Annual Report (10-k)

Date : 06/27/2019 @ 2:04PM
Source : Edgar (US Regulatory)
Stock : Tauriga Sciences, Inc. (TAUG)
Quote : 0.02992  -0.00008 (-0.27%) @ 9:45PM

Annual Report (10-k)

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-K

 

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the fiscal year ended March 31, 2019

 

OR

 

[  ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

For the transition period from April 1, 2018 to March 31, 2019

 

Commission File Number: 000-53723

 

 

 

TAURIGA SCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

Florida   30-0791746
(State or other jurisdiction of   (IRS Employee
incorporation or organization)   Identification No.)

 

555 Madison Avenue, 5 th Floor    
New York, NY   10022
(Address of principal executive offices)   (Zip Code)

 

Registrant’s telephone number, including area code: (917) 796-9926

 

Securities registered under Section 12(b) of the Exchange Act:

None

 

Securities registered under Section 12(g) of the Exchange Act:

Common Stock, $0.00001 Par Value

(Title of class)

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [  ] Yes [X] No

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [  ] Yes [X] No

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. [X] Yes [  ] No

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [  ] Yes [X] No

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

 

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

 

Large accelerated filer [  ] Accelerated filer [  ]
Non-accelerated filer [  ] Smaller reporting company [X]
(Do not check if smaller reporting company) Emerging growth company [  ]

 

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

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [  ] Yes [X] No

 

On September 28, 2018, the last business day of the registrant’s most recently completed second quarter, the aggregate market value of the Common Stock held by non-affiliates of the registrant was $1,350,492 based upon the closing price on that date of the Common Stock of the registrant on the OTC Bulletin Board system of $0.0269. For purposes of this response, the registrant has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates of the registrant.

 

As of as of June 26, 2019, the registrant had 72,925,920 shares of its Common Stock, $0.00001 par value, outstanding.

 

Securities registered pursuant to Section 12(b) of the Act:

 

Title of each class   Trading Symbol   Name of each exchange on which registered
Common Stock, par value $0.0001 per share   TAUG   OTCQB

 

 

 

 
 

 

TABLE OF CONTENTS

 

    Page
PART I.    
Item 1. Business 4
Item 1.A. Risk Factors 12
Item 1.B. Unresolved Staff Comments 21
Item 2. Properties 21
Item 3. Legal Proceedings 21
Item 4. Mine Safety Disclosures 21
     
PART II.    
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities 22
Item 6. Selected Financial Data 24
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operation 24
Item 7A. Quantitative and Qualitative Disclosures About Market Risk 32
Item 8. Financial Statements and Supplementary Data 32
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 32
Item 9A. Controls and Procedures 32
Item 9B. Other Information 33
     
PART III.    
Item 10. Directors, Executive Officers and Corporate Governance 35
Item 11. Executive Compensation 38
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 39
Item 13. Certain Relationships and Related Transactions, and Director Independence 39
Item 14. Principal Accounting Fees and Services 39
     
PART IV.    
Item 15. Exhibits, Financial Statement Schedules 40
     
  Signatures 44
     
  Exhibits  

 

2
 

 

FORWARD LOOKING STATEMENTS

 

This annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Forward looking statements are often identified by words such as “will”, “may”, “projects”, “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions or import are intended to identify forward-looking statements, but are not intended to constitute the exclusive means of identifying such statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, including those described in “Risk Factors” contained below in this annual report, some of which are beyond our control and difficult to predict and could cause actual results, performance or achievements, or industry results to differ materially from any future results, performance or achievements, expressed or implied, by such forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Tauriga Sciences, Inc. Such discussion represents only the best present assessment from our Management.

 

All references in this Annual Report on Form 10-K to “we,” “us,” “our” and the “Company” refer to Tauriga Sciences, Inc., a Florida corporation and its consolidated subsidiaries unless the context requires otherwise.

 

3
 

 

PART I

 

ITEM 1. BUSINESS  

 

General Overview

 

Tauriga Sciences, Inc. (the “Company”) is a Florida corporation, with its principal place of business being located at 555 Madison Avenue, Fifth Floor, New York, NY 10022. Prior to December 12, 2011, the Company was involved in the business of exploiting new technologies for the production of clean energy. The Company has, over time, moved into that of a diversified life sciences technology company, with its mission to operate a revenue generating business, while continuing to evaluate potential acquisition candidates operating in the life sciences technology space.

 

TAURI-GUM TM

 

In October 2018, the Company’s management, along with its board of directors, began to explore the possibility of launching a cannabidiol (“CBD”) infused gum product line into the commercial marketplace. After several weeks of diligence, discussions with various parties and exploratory meetings, the Company made the determination to move forward with this business opportunity.

 

To begin this process, during the quarter ended December 31, 2018, the Company began discussions with a Maryland based chewing gum manufacturer - Per Os Biosciences LLC (“Per Os Bio”), which consummated in a manufacturing agreement in late December 2018 to launch and bring to market a white label line of CBD infused chewing gum under the brand name Tauri-Gum TM . We have filed for trademark protection with the United States Patent and Trademark Office for our CBD infused chewing product line, including applications filed in April 2019 for TAURI-GUMMI TM and TAURI-GUMMIES TM .

 

Under the terms of the agreement, Per Os Bio has committed to produce the Tauri-Gum TM based on the following criteria:

 

  A. By composition, the CBD Gum will contain 10 mg of CBD Isolate
  B. The initial production run will be mint flavor exclusively
  C. This proprietary CBD Gum will be manufactured under U.S. Patent # 9,744,128 (“Method for manufacturing medicated chewing gum without cooling”)
  D. Each Production Batch, including the initial production run, is estimated to yield 70,000 gum tablets or 8,700 Units (each Unit contains 8 gum tablets).
  E. Integrated Quality Control Procedures: Each production batch will be tested by a 3 rd Party for CBD label content, THC content (0%), and clear for microbiology.
  F. The packaging, for retail marketplace, will consist of 8 count (gum tablet count) blister card labeled (the “Pack(s)”) with Lot # as well as Expiration Date.
  G. Outer sleeve in the Company’s artwork and graphic design(s) and label copy
  H. Shipping System: Bulk packed 266 Packs per master case (“Palletized”)

 

Under terms of the Agreement, the Company has committed to provide the following to Per Os Bio:

 

  A. Each product order will consist of exactly 8,700 Packs (unless otherwise agreed upon by both parties).
  B. ½ of initial production invoice due within 3 days of execution of Manufacturing Agreement (this has already been paid by the Company).
  C. Provide graphic design artwork, logo, and label design to Per Os Bio.
  D. Trademark has been successfully filed with U.S.P.T.O.
  E. To implement Kosher Certification Process
  F. Procure appropriate Product & Liability insurance policy
  G. Acquire legal opinion with respect to the confirmation of the legality to sell this CBD Gum – on the Federal Statute Level.

 

The Company’s gum formulation includes distinctive features: allergen free, gluten free, vegan, kosher (K-Star certification), and incorporates a proprietary manufacturing process. See our “Risk Factors” contained in this Annual Report, including with respect, but not limited, to Federal laws and regulations that govern CBD and cannabis.

 

The Company’s E-commerce website is www.taurigum.com. The Company has also secured storage space near its New York City headquarters.

 

During the first quarter of fiscal year 2020, the Company began production of Blood Orange flavor of Tauri-Gum TM . The Company plans to offer Pomegranate flavored Tauri-Gum TM in the near term, which will be in addition to their mint and blood orange flavored products.

 

On April 9, 2019, the Company announced that it is developing a special miniaturized version of Tauri-Gum TM for sale at airport retail stores. The Company envisions this Airport version consisting of a miniaturized blister pack (containing three pieces of its CBD Infused gum), with an anticipated retail price of $6.99 per unit.

 

The Company is also working on developing CBD Gum-Infused Lollipops and gummi products.

 

4
 

 

Subsequent to our fiscal year end of March 31, 2019, the Company entered into several agreements with distributors to arrange for the distribution of this product line, as described below.

 

E&M Distribution Agreement

 

On April 1, 2019, the Company entered into a comprehensive distribution agreement with E&M Ice Cream Company (“E&M”) to establish Tauri-Gum TM in the New York City metropolitan area marketplace (the “E&M Distribution Agreement”). Under terms of this Agreement, E&M will distribute Tauri-Gum TM to hundreds of NYC based retail store locations by the summer of 2019, with the goal of exceeding 1,000 locations by the end of fiscal 2019. As of May 31, 2019, the Company’s product is in at least 287 locations. The Company has supported the NYC Tauri-Gum TM commercial launch with substantial levels of both financial resources and marketing support. The Company has made the strategic decision to initially largely focus its commercialization efforts on the New York City retail marketplace due to excellent NYC distribution relationships and the Company’s belief that it can launch its Tauri-Gum TM brand in NYC in an efficient and cost-effective manner. Also, the Company has both received payment for and delivered the product for its previously announced $54,000 Tauri-Gum TM purchase order during March 2019. The Company has agreed to issue a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the shares will be reflected in stock-based compensation based on the grant date of April 1, 2019. The Company is awaiting issuance instructions from E&M to issue the shares.

 

South Florida Region Distribution Agreement

 

On April 8, 2019, the Company entered into a non-exclusive distribution agreement with IRM Management Corporation (“IRM”), an established medical practice management firm (the “IRM Distribution Agreement”). The purpose of the IRM Distribution Agreement is to target our Tauri-Gum TM product to the South Florida based medical market, including chiropractors, orthopedists, as well as prospective retail customers in this geographic area.

 

Under terms of this IRM Distribution Agreement, the Company will work closely with IRM to promote Tauri-Gum TM . In connection with this IRM Distribution Agreement, the Company has also agreed to a one-time issuance of 450,000 shares of the Company’s restricted common stock and a cash stipend of $10,000 to IRM. As of the date of this report, only $2,000 of the $10,000 cash stipend has been paid. The value of the restricted shares will be reflected in stock-based compensation based on the grant date of April 8, 2019.

 

North Eastern United States Distribution Agreement

 

On April 30, 2019, the Company, entered into a non-exclusive comprehensive distribution agreement with Sai Krishna LLC (“SKL”), a New Jersey based distributor, with relationships in the Northeast region of the United States and Asia, with the intention of increasing and accelerating market penetration of the Company’s Tauri-Gum TM product line in the applicable regions.

 

In connection with the SKL Agreement, the Company agreed to a one-time issuance of an aggregate of 1,000,000 restricted shares of the Company’s common stock, which are subject to the customary resale and transfer restrictions imposed under the rules and regulations of the Securities and Exchange Commission. The foregoing equity issuance to SKL and the other named persons affiliated with SKL was issued in accordance with the following schedule: (i) to Mr. Mahesh Lekkala, 500,000 restricted shares the Company’s common stock within ten (10) business days of April 30, 2019; and (ii) to SKL, 500,000, which were permitted to be immediately allocated by SKL to persons within its organization and, as such, (a) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of April 30, 2019, and the additional issuance of (b) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of August 1, 2019. Other than the payment terms for Tauri-Gum TM product purchased and distributed under the terms of the Agreement, there is no additional cash payment due or owing by the Company thereunder. The value of the shares will be reflected as stock-based compensation with a grant date of April 30, 2019. All but 250,000 shares were expensed the date of issuance, with those 250,000 shares valued over the term of the one-year agreement.

 

On May 11, 2019, the Company entered into a consulting agreement pursuant to the terms of the SKL distribution agreement, whereby Ms. Neelima Lekkala was appointed Vice President of Distribution & Marketing. This agreement has a one-year term and may be extended based upon mutual agreement of Ms. Lekkala and the Company. Ms. Lekkala will focus her efforts on the expansion of Tauri-Gum TM in terms of gross sales and revenue growth through the acquisition of new customers, establishment of professional marketing materials & protocols, logistics improvement(s) and fulfillment services. Ms. Lekkala is not an executive officer of the Company and, therefore, is not deemed to be an affiliate of the Company. Ms. Lekkala’s compensation includes 250,000 shares of the Company’s restricted common stock, which are fully earned and vested upon the execution of her consulting agreement. These shares were issued May 20, 2019, having a value of $18,275 based on the closing price of the Company’s stock on that day. Additionally, Ms. Lekkala will receive a 30% commission on total gross sales through the sale of the Tauri-Gum TM product line, which the Company may pay in either stock or cash at the election of Ms. Lekkala.

 

5
 

 

Food and Drug Administration

 

On May 31, 2019, the U. S. Food and Drug Administration (“FDA”) held public hearings to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds, including CBD. The hearing comes approximately five months after the Agricultural Improvement Act of 2018 (more commonly known as the Farm Bill), went into effect and removed industrial hemp from the Schedule I prohibition under the Controlled Substances Act (CSA) (industrial hemp means cannabis plants and derivatives that contain no more than 0.3 percent tetrahydrocannabinol, or THC, on a dry weight basis).

 

Though the  Farm Bill removed industrial hemp from the Schedule I list, the Farm Bill preserved the regulatory authority of the FDA over cannabis and cannabis-derived compounds used in food and pharmaceutical products under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and section 351 of the Public Health Service Act. The FDA has been clear that it intends to use this authority to regulate cannabis and cannabis-derived products, including CBD, in the same manner as any other food or drug ingredient. In addition to holding the hearing, the agency has requested comments by July 2, 2019 regarding any health and safety risks of CBD use, and how products containing CBD are currently produced and marketed. See our Risk Factors for more information about these items.

 

2018 Reverse Stock Split

 

On March 12, 2018, the Company held a meeting of its board of directors. The matters voted on and approved at the meeting included an amendment to the Company’s Articles of Incorporation to decrease the number of authorized shares of the Company’s common stock, $0.00001 par value per share from 7,500,000,000 to 100,000,000 shares and to affect a reverse stock split of the Company’s Common Stock at a ratio of 1-for-75 (the “Reverse Stock Split”).

 

On June 8, 2018, the Company filed an Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of the State of Florida, for the aforementioned decrease in the number of authorized shares and to affect a 1-for-75 reverse stock split of the Company’s common stock. The Reverse Stock Split became effective at 12:01 a.m. on July 9, 2018.

 

The Reverse Stock Split affected all issued and outstanding shares of common stock, as well as common stock underlying stock options, warrants and other convertible securities outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Reverse Stock Split reduced the number of outstanding shares of the common stock outstanding prior to the Reverse Stock Split from 4,078,179,672 shares to 54,380,230 shares immediately following the Reverse Stock Split. No fractional shares were issued as a result of the Reverse Stock Split, and any such stockholders whose number of post-split shares would have resulted in a fractional number had his/her/its shares rounded up to the next number of shares. On July 30, 2018, the Company’s stock began trading on the OTC:QB.

 

All references set forth in this annual report to number of shares or per share data have been presented on a post reverse stock-split basis.

 

Cupuaçu Butter Lip Balm

 

On December 23, 2016, the Company entered into a non-exclusive 12-month license agreement (the “License Agreement”) with Cleveland, Ohio based cosmetics products company Ice + Jam LLC (“Ice + Jam”) to market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan®. The two companies were to evenly share on a 50/50 basis any profits generated through the Company’s marketing, sales and distribution efforts. The Company had agreed to pay the production, marketing and start-up costs for all product it sells to retail customers or distributors. As part of the License Agreement, the Company issued 66,667 restricted shares of our common stock to Ice + Jam, which had a value of $27,500, based on the closing price of the stock on the day the Company entered into the agreement ($0.4125 per share). The cost of the shares were prorated over the term of the initial license.

 

During the quarter ended December 31, 2017, the Company launched a lip balm product (branded as HERMAN®). On November 27, 2017, the Company announced a 2-year extension to the existing non-exclusive License Agreement, extending it through December 23, 2019. The two companies reserved the right to request amendment of the License Agreement at any point during the effective term of the agreement. In February of 2018, the Company’s strategy with respect to the HerMan® product was negatively impacted by a series of product defects relating to the twisting mechanism of the lip balm tube. The Company was hopeful that this product would provide the Company with sustainable revenue at margins that would justify the initial expense and effort; however, as a result of the manufacturing issue and other factors, the Company made the determination to not invest additional capital resources into this product segment and discontinued this business unit’s operations as of March 31, 2019.

 

The Company had no sales of the HerMan® product during the year ended March 31, 2019 compared to $1,188 of sale during the year ended March 31, 2018, as reflected in discontinued operations. The Company has removed the product from the website. The remaining inventory of $16,897 was written off as of the previous year ended March 31, 2018 as it determined that the units were not usable.

