NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
1 – BASIS OF OPERATIONS
Nature
of Business
The
Company, prior to December 12, 2011, was involved in the business of exploiting new technologies for the production of clean energy.
The Company was then moving in the direction of a diversified biotechnology company. The mission of the Company is to evaluate
potential acquisition candidates operating in the life sciences technology space.
During the quarter ended December
31, 2017, the Company launched this lip balm product (branded as
HerMan®
)
during December 2017. The Company is hopeful that this product can provide the Company with sustainable revenue at
margins that will justify the initial expense and effort. The Company believes that the initial high cost per unit
of this lip balm product was largely attributable to formulation issues that have since been addressed and resolved, packing
issues, fulfillment issues and shipping costs. The Company believes that future inventory costs, if there is sufficient demand
will be substantially lower than the first batch on a per unit basis. The Company is exercising caution and performing due diligence
to ensure that any potential opportunities in this area are appropriately evaluated.
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 firm Ice + Jam LLC (“Ice + Jam”). Under terms of the License Agreement,
the Company will market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark
HerMan®
and the two companies will 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 5,000,000 common shares which had a
value of $27,500, based on the closing price of the stock on the day the Company entered into the agreement ($0.005 per share).
The cost of the shares will be prorated over the life of the license.
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.
During
the quarter ended December 31, 2017, the Company launched this lip balm product (branded as HerMan®). The Company is hopeful
that that this product can provide the Company with sustainable revenue at margins that will justify the initial expense and effort.
The Company believes that the initial high cost per unit of this lip balm product was largely attributable to formulation issues
that have since been addressed and resolved, packing issues, fulfillment issues and shipping costs. The Company believes that
future inventory costs, if there is sufficient demand, will be substantially lower than the first batch on a per unit basis. The
Company is exercising caution and performing due diligence to ensure that any potential opportunities in this area are appropriately
evaluated.
During
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 immediately made the decision to work with the manufacturer
to permanently address and fix this defect issue (which the Company believes has affected approximately 30% of the initial product
batch. This issue significantly increases the risk associated with this business opportunity and there can be no guarantee that
this will be satisfactorily solved.
The
Company recognized sales of the
HerMan®
product in the year ended March 31,
2018 in the aggregate amount of $1,118. The Company has removed the product from the website and is working with the manufacturer
to resolve product quality issues. As a result of the quality control issues regarding the packaging, the Company has written
off the remaining inventory of $16,897 as they complete the re-design of the packaging of this product as they have determined
that the units are 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 (the “Termination Agreement”) to unwind the effects of the Merger (the “Unwinding
Transaction”). 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”). 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 $0. Thus,
no recovery of bad debt and no impairment will be recognized in this period.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
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 100,000,000 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, Pilus had been granted
an option to appoint a member to the Company’s board of directors. No board member had been appointed by Pilus to the
Company’s board. 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 cleanwater 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 100,000,000 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 28,917,647 shares (or 23,134,118 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 would be retained by Pilus Energy as additional consideration for the sale, which is
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, 2018, there has been no activity recorded by Open Therapeutics with respect
to Pilus Energy, and thus the $75,000 remains contingently owed to them.
ColluMauxil
On
November 15, 2016, the Company announced that it would form a new wholly-owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary was to be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief - “collum” and “auxilium.” The Company filed for trademarks
in respect of this business with the United States Patent and Trademark Office. The Company planned to develop, market, distribute
and potentially license a broad array of products and technologies that would help individuals affected by muscle tension. Due
to financial constraints and changing regulations, the Company decided to discontinue this business plan entirely and has allowed
all trademarks obtained in relation to ColluMauxil to expire.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
Nature
of Business (Continued)
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. The Company has committed to funding the subsidiary with up to $300,000 from its available cash.
On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp.
On
March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with Blink
Charging Company (NASDAQ: BLN K) (“BLINK”). Under this agreement the Company will be a non-exclusive independent sales
representative. The Company will act on behalf of BLINK to solicit orders from potential customers for EV (“Electric Vehicle”)
Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting and as long as the Company’s acquired prospect
remains under contract. This arrangement has the potential to earn both short term as well as long term recurring revenue by helping
BLINK expand its national electric vehicle charging infrastructure and network. This sales agreement is a three-tier model based
on whether Tauriga contracts the new customer to purchase equipment outright from Blink or enter into one of two revenue-sharing
agreements. In the case Tauriga 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 secures a revenue sharing agreement with a customer where Blink remains
the owner, Tauriga 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.
Going
Concern
In
the year ended March 31, 2018, the Company had two substantial events occur. The Company launched its joint venture product as
noted above. This resulted in operations that the Company recognized its initial sales orders from. Operations from this joint
venture are currently on hold while the Company works out quality control issues regarding the packaging of the individual units.
As a result, the entire inventory balance has been written off. In addition, the Company settled the case entitled Tauriga Sciences,
Inc. v. Cowan, Gunteski & Co., P.A., et al. that was ongoing for over one year. As a result of these two events, the Company
was able to recognize a much narrower net loss to common shareholders in the amount of $74,801, however, the Company still
incurred $1,972,670 in losses from operations compared to $1,548,629 in the years ended March 31, 2018 and 2017, respectively.
Due to the settlement of the lawsuit, the Company was able to record $2,050,000 in other income in the year ended March 31, 2018.
With the collection of proceeds from the lawsuit, the Company was able to settle long outstanding payables and pay convertible
notes payable, as well as invest in trading securities to leverage its operating business. The result of this activity was that
the Company went from having a working capital deficit of $2,013,368 at March 31, 2017 to having positive working capital of $367,760.
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. Management’s plans with respect to this include raising capital through equity markets to fund future operations
and cultivating new license agreements or acquiring ownership in technology or other operating companies or formulating relationships
such as the one with BLINK. The Company intends to continue funding its operations either through cash-on-hand or through financing
alternatives. 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.
Additionally, even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements
or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful,
there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations. 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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated
Financial Statements
The
consolidated financial statements include the accounts and activities of Tauriga Sciences, Inc. and its wholly-owned Canadian
subsidiary, Tauriga Canada, Inc. and its subsidiary Tauriga Biz Dev Corp. (formerly known as Tauriga IP Acquisition Corp.) formed
January 4, 2018. All intercompany transactions have been eliminated in consolidation. As of March 31, 2018, there has been no
activity in Tauriga Biz Dev Corp.
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 will market 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 will evenly 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 and then the minority interest is designated as
noncontrolling interest to derive at net loss attributable to common shareholders. The non-controlling interest at March 31, 2018
and 2017 was $2,196 and $0, respectively. The net loss attributable to noncontrolling interest for the years ended March
31, 2018 and 2017 was $38,674 and $0, respectively.
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®
as described in Note 1 in the three months ended December 31, 2017 using
the full retrospective method, however the new standard did not have a material impact on its consolidated financial position
and consolidated 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 Biz Dev Corp., entered into an independent sales representative agreement with BLINK.
Under this agreement the Company will be a non-exclusive independent sales representative. The Company will act on behalf of BLINK
to solicit orders from potential customers for EV Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting
and as long as the Company’s acquired prospect remains under contract. This arrangement has the potential to earn both short
term as well as long term recurring revenue by helping BLINK expand its national electric vehicle charging infrastructure and
network. This sales agreement is a three-tier model based on whether Tauriga contracts the new customer to purchase equipment
outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga 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 secures
a revenue sharing agreement with a customer where Blink remains the owner, Tauriga 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.
Commissions earned under this
contract with Tauriga Biz Dev Corp will be recorded as revenue when earned. Based on a binding agreement in place between BLINK
and the referral provided by the Company, revenue will be recorded based on equipment value purchased or placed in service as
well as the length of the contract. The Company is currently working towards its goal of generating potential revenue deriving
from this Reseller Agreement with Blink.
The
following is a summary of revenue for the years ended March 31, 2018 and 2017, disaggregated by type:
|
|
2018
|
|
|
2017
|
|
Product
Revenue
|
|
$
|
1,188
|
|
|
$
|
-
|
|
Sales
Agent Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
$
|
1,188
|
|
|
$
|
-
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign
Currency Translation
As
of the quarter ended June 30, 2012, the Company considers the U.S. dollar to be its functional currency. Prior to March 31, 2012,
the Company considered the Canadian dollar to be its functional currency. Assets and liabilities were translated into U.S. dollars
at year-end exchange rates. Statement of operations amounts were translated using the average rate during the year. Gains and
losses resulting from translating foreign currency financial statements were included in accumulated other comprehensive gain
or loss, a separate component of stockholders’ equity (deficit).
Cash
Equivalents
For
purposes of reporting cash flows, cash equivalents include investment instruments purchased with an original maturity of three
months or less. At March 31, 2018, the Company’s cash on deposit with financial institutions did not exceed the total FDIC
insurance limit of $250,000. To reduce its risk associated with the failure of such financial institution, the Company evaluates
at least annually the rating of the financial institution in which it holds deposits. The Company has opened an account with another
major financial institution and plans to mitigate its cash concentration in the future. The Company had no cash equivalents as
of March 31, 2018.
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. These shares 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 operating income or loss.
For
investments sold, the Company recognizes the gains and losses attributable to these investments as realized gains or losses in
other operating income or loss.
Inventory
Inventory
consists of finished goods in salable condition and is stated at the lower of cost or market determined by the first-in, first-out
method. The inventory consists of packaged, labeled salable inventory. Shipping of product to finished good inventory fulfillment
center is also included in the total inventory cost. Shipping of product upon sale for online sales is paid by the customer upon
ordering. For wholesale product orders shipping cost is paid by the Company. As a result of the quality control issues regarding
the packaging, the Company has written off the remaining inventory of $16,897 as they complete the re-design of the packaging
of this product as they have determined that the units are not usable.
