UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
WASHINGTON,
D.C. 20549
FORM
10-K
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the fiscal year ended March 31, 2018
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For
the transition period from April 1, 2017 to March 31, 2018
Commission
File Number: 000-53723
TAURIGA
SCIENCES, INC.
(Exact
name of registrant as specified in its charter)
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Florida
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30-0791746
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(State
or other jurisdiction of
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(IRS
Employee
|
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incorporation
or organization)
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Identification
No.)
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555
Madison Avenue, 5
th
Floor
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|
|
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New
York, NY
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10022
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(Address
of principal executive offices)
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(Zip
Code)
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Registrant’s
telephone number, including area code:
(917) 796-9926
Securities
registered under Section 12(b) of the Exchange Act:
None
Securities
registered under Section 12(g) of the Exchange Act:
Common
Stock, $0.00001 Par Value
(Title
of class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. [ ]
Yes [X] No
Indicate
by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. [ ]
Yes [X] No
Indicate
by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act
during the preceding 12 months (or for such shorter period that the issuer was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. [X] Yes [ ] No
Indicate
by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). [ ]
Yes [X] No
Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]
Indicate
by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting
company or, an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer”,
“smaller reporting company”, and “emerging growth company”, in Rule 12b-2 of the Exchange Act.
|
Large
accelerated filer [ ]
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Accelerated
filer [ ]
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|
Non-accelerated
filer [ ]
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Smaller
reporting company [X]
|
|
(Do
not check if smaller reporting company)
|
Emerging
growth company [ ]
|
If
an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for
complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. [ ]
Indicate
by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). [ ] Yes [X]
No
On
September 30, 2017, the last business day of the registrant’s most recently completed second quarter, the aggregate market
value of the Common Stock held by non-affiliates of the registrant was $170,611 based upon the closing price on that date
of the Common Stock of the registrant on the OTC Bulletin Board system of $0.0007. For purposes of this response, the registrant
has assumed that its directors, executive officers and beneficial owners of 5% or more of its Common Stock are deemed affiliates
of the registrant.
As
of as of June 25, 2018, the registrant had 4,078,179,672 shares of its Common Stock, $0.00001 par value, outstanding.
TABLE
OF CONTENTS
FORWARD
LOOKING STATEMENTS
This
annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the
Securities Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934,
as amended (the “Exchange Act”). These forward-looking statements are not historical facts, but rather are based
on current expectations, estimates and projections about our industry, our beliefs and our assumptions. Forward looking statements
are often identified by words such as “will”, “may”, “projects”, “anticipate,”
“expects,” “intends,” “plans,” “believes,” “seeks” and “estimates”
and variations of these words and similar expressions or import are intended to identify forward-looking statements,
but are not intended to constitute the exclusive means of identifying such statements. These statements are not guarantees
of future performance and are subject to risks, uncertainties and other factors, including those described in “Risk Factors”
contained below in this annual report, some of which are beyond our control and difficult to predict and could cause actual
results, performance or achievements, or industry results to differ materially from any future results, performance
or achievements, expressed or implied, by such forward-looking statements. You should not place undue reliance on these forward-looking
statements, which apply only as of the date of this Form 10-K. Investors should carefully consider all of such risks before making
an investment decision with respect to the Company’s stock. The following discussion and analysis should be read in conjunction
with our consolidated financial statements for Tauriga Sciences, Inc. Such discussion represents only the best present assessment
from our Management.
All
references in this Annual Report on Form 10-K to “we,” “us,” “our” and the “Company”
refer to Tauriga Sciences, Inc., a Florida corporation and its consolidated subsidiaries unless the context requires otherwise.
PART
I
ITEM
1. BUSINESS
General
Overview
We
are a Florida corporation formed on April 8, 2001. We were originally organized to be a blank check company.
On
May 17, 2011, the Company entered into an exclusive memorandum of understanding with Immunovative Clinical Research, Inc. (“ICRI”),
a Nevada corporation and wholly-owned subsidiary of Immunovative Therapies, Ltd. (“ITL”), an Israeli corporation pursuant
to which the Company and ICRI intended to pursue a merger resulting in Novo owning ICRI.
In
April 2012, the Board of Directors approved the change of name to “Immunovative, Inc.” As described in a report filed
with the Securities and Exchange Commission on April 30, 2012, a majority of shareholders executed a written consent in lieu of
an Annual Meeting effecting the change of the name of our business from “Novo Energies Corporation” to “Immunovative,
Inc.” on April 2, 2012 to better reflect what we then intended to be our future operations. We filed an amendment to our
Articles of Incorporation on April 30, 2012 with the Florida Secretary of State to affect this name change after receiving the
requisite corporate approval.
On February 19, 2013, the
Company and ITL entered into a sett
lement agreement whereby
the parties agreed to the following: (1) the Company will submit a letter to the Court advising the Court that the parties have
reached a settlement and that the Company is withdrawing its motion, (2) ITL will pay the Company $20,000, (3) ITL will issue
to the Company, ITL’s share capital equivalent to 9% of the issued and outstanding shares of ITL, (4) the Company will change
its name and (5) the settling parties agree that the license agreement will be terminated. The Company had valued these shares
at $0 since they deemed the investment to be worthless. During the year ended March 31, 2016, the Company sold the 3,280,000 shares
for $125,000 which was recorded in the consolidated statements of operations
for the relevant
period.
On
March 13, 2013, the Board of Directors approved the change of name to “Tauriga Sciences, Inc.” from “Immunovative,
Inc.” We filed an amendment to our Articles of Incorporation on March 13, 2013 with the Florida Secretary of State to affect
this name change after receiving the requisite corporate approval. The Company’s stock symbol change to “TAUG”
was approved by FINRA effective April 9, 2013.
Cupuaçu
Butter Lip Balm
On
December 23, 2016, the Company entered into a non-exclusive, 12-month license agreement (the “License Agreement”)
with Cleveland, Ohio based cosmetics products firm Ice + Jam LLC (“Ice + Jam”). Under terms of the License Agreement,
the Company will market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark HERMAN® and
the two companies will evenly share on a 50/50 basis any profits generated through the Company’s marketing, sales and distribution
efforts. The Company had agreed to pay the production, marketing and start-up costs for all product it sells to retail customers
or distributors. As part of the License Agreement, the Company issued 5,000,000 common shares which had a value of $27,500, based
on the closing price of the stock on the day the Company entered into the agreement ($0.005 per share). The cost of the shares
will be prorated over the life of the license.
On
November 27, 2017, the Company announced a 2-year extension to the existing non-exclusive License Agreement, extending the life
of the License Agreement through December 23, 2019, at which time, if mutually agreed upon, the companies reserve the option to
extend for an additional 2 years (if exercised at that time, this License Agreement would be extended through December 23, 2021).
The two companies reserve the right to request amendment of the License Agreement at any point during the effective term of the
agreement.
During
the quarter ended December 31, 2017, the Company launched this lip balm product (branded as HerMan®) . The Company is hopeful
that that this product can provide the Company with sustainable revenue at margins that will justify the initial expense and effort.
The Company believes that the initial high cost per unit of this lip balm product was largely attributable to formulation issues
that have since been addressed and resolved, packing issues, fulfillment issues and shipping costs. The Company believes that
future inventory costs, if there is sufficient demand, will be substantially lower than the first batch on a per unit basis. The
Company is exercising caution and performing due diligence to ensure that any potential opportunities in this area are appropriately
evaluated.
During
February of 2018, the Company’s strategy with respect to the HerMan product was negatively impacted by a series of product
defects relating to the twisting mechanism of the lip balm tube. The Company immediately made the decision to work with the manufacturer
to permanently address and fix this defect issue (which the Company believes has affected approximately 30% of the initial product
batch. This issue significantly increases the risk associated with this business opportunity and there can be no guarantee that
this will be satisfactorily solved.
The
Company recognized sales of the HERMAN® product in the year ended March 31, 2018 in the aggregate amount of $1,118; however,
due to the above described tube mechanism issue, the Company has removed the product from the website until such time as it is
satisfied that the manufacturer has resolved product quality issues. As a result of the initial manufacturing quality control
issues regarding the packaging, the Company has written off the remaining inventory of $16,897 as the re-design of the packaging
of this product is completed. The manufacturing defect relates to the turning mechanism of the tube and not the lip balm formulation
in and of itself.
Honeywood
On
March 10, 2014, the Company entered into a definitive agreement to acquire California-based Honeywood LLC (“Honeywood”),
developer of a topical medicinal cannabis product, that, at the time, sold in numerous dispensaries across the state of California.
This definitive agreement was valid for a period of 120 days and the Company advanced to Honeywood $217,000 to be applied towards
the final closing requisite cash total and incurred $178,000 in legal fees as of March 31, 2014 in connection with the acquisition.
On
September 24, 2014 (the “Unwinding Date”), the Company, Honeywood and each of Honeywood’s principals entered
into a Termination Agreement (the “Termination Agreement”) to unwind the effects of the Merger (the “Unwinding
Transaction”). In accordance with the Termination Agreement, Honeywood agreed to repay to the Company substantially all
of the advances made by the Company to Honeywood prior to and after the Merger by delivering to the Company on the Unwinding Date
a Secured Promissory Note in the principal amount of $170,000 (the “Note”). The Note bore interest at 6% per annum
and was repayable in six quarterly installments on the last day of each calendar quarter starting on March 31, 2015 and ending
on June 30, 2016. The Note was secured by a blanket security interest in Honeywood’s assets pursuant to a Security Agreement
entered into on the Unwinding Date between Honeywood and the Company. Honeywood never made any payments under the Note prior to
the Honeywood Conversion Agreement (as defined below). As a result, the Company had fully reserved this amount and it was not
reflected as a receivable on its financial statements.
Effective
August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert the entire principal
and accrued but unpaid interest due into a 5% membership interest in Honeywood (the “Honeywood Conversion Agreement”).
The
Company made an assessment for impairment of its investment in Honeywood at the entity level. During the relationship between
the Company and Honeywood, Honeywood had a working capital deficiency and had a history of operating losses. In accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 320-10-35-28,
“Investments—Debt and Equity Securities”, a Company may not record an impairment loss on the investment but
shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value of the investment) in each
subsequent reporting period until either of the following occurs: a) the investment experiences a recovery of fair value up to
(or beyond) its cost; or b) the entity recognizes an other-than-temporary impairment loss. At the time of the Honeywood Conversion
Agreement, the receivable balance under the Note of $199,119 had been fully written off by the Company in a prior period. As a
result of the Honeywood Conversion Agreement, the Company deemed the investment to still have no current value. The Company recorded
this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.
Pilus
Energy
On
November 25, 2013, the Company executed a definitive merger agreement to acquire Pilus Energy, LLC (“Pilus”), an Ohio
limited liability company and a developer of alternative cleantech energy platforms using proprietary microbial solutions that
create electricity while consuming polluting molecules from wastewater. On January 28, 2014, the Company completed its acquisition
of Pilus. As a condition of the acquisition, the shareholders of Pilus received a warrant to purchase 100,000,000 shares of common
stock of the Company, which represented a fair market value of approximately $2,000,000, and, based upon whether the Warrants
issued to Pilus represented at least 5% the then outstanding and fully diluted capitalization of the Company, Pilus had been granted
an option to appoint a member to the Company’s board of directors. No board member had been appointed by Pilus to the Company’s
board. In addition, the Company paid Open Therapeutics, LLC (f/k/a Bacterial Robotics, LLC and Microbial Robots, LLC) (“Open
Therapeutics”), formerly the parent company of Pilus, $50,000 on signing the merger agreement and $50,000 at the time of
closing. Pilus’ principal asset on its balance sheet at the time of the acquisition was its U.S. patent
relating to its cleanwater technology. The Company determined that the value of the acquisition on January 28, 2014 would
be equal to the value of cash paid to Pilus plus the value of the 100,000,000 warrants the Company issued to acquire Pilus. Through
March 31, 2014, the Company amortized the patent over its estimated useful life, then on March 31, 2014, the Company conducted
its annual impairment test and determined that the entire unamortized balance should be impaired as the necessary funding to further
develop the patent was not available at that time.
On
December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company
sold 80% of its membership interest in Pilus back to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of
the unexercised portion of the warrant to purchase 28,917,647 shares (or 23,134,118 warrants) of the Company’s common stock.
Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous year’s earnings,
if any. The first $75,000 of such payments would be retained by Pilus Energy as additional consideration for the sale, which is
reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further agreed it would vote
its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership interest on all matters
for which a member vote is required. Through March 31, 2018, there has been no activity recorded by Open Therapeutics with respect
to Pilus Energy, and thus the $75,000 remains contingently owed to them.
ColluMauxil
On
November 15, 2016, the Company announced that it would form a new wholly-owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary was to be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief - “collum” and “auxilium.” The Company filed for trademarks
in respect of this business with the United States Patent and Trademark Office. The Company planned to develop, market, distribute
and potentially license a broad array of products and technologies that would help individuals affected by muscle tension. Due
to financial constraints and changing regulations, the Company decided to discontinue this business plan entirely and has allowed
all trademarks obtained in relation to ColluMauxil to expire. This business segment is no longer in existence.
Tauriga
Biz Dev Corp
On
January 4, 2018, the Company announced that its Board of Directors unanimously approved the formation a wholly-owned subsidiary
focused on acquiring interest(s) in patents and other intellectual property. This subsidiary, incorporated in Delaware, was named
Tauriga IP Acquisition Corp. The Company has committed to funding the subsidiary with up to $300,000 from its available cash.
On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp.