 

Honeywood

 

On March 10, 2014, the Company entered into a definitive agreement to acquire California-based Honeywood LLC (“Honeywood”), developer of a topical medicinal cannabis product, that, at the time, sold in numerous dispensaries across the state of California. This definitive agreement was valid for a period of 120 days and the Company advanced to Honeywood $217,000 to be applied towards the final closing requisite cash total and incurred $178,000 in legal fees as of March 31, 2014 in connection with the acquisition.

 

6
 

 

On September 24, 2014 (the “Unwinding Date”), the Company, Honeywood and each of Honeywood’s principals entered into a termination agreement to unwind the effects of the merger. In accordance with the termination agreement, Honeywood agreed to repay to the Company substantially all of the advances made by the Company to Honeywood prior to and after the merger by delivering to the Company, on the Unwinding Date, a secured promissory note in the principal amount of $170,000. The note bore interest at 6% per annum and was repayable in six quarterly installments on the last day of each calendar quarter starting on March 31, 2015 and ending on June 30, 2016. The note was secured by a blanket security interest in Honeywood’s assets pursuant to a security agreement entered into on the Unwinding Date between Honeywood and the Company. Honeywood never made any payments under the Note prior to the Honeywood Conversion Agreement (as defined below). As a result, the Company had fully reserved this amount and it was not reflected as a receivable on its financial statements.

 

Effective August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert the entire principal and accrued but unpaid interest due into a 5% membership interest in Honeywood (the “Honeywood Conversion Agreement”).

 

The Company made an assessment for impairment of its investment in Honeywood at the entity level. During the relationship between the Company and Honeywood, Honeywood had a working capital deficiency and had a history of operating losses. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-35-28, “ Investments—Debt and Equity Securities ”, a Company may not record an impairment loss on the investment but shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value of the investment) in each subsequent reporting period until either of the following occurs: a) the investment experiences a recovery of fair value up to (or beyond) its cost; or b) the entity recognizes an other-than-temporary impairment loss. At the time of the Honeywood Conversion Agreement, the receivable balance under the note of $199,119 had been fully written off by the Company in a prior period. As a result of the Honeywood Conversion Agreement, the Company deemed the investment to still have no current value. The Company recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.

 

Pilus Energy

 

On November 25, 2013, the Company executed a definitive merger 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 create electricity while consuming polluting molecules from wastewater. On January 28, 2014, the Company completed its acquisition of Pilus. As a condition of the acquisition, the shareholders of Pilus received a warrant to purchase 1,333,334 shares of common stock of the Company, which represented a fair market value of approximately $2,000,000, and, based upon whether the Warrants issued to Pilus represented at least 5% the then outstanding and fully diluted capitalization of the Company. In addition, the Company paid Open Therapeutics, LLC (f/k/a Bacterial Robotics, LLC and Microbial Robots, LLC) (“Open Therapeutics”), formerly the parent company of Pilus, $50,000 on signing the merger agreement and $50,000 at the time of closing. Pilus’ principal asset on its balance sheet at the time of the acquisition was its US patent relating to its clean water technology. 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 1,333,334 warrants the Company issued to acquire Pilus. Through March 31, 2014, the Company amortized the patent over its estimated useful life, then on March 31, 2014, the Company conducted its annual impairment test and determined that the entire unamortized balance should be impaired as the necessary funding to further develop the patent was not available at that time.

 

On December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company sold 80% of its membership interest in Pilus back to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the unexercised portion of the warrant to purchase 385,569 shares (or 308,455 warrants) of the Company’s common stock. Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous year’s earnings, if any. The first $75,000 of such payments was to be retained by Pilus Energy as additional consideration for the sale, which was reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership interest on all matters for which a member vote is required. Through March 31, 2019, there has been no activity recorded by Open Therapeutics with respect to Pilus Energy.

 

On January 12, 2019, the Company and Open Therapeutics agreed to extinguish the above described $75,000 contingent liability in exchange for a one-time issuance of 500,000 restricted shares of Company’s common stock. The shares were recorded at a value of $24,750 ($0.0495 per share) as a loss on settlement in the Company’s consolidated financial statements.

 

Tauriga Biz Dev Corp

 

On January 4, 2018, the Company announced that its Board of Directors unanimously approved the formation a wholly-owned subsidiary focused on acquiring interest(s) in patents and other intellectual property. This subsidiary, incorporated in Delaware, was named Tauriga IP Acquisition Corp. On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp.

 

7
 

 

On March 29, 2018 the Company, through Tauriga Biz Dev Corp. (“Tauriga BDC”), entered into an independent sales representative agreement with Blink Charging Co. (Nasdaq: BLNK) to be a non-exclusive independent sales representative. Under the terms of the agreement with Blink, the Company is permitted to solicit orders from potential customers for electric vehicle (“EV”) charging station placement. This sales agreement is a three-tier model based on whether Tauriga BDC contracts the new customer to purchase equipment outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga BDC effectuates a sale of Blink equipment, it will receive a one-time sales commission based on the sales price of the equipment sale. In the case where Tauriga BDC secures a revenue sharing agreement with a customer where Blink remains the owner, Tauriga BDC will be paid an on-going commission based off of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement are subject to minimum revenue generation hurdles.

 

On June 29, 2018, the Company purchased four Blink Level 2 - 40” pedestal chargers for permanent placement in a retail location or locations whereby the Company will pay a variable annual fee based on 7% of total revenue per charging unit. The rest of the proceeds will be split 80/20 between the Company and the host location owner or its assignee. The host location owner to will pay for the cost of providing power to these unit as well as installation costs.

 

As of March 31, 2019, Tauriga BDC has not installed any of these machines in any locations, and no revenue has been generated through the Blink contract.

 

SUBSEQUENT EVENTS

 

Common Stock

 

Subsequent to March 31, 2019, the Company issued additional shares of common stock as follows: (i) 1,700,000 shares under distribution agreements (noted below); (ii) 888,308 shares for conversion of debt; (iii) 250,000 shares issued to Vice President of Distribution and Marketing; (iv) 1,000,000 shares issued for services rendered; (v) 750,000 shares for debt commitment and (vi) 714,286 shares under stock purchase agreements in consideration for $45,000 (average of $0.063 per share) to accredited investors that are unrelated third parties.

 

Corporate

 

On June 10, 2019, the Company formed a wholly owned subsidiary, Tauriga Sciences Limited, with the registrar of Companies for Northern Ireland. Tauriga Sciences Limited is a private limited Company. The entity was established in conjunction with online merchant services. In conjunction to this new entity the Company entered into a two-year lease commencing on June 11, 2019 and expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate on the day the lease agreement was entered into).

 

Tauri-Gum TM

 

On April 9, 2019, the Company announced that it is developing a special miniaturized version of Tauri-Gum TM for sale at airport retail stores. The Company envisions this Airport version consisting of a miniaturized blister pack (containing three pieces of its CBD Infused gum), with an anticipated retail price of $6.99 per unit.

 

The Company is also working on CBD Gum-Infused Lollipops and gummi products. During April 2019, the Company filed for trademark for TAURI-GUMMI TM and TAURI-GUMMIES TM .  

 

E&M Distribution Agreement

 

In connection with the E&M Distribution Agreement related to the sale and distribution of our Tauri-Gum TM product line in the New York City Metropolitan area marketplace (as more fully described in Item 1, business overview, of this annual report), the Company agreed to a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the restricted shares will be reflected in stock-based compensation based on the grant date of April 1, 2019.

 

South Florida Region Distribution Agreement

 

On April 8, 2019, the Company entered into a non-exclusive distribution agreement with IRM Management Corporation (the “IRM Distribution Agreement”, as more fully described in Item 1, business overview, of this annual report), the purpose of which is to target our Tauri-Gum™ product to the South Florida based medical market, including chiropractors, orthopedists, as well as prospective retail customers in this geographic area. In connection with the IRM Distribution Agreement, the Company agreed to a one-time issuance of 450,000 shares of the Company’s restricted common stock and a cash stipend of $10,000 to IRM. As of the date of this report, $2,000 of the $10,000 cash stipend has been paid. The value of the shares will be reflected in stock-based compensation based on the grant date of April 8, 2019.

 

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North Eastern United States Distribution Agreement

 

On April 30, 2019, the Company, entered into the SKL Agreement with Sai Krishna LLC (as more fully described in Item 1, business overview, of this annual report) with the intention of increasing and accelerating market penetration of the Company’s Tauri-Gum TM product line in the applicable regions. In connection with the SKL Agreement, the Company agreed to a one-time issuance of an aggregate of 1,000,000 restricted shares of the Company’s common stock. The restricted equity issuance to SKL was completed in accordance with the following schedule: (i) to Mr. Mahesh Lekkala, 500,000 restricted shares the Company’s common stock within ten (10) business days of April 30, 2019; and (ii) to SKL, 500,000, which were permitted to be immediately allocated by SKL to persons within its organization and, as such, (a) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of April 30, 2019, and the additional issuance of (b) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of August 1, 2019. Other than the payment terms for Tauri-Gum TM product purchased and distributed under the terms of the SKL Agreement, there is no additional cash payment currently due or owing by the Company thereunder. The value of the shares will be reflected as stock-based compensation with a grant date of April 30, 2019. All but 250,000 shares are expensed on this date, with those 250,000 shares valued over the term of the one-year agreement.

 

GS Capital Partners, LLC May and June – 2019 Notes

 

On May 24, 2019, the Company entered into a one year 8% $60,000 Convertible Note with GS Capital Partners, LLC pursuant to the terms of a Securities Purchase Agreement. The GS Capital Note has a maturity date of May 23, 2020 and carried a $5,000 original issue discount (such that $55,000 was funded to the Company on May 24, 2019). The holder is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the GS Note then outstanding into shares of the Company’s common stock at a price for each share of common stock equal to 66% of the lowest daily volume weighted average price (VWAP) of the common stock as reported on the National Quotations Bureau OTC Markets exchange, which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (15) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. Such conversion shall be effectuated by the Company delivering the shares of common stock to the holder within 3 business days of receipt by the Company of the notice of conversion. Accrued but unpaid interest shall be subject to conversion. To the extent the conversion price of the Company’s common stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 56% instead of 66% while that “Chill” is in effect. In no event shall the holder be allowed to affect a conversion if such conversion, along with all other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. During the first six months that the GS Capital Note is in effect, the Company may redeem the GS Note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this Note along with any accrued interest. The GS Note may not be redeemed after 180 days. The Company may not redeem the GS Capital Note after the 180th day from entering into it. Upon an event of default, among other default provisions set forth in the GS Capital Note, (i) 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. (ii) if the Company shall fail to deliver to the holder the shares of common stock without restrictive legend (when permissible in accordance with applicable law) within three (3) business days of its receipt of a notice of conversion, then the Company shall pay a penalty of $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company (which shall be increased to $500 per day beginning on the 10th day); (iii) if the Company’s stock ceases to be listed on an exchange, its stock is suspended from trading for more than 10 consecutive trading days or the Company ceases to file its reports with the SEC under the Securities Exchange Act of 1934, as amended, then the outstanding principal due under the GS Capital Note shall increase by 50%; or (iv) if the GS Capital Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.

 

In connection with the GS Capital Note, the Company issued irrevocable transfer agent instructions reserving 3,327,000 shares of its Common Stock for conversions under this Note equal to two and a half times the discounted value of the Note (the “Share Reserve”) within 5 days from the date of execution, and shall maintain a 2.5 times reserve for the amount then outstanding. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled.

 

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On June 7, 2019, GS Capital Partners, LLC converted $40,000 of principal and $1,973 of accrued interest into 888,308 shares of common stock pursuant to the October 25, 2018 one-year $180,000 convertible note.

 

On June 21, 2019, the Company entered into a one year 8% $60,000 Convertible Note with GS Capital Partners, LLC pursuant to the terms of a Securities Purchase Agreement. The GS Capital Note has a maturity date of June 21, 2020 and carried a $5,000 original issue discount (such that $55,000 was funded to the Company on June 21, 2019). The holder is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the GS Note then outstanding into shares of the Company’s common stock at a price for each share of common stock equal to 66% of the lowest daily volume weighted average price (VWAP) of the common stock as reported on the National Quotations Bureau OTC Markets exchange, which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (15) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. Such conversion shall be effectuated by the Company delivering the shares of common stock to the holder within 3 business days of receipt by the Company of the notice of conversion. Accrued but unpaid interest shall be subject to conversion. To the extent the conversion price of the Company’s common stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 56% instead of 66% while that “Chill” is in effect. In no event shall the holder be allowed to affect a conversion if such conversion, along with all other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. During the first six months that the GS Capital Note is in effect, the Company may redeem the GS Note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this Note along with any accrued interest. The GS Note may not be redeemed after 180 days. The Company may not redeem the GS Capital Note after the 180th day from entering into it. Upon an event of default, among other default provisions set forth in the GS Capital Note, (i) 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. (ii) if the Company shall fail to deliver to the holder the shares of common stock without restrictive legend (when permissible in accordance with applicable law) within three (3) business days of its receipt of a notice of conversion, then the Company shall pay a penalty of $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company (which shall be increased to $500 per day beginning on the 10th day); (iii) if the Company’s stock ceases to be listed on an exchange, its stock is suspended from trading for more than 10 consecutive trading days or the Company ceases to file its reports with the SEC under the Securities Exchange Act of 1934, as amended, then the outstanding principal due under the GS Capital Note shall increase by 50%; or (iv) if the GS Capital Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.

 

In connection with the GS Capital Note, the Company issued irrevocable transfer agent instructions reserving 2,650,000 shares of its Common Stock for conversions under this Note equal to two and a half times the discounted value of the Note (the “Share Reserve”) within 5 days from the date of execution, and shall maintain a 2.5 times reserve for the amount then outstanding. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled.

 

ASP September 2015 Note

 

On May 29, 2019, the Company and Alternative Strategy Partners PTE Ltd. (“ASP”) consummated the retirement of that certain $180,000 face value non-convertible bridge loan agreement (“ASP Loan Agreement”), which had been entered into by the Company and ASP on September 23, 2015. As disclosed on the Company’s quarterly report on Form 10-Q (filed January 21, 2019), the ASP Loan Agreement matured in December 2015 and carried a liability (principal and accrued interest) on the Company’s books of $113,468. By way of background, under the terms of the ASP Loan Agreement, $90,000 (of the 180,000 principal loan) was to be wired by ASP directly to Eishin Co., Ltd. (“Eishin”), a Japanese based consumer product firm, in exchange for an equity stake in Eishin by the Company; however, the remaining $90,000 was never documented or evidenced as being sent, and the Company never received any shares of common or other class of stock in Eishin, which formed the basis of the Company’s disputed balance with ASP.

 

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In settlement of the aggregate sums claimed to be owed by ASP under the ASP Loan Agreement, the Company agreed to transfer and assign to ASP all right, title and interest it has or may have in securities of Eishin, and to do all things necessary to effect such transfer and assignment under Japanese law upon ASP’s written request, which shall be at ASP’s sole reasonable expense. As a result, the Company and ASP agreed and acknowledged that they shall have no debt, liability or any obligation between them and that the ASP Loan Agreement is immediately retired (except with respect to the assignment and transfer of the Eishin shares noted above). The $113,468 liability has been removed from the Company’s balance sheet, as will be reflected in the Company’s next quarterly report to be filed on Form 10-Q.

 

Investments

 

On April 8, 2019, the Company invested $20,400, in Küdzoo, Inc., a private Company, in which the Company had previously invested $37,500. The $20,400 investment was recorded at cost representing a 0.2% of the proportionate interest in the outstanding of the Company after this offering based on a pre-money valuation of $10,200,000.

 

Operating Lease

 

Effective April 1, 2019, the Company has adopted ASU No. 2016-02, Leases (Topic 842), and will account for its current lease in terms of the right of use assets and offsetting lease liability obligations for this new lease under this pronouncement. In accordance with ASC 842 - Leases, effective April 1, 2019, the Company will record additional net lease right of use asset and a lease liability at present value of approximately $18,730 and $18,978, respectively. The Company is recording these at present value, in accordance with the standard, using a discount rate of 8% which is representative of the last borrowing rates for notes issued to a non-related party. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company will use the initial term of the two-year lease. If the Company does elect to exercise its option to extend the lease for additional years, that election will be treated as a lease modification and the lease will be reviewed for remeasurement. This lease will be treated as an operating lease under the new standard.