Property
and Equipment
Property
and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life
of the assets are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible
Assets
Intangible
assets consisted of licensing fees and a patent prior to being impaired which were stated at cost. Licenses were amortized over
the life of the agreement and patents were amortized over the remaining life of the patent at the date of acquisition
Net
Income (Loss) Per Common Share
The
Company computes per share amounts in accordance with FASB ASC Topic 260 “
Earnings per Share
” (“EPS”),
which requires presentation of basic and diluted EPS. Basic EPS is computed by dividing the income (loss) available to Common
Stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average
number of shares of Common Stock and Common Stock equivalents outstanding during the periods; however, potential common shares
are excluded for period in which the Company incurs losses, as their effect is anti-dilutive. For the years ended March 31, 2018
and 2017, basic and fully diluted earnings per share were the same as the Company had a loss in each of these periods.
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 (deficit) over the applicable service periods using variable
accounting through the vesting dates based on the fair value of the options or warrants at the end of each period.
The
Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value on the
grant date of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for
services over the term of the related services.
Comprehensive
Income (Loss)
The
Company accounts for comprehensive income (loss) under ASC 220, “
Income Statement – Reporting Comprehensive Income
,”
which requires entities to report comprehensive income (loss) within a continuous statement of comprehensive income. Comprehensive
income (loss) is a more inclusive financial reporting methodology that includes disclosure of information that historically has
not been recognized in the calculation of net income (loss).
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on
the net loss or cash flows of the Company.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. The Company will perform a periodic assessment of assets for impairment in the
absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline
in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived
assets to be held and used, the Company would recognize an impairment loss only if its carrying amount is not recoverable through
its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated
fair value.
Research
and Development
The
Company expenses research and development costs as incurred. Research and development costs were $11,440 and $108,942 for the
years ended March 31, 2018 and 2017, respectively. The Company is continually evaluating products and technologies in the natural
wellness space, including its cupuaçu butter lip balm, as well as any other intellectual property related technologies.
As the Company investigates and develops relationships in these areas resultant expenses for trademark filings, license agreements,
product development and design materials will be expensed as research and development. Some costs will be accumulated for subsidiaries
prior to formation of entities.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative
Financial Instruments
Derivatives
are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible debentures are embedded
derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized
during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives
are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing
models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s
judgment and may impact net income (loss).
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative
Financial Instruments (Continued)
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.
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.
The
Company has identified that instruments previously carried as derivative liabilities were deemed to be such on the basis of embedded
features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity
offerings. In accordance with the adoption of ASU 2017-11, the Company recorded a gain on derivative liability in the amount of
$271,280 for the year ended March 31, 2018 compared to loss of $95,779 for the same period in the prior year. The Company also
recorded a corresponding loss on extinguishment of debt in the amount of $271,280 for the year ended March 31, 2018 compared to
and a loss of $95,779 for the same period in the prior year. Along with this transaction, the Company recorded a deemed dividend
to shareholders in the amount of $271,280 for the year ended March 31, 2018. Prior year amounts are restated in current presentation
to reflect gain on derivative liability, loss on extinguishment of debt and deemed dividend.
The
three instruments affected by this adoption were the June 1, 2015, 7% Convertible Redeemable Note with a principal amount
of $104,000 with a maturity date of June 1, 2016 with Union Capital, LLC which contains an anti-ratchet clause; the July
14, 2015, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal amount of $96,000 issued with an original
issue discount of $16,000 and the November 7, 2016, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal
amount of $45,000 issued with an original issue discount of $7,000. The two Group 10 Holdings, LLC notes contain a most favored
nations clause, allowing the note holder to adopt any term of future convertible redeemable notes which would be beneficial to
them. All of these instruments have been fully repaid or converted as of October 10, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income
Taxes
Income
taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in
the financial statement carrying amounts of assets and liabilities and their respective tax bases.
Future
tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset
is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is
recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are
considered more likely than not to be realized.
ASC
740 “
Income Taxes
” clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will
be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a
company must measure the tax position to determine the amount to recognize in the financial statements.
As
a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with
recognition and measurement standards established by ASC 740 and concluded that the tax position of the Company does not meet
the more-likely-than-not threshold as of March 31, 2018.
Recent
Accounting Pronouncements
In
July 2017, the FASB issued 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. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. 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. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company had chosen to early
adopt this standard as of this reporting period with retro-active restatement of comparative periods.
In
January 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-04
Intangibles – Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment.
The amendments in this update are required for public business
entities that have goodwill reported in their financial statements and have not elected the private company alternative for the
subsequent measurement of goodwill. The update is intended to simplify the annual or interim goodwill impairment test. A public
business entity that is a U.S. SEC filer should adopt the amendments in this update for its annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is assessing the impact, if
any, of implementing this guidance on its financial position and results of operations.
In January 2017, the FASB issued
ASU 2017-01
Business Combinations (Topic 805), Clarifying the Definition of a Business.
The amendments in this update are
required for public business entities that have goodwill reported in their financial statements and have not elected the private
company alternative for the subsequent measurement of goodwill. The update is intended to clarify the definition of a business
with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions,
disposals, goodwill, and consolidation. Public business entities should apply the amendments in this update to annual periods
beginning after December 15, 2017. Early application is permitted under certain conditions. The Company does not expect implementation
of this guidance to have a material impact on its financial position and results of operations.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements
(Continued)
In August 2016, the FASB issued
ASU No. 2016-15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”
.
The amendments in this update provided guidance on eight specific cash flow issues. This update is to provide specific guidance
on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement
of cash flows. ASU 2016-15 is effective for fiscal years and interim periods in those fiscal years beginning after December
31, 2017. Early adoption is permitted. The Company does not expect that implementing this guidance to have a material
impact on its financial position, results of operations and liquidity.
In
February 2016, FASB issued ASU 2016-02, “
Leases (Topic 842)
.” The new standard requires lessees to apply a
dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is
effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on
an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with
a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be
effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period
and is applied retrospectively. Early adoption is permitted. We are currently in the process of assessing the impact the adoption
of this guidance will have on the Company’s consolidated financial statements.
There
are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has
been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have
a material impact on the Company’s consolidated financial position or operating results.
Subsequent
Events
In
accordance with ASC 855 “
Subsequent Events
” the Company evaluated subsequent events after the balance sheet
date through the date of issuance.
NOTE
3– INVENTORY
As
a result of the quality control issues regarding the packaging, the Company has written off the remaining inventory of $16,897
as they complete the re-design of the packaging of this product as they have determined that the units are not usable.
The
Company has removed the product from the website and is working with the manufacturer to resolve these issues. The Company as
a result of this, has no Inventory as of March 31, 2018 and 2017, respectively.
NOTE
4– PROPERTY AND EQUIPMENT
The
Company’s property and equipment is as follows:
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
Estimated
Life
|
|
|
|
|
|
|
|
|
|
Computers,
office furniture and equipment
|
|
$
|
59,051
|
|
|
$
|
57,023
|
|
|
3-5
years
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(56,560
|
)
|
|
|
(56,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
2,491
|
|
|
|
961
|
|
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
4– PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation
expense for years ended March 31, 2018 and 2017 was $796 and $7,034, respectively. Included in depreciation expense for the year
ended March 31, 2018 was $298 which was recorded on computer equipment which was disposed of in this year. The Company recognized
a loss on disposal of $783.
NOTE
5 – COMMITMENTS
On
December 23, 2016, the Company entered into a non-exclusive, one-year, license agreement (the “License Agreement”)
with Cleveland, Ohio based cosmetics products firm Ice + Jam. Under terms of the License Agreement, the Company will market Ice
+ Jam’s proprietary cupuaçu butter lip balm sold under the trademark
HerMan®
and the two companies will share on a 50/50 basis any profits earned through the Company’s marketing, sales and distribution
efforts.
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. Based on mutual agreement, at that time, the companies reserve the option
to extend for an additional two years (if exercised at that time, this License Agreement would be extended through December 23,
2021).
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 at $1,010 per month for the term of the lease. The Company recorded rent expense of $5,794 for
the year ended March 31, 2018 compared to $0 for the same period in prior year.
Lease
obligation for Fiscal Year Ended March 31,
|
2019
|
|
|
12,120
|
|
2020
|
|
|
8,080
|
|
NOTE
6 – INTANGIBLE ASSETS
Patents:
Pilus
Energy, LLC
The
Company, through the acquisition of Pilus Energy on January 28, 2014, acquired a patent to develop cleantech energy using proprietary
microbiological solution that creates electricity while consuming polluting molecules from wastewater.
On
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 to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the
unexercised portion of 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 would be retained by Pilus Energy as additional consideration
for the sale, which is 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, 2018, there has been no activity recorded by Open
Therapeutics with respect to Pilus Energy, and thus the $75,000 remains contingently owed to them.
The
Company had fully impaired the value of the patents prior to the sale, and the warrants canceled as a result of this transaction
was valueless as there is no intrinsic value to them. The Company recorded no gain or loss. Upon Open Therapeutics achieving
profitability with respect to this technology, the Company will be the beneficiary of a profit split as noted in the agreement
and will recognize revenue from that in the future.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
7 – DERIVATIVE LIABILITIES EMBEDDED IN CONVERTIBLE NOTES
The
Company has entered into several financial instruments, which consist of notes payable, containing various conversion features.
Generally, the financial instruments are convertible into shares of the Company’s common stock at prices that are either
marked to the volume weighted average price of the Company’s intended publicly traded stock or a static price determinative
from the financial instrument agreements. These prices may be at a significant discount to market determined by the volume weighted
average price once the Company completes its reverse acquisition with the intended publicly traded company. The Company, for all
intents and purposes, considers this discount to be fair market value as would be determined in an arm’s length transaction
with a willing buyer.
