NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS
The
unaudited financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the
Securities and Exchange Commission (“SEC”). The financial statements and notes are presented as permitted on Form
10-Q and do not contain certain information included in the Company’s annual statements and notes. Certain information and
footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted
in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes
that the disclosures are adequate to make the information presented not misleading. It is suggested that these financial statements
be read in conjunction with the March 31, 2016 Form 10-K filed with the SEC, including the audited financial statements and the
accompanying notes thereto. While management believes the procedures followed in preparing these financial statements are reasonable,
the accuracy of the amounts is in some respects dependent upon the facts that will exist, and procedures that will be accomplished
by the Company later in the year.
These
unaudited financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management,
are necessary to present fairly the operations and cash flows for the periods presented.
Nature
of Business
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 technology is the basis of the
Pilus Cell™. The EBR harnesses genetically enhanced bacteria, also known as bacterial robots, or BactoBots™, that
remediate water, harvest direct current (“DC”) electricity, and produce economically important gases. The EBR accomplishes
this through bacterial metabolism, specifically cellular respiration of nearly four hundred carbon and nitrogen molecules. Pilus’
highly metabolic bacteria are non-pathogenic. Because of the mediated biofilm formation, these wastewater-to-value BactoBots resist
heavy metal poisoning, swings of pH, and survive in a 4-to-45-degree Celsius temperature range. Additionally, the BactoBots are
anaerobically and aerobically active, even with low BOD/COD.
On
January 28, 2014, the Company acquired patents from Pilus. As a condition of the acquisition, Pilus will get one seat on the board
of directors, and the shareholders of Pilus received a warrant to purchase 100,000,000 shares of common stock of the Company,
which represented a fair market value of approximately $2,000,000. In addition, the Company paid Bacterial Robotics, LLC (“BRLLC”),
formerly the parent company of Pilus, $50,000 on signing the memorandum of understanding and $50,000 at the time of closing. The
only asset Pilus had on its balance sheet at the time of the acquisition was a patent. The Company determined that the value of
the acquisition on January 28, 2014 would be equal to the value of cash paid to Pilus plus the value of the 100,000,000 warrants
they issued to acquire Pilus. Through March 31, 2014, the Company amortized the patent over its estimated useful life, then on
March 31, 2014, the Company conducted its annual impairment test and determined that the entire unamortized balance should be
impaired as the necessary funding to further develop the patent was not available at that time. On 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
On
November 15, 2016 the Company announced that it will form a new wholly owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary will be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief - “collum” and “auxilium.” The Company has filed for
trademarks in association with the business with the United States Patent and Trademark Office. The Company plans to develop,
market, distribute and potentially license a broad array of products and technologies that may help individuals who are affected
by muscle tension. The Company has already identified potential products and technologies of interest and is actively working
towards the goal of creating an innovative product line to launch the business activities of ColluMauxil. The Company believes
that one of its most important strengths is its access to and relationships with potentially substantial distribution systems
and networks. The Company intends to capitalize on distribution opportunities and will continually update shareholders on such
developments. The Company intends on developing a product that specifically targets muscle tension in the neck, shoulder, and
upper back. The Company envisions that this product will incorporate a roll-on delivery system (“Roll-On Product”)
which is easier to apply to a specific area on the body. The Company also plans to develop a Roll-On Product that incorporates
CBD Oil (“Cannabis Oil”), which is a legal alternative to THC oil, and it is available for sale in all states as well
as around the world. Cannabis Oil is widely believed to provide relief to individuals who suffer from muscle tension, tenderness,
and pain. Both contemplated Roll-On Products will be branded under the ColluMauxil.
Products
will be developed for and distributed to the retail market but there can be no guaranty that any revenue will ever be generated.
The Company believes it can raise the necessary funds to develop and begin distribution of its first muscles tension product for
approximately $200,000, which it hopes to obtain through equity financing (“private placement”). The Company believes
none of the contemplated products to be developed under the ColluMauxil brand will require approval from the Food and Drug Administration.
