its common stock to settle
all obligations under these Purchase Agreements.
Non-convertible
Debt Financing
Alternative
Strategy Partners PTE Ltd.
On
September 23, 2015, the Company entered into a debt facility of $180,000 in non-convertible debt financing from Singapore-based
institutional investor Alternative Strategy Partners PTE Ltd. (“ASP”). The debt carries a fixed interest rate per
annum of 11.50% (“the Designated Rate”) payable in full by December 23, 2015 (“the Maturity Date”). Both
parties have discussed the possibility of amending terms, if necessary, under the assumption that both parties mutually agree
to such amendment. 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 $180,000 or the other $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, 2016. If the proper documentation is provided to the Company, they will record
the liability at that time.
The
Company had entered into an agreement to acquire common shares equivalent to 20.1% of Eishin Co., Ltd. (“Eishin”),
a high growth Japan-based company focusing on providing solutions to improve automobile combustion efficiency. “Eco-Spray”,
Eishin’s key product made from 100% natural ingredients, is distributed in numerous Asian markets including China, Japan,
Korea, India, UAE, Bangladesh, Cambodia, Philippines and Myanmar, and is currently being tested for expansion in North America.
The Company has agreed to make an investment in Eishin for a total of $180,000, of which half was paid on October 1, 2015 and
the remainder to be paid by the end of October 31, 2015. The initial $90,000 that was to be used to purchase 20.1% ownership of
Eishin was never funded by ASP and the shares were never transferred. Additionally, the Company did not invest any other funds
to acquire any ownership in Eishin.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
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 is currently in discussions with ASP to
amend the original terms of this non-convertible debenture. Specifically, to reduce the face value of this note from $180,000
to $90,000 and forgo receipt of any shares of Eishin Co., Ltd.
Lastly
on October 9, 2015, ASP Managing Director (Yuhi Horiguchi) notified the Company via email that any and all warrants that had been
previously mentioned in the $180,000 note were fully cancelled. So there are no warrants in existence, in accordance with this
$180,000 non-convertible debenture. Nor have there been any defaults that ASP has notified the Company.
Other
On
October 19, 2012, the Company entered into a one-year convertible promissory note agreement for $445,000 with JMJ Financial, a
California based institutional investor. The note is non-interest bearing for the first 90 days and subsequent to that, the note
has an interest rate of 5% per annum. The note, at the holder’s option, is convertible at $0.15 per share and if the price
per share at the time of conversion is greater than $0.15 per share, on average for the previous 25 trading days, the conversion
rate shall have a 25% discount, with the minimum price of $0.15 per share. The Company paid an origination fee of 200,000 shares
of its common stock to secure the loan. On November 14, 2012, the Company received $150,000 and an additional $25,000 on March
27, 2013. The 25% discount created a beneficial conversion feature at the commitment date aggregating $37,500 representing a discount
which is being accreted monthly from the issuance date of the note through maturity and is recorded as additional interest expense.
At March 31, 2013, the loan balance was $106,425, net of unamortized discount of $68,575. On June 3, 2013 the Company issued 9,900,000
shares of its common stock to convert the note. Under the terms of the original agreement, approximately 4,125,000 shares were
required to be issued. To entice the conversion, the Company issued an additional 5,775,000 shares resulting in a loss on conversion
of $321,000 in the year ended March 31, 2014. The balance under this note as of March 31, 2016 and 2015 was $-0-.
Interest
expense for the year ended March 31, 2016 was $83,456 compared to the same period in the prior year of $186,963, respectively.
Accrued interest at March 31, 2016 and 2015 was $86,812 and $14,431, respectively.
NOTE
8 – RELATED PARTIES
On
May 31, 2013, the Company executed a licensing agreement with GHI (see Notes 1 and 5). The Company’s former CFO, Bruce Harmon,
is also the CFO and Chairman of Green Innovations Ltd., the parent company of GHI.
On
May 27, 2015, the Company issued a six-month convertible note to a related party in the amount of $18,000. Note contains bonus
commitment shares equal to 1 cent per share for every $5,000 invested or 1,800,000 shares of the Company’s common stock,
par value $0.001.