The
Company accounts for the fair value of the conversion feature in accordance with ASC 815-15, “
Derivatives and Hedging;
Embedded Derivatives
,” which requires the Company to bifurcate and separately account for the conversion features as
an embedded derivative contained in the Company’s convertible debt and original issue discount notes payable. The Company
is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair
value as a component in its results of operations. The Company valued the embedded derivatives using eight steps to determine
fair value under ASC 820: (1) Identify the item to be valued and the unit of account; (2) Determine the principal or most advantageous
market and the relevant market participants; (3) Select the valuation premise to be used for asset measurements; (4) Consider
the risk assumptions applicable to liability measurements; (5) Identify available inputs; (6) Select the appropriate valuation
techniques; (7) Make the measurement; (8) Determine amounts to be recognized and information to be disclosed.
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.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
7 – DERIVATIVE LIABILITIES EMBEDDED IN CONVERTIBLE NOTES (CONTINUED)
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.
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.
The
Company has identified that instruments previously carried as derivative liabilities were deemed to be such on the basis of embedded
features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity
offerings. In accordance with the adoption of ASU 2017-11, the Company recorded a gain on derivative liability in the amount of
$271,280 for the year ended March 31, 2018 compared to a gain of $95,779 for the same period in the prior year. The Company also
recorded a corresponding loss on extinguishment of debt in the amount of $271,280 for the year ended March 31, 2018 compared to
a loss of $95,779 for the same period in the prior year. Along with this transaction, the Company recorded a deemed dividend to
shareholders in the amount of $271,280 for the year ended March 31, 2018.
The
three instruments affected by this adoption were the June 1, 2015, 7% Convertible Redeemable Note with a principal amount
of $104,000 with a maturity date of June 1, 2016 with Union Capital, LLC which contains an anti-ratchet clause; the July
14, 2015, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal amount of $96,000 issued with an original
issue discount of $16,000 and the November 7, 2016, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal
amount of $45,000 issued with an original issue discount of $7,000. The two Group 10 Holdings, LLC notes contain a most favored
nations clause, allowing the note holder to adopt any term of future convertible redeemable notes which would be beneficial to
them. All of these instruments have been fully repaid or converted as of October 10, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES
Notes
payable and convertible notes consisted of the following as of:
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
Convertible
note payable – Union Capital – (Jun 15)
|
|
(a)
|
|
$
|
-
|
|
|
$
|
121,800
|
|
Convertible
note payable - Group 10 - (Jul 15)
|
|
(b)
|
|
|
-
|
|
|
|
113,280
|
|
Convertible
note payable - Group 10 - (Aug 16)
|
|
(c)
|
|
|
-
|
|
|
|
-
|
|
Convertible
note payable - Group 10 - (Nov 16)
|
|
(d)
|
|
|
-
|
|
|
|
45,000
|
|
Convertible
note payable - Group 10 - (Mar 17)
|
|
(e)
|
|
|
-
|
|
|
|
-
|
|
Alternative
Strategy Partners PTE Ltd. – (Sep 15)
|
|
(f)
|
|
|
90,000
|
|
|
|
90,000
|
|
ADAR
Bays -Dec 2016
|
|
(g)
|
|
|
-
|
|
|
|
67,045
|
|
ADAR
Bays -Feb 2017
|
|
(h)
|
|
|
-
|
|
|
|
27,500
|
|
Eagle
Equities, LLC - Jan 2017
|
|
(i)
|
|
|
-
|
|
|
|
18,000
|
|
Eagle
Equities, LLC - Mar 2017
|
|
(j)
|
|
|
-
|
|
|
|
35,000
|
|
Eagle
Equities, LLC - Jun 2017
|
|
(k)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - Apr 2017
|
|
(l)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - May 2017
|
|
(m)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - Jun 2017
|
|
(n)
|
|
|
-
|
|
|
|
-
|
|
ADAR
Bays -August 2017
|
|
(o)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - August 2017
|
|
(p)
|
|
|
-
|
|
|
|
-
|
|
ADAR
Bays -September 2017
|
|
(q)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - Oct 2017
|
|
(r)
|
|
|
105,000
|
|
|
|
-
|
|
ADAR
Bays -October 2017
|
|
(s)
|
|
|
-
|
|
|
|
-
|
|
ADAR Bays
- February 2018
|
|
(t)
|
|
|
-
|
|
|
|
-
|
|
GS
Capital Partners LLC - March 2018
|
|
(u)
|
|
|
48,000
|
|
|
|
-
|
|
Individuals
– June 2015
|
|
(v)
|
|
|
-
|
|
|
|
20,000
|
|
Individuals
– Feb to April 2013
|
|
(w)
|
|
|
15,000
|
|
|
|
48,775
|
|
Total
notes payable and convertible notes
|
|
|
|
|
258,000
|
|
|
|
586,400
|
|
Less
- note discounts
|
|
|
|
|
(3,153
|
)
|
|
|
(6,482
|
)
|
Less
- current portion of these notes
|
|
|
|
|
(254,847
|
)
|
|
|
(579,918
|
)
|
Total
notes payable and convertible notes, net discounts
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
(a)
|
Twelve-month
$104,000 convertible note, dated June 1, 2015 bearing interest at the rate of 7% per annum, and having a default rate
of 24%. The note matured in June 2016. The Company granted the noteholder 12,500,000 shares of Company common stock
as a commitment fee in consideration of the note. The Company defaulted on the note on July 15, 2015 with the Company’s
delisting from the OTCQB market resulting from failure to timely file the Company’s annual report with the SEC. Due
to the breach, the outstanding principal due under this note was increased by 50% to $156,000, then increased again another
10% to $171,600. Pursuant to the terms of the this note, at any time Union Capital (“Union”) was able to convert
any principal and interest due to it at a 20% discount to the lowest closing bid price of Company common stock for the five
trading days prior to the conversion notice. Additionally, the discount would have been adjusted on a ratchet basis in the
event the Company offers a more favorable discount rate or look-back period to a third party during the term of the Union.
Under multiple conversions, Union retired the entire note for 305,432,752 shares converting $171,600 of principal and $73,250
of interest.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(b)
|
Twelve-month
$96,000 convertible note, bearing 20% original issue discount, dated July 14, 2015 bearing interest at the rate of 12% per
annum, and having a default rate of 18%. The note matured in May 2016. The Company granted the noteholder 15,000,000 shares
of Company common stock as a commitment fee in consideration of the note. The Company defaulted on the note on July 15, 2015
with the Company’s delisting from the OTCQB market resulting from failure to timely file the Company’s annual
report with the SEC. Due to the breach, the outstanding principal due under this note was increased by 18% to $113,280. The
holder had the right, but not the obligation, to convert all or any portion of the outstanding principal amount, accrued interest
and fees due and payable thereon into fully paid and non-assessable shares of common stock of borrower at the conversion price,
which was the lesser of (a) 50% multiplied by the lowest closing price as of the date a notice of conversion is given (which
represents a discount rate of 50%) or (b) $0.005. If the market capitalization of the Company is less than $1,000,000 on the
day immediately prior to the date of the notice of conversion, then the conversion price shall be 25% multiplied by the lowest
closing price as of the date a notice of conversion is given (which represents a discount rate of 75%). Additionally, if the
closing price of the borrower’s common stock on the day immediately prior to the date of the notice of conversion is
less than $0.001 then the conversion price shall be 25% multiplied by the lowest closing price as of the date a notice of
conversion is given (which represents a discount rate of 75%). On October 10, 2017, the Company entered into an amendment
to a convertible note dated July 14, 2015 with the noteholder, Group 10, pursuant to a note amendment dated May 11, 2017.
This amendment waived the right of the holder to convert outstanding principal and interest at 75% discount to the lowest
conversion price and prescribed that future conversions would take place at a rate not lower than 55% of the lowest trading
price. Subsequent to the agreement, the noteholder completed a final conversion to fully retire this note, with the Company
issuing 121,249,200 shares for the amount of $27,281 of principal and interest ($0.000225 per share). On December 6, 2016,
Group 10 formally notified the Company of the amount of the default penalty being charged under their default penalty clause.
This penalty resulted in the amount of $348,000 being recorded as interest expense. On November 28, 2017, the Company entered
into a settlement agreement whereby this penalty was fully satisfied for a one-time cash payment of $60,000 and the issuance
of 25,000,000 shares of common stock valued at $15,000 ($0.0006 per share).
|
|
|
|
(c)
|
Twelve-month
$48,000 convertible note, with original issue discount in the amount of $8,000, dated August 3, 2016 bearing interest at the
rate of 12% per annum, and having a default rate of 18%. The note matured in May 2016. The Company granted noteholder 8,000,000
shares of Company common stock for a commitment fee in consideration of the note. For the period of October 1, 2016 to December
5, 2016, the Company was not current with its periodic reporting under Section 13 of the Exchange Act and failed to timely
file, when due, any SEC reports, which was considered an event of default. Following the occurrence and during the continuance
of an event of default, the Company agreed to pay to the holder in the amount equal to $1,000 per business day commencing
the business day following the date of the event of default. The default penalty of $45,000 for the period of 45 days was
settled for 10,000,000 common shares of Company stock ($0.0045 per share). This amount was recorded as interest expense. On
November 7, 2016, the holder converted $50,160 ($0.00114 per share) into 44,000,000 common shares. Upon conversion the note
had a face value of $48,000 with accrued interest of $2,160.
|
|
|
(d)
|
Twelve-month
$45,000 convertible note, with original issue discount in the amount of $7,000, dated November 7, 2016 bearing interest at
the rate of 12% per annum and having a default rate of 18%. The note matured in November 2017. The Company granted the noteholder
8,000,000 shares of Company common stock as a commitment fee in consideration of the note. If any event of default occurs,
the outstanding principal shall be increased to 118% of the outstanding principal. The holder had the right, but not the obligation,
to convert all or any portion of the outstanding principal amount, accrued interest and fees due and payable thereon into
fully paid and non-assessable shares of common stock of borrower at the conversion price, which meant the lesser of (a) 50%
multiplied by the lowest closing price as of the date a notice of conversion is given (which represented a discount rate of
50%) or (b) $0.003. If the market capitalization of the Company was less than $1,000,000 on the day immediately prior to the
date of the notice of conversion, then the conversion price was set at 25% multiplied by the lowest closing price as of the
date a notice of conversion is given (which represents a discount rate of 75%). Additionally, if the closing price of the
Company’s common stock on the day immediately prior to the date of the notice of conversion was less than $0.001, then
the conversion price was 25% multiplied by the lowest closing price as of the date a notice of conversion is given (which
represents a discount rate of 75%). This note was allowed to be prepaid in cash by the Company after 180 days until maturity,
including a prepayment penalty of 145% of the prepayment amount. On October 10, 2017, the Company fully retired this note
for a cash payment of $72,458, including principal of $45,000; a 45% prepayment penalty of $22,620, recorded as interest expense
as well as accrued interest of $4,838. As part of this negotiation, the Company agreed to and did issue 10,000,000 shares
of common stock on January 8, 2018 at a value of $1,000 ($0.0001 per share).
