Quarterly Report (10-q)

Date : 08/13/2019 @ 3:11PM
Source : Edgar (US Regulatory)
Stock : Tauriga Sciences, Inc. (TAUG)
Quote : 0.0275  -0.0045 (-14.06%) @ 9:00PM

Quarterly Report (10-q)

 

 

 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2019

 

OR

 

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

 

For the transition period from _____ to _____

 

Commission file number 000-53723

 

 

TAURIGA SCIENCES, INC.

(Exact name of registrant as specified in its charter)

 

Florida   30-0791746

(State or other jurisdiction of

incorporation or organization)

  (I.R.S. Employer
Identification No.)

 

555 Madison Avenue, 5 th Floor

New York, NY 10022

(Address of principal executive offices) (Zip Code)

 

(917) 796-9926

(Registrant’s telephone number, including area code)

 

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

None

 

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

 

Common Stock, $.00001 Par Value

(Title of class)

 

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

 

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

 

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

 

Large accelerated filer [  ]   Accelerated filer [  ]
Non-accelerated filer [  ]   Smaller reporting company [X]
Emerging growth company [  ]

 

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

 

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

 

As of August 13, 2019, the registrant had 76,145,090 shares of its Common Stock, $0.00001 par value, outstanding.

 

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

 

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

 

 

 

 
 

 

TABLE OF CONTENTS

 

      Pages
       
PART I. FINANCIAL STATEMENTS    
       
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS:   F-1
       
  Condensed Consolidated Balance Sheets as of June 30, 2019 and March 31, 2019 (unaudited)   F-1
       
  Condensed Consolidated Statements of Operations for the three months ended June 30, 2019 and 2018 (unaudited)   F-2
       
  Condensed Consolidated Statements of Changes in Stockholders’ Deficit for the three months ended June 30, 2019 and year ended March 31, 2019 (unaudited)   F-3
       
  Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2019 and 2018 (unaudited)   F-4
       
  Notes to Condensed Consolidated Financial Statements (unaudited)   F-5
       
Item 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS   3
       
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK   16
       
Item 4. CONTROLS AND PROCEDURES   17
       
PART II. OTHER INFORMATION    
       
Item 1. LEGAL PROCEEDINGS   19
       
Item 1A. RISK FACTORS   19
       
Item 2. UNREGISTERED SALE OF EQUITY SECURITIES AND USE OF PROCEEDS   22
       
Item 3. DEFAULTS UPON SENIOR SECURITIES   27
       
Item 4. MINE SAFETY DISCLOSURES   27
       
Item 5. OTHER INFORMATION   27
       
Item 6. EXHIBITS   28

 

2
 

 

PART I. FINANCIAL STATEMENTS

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED BALANCE SHEETS

(IN US$)

(UNAUDITED)

 

    June 30, 2019     March 31, 2019  
           
ASSETS                
Current assets:                
Cash   $ 15,247     $ 385,943  
Assets from discontinued operations     -       581  
Accounts receivable     28,028       -  
Investment - trading securities     444,785       350,400  
Investment - other     92,900       72,500  
Inventory asset     138,606       10,872  
Prepaid expenses and other current assets     85,675       127,520  
Total current assets     805,241       947,816  
                 
Lease right of use asset     9,071       -  
Property and equipment, net     12,778       13,010  
                 
Total assets   $ 827,090     $ 960,826  
                 
LIABILITIES AND STOCKHOLDERS’ EQUITY (DEFICIT)                
Current liabilities:                
Notes payable, net of discounts   $ 235,420     $ 213,875  
Accounts payable     27,168       34,703  
Accrued interest     16,946       30,780  
Accrued expenses     18,588       -  
Liabilites from discontinued operations     -       5,522  
Liability for common stock to be issued     -       172,500  
Lease liability - current portion     7,300       -  
Deferred revenue     162       -  
Total current liabilities     305,584       457,380  
                 
Lease liability - net of current portion     2,171       -  
                 
Total liabilities     307,755       457,380  
                 
Stockholders’ equity (deficit):                
Common stock, par value $0.00001; 100,000,000 shares authorized, 72,925,920 and 68,123,326 outstanding at June 30, 2019 and March 31, 2019, respectively     729       681  
Additional paid-in capital     56,665,512       55,991,704  
Accumulated deficit     (56,146,906 )     (55,488,939 )
Accumulated other comprehensive income     -       -  
Total stockholders’ equity (deficit)     519,335       503,446  
                 
Total liabilities and stockholders’ equity (deficit)   $ 827,090     $ 960,826  

 

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

 

F- 1
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(IN US$)

(UNAIDITED)

 

    For the three months ended  
    June 30,  
    2019     2018  
             
Revenues   $ 44,377     $ -  
Cost of goods sold     29,418       -  
                 
Gross profit     14,959       -  
                 
Operating expenses                
Marketing and advertising     130,548       -  
Research and development     3,852       -  
General and administrative     628,841       222,038  
Depreciation and amortization expense     232       259  
Total operating expenses     763,473       222,297  
                 
Loss from operations     (748,514 )     (222,297 )
                 
Other income (expense)                
Interest expense     (121,814 )     (23,496 )
Unrealized gain on trading securities     94,385       78,170  
Gain on the extinguishment of debt     113,467       -  
Gain on disposal of discontinued operations     4,941       -  
Loss on exchange from bitcoin     -       (37 )
Unrealized loss on digital currency     -       (5,572 )
Gain (loss) on sale of trading securities     -       340,020  
Foreign exchange     (29 )     -  
Total other income (expense)     90,950       389,085  
                 
INCOME (LOSS) FROM CONTINUING OPERATIONS BEFORE PROVISION FOR INCOME TAXES AND LOSS FROM DISCONTINUED OPERATIONS        (657,564  )        166,788   
                 
INCOME (LOSS) FROM DISCONTINUED OPERATIONS     -       -  
                 
Net income (loss)     (657,564 )     166,788  
                 
Net income (loss) attributable to non-controlling interest     -       -  
Net income (loss) attributable to controlling interest     (657,564 )     166,788  
                 
Net income (loss) attributable to common shareholders   $ (657,564 )   $ 166,788  
Income (loss) per share - basic and diluted - Continuing operations   $ (0.012 )   $ 0.003  
Income (loss) per share - basic and diluted - Discontinuing operations   $ -     $ -  
Weighted average number of shares outstanding - basic     55,767,119       53,662,728  
                 
Income (loss) per share - fully diluted   $ (0.012 )   $ 0.003  
Weighted average number of shares outstanding - fully diluted     55,767,119       59,359,187  

 

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

 

F- 2
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

CONDENSED CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY (DEFICIT)

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND THE YEAR ENDED MARCH 31, 2019

(UNAUDITED)

 

    Number of          

Additional

paid-in

    Accumulated    

Accumulated
other

comprehensive

   

Non-

Controlling

   

Total

stockholders’

 
    shares     Amount     capital     deficit     income (loss)     Interest     deficit  
                                           
Balance at March 31, 2018     52,264,476       523       54,680,382       (54,391,500 )     8,042       (2,196 )     295,251  
Shares issued for note conversion at $0.002888 per share     1,985,754       20       57,319       -       -       -       57,339  
Stock-based compensation vesting     -       -       43,221       -       -       -       43,221  
Stock issued for services at $0.345 to $0.42     130,000       1       (1 )     -       -       -       -  
Reclassification of other comprehensive income to additional paid in capital     -       -       8,042       -       (8,042 )     -       -  
Net loss for the three months ended June 30, 2018     -       -       -       166,788       -               166,788  
                                                         
Balance at June 30, 2018     54,380,230       544       54,788,963       (54,224,712 )     -       (2,196 )     562,599  
                                                         
Stock-based compensation vesting     -       -       132,055       -       -       -       132,055  
Net loss for the three months ended September 30, 2018     -       -       -       (265,552 )     -               (265,552 )
                                                         
Balance at September 30, 2018     54,380,230       544       54,921,018       (54,490,264 )     -       (2,196 )     429,102  
                                                         
Shares issued for note conversion at $0.0245 per share     1,000,000       10       24,490       -       -       -       24,500  
Stock-based compensation vesting     -       -       11,769       -       -       -       11,769  
Stock issued for services at $0.0269     1,750,000       18       (18 )     -       -       -       -  
Net loss for the three months ended December 31, 2018     -       -       -       (377,982 )     -               (377,982 )
                                                         
Balance at December 31, 2018     57,130,230       572       54,957,259       (54,868,246 )     -       (2,196 )     87,389  
                                                         
Issuance of shares via private placement at $0.02 to $0.06 per share     5,686,667       56       301,144       -       -       -       301,200  
Issuances of commitment shares - debt financing at $0.042 per share     500,000       5       20,995       -       -       -       21,000  
Shares issued for note conversion at $0.0357 to $0.0452 per share     2,960,762       30       118,849       -       -       -       118,879  
Stock-based compensation vesting     -       -       109,660       -       -       -       109,660  
Stock issued for services at $0.0495     1,250,000       12       (12 )     -       -       -       -  
Shares issued for settlement of contingent liability at $0.0405     500,000       5       74,995       -       -       -       75,000  
Shares issued for settlement of debt at $0.2091     95,667       1       20,003       -       -       -       20,004  
Recognition of benficial conversion feature of convertible notes     -       -       388,811       -       -       -       388,811  
Non-controlling interest     -       -       -       -       -       2,196       2,196  
Net loss for the year ended March 31, 2019     -       -       -       (620,693 )     -               (620,693 )
                                                         
Balance at March 31, 2019     68,123,326     $ 681     $ 55,991,704     $ (55,488,939 )   $ -     $ -     $ 503,446  
                                                         
Issuance of shares via private placement at $0.06 to $0.07 per share     714,286       7       44,993       -       -       -       45,000  
Issuances of commitment shares - debt financing at $0.19 per share     750,000       8       142,492       -       -       -       142,500  
Shares issued for note conversion at $0.04725 per share     888,308       9       41,964       -       -       -       41,973  
Stock-based compensation vesting     -       -       375,720       -       -       -       375,720  
Stock issued for services at $0.07 to $0.16     2,450,000       24       (24 )     -       -       -       -  
Shares issued for settlement of debt     -       -       -       -       -       -       -  
Recognition of benficial conversion feature of convertible notes     -       -       68,663       -       -       -       68,663  
Cumulative affect of adoption of Lease standard ASC 842     -       -       -       (403 )     -       -       (403 )
Net loss for the three months ended June 30, 2019     -       -       -       (657,564 )     -               (657,564 )
                                                         
Balance at June 30, 2019     72,925,920     $ 729     $ 56,665,512     $ (56,146,906 )   $ -     $ -     $ 519,335  

 

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

 

F- 3
 

 

TAURIGA SCIENCES, INC. AND SUBSDIARY

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN US$)

(UNAUDITED)

 

    For the three months ended  
    June 30,  
    2019     2018  
             
Cash flows from operating activities                
Net income (loss)   $ (657,564 )   $ 166,788  
Adjustments to reconcile net loss to cash used in operating activities:                
Amortization of original issue discount     8,673       3,561  
Non-cash lease operating lease expense     (3 )     -  
Unrealized loss on digital currency     -       5,572  
Depreciation and amortization     232       259  
Gain on extinguishment of debt     (113,468 )     -  
Amortization of debt discount     101,535       -  
Common stock issued and issuable for services (including stock-based compensation)     375,720       43,221  
Gain on disposal of discontinued operation     (4,941 )     -  
(Gain) loss on sale of trading securities     -       (339,810 )
Unrealized gain on trading securities     (94,385 )     (78,170 )
(Increase) decrease in assets                
Prepaid expenses     41,845       31,450  
Inventory     (127,734 )     -  
Proceeds (purchase) of trading securities, net     -       128,983  
Accounts receivable     (28,028 )     -  
Increase (decrease) in liabilities                
Accounts payable     (7,535 )     22,224  
Deferred revenue     162       -  
Accrued expenses     18,588       12,134  
Accrued interest     11,607       19,906  
Cash used in operating activities     (475,296 )     16,118  
                 
Cash flows from investing activities                
Contribution into Ice + Jam     -       -  
Proceeds (purchase) of digital currency, net     -       (7,831 )
Investment - other     (20,400 )     -  
Purchase of property and equipment     -       (10,086 )
Cash provided by (used in) investing activities     (20,400 )     (17,917 )
                 
Cash flows from financing activities                
Repayment of principal on notes payable to individuals and companies     -       -  
Proceeds from the sale of common stock (including to be issued)     15,000       -  
Proceeds from notes payable to individuals and companies     110,000       25,000  
Cash provided by financing activities     125,000       25,000  
Net increase in cash     (370,696 )     23,201  
                 
Cash, beginning of period     385,943       12,291  
Cash, end of period   $ 15,247     $ 35,492  
                 
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:                
Interest Paid   $ -     $ -  
Taxes Paid   $ -     $ -  
                 
NON CASH ITEMS                
Recognition of lease liability and right of use asset at inception   $ 12,066     $ -  
Conversion of notes payable and accrued interest for common stock   $ 41,973     $ 200,718  
Original issue discount on notes payable and debentures   $ 10,000     $ -  
Recognition of debt discount   $ 68,663     $ -  
Reclassification of other comprehensive income to additional paid in capital   $ -     $ 8,042  

 

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

 

F- 4
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS

 

The unaudited condensed consolidated financial statements included herein have been prepared, without audit, pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”). The condensed consolidated financial statements and notes are presented as permitted on Form 10-Q and do not contain certain information included in the Company’s annual statements and notes. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Company believes that the disclosures are adequate to make the information presented not misleading. It is suggested that these condensed consolidated financial statements be read in conjunction with the March 31, 2019 Form 10-K filed with the SEC, including the audited consolidated financial statements and the accompanying notes thereto. While management believes the procedures followed in preparing these condensed consolidated financial statements are reasonable, the accuracy of the amounts is in some respects dependent upon the facts that will exist, and procedures that will be accomplished by the Company later in the year.