Certain
additional risk factors relating to the new business line are further described in Part II, Item 1A “Risk Factors”
below in this Quarterly Report on Form 10-Q.
Going
Concern
As
indicated in the accompanying condensed consolidated financial statements, the Company has incurred net losses of $1,448,500 and
$2,133,563 for the six months ended September 30, 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 in medical companies 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 condensed 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 condensed 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. Currently, the Company does not have the
financial resources to commercialize the Pilus technology. If it is unable to obtain such resources, it may be forced to sell
all or a portion of the Pilus technology to a third-party. In the event this occurs, there is no guaranty the consideration received
by the Company would be of material benefit to either the Company and/or its shareholders.
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use
of Estimates
The
preparation of the condensed 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.
Condensed
Consolidated Financial Statements
The
condensed 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue
Recognition
Revenue
is recognized when realized or realizable, and when the earnings process is complete, which is generally upon the shipment of
products.
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 September 30, 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 such financial institution, the Company evaluates at least
annually the rating of the financial institution in which it holds deposits. The Company had no cash equivalents as of September
30, 2016.
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
Income (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 period
s; however, potential common shares are excluded
for period in which the Company incurs losses, as their effect is anti-dilutive
.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock-Based
Compensation (Continued)
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 for the six months ended September
30, 2016 and 2015, respectively.
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).
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Fair
Value Measurements (Continued)
Financial
instruments classified as Level 1 - quoted prices in active markets include cash.
These
condensed 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 September 30, 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 condensed 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
binomial pricing models. Valuations derived from this model are subject to ongoing internal and external verification and review.
The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s
judgment and may impact net income. 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 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%. As a result of the May 28, 2015,
7%
Convertible Redeemable Note with a principal amount of $104,000 with a maturity date of May 28, 2016 (the “Union Note”)
which contains an anti-ratchet clause for the conversion of this Union Note, the Company recorded a derivative liability in the
amount of $200,058 (as a result the entire note was discounted). The Company also recorded a derivative liability as a result
of the July 14, 2015 issuance of a 12% Convertible Redeemable Note with the principal amount of $96,000 issued with an original
issue discount of $16,000. The derivative liability recorded on this note was $152,126 (as a result the entire note was discounted.)
The Company also recorded a derivative liability as a result of the August 3, 2016 issuance of a 12% Convertible Redeemable Note
with the principal amount of $48,000 issued with an original issue discount of $8,000. The derivative liability recorded on this
note was $56,871 (as a result the entire note was discounted.) As a result of the issuance of this note containing more beneficial
terms of conversion, the Union Note will now be convertible at the lower of t
he 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).
In the six months ended September 30, 2016, the Company
recognized a loss on the fair value of the
derivative liability in the amount of $253,187 bringing the fair value of the
derivative liability to $978,432
. 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.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income
Taxes (Continued)
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 September 30, 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.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements (Continued)
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 through
the date of issuance.
NOTE
3 – DISCONTINUED OPERATIONS
On
August 11, 2015 the Company formally divested (discontinued) its Natural Wellness Business. The business mainly consisted of a
CBD infused topical lotion called TopiCanna as well as a line of Cannabis Complement products that were intended to compliment
individuals who were consistently using medicinal cannabis related product. On August 11, 2015, the Company sold the balance of
its inventory of TopiCanna and Cannabis Complement products for a one-time cash payment of $20,462. As a result of the disposal
of this business, the Company reported a loss on disposal of $104,957, as reflected in the chart below:
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
3 – DISCONTINUED OPERATIONS (Continued)
|
|
For the Three Months Ended
|
|
|
For the Six Months Ended
|
|
|
|
Sep 30,
|
|
|
Sep 30,
|
|
|
|
2016
|
|
|
2015
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
-
|
|
|
$
|
10,316
|
|
|
$
|
-
|
|
|
$
|
51,062
|
|
Cost of goods sold
|
|
|
-
|
|
|
|
6,530
|
|
|
|
-
|
|
|
|
14,472
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
-
|
|
|
|
3,786
|
|
|
|
-
|
|
|
|
36,590
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
-
|
|
|
|
1,003
|
|
|
|
-
|
|
|
|
26,790
|
|
Depreciation and amortization expense
|
|
|
-
|
|
|
|
250
|
|
|
|
-
|
|
|
|
803
|
|
Total operating expenses
|
|
|
-
|
|
|
|
1,253
|
|
|
|
-
|
|
|
|
27,593
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (Loss) from discontinued operations
|
|
$
|
-
|
|
|
|
2,533
|
|
|
$
|
-
|
|
|
|
8,997
|
|
The
consolidated statement of operations was restated to reflect the reclassification of the discontinued operations.