NOTE
9 – STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company is authorized to issue 2,500,000,000 shares of its common stock. Effective March 31, 2016, 1,219,820,933 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.
Fiscal
Year 2014
During
the year ended March 31, 2014, the Company issued to its current and former chief executive officer a total of 31,720,000 shares
of its common stock at prices ranging from $0.02 to $0.09 per share for services.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
During
the year ended March 31, 2014, the Company issued collectively 191,604,392 shares of its common stock at prices ranging from $0.01
to $0.09 per share for the conversion of a $1,341,305 convertible debt.
During
the year ended March 31, 2014, the Company issued to various consultants collectively 140,945,200 shares of its common stock at
prices ranging from $0.01 to $0.09 per share.
During
the year ended March 31, 2014, the Company issued 1,500,000 at $0.04 per share in settlement of legal fees.
During
the year ended March 31, 2014, the Company issued 10,500,000 shares at $0.02 to $0.03 per share for a commitment fee relating
to a convertible debt arrangement.
During
the year ended March 31, 2014, the Company issued 4,347,826 shares of its common stock to Green Hygienics in connection with a
license agreement.
During
the year ended March 31, 2014, the Company issued 2,500,000 shares to fully pay up the Green Hygienics license fee. The shares
were valued at $0.04 per share totaling $106,250.
In
connection with the acquisition of Pilus Energy (See note 5), in January 2014, the Company issued a warrant to purchase 100,000,000
Shares of the Company’s common stock at $0.02 per share. The warrant was valued at $1,710,000 using the Black-Scholes Pricing
Model.
During
the year ended March 31, 2014, the Company issued 36,644,631 shares of common stock for cash at prices ranging from $0.03 to $0.06
per share.
In
connection with the strategic license agreement with Bacterial Robotics, LLC, the Company issued on October 29, 2013 a warrant
to acquire up to 75,000,000 Shares of the Company’s Common stock. The Warrant was valued at $1,139,851 utilizing the Black-Scholes
option pricing Model.
During
the year ended March 31, 2014, the Company issued 860,000 shares to the Company’s former chief financial officer at prices
ranging from $0.02 to $0.07 per share.
Fiscal
Year 2015
During
the year ended March 31, 2015, the Company issued 61,413,497 shares of common stock at prices ranging from $0.01 to $0.09 per
share for the conversion of notes and accrued interest to financial institutions valued at $1,489,771.
During
the year ended March 31, 2015, the Company issued 312,936 shares of common stock at $0.025 per share for the conversion of notes
and accrued interest to individuals in the amount of $7,823.
During
the year ended March 31, 2015, the Company issued 69,175,657 shares of common stock at prices ranging from $0.01 to $0.06 per
share for cash of $1,118,500 and 2,890,000 shares at prices ranging from $0.01 to $0.02 per share, valued at $44,300, and $56,000
cash for commissions on sales of common stock.
During
the year ended March 31, 2015, the Company issued 4,200,000 shares of common stock to its chief executive officer at prices ranging
from $0.01 to $0.07 per share, valued at $119,000, for services.
During
the year ended March 31, 2015, the Company issued 40,255,837 shares of common stock to various consultants and advisory board
members at prices ranging from $0.01 to $0.07 per share, valued at $299,123 (net of $670,362 not vested).
During
the year ended March 31, 2015, the Company issued 1,250,000 shares of common stock at $0.04 per share, valued at $50,000, to a
financial institution for a fee to convert a convertible debenture.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
During
the year ended March 31, 2015, the Company issued 2,697,369 shares of common stock at $0.02 per share for additional financing
costs, valued at $53,947.
During
the year ended March 31, 2015, the Company issued 26,660,143 shares of common stock through cashless exercises of warrants at
effective prices of $0.02 and $0.03 per share.
During
the year ended March 31, 2015, the Company issued 12,211,400 shares of common stock valued at $147,500 issuable pursuant to a
warrant exercised under a securities purchase agreement in the initial amount of $250,000.
During
the year ended March 31, 2015, the Company issued 20,000,000 shares of common stock valued at $104,144 pursuant to a settlement
agreement.
Effective
March 31, 2015, the Company issued 10,869,565 shares of common stock valued at $100,000 pursuant to a license agreement.