On
March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with Blink
Charging Company (NASDAQ: BLN K) (“BLINK”). Under this agreement the Company will be a non-exclusive independent sales
representative. The Company will act on behalf of BLINK to solicit orders from potential customers for EV (“Electric Vehicle”)
Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting and as long as the Company’s acquired
prospect remains under contract. This arrangement has the potential to earn both short term as well as long term recurring
revenue by helping BLINK expand its national electric vehicle charging infrastructure and network. This sales agreement is
a three-tier model based on whether Tauriga contracts the new customer to purchase equipment outright from Blink or enter into
one of two revenue-sharing agreements. In the case Tauriga effectuates a sale of Blink equipment it will receive a one-time sales
commission based on the sales price of the equipment sale. In the case where Tauriga secures a revenue sharing agreement with
a customer where Blink remains the owner, Tauriga will be paid an on-going commission based off of gross charger revenue, subject
to which party paid for the installation. Commission payments under the revenue sharing agreement are subject to minimum revenue
generation hurdles.
Moving
forward, the Company remains interested in consummating an acquisition or other strategic transaction to bolster its operations
during the next fiscal year, if possible; however, we cannot express with any certainty that an acquisition or other strategic
transaction will be sourced or consummated in the next fiscal year. If an acquisition or other strategic transaction is sourced
and approved by the board of directors, the Company will, in addition to conducting appropriate due diligence on such target,
evaluate its options in terms of its cost and payment approach to any such transaction, including the utilization of available
cash, equity or a mixture of both to consummate such transaction.
SUBSEQUENT
EVENTS
Common
Stock Issuances
Subsequent
to March 31, 2018, the Company issued 9,750,000 shares of its restricted common stock to consultants under consulting agreements
and 148,931,506 shares of restricted common stock to a noteholder for the conversion of debt and accrued interest having
a value of $57,339 ($0.0004 per share).
On
March 12, 2018, the Board of Directors approved moving forward with a reverse stock split which could be implemented at the discretion
of the Board of Directors at any time over a period of six months from the date of approval. On April 24, 2018, the Board of Directors
voted to implement this previously approved 1 for 75 reverse stock split for the Company’s common stock. There will be a
commensurate adjustment to the Company’s authorized shares (which will be reduced from its current figure of 7,500,000,000
to the post-split figure of 100,000,000).
The Company
believes that this reverse split will be effective during July 2018, and will file a current report on Form 8-K to announce the
specific effective date and other relevant information once completed.
Convertible
Notes
On
April 25, 2018 GS Capital Partners, LLC canceled the back-end note dated October 17, 2017. In accordance with Section 8(n) of
the original note, the note may be cancelled if the Company trades less than $40,000 in any consecutive 5-day period. From April
9 -13, 2018, the stock traded less than $17,000.
On
May 10, 2018, the Company entered into a securities purchase agreement with GS Capital Partners, LLC. GS Capital Partners,
LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $56,000. The first
8% note for $28,000 was funded with net proceeds of $25,000, after the deduction of $3,000 for OID. The second 8% note (the “Back-End
Note”) is initially paid for by an offsetting promissory note issued by GS Capital Partners, LLC to the Company (the
“Note Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note
Receivable is due January 10, 2019, unless certain conditions are not met, in which case both the Back-End Note and the Note Receivable
may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance upon
which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both the
First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price for each share of
common stock equal to 70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets
market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future,
for the 15 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.
In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 60% instead
of 70% while that “chill” is in effect. The Back-End Note will not be cash funded and such note, along with the Note
Receivable, will be immediately cancelled if the shares do not maintain a minimum trading price during the five days prior to
such funding and a certain aggregate dollar trading volume during such period.
Upon
an event of default, principal and accrued interest will become immediately due and payable under the notes. Additionally, upon
an event of default, both notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest
permitted by law. Further, certain events of default may trigger penalty and liquidated damage provisions. During the first six
months First Note is in effect, the Company may redeem either note by paying to GS Capital Partners, LLC an amount as follows:
(i) if the redemption is within the first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal
amount of either note along with any interest that has accrued during that period, and (ii) if the redemption is after the 91st
day the either note is in effect, but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount
of either note along with any accrued interest. The note may be redeemed after 180 days. The back-end note may not be repaid.
The note holder may redeem this note at any time after the first six months.
Other
Mr.
Hingge Hsu tendered his resignation for his position on the Board of Directors of the Company, effective April 9, 2018,
in order to pursue other business opportunities that required his attention and time. His resignation was not due to any
disagreement with the Company regarding any matter related to the Company’s operations, policies or practices. Mr. Hsu’s
service to the board has been greatly appreciated by management and the other board members of the Company. He had served
on the Board of Directors since 2014.
Reports
to Security Holders
In
accordance with the rules and regulation of the Securities and Exchange Act of 1934, as amended, we file with the Securities and
Exchange Commission
annual reports containing financial statements
audited by our independent registered public accounting firm and quarterly reports containing unaudited financial statements for
each of the first three quarters of each year. We file Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current
Reports on Form 8-K with the Securities and Exchange Commission in order to meet our timely and continuous disclosure requirements.
We may also file additional documents with the Commission if they become necessary in the course of our company’s operations.
The
public may read and copy any materials that we file with the SEC at the SEC’s Public Reference Room at 100 F Street, NE,
Washington, D.C. 20549. The public may obtain information on the operation of the Public Reference Room by calling the SEC at
1-800-SEC-0330. The SEC maintains an Internet site that contains reports, proxy and information statements, and other information
regarding issuers that file electronically with the SEC. The address of that site is www.sec.gov.
Environmental
Regulations
We
do not believe that we are or will become subject to any environmental laws or regulations of the United States. While our products
and business activities do not currently violate any laws, any regulatory changes that impose additional restrictions or requirements
on us or on our products or potential customers could adversely affect us by increasing our operating costs or decreasing demand
for our products or services, which could have a material adverse effect on our results of operations.
Employees
As
of March 31, 2018, we had a total of two consultants devoting substantially full-time services to the Company.
Available
Information
All
reports of the Company filed with the SEC are available free of charge through the SEC’s web site at www.sec.gov. In addition,
the public may read and copy materials filed by the Company at the SEC’s Public Reference Room located at 100 F Street,
N.E., Washington, D.C. 20549. The public may also obtain additional information on the operation of the Public Reference Room
by calling the Commission at 1-800-SEC-0330.
ITEM
1A. RISK FACTORS
The
following important factors among others, could cause our actual operating results to differ materially from those indicated or
suggested by forward-looking statements made in this Form 10-K or presented elsewhere by management from time to time.
There
are numerous and varied risks, known and unknown, that may prevent us from achieving our goals. If any of these risks actually
occur, our business, financial condition or results of operation may be materially adversely affected. In such case, the trading
price of our common stock could decline and investors could lose all or part of their investment.
Risks
Related to Our Business
We
have sustained recurring losses since inception and expect to incur additional losses in the foreseeable future.
We
were formed on April 8, 2001 and have reported annual net losses since inception. For our years ended March 31, 2018 and 2017,
we experienced net losses of $346,081 and $2,175,521, respectively. Cash was provided by operating activities of $296,312 in 2018
compared cash used in the amount of $746,908 in 2017. As of March 31, 2018, we had an accumulated deficit of $54,391,500.
In addition, we expect to
incur additional losses in the foreseeable future, and there can be no assurance that we will ever achieve profitability. Our
future viability, profitability and growth depend upon our ability to establish revenue-producing operations, expand our operations
and obtain additional capital. There can be no assurance that any of our efforts will prove successful or that we will not continue
to incur operating losses in the future. Our management is devoting substantially all of its efforts to developing its products
and services and there can be no assurance that our efforts will be successful. There is no assurance that can be given that management’s
actions will result in our profitable operations or the resolution of our liquidity problems.
We
may be classified as an inadvertent investment company
.
We
are not 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), 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. Currently the Company holds common stock and warrants in for other companies. Furthermore, the Groestlcoin we have purchased
may be deemed an investment security by the SEC, although we believe it is a currency. An inadvertent investment company can avoid
being classified as an investment company if it can rely on one of the exclusions under the 1940 Act. One such exclusion, Rule
3a-2 under the 1940 Act, allows an inadvertent investment company a grace period of one year from the earlier of (a) the date
on which an issuer owns securities and/or cash having a value exceeding 50% of the issuer’s total assets on either a consolidated
or unconsolidated basis and (b) the date on which an issuer owns or proposes to acquire investment securities having a value exceeding
40% of the value of such issuer’s total assets (exclusive of government securities and cash items) on an unconsolidated
basis. For us, this grace period began on November 29, 2017 when we were paid aggregate consideration of $2,050,000 in settlement
of our litigation with Cowan, Gunteski & Co., P.A., et al., and thus cash exceeded greater than 50% of our total assets. We
are taking actions to cause the investment securities held by us to be less than 40% of our total assets, which may include acquiring
assets with our cash and cryptocurrency on hand, consummating a major 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.
Product
tube defect of our
HerMan®
product line may cause us to not be able to successfully
bring our product to market with profitable operations.
There is no guarantee that
we will ever be able to satisfactorily resolve our
HerMan®
product tube defect
issue with the vendor which may cause our joint venture with Ice + Jam to bear substantial non-recoverable losses. We may not
be able to successfully resume operations if we cannot come to a satisfactory resolution with our current supplier. Further, if
we need to source and qualify a new supplier for our
HerMan®
product, there
may be substantial expenses as well as further significant time delay if we were forced to find and qualify a new supplier for
our product. Management may decide that this joint venture is not profitable to continue if we cannot resolve these issues in
a timely and efficient manner.
Because
we are an early development stage company with few products at or near commercialization, we expect to incur significant additional
operating losses.
We
are an early development stage company and we expect to incur substantial additional operating expenses over the next several
years as our research, development, and new business venture activities increase. The amount of our future losses and when,
if ever, we will achieve profitability are uncertain. We have no products that have generated any material commercial revenue
and do not expect to generate significant revenues from the commercial sale of our products in the near future, if ever. Our ability
to generate revenue and achieve profitability will depend on, among other things, the following:
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realizing
revenue from our partner relationship regarding Pilus related products as well as our
Cupuacu Butter Lip Balm
and distribution of other products that target
muscle tension;
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establishing
manufacturing, sales, and marketing arrangements, either alone or with third parties; and
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raising
sufficient funds to finance our activities.
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We
might not succeed at all, or at any, of these undertakings. If we are unsuccessful at some or all of these undertakings, our business,
prospects, and results of operations may be materially adversely affected.
We
may need to finance our future cash needs through public or private equity offerings, debt financings or corporate collaboration
and licensing arrangements. Any additional funds that we obtain may not be on terms favorable to us or our stockholders and may
require us to relinquish valuable rights.
As
of March 31, 2018, we had $12,291 of available cash as well $610,699 held in trading securities at fair value and $22,056 of
digital currency. We will need to raise additional funds or liquidate the remainder of our marketable securities to
pay outstanding vendor invoices and execute our business plan. Our future cash flows depend on our ability to market and sell
our common stock and to enter into licensing arrangements. There can be no assurance that we will have sufficient
funds to execute our business plan or complete a strategic transaction, or that additional funds will be available when needed
from any source or, if available, will be available on terms that are acceptable to us.
We
do not believe that we will generate significate revenues from our products in the near future. Therefore, for the foreseeable
future, we will have to fund all of our operations and capital expenditures from cash on hand, public or private equity offerings,
debt financings, bank credit facilities, other borrowings (including borrowings from our officers and directors) or corporate
collaboration and licensing arrangements. We will need to raise additional funds if we choose to expand our product development
efforts more rapidly than we presently anticipate.
If
we seek to sell additional equity or debt securities or enter into a corporate collaboration or licensing arrangement, we may
not obtain favorable terms for us and/or our stockholders or be able to raise any capital at all, all of which could result in
a material adverse effect on our business and results of operations. The sale of additional equity or debt securities, if convertible,
could result in dilution to our stockholders. The incurrence of indebtedness would result in increased fixed obligations and could
also result in covenants that would restrict our operations. Raising additional funds through collaboration or licensing arrangements
with third parties may require us to relinquish valuable rights to our technologies, future revenue streams, research programs
or product candidates, or to grant licenses on terms that may not be favorable to us or our stockholders. In addition, we could
be forced to discontinue product development, reduce or forego sales and marketing efforts and forego attractive business opportunities,
all of which could have an adverse impact on our business and results of operations.
Production
expenses for our
HerMan®
product may not decrease, and the product has significant
concentration of customers and vendors.
We
only recently began producing and selling our line of
HerMan®
lip balm product.
Product inventory that has been manufactured to date was produced at a cost level that would not be profitable moving forward
on a commercial (scalable basis). The Company believes that this high cost per unit was largely attributable to formulation issues,
packing issues, fulfillment issues and shipping costs. There can be no assurance that we will be able to reduce costs of production
sufficiently for the product to generate profits. Furthermore, 58% of our total sales of the product were generated through a
single wholesale client that made a major purchase. There can be no assurance that this client will continue to purchase our product
or that it will continue to order our product in similar quantities. Failure to retain this client and maintain similar sale levels
could adversely impact our revenues. In addition, the vendor who handles product formulation and filling the plastic tubes that
house the product represents 51.8% of the cost of goods sold cost for the
HerMan®
product. If the Company had a disruption with this vendor, it could take time to replace that function, which could result in
the Company being unable to produce additional product. In addition, there can be no assurance that we would be able to find another
vendor with similar financial terms, which may increase our cost of goods. Since the manufacturing and assembly portion of our
product life cycle are so concentrated in so few vendors we are exposed to significant risk to disruption of our supply of product.
This risk can and has significantly affected our ability to supply this product to market. Issues of product quality have caused
us several months where we have not had product to sell and we may not be able to bring this product back to market.