There
were no assets or liabilities from discontinued operations the six months and year ended September 30, 2016 and March 31, 2016.
The
Company recognized a loss on the disposal of the Natural Wellness subsidiary:
TAURIGA SCIENCES, INC.
AND SUBSIDIARY
Loss on disposal of Natural
Wellness (subsidiary)
Cash
|
|
$
|
19,219
|
|
Inventory, at cost
|
|
|
81,198
|
|
Prepaid expenses
|
|
|
16,461
|
|
Property and equipment, net
|
|
|
8,541
|
|
Less cash received for sale of inventory
|
|
|
(20,462
|
)
|
Loss on disposal of continuing operations
|
|
$
|
104,957
|
|
NOTE
4 – PROPERTY AND EQUIPMENT
The
Company’s property and equipment is as follows:
|
|
September 30, 2016
|
|
|
March 31, 2016
|
|
|
Estimated Life
|
|
|
|
|
|
|
|
|
|
Computers, office furniture and equipment
|
|
$
|
55,942
|
|
|
$
|
55,942
|
|
|
3-5 years
|
Technical equipment
|
|
|
-
|
|
|
|
-
|
|
|
5 years
|
Total
|
|
|
55,942
|
|
|
|
55,942
|
|
|
|
Less: accumulated depreciation
|
|
|
(55,942
|
)
|
|
|
(49,028
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
-
|
|
|
$
|
6,914
|
|
|
|
Depreciation
expense for the six months ended September 30, 2016 and the year ended March 31, 2016 was $6,914 and $9,832, respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED 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 condensed consolidated
statements of operations.
Green
Hygienics, Inc.
On
May 31, 2013, the Company executed a licensing agreement with GHI (see Note 1). 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 CONDENSED 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 11). 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 as of March 31, 2016. An analysis
of the cost is as follows:
|
|
March 31, 2016
|
|
|
Estimated Life
|
|
|
|
|
|
|
Licensing fee
|
|
$
|
1,539,851
|
|
|
2-5 years
|
Less: accumulated amortization
|
|
|
83,863
|
|
|
|
|
|
|
1,455,988
|
|
|
|
Net impairment
|
|
|
(1,455,988
|
)
|
|
|
Balance
|
|
$
|
—
|
|
|
|
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
5 – INTANGIBLE ASSETS (CONTINUED)
The
cost of the patent and related amortization at September 30, 2016 and March 31, 2016 is as follows:
|
|
Fair Value
|
|
|
Estimated Life
|
|
|
|
|
|
|
Cash advanced on signing the memorandum of understanding and closing agreement
|
|
$
|
100,000
|
|
|
16.5 years
|
Fair value of the warrant for 100,000,000 shares of the Company’s common stock
|
|
|
1,710,000
|
|
|
|
Total
|
|
|
1,810,000
|
|
|
|
Less amortization in the year ended March 31, 2015
|
|
|
18,540
|
|
|
|
Net value at March 31, 2015 prior to impairment
|
|
$
|
1,791,460
|
|
|
|
Impairment in the year ended March 31, 2015
|
|
|
1,791,460
|
|
|
|
Net value for the six months and year ended September 30, 2016 and March 31, 2016
|
|
|
—
|
|
|
|
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. As a result of the
Union Note which contains an anti-ratchet
clause, the Company recorded a derivative liability in the amount of $200,058 (as a result the entire note was discounted). In
the six months ended September 30, 2016, the Company recognized a loss on the fair value of the
derivative liability in
the amount of $253,187 bringing the fair value of the derivative liability to $978,432
.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE
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 September 30, 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 current accrued interest of $46,296.