 

The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance on April 1, 2019. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $18,730 and $1,978 as of April 1, 2019. Any difference between the additional lease assets and lease liabilities, net of the deferred tax impact, will be recorded as an adjustment to retained earnings. The standard is not expected to materially impact our consolidated net earnings and had no impact on cash flows.

 

Reports to Security Holders

 

In accordance with the rules and regulation of the Securities and Exchange Act of 1934, as amended, we file with the Securities and Exchange Commission annual reports containing financial statements audited by our independent registered public accounting firm and quarterly reports containing unaudited financial statements for each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements. We may also file additional documents with the Commission if they become necessary in the course of our company’s operations.

 

The public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.

 

Environmental Regulations

 

We do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand for our products or services, which could have a material adverse effect on our results of operations.

 

Employees

 

As of March 31, 2019, we had a total of two persons devoting substantially full-time services to the Company under consultancy arrangements. They are Seth M. Shaw, the Company’s Chief Executive Officer, and Kevin Lacey, the Company Chief Financial Officer. In addition, on May 11, 2019, the company engaged Ms. Neelima Nekkala under a consultant agreement to provide additional sales and marketing support for our Tauri-Gum product line as the Vice President of Distribution and Marketing under the terms of the SKL Distribution agreement.

 

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Available Information

 

All reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition, the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street, N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room by calling the Commission at 1-800-SEC-0330.

 

ITEM 1A. RISK FACTORS

 

The following important factors among others, could cause our actual operating results to differ materially from those indicated or suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.

 

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

 

Risks Related to Our Business

 

We have sustained recurring losses since inception and expect to incur additional losses in the foreseeable future.

 

We were formed on April 8, 2001 and have reported annual net losses since inception. For our years ended March 31, 2019 and 2018, we experienced net losses of $1,097,439 and $74,081, respectively. Cash was used in operating activities of $328,585 for the year ended March 31, 2019 compared to $542,314 in the same period in the prior year. As of March 31, 2019, we had an accumulated deficit of $55,488,939.

 

In addition, we expect to incur additional losses in the foreseeable future, and there can be no assurance that we will ever achieve profitability. Our future viability, profitability and growth depend upon our ability to establish revenue-producing operations, expand our operations and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue to incur operating losses in the future. Our management is devoting substantially all of its efforts to developing its products and services and there can be no assurance that our efforts will be successful. There is no assurance that can be given that management’s actions will result in our profitable operations or the resolution of our liquidity problems.

 

Federal regulation and enforcement may adversely affect the implementation of cannabis laws and regulations may negatively impact our business operations, revenues and profits.

 

Currently, there are 33 states in the United States, plus the District of Columbia, that have laws and/or regulations that recognize, in one form or another, medical benefits or other uses for CBD infused or cannabis related products. These states have also passed laws governing the use and sale of cannabis products and others are considering similar legislation. Our Tauri-Gum TM product line does not contain psychoactive substances also present in the cannabis plant, such as Tetrahydrocannabinol or THC.

 

Nonetheless, at least some provisions of these state laws are in direct conflict with the United States Federal Controlled Substances Act (21 U.S.C. § 811) (“CSA”), which places controlled substances, including cannabis, in a schedule. Cannabis is classified as a Schedule I drug, which is viewed as having a high potential for abuse, has no currently-accepted use for medical treatment in the U.S., and lacks acceptable safety for use under medical supervision. Under the CSA, the policies and regulations of the federal government and its agencies are that cannabis has no medical benefit and a range of activities including cultivation and the personal use of cannabis is prohibited. Uncertainty remains the rule under the CSA. There is disagreement between the government and the courts regarding the precise scope of the CSA. Some courts have held that CBD is excluded from the CSA, which they believe, only covers the THC chemical. Others have held that CBD is covered by the CSA when it is derived from the cannabis plant. On December 20, 2018, the Agricultural Improvement Act of 2018 (the “2018 Farm Bill”) legalized the cultivation and production of hemp, a variation on the cannabis plant that contains CBD but less than 0.3% THC (the psychoactive chemical of the cannabis plant), providing at least some certainty about sources of legal CBD.

 

Unless and until Congress amends the CSA to clarify precisely what is covered by the CSA, as to the timing or scope of any such potential amendments there can be no assurance, there is a risk that federal authorities may enforce current federal law against us despite our efforts to source our products from legal sources, and we may be deemed to be producing and/or dispensing marijuana-based products in violation of federal law. Active enforcement of the current federal regulatory position on cannabis may thus directly or indirectly, and adversely, affect our business, operations, revenues and any profits. The risk of strict enforcement of the CSA in light of Congressional activity, judicial holdings, and stated federal policy remains uncertain.

 

In an effort to provide guidance to federal law enforcement, the DOJ had previously issued guidance regarding marijuana enforcement to all United States Attorneys in a memorandum from then Attorney General David Ogden on October 19, 2009, in a memorandum from Deputy Attorney General James Cole on June 29, 2011 and in a memorandum from Deputy Attorney General James Cole on August 29, 2013. Each memorandum provided that the DOJ is committed to the enforcement of the CSA, but, the DOJ is also committed to using its limited investigative and prosecutorial resources to address the most significant threats in the most effective, consistent, and rational way; however, on January 4, 2018, the U.S. Attorney General of the Department of Justice revoked the Ogden Memo and the Cole Memos.

 

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The DOJ has not historically devoted resources to prosecuting individuals whose conduct is limited to possession of small amounts of marijuana for use on private property but has relied on state and local law enforcement to address marijuana activity. In the event the DOJ reverses its stated policy and begins strict enforcement of the CSA in states that have laws legalizing medical marijuana and recreational marijuana in small amounts, there may be a direct and adverse impact to our business and our revenue and profits. Furthermore, H.R. 83, enacted by Congress on December 16, 2014, provides that none of the funds made available to the DOJ pursuant to the 2015 Consolidated and Further Continuing Appropriations Act may be used to prevent certain states from implementing their own laws that authorized the use, distribution, possession, or cultivation of medical marijuana.

 

Under the 2018 Farm Bill, the U.S. Food and Drug Administration (FDA) has been given the authority to regulate CBD when incorporated into a food, drug, or cosmetic substance. Immediately following the passage of the 2018 Farm Bill, the FDA signaled its intent to use this power. Currently, the FDA is in a comment period and has not issued any guidance, rules, or regulations regarding the use of CBD in foods, drugs, or cosmetics. Because our product is included in food, FDA rules and regulations limiting our ability to source, manufacture, and sell the product, or limiting the consumer’s ability to purchase and use the produce, could severely impact our revenues and profits.

 

The FDA limits our ability to discuss the medical benefits of CBD

 

Under FDA rules it is illegal for companies to make “health claims” or claim that a product has a specific medical benefit, without first getting FDA approval for such claim. The FDA has not recognized any medical benefits derived from CBD, which means that we are not legally permitted to advertise any health claims related to CBD. Because of the perception among many consumers that CBD is a health/medicinal product, our inability to make health claims about the CBD in our product may limit our ability to market and sell the product to consumers, which would negatively impact our revenues and profits.

 

Cannabis and Cannabis products remains illegal under federal law.

 

Except as specified under the 2018 Farm Bill, cannabis/marijuana is a Schedule-I controlled substance and is illegal under federal law. Even in those states in which the use of marijuana has been legalized, its use remains a violation of federal law. Since federal law criminalizing the use of marijuana can be enforced independent of state laws that legalize its use, strict enforcement of federal law regarding marijuana would likely result in our inability to proceed with our business plan, especially in respect of our marijuana cultivation, production and dispensaries. In addition, our assets, including real property, cash, equipment and other goods, could be subject to asset forfeiture because marijuana is still federally illegal.

 

Variations in state and local regulation, and enforcement in states that have legalized cannabis, may restrict cannabis-related activities, which may negatively impact our revenues and prospective profits.

 

Individual state laws do not always conform to the federal standard or to other states’ laws. States that have decriminalized marijuana have created legal regimes, structures, and rules related to the use, cultivation, manufacture, distribution, transportation, and sale of medical cannabis and related products. These legal regimes often require companies to apply for and be awarded a license in order to operate a cannabis business operation. We plan to operate our cannabis business as a white label operation, however, if we are deemed to be operating our business without a required license this could impact our ability to maintain this business or subject us to significant penalties, fees, fines, or other financial consequences. If our partners lose their license this could also significantly impact our revenues as a result of lost profits while we sought out new partners or waiting for current partners to become compliant.

 

State laws and regulations are also still in flux as states figure out how best to regulate new products. State laws may change in unexpected ways that could result in our partners losing their license, being forced to change their products or services, or raise prices, all of which could impact our revenues and prospective profits.

 

State laws may prohibit or regulate white labeling, which would force us to abandon our current business strategy with regard to our CBD products or rework our current relationships with our partners, which would significantly impact our revenues and prospective profits.

 

Laws regarding the transportation of Cannabis may change

 

Transportation of cannabis is governed by both state and federal law. The interaction between these two legal regimes creates legal and practice difficulties in getting products to market. Changes in state law related to the transportation of cannabis may significantly impact our ability to get products to market or may raise the cost of doing so, which would impact our revenue and potential profits. Although federal law now allows the transportation of products derived exclusively from industrial hemp, both state and federal law make it illegal to transport cannabis products across state lines. Any accidental or intentional transportation of cannabis in our products across state lines could, therefore, result in significant consequences including loss of a state issues license or permit, financial penalties, seizure of our products, and prosecution for the illegal transportation of a Schedule I substance. These consequences may impact our revenues, potential profits, or ability to continue operating in this line of business.

 

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Prospective customers may be deterred from doing business with a company with a significant nationwide online presence because of fears of federal or state enforcement of laws prohibiting possession and sale of medical or recreational marijuana.

 

Our website is visible in jurisdictions where medicinal and adult use of marijuana is not permitted and, as a result, we may be found to be violating the laws of those jurisdictions. Having to block access to our website in certain jurisdictions may negatively impact our visibility and ability to secure partnerships with companies or engage consumers in those areas.

 

Federal intellectual property laws my limit our ability to protect our trademarks, names, logos, and other intellectual property

 

U.S. trademark law makes it unlawful to trademark any product that cannot legally be sold across state lines. Because the sale and transportation of cannabis and cannabis products is still prohibited under federal law, this may limit our ability to secure trademark protection for our products. We have applied for trademark protection with the understanding that our products contain only CBD derived from industrial hemp and other legal sources, however, because of the convoluted state of cannabis law, the U.S. Patent and Trademark Office may reject our current or future applications. This would negatively impact our ability to protect our intellectual property, which could negatively impact our revenues and profits.

 

Tax laws related to cannabis may impact our ability to generate revenue or potential profits.

 

Section 280E of the Internal Revenue Code prohibits marijuana businesses from deducting their ordinary and necessary business expenses, forcing us to pay higher effective federal tax rates than similar companies in other industries. The effective tax rate on a marijuana business depends on how large its ratio of nondeductible expenses is to its total revenues. Therefore, our marijuana business may be less profitable than it could otherwise be.

 

State tax laws are also changing. Even though state taxes are already high, many local jurisdictions are imposing heavy additional taxes either as a disincentive for cannabis companies to operate there or in order to cash in on the growing number of cannabis companies paying taxes. These taxes may overwhelm our partner companies causing them to go out of business or raise prices for their services, which in turn may impact our revenues and profits by forcing us to find different partners in more tax friendly areas or pay higher prices.

 

If we incur substantial liability from litigation, complaints, or enforcement actions, our financial condition could suffer.

 

Our participation in the cannabis industry may lead to litigation, formal or informal complaints, enforcement actions, and inquiries by various federal, state, or local governmental authorities against us. Litigation, complaints, and enforcement actions could consume considerable amounts of financial and other corporate resources, which could have a negative impact on our sales, revenue, profitability, and growth prospects. We have not been, and are not currently, subject to any material litigation, complaint, or enforcement action regarding cannabis or cannabis products (or otherwise) brought by any federal, state, or local governmental authority. However, should we become the subject of litigation, the cost to defend such litigation may be significant and may require a diversion of our resources. There also may be adverse publicity associated with litigation that could negatively affect customer perception of our business, regardless of whether the allegations are valid or whether we are ultimately found liable. We don’t currently carry litigation liability insurance, and, therefore, the Company could be significantly financially burdened by legal claims, litigation or administrative proceedings against us.

 

We may have difficulty accessing the service of banks, which may make it difficult for us to operate.

 

Since the use of marijuana and certain cannabis products is illegal under federal law, some banks may not accept for deposit funds from businesses involved with the cannabis industry. Consequently, businesses involved in this industry often have difficulty finding a bank willing to accept their business. The inability to open or maintain bank accounts may make it difficult for us to operate our medical and adult use marijuana businesses. If any of our bank accounts are closed, we may have difficulty processing transactions in the ordinary course of business, including paying suppliers, employees and landlords, which could have a significant negative effect on our operations.

 

We may be classified as an inadvertent investment company .

 

We are not primarily engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities. Under the Investment Company Act of 1940, as amended (the “1940 Act”), however, a company may be deemed an investment company under section 3(a)(1)(C) of the 1940 Act if the value of its investment securities is more than 40% of its total assets (exclusive of government securities and cash items) on a consolidated basis.

 

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As a result of our December 13, 2017 purchase of shares of Vistagen Therapeutics Inc. (NASDAQ: VTGN), among other investments the Company has made in public and privately held companies, the investment securities presently held by us exceeds 40% of our total assets, exclusive of cash items and, accordingly, we are currently an inadvertent investment company. As of March 31, 2019, the Company holds common stock in four companies and warrants exercisable for common stock in two companies. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the 1940 Act. One such exclusion, Rule 3a-2 under the 1940 Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. For us, this grace period began on November 29, 2017 when we were paid aggregate consideration of $2,050,000 in settlement of our litigation with Cowan, Gunteski & Co., P.A., et al., and thus cash exceeded greater than 50% of our total assets. We are taking actions to cause the investment securities held by us to be less than 40% of our total assets, which may include acquiring assets with our cash on hand, consummating a significant merger/acquisition transaction, or liquidating our investment securities. We also may seek a no-action letter from the SEC if we are unable to acquire sufficient non-securities assets or liquidate sufficient investment securities in a timely manner.

 

As Rule 3a-2 is available to a company no more than once every three years, and assuming no other exclusion were available to us, we would have to keep within the 40% limit for at least three years after we cease being an inadvertent investment company. This may limit our ability to make certain investments or enter into joint ventures that could otherwise have a positive impact on our earnings. In any event, we do not intend to become an investment company engaged in the business of investing and trading securities.

 

Classification as an investment company under the 1940 Act requires registration with the SEC. If an investment company fails to register, it would have to stop doing almost all business, and its contracts would become voidable. Registration is time consuming and restrictive and would require a restructuring of our operations, and we would be very constrained in the kind of business we could do as a registered investment company. Further, we would become subject to substantial regulation concerning management, operations, transactions with affiliated persons and portfolio composition, and would need to file reports under the 1940 Act regime. The cost of such compliance would result in the Company incurring substantial additional expenses and could result in the complete cessation of our operations, and the failure to register if required would have a materially adverse impact to conduct our operations.

 

Risks relating to our exposure to equity securities of other companies in which we are currently invested.

 

We are not primarily engaged in the business of investing, reinvesting, or trading in securities, and we do not hold ourselves out as being engaged in those activities; however, the Company has purchased securities of certain publicly traded and privately held companies and continue to hold a number of the securities obtained as part of such transactions, primarily in the form of equity or equity derivative securities. These investments carry risk of partial or total loss, as with any such investment of this kind, and we could lose all or some of the cash we have utilized in making such investments. We generally monitor the Company’s investments to keep abreast of the investments and positions, but do not portend to actively trade in these securities and we do not have broker-dealers daily monitoring our investments to take positions in the event of market swings or fluctuations, whether on the upside or downside; hence, these investments bear certain risks of loss or failure to attain maximum gain.

 

The Company has multiple convertible notes having cross default provisions.

 

Multiple notes issued by the Company contain provisions where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note. Should the Company for some reason default on one of its debt instruments, exercisable securities or convertible notes, if those instruments are not promptly cured other debt instruments or agreements could be caused, claimed or deemed to be in default, significantly increasing the principal amounts, amount of stock issuable and calculated interest rates thereunder.

 

Because we are an early development stage company with few products at or near commercialization, we expect to incur significant additional operating losses.