If
we issue additional shares in the future, it will result in the dilution of our existing stockholders.
We
have and may continue to experience substantial dilution. On June 28, 2017, our stockholders voted to amend our articles of incorporation
to increase the number of authorized shares of common stock we may issue from 2,500,000,000 to 7,500,000,000 shares of common
stock with a par value of $0.00001. As such, our Board of Directors may choose to issue some or all of such shares to acquire
one or more companies or properties and to fund our overhead and general operating requirements. The issuance of any such shares
may reduce the book value per share and may contribute to a reduction in the market price of the outstanding shares of our common
stock. If we issue any such additional shares, such issuance will reduce the proportionate ownership and voting power of all current
stockholders. Further, such issuance may result in a change of control of our corporation. Furthermore, we may issue convertible
notes and other instruments that are convertible into our common stock, which instruments might be convertible at a discount to
the then-current market price of our stock and may contain price resets and other anti-dilution provisions that would further
dilute our common stockholders. The risk of further dilution to existing and future stockholders remains the same following the
anticipated reverse stock split approved by our Board of Directors in April 2018.
The
Company is attempting to enter one or more new lines of business that may be highly competitive and with respect to which we may
have little experience.
Entering
a new line of business has many risks including obtaining sufficient capital to cover startup expenses and to continue to fund
operations until sales are sufficient to fund ongoing operations. A new business line may never generate significant revenues,
bring products to market or have enough sales to be profitable, as the case may be. With respect to any new line of business,
we may have competitors that are better established in the market, have greater experience with such line of business or have
greater resources than we do. We anticipate that products will be developed for and distributed to the retail market but there
can be no guaranty that sufficient revenue to support operations will ever be generated. Furthermore, our current employees have
limited experience in marketing consumer products, including lip balm products, and may have limited experience with respect to
any other line of business we may enter into as we seek to expand our operations.
Regulations
are constantly changing, and in the future our business may be subject to additional regulations that increase our compliance
costs.
We
believe that we understand the current laws and regulations to which our existing products will be subject in the future.
However, federal, state and foreign laws and regulations relating to the sale of our products are subject to future changes, as
are administrative interpretations of regulatory agencies. If we fail to comply with such federal, state or foreign laws or regulations,
we may fail to obtain regulatory approval for our products and, if we have already obtained regulatory approval, we could be subject
to enforcement actions, including injunctions preventing us from conducting our business, withdrawal of clearances or approvals
and civil and criminal penalties. In the event that federal, state, and foreign laws and regulations change, we may need to incur
additional costs to seek government approvals. If we are slow or unable to adapt to changes in existing regulatory requirements
or the promulgation of new regulatory requirements or policies, we or our licensees may lose marketing approval for our products
which will impact our ability to conduct business in the future.
Our
success also depends upon the skills, knowledge and experience of our scientific and technical personnel, our consultants and
advisors as well as our licensors and contractors. To help protect our proprietary know-how and our inventions for which patents
may be unobtainable or difficult to obtain, we rely on trade secret protection and confidentiality agreements. To this end, it
is our policy to require all of our employees, consultants, advisors and contractors to enter into agreements which prohibit the
disclosure of confidential information and, where applicable, require disclosure and assignment to us of the ideas, developments,
discoveries and inventions important to our business. These agreements may not provide adequate protection for our trade secrets,
know-how or other proprietary information in the event of any unauthorized use or disclosure or the lawful development by others
of such information. If any of our trade secrets, know-how or other proprietary information is disclosed, the value of our trade
secrets, know-how and other proprietary rights would be significantly impaired and our business and competitive position would
suffer.
Given
the fact that we may pose a competitive threat, competitors, especially large and well-capitalized companies that own or control
patents relating to electrophysiology recording systems, may successfully challenge our patent applications, produce similar products
or products that do not infringe our patents, or produce products in countries where we have not applied for patent protection
or that do not respect our patents.
If
any of these events occurs, or we otherwise lose protection for our trade secrets or proprietary know-how, the value of our intellectual
property may be greatly reduced. Patent protection and other intellectual property protection are important to the success of
our business and prospects, and there is a substantial risk that such protections will prove inadequate.
If
we infringe upon the rights of third parties, we could be prevented from selling products and forced to pay damages and defend
against litigation.
If
our products, methods, processes and other technologies infringe the proprietary rights of other parties, we could incur substantial
costs and we may be required to:
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obtain
licenses, which may not be available on commercially reasonable terms, if at all;
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abandon
an infringing product candidate;
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redesign
our product candidates or processes to avoid infringement;
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cease
usage of the subject matter claimed in the patents held by others;
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pay
damages; and/or
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defend
litigation or administrative proceedings which may be costly regardless of outcome, and which could result in a substantial
diversion of our financial and management resources.
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Any
of these events could substantially harm our earnings, financial condition and operations.
We
rely solely on two key officers, our directors and consultants and losing them would harm the business.
We
are highly dependent on our officers, consultants, advisors and directors. We do not have “key person” life insurance
policy for our Chief Executive Officer. If we are unable to obtain additional funding, we will be unable to meet our current and
future compensation obligations to such employees and consultants. In light of the foregoing, we are at risk that one or more
of our consultants or employees may leave our company for other opportunities where there is no concern about such employers fulfilling
their compensation obligations, or for other reasons. The loss of the technical knowledge and management and industry expertise
of any of our key personnel could result in delays in product development, loss of customers and sales and diversion of management
resources, which could adversely affect our results of operations.
If
we are unable to attract, train and retain highly qualified personnel, the quality of our services may decline and we may not
successfully execute our internal growth strategies.
Our
success will depend in large part upon our ability to attract, train, motivate and retain highly skilled and experienced
employees in the areas of business into which we expand, including technical personnel. Qualified technical employees periodically
are in great demand and may be unavailable in the time frame required to satisfy our operating requirements. Expansion
of our business could further require us to employ additional highly skilled technical personnel.
There
can be no assurance that we will be able to attract and retain sufficient numbers of highly skilled technical employees in the
future. The loss of personnel or our inability to hire or retain sufficient personnel at competitive rates of compensation could
impair our ability to develop our products or services or secure and complete customer engagements and could harm our business.
If
we do not effectively manage changes in our business, these changes could place a significant strain on our management and operations.
Our
ability to grow successfully requires an effective planning and management process. The expansion and growth of our business could
place a significant strain on our management systems, infrastructure and other resources. To manage our growth successfully, we
must continue to improve and expand our systems and infrastructure in a timely and efficient manner. Our controls, systems, procedures
and resources are currently not adequate to support a changing and growing company. If our management fails to respond effectively
to changes and growth in our business, including acquisitions, there could be a material adverse effect on our business, financial
condition, results of operations and future prospects.
We
may be unable to identify additional operating businesses or assets, and even if we do, we may be unable to finance such an acquisition
Our
strategies ultimately include making significant investments in sales and marketing programs to achieve revenue growth and margin
improvement targets. If we do not achieve the expected benefits from these investments or otherwise fail to execute on our strategic
initiatives, we may not achieve the growth improvement we are targeting and our results of operations may be adversely affected.
We may also fail to secure the capital necessary to make these investments, which will hinder our growth.
In
addition, as part of our strategy for growth, we may make acquisitions, enter into strategic alliances such as joint ventures
and joint development agreements or other strategic transactions. However, we may not be able to identify suitable acquisition
or other strategic partner candidates, complete acquisitions or integrate acquisitions successfully, and our strategic
alliances may not prove to be successful. In this regard, acquisitions and other strategic transactions involve numerous
risks, including difficulties in the integration of the operations, technologies, services and products of the acquired companies
and the diversion of management’s attention from other business concerns. Although we will endeavor to evaluate the risks
inherent in any particular transaction, there can be no assurance that we will properly ascertain all such risks. In addition,
acquisitions and other strategic transactions could result in the incurrence of substantial additional indebtedness and
other expenses or in potentially dilutive issuances of equity securities. Even if we identify assets, transactions or additional
lines of business, we may have insufficient liquidity to be able to complete such a transaction. There can be no assurance
that difficulties encountered with such transaction(s) will not have a material adverse effect on our business, financial
condition and results of operations.
We
currently do not have significant sales, marketing or distribution operations and will need to expand our expertise in these areas.
We
currently do not have significant sales, marketing or distribution operations and, in connection with the expected commercialization
of our products, will need to expand our expertise in these areas. To increase internal sales, distribution and marketing
expertise and be able to conduct these operations, we would have to invest significant amounts of financial and management resources.
In developing these functions ourselves, we could face a number of risks, including:
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we
may not be able to attract and build an effective marketing or sales force; and
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the
cost of establishing, training and providing regulatory oversight for a marketing or sales force may be substantial.
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We
experienced, and continue to experience, changes in its operations, which has placed, and will continue to place, significant
demands on its management, operational and financial infrastructure.
If
the Company does not effectively manage its growth, the quality of its products and services could suffer, which could negatively
affect the Company’s brand and operating results. To effectively manage this growth, the Company will need to continue to
improve its operational, financial and management controls and its reporting systems and procedures. Failure to implement these
improvements could hurt the Company’s ability to manage its growth and financial position.
The
values of cryptocurrencies are volatile, we may be unable to use our cryptocurrencies to purchase goods and services.
A
portion of our assets is held in the form of Groestlecoin, a virtual currency. Cryptocurrencies have only recently become selectively
accepted as a means of payment for goods and services and use of cryptocurrency to purchase goods and services remains limited
and has not gained widespread market acceptance. Banks and other established financial institutions may refuse to process funds
for cryptocurrency transactions or maintain accounts for persons or entities transacting in cryptocurrency. Conversely, a significant
portion of cryptocurrency demand is generated by speculators and investors seeking to profit from the short- or long-term holding
of cryptocurrency. Price volatility undermines cryptocurrency’s role as a medium of exchange as retailers are much less
likely to accept it as a form of payment. These technologies may not continue to expand or may be superseded by technologies that
have yet to be developed. A decrease in the price of Groestlcoin could have an adverse impact on our balance sheet.
Risks
Relating to Our Organization and Our Common Stock
Our
common stock is currently considered a “penny stock,” which may make it more difficult for our investors to sell their
shares.
Our
stock is categorized as a penny stock. The SEC has adopted Rule 15g-9 which generally defines “penny stock” to be
any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00 per
share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from these rules, the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the
secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in and limit
the marketability of our common stock.
We
are
a publicly
registered company that is subject to the reporting requirements of federal securities laws, which can be expensive and may divert
resources from other projects, thus impairing our ability to grow.
We
are
a public reporting
company and, accordingly, subject to the information and reporting requirements of the Exchange Act and other federal securities
laws, including compliance with the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley Act”). The costs of preparing
and filing annual and quarterly reports, proxy statements and other information with the SEC and furnishing audited reports to
stockholders causes our expenses to be higher than they would have been if we remained private.
The
Sarbanes-Oxley Act has required changes in corporate governance practices of public companies. As a public company, these rules
and regulations have increased our compliance costs and make certain activities more time consuming and costly. As a public company,
it is also more difficult and expensive for us to obtain director and officer liability insurance and we may be required to accept
reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. As a result, it
may be more difficult for us to attract and retain qualified persons to serve on our board of directors or as executive officers.
We
will be required to incur significant costs and require significant management resources to evaluate our internal control over
financial reporting as required under Section 404 of the Sarbanes-Oxley Act, and any failure to comply or any adverse result from
such evaluation may have an adverse effect on our stock price.
As
a smaller reporting company as defined in Rule 12b-2 under the Securities Exchange Act of 1934, as amended, we are required to
evaluate our internal control over financial reporting under Section 404 of the Sarbanes-Oxley Act of 2002 (“Section 404”).
Section 404 requires us to include an internal control report with the Annual Report on Form 10-K. This report must include management’s
assessment of the effectiveness of our internal control over financial reporting as of the end of the fiscal year. This report
must also include disclosure of any material weaknesses in internal control over financial reporting that we have identified.
Failure to comply, or any adverse results from such evaluation, could result in a loss of investor confidence in our financial
reports and have an adverse effect on the trading price of our equity securities. Management believes that our internal controls
and procedures are currently not effective to detect the inappropriate application of U.S. GAAP rules. Management realizes there
are deficiencies in the design or operation of our internal control that adversely affect our internal controls which management
considers to be material weaknesses including those described below:
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We
have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls.
As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected
on a timely basis.
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We
do not have an audit committee. While not being legally obligated to have an audit committee, it is our view that to have
an audit committee, comprised of independent board members, is an important entity-level control over our financial statements.
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We
did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including
the impact of potential fraud-related risks and the risks related to non-routine transactions, if any, on our internal control
over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which
resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted
a material weakness.
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We
lack personnel with formal training to properly analyze and record complex transactions in accordance with U.S. GAAP.
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We
have not achieved the optimal level of segregation of duties relative to key financial reporting functions.
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Achieving
continued compliance with Section 404 may require us to incur significant costs and expend significant time and management resources.
We cannot assure you that we will be able to fully comply with Section 404 or that we and our independent registered public accounting
firm would be able to conclude that our internal control over financial reporting is effective at fiscal year-end. As a result,
investors could lose confidence in our reported financial information, which could have an adverse effect on the trading price
of our securities, as well as subject us to civil or criminal investigations and penalties. In addition, our independent registered
public accounting firm may not agree with our management’s assessment or conclude that our internal control over financial
reporting is operating effectively.
FINRA
sales practice requirements may also limit a stockholder’s ability to buy and sell our stock.