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.
Group
10 Holdings LLC – Note 1
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
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.
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 current accrued interest of $24,724.
On
November 28, 2016 Union Capital issued a forbearance agreement for a $104,000 convertible note issued on May 28, 2015. The noteholder
agreed to forebear the normal reserve requirement as prescribed by contract for four times the full conversion amount of required
shares. The agreement requires the Company to reserve two times the full amount of conversion shares. This requirement will remain
in effect until May 17, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
Convertible
Notes Payable (Continued)
Group
10 Holdings LLC – Note 2
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. The $48,000 remains outstanding at September
30, 2016 (reflected as a derivative liability.) The current accrued interest of $915.
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%)).
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
Convertible
Notes Payable (Continued)
Group
10 Holdings LLC – Note 2 (Continued)
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.
On
November 7, 2016 44,000,000 shares in the amount of $50,160 ($0.00114 per share) were issued to convert a 12% convertible note
issued on August 3,2016 which was held by Group 10. The note had a face value of $48,000 with accrued interest of $2,160.
Convertible
Notes Payable to Individuals
The
Company at September 30, 2016 and March 31, 2016 had $158,775 and $253,775 ($18,000 of which is to a related party), 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 three months ended June 30, 2016, the Company
issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per share) to convert notes payable in the amount $113,000
(including a related party note in the amount of $18,000) plus a 20% conversion premium which was recorded as interest expense
in the amount $22,600 and converted into shares of common stock. During the year ended March 31, 2016 no notes were converted
to common stock.
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 were issued
on June 15, 2016. Additionally, the Company was required to repay the amounts raised under the Purchase Agreement prior to December
1, 2015 except as described below. The Purchase Agreement provides the Company with the following prepayment options: (i) if prepaid
prior to August 31, 2015, the Company must pay each investor the amount invested plus a 10% premium and (ii) if prepaid after
August 31, 2015 but prior to December 1, 2015, the Company must pay each investor the amount invested plus a 20% premium. In the
event the Company has not repaid the amounts as described above, on December 1, 2015 the Company has the option to convert all
amounts raised under the Purchase Agreements into shares of common stock based on a 20% discount to the Company’s VWAP (as
defined in the Purchase Agreement) for the three Trading Days (as defined in the Purchase Agreement) prior to December 1, 2015,
which the Company has done. Excluding the 13,300,000 commitment shares, in May 2016 the Company agreed to issue 33,900,000 shares
of its common stock, which were issued on June 15, 2016 to settle all obligations under these Purchase Agreements.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
7 – CONVERTIBLE NOTES AND NOTES PAYABLE (CONTINUED)
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 September 30, 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.
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.
Interest
expense for the three and six months ended September 30, 2016 was $79,220 and $101,453 compared to $18,406 and $23,207 the same
period in the prior year, respectively. Accrued interest at September 30, 2016 and March 31, 2016 was $123,867 and $86,812, respectively.
NOTE
8 – RELATED PARTIES
On
May 27, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with Lawrence May
Enterprises, an accredited investor for the sale of a debentures with aggregate gross proceeds to the Company of $18,000. Pursuant
to the terms of the agreement, the investor was granted 1,800,000 shares of Company common stock as a commitment fee. These shares
were issued on June 15, 2016. Additionally, the Company was required to repay the amounts raised under the Purchase Agreement
prior to December 1, 2015 except as described below. The Purchase Agreement provides the Company with the following prepayment
options: (i) if prepaid prior to August 31, 2015, the Company must pay each investor the amount invested plus a 10% premium and
(ii) if prepaid after August 31, 2015 but prior to December 1, 2015, the Company must pay each investor the amount invested plus
a 20% premium. In the event the Company has not repaid the amounts as described above, on December 1, 2015 the Company has the
option to convert all amounts raised under the Purchase Agreements into shares of common stock based on a 20% discount to the
Company’s VWAP (as defined in the Purchase Agreement) for the three Trading Days (as defined in the Purchase Agreement)
prior to December 1, 2015.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT
Common
Stock
The
Company is authorized to issue 2,500,000,000 shares of its common stock. Effective September 30, 2016, 1,349,895,933 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 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.