 

We are a development stage company and we expect to incur substantial additional operating expenses over the next several years as our research, development, and new business venture activities increase. The amount of our future losses and when, if ever, we will achieve profitability are uncertain. We have just begun sales and marketing efforts of Tauri-Gum TM which has resulted in commercial revenue but there is no guarantee that we can generate sufficient revenue to sustain operations or achieve profitability. Our ability to generate revenue and achieve profitability will depend on, among other things, the following:

 

  realizing revenue from our distribution arrangements regarding our Tauri-Gum TM products;
     
  establishing more substantial sales and marketing arrangements, either alone or with additional third parties; and
     
  raising sufficient funds to finance our activities, or on terms that are acceptable.

 

We might not succeed at all, or at any, of these undertakings. If we are unsuccessful at some or all of these undertakings, our business, prospects, and results of operations may be materially adversely affected.

 

15
 

 

We have few distribution agreements on which we are highly dependent. These agreements have no performance requirements or in some cases terms under which agreed responsibilities will be carried out.

 

Subsequent to the fiscal year end the Company has entered into multiple non-exclusive distribution agreements. These agreements a critical the Company’s success in generating sufficient sales to achieve sufficient cash flow to fund ongoing operations. These contracts are relationship based involve a high amount of trust that the distributor will achieve agreed upon result. However, under these agreements, the Company would have no recourse against distributors if sufficient results were not achieved with regard to amount of stock or cash paid to distributors. These distributors could additionally not perform at all under these agreements and even walk away entirely.

 

The Company has only one manufacturer/supplier of its product of it in a highly regulated industry.

 

During the quarter ended December 31, 2018, the Company entered into the CBD infused chewing gum product business, and has entered into a comprehensive manufacturing agreement with Per Os Bio to bring to market a white label CBD Oil infused chewing gum product line to be sold and marketed under the name Tauri-Gum TM . If for some reason, there was a disruption with this supplier due to changing regulations or other issues it could have a dramatic impact on the Company’s ability to continue to generate revenue.

 

We may need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration and licensing arrangements. Any additional funds that we obtain may not be on terms favorable to us or our stockholders and may require us to relinquish valuable rights.

 

As of March 31, 2019, we had $385,943 of available cash as well $350,400 held in trading securities at fair value. We will need to raise additional funds or liquidate the remainder of our marketable securities to pay outstanding vendor invoices and execute our business plan. Our future cash flows depend on our ability to market and sell our common stock and to enter into licensing arrangements. There can be no assurance that we will have sufficient funds to execute our business plan or complete a strategic transaction, or that additional funds will be available when needed from any source or, if available, will be available on terms that are acceptable to us.

 

We cannot guarantee that we will generate significate revenues from our products in the near future. Therefore, for the foreseeable future, we may have to fund all or most of our operations and capital expenditures from cash on hand, public or private equity offerings, debt financings, bank credit facilities, other borrowings (including borrowings from our officers and directors) or corporate collaboration and licensing arrangements. We will need to raise additional funds if we choose to expand our product development efforts more rapidly than we presently anticipate.

 

If we seek to sell additional equity or debt securities or enter into a corporate collaboration or licensing arrangement, we may not obtain favorable terms for us and/or our stockholders or be able to raise any capital at all, all of which could result in a material adverse effect on our business and results of operations. The sale of additional equity or debt securities, if convertible, could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could also result in covenants that would restrict our operations. Raising additional funds through collaboration or licensing arrangements with third parties may require us to relinquish valuable rights to our technologies, future revenue streams, research programs or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders. In addition, we could be forced to discontinue product development, reduce or forego sales and marketing efforts and forego attractive business opportunities, all of which could have an adverse impact on our business and results of operations.

 

We may need to increase our authorized shares of common stock under our articles of incorporation

 

In the future, we may need to amend our articles of incorporation to increase the number of shares of common stock that we are authorized to issue, reserve or otherwise offer. Such an amendment will require that the Company hold a meeting of its stockholders, reach quorum at such meeting (either in person or by proxy), which, under applicable Florida statute, in part requires the vote in person, by proxy or electronically of a minimum of 50% plus one of our issued and outstanding shares of common stock as of the record date set for such stockholder meeting, obtain the approval of a majority of the shares held by stockholders eligible to cast a vote at such meeting, and the satisfaction of such other rules and regulations for noticing and holding such a stockholder meeting under the Florida Business Corporation Act, pursuant to Regulation 14A of the Securities and Exchange Act of 1934, as amended, and such other applicable rules and regulations.

 

If we do not increase our revenue and/or reduce our expenses, we may need to raise additional capital, which may require us to increase the shares available to us under our existing charter since, under applicable Florida law and the rules and regulations of the SEC, we are not permitted to issue more shares of common stock (or securities convertible or exercisable into common stock) than are then authorized and available under our article of incorporation. Currently, we have 100,000,000 shares of common stock authorized under our article of incorporation, with 72,925,920 shares issued and outstanding as of June 26, 2019, as well as an additional 18,827,000 shares of common stock are accounted for in connection share reserve requirements under our currently outstanding convertible debt instruments. For purposes of estimating the number of shares issuable upon the exercise/conversion of all convertible notes and warrants, we relied on irrevocable initial reserves that meet the current minimum requirements. If we repaid all of these convertible notes in cash, then 18,827,000 of reserve shares would then become available to us (assuming no additional shares have been utilized in the interim).

 

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The failure to obtain such necessary approval to increase our authorized common stock could materially and negatively impact the Company and its stockholders, including a decrease in the price of our trading common stock, triggering a default and/or cross-default under our outstanding debt and convertible instruments (if not timely cured), increase interest rates under our then outstanding debt instruments, among other material negative impacts. In addition, we have an unknown number of common shares to be issued under our outstanding convertible debt and other exercisable instruments, as the price at which they are convertible is not currently determinable. The lower the conversion price, the more shares that will be issued to such holders. We won’t know the exact number of shares of stock issued to these convertible note-holders until the debt is actually converted to equity, if at all, or repaid by us in cash.

 

The Company is attempting to enter a new line of business which is highly competitive and if not a regulated today it may be regulated in the future.

 

Entering a new line of business has many risks, including obtaining sufficient capital to cover startup and other expenses and to continue to fund operations until sales are sufficient to fund ongoing or expanding operations. A new business line may never generate significant revenues, bring products to market or have enough sales to be profitable, as the case may be. With respect to any new line of business, including our entry into the CBD line of products vis-a-vis our Tauri-Gum TM product, we may have competitors that are better established in the market, have greater experience with such line of business or have greater resources than we do. We anticipate that products will be developed for and distributed to the retail market, but there can be no guaranty that sufficient revenue to support operations will ever be generated. Furthermore, we have limited experience in marketing consumer products, including chewing gum products, and may have limited experience with respect to any other line of business we may enter into as we seek to expand our operations. Due to this competition, there is no assurance that we will not encounter difficulties in obtaining revenues and market share or in the positioning of our products. There are no assurances that competition in our respective industries will not lead to reduced prices for our products. If we are unable to successfully compete with existing companies and new entrants to the market this will have a negative impact on our business and financial condition.

 

Although we believe that our products and processes do not and will not infringe upon the patents or violate the proprietary rights of others, it is possible such infringement or violation has occurred or may occur, which could have a material adverse effect on our business.

 

We are not aware of any infringement by us of any person’s or entity’s intellectual property rights. In the event that products we sell or processes we employ are deemed to infringe upon the patents or proprietary rights of others, we could be required to modify our products or processes or obtain a license for the manufacture and/or sale of such products or processes or cease selling such products or employing such processes. In such event, there can be no assurance that we would be able to do so in a timely manner, upon acceptable terms and conditions, or at all, and the failure to do any of the foregoing could have a material adverse effect upon our business.

 

There can be no assurance that we will have the financial or other resources necessary to enforce or defend a patent infringement or proprietary rights violation action. If our products or processes are deemed to infringe or likely to infringe upon the patents or proprietary rights of others, we could be subject to injunctive relief and, under certain circumstances, become liable for damages, which could also have a material adverse effect on our business and our financial condition.

 

Regulations are constantly changing, and in the future our business may be subject to additional regulations that increase our compliance costs.

 

We believe that we understand the current laws and regulations to which our existing products will be subject in the future. However, federal, state and foreign laws and regulations relating to the sale of our products are subject to future changes, as are administrative interpretations of regulatory agencies. If we fail to comply with such federal, state or foreign laws or regulations, we may fail to obtain regulatory approval for our products and, if we have already obtained regulatory approval, we could be subject to enforcement actions, including injunctions preventing us from conducting our business, withdrawal of clearances or approvals and civil and criminal penalties. In the event that federal, state, and foreign laws and regulations change, we may need to incur additional costs to seek government approvals. If we are slow or unable to adapt to changes in existing regulatory requirements or the promulgation of new regulatory requirements or policies, we or our licensees may lose marketing approval for our products which will impact our ability to conduct business in the future.

 

On May 31, 2019, the FDA held public hearings to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds, including CBD. The hearing comes approximately five months after the Farm Bill, went into effect and removed industrial hemp from the Schedule I prohibition under the CSA (industrial hemp means cannabis plants and derivatives that contain no more than 0.3 percent tetrahydrocannabinol, or THC, on a dry weight basis).

 

Though the Farm Bill removed industrial hemp from the Schedule I list, the Farm Bill preserved the regulatory authority of the FDA over cannabis and cannabis-derived compounds used in food and pharmaceutical products under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and section 351 of the Public Health Service Act. The FDA has been clear that it intends to use this authority to regulate cannabis and cannabis-derived products, including CBD, in the same manner as any other food or drug ingredient. In addition to holding the hearing, the agency has requested comments by July 2, 2019 regarding any health and safety risks of CBD use, and how products containing CBD are currently produced and marketed. Any subsequent regulations issued by the FDA can have an effect on our manufacture, supplier and our product.

 

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If we infringe upon the rights of third parties, we could be prevented from selling products and forced to pay damages and defend against litigation.

 

If our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial costs and we may be required to:

 

  obtain licenses, which may not be available on commercially reasonable terms, if at all;
     
  abandon an infringing product candidate;
     
  redesign our product candidates or processes to avoid infringement;
     
  cease usage of the subject matter claimed in the patents held by others;
     
  pay damages; and/or
     
  defend litigation or administrative proceedings which may be costly regardless of outcome, and which could result in a substantial diversion of our financial and management resources.

 

Any of these events could substantially harm our earnings, financial condition, stock price, operations and our prospects for success.

 

We rely solely on two key officers, our directors and consultants and losing them would harm the business.

 

We are highly dependent on our officers, consultants, advisors and directors. We do not have “key person” life insurance policy for our Chief Executive Officer. If we are unable to obtain additional funding, we will be unable to meet our current and future compensation obligations to such employees and consultants. In light of the foregoing, we are at risk that one or more of our consultants or employees may leave our company for other opportunities where there is no concern about such employers fulfilling their compensation obligations, or for other reasons. The loss of the technical knowledge and management and industry expertise of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management resources, which could adversely affect our results of operations.

 

If we are unable to attract, train and retain highly qualified personnel, the quality of our services may decline and we may not successfully execute our internal growth strategies.

 

Our success will depend in large part upon our ability to attract, train, motivate and retain highly skilled and experienced employees in the areas of business into which we expand, including technical personnel. Qualified technical employees periodically are in great demand and may be unavailable in the time frame required to satisfy our operating requirements. Expansion of our business could further require us to employ additional highly skilled technical personnel.

 

There can be no assurance that we will be able to attract and retain sufficient numbers of highly skilled technical employees in the future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates of compensation could impair our ability to develop our products or services or secure and complete customer engagements and could harm our business.

 

If we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations.

 

Our ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures and resources are currently not adequate to support a changing and growing company. If our management fails to respond effectively to changes and growth in our business, including acquisitions or growth of our line of Tauri-Gum product line of business, there could be a material adverse effect on our business, financial condition, results of operations and future prospects.

 

We may be unable to identify additional operating businesses or assets, and even if we do, we may be unable to finance such an acquisition

 

Our strategies ultimately include making significant investments in sales and marketing programs, either directly or through distributors, to achieve revenue growth and margin improvement targets. If we do not achieve the expected benefits from these investments or otherwise fail to execute on our strategic initiatives, we may not achieve the growth improvement we are targeting and our results of operations may be adversely affected. We may also fail to secure the capital necessary to make these investments, which will hinder our growth.

 

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In addition, as part of our strategy for growth, we may make acquisitions, enter into strategic alliances such as joint ventures and joint development agreements or other strategic transactions. However, we may not be able to identify suitable acquisition or other strategic partner candidates, complete acquisitions or integrate acquisitions successfully, and our strategic alliances may not prove to be successful. In this regard, acquisitions and other strategic transactions involve numerous risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies and the diversion of management’s attention from other business concerns. Although we will endeavor to evaluate the risks inherent in any particular transaction, there can be no assurance that we will properly ascertain all such risks. In addition, acquisitions and other strategic transactions could result in the incurrence of substantial additional indebtedness and other expenses or in potentially dilutive issuances of equity securities. Even if we identify assets, transactions or additional lines of business, we may have insufficient liquidity to be able to complete such a transaction. There can be no assurance that difficulties encountered with such transaction(s) will not have a material adverse effect on our business, financial condition and results of operations.

 

We currently do not have experience in building significant sales, marketing or distribution operations and will need to expand our expertise in these areas.

 

We have just begun our sales, marketing or distribution operations and, in connection with the commercialization of our products, will need to expand our expertise in these areas. To increase internal sales, distribution and marketing expertise and be able to conduct these operations, we would have to invest significant amounts of financial and management resources. In developing these functions ourselves, we could face a number of risks, including:

 

  we may not be able to attract and build an effective marketing or sales force; and
     
  the cost of establishing, training and providing regulatory oversight for a marketing or sales force may be substantial.

 

We experienced, and continue to experience, changes in its operations, which has placed, and will continue to place, significant demands on its management, operational and financial infrastructure.

 

If the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively affect the Company’s brand and operating results. To effectively manage this growth, the Company will need to continue to improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these improvements could hurt the Company’s ability to manage its growth and financial position.

 

We may not be able to effectively manage our growth or improve our operational, financial, and management information systems, which would impair our results of operations.

 

Our ability to grow successfully requires an effective planning and management process. In the near term, we intend to expand the scope of our operations activities significantly. If we are successful in executing our business plan, we will experience growth in our business that could place a significant strain on our business operations, finances, management, and other resources. The factors that may place strain on our resources include, but are not limited to, the following:

 

  The need for continued development of our financial and information management systems;
     
  The need to manage strategic relationships and agreements with manufacturers, distributors, customers, and partners; and
     
  Difficulties in hiring and retaining skilled management, technical, and other personnel necessary to support and manage our business.

 

Additionally, our strategy envisions a period of growth that may impose a significant burden on our administrative, infrastructure and operational resources. Our ability to effectively manage growth will require us to substantially and timely expand the capabilities of our administrative and operational resources and to attract, train, manage, and retain qualified management and/or other personnel. There can be no assurance that we will be successful in recruiting and retaining new employees or retaining existing employees.

 

We cannot provide assurances that our management will be able to manage this growth effectively, efficiently or in a timely manner. Our failure to successfully manage growth could result in our sales not increasing commensurately with capital investments or otherwise materially adversely affecting our business, financial condition, results of operations or future prospects. Our controls, systems, procedures and resources are currently not adequate to support a changing and growing company.

 

We are and will be dependent on the popularity of consumer acceptance of our product lines, including Tauri-Gum TM .

 

Our ability to generate revenue and be successful in the implementation of our business plan is dependent on consumer acceptance and demand of our product lines, including Tauri-Gum TM . Acceptance of our products will depend on several factors, including availability, cost, consumer familiarity of product benefits, brand recognition, convenience, effectiveness, safety, and reliability. If customers do not accept our products, or if we fail to meet customers’ needs and expectations adequately, our ability to continue generating revenues could be reduced or otherwise materially impacted.

 

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Risks Relating to Our Organization and Our Common Stock

 

Our common stock is currently considered a “penny stock,” which may make it more difficult for our investors to sell their shares.

 

Our stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit the marketability of our common stock.

 

We are a publicly registered company that is subject to the reporting requirements of federal securities laws, which can be expensive and may divert resources from other projects, thus impairing our ability to grow.