 

These unaudited condensed consolidated financial statements reflect all adjustments, including normal recurring adjustments which, in the opinion of management, are necessary to present fairly the operations and cash flows for the periods presented.

 

Nature of Business

 

Tauriga Sciences, Inc. (the “Company”) is a Florida corporation. The Company has, over time, moved into that of a diversified life sciences technology company, with its mission to operate a revenue generating business, while continuing to evaluate potential acquisition candidates operating in the life sciences technology space.

 

TAURI-GUM TM

 

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

 

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

 

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

 

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

 

F- 5
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Nature of Business (Continued)

 

TAURI-GUM TM (Continued)

 

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

 

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

 

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

 

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

 

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

 

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

 

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

 

Tauri-Gum TM Distribution Agreements

 

E&M Ice Cream Company

 

On April 1, 2019, the Company entered into a comprehensive distribution agreement with E&M Ice Cream Company (“E&M”) to establish Tauri-Gum TM in the marketplace (the “E&M Distribution Agreement”). The Company has supported the Tauri-Gum TM commercial launch with substantial levels of both financial resources and marketing support. The Company had both received payment for and delivered the product for its previously announced $54,000 Tauri-Gum TM purchase order during March 2019, and re-orders in the first quarter of fiscal 2020. The Company has agreed to issue a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the shares is reflected in stock-based compensation based on the grant date of April 1, 2019. The Company is awaiting issuance instructions from E&M to issue the shares

 

F- 6
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Tauri-Gum TM Distribution Agreements (Continued)

 

South Florida Region Distribution Agreement

 

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

 

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

 

North Eastern United States Distribution Agreement

 

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

 

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

 

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

 

F- 7
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Tauri-Gum TM Distribution Agreements (Continued)

 

Windmill Health Distribution Agreement

 

On June 28, 2019, the Company entered into a distribution agreement with Windmill Health Products, LLC (“Windmill Health”), a New Jersey based distributor, with the intention of increasing and accelerating market penetration of the Company’s Tauri-Gum TM product line. Simultaneous with the Company’s entry into the Windmill Health agreement, Windmill Health placed an initial purchase order with us totaling $46,848, split evenly between packages of the Mint flavored and Blood-Orange flavored chewing gum product lines. The Company did not contribute any capital or issue any equity to Windmill Health in connection with the Windmill Health distribution agreement

 

Food and Drug Administration

 

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

 

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

 

2019 Increase in Authorized Shares

 

On July 26, 2019, the Company held a meeting of its board of directors. The matters voted on and approved at the meeting included an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, $0.00001 par value per share from 100,000,000 to 400,000,000 shares (the “Authorized Shares Increase”). In this regard, a Preliminary Proxy Statement which was filed with the Securities and Exchange Commission on July 29, 2019.

 

2018 Reverse Stock Split

 

On July 8, 2018, the Company implemented a Reverse Stock Split with a ratio of 1-for-75 (which became effective July 9, 2018). The par value and other terms of the common stock were not affected by the Reverse Stock Split. In addition, the amendment to the Company’s articles of incorporation that effected the Reverse Stock Split simultaneously reduced the number of authorized shares of Common Stock from 7,500,000,000 to 100,000,000.

 

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

 

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

 

F- 8
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Cupuaçu Butter Lip Balm

 

On December 23, 2016, the Company entered into a non-exclusive, 12-month license agreement (the “License Agreement”) with Cleveland, Ohio based cosmetics products company Ice + Jam LLC (“Ice + Jam”) to market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan® which launched during the quarter ended December 31, 2017.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. As a result of this and the concomitant halting of selling efforts, the Company had no sales of the HerMan® product during the three months ended June 30, 2019 or the year ended March 31, 2019. The Company has removed the product from the website and the remaining inventory was written off as it was determined that the units were not usable. The Company has discontinued this operation as of March 31, 2019. On April 1, 2019, the Company recognized a gain on the disposal of discontinued operations in the amount of $4,941.

 

Honeywood

 

Following the termination of a proposed 2014 merger between the Company and California-based Honeywood LLC (“Honeywood”), a developer of a topical medicinal cannabis product, on August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert an $170,000 note receivable due from Honeywood, including accrued interest 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-35-28, “ Investments—Debt and Equity Securities ”, a Company may not record an impairment loss on the investment but shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value of the investment) in each subsequent reporting period until either of the following occurs: a) the investment experiences a recovery of fair value up to (or beyond) its cost; or b) the entity recognizes an other-than-temporary impairment loss. At the time of the Honeywood Conversion Agreement, the receivable balance under the note of $199,119 had been fully written off by the Company in a prior period. As a result of the Honeywood Conversion Agreement, the Company deemed the investment to still have no current value. The Company recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.

 

Pilus Energy

 

On January 28, 2014, the Company acquired 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 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 for consideration of the termination of 80% of the unexercised portion of the warrants to purchase 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. Through June 30, 2019, there has been no activity recorded by Open Therapeutics with respect to Pilus Energy.

 

On January 12, 2019, the Company and Open Therapeutics agreed to extinguish a $75,000 contingent liability, whereby Open Therapeutics was to receive the first $75,000 of net profit earned from the operations of Pilus Energy in exchange for a one-time issuance of 500,000 restricted shares of Company’s common stock. The shares were recorded at a value of $24,750 ($0.0495 per share).

 

F- 9
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (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. On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp. (“Tauriga BDC”).

 

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

 

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

 

As of June 30, 2019, Tauriga BDC has not installed any of these machines in any locations and no revenue has been generated through the Blink contract.

 

Tauriga Sciences Limited

 

On June 10, 2019, the Company formed a wholly owned subsidiary, Tauriga Sciences Limited, with the registrar of Companies for Northern Ireland. Tauriga Sciences Limited is a private limited Company. The entity was established in conjunction with online merchant services. In conjunction to this new entity the Company entered into a two-year lease commencing on June 11, 2019 and expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate of 1.13 on the day the lease agreement was entered into).

 

Going Concern

 

During the fourth quarter of the year ended March 31, 2019, the Company began sales and marketing efforts for its Mint flavored Tauri-Gum TM product. During the three months ended March 31, 2019, the Company recognized sales of $57,134 and recognized a gross profit of $20,006, which has continued into the first fiscal quarter ended June 30, 2019 where the Company recognized revenue of $44,377 and a gross profit of $14,959. During the first quarter of fiscal year 2020, the Company has entered into multiple distribution agreements and has engaged an independent contractor to act as Vice President of Distribution and Marketing. Although the Company’s working capital surplus of $499,657 at June 30, 2019, has remained constant in the past year, the Company still believes that there is uncertainty with respect to continuing as a going concern.

 

F- 10
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 1 – BASIS OF OPERATIONS (CONTINUED)

 

Going Concern (Continued)

 

On July 1, 2019, months after the NYC Department of Heath announced a ban on cannabidiol in foods and beverages (mainly focused on restaurants and baked goods), the updated New York City Health Code now includes an embargoing of CBD-infused Edible(s) Products (including packaged products). The Company is hopeful that the FDA as well as the New York City Council will implement regulations surrounding the CBD industry in a logical and prompt manner. The FDA’s uncertainty surrounding CBD was the initial cause of the New York City ban, and we believe further clarification from the FDA supporting its safety and regulating its labeling will also offer a clearer pathway to the New York City CBD market. The Company is very well positioned in this argument and has taken a conservative approach towards its products, including, for example, ensuring that its product manufacturer periodically tests for compliance with the Agricultural Improvement Act of 2018, such as utilizing CBD oils from hemp plants and that it contains 0% THC content. The Company remains confident that this embargo on CBD Edible(s) products will be lifted and/or clarified. As a result of this embargo, the Company has taken the necessary steps to ensure that their marketing efforts are focused on areas outside of New York City, while still maintaining their New York City (the 5 Boroughs) presence.

 

The Company, in the short term, intends to continue funding its operations either through cash-on-hand or through financing alternatives. Management’s plans with respect to this include raising capital through equity markets to fund future operations as well as the possible sale of its remaining marketable securities which had a market value of $444,785 at June 30, 2019. In the event the Company cannot raise additional capital to fund and/or expand operations or fails to raise adequate capital and generate adequate sales revenue, it could result in the Company having to curtail or cease operations. Currently, the Company has a limited amount of shares of common stock available to issue under its articles of incorporation and has initiated the process of increasing the authorized stock.

 

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues in the short term there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations to achieve profitability thereby eliminating its reliance on alternative sources of funding. Although management believes that the Company is in a stronger position it has been in in several years, there is still no guarantee that profitable operations with sufficient cashflow to sustain operations can or will be achieved without the need of alternative financing, which is limited. These matters still raise significant doubt about the Company’s ability to continue as a going concern as determined by management. The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve months. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern as determined by management. However, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Condensed Consolidated Financial Statements

 

The condensed consolidated financial statements include the accounts and activities of Tauriga Sciences, Inc., its wholly-owned Canadian subsidiary, its wholly-owned subsidiary Tauriga BDC and Tauriga Sciences Limited. All intercompany transactions have been eliminated in consolidation. As of June 30, 2019, there is no activity in any of the Company’s subsidiaries other than Tauriga BDC holding the electric car chargers and the leasehold interest in Tauriga Sciences Limited.

 

F- 11
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Revenue Recognition

 

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

 

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

 

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

 

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

 

As of June 30, 2019, the Tauriga BDC has not installed any of these machines in any locations, and no revenue has been generated through the Blink contract.

 

During the three months ended March 31, 2019, the Company recognized its first sales of Tauri-Gum TM , primarily vis-à-vis its entry in the E&M Distribution Agreement.

 

The Company recognizes revenue upon the satisfaction of the performance obligation. The Company considers the performance obligation met upon shipment of the product or delivery of the product. For ecommerce orders, the Company’s products are shipped by a fulfillment company and payment is made in advance of shipment either through credit card or PayPal. The Company also delivers the product to its customers that they market to in the metropolitan New York Tri-State area that are not covered under any existing distribution agreements. The Company generally collects payment within 30 to 60 days of completion of its performance obligation, and the Company has no agency relationships. The Company recognized revenue from operations in the amount of $44,377 during the three months ended June 30, 2019 compared to no revenue for the same period in the prior year. All revenue is from the sale of the Company’s Tauri-Gum TM product line and there were accounts receivable of $28,028 currently outstanding for these sales.

 

The Company recognized no revenue from discontinued operations during the three months ended June 30, 2018 which was related to the sales of the HERMAN® lip balm product.

 

F- 12
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Sales Refunds

 

The Company’s refund policy allows customers to return product for any reason except where the customer does not like the taste of the product. The customer has 30 days from the date of purchase to initiate the process. Returns are limited to one return or exchange per customer. Only purchases up to $100 qualify for a refund. Approved return/refund requests are typically processed within 1-2 business days. For product purchases made through a Tauri-Gum TM distributor or retailer, the customer is required to work with original purchase location for any return or exchange. The Company has not established a reserve for returns as of June 30, 2019 however will monitor the refunds to estimate whether a reserve will be required.

 

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.

 

Cash Equivalents

 

For purposes of reporting cash flows, cash equivalents include investment instruments purchased with an original maturity of three months or less. At June 30, 2019, the Company’s cash on deposit with financial institutions did not exceed the total FDIC insurance limit of $250,000. At June 30, 2019 and March 31, 2019, the Company had a cash balance of $15,247 and $385,943, respectively. The Company’s does not expect, in the near term, for its cash balance to exceed the total FDIC insurance limit of $250,000 for other than very short periods of time where the Company would use such cash in excess of insurance in the very short-term in operating activities. To reduce its risk associated with the failure of such financial institution, the Company holds its cash deposits in more than one financial institution and evaluates at least annually the rating of the financial institution in which it holds its deposits. The Company had no cash equivalents as of June 30, 2019 and March 31, 2019.

 

Investment in Trading Securities

 

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

 

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

 

Investment – Cost Method

 

Investment in other companies that are not currently trading, are valued based on the cost method as the Company holds less than 20% ownership in these companies and has no influence over operational and financial decisions of the companies. The Company will evaluate, at least annually, whether impairment of these investments is necessary under ASC 320. As of June 30, 2019, the Company has not impaired any of their cost method investments.

 

F- 13
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Inventory

 

Inventory consists of finished goods in salable condition stated at the lower of cost or market determined by the first-in, first-out method. The inventory consists of packaged and 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 orders of single packs of Tauri-Gum TM . For multiple pack or wholesale product orders shipping cost is paid by the Company. As of June 30, 2019, the Company’s inventory on hand had a value of $138,606. The Company also has paid deposits in the amount of $52,500 to the manufacturer, Per Os Bio, towards orders not received as of June 30, 2019. Amounts paid to Per Os Bio for Tauri-Gum TM are classified as deposits (other current asset) on the Company’s condensed consolidated balance sheet until the goods are available for sale. The Company has not established any inventory reserve on the Tauri-Gum TM as of June 30, 2019.

 

Property and Equipment

 

Property and equipment are stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life of the assets are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.

 

Intangible Assets

 

Intangible assets consisted of licensing fees and a patent prior to being impaired which were stated at cost. Licenses were amortized over the life of the agreement and patents were amortized over the remaining life of the patent at the date of acquisition.

 

Net Income (Loss) Per Common Share

 

The Company computes per share amounts in accordance with 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 three months ended June 30, 2019, basic and fully diluted earnings per share were the same as the Company had losses in this period.

 

Stock-Based Compensation

 

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

 

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

 

F- 14
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Stock-Based Compensation (Continued)

 

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.

 

Reclassifications

 

Certain prior year amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on the net loss or cash flows of the Company.