In
addition to the “penny stock” rules described below, FINRA has adopted rules that require that in recommending
an investment to a customer, a broker-dealer must have reasonable grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities to their non-institutional customers, broker-dealers
must make reasonable efforts to obtain information about the customer’s financial status, tax status, investment objectives
and other information. Under interpretations of these rules, FINRA believes that there is a high probability that speculative
low priced securities will not be suitable for many customers. The FINRA requirements make it more difficult for broker-dealers
to recommend that their customers buy our common stock, which may limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.
The
market price and trading volume of shares of our common stock may be volatile.
The
market price of our common stock could fluctuate significantly for many reasons, including reasons unrelated to our performance,
such as limited liquidity for our stock, reports by industry analysts, investor perceptions or general economic and industry conditions.
Fluctuations in operating results or the failure of operating results to meet the expectations of public market analysts and investors
may negatively impact the price of our securities. Quarterly operating results may fluctuate in the future due to a variety of
factors that could negatively affect revenues or expenses in any particular quarter, including vulnerability of our business to
a general economic downturn, changes in the laws that affect our products or operations, competition, compensation related expenses,
application of accounting standards and our ability to obtain and maintain all necessary government certifications and/or licenses
to conduct our business. In addition, if the market price of a company’s shares drops significantly, stockholders
could institute securities class action lawsuits against the company. A lawsuit against us would cause us to incur substantial
costs and could divert the time and attention of our management and other resources.
We
may not pay dividends in the future. Any return on investment may be limited to the value of our common stock.
We
[have never paid dividends and] do not anticipate paying cash dividends in the foreseeable future. The payment of dividends
on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such
time as our board of directors may consider relevant. If we do not pay dividends, our common stock may be less valuable because
a return on your investment will only occur if our stock price appreciates. Furthermore, requirements of Florida corporate
law and bankruptcy laws may prohibit us from declaring or paying dividends on our stock.
Offers
or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.
If
our stockholders sell substantial amounts of our common stock in the public market, or upon the expiration of any statutory holding
period under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly
referred to as an “overhang” and in anticipation of which the market price of our common stock could fall. The existence
of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional
financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or
appropriate.
ITEM
1B. UNRESOLVED STAFF COMMENTS
None.
ITEM
2. PROPERTIES
On
December 1, 2017, the Company relocated its corporate headquarters from Danbury, Connecticut to New York, New York. The Company’s
main office is located at 555 Madison Avenue 5th Floor Suite 506, New York, NY 10022. The Company has entered into a two-year
lease at $1,010 per month for the term of the lease.
ITEM
3. LEGAL PROCEEDINGS
On
November 9, 2017, the Company entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”)
in connection with the case entitled Tauriga Sciences, Inc. v. Cowan, Gunteski & Co., P.A., et al.) before the United States
District Court of the District of New Jersey, Civil Action No. 3:16-cv-06285 (the “Action”) to resolve all claims
between the parties in the Action for aggregate cash consideration to the Company of $2,050,000. Also, as part of the Settlement
Agreement, the defendants agreed to release any and all claims against the Company. Upon receipt of the Settlement Payment, the
Company dismissed the Action with prejudice. The settlement amount was funded in its entirety by professional liability insurance
for the defendants. The Company and the defendants also exchanged general releases of all claims against the other as part of
the Settlement Agreement, including any potential derivative actions, and to avoid any future public comments on the Action, unless
required by law.
ITEM
4. MINE SAFETY DISCLOSURES.
Not
applicable.
PART
II
ITEM
5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES.
Market
for Common Equity
Market
Information
The
Company’s common stock is traded on the OTC Bulletin Board under the symbol “TAUG” As of June 25, 2018,
the Company’s common stock was held by 1,255 shareholders of record, which does not include shareholders whose shares are
held in street or nominee name.
The
following chart is indicative of the fluctuations in the stock prices:
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For
the Years Ended March 31,
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2018
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2017
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High
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Low
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High
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Low
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First
Quarter
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$
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0.0024
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$
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0.0008
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$
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0.0099
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$
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0.0044
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Second
Quarter
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$
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0.0013
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$
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0.0006
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$
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0.0080
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$
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0.0031
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Third
Quarter
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$
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0.0011
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$
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0.0005
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$
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0.0088
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$
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0.0038
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Fourth
Quarter
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$
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0.0011
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$
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0.0006
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$
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0.0062
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$
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0.0018
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April
1, 2018 to current the stock has a closing trading range of $0.0004 to $0.0008
The
Company’s transfer agent is ClearTrust, LLC located at 16540 Pointe Village Drive, Suite 206, Lutz, Florida 33558 with a
telephone number of (813) 235-4490.
Dividend
Distributions
We
have not historically and do not intend to distribute dividends to stockholders in the foreseeable future.
Securities
authorized for issuance under equity compensation plans
The
Company does not have any equity compensation plans.
Penny
Stock
Our
common stock is considered “penny stock” under the rules of the Securities Exchange Act of 1934. The SEC has
adopted rules that regulate broker-dealer practices in connection with transactions in penny stocks. Penny stocks are generally
equity securities with a price of less than $5.00, other than securities registered on certain national securities exchanges or
quoted on the NASDAQ Stock Market System, provided that current price and volume information with respect to transactions in such
securities is provided by the exchange or quotation system. The penny stock rules require a broker-dealer, prior to a transaction
in a penny stock, to deliver a standardized risk disclosure document prepared by the Commission, that:
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contains
a description of the nature and level of risks in the market for penny stocks in both public offerings and secondary trading;
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contains
a description of the broker’s or dealer’s duties to the customer and of the rights and remedies available to the
customer with respect to a violation to such duties or other requirements of Securities’ laws; contains a brief, clear,
narrative description of a dealer market, including bid and ask prices for penny stocks and the significance of the spread
between the bid and ask price;
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contains
a toll-free telephone number for inquiries on disciplinary actions;
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defines
significant terms in the disclosure document or in the conduct of trading in penny stocks; and
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contains
such other information and is in such form, including language, type, size and format, as the Securities and Commission may
require by rule or regulation.
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The
broker-dealer also must provide, prior to effecting any transaction in a penny stock, the customer with:
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bid
and offer quotations for the penny stock;
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the
compensation of the broker-dealer and its salesperson in the transaction;
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the
number of shares to which such bid and ask prices apply, or other comparable information relating to the depth and liquidity
of the marker for such stock; and
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monthly
account statements showing the market value of each penny stock held in the customer’s account.
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In
addition, the penny stock rules that require that prior to a transaction in a penny stock not otherwise exempt from those rules;
the broker-dealer must make a special written determination that the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written acknowledgement of the receipt of a risk disclosure statement, a written agreement to transactions
involving penny stocks, and a signed and dated copy of a written suitably statement.
These
disclosure requirements may have the effect of reducing the trading activity in the secondary market for our stock.
Related
Stockholder Matters
On
June 28, 2017, the stockholders of the Company voted to increase the number of our authorized shares of common stock from 2,500,000,000
to 7,500,000,000. The articles of amendment were filed with the Florida Secretary of State on June 29, 2017.
On
April 24, 2018, the Board approved a 75 to 1 Reverse stock split for the Company’s common stock. There will be a commensurate
proportionate adjustment (reduction) to the Company’s authorized shares under the Company’s certificate
of incorporation from 7,500,000,000 to 100,000,000 in accordance with the Florida Business Corporation Act Section 607.10025,
which allows the Board of Directors of a Florida corporation to decrease the number of issued and outstanding shares of a class
of stock, while concurrently decreasing the total authorized shares of the same class of stock in the same percentages.
Purchase
of Equity Securities
On
November 15, 2017, the board of directors approved the authorization for Seth Shaw, Chief Executive Officer, to repurchase Company
stock on the open market or directly from investors up to a market value of $150,000. As of this report date no shares have been
repurchased.
Unregistered
sales of equity securities and use of proceeds
During
the year ended March 31, 2017, the Company issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per share) to
convert notes payable in the aggregate amount of $113,000 (including a related party note in the amount of $18,000), plus a 20%
conversion premium, which was recorded as interest expense in the amount of $22,600.
During
the year ended March 31, 2017, the Company issued 104,375,000 shares of common stock ($0.004 per share) for aggregate proceeds
of $428,500. The proceeds were used to fund ongoing operations.
During
the year ended March 31, 2017, the Company issued 197,000,000 shares of common stock for services rendered and to be rendered
which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant
date fair value amortized over the life of the contracts.
During
the year ended March 31, 2017, the Company issued 63,800,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $378,550 ($0.0027 to $0.01 per share).
During
the year ended March 31, 2017, the Company issued 100,639,501 shares of common stock to convert principal and interest of outstanding
notes in the aggregate amount of $118,126 ($0.00114 to $0.0012 per share).
On
November 18, 2016, the Company issued 15,384,615 shares of common stock to settle an outstanding payable in the amount of $194,516.
The Company recognized a gain on the settlement of this liability in the amount of $94,516, as the shares were valued at $100,000.
During
the year ended March 31, 2018, the Company issued 1,512,049,546 shares of common stock to holders of convertible notes to retire
$601,749 in principal and $85,055 of accrued interest (at $0.000225 to $0.0012 per share) under the convertible notes.
During
the year ended March 31, 2018, the Company issued 141,428,571 shares of common stock to a private investor for an aggregate value
of $177,500 (at $0.0013 per share). The proceeds were used to fund ongoing operations.
During
the year ended March 31, 2018, the Company issued 120,000,000 shares of common stock to Seth Shaw, the Company’s Chief Executive
Officer, for an aggregate value of $150,000 ($0.00125 per share). The proceeds were used to fund ongoing operations.
During
the year ended March 31, 2018, the Company issued 144,500,000 shares of common stock for services rendered and to be rendered
which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant
date fair value amortized over the life of the contracts.
During
the year ended March 31, 2018, the Company issued 85,000,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $86,600 ($0.001 per share).
During
the year ended March 31, 2018, the Company issued 116,500,000 shares of common stock for debt and legal settlements at an aggregate
value of $75,050 ($0.0006 per share).
During
the year ended March 31, 2018, the Company issued 65,100,000 shares of common stock to former officers and directors for amounts
previously accrued at an aggregate value of $173,999 ($0.0027 per share).
ITEM
6. SELECTED FINANCIAL DATA.
As
the Company is a “smaller reporting company,” this item is inapplicable.
ITEM
7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATION.
This
annual report on Form 10-K contains “forward-looking statements” within the meaning of Section 27A of the Securities
Act of 1933, as amended (the “Securities Act”) and Section 21E of the Securities Exchange Act of 1934, as amended
(the “Exchange Act”). These forward-looking statements are not historical facts, but rather are based on current expectations,
estimates and projections about our industry, our beliefs and our assumptions. Forward looking statements are often identified
by words such as “will”, “may”, “projects”, “anticipate,” “expects,”
“intends,” “plans,” “believes,” “seeks” and “estimates” and variations
of these words and similar expressions or import are intended to identify forward-looking statements but are not intended to constitute
the exclusive means of identifying such statements. These statements are not guarantees of future performance and are subject
to risks, uncertainties and other factors, including those described in “Risk Factors” contained below in this annual
report, some of which are beyond our control and difficult to predict and could cause actual results, performance or achievements,
or industry results to differ materially from any future results, performance or achievements, expressed or implied, by such forward-looking
statements. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Form
10-K. Investors should carefully consider all of such risks before making an investment decision with respect to the Company’s
stock. The following discussion and analysis should be read in conjunction with our consolidated financial statements for Tauriga
Sciences, Inc. Such discussion represents only the best present assessment from our Management.
COMPARISON
OF THE YEAR ENDED MARCH 31, 2018 TO THE YEAR ENDED MARCH 31, 2017
Results
of Operations
Revenue.
We are currently developing our business and as a result we have not developed a material or consistent pattern of revenue
generation. For the year ended March 31, 2018, we generated revenue of $1,188 and gross profit of $473 compared to no revenue
or gross profit for the prior year.
The
revenue was generated from our joint venture with Ice + Jam selling a proprietary cupuaçu butter lip balm, sold under the
trademark HERMAN®.
Operating
Expenses:
Marketing
and advertising expense
For
the year ended March 31, 2018, marketing and advertising expense was $16,712 compared to $0 for the same period in the prior year.
These expenses were related to the launch of the Company’s joint venture with ICE + JAM in the marketing of HERMAN®.
Research
and development
For
the year ended March 31, 2018, research and development expense was $11,440 compared to $108,942 for the same period in the prior
year. The prior year increased expense was due to the recording of a contingent liability in the amount of $75,000 for the contingent
liability for a payment to Pilus Energy, LLC for the development of a revenue stream associated with intellectual property owned
by jointly by Tauriga and Open Therapeutics. The Company also issued 3,000,000 common shares at a value of $20,400 ($0.0068 per
share) during the year ended March 31, 2017 to a consultant for research and development of the ColluMauxil product line.
General
and Administrative Expense
For
the year ended March 31, 2018, general and administrative expenses were $1,944,195 compared to $1,432,653 for the same period
in prior fiscal year. This increase of $511,542 was primarily attributable to increased cost for legal, accounting, consulting
and travel associated the litigation with Cowan, Gunteski & Co., P.A., et al.
Depreciation
and amortization
For
the year ended March 31, 2018, depreciation and amortization expense was $796 compared to $7,034 for the same period in the prior
year. Depreciation expense decreased by $6,238 due to write off obsolete equipment.
Net
Loss.
We generated net losses of $74,801 for the year ended March 31, 2018 compared to $2,175,521 for the same period in 2017.
Liquidity
and Capital Resources
At
March 31, 2018, we had cash of $12,291 compared to the prior year of $18. We have historically met our cash needs through a combination
of proceeds from private placements of our securities, loans and convertible notes. Our cash requirements are generally for selling,
general and administrative activities. We believe that our cash balance is not sufficient to finance our cash requirements for
expected operational activities, capital improvements, and partial repayment of debt through the next 12 months.