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 a 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
In
connection with the consulting agreements and the board advisory agreements, certain agreements have as part of the compensation
arrangements, the following clauses: 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.
At
the filing date of this SEC Form 10-K additional shares of common stock were issued as follows:
(i)
61,500,000 shares to consultants and board members (ii) 19,300,000 shares issued as commitment shares to the holder of a convertible
note (iii) 27,875,000 shares issued via private placement and (iv) 33,900,000 shares in conversion of convertible notes.
Warrants
for Common Stock
The
following table summarizes warrant activity for the years ended March 31, 2016 and 2015:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
175,200,000
|
|
|
$
|
0.02
|
|
|
|
5.86 Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
41,399,803
|
|
|
|
0.01
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
(200,000
|
)
|
|
|
(0.40
|
)
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(38,871,543
|
)
|
|
|
(0.02
|
)
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(71,036,328
|
)
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015
|
|
|
106,491,932
|
|
|
$
|
0.02
|
|
|
|
4.49 Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,188,403
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2016
|
|
|
77,303,529
|
|
|
$
|
0.02
|
|
|
|
4.83 Years
|
|
|
$
|
—
|
|
The
warrants were valued utilizing the following assumptions employing the Black-Scholes Pricing Model:
|
|
Year Ended
March 31, 2016
|
|
|
Year Ended
March 31, 2015
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
n/a
|
|
|
|
179
|
%
|
Risk-free rate
|
|
|
n/a
|
|
|
|
0.39
|
%
|
Dividend
|
|
|
—
|
|
|
|
—
|
|
Expected life of warrants
|
|
|
n/a
|
|
|
|
1.89 Years
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – 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, 2016 and 2015:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2014
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
7.85 Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
6.85 Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.85 Years
|
|
|
$
|
—
|
|
Stock-based
compensation for the years ended March 31, 2016 and 2015 was $312,995 and $2,176,163, respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – COMMITMENTS AND CONTINGENCIES
Legal
Matters
Typenex
On
September 5, 2014, the Company’s transfer agent issued to Typenex Co-Investment, LLC (“Typenex”) 70,080,714
shares of the Company’s common stock (the “Shares”) without a restrictive legend pursuant to a demand letter
by Typenex to the transfer agent under a purported warrant issued in connection and arising from a convertible promissory note
issued by the Company to Typenex on June 24, 2013 and subsequently terminated by an exchange and release agreement between the
Company and Typenex on March 21, 2014. In response to its transfer agent’s actions, the Company filed for a preliminary
injunction against Typenex and its transfer agent on September 8, 2014 in the Circuit Court for the 13th Judicial Circuit in and
for Hillsbourgh County Florida (the “Court”), Case No. 12-CA-009076. On September 9, 2014, the Court issued the preliminary
injunction requested by the Company against its transfer agent and Typenex. On October 9, 2014, subsequent to a hearing before
the Court on September 3, 2014 requested by Typenex to vacate the preliminary injunction, the Court denied the request to vacate
the injunction, indicating the Company had a substantial likelihood of success on the merits. The Court further ordered that the
Shares be treated as cancelled on the books of the Company’s transfer agent. The Company believes all of Typenex’s
claims to the Shares are frivolous and without merit. Additionally, the Company is contemplating the claims it has against Typenex.
On January 16, 2015, the Company and Typenex entered into a settlement agreement whereas (i) Typenex has agreed to purchase, under
a securities purchase agreement, an aggregate of $300,000 of shares of Company common stock, in three separate but related $100,000
tranches as defined in the agreement, at a price of 150% of the five day average closing sale price for the five trading days
immediately preceding each tranche purchase; (ii) the Company will issue to Typenex 10,000,000 shares of Company common stock;
(iii) if the net sales proceeds Typenex receives from the sale or transfer of the 10,000,000 shares is less than $600,000, the
Company will, from time to time, issue Typenex additional shares so that the net sales proceeds equal, but do not exceed, $600,000.