 

Impairment of Long-Lived Assets

 

Long-lived assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of the assets might not be recoverable. The Company will perform a periodic assessment of assets for impairment in the absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived assets to be held and used, the Company would recognize an impairment loss only if it’s 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 $3,852 for the three months ended June 30, 2019 compared to no expense during the same period in the prior year. The Company is continually evaluating products and technologies in the natural wellness space, including its Tauri-Gum TM product including new flavor formulations and other CBD delivery products, as well as any intellectual property or other related technologies. As the Company investigates and develops relationships in these areas, resultant expenses for trademark filings, license agreements, website and product development and design materials will be expensed as research and development. Some costs will be accumulated for subsidiaries prior to formation of any new 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.

 

F- 15
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Fair Value Measurements (Continued)

 

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.

 

Share settled debt

 

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

 

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

 

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

 

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

 

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.

 

F- 16
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)

 

Income Taxes (Continued)

 

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 June 30, 2019.

 

Recent Accounting Pronouncements

 

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

 

In February 2016, FASB issued ASU 2016-02, “ Leases (Topic 842) .” The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with a term of 12 months or less will be accounted for similar to existing guidance for operating leases.

 

The new guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period and is applied retrospectively. Early adoption is permitted. The Company has adopted this standard as of April 1, 2019 (See Note 6).

 

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.

 

F- 17
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 3– INVENTORY

 

Inventory from continuing operations

 

Inventory value by product as of:

 

    June 30, 2019 (unaudited)     March 31, 2019  
             
Tauri-Gum TM   $ 138,606     $ 10,872  
                 
Total Inventory   $ 138,606     $ 10,872  

 

At June 30, 2019, deposits to Per Os Bio in the amount of $52,500 for the manufacturing costs of Tauri-Gum TM have been classified as a deposit (prepaid expenses other current assets) on the Company’s condensed consolidated balance sheet, as the goods are not yet available for sale.

 

At March 31, 2019, the Company had deposits to Per Os Bio in the amount of $105,000 for the manufacturing costs of Tauri-Gum TM for goods not yet available for sale.

 

NOTE 4– DISCONTINUED OPERATIONS

 

On March 31, 2019, the Company decided to discontinue operations relative to its HERMAN© Lip balm product line. After much effort the Company was unable to resolve manufacturing issues as it related to it its lip balm tube mechanism. The Company did not believe that these issues will be resolvable without a substantial investment of time and money. Therefore, the Company exchanged its 50% ownership in Ice+Jam, LLC for the balance of the non-controlling interest as of March 31, 2019. On April 1, 2019, the Company recognized a gain on the disposal of discontinued operations in the amount of $4,941.

 

The Company had no revenue or expenses from discontinued operations during the three months ended June 30, 2018.

 

TAURIGA SCIENCES, INC. AND SUBSIDIARY

BALANCE SHEETS FROM DISCONTINUED OPERATIONS

 

    June 30, 2019 (unaudited)     March 31, 2019  
             
Assets from discontinued operations   $        -     $ 581  
                 
Liabilities from discontinued operations   $ -     $ 5,522  

 

NOTE 5– PROPERTY AND EQUIPMENT

 

The Company’s property and equipment is as follows:

 

    June 30, 2019 (unaudited)     March 31, 2019     Estimated Life
                 
Computers, office furniture and other equipment   $ 69,808     $ 69,808     3-5 years
                     
Less: accumulated depreciation     (57,030 )     (56,798 )    
                     
Net   $ 12,778       13,010      

 

F- 18
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 5– PROPERTY AND EQUIPMENT (CONTINUED)

 

On June 29, 2018, the Company purchased four Blink Level 2 – 40” pedestal chargers for permanent placement in one or more retail locations whereby the Company will share revenue from these electric car vehicle charging units with such location owner. No depreciation expense has been recorded for the charging units as of June 30, 2019 due to the fact that they have not been placed in service.

 

Depreciation expense for the three months ended June 30, 2019 and 2018 was $232 and $259, respectively.

 

During the year ended March 31, 2019 the Company disposed of computer equipment valued at $1,632 recognizing a loss on disposal of $907.

 

NOTE 6 – OPERATING LEASE

 

The Company has adopted ASU No. 2016-02, Leases (Topic 842) , as of April 1, 2019 and will account for the new lease in terms of the right of use assets and offsetting lease liability obligations for this new lease under this pronouncement. In accordance with ASC 842 - Leases, effective April 1, 2019, the Company will record additional net lease right of use asset and a lease liability at present value of approximately $7,492 and $7,895, respectively, as of April 1, 2019. The Company is recording these at present value, in accordance with the standard, using a discount rate of 8% which is representative of the last borrowing rates for notes issued to a non-related party. The right of use asset is composed of the sum of all lease payments, at present value, and is amortized straight line over the life of the expected lease term. For the expected term of the lease the Company will use the initial term of the two-year lease. If the Company does elect to exercise its option to extend the lease for additional years, that election will be treated as a lease modification and the lease will be reviewed for remeasurement. This lease will be treated as an operating lease under the new standard.

 

The Company has chosen to implement this standard using the modified retrospective model approach with a cumulative-effect adjustment, which does not require the Company to adjust the comparative periods presented when transitioning to the new guidance on April 1, 2019. The Company has also elected to utilize the transition related practical expedients permitted by the new standard. The modified retrospective approach provides a method for recording existing leases at adoption and in comparative periods that approximates the results of a modified retrospective approach. Adoption of the new standard resulted in the recording of additional net lease assets and lease liabilities of approximately $7,492 and $7,895 as of April 1, 2019, respectively. The difference between the additional lease assets and lease liabilities, net of the deferred tax impact, will be recorded as an adjustment to retained earnings. The standard is not expected to materially impact our consolidated net earnings and had no impact on cash flows.

 

Corporate office – New York

 

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 lease right of use asset for this lease at adoption was $7,492 and will be amortized on a straight-line basis over the remaining term of the lease. For the three months ended June 30, 2019 the Company recorded a lease expense of $2,810. As of June 30, 2019, the value of the unamortized lease right of use asset is $4,683. As of June 30, 2019, the Company’s lease liability was $4,984.

 

Barcelona office

 

On June 11, 2019 the Company entered into a two-year lease, expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate of 1.13 on the day the lease agreement was entered into). In accordance with ASC 842 - Leases, effective June 11, 2019, the Company will record additional net lease right of use asset and a lease liability at present value of approximately $4,574, respectively as a result of this lease. The lease will be initially recorded using an exchange rate of 1.13. Any fluctuations in the currency rate will be recorded as gain or loss on currency translation.

 

F- 19
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 6 – OPERATING LEASE (CONTINUED)

 

The lease right of use asset, at inception, of $27,050 amortized on a straight-line basis over the term of the lease. The present value of the New York corporate office lease had an initial present value of $22,476 at December 1, 2017. The Barcelona office lease value had an initial present value of $4,573. For the three months ended June 30, 2019 the Company recorded a lease expense of $3,149. As of June 30, 2019, the value of the unamortized lease right of use asset is $9,071. As of June 30, 2019, the Company’s lease liability was $9,471.

 

Maturity of Operating Lease Liability for fiscal year ended June 30,
2020   $ 6,665  
2021   $ 2,288  
2022   $ 518  
         
Total lease payments   $ 9,471  

 

The following chart shows the Company’s operating lease cost at June 30, 2019 and 2018:

 

    For the three months ended  
    June 30, 2019     June 30, 2018  
             
Amortization of right of lease asset   $ 2,996     $ -  
Lease interest cost     153       -  
Total Lease cost   $ 3,149     $ -  

 

The following chart shows the Company’s operating lease liability at June 30, 2019.

 

Discounted Operating Lease liability at inception - December 1, 2017   $ 27,050  
Financing cost     1,055  
Less lease payments made     (18,204 )
Cumulative effect of adoption of ASC 842     (430 )
Operating lease liability at June 30, 2019     9,471  
Less Lease Liability current portion     (7,300 )
Lease Liability at June 30, 2019 – long-term   $ 2,171  

 

F- 20
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 7 – 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 by Pilus Energy from its previous year’s earnings, if any. The first $75,000 of such payments were to be retained by Pilus Energy as additional consideration for the sale, which was reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership interest on all matters for which a member vote is required. Through June 30, 2019, there has been no activity recorded by Open Therapeutics with respect to Pilus Energy.

 

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.

 

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

 

NOTE 8 – NOTES PAYABLE

 

Notes payable and convertible notes consisted of the following as of:

 

        June 30, 2019     March 31, 2019  
                 
Alternative Strategy Partners PTE Ltd.   (a)   $ -     $ 90,000  
GS Capital Partners LLC - Oct 2018   (b)     140,000       180,000  
GS Capital Partners LLC - Mar 2019   (c)     300,000       300,000  
GS Capital Partners LLC - May 2019   (d)     60,000       -  
GS Capital Partners LLC - Jun 2019   (e)     60,000       -  
Total notes payable and convertible notes       $ 560,000     $ 570,000  
Less - note discounts         (324,580 )     (356,125 )
Less - current portion of these notes         (235,420 )     (213,875 )
Total notes payable and convertible notes, net discounts – long-term       $ -     $ -  

 

F- 21
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 8 – NOTES PAYABLE (CONTINUED)

 

(a) Three-month $180,000 non-convertible debenture 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 Alternative Strategy Partners PTE Ltd. (“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. (“Eishin”), but the holder never provided any documentation evidencing that $90,000 was paid to Eishin. The Company is in dispute with the noteholder, and the Company has not recorded this liability as of December 31, 2018 or March 31, 2018. 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 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. Upon settlement, this note had accrued interest of $23,468. As a result, the Company and ASP, on May 29, 2019, agreed and acknowledged that they shall have no debt, liability or any obligation between them and that the ASP Loan Agreement is immediately retired (except with respect to the assignment and transfer of the Eishin shares noted above). Since the Eishen rights were not valued on the Company’s balance sheet, the $113,468 liability has been removed from the Company’s balance sheet, as is reflected in the Company’s financial statement as a gain on extinguishment of debt in the amount of $113,467 during the three months ended June 30, 2019.
   
(b) On October 25, 2018, the Company entered into a one-year $180,000 convertible note bearing 8% interest with GS Capital Partners, LLC. The note has an original issue discount of $11,750. A portion of the proceeds will be used to retire the two remaining convertible notes on the books of the Company as of December 31, 2018 with GS Capital Partners, LLC. The face value of this note 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. Due to the discount to market conversion, a beneficial conversion feature was recorded on this note as a discount to the note in the amount of the $108,111 which will be amortized over the life of the note. This amortization will be reflected as interest cost ratably over the term of the note. 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. This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note. During the first six months this note is in effect, the Company may redeem 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. On June 7, 2019, GS Capital Partners, LLC converted $40,000 of principal and $1,973 of accrued interest into 888,308 shares of common stock. Accrued interest as of June 30, 2019 was $8,227.

 

F- 22
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 8 – NOTES PAYABLE (CONTINUED)

 

(c) On March 14, 2019, the Company entered into a 12-month $300,000 principal face value 8.0% convertible debenture with GS Capital Partners, LLC, with a maturity date of March 13, 2020. The GS Capital Note carries $20,000 original issue discount (OID) and, as such, the initial net proceeds to the Company was $280,000. In connection with this agreement, the Company is obligated to issue 750,000 commitment shares having a value of $142,500 ($0.19 per share) which is reflected as interest expense in the Company’s consolidated statement of operations during the year ended March 31,2019. These shares were not issued as of March 31, 2019. The Holder is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock at a price for each share of Common Stock equal to 68% of the lowest daily VWAP of the Common Stock as reported on the National Quotations Bureau OTC Markets exchange for the fifteen (15) prior trading days. Due to the discount to market conversion, a beneficial conversion feature was recorded on this note as a discount to the note in the amount of the full face value of the note which will be amortized over the life of the note. This amortization will be reflected as interest cost ratably over the term of the note. The GS Capital Note may be redeemed by the Company during the first six months from execution, as follows: (i) if the redemption is within the first 90 days, then for an amount equal to 120% of the unpaid principal amount, with any accrued interest; (ii) if the redemption is after the 91st day, but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount, with any accrued interest. The GS Capital Note may not be redeemed after 180 days from the date of execution. At June 30, 2019, this note had accrued interest of $8,219. Also, in conjunction with this note, the 213,334 five-year cashless warrants, associated with the June 27, 2017, $80,000 5% one-year note were fully cancelled.
   
(d) On May 24, 2019, the Company entered into a one year 8% $60,000 Convertible Note with GS Capital Partners, LLC pursuant to the terms of a Securities Purchase Agreement. The GS Capital Note has a maturity date of May 23, 2020 and carried a $5,000 original issue discount (such that $55,000 was funded to the Company on May 24, 2019. The holder is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the GS Note then outstanding into shares of the Company’s common stock at a price for each share of common stock equal to 66% of the lowest daily volume weighted average price (VWAP) of the common stock as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (15) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. Such conversion shall be effectuated by the Company delivering the shares of common stock to the holder within 3 business days of receipt by the Company of the notice of conversion. Accrued but unpaid interest shall be subject to conversion. To the extent the conversion price of the Company’s common stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 56% instead of 66% while that “Chill” is in effect. In no event shall the holder be allowed to affect a conversion if such conversion, along with all other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. During the first six months that the GS Capital Note is in effect, the Company may redeem the GS Note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this Note along with any accrued interest. The GS Note may not be redeemed after 180 days. The Company may not redeem the GS Capital Note after the 180th day from entering into it. Upon an event of default, among other default provisions set forth in the GS Capital Note, (i) interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. (ii) if the Company shall fail to deliver to the holder the shares of common stock without restrictive legend (when permissible in accordance with applicable law) within three (3) business days of its receipt of a notice of conversion, then the Company shall pay a penalty of $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company (which shall be increased to $500 per day beginning on the 10th day); (iii) if the Company’s stock ceases to be listed on an exchange, its stock is suspended from trading for more than 10 consecutive trading days or the Company ceases to file its reports with the SEC under the Securities Exchange Act of 1934, as amended, then the outstanding principal due under the GS Capital Note shall increase by 50%; or (iv) if the GS Capital Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.