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(e)
|
Twelve-month
$40,000 convertible note with original issue discount in the amount of $5,000 dated March 31, 2017. As additional consideration
for the purchase of the note, the Company issued 15,000,000 shares of common stock. This note bore a 12% interest per annum
with a default interest rate of 18%. In the event default occurred, the outstanding principal amount of this debenture was
to increase to 118% of the outstanding principal amount of this debenture. The holder had the right to convert any portion
of the outstanding principal amount, accrued interest and fees due and payable thereon into fully paid and non-assessable
shares of common stock of borrower at the conversion price, (the “conversion shares”) which meant the lesser of
(a) 60% multiplied by the lowest closing price during the 35 trading days prior to the notice of conversion is given (which
represents a discount rate of 40%) or (b) $0.002. If the market capitalization of the Company was less than $1,000,000 or
the closing price of the Company’s common stock was below $0.001 on the day immediately prior to the date of the notice
of conversion, then the conversion price was to be 25% multiplied by the lowest closing price during the 35 trading days prior
to the date a notice of conversion is given (which represents a discount rate of 75%). The Company was able to prepay in cash
the principal amount of this debenture and accrued interest thereon, with a premium payment equal to 145% of the prepayment
amount. Prepayments after 180 days but before maturity were subject to the approval of holder. The note was effective as of
March 31, 2017 but was not funded until April 3, 2017; accordingly, this amount is not included in the balance of notes payable
and there was no accrued interest reflected as of March 31, 2017. On June 26, 2017, the Company settled this note in full
for a one-time cash payment in the amount of $59,659. The Company recorded, as interest expense, a prepayment penalty of $18,594
in addition to the repayment of accrued interest of $1,065.
|
|
|
(f)
|
Three-month
$180,000 non-convertible debenture (“note”) dated September 23, 2015 bearing and interest rate of 11.50% per annum.
The note matured in December 2015. The Company received cash of $90,000 ($75,000 wired directly to the Company and $15,000
wired directly from ASP to compensate a consultant). The balance of this note ($90,000) was to be wired directly to a Japanese
based consumer product firm called Eishin, Inc., but the holder never provided any documentation evidencing that $90,000 was
paid to Eishin. The Company is in dispute with the noteholder, and noteholder and has not recorded this liability as of December
31, 2017 or March 31, 2017. If the proper documentation is provided to the Company, the Company will record the liability
at that time. The Company has not received any type of default notice with respect to this $180,000 non-convertible note.
Additionally, the Company has not received any shares in Eishin Co., Ltd. up to this point. The Company did follow up with
Eishin in March 2017, and it was noted that Eishin did not reflect the Company as having this ownership. As a result, the
additional $90,000 has not been recognized as outstanding. As of March 31, 2018, this note had accrued interest of $23,468.
|
|
|
(g)
|
Fifty-eight-day
$60,950 convertible note dated December 19, 2016, with original issue discount in the amount of $7,950 bearing an interest
rate of 12% with a default interest rate of 24%. As additional consideration for the purchase of the note, the Company issued
the noteholder 5,000,000 common shares as a commitment fee recorded at a value of $32,000 ($0.0065 per share). The holder
of this note was entitled to convert any amount of the principal face amount of this note then outstanding into shares of
the Company’s common stock at a conversion price for each share of Common Stock equal to 80% of the lowest trading price
(representing a 20% discount) of the common stock for the 20 trading days immediately preceding the delivery of a notice of
conversion. If the note was outstanding on the 6-month anniversary, then the conversion discount would have increased from
20% to 35% such that the conversion price would be equal to 65%. On February 15, 2017, the Company defaulted on the note for
failure to timely pay principal and interest upon maturity. Since this note was not paid at maturity, the outstanding principal
due under this note increased by 10% to $67,045. This note was further guaranteed by Seth Shaw, Chief Executive Officer of
the Company. Mr. Shaw pledged 37,500,000 shares of his common stock as collateral for payment obligation under this note.
As of August 8, 2017, the Company fully converted the principal and accrued interest of $56,896 for 125,007,653 common shares.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(h)
|
Twelve-month
$27,500 convertible note dated February 8, 2017, with 10% original issue discount in the amount of $2,500 with an interest
rate of 8% and a default rate of 24%. The holder of this note was entitled to convert any amount of the principal face amount
of this note into shares of the Company’s common stock at a conversion price for each share of Common Stock equal to
60% of the lowest trading price (representing a 40% discount) of the common stock of the lowest trading price of the for the
twenty trading days immediately preceding the delivery of a notice of conversion. During the first 180 days, the Company may
have prepaid the principal amount of this note and accrued interest thereon, with a premium, as set forth below. The amount
of each prepayment premium was as follows: (a) 115% for redemptions in the first 30 days after the note issuance; (b) 120%
of the prepayment amount if such prepayment is made at any time from 31 days after the issuance date until 60 days after the
issuance date; (c) 125% of the prepayment amount if such prepayment is made at any time from 61 days after the issuance date
until 90 days after the issuance date made; (d) 130% of the prepayment amount if such prepayment is made at any time from
91 days after the issuance date until 120 days after the issuance date made; (e) 135% of the prepayment amount if such prepayment
is made at any time from 120 days after the issuance date until 150 days after the issuance; and (f) 140% of the prepayment
amount if such prepayment is made at any time from 120 days after the issuance date until 180 days after the issuance date
made. This note was not permitted to be prepaid after 180 days after the issuance date. If this Note was not paid at maturity,
the outstanding principal due under this Note would have increased by 10%. Under multiple conversions, the holder converted
$27,500 in principal and $2,413 in interest for 78,781,041 shares of common stock.
|
|
|
(i)
|
Twelve-month
$18,000 convertible note dated January 27, 2017 that bore an interest rate of 8% with a default interest rate of 24%. The
holder of this note may have converted any amount of the principal face amount of this note then outstanding into shares of
the Company’s common stock at a conversion price for each share equal to 75% of the lowest closing bid price as future
for the 10 prior trading days. As additional consideration for the purchase of the note, the Company issued note holder 3,500,000
shares of restricted common stock valued at $15,750 ($0.0045 per share). During the first 180 days, the Company may have prepaid
the principal amount of this note and accrued interest thereon, with a premium as follows: (a) there was no prepayment penalty
for redemptions in the first 30 days after the note issuance; (b) 110% of the prepayment amount if such prepayment was made
at any time from (31 days after the issuance date until 60 days after the issuance date; (c) 115% of the prepayment amount
if such prepayment was made at any time from 61 days after the issuance date until 90 days after the issuance date made; (d)
120% of the prepayment amount if such prepayment was made at any time from 91 days after the issuance date until 120 days
after the issuance date made; and (e) 125% of the prepayment amount if such prepayment was made at any time from 120 days
after the issuance date until 180 days after the issuance date. This note was not able to be prepaid after 180 days after
the issuance date. If there had been an event of default whereby the Company’s common stock got delisted from an exchange,
the outstanding principal due under this note would have increased by fifty percent (50%). If this note was not paid at maturity,
the outstanding principal due under this note would have increased by 10%. Further, if the Company had defaulted on the note
by becoming delinquent in its periodic report filings with the SEC and continued after the 6-month anniversary of the Note,
then the holder would have been entitled to use the lowest closing bid price during the delinquency period as a base price
for the conversion. On November 8, 2017 the noteholder fully converted the $18,000 in principal and $1,140 of interest into
31,900,000 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(j)
|
The
first of two twelve-month convertible notes as part of a securities purchase agreement, dated March 20, 2017, to sell one
year 8% convertible notes totaling $70,000 ($35,000 each). As additional consideration under this security purchase agreement,
the Company issued to the noteholder 16,000,000 shares of restricted common stock valued at $43,200 ($0.0027 per share). Both
notes mature on March 20, 2018. On March 22, 2017, the noteholder funded the first note through the direct payment of cash
to third parties. The holder of the notes was entitled to convert any amount of the principal face amount of this note then
outstanding into shares of the Company’s common stock at a conversion price for each share equal to 75% of the lowest
closing bid price for the 10 prior trading days. During the first 180 days, the Company was permitted to prepay the principal
amount of this note and accrued interest thereon, with a premium as follows: (a) there was no prepayment penalty for redemptions
in the first 30 days after the note issuance; (b) 110% of the prepayment amount if such prepayment was made at any time from
31 days after the issuance date until 60 days after the issuance date; (c) 115% of the prepayment amount if such prepayment
was made at any time from 61 days after the issuance date until90 days after the issuance date made; (d) 120% of the prepayment
amount if such prepayment was made at any time from 91 days after the issuance date until 120 days after the issuance date
made; and (e) 125% of the prepayment amount if such prepayment was made at any time after 120 days after the issuance date
until 180 days after the issuance date made. This note was not permitted to be prepaid after 180 days after the issuance date.