The Company has agreed to increase the authorized shares, if needed, to issue the shares pursuant to this agreement. The Company
recorded a $600,000 charge for financing expense and share liability as of and for the year ended March 31, 2015. Through June
30, 2015, the Company issued 20,000,000 shares of common stock to Typenex of which Typenex sold shares and received $104,144 in
net sales proceeds. Additionally, in February 2015, Typenex completed its initial share purchase under the agreement purchasing
4,278,990 shares for $100,000, approximately $0.02 per share.
On
June 1, 2015, the Company and Typenex entered into a Settlement Agreement (the “Agreement”) whereby both the Company
and Typenex have agreed to settle all claims and obligations under the January 16, 2015 settlement agreement (the “Prior
Settlement Agreement”) in consideration of the Company paying Typenex the amount of $230,000, which was paid on June 2,
2015. Through the date of the Agreement Typenex earned approximately $169,000 in net sales proceeds from the sale of shares issued
under the Prior Settlement Agreement.
Commitments
On
February 26, 2014, Dr. Stella M. Sung was appointed Chief Executive Officer (“CEO”). Dr. Sung previously served as
Chief Operating Officer under a two-year employment agreement dated April 15, 2013. In conjunction with her appointment as CEO,
the terms of her employment agreement were amended to provide for the following: (i) salary of $8,000 per month for March and
April 2014, with a salary increase to $14,000 per month commencing on May 1, 2014 and thereafter; (ii) a one-time $25,000 cash
bonus once the Company completes a minimum private placement financing of $750,000; (iii) a monthly restricted share allotment
of 150,000 common shares effective May 1, 2014; (iv) a one-time S-8 share allotment of 2,500,000 common shares payable on May
27, 2014 or 90 days subsequent to her appointment as CEO; (v) other customary benefits.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
On
August 22, 2012, the Company entered into an employment agreement with Seth M. Shaw, its then CEO. The agreement provides for
annual compensation of $132,000. Mr. Shaw previously elected to forgo cash compensation and receive 60,000 shares of the Company’s
common stock on a monthly basis. However, as the only principal officer and director, he decided to take the cash compensation
as well. Effective February 26, 2014, Mr. Shaw resigned as CEO, Chairman and Officer and was appointed to the position of Vice
President, Strategic Planning at which time his employment agreement was amended as follows: (i) salary of $8,000 per month for
March and April 2014, with a salary increase to $9,500 per month commencing on May 1, 2014 and thereafter; (ii) a one-time $25,000
cash bonus once the Company completes a minimum private placement financing of $750,000; (iii) a monthly restricted share allotment
of 60,000 common shares which continue as under his prior agreement; (iv) other customary benefits. On May 27, 2014 or 90 days
subsequent to his resignation as CEO, Mr. Shaw shall be deemed a non-affiliate. Effective July 1, 2014, Mr. Shaw’s monthly
salary was revised to $6,500 per month.
On
July 9, 2015, Dr. Sung submitted her resignation as Chief Executive Officer, Chief Financial Officer (“CFO”) and a
member of the BOD. Simultaneously with Dr. Sung’s resignation, the BOD appointed Mr. Shaw as the Chairman of the BOD and
its new Chief Executive Officer and appointed Ghalia Lahlou as its new interim Chief Financial Officer.
In
connection with the Company’s employment contracts, the Company has no future commitments for the year ended March 31, 2016.
On
September 24, 2014, in connection with the Company’s termination of the acquisition agreement with Honeywood, the Company
and Honeywood entered into a license and supply agreement, whereby the Company, as defined in the agreement, is granted certain
license and distribution rights to sell and distribute products offered for distribution by Honeywood. Among other terms, the
license is nonexclusive, worldwide, irrevocable, fully paid-up and royalty-free. Unless earlier terminated, as defined in the
agreement, the license will automatically renew annually for the initial one-year term and five successive renewal terms.
On
July 15, 2014, the Company entered into a non-exclusive license agreement with Targeted Medical Pharma, Inc. (“Targeted”)
whereby Targeted granted the Company the right to sell certain dietary supplements based on Targeted’s formulations on a
non-exclusive basis. Pursuant to the agreement, the Company paid targeted $20,000 which was considered an advance against any
royalty payments due Targeted on the first 20,000 1-month supply bottles sold by the Company, as defined in the agreement. Thereafter,
the royalty payment increases to $2.50 per 1-month supply bottle. In addition, there are provisions for certain revenue-based
milestone payments, as defined in the agreement. The term of the agreement is for one year. Subsequently, the agreement was terminated
by the Company simultaneously with the divestiture of the Natural Wellness business during August 2015.