 

F- 23
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 8 – NOTES PAYABLE (CONTINUED)

 

(d) In connection with the GS Capital Note, the Company issued irrevocable transfer agent instructions reserving 3,327,000 shares of its Common Stock for conversions under this Note equal to two and a half times the discounted value of the Note (the “Share Reserve”) within 5 days from the date of execution and shall maintain a 2.5 times reserve for the amount then outstanding. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. At June 30, 2019, this note had accrued interest of $500.
   
(e) On June 21, 2019, the Company entered into a one year 8% $60,000 Convertible Note with GS Capital Partners, LLC pursuant to the terms of a Securities Purchase Agreement. The GS Capital Note has a maturity date of June 21, 2020 and carried a $5,000 original issue discount (such that $55,000 was funded to the Company on June 21, 2019). The holder is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the GS Note then outstanding into shares of the Company’s common stock at a price for each share of common stock equal to 66% of the lowest daily volume weighted average price (VWAP) of the common stock as reported on the National Quotations Bureau OTC Markets exchange, which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (15) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. Such conversion shall be effectuated by the Company delivering the shares of common stock to the holder within 3 business days of receipt by the Company of the notice of conversion. Accrued but unpaid interest shall be subject to conversion. To the extent the conversion price of the Company’s common stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 56% instead of 66% while that “Chill” is in effect. In no event shall the holder be allowed to affect a conversion if such conversion, along with all other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. During the first six months that the GS Capital Note is in effect, the Company may redeem the GS Note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this Note along with any accrued interest. The GS Note may not be redeemed after 180 days. The Company may not redeem the GS Capital Note after the 180th day from entering into it. Upon an event of default, among other default provisions set forth in the GS Capital Note, (i) interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. (ii) if the Company shall fail to deliver to the holder the shares of common stock without restrictive legend (when permissible in accordance with applicable law) within three (3) business days of its receipt of a notice of conversion, then the Company shall pay a penalty of $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company (which shall be increased to $500 per day beginning on the 10th day); (iii) if the Company’s stock ceases to be listed on an exchange, its stock is suspended from trading for more than 10 consecutive trading days or the Company ceases to file its reports with the SEC under the Securities Exchange Act of 1934, as amended, then the outstanding principal due under the GS Capital Note shall increase by 50%; or (iv) if the GS Capital Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.
   
  In connection with the GS Capital Note, the Company issued irrevocable transfer agent instructions reserving 2,650,000 shares of its Common Stock for conversions under this Note equal to two and a half times the discounted value of the Note (the “Share Reserve”) within 5 days from the date of execution, and shall maintain a 2.5 times reserve for the amount then outstanding. Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. At June 30, 2019, this note had accrued interest of $118.
   
  During the year ended March 31, 2019, the Company issued 5,946,516 shares of common stock to holders of convertible notes to retire $187,000 in principal and $13,718 of accrued interest (at an average conversion price of $0.03375 per share) under the convertible notes.  
   
  During the three months ended June 30, 2019, the Company issued 888,308 shares of common stock to holders of convertible notes to retire $40,000 and $1,973 of note principal and accrued interest, respectively.  

 

F- 24
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 8 – NOTES PAYABLE (CONTINUED)

 

  Interest expense for the three months ended June 30, 2019 was $121,814 compared to $23,496 for the prior year. Accrued interest at June 30, 2019 and March 31, 2019 was $16,946 and $30,780, respectively.  

 

NOTE 9 – RELATED PARTIES

 

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 December 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. As of March 31, 2019, these assets and liabilities were reflected in assets and liabilities from discontinued operations.

 

In conjunction with and consideration for a July 22, 2019, 10% convertible note, in the amount of $55,000, under a Securities Purchase Agreement the Company entered into with Jefferson Street Capital, LLC, the Chief Executive Officer has personally guaranteed the prompt, full and complete payment of the outstanding principal amount, accrued and unpaid interest, default interest (if any) and applicable fees (if any), owing by the Company under the note. This personal guaranty will remain in effect until such time that the Company can reserve at least six times the amount of common shares issuable upon full conversion of the note. The Company anticipates this to occur upon the effectiveness of the increase in the Company’s authorized shares within the 75 days from the date of the note as indicated in the agreement.

 

NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT)

 

Common Stock

 

As of June 30, 2019, the Company is authorized to issue 100,000,000 shares of its common stock. As of June 30, 2019 and August 13, 2019, there were 72,925,920 and 75,895,090 shares, respectively of common stock issued and outstanding which includes all adjustments for fractional shares.

 

On July 26, 2019, the Company’s Board of Directors approved the (i) increase of the authorized common stock of the Company from 100,000,000 shares to 400,000,000 shares; (ii) the filing of both the preliminary and definitive information statements; and (iii) approved the record date of July 29, 2019.

 

Fiscal Year 2019

 

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

 

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

 

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

 

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

 

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

 

F- 25
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

 

Common Stock (Continued)

 

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

 

Fiscal Year 2020

 

During the three months ended June 30, 2019, the Company issued 1,200,000 shares under distribution agreements.

 

During the three months ended June 30, 2019, the Company issued 888,308 shares for conversion of debt in the amount of $40,000 as well as accrued interest in the amount of $1,964 ($0.04725).

 

During the three months ended June 30, 2019, the Company issued 250,000 shares issued to Vice President of Distribution and Marketing.

 

During the three months ended June 30, 2019, the Company issued 1,000,000 shares issued for services rendered

 

During the three months ended June 30, 2019, the Company issued 750,000 shares for debt commitment in the amount of $142,500 ($0.19 per share). The shares were recorded as a liability to issue shares at March 31, 2019 on the Company’s balance sheet.

 

During the three months ended June 30, 2019, the Company issued 714,286 shares under stock purchase agreements in consideration for $45,000 (average of $0.063 per share) to accredited investors that are unrelated third parties.

 

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 $375,720 and $43,221 in stock-based compensation expense related to these agreements in the three months ended June 30, 2019 and 2018.

 

F- 26
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

 

Warrants for Common Stock

 

The following table summarizes warrant activity for the three months and year ended June 30, 2019 and March 31, 2019:

 

          Weighted     Average      
          Average     Remaining   Aggregate  
          Exercise     Contractual   Intrinsic  
    Shares     Price     Term   Value  
                       
Outstanding at March 31, 2018     1,433,611     $ 1.06     3.02 Years   $ -  
                             
Granted     -       -           -  
Expired     (223,335 )     0.2843              
Exercised     -       -              
Canceled     -       -              
                             
Outstanding and exercisable March 31, 2019     1,210,276     $ 1.2     1.28 Years   $ -  
                             
Granted     -       -           -  
Expired     (389,344 )     0.75              
Exercised     -       -              
Canceled     -       -              
                             
Outstanding and exercisable June 30, 2019     820,932     $ 1.41     1.41 Years   $         -  

 

During the year ended March 31, 2019, 213,334 warrants expired which were issued in conjunction with a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners, LLC. The five-year cashless warrants had an exercise price of $0.2625 per share. These warrants were cancelled as part of the convertible note agreement which the Company entered into with GS Capital Partners, LLC on March 14, 2019 in the amount of $300,000 (See Note 8 section c).

 

During the year ended March 31, 2019, 10,001 three-year warrants expired which were awarded to investors in conjunction with security purchase agreements. These warrants had a strike price of $0.75.

 

During the three months ended June 30, 2019, 389,344 three-year warrants expired which were awarded to investors in conjunction with security purchase agreements. These warrants had a strike price of $0.75.

 

F- 27
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 10 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)

 

Stock Options

 

On February 1, 2012, the Company awarded to each of two executives’, one current and one former, options to purchase 66,667 common shares, an aggregate of 133,334 shares. These options vested immediately and were for services performed.

 

The following table summarizes option activity for the year and three months ended June 30, 2019 and March 31, 2019:

 

    Shares     Weighted-
Average
Exercise
Price
    Weighted
Average
Remaining
Contractual
Term
  Aggregate
Intrinsic
Value
 
                       
Outstanding at March 31, 2018     133,334     $ 7.50     3.85 Years   $  
                             
Granted                        
Expired                        
Exercised                        
                             
Outstanding at March 31, 2019     133,334     $ 7.50     2.85 Years   $  
                             
Granted                        
Expired                        
Exercised                        
                             
Outstanding and exercisable at June 30, 2019     133,334     $ 7.50     2.60 Years   $  

 

NOTE 11 – PROVISION FOR INCOME TAXES

 

Deferred income taxes are determined using the liability method for the temporary differences between the financial reporting basis and income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts of assets and liabilities and their respective tax bases.

 

The following table summarizes the significant differences between the U.S. Federal statutory tax rate and the Company’s effective tax rate for financial statement purposes for the three months and years ended June 30, 2019 March 31, 2019:

 

    June 30, 2019     March 31,2019  
Federal income taxes at statutory rate     21.00 %     21.00 %
State income taxes at statutory rate     0.00 %     0.00 %
Temporary differences     8.99 %     1.48 %
Permanent differences     0.17 %     0.24 %
Impact of Tax Reform Act     0.00 %     (167.44 )%
Change in valuation allowance     (30.16 )%     144.72 %
Totals     0.00 %     0.00 %

 

Realization of deferred tax assets is dependent upon sufficient future taxable income during the period that deductible temporary differences and carry-forwards are expected to be available to reduce taxable income. As the achievement of required future taxable income is uncertain, the Company recorded a valuation allowance.

 

F- 28
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 11 – PROVISION FOR INCOME TAXES (CONTINUED)

 

    As of     As of  
    June 30, 2019     March 31, 2019  
Deferred tax assets:                
Net operating losses before non-deductible items   $ 3,763,732     $ 3,685,807  
Loss on disposal of fixed assets     355       355  
Stock-based compensation     288,492       209,591  
Unrealized gains or losses on investments     (24,079 )     (4,258 )
Total deferred tax assets     4,028,500       3,891,495  
Less: Valuation allowance     (4,028,500 )     (3,891,495 )
                 
Net deferred tax assets   $ -     $ -  

 

At June 30, 2019, the Company had a U.S. net operating loss carryforward in the approximate amount of $17.9 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 valuation allowance increased by $137,005 in the three months ended June 30, 2019 and decreased by $1,516,710 in the year ended March 31, 2019. The net decreases were the result of the tax effects of the Tax Cuts and Jobs Act (the “TCJA”) offset by taxable losses net of timing differences in each of the years.

 

On December 22, 2017, Public Law 115-97, informally referred to as 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%. The effective rate for the year ended March 31, 2018 was 31% as the rate was changed effective January 1, 2018 to the lower rate. 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. Given the significant complexity of the TCJA and anticipated additional implementation guidance from the Internal Revenue Service, further implications of the TCJA may be identified in future periods. The Company has adjusted their NOLs and valuation allowances to account for the changes brought about by the TCJA for the three months and year ended June 30, 2019 and March 31, 2019, respectively.

 

F- 29
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 12 – 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 on a first in first out basis.

 

Investment in Trading Securities:

 

At March 31, 2019                                      
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)   $ -       -     $ -     $ -     $ -     $ -     $ -  
VistaGen Therapeutics Inc (VTGN)   (b)     490,117       349,498       (517,485 )     287,500       294,400       (34,630 )     6,900  
Blink Charging Co (BLNK)   (c)     190,350       151,666       (367,142 )     -       -       25,126       -  
Blink Charging Co (BLNKW) (Warrants)   (c)     900       162,215       (468,496 )     -       -       305,381       -  
Aytu BioScience Inc (AYTU)   (d)     82,270       100,030       (144,094 )     -       -       (38,206 )     -  
Lightbridge Corp. (LTBR)   (e)     37,511       299,028       (276,159 )     -       -       (60,380 )     -  
Pulmatrix Inc. (PULM)   (f)     -       204,802       (183,737 )     -       -       (21,065 )     -  
Axovant Sciences Ltd. (AXON)   (g)     -       103,938       (98,433 )     -       -       (5,505 )     -  
Basanite Inc. (BASA)   (h)     -       42,998       (10,821 )     30,000       56,000       (2,177 )     26,000  
Achieve Life Sciences (ACHV)   (i)     -       177,356       (112,221 )     -       -       (65,135 )     -  
Decision Diagnostics (DECN)   (j)     -       20,479       (16,893 )     -       -       (3,586 )     -  
Totals       $ 801,148     $ 1,612,010     $ (2,195,481 )   $ 317,500     $ 350,400     $ 99,823     $ 32,900 *

 

At June 30, 2019                                      
Company       Beginning of Period Cost     Purchases     Sales Proceeds     End of Period Cost     Fair Value     Realized Gain (Loss)     Unrealized Gain (Loss)  
VistaGen Therapeutics Inc (VTGN)   (b)     287,500              -               -       287,500       166,865             -       (120,635 )
Basanite Inc. (BASA)   (h)     30,000       -       -       30,000       277,920       -       247,920  
Totals       $ 317,500     $ -     $ -     $ 317,500     $ 444,785     $ -     $ 127,285 **

 

* Represents the Unrealized Gain (Loss) at March 31, 2019 for securities being held by the Company. For the year ended March 31, 2019, there was a cumulative unrealized gain on trading securities of $223,349 on these investments.

 

**This amount represents the cumulative unrealized gain as of June 30, 2019, which includes $94,385 for the three months ended June 30, 2019.

 

F- 30
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 12 – INVESTMENTS (CONTINUED)

 

Trading securities (Continued)
   
(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 in the year ended March 31, 2018. For the year ended March 31, 2019, there was a realized gain of $125.
   