Our
operating activities provided cash of $296,312 for the year ended March 31, 2018, and we used cash in operations of $651,129
during the same period in fiscal year 2017. The principal elements of cash flow from operations for the year ended March 31,
2018 included realized and unrealized losses of $243,185 and $190,449 as well as stock-based compensation expense of $698,236
offset by a net loss of $74,801, a gain on settlement of $707,078 and a reduction in accounts payable in the amount of $205,117.
Cash
used in investing activities during the year ended March 31, 2018 was $832,839 compared to $1,081 for investing activities
in the prior year. In the fiscal year ended March 31, 2018, the Company purchased trading securities in the amount of $802,148
and purchased digital currency in the amount of $34,397.
Cash
provided by our financing activities was $548,800 for the year ended March 31, 2017, compared to cash generated of $652,228
during the comparable period in 2017. This difference was primarily attributed to the repayment of principal on notes payable
in the amount $318,500 and less proceeds from common stock sales offset by higher proceeds from convertible notes.
As
of March 31, 2018, current assets exceeded our current liabilities by $367,760. Current assets increased from $2,833 at March
31, 2017 to $686,347 at March 31, 2018. The increase was primarily attributable to the cash settlement of the litigation with
Cowan, Gunteski & Co., P.A., et al. The proceeds from the settlement were used to increase investment in trading securities
to the amount of $610,074 as well as an increase in investment in digital currency in the amount of $22,056. Prepaid expenses
also increased by $38,530. Current liabilities decreased significantly from $2,016,201 at March 31, 2017 to $318,587 at March
31, 2017. The decrease in liabilities was primarily attributable to the retirement of debt and accrued interest for cash and stock
as well as the settlement and repayment of accrued expenses and accounts payable.
At
March 31, 2018 the Company had strategically purchased securities of other companies as well digital currencies to most
effectively leverage the cash provided from the settlement of litigation with Cowan, Gunteski & Co., P.A., et al. The Company
from time to time may divest some or all of these holdings in the short term where it deems appropriate or where cash needs necessitate
such a divestiture. The market value of the Company’s holdings of marketable securities and digital currency at March 31,
2018 was $632,755.
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For
the years ended
March 31,
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2018
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2017
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Cash
provided by (used in) operating activities
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$
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296,312
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$
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(651,129
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)
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Cash
used in investing activities
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(832,839
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)
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(1,081
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)
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Cash
provided by financing activities
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548,800
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652,228
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Net
changes to cash
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$
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12,273
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$
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18
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Going
Concern
In
the year ended March 31, 2018, the Company had two substantial events occur. The Company launched its joint venture product as
noted above. This resulted in operations that the Company recognized its initial sales orders from. Operations from this joint
venture are currently on hold while the Company works out quality control issues regarding the packaging of the individual units.
As a result, the entire inventory balance has been written off. In addition, the Company settled the case entitled Tauriga Sciences,
Inc. v. Cowan, Gunteski & Co., P.A., et al. that was ongoing for over one year. As a result of these two events, the Company
was able to recognize a much narrower net loss to common shareholders in the amount of $307,407, however, the Company still
incurred $1,972,670 in losses from operations compared to $1,548,629 in the years ended March 31, 2018 and 2017, respectively.
Due to the settlement of the lawsuit, the Company was able to record $2,050,000 in other income in the year ended March 31, 2018.
With the collection of proceeds from the lawsuit, the Company was able to settle long outstanding payables and pay convertible
notes payable, as well as invest in trading securities to leverage its operating business. The result of this activity was that
the Company went from having a working capital deficit of $2,013,368 at March 31, 2017 to having positive working capital of $367,760.
The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can
achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve
months. Management’s plans with respect to this include raising capital through equity markets to fund future operations
and cultivating new license agreements or acquiring ownership in technology or other operating companies or formulating relationships
such as the one with BLINK. The Company intends to continue funding its operations either through cash-on-hand or through financing
alternatives. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure
to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements
or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful,
there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as
a going concern as determined by management. However, the accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
Contractual
Obligations
On
December 1, 2017, the Company relocated its corporate headquarters from Danbury, Connecticut to New York, New York. The Company
has entered into a two-year lease for its New York City location at $1,010 per month for the term of the lease.
Off-Balance
Sheet Arrangements
As
of March 31, 2018, the Company had an off-balance sheet arrangement as defined in Item 303(a)(4) of Regulation S-K.
On
October 17, 2017, the Company entered into a Securities Purchase Agreement (the “Purchase Agreement”) with GS Capital
Partners, LLC whereby the Company issued to GS Capital Partners, LLC two 8% Convertible Redeemable Notes the aggregate
principal amount of $210,000. The first 8% $105,00 Convertible Redeemable Note (the “First Note”) was funded with
gross cash proceeds of $100,000 to the Company on October 19, 2017 and the second 8% $105,000 Convertible Redeemable Note (the
“Back-End Note”) was initially paid for by an offsetting promissory note payable by GS Capital Partners, LLC
to the Company (the “Note Receivable”). The terms of the Back-End Notes require cash funding prior to any conversion
thereunder. The Note Receivable is due June 17, 2018, unless certain conditions are not met, in which case both the Back-End Note
and the Note Receivable may both be cancelled. During the first six months First Note and the Back-End Note are in effect, the
Company may redeem either by paying to GS Capital Partners, LLC an amount as follows: (i) if the redemption is within the
first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal amount of either note along with
any interest that has accrued during that period or (ii) if the redemption is after the 91st day the either note is in effect,
but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount of either note along with any accrued
interest. Neither note may be redeemed after 180 days. On April 25, 2018, the noteholder, under their rights under the contract,
canceled the back-end note.
Subsequent
to March 31, 2018, the Company entered into an off-balance sheet arrangement with a note holder.
On
May 10, 2018, the Company entered into a securities purchase agreement with GS Capital Partners, LLC. GS Capital Partners,
LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $56,000. The first
8% note for $28,000 was funded with net proceeds of $25,000, after the deduction of $3,000 for OID. The second 8% note (the “Back-End
Note”) is initially paid for by an offsetting promissory note issued by GS Capital Partners, LLC to the Company (the
“Note Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note
Receivable is due January 10, 2019., unless certain conditions are not met, in which case both the Back-End Note and the Note
Receivable may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price for each share
of common stock equal to 70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets
market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future,
for the 15 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.
In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 60% instead
of 70% while that “chill” is in effect. The Back-End Note will not be cash funded and such note, along with the Note
Receivable, will be immediately cancelled if the shares do not maintain a minimum trading price during the five days prior to
such funding and a certain aggregate dollar trading volume during such period. Neither the back-end note nor the note receivable
have been recorded on the Company’s financial statements. Both notes have a default interest rate of 24%. The back-end note
may not be repaid.
Recent
Accounting Pronouncements
In
July 2017, the FASB issued ASU 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic
480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company had chosen to early
adopt this standard as of this reporting period with retro-active restatement of comparative periods.
In
January 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-04
Intangibles – Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment.
The amendments in this update are required for public business
entities that have goodwill reported in their financial statements and have not elected the private company alternative for the
subsequent measurement of goodwill. The update is intended to simplify the annual or interim goodwill impairment test. A public
business entity that is a U.S. SEC filer should adopt the amendments in this update for its annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is assessing the impact, if
any, of implementing this guidance on its financial position and results of operations.
In January 2017, the FASB issued
ASU 2017-01
Business Combinations (Topic 805), Clarifying the Definition of a Business.
The amendments in this update are
required for public business entities that have goodwill reported in their financial statements and have not elected the private
company alternative for the subsequent measurement of goodwill. The update is intended to clarify the definition of a business
with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions,
disposals, goodwill, and consolidation. Public business entities should apply the amendments in this update to annual periods
beginning after December 15, 2017. Early application is permitted under certain conditions. The Company does not expect implementation
of this guidance to have a material impact on its financial position and results of operations.
In August 2016, the FASB issued
ASU No. 2016-15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”
.
The amendments in this update provided guidance on eight specific cash flow issues. This update is to provide specific guidance
on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement
of cash flows. ASU 2016-15 is effective for fiscal years and interim periods within that fiscal year beginning after December
31, 2017. Early adoption is permitted. The Company does not expect implementation of this guidance to have a material impact
on its financial position, results of operations and liquidity.
In
February 2016, FASB issued ASU 2016-02, “
Leases (Topic 842)
.” The new standard requires lessees to apply a
dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is
effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on
an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with
a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be
effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period
and is applied retrospectively. Early adoption is permitted. We are currently in the process of assessing the impact the adoption
of this guidance will have on the Company’s consolidated financial statements.
There
are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has
been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have
a material impact on the Company’s consolidated financial position or operating results.
Critical
Accounting Policies
Non-controlling
Interests
On
December 23, 2016, the Company entered into a non-exclusive, one-year license agreement (subsequently extended by an additional
two-years) with Ice + Jam LLC. Under terms of the License Agreement, the Company will market Ice + Jam’s proprietary cupuaçu
butter lip balm, sold under the trademark HERMAN®. To effectuate this arrangement, the Company and Ice + Jam formed a new
company. Through this new Company the two parties will evenly share on a 50/50 basis any profits generated through the Company’s
marketing, sales and distribution efforts. All revenue and expense from these efforts are fully consolidated in the Company’s
consolidated financial statements and then the minority interest was designated as noncontrolling interest to derive at net loss
attributable to common shareholders. The non-controlling interest at March 31, 2018 and 2017 was $2,196 and $0, respectively.
The net loss attributable to noncontrolling interest for the years ended March 31, 2018 and 2017 was $38,674 and $0, respectively.
Revenue
Recognition
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single
set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance
introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or
services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The Company adopted the updated guidance effective October 1, 2017 as the Company commenced sales of
HERMAN® as described in Note 1 in the three months ended December 31, 2017 using the full retrospective method, however the
new standard did not have a material impact on its consolidated financial position and consolidated results of operations, as
it did not change the manner or timing of recognizing revenue.
Under
ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective
obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for
the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration
is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows.
On
March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with BLINK.
Under this agreement the Company will be a non-exclusive independent sales representative. The Company will act on behalf of BLINK
to solicit orders from potential customers for EV Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting
and as long as the Company’s acquired prospect remains under contract. This arrangement has the potential to earn both short
term as well as long term recurring revenue by helping BLINK expand its national electric vehicle charging infrastructure and
network. This sales agreement is a three-tier model based on whether Tauriga contracts the new customer to purchase equipment
outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga effectuates a sale of Blink equipment
it will receive a one-time sales commission based on the sales price of the equipment sale. In the case where Tauriga secures
a revenue sharing agreement with a customer where Blink remains the owner, Tauriga will be paid an on-going commission based off
of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement
are subject to minimum revenue generation hurdles.
The
following is a summary of revenue for the years ended March 31, 2018 and 2017, disaggregated by type:
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2018
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2017
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Product
Revenue
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$
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1,188
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$
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-
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Sales
Agent Revenue
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-
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-
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$
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1,188
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$
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-
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Investment
in Trading Securities
Investment in trading securities
consist of investments in shares of common stock of public companies which trade on public markets (such as the
Nasdaq Capital Markets Stock Exchange) as well as warrants exercisable for shares of common stock of these companies. These
securities are carried on the Company’s balance sheet at fair market value based on the closing prices
of the shares of common stock owned on the last trading day before the balance sheet date of this report.
Fluctuations
in the underlying bid price of the shares of common stock result in unrealized gains or losses. The Company recognizes
these fluctuations in value as other operating income or loss.
For
securities sold, the Company recognizes the gains and losses attributable to these investments as realized gains or losses
in other operating income or loss.
Stock-Based
Compensation
The
Company accounts for Stock-Based Compensation under ASC 718 “Compensation-Stock Compensation”, which addresses the
accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus on
transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement
of cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant
date must be recognized.
The
Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, Equity-Based Payments to
Non-Employees. Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation awards granted
as either the fair value of the consideration received, or the fair value of the equity instruments issued, whichever is more
reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and an offset to additional
paid-in capital in shareholders’ equity/(deficit) over the applicable service periods using variable accounting through
the vesting dates based on the fair value of the options or warrants at the end of each period.
The
Company issues stock to individual consultants for various services of business and product development. During the
year ended March 31, 2017, the Company issued 144,500,000 shares of common stock for services rendered and to be rendered compared
to 197,000,000 for the same period the prior year. The costs for these transactions are measured at the fair value of the
consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable. The value of
the common stock is measured at the earlier of (1) the date at which a firm commitment for performance by the counterparty to
earn the equity instruments is reached or (2) the date at which the counterparty’s performance is complete. The Company
recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for services.
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. The Company will perform a periodic assessment of assets for impairment in the
absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline
in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived
assets to be held and used, the Company would recognize an impairment loss only if its carrying amount is not recoverable through
its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated
fair value.
Fair
Value Measurements
ASC
820 “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted
accounting principles and expands disclosure about fair value measurements.
The
following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which fair value is observable:
Level
1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level
2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level
3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Financial
instruments classified as Level 1 - quoted prices in active markets include cash.
These
consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are
highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in
economic conditions may also dramatically affect the estimated fair values
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for
the respective periods. The respective carrying value of certain financial instruments approximated their fair values due to the
short-term nature of these instruments. These financial instruments include cash, investments, short-term notes payable, accounts
payable and accrued expenses.
Derivative
Financial Instruments
Derivatives
are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible debentures are embedded
derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized
during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives
are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing
models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s
judgment and may impact net income (loss).