Fiscal
Year 2017
During
the six months ended September 30, 2016, the Company issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per
share) to convert notes payable in the amount $113,000 (including a related party note in the amount of $18,000) plus a 20% conversion
premium which was recorded as interest expense in the amount $22,600. During the year ended March 31, 2016 no notes were converted
to common stock.
During
the six months ended September 30, 2016, the Company issued 27,875,000 shares of common stock ($0.004 per share) for proceeds
of $111,500.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Common
Stock (Continued)
During
the six months ended September 30, 2016, the Company issued 49,000,000 shares of common stock for services rendered valued at
$370,000 ($0.002 to $0.005 per share.)
During
the six months ended September 30, 2016, the Company issued 19,300,000 shares of common stock for commitment shares to note holders
at a value of $149,000 ($0.0045 to $0.01 per share.)
The
Company also received proceeds in the amount of $250,000 for the sale of 62,500,000 shares of common stock that the Company issued
in the third fiscal quarter of 2017. Funds received are classified as a liability to issue shares on the Company’s condensed
consolidated balance sheet.
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.
Warrants
for Common Stock
The
following table summarizes warrant activity for the six months ended September 30, 2016 and the year ended March 31, 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015
|
|
|
106,941,932
|
|
|
$
|
0.02
|
|
|
|
4.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(29,188,403
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
77,303,529
|
|
|
$
|
0.02
|
|
|
|
4.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
36,150,000
|
|
|
|
0.01
|
|
|
|
2.68
Years
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2016
|
|
|
113,453,529
|
|
|
$
|
0.02
|
|
|
|
3.80
Years
|
|
|
$
|
-
|
|
The
warrants were valued utilizing the following assumptions employing the Black-Scholes Pricing Model:
|
|
Six Months Ended
September 30, 2016
|
|
|
Year Ended
March 31, 2016
|
|
|
|
|
|
|
|
|
Volatility
|
|
|
203
|
%
|
|
|
n/a
|
|
Risk-free rate
|
|
|
0.66
|
%
|
|
|
n/a
|
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
Expected life of warrants
|
|
|
2.68
|
|
|
|
n/a
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
9 – STOCKHOLDERS’ DEFICIT (CONTINUED)
Warrants
for Common Stock (Continued)
For
the six months ended September 30, 2016, the Company entered into Stock Purchase agreements (“SPA’s”) with 20
qualified investors, subsequently issuing 89,750,000 shares of common stock. In accordance with terms of the SPA’s, each
investor was awarded 1 Non-cashless Warrant (with a term of 36 months) for every 2.5 shares of stock purchased. The strike price
of these warrants is 1 cent per share. The total warrants of 36,150,000 are classified as additional paid in capital. The warrants
are classified as equity as they contain no provisions that would enable liability classification.
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 six months and year ended September 30, 2016 and March 31, 2016:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2015
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
6.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at March 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.84
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding and exercisable at September 30, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.35
Years
|
|
|
$
|
—
|
|
Stock-based
compensation for the six months ended September 30, 2016 and 2015 was $16,823 and $524,586, respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
10 – 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:
|
|
September 30, 2016
|
|
|
March 31, 2016
|
|
Net operating losses
|
|
$
|
5,610,000
|
|
|
$
|
5,180,000
|
|
Impairment of assets
|
|
|
2,490,000
|
|
|
|
2,490,000
|
|
Valuation allowance
|
|
|
(8,100,000
|
)
|
|
|
(7,670,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
September 30, 2016, the Company had a U.S. net operating loss carryforward in the approximate amount of $22 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 $426,000 and $580,000 in the three months ended September 30, 2016 and the year ended March 31, 2016, respectively.