(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. During the year ended March 31, 2019, the Company purchased 59,380 shares of VTGN for $61,998 (average price per share of $1.04 per share) in the open market. The Company sold 389,380 shares of VTGN for $517,485 ($1.33 per share) for a realized loss of $34,630. The Company also purchased in a direct offering 230,000 restricted common shares directly from VTGN during the year ended March 31, 2019 for a cost of $287,500. As of March 31, 2019, these shares were not on deposit with the Company’s broker of record. As of June 30, 2019, the Company has an unrealized loss on these shares in the amount of $120,635, and for the year ended March 31, 2019 has recorded a total realized loss of $34,630 in VTGN. As June 30, 2019, these shares were not on deposit held with the Company’s broker of record.
   
(c) The Company participated in an $18,500,250 underwritten public offering by BLINK, which closed on February 14, 2018. The Company invested $191,250 of its balance sheet cash and purchased 45,000 registered shares, 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’s investment in BLINK common stock and warrants had a cost of $191,250, unrealized loss of $35,955 and a fair value of $155,295 at March 31, 2018. During the three months ended June 30, 2018 the Company purchased 41,018 shares of BLINK at a cost of $151,666 (average price per share of $3.69). The Company sold its total holding of 86,018 shares of BLINK for $367,142 (average price per share of $4.26) realizing a gain of $25,126. During the three months ended June 30, 2018, the Company also purchased 208,800 warrants of BLNKW (average price per warrant of $0.77) and sold its entire position of 298,800 for $468,496 (average price per warrant of $1.60) realizing a gain of $305,381.
   
(d) On March 2 and March 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 gain of $37,677 and a fair value of $119,947 at March 31, 2018. During the year ended March 31, 2019, the Company purchased 260,000 shares of AYTU for a $100,830 (average price per share $0.38). During the year ended March 31, 2019, the Company sold all 448,300 shares of AYTU for $144,094 ($0.32 per share). During the year ended March 31, 2019, the Company had a realized loss of $38,206 on this holding.
   
(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. During the year ended March 31, 2019, the Company purchased 287,405 shares of LTBR for $295,625 (average of $1.03 per share). During the year ended March 31, 2019, the Company sold 312,405 shares of LTBR for $276,159 (average price per share of $0.884) realizing a loss of $60,380.
   
(f) During the year ended March 31, 2019, the Company purchased 391,514 shares of Pulmatix Inc. (PULM) for $204,802 (average per share price of $0.52). During the year ended March 31, 2019, the Company sold all 391,514 shares for $183,747 ($0.47 per share). The Company had a realized loss of $21,065 on this holding.

 

F- 31
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 12 – INVESTMENTS (CONTINUED)

 

Trading securities (Continued)
   
(g) During the year ended March 31, 2019, the Company purchased 40,000 shares of Axovant Sciences Ltd. (AXON) for $103,938 (average share price of $2.60). During the year ended March 31, 2019, the Company sold all 40,000 shares for $98,433 ($2.46 per share). The Company had a realized loss of $5,505 on this holding.
   
(h) On July 5, 2018, the Company purchased 100,000 shares of Basanite Industries Inc. (BASA) (formerly Paymeon, Inc. (PAYM)) for $12,998 ($0.13 per share) in the open market. During July 2018 the Company sold the 100,000 shares for $10,821 ($0.11 per share) for a realized loss of $2,177. On July 9, 2018, the Company purchased 400,000 restricted common shares directly from the Company for $30,000 ($0.075 per share). As of June 30, 2019, the Company had an unrealized gain of $247,920. In conjunction with the investment, the Company agreed to a 12-month resale restriction. BASA is publicly traded on the OTC:Pink. As June 30, 2019, these shares were not on deposit held with the Company’s broker of record.
   
(i) During the year ended March 31, 2019, the Company purchased 44,000 common shares of Achieve Life Sciences (ACHV) for $177,355 ($4.03 per share). During the year ended March 31, 2019, the Company sold all 44,000 shares for $112,221 ($2.55 per share) for a realized loss of $65,135.
   
(j) During the year ended March 31, 2019, the Company purchased 450,000 common shares of Decision Diagnostics (DECN) for $20,480 ($0.046 per share). During the year ended March 31, 2019, the Company sold all of its shares for $16,893 ($0.038 per share) for a realized loss of $3,586.

 

At June 30, 2019, the Company held warrants for AYTU to purchase 5,555 common shares at a strike price of $10.80 with an expiration of March 6, 2023. The strike price and number of shares were adjusted for the August 10, 2018, 1 for 20 reverse stock-split. At June 30, 2019, these warrants were out of the money by $9.13 per share and are not publicly traded, the Company has not recognized the value of these warrants as they are not liquid.

 

At June 30, 2019, the Company currently holds warrants for VTGN to purchase 320,000 shares of common stock at a strike price of $1.50 per share with an expiration of December 13, 2022 and warrants for VTGN to purchase 230,000 shares of common stock at a strike price of $1.50 per share with an expiration of February 28, 2022. At June 30, 2019, these warrants were out of the money by $0.25 per share. Since these warrants are not publicly traded, the Company has not recognized the value of these warrants as they are not liquid.

 

Digital Currency

 

During the year ended March 31, 2019, the Company purchased. Groestlcoin cryptocurrency (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 triggers the potential recognition of realized gains or losses on the purchase of Groestlcoin.

 

On April 2, 2018, the Company completed a purchase in the Groestlcoin cryptocurrency in the aggregate amount of $8,000 for 11,922.81 units ($0.6569 per unit).

 

On July 15, 2018, the Company sold all of its 39,862 units of Groestlcoin cryptocurrency converting it into 4.17 units of BTC having a value of $32,230. On August 20, 2018, the Company converted its BTC to gold bullion and silver coins at a value of $26,783.

 

On August 25, 2018, the Company sold all gold and silver commodities held for a sum of $24,046, recognizing a loss on the transaction of $2,737.

 

During the year ended March 31, 2019, had an unrealized loss on digital currency of $3,143 prior to the conversion to the gold and silver.

 

During the three months ended June 30, 2019, the Company had no digital currency activity.

 

F- 32
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 12 – INVESTMENTS (CONTINUED)

 

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 year.

 

Cost investments

 

Küdzoo, Inc.

 

On September 4, 2018, the Company invested $15,000 in Küdzoo, Inc. (“Küdzoo”), a privately held company. Küdzoo is the developer of a mobile application that rewards students for their grades and achievements with deals and opportunities. The investment is recorded at cost and represents 0.2% of the value of Küdzoo based on a pre-money valuation of $7,500,000.

 

On March 21, 2019, the Company invested $22,500 in Küdzoo. This investment was recorded at cost and represents 0.22% of the proportionate interest in the outstanding of the Company after this offering based on a pre-money valuation of $10,200,000. On April 8, 2019, the Company invested another $20,400, which was recorded at cost representing a 0.42% of the proportionate interest in the outstanding of the Company after this offering based on a pre-money valuation of $10,200,000.

 

The Company tested the investment value for Küdzoo as of March 31, 2019 for impairment. It was noted that the value of the company has increased based on recent equity raises in which the Company took part in. As a result of the new equity raises, the Company does not believe there is any impairment of this investment as of June 30, 2019.

 

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

 

Serendipity

 

On October 31, 2018, the Company invested $35,000 in Serendipity Brands LLC (dba Serendipity Ice Cream Co.) (“Serendipity”), a privately held Company. Serendipity is an ice cream distribution company providing wholesale distribution to retail customers. The investment was recorded at cost and represents 0.24% of the value of Serendipity based on a pre-money valuation of approximately $14 million.

 

The Company tested the investment value for Serendipity as of March 31, 2019 for impairment. It was noted that the value of the company has maintained its value through reviews of their financial performance, therefore, the Company does not believe there is any impairment of this investment as of June 30, 2019.

 

F- 33
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 13 – FAIR VALUE MEASUREMENTS

 

The following summarizes the Company’s financial assets and liabilities that are measured at fair value on a recurring basis at June 30, 2019 and March 31, 2019:

 

    June 30, 2019  
    Level 1     Level 2     Level 3     Total  
Assets                                
Investment-trading securities   $ 444,785     $ -     $ -     $ 444,785  
Cost method investment – Küdzoo   $ -     $ -     $ 57,900     $ 57,900  
Cost method investment – Serendipity Brands   $ -     $ -     $ 35,000     $ 35,000  

 

    March 31, 2019  
    Level 1     Level 2     Level 3     Total  
Assets                                
Investment-trading securities   $ 350,400     $ -     $ -     $ 350,400  
Cost method investment – Küdzoo   $ -     $ -     $ 37,500     $ 37,500  
Cost method investment – Serendipity Brands   $ -     $ -     $ 35,000     $ 35,000  

 

NOTE 14 – CONCENTRATIONS

 

During the three months and year ended June 30, 2019 and March 31, 2019, we have one supplier for 100% of our product who is also the manufacturer of Tauri-Gum TM .

 

For the three months ended June 30, 2019, one customer accounted for 23.96% of product sales from continuing operations. For the year ended March 31, 2019, one customer accounted for 97% of product sales from continuing operations.

 

NOTE 15 – SUBSEQUENT EVENTS

 

Subsequent to June 30, 2019, the Company issued additional shares of common stock as follows; (i) 250,000 shares for commitment shares relative to convertible note issued; (ii) 250,000 shares under a distribution agreement dated April 30, 2019; and (iii) 2,719,170 shares in conversion of convertible notes of $75,000 and accrued interest of $4,373.

 

F- 34
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 15 – SUBSEQUENT EVENTS (CONTINUED)

 

Convertible Notes

 

On July 22, 2019, the Company and Jefferson Street Capital, LLC (“Jefferson Street”) consummated entry into a Securities Purchase Agreement where the Company has borrowed $55,000 ($50,000 with original issuance discount reflected) at 10% annual interest under a term of nine-months in the form of a convertible note. The note is convertible into restricted stock of the Company. In connection with this agreement, the Company issued 250,000 commitment shares having a value of $10,500 ($0.042 per share, the closing price of our common stock on the day preceding the note) which will be reflected as interest expense in the Company’s condensed consolidated statement of operations during the three months ended June 30, 2019. The restricted stock was valued at the closing price on July 22, 2019. Legal fees of $2,000 were deducted from cash proceeds of the note payable to investor’s counsel, and a $5,000 original issue discount recognized. The Company received cash proceeds of $48,000 at closing. Under the Jefferson Street note, the Company is required initially to reserve 1,000,000 shares of its common stock, and thereafter to increase the reserve up to 15,000,000 shares upon the increase in the Company’s authorized common shares (per a charter amendment via shareholder meeting and approval as approved by the Board of Directors on July 26, 2019), but up to six times the number of shares required for a full conversion. The Company has 75 days from the date of this note to have this increased effectuated. The noteholder may, at any time, at its option, convert all or any amount of the principal face amount of the note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common Stock equal to 65% of the lowest volume weighted average price for the Company’s common stock during the previous fifteen trading day period as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, including the day upon which a notice of conversion is received by the Company. If the Company fails to maintain the share reserve at the required amounts, or to attain shareholder approval within 75 days of July 22, 2019, this will be considered an Event of Default. This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note; however, the Company maintains the option to repay the note in cash within the first 180 days beginning on July 22, 2019 to avoid such default provision triggering event, as more fully described below.

 

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) 120% of the prepayment penalty for redemptions in the first 90 days after the note issuance; and (b) 133% of the prepayment amount if such prepayment was made at any time from (91 days after the issuance date until 180 days after the issuance date). The note is not able to be prepaid after 180 days after the issuance date.

 

Upon an event of default (as defined and described in the note), among other default penalties, the Company shall pay the Default Amount (as defined in the agreement) as well as incur annual interest at a default interest rate of 24% per annum.

 

In consideration of Jefferson Street loaning the Company the proceeds under this note, the Chief Executive Officer has personally guaranteed the prompt, full and complete payment of the outstanding principal amount, accrued and unpaid interest, default interest (if any) and applicable fees (if any), owing by the Company under the note. This personal guaranty will remain in effect until such time that the Company can reserve at least six times the amount of common shares issuable upon full conversion of the note. The Company anticipates this to occur upon the effectiveness of the increase in the Company’s authorized shares within the 75 days from the date of the note as indicated in the agreement.

 

F- 35
 

 

TAURIGA SCIENCES, INC. AND SUBSIDIARIES

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

FOR THE THREE MONTHS ENDED JUNE 30, 2019 AND 2018

(UNAUDITED)

(US$)

 

NOTE 15 – SUBSEQUENT EVENTS (CONTINUED)

 

Other

 

On July 1, 2019, months after the NYC Department of Heath announced a ban on cannabidiol in foods and beverages (mainly focused on restaurants and baked goods), the updated New York City Health Code now includes an embargoing of CBD-infused Edible(s) Products (including packaged products). The Company is hopeful that the FDA as well as the New York City Council will implement regulations surrounding the CBD industry in a logical and prompt manner. The FDA’s uncertainty surrounding CBD was the initial cause of the New York City ban, and we believe further clarification from the FDA supporting its safety and regulating its labeling will also offer a clearer pathway to the New York City CBD market. The Company is very well positioned in this argument and has taken a conservative approach towards its products, including, for example, ensuring that its product manufacturer periodically tests for compliance with the Agricultural Improvement Act of 2018, such as utilizing CBD oils from hemp plants and that it contains 0% THC content. The Company remains confident that this embargo on CBD Edible(s) products will be lifted and/or clarified. As a result of this embargo, the Company has taken the necessary steps to ensure that their marketing efforts are focused on areas outside of New York City, while still maintaining their New York City (the 5 Boroughs) presence.

 

On July 26, 2019, the Company’s Board of Directors approved the (i) increase of the authorized common stock of the Company from 100,000,000 shares to 400,000,000 shares; (ii) the filing of both the preliminary and definitive information statements; and (iii) approved the record date of July 29, 2019.