 

We are a public reporting company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing and filing annual, quarterly and current reports, proxy statements and other information with the SEC and furnishing audited reports to stockholders causes our expenses to be higher than they would have been if we remained private.

 

As a public company, these rules and regulations have increased our compliance costs and make certain activities more time consuming and costly. As a public company, it is also more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.

 

The Sarbanes-Oxley Act also requires corporate governance practices of public companies, which can be burdensome to smaller reporting companies. As a smaller reporting company (as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended), we are required to evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”). Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management’s assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified. Failure to comply, or any adverse results from such evaluation, could result in a loss of investor confidence in our financial reports and have an adverse effect on the trading price of our equity securities. Management believes that our internal controls and procedures are currently not effective to detect the inappropriate application of U.S. GAAP rules. Management realizes there are deficiencies in the design or operation of our internal control that adversely affect our internal controls which management considers to be material weaknesses including those described below:

 

  We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
     
  We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud-related risks and the risks related to non-routine transactions, if any, on our internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.
     
  We lack personnel with formal training to properly analyze and record complex transactions in accordance with U.S. GAAP.
     
  We have not achieved the optimal level of segregation of duties relative to key financial reporting functions.

 

Achieving continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources. We cannot assure you that we will be able to fully comply with Section 404 or that we and our independent registered public accounting firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result, investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial reporting is operating effectively.

 

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FINRA sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.

 

In addition to the “penny stock” rules described in this annual report, FINRA has adopted rules that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative low-priced securities will not be suitable for many customers. The FINRA requirements make it more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse effect on the market for our shares.

 

The market price and trading volume of shares of our common stock may be volatile.

 

The market price of our common stock could fluctuate significantly for many reasons, including reasons unrelated to our performance, such as limited liquidity for our stock, reports by industry analysts, investor perceptions or general economic and industry conditions. Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors may negatively impact the price of our securities. Quarterly operating results may fluctuate in the future due to a variety of factors that could negatively affect revenues or expenses in any particular quarter, including vulnerability of our business to a general economic downturn, changes in the laws that affect our products or operations, competition, compensation related expenses, application of accounting standards and our ability to obtain and maintain all necessary government certifications and/or licenses to conduct our business. In addition, if the market price of a company’s shares drops significantly, stockholders could institute securities class action lawsuits against the company. A lawsuit against us would cause us to incur substantial costs and could divert the time and attention of our management and other resources.

 

We may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.

 

We have never paid dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates. Furthermore, requirements of Florida corporate law and bankruptcy laws may prohibit us from declaring or paying dividends on our stock.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

 

If our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate.

 

ITEM 1B. UNRESOLVED STAFF COMMENTS

 

None.

 

ITEM 2. PROPERTIES

 

On December 1, 2017, the Company relocated its corporate headquarters from Danbury, Connecticut to New York, New York. The Company’s main office is located at 555 Madison Avenue 5th Floor Suite 506, New York, NY 10022. The Company has entered into a two-year lease at $1,010 per month for the term of the lease, which will expire on November 30, 2019, unless further extended by us and our landlord.

 

On June 11, 2019 the Company entered into a two-year lease commencing on June 11, 2019 and expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate of 1.13 on the day the lease agreement was entered into).

 

ITEM 3. LEGAL PROCEEDINGS

 

On November 9, 2017, the Company entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”) in connection with the case entitled Tauriga Sciences, Inc. v. Cowan, Gunteski & Co., P.A., et al.) before the United States District Court of the District of New Jersey, Civil Action No. 3:16-cv-06285 (the “Action”) to resolve all claims between the parties in the Action for aggregate cash consideration to the Company of $2,050,000. Also, as part of the Settlement Agreement, the defendants agreed to release any and all claims against the Company. Upon receipt of the Settlement Payment, the Company dismissed the Action with prejudice. The settlement amount was funded in its entirety by professional liability insurance for the defendants. The Company and the defendants also exchanged general releases of all claims against the other as part of the Settlement Agreement, including any potential derivative actions, and to avoid any future public comments on the Action, unless required by law.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable.

 

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PART II

 

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.

 

Market for Common Equity

 

Market Information

 

The Company’s common stock is traded on the OTC Bulletin Board under the symbol “TAUG” As of June 26, 2019, the Company’s common stock was held by 1,272 shareholders of record which does not include shareholders whose shares are held in street or nominee name.

 

The following chart is indicative of the fluctuations in the stock prices:

 

    For the Years Ended March 31,  
    2019     2018  
    High     Low     High     Low  
                         
First Quarter   $ 0.0600     $ 0.0300     $ 0.1800     $ 0.0600  
Second Quarter   $ 0.0375     $ 0.0160     $ 0.0450     $ 0.0975  
Third Quarter   $ 0.0279     $ 0.0150     $ 0.0375     $ 0.0825  
Fourth Quarter   $ 0.2350     $ 0.0247     $ 0.0825     $ 0.0450  

 

April 1, 2019 to current the stock has a closing trading range of $0.0645 to $0.215

 

The Company’s transfer agent is ClearTrust, LLC located at 16540 Pointe Village Drive, Suite 206, Lutz, Florida 33558 with a telephone number of (813) 235-4490.

 

Dividend Distributions

 

We have not historically and do not intend to distribute dividends to stockholders in the foreseeable future.

 

Securities authorized for issuance under equity compensation plans

 

The Company does not have any equity compensation plans.

 

Penny Stock

 

Our common stock is considered “penny stock” under the rules of the Securities Exchange Act of 1934. The SEC has adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:

 

  contains a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
     
  contains a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the customer with respect to a violation to such duties or other requirements of Securities’ laws; contains a brief, clear, narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread between the bid and ask price;
     
  contains a toll-free telephone number for inquiries on disciplinary actions;
     
  defines significant terms in the disclosure document or in the conduct of trading in penny stocks; and
     
  contains such other information and is in such form, including language, type, size and format, as the Securities and Commission may require by rule or regulation.

 

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The broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:

 

  bid and offer quotations for the penny stock;
     
  the compensation of the broker-dealer and its salesperson in the transaction;
     
  the number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity of the marker for such stock; and
     
  monthly account statements showing the market value of each penny stock held in the customer’s account.

 

In addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules; the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions involving penny stocks, and a signed and dated copy of a written suitably statement.

 

These disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.

 

Related Stockholder Matters

 

Based upon and following approval of the Company’s stockholders on June 28, 2017, on March 12, 2018, the Company held a meeting of its board of directors, which voted on and approved an amendment to the Company’s Articles of Incorporation to decrease the number of authorized shares of the Company’s common stock, $0.00001 par value per share from 7,500,000,000 to 100,000,000 shares and to affect a reverse stock split of the Company’s Common Stock at a ratio of 1-for-75 (the “Reverse Stock Split”). On June 8, 2018, the Company filed an Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of the State of Florida, for the aforementioned decrease in the number of authorized shares and to affect a 1-for-75 reverse stock split of the Company’s common stock. The Reverse Stock Split became effective at 12:01 a.m. on July 9, 2018. As a result of the Reverse Stock Split, each seventy-five (75) shares of the Company’s issued and outstanding common stock had been automatically combined and converted into one (1) issued and outstanding share of common stock. The Reverse Stock Split affected all issued and outstanding shares of common stock, as well as common stock underlying stock options, warrants and other convertible securities outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Reverse Stock Split reduced the number of outstanding shares of the common stock outstanding from 4,078,179,672 shares to 54,380,230 shares immediately following the Reverse Stock Split. No fractional shares were issued as a result of the Reverse Stock Split, and any such stockholders whose number of post-split shares would have resulted in a fractional number had his/her/its shares rounded up to the next number of shares.

 

See also Risk Factor relating to potential future amendments to our Articles of Incorporation.

 

Purchase of Equity Securities

 

On November 15, 2017, the board of directors approved the authorization for Seth Shaw, Chief Executive Officer, to repurchase Company stock on the open market or directly from investors up to a market value of $150,000. As of this report date no shares have been repurchased.

 

Unregistered sales of equity securities and use of proceeds

 

Common Stock

 

During the year ended March 31, 2018, the Company issued 20,160,661 shares of common stock to holders of convertible notes to retire $601,749 in principal and $85,055 of accrued interest (at $0.016875 to $0.09 per share) under the convertible notes.

 

During the year ended March 31, 2018, the Company issued 1,885,715 shares of common stock to a private investor for an aggregate value of $177,500 (at $0.0975 per share).

 

During the year ended March 31, 2018, the Company issued 3,066,668 shares of common stock to Seth Shaw, the Company’s Chief Executive Officer, for an aggregate value of $287,500 ($0.09375 per share).

 

During the year ended March 31, 2018, the Company issued 1,926,667 shares of common stock for services rendered and to be rendered which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant date fair value amortized over the life of the contracts.

 

During the year ended March 31, 2018, the Company issued 1,133,334 shares of common stock as commitment fees to noteholders at an aggregate value of $86,600 ($0.075 per share).

 

During the year ended March 31, 2018, the Company issued 1,553,334 shares of common stock for debt and legal settlements at an aggregate value of $75,050 ($0.045 per share).

 

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During the year ended March 31, 2018, the Company issued 868,000 shares of common stock to former officers and directors for amounts previously accrued at an aggregate value of $173,999 ($0.2025 per share).

 

During the year ended March 31, 2019 the Company issued 3,130,000 shares of its restricted common stock to consultants under three separate consulting agreements.

 

During the year ended March 31, 2019, the Company issued 5,946,516 shares of restricted common stock to noteholders for the conversion of debt and accrued interest having a value of $200,718 (at an average conversion price of $0.03375 per share).

 

During the year ended March 31, 2019, the Company issued 5,686,667 shares of common stock ($0.02 to $0.06 per share) for aggregate proceeds of $301,200. The proceeds were used to fund ongoing operations.

 

During the year ended March 31, 2019, the Company issued 500,000 commitment shares for debt financing ($0.042 per share) valued at $21,000.

 

During the year ended March 31, 2019, the Company issued 95,667 shares of common stock for the settlement of debt $20,004.

 

On January 12, 2019, the Company and Open Therapeutics agreed to extinguish the $75,000 contingent liability in exchange for a one-time issuance of 500,000 restricted shares of Company’s common stock. The shares were recorded at a value of $24,750 ($0.0495 per share) as a loss on settlement in the Company’s consolidated financial statements.

 

Convertible Debt

 

During the year ended March 31, 2018, the Company entered into thirteen convertible notes with three different unrelated private Company’s. These notes had a cumulative face value of $619,450 with proceeds of $567,700. The notes had $31,300 of legal fees deducted and OID of $20,450. These notes carried an interest rates of 8% to 12%. These funds were used for operations.

 

During the year ended March 31, 2019, the Company entered into five convertible notes with three different unrelated private Company’s. These notes had a cumulative face value of $685,000 with proceeds of $580,750. The notes had $4,500 of legal fees deducted and OID of $39,750. These notes carried an interest rate of 8%. These funds were used for operations and the launch of Tauri-Gum TM .

 

See also the Subsequent Events in Part II of this annual report for issuances of unregistered securities after March 31, 2019, which disclosure is incorporated by reference into this Item 5.

 

ITEM 6. SELECTED FINANCIAL DATA.

 

As the Company is a “smaller reporting company,” this item is inapplicable.

 

ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.

 

This annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Forward looking statements are often identified by words such as “will”, “may”, “projects”, “anticipate,” “expects,” “intends,” “plans,” “believes,” “seeks” and “estimates” and variations of these words and similar expressions or import are intended to identify forward-looking statements but are not intended to constitute the exclusive means of identifying such statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, including those described in “Risk Factors” contained below in this annual report, some of which are beyond our control and difficult to predict and could cause actual results, performance or achievements, or industry results to differ materially from any future results, performance or achievements, expressed or implied, by such forward-looking statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Tauriga Sciences, Inc. Such discussion represents only the best present assessment from our Management.

 

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COMPARISON OF THE YEAR ENDED MARCH 31, 2019 TO THE YEAR ENDED MARCH 31, 2018

 

Results of Discontinued Operations

 

Revenue

 

For the year ended March 31, 2019, the Company had no revenue or gross profit from discontinued operations compared to revenue of $1,188 and gross profit of $473 for the prior fiscal year. The revenue was generated from our joint venture with Ice + Jam selling a proprietary cupuaçu butter lip balm, sold under the trademark HERMAN®.

 

Cost of goods sold

 

The Company had no cost of goods sold from discontinued operations for the year ended March 31, 2019 compared to $19,934 during the prior fiscal year. The cost of goods sold includes a write off of inventory in the amount of $19,219 as a result of a defective twisting mechanism of the HERMAN ® lip balm product. Cost of goods sold, for the year ended March 31, 2019 also included shipping expense of $106 and product cost of $609.

 

Total Expenses

 

For the year ended March 31, 2019, the Company had total expense from discontinued operations of $2,196 compared to total expense of $58,567 during the prior fiscal year. The total expenses for the year ended March 31, 2018 included $40,478 of consulting fees, $16,716 of marketing expense and $1,372 of research and development.

 

Net loss

 

For the year ended March 31, 2019, the Company has a net loss of $2,196 from discontinued operations, compared to a loss of $77,313 for the prior fiscal year.

 

Results of Operations

 

Revenue

 

For the year ended March 31, 2019, the Company began to realize sales of Tauri-Gum TM with recognized gross revenue of $57,134. The Company’s sales came from online, distributors and wholesale clients. For the purposes of sales by sales channel segmentation, distributor sales include sales to customers that were not distributors as of March 31, 2019, however, distributors subsequently entered into distribution agreements with the Company (as described in the Business Overview and Subsequent Events sections of this annual report).

 

Sales of Tauri-Gum TM by sales channel for the years ended March 31,

 

    2019     2018  
Distributor   $ 54,000     $ -  
Online   $ 794       -  
Wholesale   $ 2,340               -  
    $ 57,134     $ -  

 

For the year ended March 31, 2018, we generated no revenue from continuing operations. The revenue that was generated from our joint venture with Ice + Jam selling HERMAN® lip balm is reflected in the loss from discontinued operations.

 

Cost of Goods Sold:

 

For the year ended March 31, 2019, the Company had cost of goods sold in the amount of $37,128 as a result of sales of Tauri-Gum TM to online customers, distributors and wholesale clients. For the purposes of cost of goods sold segmentation distributor cost of goods sold includes sales to customers that were not distributors as of March 31, 2019, however subsequently entered into distribution agreements with the Company.

 

Cost of Goods Sold by sales channel for Tauri-Gum TM for the years ended March 31,

 

    2019     2018  
Distributor   $ 36,000     $ -  
Online   $ 348       -  
Wholesale   $ 780       -  
    $ 37,128     $ -  

 

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Operating Expenses:

 

Marketing and advertising expense

 

For the year ended March 31, 2019, marketing and advertising expense from continuing operations was $4,200 due to the Company’s inventory allocation of samples for the new product launch of Tauri-Gum TM . For the year ended March 31, 2018, there was no marketing and advertising expense from continuing operations. Marketing and Advertising expense relative to the launch of the Company’s joint venture with ICE + JAM in the marketing of HERMAN® were reflected in loss of discontinued operations.

 

Research and development

 

For the year ended March 31, 2019, research and development expense was $13,924 compared to $10,068 for the same period in the prior fiscal year. The current year increased expense was due to the Tauri-Gum TM increased spending in trademark fees and manufacturing setup costs.

 

General and Administrative Expense

 

For the year ended March 31, 2019, general and administrative expenses were $1,083,980 compared to $1,884,493 for the same period in prior fiscal year. This decrease of $800,513 was primarily attributable to larger legal fees associated the litigation with Cowan, Gunteski & Co., P.A., et al. in the prior fiscal year in the amount of $317,882 as well as $401,530 less stock-based compensation in the current year.

 

Depreciation and amortization

 

For the year ended March 31, 2019, depreciation and amortization expense was $964 compared to $796 during the prior fiscal year. Depreciation expense increase of $168 was due to additional depreciation expense on computer equipment.

 

Net Income (Loss)

 

The Company generated a net loss from continuing operations of $1,095,243 for the year ended March 31, 2019 compared to net income of $2,512 during the prior fiscal year. This difference was due to the gain on legal settlement in the prior fiscal year of $2,053,350. This was offset by realized and unrealized gains on the sale of trading securities in the amount $323,172 for the year ended March 31, 2019 compared to realized and unrealized losses on the sale of trading securities in the amount of $433,634 for the year ended March 31, 2018.