A
reconciliation of the Company’s effective tax rate as a percentage of income before taxes and the federal statutory rate
for the six months ended September 30, 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
|
%
|
NOTE
11 – 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 $249,562 and a fair value of $438 at September 30, 2016. At March 31, 2016, the unrealized loss was $249,250 and the fair
value was $750, respectively. The investment in Breathe Ecig Corp has been written off as of December 31, 2015 as there is no
value in that company.
NOTE
12 – CURRENT LITIGATION
Lawsuit
Filed Against Cowan Gunteski & Co. PA
On
November 4, 2015, the Company filed a lawsuit against its predecessor audit firm Cowan Gunteski & Co. PA in Federal Court
— Southern District Florida (Miami, Florida) entitled “Tauriga Sciences, Inc. v. Cowan, Gunteski & Co., P.A. et
al”, Case No. 0:15-cv-62334. The case has since been transferred to the United States District Court for the District of
New Jersey. The case alleges, among other things, that Cowan Gunteski committed malpractice with respect to the audit of the Company’s
FY 2014 financial statements (as illustrated in the PCAOB Public Censure of July 23, 2015) and then misrepresented to the Company
with respect about its ability to re-issue an independent opinion for FY 2014 financial statements. On July 31, 2015, the Company
was delisted from the OTCQB Exchange to the OTC Pink Limited Information Tier due to its inability to file its FY 2015 Form 10K.
The lawsuit was expected by the Company and its counsel to take up to 18 months to complete, from the date it was filed (November
4, 2015).
The
Company in its lawsuit 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
12 – CURRENT LITIGATION (CONTINUED)
Lawsuit
Filed Against Cowan Gunteski & Co. PA (Continued)
Subsequent
to the filing of the lawsuit, the Company was notified that the lawsuit was temporarily suspended so that the Company and Cowan
can attempt to mediate this case based on the engagement letters between the parties. On December 30, 2015, the Company was notified
that Daniel F. Kolb was appointed as the mediator.
Mediation
commenced on February 3, 2016. During these efforts, the Company had been offered settlement amounts, but none that have been
satisfactory.
On
March 22, 2016 the Company decided that its good faith efforts to settle its ongoing litigation with Cowan Gunteski & Co.
P.A. have proven unsuccessful. Therefore, the Board of Directors of the Company unanimously agreed to proceed forward with the
litigation. The Company is continuing to seek the assistance of independent experts, to help ascribe dollar amounts for certain
damages suffered by the Company (“provable damages”). At this point in time, the Company has realized out of pocket
cash losses and liabilities (inclusive of liquidated damages) that exceed $850,000. Additional potential damages include but are
not limited to: inability to properly maintain Pilus Energy’s Intellectual Property (“Pilus IP”), the July 31,
2015 delisting of the Company shares from OTCQB to Pink Sheets, loss of market capitalization (“market cap”), loss
of trading liquidity (“trading volume”), and loss of substantial business opportunities. In aggregate the Company
intends to seek monetary award(s), during trial, in excess of $4,000,000. That figure is expected to continually increase as additional
time lapses.
On
September 29, 2016, the judge presiding over the case approved the ruled on the two outstanding motions filed on June 13, 2016.
The motion to transfer the case to United States District Court for the District of New Jersey was approved, however the judge
denied the defendants’ motion to dismiss the lawsuit. Depositions have commenced in this case.