With
the issuance of the July 2017 FASB ASU 2017-11, “Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic
480) Derivatives and Hedging (Topic 815),” which addresses the complexity of accounting for certain financial instruments
with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard whereby
fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under the amendments
included in this update, the Company is no longer required to record changes in fair value during the period of change as a separate
component of other income (expense) in the consolidated Statements of Operations.
The
amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. When determining whether certain financial instruments should be classified as liabilities
or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is
indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are
now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “Debt—Debt
with Conversion and Other Options”), including related EPS guidance (in Topic 260). The amendments in Part II of this Update
recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in the Codification,
to a scope exception. Those amendments do not have an accounting effect.
Under
current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified
as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “Derivatives and Hedging,”
to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature)
is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies
for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments
that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for
net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature
results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being
required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity
must measure at fair value initially and at each subsequent reporting date.
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “Derivatives
and Hedging—Contracts in Entity’s Own Equity,” which is considered in determining whether an equity-linked financial
instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether instruments
would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope exception.
If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded conversion
options with down round features are no longer bifurcated.
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a
numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder
of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on
an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
Those
amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria
for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument
at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case
of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion
options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features
rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes
the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring
it at fair value each reporting period.
The
amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception.
This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the
guidance in Topic 480.
For
public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim
period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning
of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the
following ways:
1.
retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the
statement of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content
that links to this paragraph is effective; or
2.
retrospectively to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance
with the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.
The
amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.
The
Company has identified that instruments previously carried as derivative liabilities were deemed to be such on the basis of embedded
features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity
offerings. In accordance with the adoption of ASU 2017-11, the Company recorded a gain on derivative liability in the amount of
$271,280 for the year ended March 31, 2018 compared to loss of $95,779 for the same period in the prior year. The Company also
recorded a corresponding loss on extinguishment of debt in the amount of $271,280 for the year ended March 31, 2018 compared to
and a loss of $95,779 for the same period in the prior year. Along with this transaction, the Company recorded a deemed dividend
to shareholders in the amount of $271,280 for the year ended March 31, 2018. Prior year amounts are restated in current presentation
to reflect gain on derivative liability, loss on extinguishment of debt and deemed dividend.
The
three instruments affected by this adoption were the June 1, 2015, 7% Convertible Redeemable Note with a principal amount
of $104,000 with a maturity date of June 1, 2016 with Union Capital, LLC which contains an anti-ratchet clause; the July
14, 2015, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal amount of $96,000 issued with an original
issue discount of $16,000 and the November 7, 2016, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal
amount of $45,000 issued with an original issue discount of $7,000. The two Group 10 Holdings, LLC notes contain a most favored
nations clause, allowing the note holder to adopt any term of future convertible redeemable notes which would be beneficial to
them. All of these instruments have been fully repaid or converted as of October 10, 2017.
ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
As
the Company is a “smaller reporting company,” this item is inapplicable.
ITEM
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
REPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To
the Board of Directors and Stockholders
of Tauriga Sciences, Inc. and Subsidiaries
Opinion
on the Financial Statements
We
have audited the accompanying consolidated balance sheets of Tauriga Sciences, Inc. and Subsidiaries (the “Company”)
as of March 31, 2018 and 2017, the related consolidated statements of operations, changes in stockholders’ equity (deficit),
and cash flows for the years then ended, and the related notes (collectively referred to as the “consolidated financial
statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated
financial position of the Company as of March 31, 2018 and 2017, and the results of its consolidated operations and its cash flows
for the years then ended in conformity with accounting principles generally accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an
opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered
with the Public Company Accounting Oversight Board (United States) (“PCAOB”) and are required to be independent with
respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities
and Exchange Commission and the PCAOB.
We
conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether
due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal controls
over financial reporting. As part of our audits we are required to obtain an understanding of internal control over financial
reporting but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion.
Our
audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis,
evidence regarding the amounts and disclosures in the financial statements. Our audits also included evaluating the accounting
principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. We believe that our audits provide a reasonable basis for our opinion.
Going
Concern Consideration
The
accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern.
As discussed in Note 1 to the consolidated financial statements, the Company has sustained significant operating losses and needs
to obtain additional financing to continue the services they provide. These conditions raise substantial doubt about the Company’s
ability to continue as a going concern. Management’s plans in regard to these matters are also described in Note 1. The
consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/
KBL, LLP
We
have served as the Company’s auditor since 2015.
KBL,
LLP
New
York, NY
June
26, 2018
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
BALANCE SHEETS
(IN
US$)
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
Current
assets:
|
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
12,291
|
|
|
$
|
18
|
|
|
Accounts
receivable
|
|
|
581
|
|
|
|
-
|
|
|
Investment
- trading securities
|
|
|
610,699
|
|
|
|
625
|
|
|
Investment
- digital currency
|
|
|
22,056
|
|
|
|
-
|
|
|
Prepaid
expenses and other current assets
|
|
|
40,720
|
|
|
|
2,190
|
|
|
Total
current assets
|
|
|
686,347
|
|
|
|
2,833
|
|
|
|
|
|
|
|
|
|
|
|
|
Property
and equipment, net
|
|
|
2,491
|
|
|
|
961
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
assets
|
|
$
|
688,838
|
|
|
$
|
3,794
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES
AND STOCKHOLDERS’ EQUITY (DEFICIT)
|
|
|
|
|
|
|
|
|
|
Current
liabilities:
|
|
|
|
|
|
|
|
|
|
Notes
payable to individuals and companies, net of discounts
|
|
$
|
254,847
|
|
|
$
|
579,918
|
|
|
Accounts
payable
|
|
|
29,865
|
|
|
|
278,628
|
|
|
Accrued
interest
|
|
|
33,875
|
|
|
|
126,156
|
|
|
Accrued
expenses
|
|
|
-
|
|
|
|
841,499
|
|
|
Liability
for common stock to be issued
|
|
|
-
|
|
|
|
190,000
|
|
|
Total
current liabilities
|
|
|
318,587
|
|
|
|
2,016,201
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
liabilities:
|
|
|
|
|
|
|
|
|
|
Contingent
liability
|
|
|
75,000
|
|
|
|
75,000
|
|
|
Total
other liabilities
|
|
|
393,587
|
|
|
|
2,091,201
|
|
|
|
|
|
|
|
|
|
|
|
|
Stockholders’
equity (deficit):
|
|
|
|
|
|
|
|
|
|
Common
stock, par value $0.00001; 7,500,000,000 and 2,500,000,000 shares authorized, 3,919,498,166 and 1,734,920,049 issued
and outstanding at March 31, 2018 and 2017, respectively
|
|
|
39,194
|
|
|
|
17,349
|
|
|
Additional
paid-in capital
|
|
|
54,641,711
|
|
|
|
52,219,670
|
|
|
Accumulated
deficit
|
|
|
(54,391,500
|
)
|
|
|
(54,084,093
|
)
|
|
Accumulated
other comprehensive loss
|
|
|
8,042
|
|
|
|
(240,333
|
)
|
|
Total
stockholders’ equity (deficit) - Tauriga Sciences, Inc.
|
|
|
297,447
|
|
|
|
(2,087,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Noncontrolling
interest in subsidiary
|
|
|
(2,196)
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
stockholders’ equity (deficit)
|
|
|
295,251
|
|
|
|
(2,087,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
liabilities and stockholders’ equity (deficit)
|
|
$
|
688,838
|
|
|
$
|
3,794
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(IN
US$)
|
|
|
For the Years Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Revenues
|
|
$
|
1,188
|
|
|
$
|
-
|
|
|
Cost of goods
sold
|
|
|
715
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
473
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
Marketing and advertising
|
|
|
16,712
|
|
|
|
-
|
|
|
Research and development
|
|
|
11,440
|
|
|
|
108,942
|
|
|
General and administrative
|
|
|
1,944,195
|
|
|
|
1,432,653
|
|
|
Depreciation
and amortization expense
|
|
|
796
|
|
|
|
7,034
|
|
|
Total
operating expenses
|
|
|
1,973,143
|
|
|
|
1,548,629
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss from operations
|
|
|
(1,972,670
|
)
|
|
|
(1,548,629
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
Interest expense
|
|
|
(291,610
|
)
|
|
|
(721,408
|
)
|
|
Loss on extinguishment
of debt
|
|
|
(271,280
|
)
|
|
|
(95,779
|
)
|
|
Gain on derivative
liability
|
|
|
271,280
|
|
|
|
95,779
|
|
|
Gain on settlement
of debt
|
|
|
582,887
|
|
|
|
94,516
|
|
|
Loss on asset disposal
|
|
|
(783
|
)
|
|
|
-
|
|
|
Unrealized loss
on trading securities
|
|
|
(190,449
|
)
|
|
|
-
|
|
|
Loss on exchange
from BTC
|
|
|
(2,859
|
)
|
|
|
-
|
|
|
Unrealized loss
on digital currency exchange
|
|
|
(9,482
|
)
|
|
|
-
|
|
|
Loss on sale of
trading securities
|
|
|
(243,185
|
)
|
|
|
-
|
|
|
Gain
on legal settlement
|
|
|
2,053,350
|
|
|
|
-
|
|
|
Total
other income (expense)
|
|
|
1,897,869
|
|
|
|
(626,892
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(74,801
|
)
|
|
|
(2,175,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to non-controlling interest
|
|
|
(38,674
|
)
|
|
|
-
|
|
|
Net loss attributable to controlling
interest
|
|
|
(36,127
|
)
|
|
|
(2,175,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Deemed
dividend
|
|
|
(271,280
|
)
|
|
|
(95,779
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net loss attributable
to common shareholders
|
|
$
|
(307,407
|
)
|
|
$
|
(2,271,300
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(74,801
|
)
|
|
$
|
(2,175,521
|
)
|
|
Change
in unrealized gain (loss) on available for sale security
|
|
|
-
|
|
|
|
(125
|
)
|
|
Comprehensive
loss
|
|
$
|
(74,801
|
)
|
|
$
|
(2,175,646
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss)
per share - fully diluted
|
|
$
|
(0.000
|
)
|
|
$
|
(0.002
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares
outstanding - fully diluted
|
|
|
2,814,667,200
|
|
|
|
1,427,819,418
|
|
The
accompanying notes are an integral part of the consolidated financial statements.