On
August 14, 2014, the Company entered into a consulting agreement with Dragoon Capital, Inc. (“Dragoon”), for financial
advisory services, including assisting the Company in raising funds through an equity private placement. Pursuant to the agreement
the Company will pay Dragoon a finder’s fee of 2% in cash and 2% in stock of all funds received by the Company through Dragoon’s
direct or indirect introduction. On November 11, 2014, the Company and Dragoon amended the agreement whereas the finder’s
fee was revised to 2.0% in cash and 1.0% in stock. In connection with the agreement, in November 2014, the Company issued Dragoon
280,000 shares of common stock valued at $3,500 and paid $7,000 cash as commission on $350,000 in proceeds received by the Company
from the sale of common stock. The agreement expired November 30, 2014.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
On
August 19, 2014, the Company entered into a consulting agreement with Alternative Strategy Partners, Pty, LTD (“ASP”).
ASP will provide the Company specialized consulting services including, among other services, assisting the Company in assessing
and identifying viable sources of funding for equity private placements of up to $2,500,000 and developing a business strategy
in Asia. Pursuant to the agreement the Company will pay ASP a finder’s fee of 8% in cash and 9% in stock of all funds received
by the Company through ASP’s direct or indirect introduction. In addition, the Company issued 4,000,000 shares of its common
stock effective on the signing of the agreement and is obligated to issue an additional 3,000,000 shares of its common stock upon
the Company successfully securing $750,000 via ASP’s direct introductions. The term of the agreement is for twelve months,
unless mutually extended. On November 11, 2014, the Company and ASP amended the agreement whereas (i) the number of shares issued
to ASP was revised from 4,000,000 to 500,000; (ii) the finder’s fee was revised to 8.0% in cash and 4.5% in stock; and (iii)
the term was extended to twelve months from the date of amendment, unless mutually extended. In connection with the agreement,
in November 2014, the Company issued ASP 1,260,000 shares of common stock valued at $15,750 and paid $28,000 cash as commission
on $350,000 in proceeds received by the Company from the sale of common stock.
Effective
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 for a 24 month period, as defined in the agreement. Additionally, Breathe
issued the Company 2,666,667 shares of its common stock, valued at $100,000 as a prepayment towards certain commercialization
fees the Company will incur, as defined in the agreement. As Breathe is not currently engaged in any business that can help the
Company, the entire fee has been written off by the Company as of March 31, 2015.
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, 2016
|
|
|
March 31, 2015
|
|
Net operating losses
|
|
|
5,180,000
|
|
|
$
|
4,600,000
|
|
Impairment of assets
|
|
|
2,490,000
|
|
|
|
2,490,000
|
|
Valuation allowance
|
|
|
(7,670,000
|
)
|
|
|
(7,090,000
|
)
|
|
|
|
-
|
|
|
$
|
-
|
|
At
March 31, 2016, the Company had a U.S. net operating loss carryforward in the approximate amount of $23 million available to offset
future taxable income through 2036. 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 2035. The valuation allowance
increased by $580,000 and $890,000 in the years ended March 31, 2016 and 2015, respectively.
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, 2016 and 2015 is summarized as follows:
|
|
2016
|
|
|
2015
|
|
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
|
%
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – INVESTMENTS - AVAILABLE FOR SALE SECURITIES
The
Company’s investments in Green Innovations, Ltd and Breathe Ecig Corp. are 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 $249,250 and a fair value of $750 at March 31, 2016. At March 31, 2016 and 2015, the unrealized loss was $3,313 and $58,437,
respectively. The investment in Breathe Ecig Corp has been written off as of March 31, 2015 as there is no value in that company.