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 September 30, 2016 and March 31, 2016
|
|
September
30, 2016
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-available-for-sale
security
|
|
$
|
438
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
438
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
$
|
-
|
|
|
$
|
|
|
|
$
|
978,432
|
|
|
$
|
978,432
|
|
|
|
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
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
13 – FAIR VALUE MEASUREMENTS (CONTINUED)
The
estimated fair values of the Company’s derivative liabilities are as follows:
|
|
Convertible
|
|
|
Derivative
|
|
|
|
|
|
|
Notes
|
|
|
Liability
|
|
|
Total
|
|
Liabilities Measured at Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2015
|
|
$
|
-
|
|
|
$
|
90,000
|
|
|
$
|
90,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain) loss
|
|
|
-
|
|
|
|
670,577
|
|
|
|
670,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances, net
|
|
|
-
|
|
|
|
(90,000
|
)
|
|
|
(90,000
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2016
|
|
$
|
-
|
|
|
$
|
670,577
|
|
|
$
|
670,577
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revaluation (gain) loss
|
|
|
-
|
|
|
|
307,855
|
|
|
|
307,855
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuances, net
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ending balance as of September 30, 2016
|
|
$
|
-
|
|
|
$
|
978,432
|
|
|
$
|
978,432
|
|
NOTE
14 – SUBSEQUENT EVENTS
Common
Stock Issuances
Subsequent to September 30, 2016, the Company
issued additional shares of common stock as follows: (i) 74,500,000 shares to consultants (ii) 10,000,000 shares issued as commitment
shares to the holder of a convertible note (iii) 65,500,000 shares issued via private placement and (iv) 44,000,000 shares issued
to convert convertible notes.
Accounts
Payable
On
November 18, 2016 the Company issued 15,384,615 common shares of Company stock to settle an outstanding payable in the amount
of $197,593. Based on the market value on the day of issuance of $103,077 ($0.0067 per common share) the Company we recognize
a gain on the extinguishment of liability in the amount of $94,516.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14 – SUBSEQUENT EVENTS (CONTINUED)
Corporate
Matters
On
November 15, 2016 the Company announced that it will form a new wholly owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary will be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief — “collum” and “auxilium.” The Company has filed
for trademarks in association with the business with the United States Patent and Trademark Office. The Company plans to develop,
market, distribute and potentially license a broad array of products and technologies that may help individuals who are affected
by muscle tension. The Company has already identified potential products and technologies of interest and is actively working
towards the goal of creating an innovative product line to launch the business activities of ColluMauxil. The Company believes
that one of its most important strengths is its access to and relationships with potentially substantial distribution systems
and networks. The Company intends to capitalize on distribution opportunities and will continually update shareholders on such
developments. The Company intends on developing a product that specifically targets muscle tension in the neck, shoulder, and
upper back. The Company envisions that this product will incorporate a roll-on delivery system (“Roll-On Product”)
which is easier to apply to a specific area on the body. The Company also plans to develop a Roll-On Product that incorporates
CBD Oil (“Cannabis Oil”), which is a legal alternative to THC oil, and it is available for sale in all states as well
as around the world. Cannabis Oil is widely believed to provide relief to individuals who suffer from muscle tension, tenderness,
and pain. Both contemplated Roll-On Products will be branded under the ColluMauxil.
Products
will be completed and distributed to the retail market but there can be no guaranty that any revenue will ever be generated. The
Company believes it can raise the necessary funds to develop and begin distribution of its first muscles tension product for approximately
$200,000, which it hopes to obtain through equity financing (“private placement”). The Company believes none of the
contemplated products to be developed under the ColluMauxil brand will require approval from the Food and Drug Administration.
Certain
additional risk factors relating to the new business line are further described in Part II, Item 1A “Risk Factors”
below in this Quarterly Report on Form 10-Q.
Convertible
Notes
On
November 7, 2016 44,000,000 shares in the amount of $50,160 ($0.00114 per share) were issued to convert a 12% convertible note
issued on August 3, 2016 which was held by Group 10. The note had a face value of $48,000 with accrued interest of $2,160.
Group
10 Holdings LLC – Note dated November 7, 2016
On
November 7, 2016, the Company entered into a $45,000 convertible debenture with OID in the amount of $7,000 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, 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
NOTES
TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NOTE
14– SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes (Continued)
Group
10 Holdings LLC – Note dated November 7, 2016 (Continued)
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 ($0.003.)
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%)).
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 March 31, 2016,
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.
On
November 28, 2016 Union Capital issued a forbearance agreement for a $104,000 convertible note issued on May 28, 2015. The noteholder
agreed to forebear the normal reserve requirement as prescribed by contract for four times the full conversion amount of required
shares. The agreement requires the Company to reserve two times the full amount of conversion shares. This requirement will remain
in effect until May 17, 2017