If this note was not paid at maturity, the outstanding principal due under this note would have increased by 10%. On June
8, 2017, the noteholder advanced funds in the amount of $8,623 in the form of a direct payment to a third party. On June 15,
2017, the Company was advanced $8,000 towards the second note. On June 26, 2017, the noteholder fully funded the second note
with a payment to the Company in the amount of $16,377. Legal fees in the amount of $2,000 were deducted from the proceeds.
On December 7, 2017 the noteholder fully converted the $35,000 in principal and $2,022 of interest into 98,725,920 common
shares.
|
|
|
(k)
|
The
second of two twelve-month convertible notes (back-end note) as part of a securities purchase agreement, dated March 20, 2017,
to sell one year 8% convertible notes totaling $70,000 ($35,000 each). On June 15, 2017, Eagle Equities advanced the Company
$8,000 as part of this back-end note. This back-end convertible note was to mature in twelve-months. On June 8, 2017, the
noteholder advanced funds in the amount of $8,623 to a third party for administrative services. The holder of the note was
entitled to convert any amount of the principal face amount of this note then outstanding into shares of the Company’s
common stock at a conversion price for each share equal to 75% of the lowest closing bid price for the 10 prior trading days.
During the first 180 days, the Company was able to be prepay the principal amount of this note and accrued interest thereon,
with a premium as follows: (a) there was no prepayment penalty for redemptions in the first 30 days after the note issuance;
(b) 110% of the prepayment amount if such prepayment was made at any time from 31 days after the issuance date until 60 days
after the issuance date; (c) 115% of the prepayment amount if such prepayment was made at any time from 61 days after the
issuance date until 90 after the issuance date made; (d) 120% of the prepayment amount if such prepayment was made at any
time from 91 days after the issuance date until 120 days after the issuance date made; and (e) 125% of the prepayment amount
if such prepayment was made at any time from 121 days after the issuance date until 180 days after the issuance date made.
This note was not able to be prepaid after 180 days. If this note was not paid at maturity, the outstanding principal due
under this note would have increased by 10%. On June 26, 2017, the noteholder fully funded the second note with a payment
to the Company in the amount of $16,377. Legal fees in the amount of $2,000 were deducted from the proceeds. On December 8,
2017 the Company fully repaid the note principal of $35,000 along with $1,327 of accrued interest and a prepayment penalty
of $13,689 which was recorded as interest in the Company’s consolidated financial statements.
|
(l)
|
One
year 8% $45,000 convertible note dated April 27, 2017. This note was funded May 2, 2017. This note had a maturity date of
April 27, 2018. This note had a default interest rate of 24%. If this note was not paid at maturity, the outstanding principal
due under this note would have increased by 10%. The holder was entitled to convert any amount of the principal and accrued
interest of then outstanding into shares of the Company’s common stock at a price for each share of common stock equal
to 70% of the lowest daily volume weighted average price (“VWAP”) of the common stock for the 15 prior trading
days. In the event the Company experienced a DTC “chill” on its shares, the conversion price would have decreased
to 60% instead of 70% while that “chill” was in effect. During the first 6 months this note was in effect, the
Company was permitted to redeem the note by paying to the holder an amount as follows: (i) if the redemption was 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, and (ii) if the redemption was 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. This note was not redeemable after 180 days. On November 2, 2017 the note principal of $45,000 was fully converted
along with $1,815 of accrued interest into 83,597,839 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(m)
|
On
May 30, 2017, GS Capital Partners, LLC funded a one year 8% $45,000 convertible redeemable note in accordance with a securities
purchase agreement dated May 30, 2017. As additional consideration under this security purchase agreement, the Company issued
note holder 25,000,000 shares of restricted common stock valued at $30,000 ($0.0012 per share). This note had a maturity date
of May 30, 2018. This note had a default interest rate of 24%. If this note was not paid at maturity, the outstanding principal
due under this note would have increased by 10%. The holder was entitled to convert any amount of the principal and accrued
interest of then outstanding into shares of the Company’s common stock at a price per share equal to 70% of the lowest
daily VWAP of the common stock for the 15 prior trading days. In the event the Company experienced a DTC “chill”
on its shares, the conversion price would be decreased to 60% instead of 70% while that “chill” is in effect.
During the first six months this note was in effect, the Company may have redeemed the note by paying to the holder an amount
as follows: (i) if the redemption was 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 was
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. This note was not redeemable after 180 days. On November 30, 2017, the
Company fully repaid the $45,000 of principal of this note along with accrued interest of $2,407 and a prepayment penalty
of $14,258 which was recorded as interest in the company’s consolidated financial statements.
|
|
|
(n)
|
On
June 27, 2017, the Company entered into a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners,
LLC. The noteholder was entitled, at its option, at any time after cash payment, to convert any amount of the principal face
amount of this note then outstanding into shares of the Company’s common stock at a price equal to $0.00125 per share.
Upon an event of default, interest would accrue at a default interest rate of 24% per annum. If this note was not paid at
maturity, the outstanding principal due under this note would have increased by 10%. Additionally, the Company issued the
noteholder 5,000,000 shares of restricted common stock, as well as 16,000,000 five-year cashless warrants with an exercise
price of $0.0035 per share, as additional consideration for the purchase of the note. All the terms set forth, including but
not limited to interest rate, prepayment terms, conversion discount or lookback period would be adjusted downward (i.e. for
the benefit of the holder) if the Company offers a more favorable conversion discount (whether via interest, rate, original
issue discount or otherwise) or lookback period to another party or otherwise grants any more favorable terms to any third
party than those contained herein while this note was in effect. During the first six months this Note was in effect, the
Company was able to redeem this note by paying to the holder an amount as follows: (i) if the redemption was within the first
90 days this note was in effect, then for an amount equal to 120% of the unpaid principal amount of this note along with any
interest that has accrued during that period; and (ii) if the redemption was after the 91st day this note was in effect, but
less than the 180th day this note is in effect, then for an amount equal to 133% of the unpaid principal amount of this note
along with any accrued interest. This note was not redeemable after 180 days. This note was funded on June 30, 2017. On December
13, 2017, the Company fully repaid the $80,000 of principal of this note along with accrued interest of $2,016 and a prepayment
penalty of $26,148 which was recorded as interest in the Company’s consolidated financial statements.
|
|
|
(o)
|
On
August 31, 2017, the Company entered into a twelve-month $27,500 convertible note dated February 8, 2017, with 10% original
issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. Legal fees of $2,000 were
deducted from the cash proceeds. The holder of this note was entitled to convert any amount of the principal face amount of
this note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common
Stock equal to 60% of the lowest trading price (40% discount) of the common stock of the lowest trading price of the common
stock for the twenty trading days immediately preceding the delivery of a notice of conversion. If this note was not paid
at maturity, the outstanding principal due under this note would have increase by 10%. On December 27, 2017 the note principal
of $27,500 was fully converted along with $721 of accrued interest into 94,070,367 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(p)
|
On
August 31, 2017, the Company entered into a Securities Purchase Agreement with GS Capital Partners, LLC, whereby the
Company issued two 8% convertible redeemable notes each in the principal amount of $48,000. The first 8% note was funded with
gross cash proceeds of $45,600, after the deduction of $2,400 in legal fees. The second 8% note (the “Back-End Note”)
was initially paid for by an offsetting promissory note issued by GS Capital Partners, 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 April 30, 2018, 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 amounts cash funded 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 70% 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 15 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 60% instead of 70% while that “chill” is in effect. The Back-End Note will not be cash funded
and such note, along with the Note Receivable, will be immediately cancelled if the shares do not maintain a minimum trading
price during the five days prior to such funding and a certain aggregate dollar trading volume during such period. 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. During the first
six months First Note and the Back-End Note are in effect, the Company may redeem either note by paying to GS Capital Partners,
LLC an amount as follows: (i) if the redemption is within the first 90 days either note is in effect, then for an amount
equal to 120% of the unpaid principal amount of either note along with any interest that has accrued during that period, and
(ii) if the redemption is after the 91st day the either note is in effect, but less than the 180th day, then for an amount
equal to 133% of the unpaid principal amount of either note along with any accrued interest. Neither note may be redeemed
after 180 days. Additionally, and pursuant to the Purchase Agreement, the Company issued to GS Capital Partners, LLC
17,000,000 shares of the Company’s common stock on December 19, 2017 at a value of $11,900 ($0.0007 per share). On February
15, 2018 the company paid $40,000 to retire $29,181 of principal and $1,842 of accrued interest along with a prepayment penalty
in the amount of $8,978 which was recorded as interest expense in the Company’s consolidated financial statements. On
March 8, 2017, the note holder had fully converted the balance of the note in exchange for 46,633,809 shares of Company stock
valued at $19,586 ($0.00042 per share).
|
|
|
(q)
|
On
September 11, 2017, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC whereby the Company issued
to Adar Bays seven 8% convertible redeemable notes each in the principal amount of $30,000, or in the aggregate principal
amount of $210,000. The first 8% convertible redeemable note (the “First Note”) was funded with gross cash proceeds
of $28,000, after deduction of $2,000 in legal fees, by September 12, 2017. The remaining six 8% convertible redeemable notes
(collectively, the “Back-End Notes”) were each initially paid for by a corresponding offsetting promissory note
issued by Adar Bays to the Company (the “Note Receivables”). The terms of the Back-End Notes require cash funding
prior to any conversion thereunder. Upon the request of the Company, the Back-End Notes may be funded at any time from March
11, 2018 until September 11, 2018. The Company may cancel the Back-End Notes and the Note Receivables prior to funding by
giving written notice to Adar Bays by February 23, 2018 that the Company does not wish to close on the funding of the Back-End
Notes. Each of the First Note, the Back-End Notes and the Notes Receivable has a maturity date of September 11, 2018 upon
which any outstanding principal and interest is due and payable. The amounts of cash actually funded plus accrued interest
under both the First Note and the Back-End Notes 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 trading price of the common stock as reported on the National
Quotations Bureau OTC Markets market 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. During the first six months First Note is
outstanding, the Company may redeem the First Note in cash pursuant to the terms of the First Note. The Back-End Notes may
not be prepaid. However, in the event the First Note is redeemed prior to its six-month anniversary, each of the Back-End
Notes and each of the Note Receivables shall be automatically cancelled in their entirety and have no further force or effect.