 

Liquidity and Capital Resources

 

At March 31, 2019, we had cash of $385,943 and $350,400 of trading securities compared to the prior fiscal year of $12,291 of cash and $610,699 of marketable securities. We have historically met our cash needs through a combination of proceeds from private placements of our securities, loans and convertible notes. Our cash requirements are generally for selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.

 

For operating activities, we used cash of $328,585 for the year ended March 31, 2019 compared to $542,314 during the prior fiscal year. The principal elements of cash flow from operations for the year ended March 31, 2019 were $296,705 common stock issued and issuable for services (including stock based compensation), $583,471 of gross proceeds from the sale of trading securities offset by $223,349 of unrealized gain on trading securities. During the year ended March 31, 2018, principal elements of cash flow from operations were realized and unrealized losses of $243,185 and $190,449, respectively, as well as stock-based compensation expense of $698,236 offset by a net loss of $74,801, a gain on settlement of $707,078 and a reduction in accounts payable in the amount of $206,117.

 

Cash used in investing activities during the year ended March 31, 2019 was $68,713 compared to cash provided of $5,787 from investing activities in the prior fiscal year. In the fiscal year ended March 31, 2019, the Company invested $72,500 in private companies, purchased property and equipment in the amount of $12,390 offset by proceeds from the sale of digital currency in the amount of $16,177. In the fiscal year ended March 31, 2018, the Company contributed $36,478 into Ice+Jam offset by a purchase of digital currency in the amount of $34,397. The Company also received $6,815 from the sale of securities and purchased property and equipment of $3,109.

 

Cash provided by financing activities was $770,950 for the year ended March 31, 2019 compared to $548,800 during the prior fiscal year. During the year ended March 31, 2019 the Company received $580,750 in proceeds from notes payable and $331,200 proceeds from the sale of common stock. The Company used $141,000 to repay principal on notes payable. During the year ended March 31, 2018 the Company received $567,700 in proceeds from notes payable and $299,600 proceeds from the sale of common stock. The Company used $318,500 to repay principal on notes payable.

 

As of March 31, 2019, current assets exceeded our current liabilities by $490,436 compared to $367,760 at March 31, 2018. The increase was primarily attributable to the net increase in cash provided by financing activities year over year of $222,150 as well as net cash provided from the sales of marketable securities (net of purchases) in the amount of $583,471 in the year ended March 31, 2019. Prepaid expenses also increased by $86,800. Current liabilities remained steady year over year. At March 31, 2019, current liabilities were $457,380 compared to $318,587 at March 31, 2018.

 

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Going Concern

 

During the fourth quarter of the year ended March 31, 2019, the Company began sales and marketing efforts for its Mint flavored Tauri-Gum TM product. During the three months ended March 31, 2019, the Company recognized sales of $57,134 and recognized a gross profit of $20,006. During the first quarter of fiscal year 2020, the Company has entered into multiple distribution agreements and has engaged an independent contractor to act as Vice President of Distribution and Marketing. As of May 31, 2019, the Company has placed its product in at least 287 retail locations in the greater NYC Metro area. Although the Company’s working capital surplus of $367,760 at March 31, 2018 increased to $490,436 at March 31, 2019, the Company still believes that there is uncertainty with respect to continuing as a going concern.

 

During the year ended March 31, 2019, the Company discontinued its joint venture product HERMAN ® after nominal sales and prolonged issues with the product manufacture. As a result, the entire inventory balance has been written off.

 

The Company, in the short term, intends to continue funding its operations either through cash-on-hand or through financing alternatives. Management’s plans with respect to this include raising capital through equity markets to fund future operations, as well as the possible sale of its remaining marketable securities (which had a market value of $350,400 at March 31, 2019). In the event the Company cannot raise additional capital to fund and/or expand operations or fails to raise adequate capital and generate adequate sales revenues, it could result in the Company having to curtail or cease operations. Currently, the Company has a limited amount of shares of common stock available to issue under its articles of incorporation and may initiate the process of increasing the authorized stock. See Risk Factor related to amending our article of incorporation.

 

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues in the short term, 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 to achieve profitability thereby eliminating its reliance on alternative sources of funding. Although management believes that the Company is in a stronger position than it has been in in several years, there is still no guarantee the that profitable operations with sufficient cashflow to sustain operations can or will be achieved without the need of alternative financing, which is limited. These matters still raise significant doubt about the Company’s ability to continue as a going concern as determined by management. As a result of certain investments made from the proceeds received from the previously disclosed Cowan Gunteski litigation, the Company was able to recognize other income of $99,823, that partially offset our operating losses, resulting in a net loss in the amount of $1,097,439 for the year ended March 31, 2019 compared to a net loss of $74,801 during the prior fiscal year. The Company has, however, needed to take on more debt leading up to the launch of Tauri-Gum TM . The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve months. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern as determined by management. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Contractual Obligations

 

On December 1, 2017, the Company relocated its corporate headquarters from Danbury, Connecticut to New York, New York. The Company has entered into a two-year lease for its New York City location at $1,010 per month for the term of the lease.

 

On June 11, 2019, the Company entered into a two-year lease, expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate of 1.13 on the day the lease agreement was entered into).

 

Per Os Bio has contracted with the Company as the sole manufacturer of its Tauri-GumTM and are under contract to produce our product when ordered at approximately $6 per blister pack. Per OS is also required to have each batch independently tested to ensure that each piece of chewing gum must contain 10 milligrams (“mg”) of CBD Isolate, has 0% THC Content and is clear for all microbiology.

 

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Off-Balance Sheet Arrangements

 

As of March 31, 2019, the Company had one off-balance sheet arrangement as defined in Item 303(a)(4) of Regulation S-K.

 

On December 20, 2018, the Company entered into security purchase agreement with Adar Alef, LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $110,000. The first 8% note for $55,000 was funded with net proceeds of $47,500, after the deduction of $5,000 for OID and $2,500 in legal fees. The second 8% note (the “Back-End Note”) is initially paid for by an offsetting promissory note issued by Adar Alef, LLC to the Company (the “Note Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note Receivable is due December 20, 2019, unless certain conditions are not met, in which case both the Back-End Note and the Note Receivable may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance upon which any outstanding principal and interest is due and payable. The face value amount plus accrued interest under both the First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price for each share of common stock equal to 60% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 50% instead of 60% while that “chill” is in effect. Upon an event of default, principal and accrued interest will become immediately due and payable under the notes. Additionally, upon an event of default, both notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further, certain events of default may trigger penalty and liquidated damage provisions. This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note. During the first six months this Note is in effect, the Company may redeem this Note by paying to the Holder an amount equal to 140% of the face amount plus any accrued interest. This Note may not be prepaid after the six-month anniversary of the Issuance Date. The back-end note may not be repaid. The note holder may redeem this note at any time after the first six months.

 

Recent Accounting Pronouncements

 

In June 2018, the FASB issued ASU No. 2018-07, “Compensation—Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting” which addresses accounting for issuance of all share-based payments on the same accounting model. Previously, accounting for share-based payments to employees was covered by ASC Topic 718 while accounting for such payments to non-employees was covered by ASC Subtopic 505-50. As it considered recently issued updates to ASC 718, the FASB, as part of its simplification initiatives, decided to replace ASC Subtopic 505-50 with Topic 718 as the guidance for non-employee share-based awards. Under this new guidance, both sets of awards, for employees and non-employees, will essentially follow the same model, with small variations related to determining the term assumption when valuing a non-employee award as well as a different expense attribution model for non-employee awards as opposed to employee awards. The ASU is effective for public business entities beginning in 2019 calendar years and one year later for non-public business entities. The Company does not believe there is a material impact on their consolidated financial position and results of operations as a result of this standard.

 

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. The Company has adopted this standard as of April 1, 2019 and does not believe there will be a material impact on the adoption of this guidance on their 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.

 

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Critical Accounting Policies

 

Non-controlling Interests

 

On December 23, 2016, the Company entered into a non-exclusive, one-year license agreement (subsequently extended by an additional two-years) with Ice + Jam LLC. Under terms of the License Agreement, the Company marketed Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan®. To effectuate this arrangement, the Company and Ice + Jam formed a new company. Through this new company the two parties were to evenly share on a 50/50 basis any profits generated through the Company’s marketing, sales and distribution efforts.

 

Revenue Recognition

 

In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The Company adopted the updated guidance effective October 1, 2017 as the Company commenced sales of HerMan® using the full retrospective method. The new standard did not have a material impact on its financial position and results of operations, as it did not change the manner or timing of recognizing revenue.

 

Under ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows.

 

On March 29, 2018 the Company, through Tauriga BDC, entered into an independent sales representative agreement with Blink to be a non-exclusive independent sales representative. Under the agreement with Blink, the Company may solicit orders from potential customers for EV charging station placement. This sales agreement is a three-tier model based on whether Tauriga BDC contracts the new customer to purchase equipment outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga BDC effectuates a sale of Blink equipment it will receive a one-time sales commission based on the sales price of the equipment sale. In the case where Tauriga BDC secures a revenue sharing agreement with a customer where Blink remains the owner, Tauriga BDC will be paid an on-going commission based off of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement are subject to minimum revenue generation hurdles.

 

On June 29, 2018, the Company purchased four Blink Level 2 - 40” pedestal chargers for permanent placement in a retail location or locations whereby the Company will pay a variable annual fee based on 7% of total revenue per charging unit. The remainder of the proceeds will be split 80/20 between the Company and the host location owner or its assignee. The host location owner to will pay for the cost of providing power to these unit as well as installation costs.

 

As of March 31, 2019, the Tauriga BDC has not installed any of these machines in any locations, and no revenue has been generated through the Blink contract.

 

The Company recognizes revenue upon the satisfaction of the performance obligation. The Company considers the performance obligation met upon shipment of the product or delivery of the product. For ecommerce orders, the Company’s products are shipped by a fulfillment company and payment is made in advance of shipment either through credit card or PayPal. The Company also delivers the product to its customers that they market to in the metropolitan New York Tri-State area that are not covered under any existing distribution agreements. The Company generally collects payment within 30 to 60 days of completion of its performance obligation, and the Company has no agency relationships.

 

Investment in Trading Securities

 

Investment in trading securities consist of investments in shares of common stock of companies traded on public markets as well as publicly traded warrants of these companies should there be a market for them. These securities are carried on the Company’s balance sheet at fair value based on the closing price of the shares owned on the last trading day before the balance sheet date of this report. Fluctuations in the underlying bid price of the stocks result in unrealized gains or losses. The Company recognizes these fluctuations in value as other income or loss.

 

For investments sold, the Company recognizes the gains and losses attributable to these investments as realized gains or losses in other income or loss.

 

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Stock-Based Compensation

 

The Company accounts for Stock-Based Compensation under ASC 718 “ Compensation-Stock Compensation ,” which addresses the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement of cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant date must be recognized.

 

The Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, “E quity-Based Payments to Non-Employees .” Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted on the grant date as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and an offset to additional paid-in capital in stockholders’ equity over the applicable service periods using variable accounting through the vesting dates based on the fair value of the options or warrants at the end of each period.

 

The Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value on the grant date of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for services over the term of the related services.

 

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.

 

Fair Value Measurements

 

ASC 820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosure about fair value measurements.

 

The following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped into Levels 1 to 3 based on the degree to which fair value is observable:

 

Level 1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);

 

Level 2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and

 

Level 3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not based on observable market data (unobservable inputs).

 

Financial instruments classified as Level 1 - quoted prices in active markets include cash.

 

These consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates. In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in economic conditions may also dramatically affect the estimated fair values

 

Fair value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for the respective periods. 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, investments, short-term notes payable, accounts payable and accrued expenses.

 

30
 

 

Derivative Financial Instruments

 

Derivatives are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible debentures are embedded derivatives and are separately valued and accounted for on the consolidated Balance Sheets with changes in fair value recognized during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s judgment and may impact net income (loss).

 

With the issuance of the July 2017 FASB ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic 480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under the amendments included in this update, the Company is no longer required to record changes in fair value during the period of change as a separate component of other income (expense) in the consolidated Statements of Operations.

 

The amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded features) with down round features. When determining whether certain financial instruments should be classified as liabilities or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments. As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “ Debt—Debt with Conversion and Other Options ”), including related EPS guidance (in Topic 260). The amendments in Part II of this Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification, to a scope exception. Those amendments do not have an accounting effect.

 

Under current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “ Derivatives and Hedging ,” to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature) is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity must measure at fair value initially and at each subsequent reporting date.

 

The amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “ Derivatives and Hedging—Contracts in Entity’s Own Equity ,” which is considered in determining whether an equity-linked financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion options with down round features are no longer bifurcated.

 

For entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.

 

Those amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring it at fair value each reporting period.

 

The amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception. This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the guidance in Topic 480.

 

31
 

 

For public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the following ways:

 

  1. retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that links to this paragraph is effective; or
     
  2. retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.

 

The amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting effect.

 

Share settled debt

 

The general measurement guidance in ASC 480 requires obligations that can be settled in shares with a fixed monetary value at settlement to be carried at fair value unless other accounting guidance specifies another measurement attribute. The Company has determined that ASC 835-30 is the appropriate accounting guidance for the share-settled debt, which is what was done by setting up the debt discount which is to be amortized to interest expense over the term of the instrument. Amortization of discounts are to be amortized using the effective interest method over the term of the note.

 

ASC 480-10-25-14 requires liability accounting for (1) any financial instrument that embodies and unconditional obligation to transfer a variable number of shares or (2) a financial instrument other than an outstanding share that embodies a conditional obligation to transfer a variable number of shares, provided that the monetary value of the obligation is based solely or predominantly on any of the following: 1. A fixed monetary amount known at inception (e.g. stock settled debt); 2. Variations in something other than the fair value of the issuer’s equity shares (e.g. a preferred share that will be settled in a variable number of common shares with tits monetary value tied to a commodity price); and 3. Variations in the fair value of the issuer’s equity shares, but the monetary value to the counterparty moves inversely to the value of the issuer’s shares (e.g. net share settled written put options, net share settled forward purchase contracts).

 

Notwithstanding the fact that the above instruments can be settled in shares, FASB concluded that equity classification is not appropriate because instruments with those characteristics do not expose the counterparty to risks and rewards similar to those of an owner and, therefore do not create a shareholder relationship. The issuer is instead using its shares as the currency to settle its obligation.

 

The Company has multiple notes that contain discount provisions whereby the holder can exercise conversion rights at a discount to the market price for a 15-day trailing period based on the market volume average weighted price. ASC 470-20 defines this as a beneficial conversion feature which that shall be recognized separately at issuance by allocating a portion of the proceeds equal to the intrinsic value, not to exceed the face value of the note, to additional paid in capital. This segmented value, is to be amortized using the effective interest method over the term of the note.

 

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

As the Company is a “smaller reporting company,” this item is inapplicable.

 

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.

 

Report of Independent Registered Public Accounting Firm F-1
Consolidated Balance Sheets F-2
Consolidated Statements of Operations and Comprehensive Loss F-3
Consolidated Statements of Cash Flows F-4
Consolidated Statements of Stockholders’ Equity (Deficit) F-5
Notes to Consolidated Financial Statements F-6

 

32
 

 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

 

To the Board of Directors and Stockholders

of Tauriga Sciences, Inc. and Subsidiaries

 

Opinion on the Financial Statements

 

We have audited the accompanying consolidated balance sheets of Tauriga Sciences, Inc. and Subsidiaries (the “Company”) as of March 31, 2019 and 2018, the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Company as of March 31, 2019 and 2018, and the results of its consolidated operations and its cash flows for the years then ended in conformity with accounting principles generally accepted in the United States of America.

 

Basis for Opinion

 

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

 

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.

 

Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

 

Going Concern Consideration

 

The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the consolidated financial statements, the Company has sustained significant operating losses and needs to obtain additional financing to continue the services they provide. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

/s/ KBL, LLP

 

We have served as the Company’s auditor since 2015.