TAURIGA
SCIENCES, INC. AND SUBSDIARY
CONSOLIDATED
STATEMENTS OF CASH FLOWS
(IN
US$)
|
|
|
For the Years Ended
|
|
|
|
|
March
31,
|
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
|
|
Cash flows from operating activities
|
|
|
|
|
|
|
|
|
|
Net
loss attributable to controlling interest
|
|
$
|
(36,127
|
)
|
|
$
|
(2,175,521
|
)
|
|
Adjustments to
reconcile net loss to cash provided by (used in) operating activities:
|
|
|
|
|
|
|
|
|
|
Non-controlling
interest adjustment
|
|
|
(38,674
|
)
|
|
|
-
|
|
|
Amortization
of original issue discount
|
|
|
26,932
|
|
|
|
23,891
|
|
|
Gain on settlement
|
|
|
(707,078
|
)
|
|
|
-
|
|
|
Unrealized loss
on digital currency
|
|
|
9,482
|
|
|
|
-
|
|
|
Depreciation
and amortization
|
|
|
796
|
|
|
|
7,034
|
|
|
Non-cash interest
|
|
|
93,405
|
|
|
|
267,242
|
|
|
Amortization
of debt discount
|
|
|
12,503
|
|
|
|
-
|
|
|
Common stock
issued and issuable for services (including stock-based compensation)
|
|
|
698,236
|
|
|
|
816,168
|
|
|
Legal fees deducted
from proceeds of notes payable
|
|
|
31,300
|
|
|
|
9,000
|
|
|
Gain on conversion
of payable
|
|
|
-
|
|
|
|
(94,516
|
)
|
|
Contingent liability
|
|
|
-
|
|
|
|
75,000
|
|
|
Change in derivative
liability
|
|
|
(271,280
|
)
|
|
|
(95,779
|
)
|
|
Loss on extinguishment
of debt
|
|
|
271,280
|
|
|
|
95,779
|
|
|
Loss on disposal
of fixed assets
|
|
|
783
|
|
|
|
-
|
|
|
Loss on sale
of digital currency
|
|
|
2,859
|
|
|
|
-
|
|
|
Loss on sale
of trading securities
|
|
|
243,185
|
|
|
|
-
|
|
|
Unrealized loss
on trading securities
|
|
|
190,449
|
|
|
|
-
|
|
|
Decrease (increase)
in assets
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
-
|
|
|
|
-
|
|
|
Prepaid expenses
|
|
|
(38,530
|
)
|
|
|
310
|
|
|
Due from Ice+Jam
|
|
|
(581
|
)
|
|
|
-
|
|
|
Increase (decrease)
in liabilities
|
|
|
|
|
|
|
|
|
|
Accounts payable
|
|
|
(205,117
|
)
|
|
|
(28,754
|
)
|
|
Accrued interest
|
|
|
(23,989
|
)
|
|
|
82,272
|
|
|
Accrued
expenses
|
|
|
-
|
|
|
|
366,745
|
|
|
Cash provided by (used in) operating
activities
|
|
|
259,834
|
|
|
|
(651,129
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
|
Purchase of securities
held for resale
|
|
|
(802,148
|
)
|
|
|
-
|
|
|
Contribution
into Ice + Jam
|
|
|
36,478
|
|
|
|
|
|
|
Proceeds from
sale of securities
|
|
|
6,815
|
|
|
|
-
|
|
|
Purchase of digital
currency
|
|
|
(34,397
|
)
|
|
|
-
|
|
|
Purchases
of property and equipment
|
|
|
(3,109
|
)
|
|
|
(1,081
|
)
|
|
Cash (used in) investing activities
|
|
|
(796,361
|
)
|
|
|
(1,081
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
-
|
|
|
|
(1,272
|
)
|
|
Proceeds from
notes payable
|
|
|
-
|
|
|
|
122,000
|
|
|
Repayment of
principal on notes payable
|
|
|
(318,500
|
)
|
|
|
-
|
|
|
Proceeds from
the sale of common stock (including to be issued)
|
|
|
299,600
|
|
|
|
453,500
|
|
|
Proceeds
from convertible notes
|
|
|
567,700
|
|
|
|
78,000
|
|
|
Cash provided
by financing activities
|
|
|
548,800
|
|
|
|
652,228
|
|
|
Net increase in cash
|
|
|
12,273
|
|
|
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash, beginning
of year
|
|
|
18
|
|
|
|
-
|
|
|
Cash, end
of year
|
|
$
|
12,291
|
|
|
$
|
18
|
|
|
|
|
|
|
|
|
|
|
|
|
SUPPLEMENTAL DISCLOSURE OF CASH FLOW
INFORMATION:
|
|
|
|
|
|
|
|
|
|
Interest Paid
|
|
$
|
145,550
|
|
|
$
|
-
|
|
|
Taxes Paid
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
NON CASH ITEMS
|
|
|
|
|
|
|
|
|
|
Conversion of
notes payable and accrued interest for common stock
|
|
$
|
686,804
|
|
|
$
|
253,728
|
|
|
Original issue
discount on notes payable and debentures
|
|
$
|
20,450
|
|
|
$
|
25,450
|
|
|
Shares issued
for accrued expense
|
|
$
|
74,050
|
|
|
$
|
100,000
|
|
|
Reclassification
of comprehensive loss to investments in trading securities
|
|
$
|
248,375
|
|
|
$
|
-
|
|
|
Deemed dividend
|
|
$
|
271,280
|
|
|
$
|
95,977
|
|
|
Reclassification
of derivative liability to additional paid in capital
|
|
$
|
-
|
|
|
$
|
52,891
|
|
|
Common shares
issued for share liability
|
|
$
|
190,000
|
|
|
$
|
133,000
|
|
|
Recognition of
debt discount
|
|
$
|
15,656
|
|
|
$
|
-
|
|
|
Related party
forgiveness of debt classified to APIC
|
|
$
|
108,760
|
|
|
$
|
-
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARY
CONSOLIDATED
STATEMENT OF STOCKHOLDERS’ EQUITY(DEFICIT)
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
Number
of
|
|
|
|
|
|
Additional
paid-in
|
|
|
Accumulated
|
|
|
other
comprehensive
|
|
|
Non-Controlling
|
|
|
Total
stockholders’
|
|
|
|
|
shares
|
|
|
Amount
|
|
|
capital
|
|
|
deficit
|
|
|
income
(loss)
|
|
|
Interest
|
|
|
deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2016
|
|
|
1,219,820,933
|
|
|
$
|
12,199
|
|
|
$
|
49,745,876
|
|
|
$
|
(51,812,793
|
)
|
|
$
|
(240,208
|
)
|
|
$
|
-
|
|
|
$
|
(2,294,926
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares for cash at $0.004 to $0.005 per share
|
|
|
104,375,000
|
|
|
$
|
1,044
|
|
|
$
|
427,456
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
428,500
|
|
|
Issuances
of commitment shares - debt financing $0.027 to at $0.01 per share
|
|
|
63,800,000
|
|
|
|
638
|
|
|
|
377,912
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
378,550
|
|
|
Shares
issued for note conversion at $0.00114 to $0.0012 per share
|
|
|
100,639,501
|
|
|
|
1,006
|
|
|
|
117,120
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
118,126
|
|
|
Stock-based
compensation vesting Derivative liability recognized on debt conversion
|
|
|
-
|
|
|
|
-
|
|
|
|
52,891
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
52,891
|
|
|
Impairment
of available for sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(125
|
)
|
|
|
-
|
|
|
|
(125
|
)
|
|
Issuance
of shares for services rendered and services to be rendered at $0.002 to $0.005 including stock based compensation at $0.0029
to $0.0088
|
|
|
197,000,000
|
|
|
|
1,970
|
|
|
|
814,198
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
816,168
|
|
|
Issuance
for convertible notes to individuals at $0.004
|
|
|
33,900,000
|
|
|
|
339
|
|
|
|
135,261
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
135,600
|
|
|
Issuance
of shares for settlement of accrued expenses
|
|
|
15,384,615
|
|
|
|
153
|
|
|
|
99,847
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
100,000
|
|
|
Net
loss for the year ended March 31, 2017
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,271,300
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
(2,271,300
|
)
|
|
Reclassification
of derivative liabilities
|
|
|
-
|
|
|
|
-
|
|
|
|
449,109
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
449,109
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2017
|
|
|
1,734,920,049
|
|
|
$
|
17,349
|
|
|
$
|
52,219,670
|
|
|
$
|
(54,084,093
|
)
|
|
$
|
(240,333
|
)
|
|
$
|
-
|
|
|
$
|
(2,087,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance
of shares via private placement at $0.0007 to $0.00125 per share
|
|
|
261,428,571
|
|
|
|
2,614
|
|
|
|
324,886
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
327,500
|
|
|
Issuance
of shares - stock based compensation at $0.003 to $0.01 per share
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Issuances
of commitment shares - debt financing at $0.01 per share
|
|
|
85,000,000
|
|
|
|
850
|
|
|
|
85,750
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
86,600
|
|
|
Shares
issued for note conversion at $0.00035 to $0.0012 per share
|
|
|
1,512,049,546
|
|
|
|
15,119
|
|
|
|
671,684
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
686,803
|
|
|
Issuance
of cashless warrants with note payable
|
|
|
-
|
|
|
|
-
|
|
|
|
12,546
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
12,546
|
|
|
Stock-based
compensation vesting
|
|
|
-
|
|
|
|
-
|
|
|
|
701,347
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
701,347
|
|
|
Impairment
of available for sale securities
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
248,375
|
|
|
|
-
|
|
|
|
248,375
|
|
|
Stock
issued for services at $0.002 to $0.005
|
|
|
209,600,000
|
|
|
|
2,096
|
|
|
|
171,903
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
173,999
|
|
|
Issuance
of shares for settlement of debt
|
|
|
116,500,000
|
|
|
|
1,165
|
|
|
|
73,885
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
75,050
|
|
|
Related
party forgiveness of debt
|
|
|
|
|
|
|
|
|
|
|
108,760
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
108,760
|
|
|
Deemed
dividend
|
|
|
-
|
|
|
|
-
|
|
|
|
271,280
|
|
|
|
(271,280
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Non-controlling
interest
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
36,478
|
|
|
|
36,478
|
|
|
Net
loss for the year ended March 31, 2018
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(36,127
|
)
|
|
|
-
|
|
|
|
(38,674
|
)
|
|
|
(74,801
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance
at March 31, 2018
|
|
|
3,919,498,166
|
|
|
$
|
39,194
|
|
|
$
|
54,641,711
|
|
|
$
|
(54,391,500
|
)
|
|
$
|
8,042
|
|
|
$
|
(2,196
|
)
|
|
$
|
295,251
|
|
See
accompanying notes to consolidated financial statements.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
1 – BASIS OF OPERATIONS
Nature
of Business
The
Company, prior to December 12, 2011, was involved in the business of exploiting new technologies for the production of clean energy.
The Company was then moving in the direction of a diversified biotechnology company. The mission of the Company is to evaluate
potential acquisition candidates operating in the life sciences technology space.
During the quarter ended December
31, 2017, the Company launched this lip balm product (branded as
HerMan®
)
during December 2017. The Company is hopeful that this product can provide the Company with sustainable revenue at
margins that will justify the initial expense and effort. The Company believes that the initial high cost per unit
of this lip balm product was largely attributable to formulation issues that have since been addressed and resolved, packing
issues, fulfillment issues and shipping costs. The Company believes that future inventory costs, if there is sufficient demand
will be substantially lower than the first batch on a per unit basis. The Company is exercising caution and performing due diligence
to ensure that any potential opportunities in this area are appropriately evaluated.
Cupuaçu
Butter Lip Balm
On
December 23, 2016, the Company entered into a non-exclusive, 12-month license agreement (the “License Agreement”)
with Cleveland, Ohio based cosmetics products firm Ice + Jam LLC (“Ice + Jam”). Under terms of the License Agreement,
the Company will market Ice + Jam’s proprietary cupuaçu butter lip balm, sold under the trademark
HerMan®
and the two companies will evenly share on a 50/50 basis any profits generated through the Company’s marketing, sales
and distribution efforts. The Company had agreed to pay the production, marketing and start-up costs for all product it sells
to retail customers or distributors. As part of the License Agreement, the Company issued 5,000,000 common shares which had a
value of $27,500, based on the closing price of the stock on the day the Company entered into the agreement ($0.005 per share).
The cost of the shares will be prorated over the life of the license.
On
November 27, 2017, the Company announced a 2-year extension to the existing non-exclusive License Agreement, extending the life
of the License Agreement through December 23, 2019, at which time, if mutually agreed upon. the companies reserve the option to
extend for an additional 2 years (if exercised at that time, this License Agreement would be extended through December 23, 2021).
The two companies reserve the right to request amendment of the License Agreement at any point during the effective term of the
agreement.
During
the quarter ended December 31, 2017, the Company launched this lip balm product (branded as HerMan®). The Company is hopeful
that that this product can provide the Company with sustainable revenue at margins that will justify the initial expense and effort.
The Company believes that the initial high cost per unit of this lip balm product was largely attributable to formulation issues
that have since been addressed and resolved, packing issues, fulfillment issues and shipping costs. The Company believes that
future inventory costs, if there is sufficient demand, will be substantially lower than the first batch on a per unit basis. The
Company is exercising caution and performing due diligence to ensure that any potential opportunities in this area are appropriately
evaluated.
During
February of 2018, the Company’s strategy with respect to the HerMan product was negatively impacted by a series of product
defects relating to the twisting mechanism of the lip balm tube. The Company immediately made the decision to work with the manufacturer
to permanently address and fix this defect issue (which the Company believes has affected approximately 30% of the initial product
batch. This issue significantly increases the risk associated with this business opportunity and there can be no guarantee that
this will be satisfactorily solved.
The
Company recognized sales of the
HerMan®
product in the year ended March 31,
2018 in the aggregate amount of $1,118. The Company has removed the product from the website and is working with the manufacturer
to resolve product quality issues. As a result of the quality control issues regarding the packaging, the Company has written
off the remaining inventory of $16,897 as they complete the re-design of the packaging of this product as they have determined
that the units are not usable.
Honeywood
On
March 10, 2014, the Company entered into a definitive agreement to acquire California-based Honeywood LLC (“Honeywood”),
developer of a topical medicinal cannabis product, that, at the time, sold in numerous dispensaries across the state of California.
This definitive agreement was valid for a period of 120 days and the Company advanced to Honeywood $217,000 to be applied towards
the final closing requisite cash total and incurred $178,000 in legal fees as of March 31, 2014 in connection with the acquisition.
On
September 24, 2014 (the “Unwinding Date”), the Company, Honeywood and each of Honeywood’s principals entered
into a Termination Agreement (the “Termination Agreement”) to unwind the effects of the Merger (the “Unwinding
Transaction”). In accordance with the Termination Agreement, Honeywood agreed to repay to the Company substantially all
of the advances made by the Company to Honeywood prior to and after the Merger by delivering to the Company on the Unwinding Date
a Secured Promissory Note in the principal amount of $170,000 (the “Note”). The Note bore interest at 6% per annum
and was repayable in six quarterly installments on the last day of each calendar quarter starting on March 31, 2015 and ending
on June 30, 2016. The Note was secured by a blanket security interest in Honeywood’s assets pursuant to a Security Agreement
entered into on the Unwinding Date between Honeywood and the Company. Honeywood never made any payments under the Note prior to
the Honeywood Conversion Agreement (as defined below). As a result, the Company had fully reserved this amount and it was not
reflected as a receivable on its financial statements.
Effective
August 1, 2017, the Company entered into a Debt Conversion Agreement, whereby the Company agreed to convert the entire principal
and accrued but unpaid interest due into a 5% membership interest in Honeywood (the “Honeywood Conversion Agreement”).
The
Company made an assessment for impairment of its investment in Honeywood at the entity level. During the relationship between
the Company and Honeywood, Honeywood had a working capital deficiency and had a history of operating losses. In accordance with
Financial Accounting Standards Board (“FASB”)
Accounting Standards Codification (“ASC”)
320-10-35-28, “
Investments—Debt
and Equity Securities
”, a Company may not record an impairment loss on the investment but shall continue to evaluate
whether the investment is impaired (that is, shall estimate the fair value of the investment) in each subsequent reporting period
until either of the following occurs: a) the investment experiences a recovery of fair value up to (or beyond) its cost; or b)
the entity recognizes an other-than-temporary impairment loss.