On March 2, 2018, the Company paid $43,045 to fully retire the face value of $30,000 plus $1,322 of accrued interest as well
as a prepayment penalty of $11,723, recorded as interest expense in the Company’s consolidated financial statements.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
(r)
|
On
October 17, 2017, the Company entered into a stock purchase agreement with GS Capital Partners LLC, whereby the Company
issued two 8% convertible redeemable notes each in the principal amount of $105,000. The first 8% note was funded with gross
cash proceeds of $100,000, after the deduction of $5,000 in legal fees. The second 8% note (the “Back-End Note”)
was initially paid for by an offsetting promissory note issued by GS Capital Partners 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 June 17, 2018, 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 amounts cash funded 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 per share
equal to 70% 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 15 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 60%
instead of 70% 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. During the first 6 months that the First Note and the Back-End Note
are outstanding, the Company may redeem either by paying to GS Capital Partners LLC an amount as follows: (i) if the
redemption is within the first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal
amount of either note along with any interest that has accrued during that period, and (ii) if the redemption is after the
91st day the either note is in effect, but less than the 180th day, then for an amount equal to 133% of the unpaid principal
amount of either note along with any accrued interest. Neither note may be redeemed after 180 days. Additionally, and pursuant
to the Purchase Agreement, the Company issued to GS Capital Partners LLC 23,000,000 shares of the Company’s common
stock valued at $20,700 ($0.0009 per share). At March 31, 2018, the first note had accrued interest of $3,751. On April 25,
2018, the noteholder, under their rights under the contract, canceled the back-end note. On May 1, 2018, the noteholder
converted $55,000 of principal $2,339 in exchange for 148,931,506 of the Company’s shares ($0.000385 per share).
|
|
|
(s)
|
On
October 3, 2017, ADAR Bays funded a $27,500 back end convertible note pursuant to an original note dated February 8, 2017,
with 10% original issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. The holder
of this note is entitled to convert any amount of the principal face amount of this note then outstanding into shares of the
Company’s common stock at a conversion price for each share of Common Stock equal to 60% of the lowest trading price
(representing a 40% discount) of the common stock of the lowest trading price of the common stock for the 20 trading days
immediately preceding the delivery of a notice of conversion. During the first 180 days, the Company may prepay the principal
amount of this note and accrued interest thereon, with a premium as follows: (a) 115% for redemptions in the first 30 days
after the note issuance; (b) 120% of the prepayment amount if such prepayment is made at any time from 31 days after the issuance
date until 60 days after the issuance date; (c) 125% of the prepayment amount if such prepayment is made at any time from
61 days after the issuance date until 90 days after the issuance date made; (d) 130% of the prepayment amount if such prepayment
is made at any time from 91 days after the issuance date until 120 days after the issuance date made; (e) 135% of the prepayment
amount if such prepayment is made at any time from 121 days after the issuance date until 150 days after the issuance; and
(f) 140% of the prepayment amount if such prepayment is made at any time from 151 days after the issuance date until 180 days
after the issuance date. This note may not be prepaid after 180 days. If this note is not paid at maturity, the outstanding
principal due under this note will increase by 10%. On February 13, 2018 the Company paid $39,313 to retire the $27,500 face
value and $1,079 of accrued interest as well as a prepayment penalty of $10,734 recorded interest in the Company’s consolidated
financial statements.
|
|
|
(t)
|
On
February 8, 2018, ADAR Bays funded a $27,500 back end convertible note pursuant to an original note dated February 8, 2017,
with 10% original issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. The holder
of this note is entitled to convert any amount of the principal face amount of this note then outstanding into shares of the
Company’s common stock at a conversion price for each share of Common Stock equal to 60% of the lowest trading price
(representing a 40% discount) of the common stock of the lowest trading price of the common stock for the 20 trading days
immediately preceding the delivery of a notice of conversion. This note was not able to be prepaid. On March 1, 2018, the
noteholder converted the face value in full in addition to accrued interest of $122 in exchange for 76,728,389 common shares.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
|
|
(u)
|
On
March 9, 2018, GS Capital Partners, LLC funded the back-end note under the August 31, 2017 Securities Purchase Agreement
with GS Capital Partners, LLC whereby the Company issued two 8% convertible redeemable notes each in the principal
amount of $48,000. This Back-End Note was initially paid for by an offsetting promissory note issued by GS Capital Partners,
LLC to the Company (the “Note Receivable”). This note has a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under
the note are convertible into shares of the Company’s common stock at a price for each share of common stock equal to
70% 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 15
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 60%
instead of 70% 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, 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. During the first six months this note is in effect, the Company may
redeem by paying to GS Capital Partners, LLC an amount as follows: (i) if the redemption is within the first 90 days
either note is in effect, then for an amount equal to 120% of the unpaid principal amount of either note along with any interest
that has accrued during that period, and (ii) if the redemption is after the 91st day the either note is in effect, but less
than the 180th day, then for an amount equal to 133% of the unpaid principal amount of either note along with any accrued
interest. The note may be redeemed after 180 days. At March 31, 2018, this note had accrued interest of $231.
|
|
|
(v)
|
On
June 1, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with various
accredited investors for the sale of certain debentures with aggregate gross proceeds to the Company of $133,000 ($18,000
of which was to a related party). Pursuant to the terms of the agreement, the investors were granted 13,300,000 shares of
Company common stock as a commitment fee. These shares were issued on June 15, 2016. Additionally, the Company was required
to repay the amounts raised under the Purchase Agreement prior to December 1, 2015 except as described below. The Purchase
Agreement provided the Company with the following prepayment options: (i) if prepaid prior to August 31, 2015, the Company
must pay each investor the amount invested plus a 10% premium and (ii) if prepaid after August 31, 2015 but prior to December
1, 2015, the Company must pay each investor the amount invested plus a 20% premium. Because the Company did not repay the
amounts as described above, on December 1, 2015, the Company had the option to convert all amounts raised under the Purchase
Agreements into shares of common stock based on a 20% discount to the Company’s VWAP for the three trading days prior
to December 1, 2015, which the Company has done. Excluding the 13,300,000 commitment shares, in May 2016 the Company agreed
to issue 33,900,000 shares of its common stock, which were issued on June 15, 2016, to settle all obligations under the Purchase
Agreement with the exception of one individual noteholder holding a note with a $20,000 principal amount. On December 1, 2017,
the Company settled the remaining $20,000 in principal and $4,440 of accrued interest for a one-time cash payment of $10,000
and 12,000,000 common shares valued at $6,000 ($0.0005 per share). A gain on settlement of debt in the amount of $8,880 was
recognized in the Company’s consolidated financial statements.
|
|
|
(w)
|
Individual
notes issued to 6 individuals bearing an interest rate of 8%. These notes were issued from February through April 2013. The
notes are convertible into common stock of the Company at $0.025 per share. On July 19, 2017, the Company paid an individual
note holder to retire a note having a principal balance of $1,000 and accrued interest of $340. During the three months ended
December 31, 2017, the company retired four additional notes with individuals having a total principal amount of $32,775 and
accrued interest of $13,305 for a cash payment of $5,000 and 73,500,000 shares of common stock valued at $39,450 ($0.00054
per share). A loss on the settlement of debt in the amount of $3,592 was recognized on this transaction in the Company’s
consolidated financial statements. There were no conversions during the year ended March 31, 2017. As of March 31, 2018, one
note remains to an individual remains unpaid in the amount of $15,000 principal and $6,424 of accrued interest.
|
Interest
expense for the years ended March 31, 2018 and 2017 was $291,610 and $721,408. For the year ended March 31, 2018 interest expense
consisted of interest on face value of convertible notes in the amount of $33,643, amortized debt discount of $36,259, commitment
shares issued as debt incentive valued at $98,071, finance charges of $25,608 on charges due to Cowan related to the legal settlement
(see NOTE 14) and prepayment penalties in the amount of $98,029. Accrued interest at March 31, 2018 and 2017 was $33,875 and $126,156,
respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
9 – RELATED PARTIES
On
June 15, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $95,000. This investment is structured
as an equity private placement of 76,000,000 shares of Company common stock at $0.00125 per share. The Company used the proceeds
for general and administrative purposes. The shares were issued on August 1, 2017.
On
June 21, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $55,000. This investment is structured
as an equity private placement of 44,000,000 shares of Company common stock at $0.00125 per share. The Company used the proceeds
for general and administrative purposes. The shares were issued on August 1, 2017.
On
October 6, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $137,500. This investment is
structured as an equity private placement of 110,000,000 shares of Company common stock at $0.00125 per share. The Company used
the proceeds for general and administrative purposes. The shares were issued December 19, 2017.
As
a result of the Company’s joint venture with Ice + Jam, a receivable and a payable was recorded on the Company’s books.
As of March 31, 2018, these amounts represented cash Ice + Jam collected from sales of
HerMan®
through their website in the amount of $581 and a payable in the amount of $5,522 for expenses incurred through the operation
of the business.
NOTE
10 – CONCENTRATION OF RISK
Any
customer or vendor representing greater than 10% of the total sales or cost of sales is considered a major customer or major vendor.
The
Company had a certain customer whose receipts individually represented 10% or more of the Company’s total fiscal year to
date sales. This was one wholesale client whose purchase constituted a very large part of our total sales.
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
Customer
A
|
|
|
58
|
%
|
|
|
-
|
|
As
sales efforts continue we do not expect this customer to be a significant portion of total annual sales.