 

KBL, LLP

New York, NY

June 27, 2019

 

F- 1
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED BALANCE SHEETS

(IN US$)

 

    March 31, 2019     March 31, 2018  
ASSETS                
Current assets:                
Cash   $ 385,943     $ 12,291  
Assets from discontinued operations     581       581  
Investment - trading securities     350,400       610,699  
Investment - digital currency     -       22,056  
Investment - other     72,500       -  
Inventory asset     10,872       -  
Prepaid expenses and other current assets     127,520       40,720  
Total current assets     947,816       686,347  
                 
Property and equipment, net     13,010       2,491  
                 
Total assets   $ 960,826     $ 688,838  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current liabilities:                
Notes payable to individuals and companies, net of discounts   $ 213,875     $ 254,847  
Accounts payable     34,703       24,343  
Accrued interest     30,780       33,875  
Liabilities from discontinued operations     5,522       5,522  
Liability for common stock to be issued     172,500       -  
Total current liabilities     457,380       318,587  
                 
Other liabilities:                
Contingent liability     -       75,000  
Total liabilities     457,380       393,587  
                 
Stockholders’ equity (deficit):                
Common stock, par value $0.00001; 100,000,000 shares authorized, 68,123,326 and 52,264,476 issued and outstanding at March 31, 2019 and March 31, 2018, respectively     681       523  
Additional paid-in capital     55,991,704       54,680,382  
Accumulated deficit     (55,488,939 )     (54,391,500 )
Accumulated other comprehensive income     -       8,042  
Total stockholders’ equity (deficit) - Tauriga Sciences, Inc.     503,446       297,447  
                 
Noncontrolling interest in subsidiary     -       (2,196 )
                 
Total stockholders’ equity (deficit)     503,446       295,251  
                 
Total liabilities and stockholders’ equity (deficit)   $ 960,826     $ 688,838  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F- 2
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENTS OF OPERATIONS

(IN US$)

 

    For the Years ended
March 31,
 
    2019     2018  
             
Revenues   $ 57,134     $ -  
Cost of goods sold     37,128       -  
                 
Gross profit     20,006       -  
                 
Operating expenses                
Marketing and advertising     4,200       -  
Research and development     13,924       10,068  
General and administrative     1,083,980       1,884,493  
Depreciation and amortization expense     964       796  
Total operating expenses     1,103,068       1,895,357  
                 
Loss from operations     (1,083,062 )     (1,895,357 )
                 
Other income (expense)                
Interest expense     (280,587 )     (291,610 )
Loss on extinguishment of debt     -       (271,280 )
Gain on derivative liability     -       271,280  
Unrealized gain (loss) on trading securities     223,349       (190,449 )
Loss on conversion of debt     (27,975 )     -  
Gain on the settlement of debt     -       582,887  
Loss on asset disposal     (907 )     (783 )
Legal settlement expense     (20,004 )     -  
Realized loss on digital currency     -       (2,859 )
Unrealized loss on digital currency     (3,143 )     (9,482 )
Gain (loss) on sale of trading securities     99,823       (243,185 )
Loss on sale of commodities     (2,737 )     -  
Gain on legal settlement     -       2,053,350  
Total other income (expense)     (12,181 )     1,897,869  
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND LOSS FROM DISCONTINUED OPERATIONS     (1,095,243 )     2,512  
                 
LOSS FROM DISCONTINUED OPERATIONS     (2,196 )     (77,313 )
                 
Net loss     (1,097,439 )     (74,801 )
                 
Net loss attributable to non-controlling interest     -       (38,674 )
Net loss attributable to controlling interest     (1,097,439 )     (36,127 )
                 
Deemed dividend     -       (271,280 )
                 
Net loss attributable to common shareholders   $ (1,097,439 )   $ (307,407 )
Loss per share - basic and diluted - Continuing operations   $ (0.02 )   $ (0.007 )
Loss per share - basic and diluted - Discontinuing operations   $ -     $ (0.002 )
Weighted average number of shares outstanding - basic     55,767,119       33,078,636  
                 
Loss per share - fully diluted   $ (0.02 )   $ (0.009 )
Weighted average number of shares outstanding - fully diluted     55,767,119       33,078,636  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F- 3
 

 

TAURIGA SCIENCES, INC. AND SUBSDIARY

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US$)

 

    For the Years ended  
    March 31,  
    2019     2018  
             
Cash flows from operating activities                
Net loss attributable to controlling interest   $ (1,097,439 )   $ (36,127 )
Adjustments to reconcile net loss to cash used in operating activities:                
Non-controlling interest     2,196       (38,674 )
Amortization of original issue discount     13,543       26,932  
Loss on sale of commodities     2,737       -  
Unrealized loss on digital currency     3,142       9,482  
Realized loss on digital currency     -       2,859  
Depreciation and amortization     964       796  
Non-cash interest     163,500       93,405  
( Gain) loss on settlement     20,004       (707,078 )
Amortization of debt discount     58,571       12,503  
Common stock issued and issuable for services (including stock-based compensation)     296,705       698,236  
Legal fees deducted from proceeds of notes payable     4,500       31,300  
Change in derivative liability     -       (271,280 )
Loss on extinguishment of debt     27,975       271,280  
Loss on disposal of fixed assets     907       783  
(Gain) loss on sale of trading securities     (99,823 )     243,185  
Unrealized (gain) loss on trading securities     (223,349 )     190,449  
(Increase) decrease in assets                
Prepaid expenses     (86,800 )     (38,530 )
Inventory     (10,872 )     -  
Proceeds (purchase) of trading securities, net     583,471       (801,148 )
Due from Ice + Jam     -       (581 )
Increase (decrease) in liabilities                
Accounts payable     10,360       (206,117 )
Accrued interest     1,123       (23,989 )
Cash used in operating activities     (328,585 )     (542,314 )
                 
Cash flows from investing activities                
Proceeds from sale of securities     -       6,815  
Contribution into Ice + Jam     -       36,478  
Proceeds (purchase) of digital currency, net     16,177       (34,397 )
Investment - other     (72,500 )     -  
Purchase of property and equipment     (12,390 )     (3,109 )
Cash provided by (used in) investing activities     (68,713 )     5,787  
                 
Cash flows from financing activities                
Repayment of principal on notes payable to individuals and companies     (141,000 )     (318,500 )
Proceeds from the sale of common stock (including to be issued)     331,200       299,600  
Proceeds from notes payable to individuals and companies     580,750       567,700  
Cash provided by financing activities     770,950       548,800  
Net increase in cash     373,652       12,273  
                 
Cash, beginning of year     12,291       18  
Cash, end of year   $ 385,943     $ 12,291  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Interest Paid   $ 43,819     $ 145,550  
Taxes Paid   $ -     $ -  
                 
NON CASH ITEMS                
Conversion of notes payable and accrued interest for common stock   $ 200,718     $ 686,804  
Original issue discount on notes payable and debentures   $ -     $ 20,450  
Shares issued for accrued expense   $ -     $ 74,050  
Deemed dividend   $ -     $ 271,280  
Reclassification of comprehensive loss to investments in trading securities   $ -     $ 248,375  
Deemed dividend   $ -     $ 271,280  
Common shares issued for share liability   $ -     $ 190,000  
Recognition of debt discount   $ 388,811     $ 15,656  
Related party forgiveness of debt classified to additional paid in capital   $ -     $ 108,760  
Reclassification of other comprehensive income to additional paid in capital   $ 8,042     $ -  

 

The accompanying notes are an integral part of the consolidated financial statements.

 

F- 4
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

For the Years Ended March 31, 2019 and 2018

 

                          Accumulated           Total  
    Number of           Additional
paid-in
    Accumulated     other
comprehensive
   

Non-

Controlling

   

stockholders’

equity

 
    shares     Amount     capital     deficit     income (loss)     Interest    

(deficit)
 
                                           
Balance at April 1, 2017     23,136,765     $ 231     $ 52,236,788     $ (54,084,093 )   $ (240,333 )   $ -     $ (2,087,407 )
                                                         
Issuance of shares via private placement at $0.0007 to $0.00125 per share     3,485,715       35       327,465       -       -       -       327,500  
Issuance of shares - stock based compensation at $0.003 to $0.01 per share     -       -       -       -       -       -       -  
Issuances of commitment shares - debt financing at $0.01 per share     1,133,334       11       86,589       -       -       -       86,600  
Shares issued for note conversion at $0.00035 to $0.0012 per share     20,160,661       202       686,602       -               -       686,804  
Issuance of cashless warrants with note payable     -       -       12,546       -       -       -       12,546  
Stock-based compensation vesting     -       -       701,347       -       -       -       701,347  
Impairment of available for sale securities     -       -       -               248,375       -       248,375  
Stock issued for services at $0.002 to $0.005     2,794,667       28       173,971       -       -       -       173,999  
Issuance for convertible notes to individuals at $0.004     -       -       -       -       -       -       -  
Issuance of shares for settlement of debt     1,553,334       16       75,034       -       -       -       75,050  
Related party forgiveness of debt                     108,760       -       -               108,760  
Deemed dividend     -       -       271,280       (271,280 )     -       -       -  
Non-controlling interest     -       -       -       -       -       36,478       36,478  
Net loss for the year ended March 31, 2018     -       -       -       (36,127 )     -       (38,674 )     (74,801 )
                                                         
Balance at March 31, 2018     52,264,476       523       54,680,382       (54,391,500 )     8,042       (2,196 )     295,251  
                                                         
Issuance of shares via private placement at $0.02 to $0.06 per share     5,686,667       56       301,144       -       -       -       301,200  
Issuances of commitment shares - debt financing at $0.042 per share     500,000       5       20,995       -       -       -       21,000  
Shares issued for note conversion at $0.0245 to $0.0452 per share     5,946,516       60       200,658       -       -       -       200,718  
Stock-based compensation vesting     -       -       296,705       -       -       -       301,205  
Stock issued for services at $0.0269 to $0.42     3,130,000       31       (31 )     -       -       -       -  
Shares issued for settlement of contingent liability     500,000       5       74,995       -       -       -       75,000  
Shares issued for settlement of debt     95,667       1       20,003       -       -       -       20,004  
Reclassification of other comprehensive income to additional paid in capital     -       -       8,042       -       (8,042 )     -       -  
Recognition of
beneficial conversion feature of convertible notes
    -       -       388,811       -       -       -       388,811  
Non-controlling interest     -       -       -       -       -       2,196       2,196  
Net loss for the year ended March 31, 2019     -       -       -       (1,097,439 )     -               (1,097,439 )
                                                         
Balance at March 31, 2019     68,123,326     $ 681     $ 55,991,704     $ (55,488,939 )   $ -     $ -     $ 503,446  

 

See accompanying notes to consolidated financial statements.

 

F- 5
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 1 – BASIS OF OPERATIONS

 

Nature of Business

 

Tauriga Sciences, Inc. (the “Company”) is a Florida corporation. Prior to December 12, 2011, the Company was involved in the business of exploiting new technologies for the production of clean energy. The Company has, over time, moved into that of a diversified life sciences technology company, with its mission to operate a revenue generating business, while continuing to evaluate potential acquisition candidates operating in the life sciences technology space.

 

TAURI-GUM TM

 

In October 2018, the Company’s management, along with its board of directors, began to explore the possibility of launching a cannabidiol (“CBD”) infused gum product line into the commercial marketplace. After several weeks of diligence, discussions with various parties and exploratory meetings, the Company made the determination to move forward with this business opportunity.

 

To begin this process, during the quarter ended December 31, 2018, the Company began discussions with a Maryland based chewing gum manufacturer - Per Os Biosciences LLC (“Per Os Bio”), which consummated in a manufacturing agreement in late December 2018 to launch and bring to market a white label line of CBD infused chewing gum under the brand name Tauri-Gum™. We have filed for trademark protection with the United States Patent and Trademark Office for our CBD infused chewing product line, including applications filed in April 2019 for TAURI-GUMMI TM and TAURI-GUMMIES TM .

 

Under the terms of the agreement, Per Os Bio has committed to produce the Tauri-Gum TM based on the following criteria:

 

  A. By composition, the CBD Gum will contain 10 mg of CBD Isolate
  B. The initial production run will be mint flavor exclusively
  C. This proprietary CBD Gum will be manufactured under U.S. Patent # 9,744,128 (“Method for manufacturing medicated chewing gum without cooling”)
  D. Each Production Batch, including the initial production run, is estimated to yield 70,000 gum tablets or 8,700 Units (each Unit contains 8 gum tablets).
  E. Integrated Quality Control Procedures: Each production batch will be tested by a 3 rd Party for CBD label content, THC content (0%), and clear for microbiology.
  F. The packaging, for retail marketplace, will consist of 8 count (gum tablet count) blister card labeled (the “Pack(s)”) with Lot # as well as Expiration Date.
  G. Outer sleeve in the Company’s artwork and graphic design(s) and label copy
  H. Shipping System: Bulk packed 266 Packs per master case (“Palletized”)

 

Under terms of the Agreement, the Company has committed to provide the following to Per Os Bio:

 

  A. Each product order will consist of exactly 8,700 Packs (unless otherwise agreed upon by both parties).
  B. ½ of initial production invoice due within 3 days of execution of Manufacturing Agreement (this has already been paid by the Company).
  C. Provide graphic design artwork, logo, and label design to Per Os Bio.
  D. Trademark has been successfully filed with U.S.P.T.O.
  E. To implement Kosher Certification Process
  F. Procure appropriate Product & Liability insurance policy
  G. Acquire legal opinion with respect to the confirmation of the legality to sell this CBD Gum – on the Federal Statute Level.

 

The Company gum formulation includes distinctive features: allergen free, gluten free, vegan, kosher (K-Star certification), and incorporates a proprietary manufacturing process. See our “Risk Factors” contained in this Annual Report, including with respect, but not limited, to Federal laws and regulations that govern CBD and cannabis.

 

The Company E-commerce website is www.taurigum.com. The Company has also secured storage space near its New York City headquarters.

 

During the first quarter of fiscal year 2020, the Company began production of Blood Orange flavor of Tauri-Gum TM . The Company plans to offer Pomegranate flavored Tauri-Gum TM in the near term, which will be in addition to their mint and blood orange flavored products.

 

On April 9, 2019, the Company announced that it is developing a special miniaturized version of Tauri-Gum TM for sale at airport retail stores. The Company envisions this Airport version consisting of a miniaturized blister pack (containing three pieces of its CBD Infused gum), with an anticipated retail price of $6.99 per unit.

 

F- 6
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Nature of Business (Continued)

 

TAURI-GUM TM (Continued)

 

The Company is also working on developing CBD Gum-Infused Lollipops and gummi products.

 

Subsequent to our fiscal year end of March 31, 2019, the Company entered into several agreements with distributors to arrange for the distribution of this product line, as described below.

 

E&M Distribution Agreement

 

On April 1, 2019, the Company entered into a comprehensive distribution agreement with E&M Ice Cream Company (“E&M”) to establish Tauri-Gum TM in the New York City Metropolitan area marketplace (the “E&M Distribution Agreement”). Under terms of this Agreement, E&M will distribute Tauri-Gum TM to hundreds of NYC based retail store locations by summer 2019, with the goal of exceeding 1,000 locations by the end of fiscal 2020. As of May 31, 2019, the Company is in at least 287 locations. The Company has supported the NYC Tauri-Gum TM commercial launch with substantial levels of both financial resources and marketing support. The Company has made the strategic decision to initially largely focus its commercialization efforts on the New York City retail marketplace due to excellent NYC distribution relationships and the Company believes that it can launch its Tauri-Gum TM brand in NYC in an efficient and cost-effective manner. Also, the Company has both received payment for and delivered the product for its previously announced $54,000 Tauri-Gum TM purchase order during March 2019. The Company has agreed to issue a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the shares will be reflected in stock-based compensation based on the grant date of April 1, 2019. The Company is awaiting issuance instructions from E&M to issue the shares.

 

South Florida Region Distribution Agreement

 

On April 8, 2019, the Company entered into a non-exclusive distribution agreement with IRM Management Corporation (“IRM”), an established medical practice management firm (the “IRM Distribution Agreement”). The purpose of the IRM Distribution Agreement is to target our Tauri-Gum™ product to the South Florida based medical market, including chiropractors, orthopedists, as well as prospective retail customers in this geographic area.

 

Under terms of this IRM Distribution Agreement, the Company will work closely with IRM to promote Tauri-Gum™. In connection with this IRM Distribution Agreement, the Company has also agreed to a one-time issuance of 450,000 shares of the Company’s restricted common stock and a cash stipend of $10,000 to IRM. As of the date of this report, only $2,000 of the $10,000 cash stipend has been paid. The value of the shares will be reflected in stock-based compensation based on the grant date of April 8, 2019.