 

On August 12, 2019, the Company received $47,500 net proceeds for the second of two notes (the “Back-End Note”) under a December 20, 2018 security purchase agreement with Adar Alef, LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $110,000. Both notes were for $55,000 and had funded with net proceeds of $47,500, after the deduction of $5,000 for OID and $2,500 in legal fees. The first note was previously funded on December 24, 2018. The Back-End Note was initially paid for by an offsetting promissory note issued by Adar Alef, LLC to the Company (the “Note Receivable”). The terms of the Back-End Note required cash funding prior to any conversion thereunder. The Note Receivable was due December 20, 2019, unless certain conditions were not met, in which case both the Back-End Note and the Note Receivable may both have been cancelled. The Back-End Note has a maturity date one year from the date of issuance upon which any outstanding principal and interest is due and payable. The face value amount plus accrued interest under the Back-End Note are convertible into shares of the Company’s common stock at a price for each share of common stock equal to 60% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the 20 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 50% instead of 60% while that “chill” is in effect. Upon an event of default, principal and accrued interest will become immediately due and payable under the notes. Additionally, upon an event of default, both notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further, certain events of default may trigger penalty and liquidated damage provisions. This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note. This Back-End Note may not be repaid. The note holder may redeem this note at any time after the first six months.

 

F- 36
 

 

ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

 

The following Management’s Discussion and Analysis of Financial Condition and Results of Operations describes the principal factors affecting the results of operations, liquidity and capital resources of the Company and critical accounting estimates. This discussion should be read in conjunction with the accompanying quarterly unaudited Condensed Consolidated Financial Statements contained in this Form 10-Q and our Annual Report on Form 10-K, for the year ended March 31, 2019 (“Annual Report”). Our Annual Report includes additional information about our significant accounting policies, practices and the transactions that underlie our financial results, as well as a detailed discussion of the most significant risks and uncertainties associated with our financial and operating results.

 

This Quarterly Report on Form 10-Q contains “forward-looking statements” within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. These statements are often identified by the use of words such as “may,” “will,” “expect,” “believe,” “anticipate,” “intend,” “could,” “estimate,” or “continue,” and similar expressions or variations. Such forward-looking statements are subject to risks, uncertainties and other factors that could cause actual results and the timing of certain events to differ materially from future results expressed or implied by such forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those identified herein, and those discussed in the section titled “Risk Factors”, set forth in Part II, Item 1A of this Form 10-Q and in our other SEC filings. We disclaim any obligation to update any forward-looking statements to reflect events or circumstances after the date of such statements.

 

Business Overview

 

Tauriga Sciences, Inc. (the “Company”, “Tauriga” or “us”) is a Florida corporation, with its principal place of business being located at 555 Madison Avenue, Fifth Floor, New York, NY 10022. The Company has, over time, moved into a diversified life sciences technology company, with its mission to operate a revenue generating business, while continuing to evaluate potential acquisition candidates operating in the life sciences technology space.

 

TAURI-GUM TM

 

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

 

3
 

 

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

 

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

 

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

 

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

 

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

 

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

 

4
 

 

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

 

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

 

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

 

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

 

The Company has entered into the following agreements with distributors to arrange for the distribution of this product line:

 

E&M Distribution Agreement

 

On April 1, 2019, the Company entered into a comprehensive distribution agreement with E&M Ice Cream Company (“E&M”) to establish Tauri-Gum TM in the marketplace (the “E&M Distribution Agreement”). The Company has supported the Tauri-Gum TM commercial launch with substantial levels of both financial resources and marketing support. The Company had both received payment for and delivered the product for its previously announced $54,000 Tauri-Gum TM purchase order during March 2019, and re-orders in the first quarter of fiscal 2020. The Company has agreed to issue a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the shares is reflected in stock-based compensation based on the grant date of April 1, 2019. The Company is awaiting issuance instructions from E&M to issue the shares.

 

South Florida Region Distribution Agreement

 

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

 

5
 

 

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

 

North Eastern United States Distribution Agreement

 

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

 

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

 

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

 

6
 

 

Windmill Health Distribution Agreement

 

On June 28, 2019, the Company entered into a distribution agreement with Windmill Health Products, LLC (“Windmill Health”), a New Jersey based distributor, with the intention of increasing and accelerating market penetration of the Company’s Tauri-Gum TM product line. Simultaneous with the Company’s entry into the Windmill Health agreement, Windmill Health placed an initial purchase order with us totaling $46,848, split evenly between packages of the Mint flavored and Blood-Orange flavored chewing gum product lines. The Company did not contribute any capital or issue any equity to Windmill Health in connection with the Windmill Health distribution agreement.

 

Food and Drug Administration

 

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

 

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

 

7
 

 

The Company’s activities are subject to significant risks and uncertainties, including failing to secure additional funding, success in developing and marketing its products and the level of competition. These risks and others are described in greater detail in the risk factors set forth in our annual report on 10-K for the year ended March 31, 2019, as supplemented by the risk factors set forth in Item 1A of Part II of this Form 10-Q.

 

2019 Increase in Authorized Shares

 

On July 26, 2019, the Company held a meeting of its board of directors. The matters voted on and approved at the meeting included an amendment to the Company’s Articles of Incorporation to increase the number of authorized shares of the Company’s common stock, $0.00001 par value per share from 100,000,000 to 400,000,000 shares (the “Authorized Shares Increase”). In this regard, a Preliminary Proxy Statement which was filed with the Securities and Exchange Commission on July 29, 2019.

 

2018 Reverse Stock Split

 

On July 8, 2018, the Company implemented a Reverse Stock Split with a ratio of 1-for-75 (which became effective July 9, 2018). The par value and other terms of the common stock were not affected by the Reverse Stock Split. In addition, the amendment to the Company’s articles of incorporation that effected the Reverse Stock Split simultaneously reduced the number of authorized shares of Common Stock from 7,500,000,000 to 100,000,000.

 

All references set forth in this quarterly report to number of shares or per share data have been presented retroactively on a post reverse stock-split basis, including any common stock equivalents, have been retroactively adjusted in these condensed consolidated financial statements for all periods presented to reflect the 1-for-75 Reverse Stock Split.

 

See also the Risk Factors relating to any prospective changes to the Company’s articles of incorporation.

 

Cupuaçu Butter Lip Balm

 

On December 23, 2016, the Company entered into a non-exclusive, 12-month license agreement (the “License Agreement”) with Cleveland, Ohio based cosmetics products company Ice + Jam LLC (“Ice + Jam”) to market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HerMan® which launched during the quarter ended December 31, 2017.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. As a result of this and the concomitant halting of selling efforts, the Company had no sales of the HerMan® product during the three months ended June 30, 2019 or the year ended March 31, 2019. The Company has removed the product from the website and the remaining inventory was written off as it was determined that the units were not usable. The Company has discontinued this operation as of March 31, 2019. On April 1, 2019, the Company recognized a gain on the disposal of discontinued operations in the amount of $4,941.

 

8
 

 

Honeywood

 

Following the termination of a proposed 2014 merger between the Company and California-based Honeywood LLC (“Honeywood”), a developer of a topical medicinal cannabis product, on August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert an $170,000 note receivable due from Honeywood, including accrued interest 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 Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-35-28, “ Investments—Debt and Equity Securities ”, a Company may not record an impairment loss on the investment but shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value of the investment) in each subsequent reporting period until either of the following occurs: a) the investment experiences a recovery of fair value up to (or beyond) its cost; or b) the entity recognizes an other-than-temporary impairment loss. At the time of the Honeywood Conversion Agreement, the receivable balance under the Note of $199,119 had been fully written off by the Company in a prior period. As a result of the Honeywood Conversion Agreement, the Company deemed the investment to still have no current value. The Company recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.

 

Pilus Energy

 

On January 28, 2014, the Company acquired 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 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 for consideration of the termination of 80% of the unexercised portion of the warrants to purchase 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. Through June 30, 2019, there has been no activity recorded by Open Therapeutics with respect to Pilus Energy.

 

On January 12, 2019, the Company and Open Therapeutics agreed to extinguish a $75,000 contingent liability, whereby Open Therapeutics was to receive the first $75,000 of net profit earned from the operations of Pilus Energy in exchange for a one-time issuance of 500,000 restricted shares of Company’s common stock. The shares were recorded at a value of $24,750 ($0.0495 per share).

 

Tauriga Biz Dev Corp.

 

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

 

9
 

 

On March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with Blink Charging Company (NASDAQ: BLNK) (“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 Biz Dev Corp. contracts the new customer to purchase equipment outright from BLINK or enter into one of two revenue-sharing agreements. In the case Tauriga Biz Dev Corp. 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 Biz Dev Corp. secures a revenue sharing agreement with a customer where BLINK remains the owner, Tauriga Biz Dev Corp. will be paid an on-going commission based off of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement are subject to minimum revenue generation hurdles.

 

On June 29, 2018, the Company purchased four BLINK Level – 2 - 40” pedestal chargers for permanent placement in a retail location or locations whereby the Company will pay a variable annual fee based on 7% of total revenue per charging unit. The rest of the proceeds will be split 80/20 between the Company and the host location owner or its assignee. The host location owner to will pay for the cost of providing power to these unit as well as installation costs. The Company has not yet secured the location for installation of these units.

 

As of June 30, 2019, Tauriga BDC has not installed any of these machines in any locations, and no revenue has been generated through the Blink contract.

 

Tauriga Sciences Limited

 

On June 10, 2019, the Company formed a wholly owned subsidiary, Tauriga Sciences Limited, with the registrar of Companies for Northern Ireland. Tauriga Sciences Limited is a private limited Company. The entity was established in conjunction with online merchant services. In conjunction to this new entity the Company entered into a two-year lease commencing on June 11, 2019 and expiring on June 30, 2021. The office is located at Regus World Trade Centre Muelle de Barcelona, edif. Sur, 2a Planta Barcelona Cataluña 08039 Spain. Monthly rent payments will be approximately $201 per month (based on the contractual rate of €178 multiplied by the exchange rate of 1.13 on the day the lease agreement was entered into).

 

10
 

 

RESULTS OF OPERATIONS

 

Three months ended June 30, 2019 compared to the three months ended June 30, 2018

 

The results of operations included herein contain only those operations that are part of our continuing operations. For discussion regarding our past operations which have since been disposed of, please refer to our Annual Report.

 

Revenue

 

During March 2019, the Company began to realize sales of Tauri-Gum TM with recognized gross revenue of $57,134. Revenues for the three months ended June 30, 2019 were $44,377. The Company’s sales came from online, distributors and wholesale clients. For the purposes of sales by sales channel segmentation, distributor sales include sales to customers that were distributors.

 

Sales of Tauri-Gum TM by sales channel for the three months ended June 30,

 

    2019     2018  
Distributors   $ 15,592     $ -  
Online   $ 2,447       -  
Wholesale   $ 26,338       -  
    $ 44,377     $ -  

 

As Tauri-Gum TM sales were first recognized in March 2019, there was no revenue recognized during the three months ended June 30, 2018.

 

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 Biz Dev Corp. contracts the new customer to purchase equipment outright from BLINK or enter into one of two revenue-sharing agreements. In the case Tauriga Biz Dev Corp. 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 Biz Dev Corp. secures a revenue sharing agreement with a customer where BLINK remains the owner, Tauriga Biz Dev Corp. 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. For the three months ended June 30, 2019 and 2018, there has been no sales and no revenue generated from this product line.

 

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Cost of Goods Sold

 

For the three months ended June 30, 2019, the Company had cost of goods sold in the amount of $29,418 as a result of sales of Tauri-Gum TM to online customers, distributors and wholesale clients. For the purposes of cost of goods sold segmentation distributor cost of goods sold includes sales to customers that were distributors.

 

Cost of Goods Sold by sales channel for Tauri-Gum TM for the three months ended June 30, 2019 and 2018 were:

 

    2019     2018  
Distributor   $ 11,340     $ -  
Online   $ 858       -  
Wholesale   $ 17,220       -  
    $ 29,418     $ -  

 

As Tauri-Gum TM sales were first recognized in March 2019, there was no cost of goods sold recognized during the three months ended June 30, 2018.

 

Operating Expenses

 

Marketing and advertising expense

 

For the three months ended June 30, 2019, marketing and advertising expense from continuing operations was $130,548 compared to none for the same period in the prior year, respectively, due to a payment under a distribution agreement in the amount of $125,000.

 

Research and development

 

For the three months ended June 30, 2019, research and development expense was $3,852 compared to none for the same period in the prior year. The current year increased expense was due to the Tauri-Gum TM increased spending on product design.

 

General and Administrative Expense

 

For the three months ended June 30, 2019 and 2018, general and administrative expenses were $628,841 and $222,038, respectively. This increase of $406,803 was primarily attributable to $332,501 increase in stock based compensation and $45,417 of increased consulting expense.

 

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Depreciation and amortization

 

For the three months ended June 30, 2019 and 2018, depreciation and amortization expense was $232 an $259, respectively. Depreciation expense decrease of $27 was due to depreciation expense on old computer equipment was slightly higher than its replacement.

 

Interest Expense

 

For the three months ended June 30, 2019 and 2018, interest expense was $121,814 and $23,496, respectively. Interest expense increase of $98,318 was due to an increase in interest carry cost of $8,046 due to a much higher debt level as well as increased debt discount amortization of $106,647 offset by a prepayment penalty on a convertible note in the amount of $16,657.

 

Net Income (Loss)

 

The Company generated a net loss from continuing operations of $657,564 for the three months ended June 30, 2019 compared net income of $166,788 during the three months ended June 30, 2018. This difference was largely due to a gain on the sale of trading securities in the amount of $340,020 ad well as lower general and administrative expense in the amount of $406,803 as well as lower interest expense of $98,318.

 

Liquidity and Capital Resources

 

At June 30, 2019, we had cash of $15,247 and $444,785 of securities compared to March 31, 2019 of $385,943 and $350,400 of trading securities. We have historically met our cash needs through a combination of proceeds from private placements of our securities, loans and convertible notes. Our cash requirements are generally for purchases of inventory as well as selling, general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.