NOTE
13 – 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, 2016 and 2015.
|
|
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
|
|
|
|
March
31, 2015
|
|
|
|
|
Level
1
|
|
|
|
Level
2
|
|
|
|
Level
3
|
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-available-for-sale
security
|
|
$
|
4,063
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
4,063
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
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, 2014
|
|
$
|
263,917
|
|
|
$
|
1,581,119
|
|
|
$
|
1,845,036
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain) loss
|
|
|
-
|
|
|
|
253,625
|
|
|
|
253,625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances, net
|
|
|
(263,917
|
)
|
|
|
(1,744,744
|
)
|
|
|
(2,008,661
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2015
|
|
$
|
-
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain) loss
|
|
|
-
|
|
|
|
670,577
|
|
|
|
670,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances, net
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of March 31, 2016
|
|
$
|
-
|
|
|
$
|
670,577
|
|
|
$
|
670,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – SUBSEQUENT EVENTS
Common
Stock Issuances
Subsequent
to March 31, 2016, the Company issued additional shares of common stock as follows: (i) 61,500,000 shares to consultants and board
members (ii) 19,300,000 shares issued as commitment shares to the holder of a convertible note (iii) 27,875,000 shares issued
via private placement and (iv) 33,900,000 shares in conversion of convertible notes.
Private
Placement – April 18, 2016
On
April 18, 2016, the Company completed an equity private placement for $105,500 to date comprised of accredited individual investors
as well as one institutional investor. The terms of this private placement are as follows: $0.004 per share of common stock with
a related three-year warrant for 40% of each share of common stock purchased at an exercise price of $0.01 per share. The warrants
require the investors to pay cash to exercise the warrants and do not allow for cashless exercise. All shares to be issued will
be “restricted securities” as such term is defined by the Securities Act of 1933, as amended. The Company collected
$7,500 of this in March 2016, and the remaining funds in April 2016 at the time the shares and warrants were issued. The $7,500
is reflected in liabilities for stock to be issued on the March 31, 2016 balance sheet.
The
proceeds from this private placement will be used for working capital purposes, most specifically to fund the Company’s
ongoing litigation against Cowan Gunteski Co. P.A., and settle some outstanding obligations and establish new business opportunities
for the Company.
Private Placement – June 27, 2016
On June 27, 2016, the Company completed
an additional $194,000 USD in equity private placement financing from six accredited individual investors. The terms of this private
placement are as follows: $0.004 per share of common stock with a related three-year warrant for 40% of each share of common stock
purchased and an exercise price of $0.01 per share. The warrants require the investors to pay cash to exercise the warrants
and do not allow for cashless exercise. For example, an investor who invested $10,000 USD in this financing round received
2,500,000 shares of common stock and the 1,000,000 warrant to purchase 1,000,000 shares of common stock at $0.01 for
a period of three years. The Company received funds for 48,500,000 shares of common stock at $0.004 per share (of which 47,000,000
shares are pending issuance) and warrants for an additional 19,400,000 shares of common stock as part of the financing. All
shares issued and to be issued will be “restricted securities” as such term is defined by the Securities Act of 1933,
as amended.
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 seeks damages against Cowan Gunteski (and its malpractice insurance policy) exceeding $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. 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 to trial. 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 debts
(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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – SUBSEQUENT EVENTS (CONTINUED)
Lawsuit
Filed Against Cowan Gunteski & Co. PA (Continued)
On
May 10, 2016, the Company was notified of an Order Reopening Case, Scheduling Order for Pretrial Conference set for December 7,
2016 before Judge Robin L. Rosenberg, Trial set for January 23, 2017 in West Palm Beach Division, and a Calendar Call set for
January 18, 2017.
On
September 26, 2016, a motion was filed requesting that the trial date be moved from the current scheduled date of January 23,
2017 to July 24, 2017 (6-months.) The Company must respond to this motion no later than October 14, 2016.
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.