 

North Eastern United States Distribution Agreement

 

On April 30, 2019, the Company, entered into a non-exclusive comprehensive distribution agreement with Sai Krishna LLC (“SKL”), a New Jersey based distributor, with relationships in the Northeast region of the United States and Asia, with the intention of increasing and accelerating market penetration of the Company’s Tauri-Gum TM product line in the applicable regions.

 

In connection with the SKL Agreement, the Company has agreed to issue a one-time issuance of an aggregate of 1,000,000 restricted common shares the Company’s stock, which are subject to the customary resale and transfer restrictions imposed under the rules and regulations of the Securities and Exchange Commission. The restricted equity issuance to SKL was issued in accordance with the following schedule: (i) to Mr. Mahesh Lekkala, 500,000 restricted shares the Company’s common stock within ten (10) business days of April 30, 2019; and (ii) to SKL, 500,000, which were permitted to be immediately allocated by SKL to persons within its organization and, as such, (a) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of April 30, 2019, and the additional issuance of (b) 250,000 of such shares shall be issued to Sai Krishna within ten (10) business days of August 1, 2019. Other than the payment terms for Tauri-Gum TM product purchased and distributed under the terms of the Agreement, there is no additional cash payment currently due or owing by the Company thereunder. The value of the shares will be reflected as stock-based compensation with a grant date of April 30, 2019. All but 250,000 shares are expensed on this date, with those 250,000 shares valued over the term of the one-year agreement.

 

F- 7
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Nature of Business (Continued)

 

TAURI-GUM TM (Continued)

 

On May 11, 2019, the Company entered into a sub-agreement pursuant to the SKL distribution agreement whereby Ms. Neelima Lekkala was appointed Vice President of Distribution & Marketing. This contract has a one-year term and is and may be extended based upon mutual agreement. Ms. Lekkala shall focus her efforts on the expansion of Tauri-Gum TM as well as revenue growth, acquisition of new customers, establishment of professional marketing materials & protocols, logistics improvement(s) and fulfillment services. Ms. Lekkala is deeded a non-affiliate and does not carry any type of fiduciary liability. Ms. Lekkala’s compensation includes 250,000 shares of the Company’s restricted common stock deemed fully earned and vested upon the execution of her consulting agreement. These shares were issued May 20, 2019, having a value of $18,275 based on the closing price of the Company’s stock on that day ($0.0731 per share). Additionally, Ms. Lekkala will receive a 30% commission on total gross sales through the sale of the Tauri-Gum TM product line which can be paid in either stock or cash at the election of Ms. Lekkala.

 

Food and Drug Administration

 

On May 31, 2019, the U. S. Food and Drug Administration (“FDA”) held public hearings to obtain scientific data and information about the safety, manufacturing, product quality, marketing, labeling, and sale of products containing cannabis or cannabis-derived compounds, including CBD. The hearing comes approximately five months after the Agricultural Improvement Act of 2018 (more commonly known as the Farm Bill), went into effect and removed industrial hemp from the Schedule I prohibition under the Controlled Substances Act (CSA) (industrial hemp means cannabis plants and derivatives that contain no more than 0.3 percent tetrahydrocannabinol, or THC, on a dry weight basis).

 

Though the Farm Bill removed industrial hemp from the Schedule I list, the Farm Bill preserved the regulatory authority of the FDA over cannabis and cannabis-derived compounds used in food and pharmaceutical products under the Federal Food, Drug, and Cosmetic Act (FD&C Act) and section 351 of the Public Health Service Act. The FDA has been clear that it intends to use this authority to regulate cannabis and cannabis-derived products, including CBD, in the same manner as any other food or drug ingredient. In addition to holding the hearing, the agency has requested comments by July 2, 2019 regarding any health and safety risks of CBD use, and how products containing CBD are currently produced and marketed.

 

2018 Reverse Stock Split

 

On March 12, 2018, the Company held a meeting of its board of directors. The matters voted on and approved at the meeting included an amendment to the Company’s Articles of Incorporation to decrease the number of authorized shares of the Company’s common stock, $0.00001 par value per share from 7,500,000,000 to 100,000,000 shares and to affect a reverse stock split of the Company’s Common Stock at a ratio of 1-for-75 (the “Reverse Stock Split”).

 

On June 8, 2018, the Company filed an Articles of Amendment to its Articles of Incorporation (the “Amendment”) with the Secretary of State of the State of Florida, for the aforementioned decrease in the number of authorized shares and to affect a 1-for-75 reverse stock split of the Company’s common stock. The Reverse Stock Split became effective at 12:01 a.m. on July 9, 2018.

 

The Reverse Stock Split affected all issued and outstanding shares of common stock, as well as common stock underlying stock options, warrants and other convertible securities outstanding immediately prior to the effectiveness of the Reverse Stock Split. The Reverse Stock Split has reduced the number of outstanding shares of the common stock outstanding prior to the Reverse Stock Split from 4,078,179,672 shares to 54,380,230 shares immediately following the Reverse Stock Split. No fractional shares were issued as a result of the Reverse Stock Split, and any such stockholders whose number of post-split shares would have resulted in a fractional number had his/her/its shares rounded up to the next number of shares. On July 30, 2018, the Company’s stock began trading on the OTC:QB.

 

All references set forth in this annual report to number of shares or per share data have been presented on a post reverse stock-split basis.

 

F- 8
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Nature of Business (Continued)

 

Cupuaçu Butter Lip Balm

 

On December 23, 2016, the Company entered into a non-exclusive, 12-month license agreement (the “License Agreement”) with Cleveland, Ohio based cosmetics products company Ice + Jam LLC (“Ice + Jam”) to market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan®. The two companies were to evenly share on a 50/50 basis any profits generated through the Company’s marketing, sales and distribution efforts. The Company had agreed to pay the production, marketing and start-up costs for all product it sells to retail customers or distributors. As part of the License Agreement, the Company issued 66,667 restricted common shares which had a value of $27,500, based on the closing price of the stock on the day the Company entered into the agreement ($0.4125 per share). The cost of the shares were prorated over the term of the initial license.

 

During the quarter ended December 31, 2017, the Company launched this lip balm product. On November 27, 2017, the Company announced a 2-year extension to the existing non-exclusive License Agreement, extending the life of the License Agreement through December 23, 2019, at which time, if mutually agreed upon. the companies reserve the option to extend for an additional 2 years (if exercised at that time, this License Agreement would be extended through December 23, 2021). The two companies reserve the right to request amendment of the License Agreement at any point during the effective term of the agreement. In February of 2018, the Company’s strategy with respect to the HerMan® product was negatively impacted by a series of product defects relating to the twisting mechanism of the lip balm tube. The Company was unable to rectify the manufacturing issue and decided to discontinue operations as of March 31, 2019.

 

The Company had no sales of the HerMan® product during the year ended March 31, 2019 compared to $1,188 of sale during the year ended March 31, 2018, as reflected in discontinued operations. The Company has removed the product from the website. The remaining inventory of $16,897 was written off as of the previous year ended March 31, 2018 as it determined that the units were not usable.

 

Honeywood

 

On March 10, 2014, the Company entered into a definitive agreement to acquire California-based Honeywood LLC (“Honeywood”), developer of a topical medicinal cannabis product, that, at the time, sold in numerous dispensaries across the state of California. This definitive agreement was valid for a period of 120 days and the Company advanced to Honeywood $217,000 to be applied towards the final closing requisite cash total and incurred $178,000 in legal fees as of March 31, 2014 in connection with the acquisition.

 

On September 24, 2014 (the “Unwinding Date”), the Company, Honeywood and each of Honeywood’s principals entered into a termination agreement to unwind the effects of the merger. In accordance with the termination agreement, Honeywood agreed to repay to the Company substantially all of the advances made by the Company to Honeywood prior to and after the merger by delivering to the Company, on the Unwinding Date, a secured promissory note in the principal amount of $170,000. The note bore interest at 6% per annum and was repayable in six quarterly installments on the last day of each calendar quarter starting on March 31, 2015 and ending on June 30, 2016. The note was secured by a blanket security interest in Honeywood’s assets pursuant to a security agreement entered into on the Unwinding Date between Honeywood and the Company. Honeywood never made any payments under the Note prior to the Honeywood Conversion Agreement (as defined below). As a result, the Company had fully reserved this amount and it was not reflected as a receivable on its financial statements.

 

Effective August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert the entire principal and accrued but unpaid interest due into a 5% membership interest in Honeywood (the “Honeywood Conversion Agreement”).

 

The Company made an assessment for impairment of its investment in Honeywood at the entity level. During the relationship between the Company and Honeywood, Honeywood had a working capital deficiency and had a history of operating losses. In accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-35-28, “ Investments—Debt and Equity Securities ”, a Company may not record an impairment loss on the investment but shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value of the investment) in each subsequent reporting period until either of the following occurs: a) the investment experiences a recovery of fair value up to (or beyond) its cost; or b) the entity recognizes an other-than-temporary impairment loss. At the time of the Honeywood Conversion Agreement, the receivable balance under the note of $199,119 had been fully written off by the Company in a prior period. As a result of the Honeywood Conversion Agreement, the Company deemed the investment to still have no current value. The Company recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.

 

F- 9
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Nature of Business (Continued)

 

Pilus Energy

 

On November 25, 2013, the Company executed a definitive merger 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 create electricity while consuming polluting molecules from wastewater. On January 28, 2014, the Company completed its acquisition of Pilus. As a condition of the acquisition, the shareholders of Pilus received a warrant to purchase 1,333,334 shares of common stock of the Company, which represented a fair market value of approximately $2,000,000, and, based upon whether the Warrants issued to Pilus represented at least 5% the then outstanding and fully diluted capitalization of the Company. In addition, the Company paid Open Therapeutics, LLC (f/k/a Bacterial Robotics, LLC and Microbial Robots, LLC) (“Open Therapeutics”), formerly the parent company of Pilus, $50,000 on signing the merger agreement and $50,000 at the time of closing. Pilus’ principal asset on its balance sheet at the time of the acquisition was its US patent relating to its clean water technology. 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 1,333,334 warrants the Company issued to acquire Pilus. Through March 31, 2014, the Company amortized the patent over its estimated useful life, then on March 31, 2014, the Company conducted its annual impairment test and determined that the entire unamortized balance should be impaired as the necessary funding to further develop the patent was not available at that time.

 

On December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company sold 80% of its membership interest in Pilus back to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the unexercised portion of the warrant to purchase 385,569 shares (or 308,455 warrants) of the Company’s common stock. Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous year’s earnings, if any. The first $75,000 of such payments was to be retained by Pilus Energy as additional consideration for the sale, which was reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership interest on all matters for which a member vote is required. Through March 31, 2019, there has been no activity recorded by Open Therapeutics with respect to Pilus Energy.

 

On January 12, 2019, the Company and Open Therapeutics agreed to extinguish the above described $75,000 contingent liability in exchange for a one-time issuance of 500,000 restricted shares of Company’s common stock. The shares were recorded at a value of $24,750 ($0.0495 per share) as a loss on settlement in the Company’s consolidated financial statements.

 

Tauriga Biz Dev Corp

 

On January 4, 2018, the Company announced that its Board of Directors unanimously approved the formation a wholly-owned subsidiary focused on acquiring interest(s) in patents and other intellectual property. This subsidiary, incorporated in Delaware, was named Tauriga IP Acquisition Corp. On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp. (“Tauriga BDC”).

 

On March 29, 2018 the Company, through Tauriga BDC, entered into an independent sales representative agreement with Blink Charging Co. (“Blink”) (Nasdaq: BLNK) to be a non-exclusive independent sales representative. Under the terms of this agreement with Blink, the Company is permitted to solicit orders from potential customers for electric vehicle (“EV”) charging station placement. Tauriga BDC will be compensated upon contracting for so long as the Company’s acquired prospect remains under contract. This sales agreement is a three-tier model based on whether Tauriga BDC contracts the new customer to purchase equipment outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga BDC effectuates a sale of Blink equipment it will receive a one-time sales commission based on the sales price of the equipment sale. In the case where Tauriga BDC secures a revenue sharing agreement with a customer where Blink remains the owner, Tauriga BDC will be paid an on-going commission based off of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement are subject to minimum revenue generation hurdles.

 

On June 29, 2018, the Company purchased four Blink Level 2 - 40” pedestal chargers for permanent placement in a retail location or locations whereby the Company will pay a variable annual fee based on 7% of total revenue per charging unit. The rest of the proceeds will be split 80/20 between the Company and the host location owner or its assignee. The host location owner to will pay for the cost of providing power to these unit as well as installation costs.

 

As of March 31, 2019, Tauriga BDC has not installed any of these machines in any locations and no revenue has been generated through the Blink contract.

 

F- 10
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Going Concern

 

During the fourth quarter of the year ended March 31, 2019, the Company began sales and marketing efforts for its Mint flavored Tauri-Gum TM product. During the three months ended March 31, 2019, the Company recognized sales of $57,134 and recognized a gross profit of $20,006. During the first quarter of fiscal year 2020, the Company has entered into multiple distribution agreements and has engaged an independent contractor to act as Vice President of Distribution and Marketing. As of May 31, 2019, the Company has placed its product in at least 287 retail locations in the greater NYC Metro area. Although the Company’s working capital surplus of $367,760 at March 31, 2018 increased to $490,436 at March 31, 2019, the Company still believes that there is uncertainty with respect to continuing as a going concern.

 

During the year ended March 31, 2019, the Company discontinued its joint venture product HERMAN ® after nominal sales and prolonged issues with the manufacture. As a result, the entire inventory balance has been written off.

 

The Company, in the short term, intends to continue funding its operations either through cash-on-hand or through financing alternatives. Management’s plans with respect to this include raising capital through equity markets to fund future operations as well as the sale of its remaining marketable securities which had a market value of $350,400 at March 31, 2019. In the event the Company does need to raise additional capital to fund and expand operations, failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Currently, the Company has a limited amount of shares of common stock available to issue under its certificate of incorporation and may initiate the process of increasing the authorized stock. To amend the Company’s certificate of incorporation, including any increase in the number of shares the Company is authorized to issue, will require shareholder approval. If and when the Company initiates this process, the Company will file a proxy statement with the Securities and Exchange Commission and will provide shareholders with a physical or electronic copy, as permissible. Relevant information relating to this process will be included in such proxy statement. There is no guarantee that the Company will be able to obtain this shareholder approval to effectuate such charter amendment.

 

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues in the short term 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 to achieve profitability thereby eliminating its reliance on alternative sources of funding. Though management believes that the Company is in the strongest position it has been in in several years there is still no guarantee the that profitable operations with sufficient cashflow to sustain operations can be achieved without the need of alternative financing, which is limited. These matters still raise significant doubt about the Company’s ability to continue as a going concern as determined by management. As a result of some investments made with proceeds from the Cowan lawsuit, the Company was able to recognize other income of $99,823, that partially offset their operating losses, resulting in a net loss in the amount of $1,097,439 for the year ended March 31, 2019 compared to a net loss of $74,801 during the prior year as a result of the lawsuit settlement. The Company has, however, needed to take on more debt leading up to the launch of Tauri-Gum TM . The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve months. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern as determined by management. However, the accompanying consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

Consolidated Financial Statements

 

The consolidated financial statements include the accounts and activities of Tauriga Sciences, Inc., its wholly-owned Canadian subsidiary, Tauriga Canada, Inc., its controlling interest in a joint venture with Ice + Jam LLC and its wholly-owned subsidiary Tauriga BDC. All intercompany transactions have been eliminated in consolidation. As of March 31, 2019, there is no activity in any of the Company’s subsidiaries other than Tauriga BDC holding the electric car chargers.

 

F- 11
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

FOR THE YEARS ENDED MARCH 31, 2019 AND 2018

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Non-controlling Interests

 

On December 23, 2016, the Company entered into a non-exclusive, one-year license agreement (subsequently extended by an additional two-years) with Ice + Jam LLC. Under terms of the License Agreement, the Company marketed Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan®. To effectuate this arrangement, the Company and Ice + Jam formed a new company. Through this new company the two parties were to share on a 50/50 basis any profits generated through the Company’s marketing, sales and distribution efforts. All revenue and expense from these efforts are fully consolidated in the Company’s consolidated financial statements, with the minority interest designated as noncontrolling interest to derive a net loss attributable to common shareholders. The non-controlling interest at March 31, 2019 and March 31, 2018 is $0 and $2,196, respectively. There was neither a net loss