*
Less than 10% of total sales
The
Company, through its joint venture with Ice + Jam, has a certain vendor who represents 51.8% of the cost of goods sold cost for
the
HerMan®
product. The
HerMan®
product formulation and the filling of the plastic tubes housing the product has been outsourced and concentrated in this
vendor. As a major supplier, this vendor has significantly affected this operation of this joint venture through the supply of
product which was largely defective. As a result, the Company had written of the value of the inventory at March 31, 2018.
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common
Stock
As
of March 31, 2018, the Company is authorized to issue 7,500,000,000 shares of its common stock. As of March 31, 2018, there were
3,919,498,166 shares of common stock are outstanding.
On
April 27, 2017, the Company’s Board of Directors approved an amendment to the Company’s Articles of Incorporation
to increase the Company’s authorized common stock from 2,500,000,000 to 7,500,000,000 shares and on June 28, 2017, the Company
held a special meeting of the stockholders to approve the amendment. The articles of amendment were filed with the Florida Secretary
of State on June 29, 2017.
On
March 12, 2018, the Board of Directors approved moving forward with a reverse stock split which could be implemented at the discretion
of the Board of Directors at any time over a period of six months from the date of approval. On April 24, 2018, the Board of Directors
voted to implement this previously approved 1 for 75 reverse stock split for the Company’s common stock. There will be a
commensurate adjustment to the Company’s authorized shares (which will be reduced from its current figure of 7,500,000,000
to the post-split figure of 100,000,000).
The Company
believes that this reverse split will be effective during July 2018, and will file a current report on Form 8-K to announce the
specific effective date and other relevant information once completed.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Common
Stock
Fiscal
Year 2017
During
the year ended March 31, 2017, the Company issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per share) to
convert notes payable in the aggregate amount of $113,000 (including a related party note in the amount of $18,000), plus a 20%
conversion premium, which was recorded as interest expense in the amount of $22,600.
During
the year ended March 31, 2017, the Company issued 104,375,000 shares of common stock ($0.004 per share) for aggregate proceeds
of $428,500.
During
the year ended March 31, 2017, the Company issued 197,000,000 shares of common stock for services rendered and to be rendered
which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant
date fair value amortized over the life of the contracts.
During
the year ended March 31, 2017, the Company issued 63,800,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $378,550 ($0.0027 to $0.01 per share).
During
the year ended March 31, 2017, the Company issued 100,639,501 shares of common stock to convert principal and interest of outstanding
notes in the aggregate amount of $118,126 ($0.00114 to $0.0012 per share).
On
November 18, 2016, the Company issued 15,384,615 shares of common stock to settle an outstanding payable in the amount of $194,516.
The Company recognized a gain on the settlement of this liability in the amount of $94,516, as the shares were valued at $100,000.
Fiscal
Year 2018
During
the year ended March 31, 2018, the Company issued 1,512,049,546 shares of common stock to holders of convertible notes to retire
$601,749 in principal and $85,055 of accrued interest (at $0.000225 to $0.0012 per share) under the convertible
notes.
During
the year ended March 31, 2018, the Company issued 141,428,571 shares of common stock to a private investor for an aggregate value
of $177,500 (at $0.0013 per share).
During
the year ended March 31, 2018, the Company issued 120,000,000 shares of common stock to Seth Shaw, the Company’s Chief Executive
Officer, for an aggregate value of $150,000 ($0.00125 per share).
During
the year ended March 31, 2018, the Company issued 144,500,000 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 85,000,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $86,600 ($0.001 per share).
During
the year ended March 31, 2018, the Company issued 116,500,000 shares of common stock for debt and legal settlements at an aggregate
value of $75,050 ($0.0006 per share).
During
the year ended March 31, 2018, the Company issued 65,100,000 shares of common stock to former officers and directors for amounts
previously accrued at an aggregate value of $173,999 ($0.0027 per share).
In
connection with some of the consulting agreements and board advisory agreements the Company has entered into, as the following
clauses are part of the compensation arrangements: (a) the consultant will be reimbursed for all reasonable out of pocket expenses
and (b) the Company, in its sole discretion, may make additional cash payments and/or issue additional shares of common stock
to the consultant based upon the consultant’s performance. The Company recognized $701,347 in stock-based compensation expense
related to these agreements in the year ended March 31, 2018.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Warrants
for Common Stock
The
following table summarizes warrant activity for the years ended March 31, 2018 and 2017:
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2016
|
|
|
77,303,529
|
|
|
$
|
0.0200
|
|
|
|
3.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,350,000
|
|
|
|
0.0100
|
|
|
|
2.44
Years
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(23,134,118
|
)
|
|
$
|
(0.0200
|
)
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2017
|
|
|
91,519,411
|
|
|
$
|
0.0200
|
|
|
|
3.16
Years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
16,000,000
|
|
|
|
0.0035
|
|
|
|
4.99
Years
|
|
|
|
-
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2018
|
|
|
107,519,411
|
|
|
$
|
0.0169
|
|
|
|
2.47
Years
|
|
|
$
|
-
|
|
The
warrants were valued utilizing the following assumptions employing the Black-Scholes Pricing Model:
|
|
Year
Ended
March 31, 2018
|
|
|
Year
Ended
March
31, 2017
|
|
Volatility
|
|
|
108.6
|
%
|
|
|
203
|
%
|
Risk-free
rate
|
|
|
1.24
|
%
|
|
|
0.66
|
%
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
Expected
life of warrants
|
|
|
5.00
|
|
|
|
2.35
|
|
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 to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the
unexercised portion of 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 would be retained by Pilus Energy as additional consideration
for the sale, which is 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, 2018, there has been no activity recorded by Open
Therapeutics with respect to Pilus Energy, and thus the $75,000 remains contingently owed to them.
Warrants
for Common Stock
During
the year ended March 31, 2017, the Company entered into stock purchase agreements with 20 accredited investors, subsequently issuing
93,375,000 shares of common stock. Each investor was issued 1 non-cashless-exercise warrant with a term of 36 months for every
2.5 shares of stock purchased. The strike price of these warrants is 1 cent per share. The total warrants of 37,350,000 are classified
as additional paid in capital. The warrants are classified as equity as they contain no provisions that would enable liability
classification.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Warrants
for Common Stock (Continued)
On
June 27, 2017, the Company entered into a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners, LLC.
As partial consideration for the purchase of the note the Company granted 16,000,000 five-year cashless warrants with an exercise
price of $0.0035 per share. Based on the relative fair value of the warrants, the Company recorded a debt discount of $12,546
on the $80,000 note, which is being amortized over a period of one-year.
Stock
Options
On
February 1, 2012, the Company awarded to each of two former executives options to purchase 5,000,000 common shares, an aggregate
of 10,000,000 shares. These options vested immediately and were for services performed.
Volatility
|
|
|
220
|
%
|
Expected
dividend rate
|
|
|
-
|
|
Expected
life of options in years
|
|
|
10
|
|
Risk-free
rate
|
|
|
1.87
|
%
|
The
following table summarizes option activity for the years ended March 31, 2018 and 2017:
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
4.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2018
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
3.85
Years
|
|
|
$
|
—
|
|
NOTE
12 – PROVISION FOR INCOME TAXES
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and
income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected
to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts
of assets and liabilities and their respective tax bases.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
12 – PROVISION FOR INCOME TAXES (CONTINUED)
Deferred
tax assets consist of the following:
|
|
March
31
, 2018
|
|
|
March
31
, 2017
|
|
Net
operating losses
|
|
|
8,514,000
|
|
|
|
8,479,000
|
|
Effect
of TCJA recalculation
|
|
|
(3,107,000
|
)
|
|
|
(2,932,000
|
)
|
Valuation
allowance
|
|
|
(5,407,000
|
)
|
|
|
(5,547,000
|
)
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
March 31, 2018, the Company had a U.S. net operating loss carryforward in the approximate amount of $20 million available to offset
future taxable income through 2038. The Company established valuation allowances equal to the full amount of the deferred tax
assets due to the uncertainty of the utilization of the operating losses in future periods. The Company also has a Canadian carry
forward loss which approximates $700,000. The valuation allowance decreased by $140,000 in the year ended March 31, 2018 and increased
by and $527,000 for the year ended March 31, 2017.
On
December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (“the TCJA”) was enacted
into law. The TCJA provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, that impact corporate
taxation requirements. Effective January 1, 2018, the federal tax rate for corporations was reduced from 35% to 21% for US taxable
income and requires one-time re-measurement of deferred taxes to reflect their value at a lower tax rate of 21%. Also, mandatory
repatriation of untaxed foreign earnings and profits will be taxed at 15.5% to the extent the underlying assets are liquid and
8% on the remaining balance. There are other provisions to the TCJA, such as conversion of a worldwide system to a territorial
system, limitations on interest expense and domestic production deductions, which will be effective in fiscal 2019. The Company
anticipates its effective tax rate to be 28% to 30%, excluding the one-time impact of the TCJA for fiscal 2018 primarily due to
the reduction in the federal tax rate. The Company’s actual effective tax rate for fiscal 2018 may differ from management’s
estimate due to changes in interpretations and assumptions. Due to the timing of enactment and complexity of the TCJA, the Company
is unable to estimate a reasonable range of the one-time impact associated with mandatory repatriation, re-measurement of deferred
taxes and other provisions of the TCJA.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
13 – INVESTMENTS
Trading
securities
For
investments in securities of other companies that are owned, the Company records them at fair value with unrealized gains
and losses reflected in other operating income or loss. For investments in these securities that are sold by us,
the Company recognizes the gains and losses attributable to these securities investments as realized gains or losses in
other operating income or loss.