Convertible
Notes Payable
Group
10 Holdings LLC
On
August 3, 2016, the Company entered into a $48,000 convertible debenture with OID in the amount of $8,000 with Group 10 Holdings
LLC. Along with this note, 8,000,000 commitment shares must be issued to the holder within 15 days or an event of default will
have occurred (shares were issued on August 4, 2016), earned in full upon purchase of the debenture. This debenture bears 12%
interest per annum with a default interest rate of the lesser of 18% or the or the maximum rate permitted under applicable law,
effective as of the issuance date of this debenture (“default interest rate”.) If any event of default occurs, the
outstanding principal amount of this debenture, plus accrued but unpaid interest, liquidated damages and other amounts owing in
respect thereof through the date of acceleration, shall become, at holder’s election, immediately due and payable in cash
in the sum of (a) one hundred eighteen percent (118%) of the outstanding principal amount of this debenture plus one hundred percent
(100%) of accrued and unpaid interest thereon and (b) all other amounts, costs, expenses and liquidated damages due in respect
of this debenture (“mandatory default amount”). After the occurrence of any event of default, the interest rate on
this debenture shall accrue at an interest rate equal the default interest rate.
Subject
to the approval of holder for prepayments after one hundred eighty (180) days, borrower may prepay in cash all or any portion
of the principal amount of this debenture and accrued interest thereon, with a premium, as set forth below (each a “prepayment
premium”), upon ten (10) business days prior written notice to holder. Holder shall have the right to convert all or any
portion of the principal amount and accrued interest thereon during such ten (10) business day notice period. The amount of each
prepayment premium shall be as follows: (a) one hundred forty-five percent (145%) of the prepayment amount if such prepayment
is made at any time from the issuance date until the maturity date.
The
holder shall have the right, but not the obligation, at any time after the issuance date and until the maturity date, or thereafter
during an event of default, 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) sixty percent (60%) 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 (40%)) or (b)
one-half of a penny ($0.005.)
If
the market capitalization of the borrower is less than two million dollars ($2,000,000) 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
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%)). 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 two-tenths of a penny ($0.002) 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 a notice of conversion
is given (which represents a discount rate of seventy-five percent (75%)).
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – SUBSEQUENT EVENTS (CONTINUED)
The
note also contains a most favored nations status provision whereby the borrower or any of its subsidiaries issue any security
(in an amount under one million dollars ($1,000,000)) with any term more favorable to the holder such more favorable term, at
holder’s option, shall become a part of the transaction documents with holder.
At
all times during which this debenture is outstanding, borrower shall reserve and keep available from its authorized and unissued
shares of common stock (the “share reserve”) for the sole purpose of issuance upon conversion of this debenture and
payment of interest on this debenture, free from preemptive rights or any other actual or contingent purchase rights of persons
other than holder, not less than five times the aggregate number of shares of the commons stock that shall be issuable the conversion
of the outstanding principal amount of this debenture and payment of interest hereunder. Initially, the share reserve shall be
equal to one hundred fifty million (150,000,000) shares. The holder may request bi-monthly increases to reserve such amounts based
on a conversion price equal to the lowest closing price during the preceding thirty-five (35) day. Borrower agrees that it will
take all such reasonable actions as may be necessary to assure that the conversion shares may be issued. Borrower agrees to provide
holder with confirmation evidencing the execution of such share reservation within fifteen (15) business days from the issuance
date.
Holder
may provide the transfer agent with written instructions to increase the share reserve in accordance therewith in the event of:
(a) closing price of borrower’s common stock is less than $0.002 for three (3) consecutive trading days; or (b) borrower’s
issued and outstanding shares of common stock is greater than seventy of their authorized shares. Then the share reserve shall
increase to the number of shares of common stock equal to the five (5) times the value of the outstanding principal amount plus
accrued interest.
Further,
as part of the terms of this note the Company agrees that it will not incur further indebtedness other than (a) lease obligations
and purchase money indebtedness of up to one hundred thousand dollars, in the aggregate, incurred in connection with the acquisition
of capital assets and lease obligations with respect to newly acquired or leased assets, (c) indebtedness that (i) is expressly
subordinate to this debenture pursuant to a written subordination agreement with holder that is acceptable to holder in its sole
and absolute discretion and (ii) matures at a date sixty (60) days later than the maturity date, (d) trade payables and other
accounts payable of borrower incurred in the ordinary course of business in accordance with GAAP and not evidenced by a promissory
note or other security, and (e) indebtedness existing on the date hereof and set forth on the Balance Sheet dated September 30,
2015, provided that (x) the terms of such indebtedness are not changed from the terms in effect as of the most recent balance
sheet date, and (y) any such indebtedness which is for borrowed money is not due and payable until after August 3, 2017.