 

For operating activities, we used cash of $475,296 for the three months ended June 30, 2019 compared to $16,118 cash provided during the three months ended June 30, 2018. The principal elements of cash flow from operations for the three months ended June 30, 2019 were $375,720 common stock issued and issuable for services (including stock based compensation), offset by an increase in inventory $127,734 and an unrealized gain on trading securities in the amount of $94,385.

 

13
 

 

During the three months ended June 30, 2018, principal elements of cash flow from operations were realized and unrealized gains on the sale of marketable securities of $339,810 and $78,170, respectively, offset by purchases of trading securities in the amount of $128,983,stock-based compensation expense of $43,221 and net income of $166,788, and a reduction in accrued expense (including interest) in the amount of $54,264.

 

Cash used in investing activities during the three months ended June 30, 2019 and 2018 was $20,400 and $17,917, respectively. During 2019, the Company invested $20,400 in a private Company. During 2018, the Company purchased equipment for $10,086 as well as purchased digital currency in the amount of $7,831.

 

Cash provided by in financing activities during the three months ended June 30, 2019 and 2018 was $125,000 and $25,000, respectively. During 2019, the Company had proceeds from the sale of common stock in the amount of $15,000 and $110,000 proceeds from notes payable. During 2018, the Company had $25,000 proceeds from notes payable.

 

As of June 30, 2019, current assets exceeded our current liabilities by $499,657 compared to $490,436 at March 31, 2019. During 2019, the Company’s decrease in net assets was commensurate to the decrease in current liabilities. At June 30, 2019, current assets were $805,241 compared to $947,816. The Company’s current assets decrease was largely due to a decrease in the cash balance decreased by $370,696 offset by an increase in inventory of $127,734 and an increase in trading securities $94,385. At June 30, 2019, current liabilities were $305,584 compared to $457,380 at March 31, 2019. The Company’s decrease in current liabilities was mainly due to a decrease in the liability to issue stock of $172,500.

 

Going Concern

 

During the fourth quarter of the year ended March 31, 2019, the Company began sales and marketing efforts for its Mint flavored Tauri-Gum TM product. During the three months ended March 31, 2019, the Company recognized sales of $57,134 and recognized a gross profit of $20,006, which has continued into the first fiscal quarter ended June 30, 2019 where the Company recognized revenue of $44,377 and a gross profit of $14,959. During the first quarter of fiscal year 2020, the Company has entered into multiple distribution agreements and has engaged an independent contractor to act as Vice President of Distribution and Marketing. Although the Company’s working capital surplus of $499,657 at June 30, 2019 has remained consistent in the past year, the Company still believes that there is uncertainty with respect to continuing as a going concern.

 

14
 

 

On July 1, 2019, months after the NYC Department of Heath announced a ban on cannabidiol in foods and beverages (mainly focused on restaurants and baked goods), the updated New York City Health Code now includes an embargoing of CBD-infused Edible(s) Products (including packaged products). The Company is hopeful that the FDA as well as the New York City Council will implement regulations surrounding the CBD industry in a logical and prompt manner. The FDA’s uncertainty surrounding CBD was the initial cause of the New York City ban, and we believe further clarification from the FDA supporting its safety and regulating its labeling will also offer a clearer pathway to the New York City CBD market. The Company is very well positioned in this argument and has taken a conservative approach towards its products, including, for example, ensuring that its product manufacturer periodically tests for compliance with the Agricultural Improvement Act of 2018, such as utilizing CBD oils from hemp plants and that it contains 0% THC content. The Company remains confident that this embargo on CBD Edible(s) products will be lifted and/or clarified. As a result of this embargo, the Company has taken the necessary steps to ensure that their marketing efforts are focused on areas outside of New York City, while still maintaining their New York City (the 5 Boroughs) presence.

 

The Company, in the short term, intends to continue funding its operations either through cash-on-hand or through financing alternatives. Management’s plans with respect to this include raising capital through equity markets to fund future operations, as well as the possible sale of its remaining marketable securities (which had a market value of $444,785 at June 30, 2019). In the event the Company cannot raise additional capital to fund and/or expand operations or fails to raise adequate capital and generate adequate sales revenues, it could result in the Company having to curtail or cease operations. Currently, the Company has a limited amount of shares of common stock available to issue under its articles of incorporation and has initiated the process of increasing the authorized stock.

 

Additionally, even if the Company does raise sufficient capital to support its operating expenses and generate adequate revenues in the short term, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations to achieve profitability thereby eliminating its reliance on alternative sources of funding. Although management believes that the Company is in a stronger position than it has been in in several years, there is still no guarantee that profitable operations with sufficient cashflow to sustain operations can or will be achieved without the need of alternative financing, which is limited. These matters still raise significant doubt about the Company’s ability to continue as a going concern as determined by management. The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve months. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations. Even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful, there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as a going concern as determined by management. However, the accompanying condensed consolidated financial statements have been prepared on a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. These condensed consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.

 

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Contractual Obligations

 

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

 

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

 

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

 

Off-Balance Sheet Arrangements

 

As of June 30, 2019, the Company had one off-balance sheet arrangement as defined in Item 303(a)(4) of Regulation S-K.

 

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

 

On August 12, 2019, ADAR ALEF, LLC funded this note, satisfying the note receivable and eliminating any further off-balance sheet arrangements. The Company will record this note in notes payable on it condensed consolidated balance sheet.

 

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK.

 

Not applicable

 

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ITEM 4. CONTROLS AND PROCEDURES

 

Evaluation of Disclosure Controls and Procedures

 

The Securities and Exchange Commission defines the term “disclosure controls and procedures” to mean a company’s controls and other procedures of an issuer that are designed to ensure that information required to be disclosed in the reports that it files or submits under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported, within the time periods specified in the Securities and Exchange Commission’s rules and forms. Disclosure controls and procedures include, without limitation, controls and procedures designed to ensure that information required to be disclosed by an issuer in the reports that it files or submits under the Securities Exchange Act of 1934 is accumulated and communicated to the issuer’s management, including its chief executive and chief financial officers, or persons performing similar functions, as appropriate to allow timely decisions regarding required disclosure. The Company maintains such a system of controls and procedures in an effort to ensure that all information which it is required to disclose in the reports it files under the Securities Exchange Act of 1934 is recorded, processed, summarized and reported within the time periods specified under the SEC’s rules and forms and that information required to be disclosed is accumulated and communicated to the chief executive and chief financial officer to allow timely decisions regarding disclosure.

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that the Company’s disclosure controls and procedures are not effective as of such date. The Chief Executive Officer and Chief Financial Officer have determined that the Company continues to have the following deficiencies which represent a material weakness:

 

  1. Lack of oversight by independent directors in the establishment and monitoring of required internal controls and procedures;
     
  2. Lack of functioning audit committee, resulting in ineffective oversight in the establishment and monitoring of required internal controls and procedures;
     
  3. Insufficient personnel resources within the accounting function to segregate the duties over financial transaction processing and reporting and to allow for proper monitoring controls over accounting;
     
  4. Insufficient written policies and procedures over accounting transaction processing and period end financial disclosure and reporting processes.

 

17
 

 

To remediate our internal control weaknesses, management would need to implement the following measures:

 

  The Company would need to add sufficient number of independent directors to the board and appoint an audit committee.
     
  The Company would need to add sufficient knowledgeable accounting personnel to properly segregate duties and to affect a timely, accurate preparation of the financial statements.
     
  Upon the hiring of additional accounting personnel, the Company would need to develop and maintain adequate written accounting policies and procedures.

 

Currently, management does not have the resources nor will it in the near to mid-term future to accomplish all of these goals.

 

The additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt and the results of its operations, however, has added consultants to assist in the remediation of the weaknesses identified. Management expects to secure funds in the coming fiscal year but provides no assurances that it will be able to do so.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in our internal control over financial reporting that occurred during the period covered by this report that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

 

Limitations on the Effectiveness of Controls

 

The Company’s management, including the CEO and CFO, does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent or detect all error and all fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of the control system must reflect that there are resource constraints and that the benefits must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within the company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple error or mistake. Controls can also be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Projections of any evaluation of controls effectiveness to future periods are subject to risks. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies or procedures.

 

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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

From time to time, we may be involved in litigation relating to claims arising out of our operations in the normal course of business. As of August 13, 2019, there were no pending or threatened lawsuits that could reasonably be expected to have a material effect on the results of our operations.

 

ITEM 1A. RISK FACTORS.

 

Investing in our common stock is subject to a number of risks and uncertainties. You should carefully consider the risk factors described under the heading “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended March 31, 2019, in other reports we file with the SEC, and as set forth in certain updated or additional risk factor below.

 

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

 

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

 

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

 

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

 

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

 

19
 

 

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

 

Under the 2018 Farm Bill, the U.S. Food and Drug Administration (FDA) has been given the authority to regulate CBD when incorporated into a food, drug, or cosmetic substance. Immediately following the passage of the 2018 Farm Bill, the FDA signaled its intent to use this power. The FDA sought public comments through July 16, 2019 and has not issued any guidance, rules, or regulations regarding the use of CBD in foods, drugs, or cosmetics since closing the comment period. Because our product is included in food, FDA rules and regulations limiting our ability to source, manufacture, and sell the product, or limiting the consumer’s ability to purchase and use the produce, could severely impact our revenues and profits.

 

New York City has implemented an embargo on food and beverage CBD products.

 

On July 1, 2019, months after the NYC Department of Heath announced a ban on cannabidiol in foods and beverages (mainly focused on restaurants and baked goods), the updated New York City Health Code now includes an embargoing of CBD-infused Edible(s) Products (including packaged products). The Company is hopeful that the FDA as well as the New York City Council will implement regulations surrounding the CBD industry in a logical and prompt manner. The FDA’s uncertainty surrounding CBD was the initial cause of the New York City ban, and we believe further clarification from the FDA supporting its safety and regulating its labeling will also offer a clearer pathway to the New York City CBD market. The Company is very well positioned in this argument and has taken a conservative approach towards its products, including, for example, ensuring that its product manufacturer periodically tests for compliance with the Agricultural Improvement Act of 2018, such as utilizing CBD oils from hemp plants and that it contains 0% THC content. The Company remains confident that this embargo on CBD Edible(s) products will be lifted and/or clarified. As a result of this embargo, the Company has taken the necessary steps to ensure that their marketing efforts are focused on areas outside of New York City, while still maintaining their New York City (the 5 Boroughs) presence.

 

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

 

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

 

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

 

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

 

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Laws regarding the transportation of Cannabis may change

 

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

 

We may be classified as an inadvertent investment company .

 

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

 

As a result of our December 13, 2017 purchase of shares of Vistagen Therapeutics Inc. (NASDAQ: VTGN), and the subsequent investments the Company has made in public and privately held companies in the subsequent period, the investment securities presently held by us exceeds 40% of our total assets, exclusive of cash items and, accordingly, we are currently an inadvertent investment company. As of June 30, 2019 the Company holds common stock in two companies and warrants exercisable for common stock in two companies. An inadvertent investment company can avoid being classified as an investment company if it can rely on one of the exclusions under the 1940 Act. One such exclusion, Rule 3a-2 under the 1940 Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding 40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated basis. We have taken actions to cause the investment securities held by us to be less than 40% of our total assets, and will continue to evaluate other feasible actions towards this end, which may include acquiring assets with our cash on hand, consummating a significant merger/acquisition transaction, or liquidating our investment securities. We also may seek a no-action letter from the SEC if we are unable to acquire sufficient non-securities assets or liquidate sufficient investment securities in a timely manner.

 

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

 

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

 

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

 

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

 

The failure to obtain such necessary approval to increase our authorized common stock could materially and negatively impact the Company and its stockholders, including a decrease in the price of our trading common stock, triggering a default and/or cross-default under our outstanding debt and convertible instruments (if not timely cured), a significant decrease in the conversion price and increase in the number of shares of common stock issuable thereunder, a default annual interest rate of 24%, among other material negative impacts. The complete terms of our purchase agreement, convertible debt instruments and related agreements are included as exhibits to our SEC filings.

 

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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

 

During May and June 2019, the Company issued additional shares of common stock as follows: (i) 1,450,000 shares under distribution agreements ; (ii) 888,308 shares for conversion of debt; (iii) 250,000 shares issued to Vice President of Distribution and Marketing; (iv) 1,000,000 shares issued for services rendered; (v) 750,000 shares for debt commitment and (vi) 714,286 shares under stock purchase agreements in consideration for $45,000 (average of $0.063 per share) to accredited investors that are unrelated third parties.

 

During the three months ended June 30, 2019 and subsequently (up to this report date), the Company issued 1,450,000 shares under distribution agreements. Under our North Eastern United States Distribution Agreement (SKL Agreement) the Company issued one-time issuance of an aggregate of 1,000,000 restricted common shares the Company’s stock, which are subject to the customary resale and transfer restrictions imposed under the rules and regulations of the Securities and Exchange Commission. The restricted equity issuance to SKL was issued in accordance with the following schedule: (i) to Mr. Mahesh Lekkala, 500,000 restricted shares the Company’s common stock within ten (10) business days of April 30, 2019; and (ii) to SKL, 500,000, which were permitted to be immediately allocated by SKL to persons within its organization and, as such, (a) 250,000 of such shares shall be issued to SKL within ten (10) business days of April 30, 2019, and the additional issuance of (b) 250,000 of such shares shall be issued to SKL within ten (10) business days of August 1, 2019. Other than the payment terms for Tauri-Gum TM product purchased and distributed under the terms of the Agreement, there is no additional cash payment currently due or owing by the Company thereunder. The value of the shares is reflected as stock-based compensation with a grant date of April 30, 2019. All but 250,000 shares are expensed on this date, with those 250,000 shares valued over the term of the one-year agreement. The Company issued 450,000 shares pursuant to the South Florida Region Distribution Agreement ( IRM Distribution Agreement). Under this agreement, the Company will work closely with IRM to promote Tauri-Gum TM . Under the agreement IRM received restricted common stock and a cash stipend of $10,000. As of the date of this report, only $2,000 of the $10,000 cash stipend has been paid. The value of the restricted shares will be reflected in stock-based compensation based on the grant date of April 8, 2019.