Investment
in Trading Securities:
At
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Beginning
of Period Cost
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
End
of Period Cost
|
|
|
Fair
Value
|
|
|
Realized
Gain (Loss)
|
|
|
Unrealized
Gain (Loss)
|
|
Green
Innovations Ltd (GNIN)*
|
|
(a)
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
249,375
|
|
Totals
|
|
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
249,375
|
|
At
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Beginning
of Period Cost
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
End
of Period Cost
|
|
|
Fair
Value
|
|
|
Realized
Gain (Loss)
|
|
|
Unrealized
Gain (Loss)
|
|
Green
Innovations Ltd (GNIN)*
|
|
(a)
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
6,815
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
(243,185
|
)
|
|
$
|
-
|
|
VistaGen
Therapeutics Inc (VTGN)
|
|
(b)
|
|
|
|
-
|
|
|
|
490,117
|
|
|
|
-
|
|
|
|
490,117
|
|
|
|
306,207
|
|
|
|
-
|
|
|
|
(183,910
|
)
|
Blink
Charging Co (BLNK)
|
|
(c)
|
|
|
|
-
|
|
|
|
190,350
|
|
|
|
-
|
|
|
|
190,350
|
|
|
|
123,750
|
|
|
|
-
|
|
|
|
(66,600
|
)
|
Blink
Charging Co (BLNKW) (Warrants)
|
|
(c)
|
|
|
|
-
|
|
|
|
900
|
|
|
|
-
|
|
|
|
900
|
|
|
|
31,545
|
|
|
|
-
|
|
|
|
30,645
|
|
Aytu
BioScience Inc (AYTU)
|
|
(d)
|
|
|
|
-
|
|
|
|
82,270
|
|
|
|
-
|
|
|
|
82,270
|
|
|
|
119,947
|
|
|
|
-
|
|
|
|
37,677
|
|
Lightbridge
Corp. (LTBR)
|
|
(e)
|
|
|
|
-
|
|
|
|
37,511
|
|
|
|
-
|
|
|
|
37,511
|
|
|
|
29,250
|
|
|
|
-
|
|
|
|
(8,261
|
)
|
Totals
|
|
|
|
|
$
|
250,000
|
|
|
$
|
801,148
|
|
|
$
|
6,815
|
|
|
$
|
801,148
|
|
|
$
|
610,699
|
|
|
$
|
(243,185
|
)
|
|
$
|
(190,449
|
)
|
*
During 2018, this security was reclassified from Available for Sale to Trading Security.
(a)
|
During
the year ended March 31, 2018, the Company’s investment in Green Innovations, Ltd. was sold for net proceeds of $6,815
and was previously carried as an investment included within Current Assets. The Company’s investment in Green Innovations,
Ltd. had a cost of $250,000. A loss of $243,185 was recognized on the sale of this security. At March 31, 2017, the unrealized
loss was $249,375 and the fair value was $625.
|
|
|
(b)
|
On
December 11, 2017 the Company invested $480,000 in the common stock of VistaGen Therapeutics, Inc. (“VTGN”). The
Company purchased 320,000 common shares along with 320,000 five-year warrants with a strike price of $1.50. On March 26, 2018,
the Company purchased an additional 10,000 common shares. The investment in the common shares is recorded at fair valve with
unrealized gains and losses, reflected in other operating income. The Company’s investment in VTGN has a cost of $490,117,
unrealized loss of $183,910 and a fair value of $306,207 at March 31, 2018.
|
|
|
(c)
|
The
Company participated in an $18,500,250 underwritten public offering by Blink Charging Co. (NASDAQ: BLNK) (“Blink”),
which closed on February 14, 2018. The Company invested $191,250 USD of its balance sheet cash and purchased 45,000 registered
shares of Blink common stock, as well as warrants exercisable immediately for a period of five (5) years from the date of
issuance for up to 90,000 additional shares of common stock of Blink. The Warrants carry an exercise price of $4.25 per share,
and also trade on the NASDAQ under the ticker symbol: BLNKW. The Company is in possession of the registered securities as
of the closing date. The Company’s investment in BLNK common stock and warrants had a cost of $191,150, unrealized loss
of $35,955 and a fair value of $155,295 at March 31, 2018.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
13 – INVESTMENTS (CONTINUED)
Trading
securities (Continued)
(d)
|
On
March 2 and 8, 2018, the Company purchased 188,300 common shares of AYTU Bioscience (ATYU). The investment in the common shares
is recorded at fair valve with unrealized gains and losses, reflected in other operating income. The Company’s investment
in ATYU had a cost of $82,270, unrealized loss of $37,677 and a fair value of $119,947 at March 31, 2018.
|
|
|
(e)
|
On
March 12, 2018, the Company purchased 25,000 common shares of Lightbridge Corp (LTBR). The investment in the common shares
is recorded at fair valve with unrealized gains and losses, reflected in other operating income. The Company’s investment
in LTBR had a cost of $37,511, unrealized loss of $8,261 and a fair value of $29,250 at March 31, 2018.
|
At
March 31, 2018, the Company held warrants for AYTU Bioscience to purchase 111,100 common shares at a strike price of $0.54 with
an expiration of March 6, 2023. At March 31, 2018 these warrants were in the money by $0.0937 per share. Since these shares are
not publicly traded and therefore are not highly liquid the Company has chosen not to recognize the unrealized gain in this security.
At
March 31, 2018, the Company held warrants for VistaGen Therapeutics, Inc. to purchase 320,000 common shares at a strike price
of $1.50 with an expiration of December 13, 2022. At March 31, 2018 these warrants were out of the money by $0.5721 per share.
Since these shares are not publicly traded and therefore are not highly liquid the Company has chosen not to recognize the unrealized
gain in this security.
Digital
Currency
During
the year ended March 31, 2018, the Company completed cumulative purchases in the Groestlcoin cryptocurrency in the aggregate amount
of $35,000 for 27,919.133 units ($0.79 per unit). (Crypto Currency Code: GRS). The purchase of this currency cannot be executed
directly using $USD. The Company must purchase Bitcoin (BTC) and then purchase the Groestlcoin cryptocurrency by using BTC. This
two-step process generated actual losses or gains on the purchase of Groestlcoin. For the year ended March 31, 2018 the Company
realized a loss of $2,859 on exchange from BTC reflected as other operation income. The investment in Groestlecoin has a cost
of $31,481 net of fees, unrealized loss of $9,425 and a fair value of $22,056.
Equity
investments
Honeywood
Effective
August 1, 2017, the Company entered into a Debt Conversion Agreement in respect to a secured promissory note issued following
the unwinding of the Honeywood acquisition (See NOTE 1), whereby the Company agreed to convert the entire principal and accrued
but unpaid interest due under the note into a 5% membership interest in Honeywood.
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
FASB 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 Debt Conversion Agreement the receivable balance of $199,119 had been fully written off by the Company in a prior
period. As a result of this Debt Conversion Agreement, the Company deemed the investment to still have no current value. The Company
recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
14 –LITIGATION
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 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.
NOTE
15 – FAIR VALUE MEASUREMENTS
The
following summarizes the company’s financial assets and liabilities that are measured at fair value on a recurring basis
at March 31, 2018 and March 31, 2017:
|
|
March
31, 2018
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-trading
securities
|
|
$
|
610,699
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
610,699
|
|
Investment
in digital currency
|
|
$
|
22,056
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,056
|
|
|
|
March
31, 2017
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-trading
securities
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
625
|
|
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.
NOTE
16 – SUBSEQUENT EVENTS
Common
Stock Issuances
Subsequent
to March 31, 2018, the Company issued 9,750,000 shares of its restricted common stock to consultants under consulting agreements
and 148,931,506 shares of restricted common stock to a noteholder for the conversion of debt and accrued interest having
a value of $57,339 ($0.0004 per share).
On
March 12, 2018, the Board of Directors approved moving forward with a reverse stock split which could be implemented at the discretion
of the Board of Directors at any time over a period of six months from the date of approval. On April 24, 2018, the Board of Directors
voted to implement this previously approved 1 for 75 reverse stock split for the Company’s common stock. There will be a
commensurate adjustment to the Company’s authorized shares (which will be reduced from its current figure of 7,500,000,000
to the post-split figure of 100,000,000).
The Company
believes that this reverse split will be effective during July 2018, and will file a current report on Form 8-K to announce the
specific effective date and other relevant information once completed.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
16 – SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes
On
April 25, 2018 GS Capital Partners, LLC canceled the back-end note dated October 17, 2017. In accordance with Section 8(n) of
the original note, the note may be cancelled if the Company trades less than $40,000 in any consecutive 5-day period. From April
9 -13, 2018, the stock traded less than $17,000.
On
May 10, 2018, the Company entered into a securities purchase agreement with GS Capital Partners, LLC. GS Capital Partners,
LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $56,000. The first
8% note for $28,000 was funded with net proceeds of $25,000, after the deduction of $3,000 for OID. The second 8% note (the “Back-End
Note”) is initially paid for by an offsetting promissory note issued by GS Capital Partners, 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 January 10, 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 amounts cash funded 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 70% 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 15 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 60% instead
of 70% while that “chill” is in effect. The Back-End Note will not be cash funded and such note, along with the Note
Receivable, will be immediately cancelled if the shares do not maintain a minimum trading price during the five days prior to
such funding and a certain aggregate dollar trading volume during such period. 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. During the first six months First Note is in effect, the Company
may redeem either note by paying to GS Capital Partners, LLC an amount as follows: (i) if the redemption is within the
first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal amount of either note along with
any interest that has accrued during that period, and (ii) if the redemption is after the 91st day the either note is in effect,
but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount of either note along with any accrued
interest. The note may be redeemed after 180 days. The back-end note may not be repaid. The note holder may redeem this note at
any time after the first six months.
Other
Mr.
Hingge Hsu tendered his resignation for his position on the Board of Directors of the Company effective April 9, 2018, in order
to pursue other business opportunities that required his attention and time. His resignation was not due to any disagreement with
the Company regarding any matter related to the Company’s operations, policies or practices. Mr. Hsu’s service to
the board has been greatly appreciated by management and the other board members of the Company. He had served on the Board of
Directors since 2014.