 

On April 1, 2019, the Company entered into a comprehensive distribution agreement with E&M to establish Tauri-Gum TM in the marketplace. The Company has supported the Tauri-Gum TM commercial launch with substantial levels of both financial resources and marketing support. The Company has agreed to issue a one-time issuance of 1,000,000 restricted shares of the Company’s common stock, and to tender a one-time cash payment of $125,000 to E&M. This $125,000 cash component was paid in full to E&M on April 1, 2019, and the value of the shares is reflected in stock-based compensation based on the grant date of April 1, 2019. The Company is awaiting issuance instructions from E&M to issue the shares.

 

During the three months ended June 30, 2019, the Company issued 888,308 shares for conversion of debt in the amount of $40,000 as well as accrued interest in the amount of $1,964 ($0.04725). On June 7, 2019, GS Capital Partners, LLC converted $40,000 of principal and $1,973 of accrued interest into 888,308 shares of common stock pursuant to an October 25, 2018, one-year $180,000 convertible note bearing 8% interest.

 

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

 

During the three months ended June 30, 2019, the Company issued 1,000,000 shares issued for services rendered to one consultant. This consultant integral part of the launch of Tauri-Gum TM through coordination efforts and introductions to parties necessary to the ongoing success of our product.

 

During the three months ended June 30, 2019, the Company issued 750,000 shares for debt commitment in the amount of $142,500 ($0.19 per share) pursuant to the March 14, 2019,12-month $300,000 principal face value 8.0% convertible debenture with GS Capital Partners, LLC, with a maturity date of March 13, 2020. The GS Capital Note carries $20,000 original issue discount (OID) and, as such, the initial net proceeds to the Company was $280,000. The Holder is entitled, at its option, to convert all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock at a price for each share of Common Stock equal to 68% of the lowest daily VWAP of the Common Stock as reported on the National Quotations Bureau OTC Markets exchange for the fifteen (15) prior trading days. Due to the discount to market conversion, a beneficial conversion feature was recorded on this note as a discount to the note in the amount of the full face value of the note which will be amortized over the life of the note. This amortization will be reflected as interest cost ratably over the term of the note. The GS Capital Note may be redeemed by the Company during the first six months from execution, as follows: (i) if the redemption is within the first 90 days, then for an amount equal to 120% of the unpaid principal amount, with any accrued interest; (ii) if the redemption is after the 91st day, but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount, with any accrued interest. The GS Capital Note may not be redeemed after 180 days from the date of execution. At June 30, 2019, this note had accrued interest of $8,219. Also, in conjunction with this note, the 213,334 five-year cashless warrants, associated with the June 27, 2017, $80,000 5% one-year note were fully cancelled.

 

As previously reported, on Form 8-K, filed on April 12, 2019, during late February of 2019, the Company commenced a strategic private placement, the primary purpose of which was intended finance the following operational matters related to our Tauri-Gum™ product: increasing production of our product inventory, funding of research & development initiatives, entering into distribution agreements, augmenting our digital artwork and graphic design projects, formulating a special miniaturized airport version of Tauri-Gum™, and for general corporate and working capital purposes. On April 12, 2019, the Company executed a Securities Purchase Agreement (the private placement “SPA”) with a number of individual and institutional “accredited investors” (within the meaning of Rule 501 of Regulation D under the Securities Act of 1933, as amended, the “Act”) to consummate the private placement resulting in aggregate gross proceeds to the Company of $335,200. A number of the investors include an owner of a Northeastern supermarket chain, as well as executives in the food distribution and medical practice management networks. Pursuant to the terms of the SPA, the Company was contractually obligated to issue 4,366,667 shares of its restricted common stock pursuant to Regulation D of the Act. No warrants were offered or issued in connection with this above-referenced private placement. While the Company had been offered greater aggregate gross proceeds on the same foregoing terms, it determined to accept only the private placement capital noted above, being mindful of dilution and maintaining shareholder value through the execution of its business plan and initiatives. The revised number of shares that were issued during the year ended March 31, 2019 was 4,686,667 for proceeds of $218,200.

 

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Additionally, under the SPA, during the three months ended June 30, 2019, the Company also issued 714,286 shares of restricted stock in consideration for $45,000 (average of $0.063 per share) to accredited investors that are unrelated third parties. The funds were also used for inventory and the start up of Tauri-Gum™, and for general corporate and working capital purposes.

 

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

 

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

 

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On June 21, 2019, the Company entered into a one year 8% $60,000 Convertible Note with GS Capital Partners, LLC pursuant to the terms of a Securities Purchase Agreement. The GS Capital Note has a maturity date of June 21, 2020 and carried a $5,000 original issue discount (such that $55,000 was funded to the Company on June 21, 2019). The holder is entitled, at its option, at any time after cash payment, to convert all or any amount of the principal face amount of the GS Note then outstanding into shares of the Company’s common stock at a price for each share of common stock equal to 66% of the lowest daily volume weighted average price (VWAP) of the common stock as reported on the National Quotations Bureau OTC Markets exchange, which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the fifteen (15) prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. Such conversion shall be effectuated by the Company delivering the shares of common stock to the holder within 3 business days of receipt by the Company of the notice of conversion. Accrued but unpaid interest shall be subject to conversion. To the extent the conversion price of the Company’s common stock closes below the par value per share, the Company will take all steps necessary to solicit the consent of the stockholders to reduce the par value to the lowest value possible under law. The Company agrees to honor all conversions submitted pending this increase. In the event the Company experiences a DTC “Chill” on its shares, the conversion price shall be decreased to 56% instead of 66% while that “Chill” is in effect. In no event shall the holder be allowed to affect a conversion if such conversion, along with all other shares of the Company common stock beneficially owned by the holder and its affiliates would exceed 9.9% of the outstanding shares of the common stock of the Company. During the first six months that the GS Capital Note is in effect, the Company may redeem the GS Note by paying to the holder an amount as follows: (i) if the redemption is within the first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with any interest that has accrued during that period, (ii) if the redemption is after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this Note along with any accrued interest. The GS Note may not be redeemed after 180 days. The Company may not redeem the GS Capital Note after the 180th day from entering into it. Upon an event of default, among other default provisions set forth in the GS Capital Note, (i) interest shall accrue at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law. (ii) if the Company shall fail to deliver to the holder the shares of common stock without restrictive legend (when permissible in accordance with applicable law) within three (3) business days of its receipt of a notice of conversion, then the Company shall pay a penalty of $250 per day the shares are not issued beginning on the 4th day after the conversion notice was delivered to the Company (which shall be increased to $500 per day beginning on the 10th day); (iii) if the Company’s stock ceases to be listed on an exchange, its stock is suspended from trading for more than 10 consecutive trading days or the Company ceases to file its reports with the SEC under the Securities Exchange Act of 1934, as amended, then the outstanding principal due under the GS Capital Note shall increase by 50%; or (iv) if the GS Capital Note is not paid at maturity, the outstanding principal due under this Note shall increase by 10%.

 

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

 

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On July 22, 2019, the Company and Jefferson Street Capital, LLC (“Jefferson Street”) consummated entry into a Securities Purchase Agreement where the Company will borrow $55,000 at 10% annual interest under a term of nine-months in the form of a convertible note. The note is convertible into restricted stock of the Company. In connection with this agreement, the Company issued 250,000 commitment shares having a value of $10,500 ($0.042 per share) which will be reflected as interest expense in the Company’s condensed consolidated statement of operations during the three months ended September 30, 2019. The restricted stock was valued at the closing price on July 22, 2019. Legal fees of $2,000 will be deducted from cash proceeds of the note payable to investor’s counsel, and there is a $5,000 original issue discount recognized. The Company received cash proceeds of $48,000. Under the note, the Company is required initially to reserve 1,000,000 shares of its common stock, and thereafter to increase the reserve up to 15,000,000 shares upon the increase in the Company’s authorized common shares that was approved by the Board of Directors on July 26, 2019, but up to six times the number of shares required for a full conversion. The Company has 75 days from the date of this note to have this increased effectuated. The noteholder may, at any time, at its option, convert all or any amount of the principal face amount of the note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common Stock equal to 65% of the lowest volume weighted average price for the Company’s common stock during the previous fifteen trading day period as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, including the day upon which a notice of conversion is received by the Company. If the Company fails to maintain the share reserve at the required amounts, post the proxy period as defined in the agreement then that will be considered an Event of Default. This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note.

 

During the first 180 days, the Company may prepay the principal amount of this note and accrued interest thereon, with a premium as follows: (a) 120% of the prepayment penalty for redemptions in the first 90 days after the note issuance; and (b) 133% of the prepayment amount if such prepayment was made at any time from (91 days after the issuance date until 180 days after the issuance date). The note is not able to be prepaid after 180 days after the issuance date.

 

Upon an event of default (as defined and described in the note), among other default penalties, the Company shall pay the Default Amount (as defined in the agreement) as well as incur annual interest at a default interest rate of 24% per annum.

 

In consideration of Jefferson Street loaning the Company the proceeds under this note, the Chief Executive Officer has personally guaranteed the prompt, full and complete payment of the outstanding principal amount, accrued and unpaid interest, default interest (if any) and applicable fees (if any), owing by the Company under the note. This personal guaranty will remain in effect until such time that the Company can reserve at least six times the amount of common shares issuable upon full conversion of the note. The Company anticipates this to occur upon the effectiveness of the increase in the Company’s authorized shares within the 75 days from the date of the note as indicated in the agreement.

 

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ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

Not applicable

 

ITEM 5. OTHER INFORMATION.

 

On July 22, 2019, the Company and Jefferson Street Capital, LLC (“Jefferson Street”) consummated entry into a Securities Purchase Agreement where the Company has borrowed $55,000 ($50,000 with original issuance discount reflected) at 10% annual interest under a term of nine-months in the form of a convertible note. The note is convertible into restricted stock of the Company. In connection with this agreement, the Company issued 250,000 commitment shares having a value of $10,500 ($0.042 per share, the closing price of our common stock on the day preceding the note which will be reflected as interest expense in the Company’s condensed consolidated statement of operations during the three months ended September 30, 2019. The restricted stock was valued at the closing price on July 22, 2019. Legal fees of $2,000 were deducted from cash proceeds of the note payable to investor’s counsel, and a $5,000 original issue discount recognized. The Company received cash proceeds of $48,000 at closing. Under the Jefferson Street note, the Company is required initially to reserve 1,000,000 shares of its common stock, and thereafter to increase the reserve up to 15,000,000 shares upon the increase in the Company’s authorized common shares (per a charter amendment via shareholder meeting and approval as approved by the Board of Directors on July 26, 2019), but up to six times the number of shares required for a full conversion. The Company has 75 days from the date of this note to have this increased effectuated. The noteholder may, at any time, at its option, convert all or any amount of the principal face amount of the note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common Stock equal to 65% of the lowest volume weighted average price for the Company’s common stock during the previous fifteen trading day period as reported on the National Quotations Bureau OTC Markets exchange which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future, including the day upon which a notice of conversion is received by the Company. If the Company fails to maintain the share reserve at the required amounts, or to attain shareholder approval within 75 days of July 22, 2019, this will be considered an Event of Default (among other default provisions contained in the Jefferson Capital note). This note contains a provision where if the Company shall have defaulted on or breached any term of any other note of similar debt instrument into which the Company has entered and failed to cure such default within the appropriate grace period they would be considered in default of this note, and may trigger a cross default of the Company’s other outstanding convertible debt agreements; however, the Company maintains the option to repay the note in cash within the first 180 days beginning on July 22, 2019 to avoid such default provision triggering event, as more fully described below.

 

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) 120% of the prepayment penalty for redemptions in the first 90 days after the note issuance; and (b) 133% of the prepayment amount if such prepayment was made at any time from (91 days after the issuance date until 180 days after the issuance date). The note is not able to be prepaid after 180 days after the issuance date.

 

Upon an event of default (as defined and described in the note), among other default penalties, the Company shall pay the Default Amount (as defined in the agreement) as well as incur annual interest at a default interest rate of 24% per annum.

 

In consideration of Jefferson Street loaning the Company the proceeds under this note, the Chief Executive Officer has personally guaranteed the prompt, full and complete payment of the outstanding principal amount, accrued and unpaid interest, default interest (if any) and applicable fees (if any), owing by the Company under the note. This personal guaranty will remain in effect until such time that the Company can reserve at least six times the amount of common shares issuable upon full conversion of the note. The Company anticipates this to occur upon the effectiveness of the increase in the Company’s authorized shares within the 75 days from the date of the note as indicated in the agreement.

 

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ITEM 6. EXHIBITS .

 

Exhibit 10.1  

GS Capital Partners, LLC Securities Purchase Agreement dated June 21, 2019 (filed on form 10-K on June 29, 2019)

     

Exhibit 10.2

 

GS Capital Partners, LLC Securities Purchase Agreement dated May 23, 2019 (filed on form 10-K on June 29, 2019)

     
Exhibit 10.3   GS Capital, LLC Convertible note dated May 23, 2019 for $60,000 (filed on form 10-K on June 29, 2019)
     
Exhibit 10.4   GS Capital Partners, LLC Convertible note dated June 21, 2019 for $60,000 (filed on form 10-K on June 29, 2019)
     
Exhibit 10.5   Jefferson St. Capital LLC Securities Purchase Agreement note dated July 22, 2019 for $55,000 (filed herewith)
     
Exhibit 10.6