At the time of the Honeywood Conversion Agreement, the receivable
balance under the Note of $199,119 had been fully written off by the Company in a prior period. As a result of the Honeywood Conversion
Agreement, the Company deemed the investment to still have no current value. The Company recorded this investment at $0. Thus,
no recovery of bad debt and no impairment will be recognized in this period.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
Nature
of Business (Continued)
Pilus
Energy
On
November 25, 2013, the Company executed a definitive merger agreement to acquire Pilus Energy, LLC (“Pilus”), an Ohio
limited liability company and a developer of alternative cleantech energy platforms using proprietary microbial solutions that
create electricity while consuming polluting molecules from wastewater. On January 28, 2014, the Company completed its acquisition
of Pilus. As a condition of the acquisition, the shareholders of Pilus received a warrant to purchase 100,000,000 shares of common
stock of the Company, which represented a fair market value of approximately $2,000,000, and, based upon whether the Warrants
issued to Pilus represented at least 5% the then outstanding and fully diluted capitalization of the Company, Pilus had been granted
an option to appoint a member to the Company’s board of directors. No board member had been appointed by Pilus to the
Company’s board. In addition, the Company paid Open Therapeutics, LLC (f/k/a Bacterial Robotics, LLC and Microbial Robots,
LLC) (“Open Therapeutics”), formerly the parent company of Pilus, $50,000 on signing the merger agreement and $50,000
at the time of closing. Pilus’ principal asset on its balance sheet at the time of the acquisition was its US
patent relating to its cleanwater technology. The Company determined that the value of the acquisition on January 28,
2014 would be equal to the value of cash paid to Pilus plus the value of the 100,000,000 warrants the Company issued to acquire
Pilus. Through March 31, 2014, the Company amortized the patent over its estimated useful life, then on March 31, 2014, the Company
conducted its annual impairment test and determined that the entire unamortized balance should be impaired as the necessary funding
to further develop the patent was not available at that time.
On
December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company
sold 80% of its membership interest in Pilus back to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of
the unexercised portion of the warrant to purchase 28,917,647 shares (or 23,134,118 warrants) of the Company’s common stock.
Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous year’s earnings,
if any. The first $75,000 of such payments would be retained by Pilus Energy as additional consideration for the sale, which is
reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further agreed it would vote
its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership interest on all matters
for which a member vote is required. Through March 31, 2018, there has been no activity recorded by Open Therapeutics with respect
to Pilus Energy, and thus the $75,000 remains contingently owed to them.
ColluMauxil
On
November 15, 2016, the Company announced that it would form a new wholly-owned subsidiary focused on the development, marketing
and distribution of products that target muscle tension. The subsidiary was to be called ColluMauxil Therapeutics LLC (“ColluMauxil”),
which is based on the Latin terms for neck relief - “collum” and “auxilium.” The Company filed for trademarks
in respect of this business with the United States Patent and Trademark Office. The Company planned to develop, market, distribute
and potentially license a broad array of products and technologies that would help individuals affected by muscle tension. Due
to financial constraints and changing regulations, the Company decided to discontinue this business plan entirely and has allowed
all trademarks obtained in relation to ColluMauxil to expire.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
1 – BASIS OF OPERATIONS (CONTINUED)
Nature
of Business (Continued)
Tauriga
Biz Dev Corp
On
January 4, 2018, the Company announced that its Board of Directors unanimously approved the formation a wholly-owned subsidiary
focused on acquiring interest(s) in patents and other intellectual property. This subsidiary, incorporated in Delaware, was named
Tauriga IP Acquisition Corp. The Company has committed to funding the subsidiary with up to $300,000 from its available cash.
On March 25, 2018, the Company changed the name to Tauriga Biz Dev Corp.
On
March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with Blink
Charging Company (NASDAQ: BLN K) (“BLINK”). Under this agreement the Company will be a non-exclusive independent sales
representative. The Company will act on behalf of BLINK to solicit orders from potential customers for EV (“Electric Vehicle”)
Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting and as long as the Company’s acquired prospect
remains under contract. This arrangement has the potential to earn both short term as well as long term recurring revenue by helping
BLINK expand its national electric vehicle charging infrastructure and network. This sales agreement is a three-tier model based
on whether Tauriga contracts the new customer to purchase equipment outright from Blink or enter into one of two revenue-sharing
agreements. In the case Tauriga effectuates a sale of Blink equipment it will receive a one-time sales commission based on the
sales price of the equipment sale. In the case where Tauriga secures a revenue sharing agreement with a customer where Blink remains
the owner, Tauriga will be paid an on-going commission based off of gross charger revenue, subject to which party paid for the
installation. Commission payments under the revenue sharing agreement are subject to minimum revenue generation hurdles.
Going
Concern
In
the year ended March 31, 2018, the Company had two substantial events occur. The Company launched its joint venture product as
noted above. This resulted in operations that the Company recognized its initial sales orders from. Operations from this joint
venture are currently on hold while the Company works out quality control issues regarding the packaging of the individual units.
As a result, the entire inventory balance has been written off. In addition, the Company settled the case entitled Tauriga Sciences,
Inc. v. Cowan, Gunteski & Co., P.A., et al. that was ongoing for over one year. As a result of these two events, the Company
was able to recognize a much narrower net loss to common shareholders in the amount of $74,801, however, the Company still
incurred $1,972,670 in losses from operations compared to $1,548,629 in the years ended March 31, 2018 and 2017, respectively.
Due to the settlement of the lawsuit, the Company was able to record $2,050,000 in other income in the year ended March 31, 2018.
With the collection of proceeds from the lawsuit, the Company was able to settle long outstanding payables and pay convertible
notes payable, as well as invest in trading securities to leverage its operating business. The result of this activity was that
the Company went from having a working capital deficit of $2,013,368 at March 31, 2017 to having positive working capital of $367,760.
The Company believes that there is uncertainty with respect to continuing as a going concern until the operating business can
achieve more than nominal sales and profitable operations and sustain cash flow to operate the Company for a period of twelve
months. Management’s plans with respect to this include raising capital through equity markets to fund future operations
and cultivating new license agreements or acquiring ownership in technology or other operating companies or formulating relationships
such as the one with BLINK. The Company intends to continue funding its operations either through cash-on-hand or through financing
alternatives. In the event the Company does need to raise additional capital to fund operations or engage in a transaction, failure
to raise adequate capital and generate adequate sales revenues could result in the Company having to curtail or cease operations.
Additionally, even if the Company does raise sufficient capital to support its operating expenses, acquire new license agreements
or ownership interests in life science companies and generate adequate revenues, or the agreements entered into recently are unsuccessful,
there can be no assurances that the revenues will be sufficient to enable it to develop business to a level where it will generate
profits and cash flows from operations. These matters raise substantial doubt about the Company’s ability to continue as
a going concern as determined by management. However, the accompanying consolidated financial statements have been prepared on
a going concern basis, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business.
These consolidated financial statements do not include any adjustments relating to the recovery of the recorded assets or the
classification of the liabilities that might be necessary should the Company be unable to continue as a going concern.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Consolidated
Financial Statements
The
consolidated financial statements include the accounts and activities of Tauriga Sciences, Inc. and its wholly-owned Canadian
subsidiary, Tauriga Canada, Inc. and its subsidiary Tauriga Biz Dev Corp. (formerly known as Tauriga IP Acquisition Corp.) formed
January 4, 2018. All intercompany transactions have been eliminated in consolidation. As of March 31, 2018, there has been no
activity in Tauriga Biz Dev Corp.
Non-controlling
Interests
On
December 23, 2016, the Company entered into a non-exclusive, one-year license agreement (subsequently extended by an additional
two-years) with Ice + Jam LLC. Under terms of the License Agreement, the Company will market Ice + Jam’s proprietary cupuaçu
butter lip balm, sold under the trademark
HerMan®.
To effectuate this arrangement,
the Company and Ice + Jam formed a new company. Through this new Company the two parties will evenly share on a 50/50 basis any
profits generated through the Company’s marketing, sales and distribution efforts. All revenue and expense from these efforts
are fully consolidated in the Company’s consolidated financial statements and then the minority interest is designated as
noncontrolling interest to derive at net loss attributable to common shareholders. The non-controlling interest at March 31, 2018
and 2017 was $2,196 and $0, respectively. The net loss attributable to noncontrolling interest for the years ended March
31, 2018 and 2017 was $38,674 and $0, respectively.
Revenue
Recognition
In
May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606). This standard provides a single
set of guidelines for revenue recognition to be used across all industries and requires additional disclosures. The updated guidance
introduces a five-step model to achieve its core principal of the entity recognizing revenue to depict the transfer of goods or
services to customers at an amount that reflects the consideration to which the entity expects to be entitled in exchange for
those goods or services. The Company adopted the updated guidance effective October 1, 2017 as the Company commenced sales of
HerMan®
as described in Note 1 in the three months ended December 31, 2017 using
the full retrospective method, however the new standard did not have a material impact on its consolidated financial position
and consolidated results of operations, as it did not change the manner or timing of recognizing revenue.
Under
ASC 606, in order to recognize revenue, the Company is required to identify an approved contract with commitments to preform respective
obligations, identify rights of each party in the transaction regarding goods to be transferred, identify the payment terms for
the goods transferred, verify that the contract has commercial substance and verify that collection of substantially all consideration
is probable. The adoption of ASC 606 did not have an impact on the Company’s operations or cash flows.
On
March 29, 2018 the Company, through Tauriga Biz Dev Corp., entered into an independent sales representative agreement with BLINK.
Under this agreement the Company will be a non-exclusive independent sales representative. The Company will act on behalf of BLINK
to solicit orders from potential customers for EV Stations placement. Tauriga Biz Dev Corp will be compensated upon contracting
and as long as the Company’s acquired prospect remains under contract. This arrangement has the potential to earn both short
term as well as long term recurring revenue by helping BLINK expand its national electric vehicle charging infrastructure and
network. This sales agreement is a three-tier model based on whether Tauriga contracts the new customer to purchase equipment
outright from Blink or enter into one of two revenue-sharing agreements. In the case Tauriga effectuates a sale of Blink equipment
it will receive a one-time sales commission based on the sales price of the equipment sale. In the case where Tauriga secures
a revenue sharing agreement with a customer where Blink remains the owner, Tauriga will be paid an on-going commission based off
of gross charger revenue, subject to which party paid for the installation. Commission payments under the revenue sharing agreement
are subject to minimum revenue generation hurdles.
Commissions earned under this
contract with Tauriga Biz Dev Corp will be recorded as revenue when earned. Based on a binding agreement in place between BLINK
and the referral provided by the Company, revenue will be recorded based on equipment value purchased or placed in service as
well as the length of the contract. The Company is currently working towards its goal of generating potential revenue deriving
from this Reseller Agreement with Blink.
The
following is a summary of revenue for the years ended March 31, 2018 and 2017, disaggregated by type:
|
|
|
2018
|
|
|
2017
|
|
|
Product
Revenue
|
|
$
|
1,188
|
|
|
$
|
-
|
|
|
Sales
Agent Revenue
|
|
|
-
|
|
|
|
-
|
|
|
|
|
$
|
1,188
|
|
|
$
|
-
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Use
of Estimates
The
preparation of the consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ
from those estimates.
Foreign
Currency Translation
As
of the quarter ended June 30, 2012, the Company considers the U.S. dollar to be its functional currency. Prior to March 31, 2012,
the Company considered the Canadian dollar to be its functional currency. Assets and liabilities were translated into U.S. dollars
at year-end exchange rates. Statement of operations amounts were translated using the average rate during the year. Gains and
losses resulting from translating foreign currency financial statements were included in accumulated other comprehensive gain
or loss, a separate component of stockholders’ equity (deficit).
Cash
Equivalents
For
purposes of reporting cash flows, cash equivalents include investment instruments purchased with an original maturity of three
months or less. At March 31, 2018, the Company’s cash on deposit with financial institutions did not exceed the total FDIC
insurance limit of $250,000. To reduce its risk associated with the failure of such financial institution, the Company evaluates
at least annually the rating of the financial institution in which it holds deposits. The Company has opened an account with another
major financial institution and plans to mitigate its cash concentration in the future. The Company had no cash equivalents as
of March 31, 2018.
Investment
in Trading Securities
Investment in trading securities
consist of investments in shares of common stock of companies traded on public markets as well as publicly traded warrants of
these companies. These shares are carried on the Company’s balance sheet at fair value based on the closing price
of the shares owned on the last trading day before the balance sheet date
of this report. Fluctuations
in the underlying bid price of the stocks result in unrealized gains or losses. The Company recognizes these fluctuations in value
as other operating income or loss.
For
investments sold, the Company recognizes the gains and losses attributable to these investments as realized gains or losses in
other operating income or loss.
Inventory
Inventory
consists of finished goods in salable condition and is stated at the lower of cost or market determined by the first-in, first-out
method. The inventory consists of packaged, labeled salable inventory. Shipping of product to finished good inventory fulfillment
center is also included in the total inventory cost. Shipping of product upon sale for online sales is paid by the customer upon
ordering. For wholesale product orders shipping cost is paid by the Company. As a result of the quality control issues regarding
the packaging, the Company has written off the remaining inventory of $16,897 as they complete the re-design of the packaging
of this product as they have determined that the units are not usable.
Property
and Equipment
Property
and equipment is stated at cost and is depreciated using the straight-line method over the estimated useful lives of the respective
assets. Routine maintenance, repairs and replacement costs are expensed as incurred and improvements that extend the useful life
of the assets are capitalized. When property and equipment is sold or otherwise disposed of, the cost and related accumulated
depreciation are eliminated from the accounts and any resulting gain or loss is recognized in operations.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Intangible
Assets
Intangible
assets consisted of licensing fees and a patent prior to being impaired which were stated at cost. Licenses were amortized over
the life of the agreement and patents were amortized over the remaining life of the patent at the date of acquisition
Net
Income (Loss) Per Common Share
The
Company computes per share amounts in accordance with FASB ASC Topic 260 “
Earnings per Share
” (“EPS”),
which requires presentation of basic and diluted EPS. Basic EPS is computed by dividing the income (loss) available to Common
Stockholders by the weighted-average number of common shares outstanding for the period. Diluted EPS is based on the weighted-average
number of shares of Common Stock and Common Stock equivalents outstanding during the periods; however, potential common shares
are excluded for period in which the Company incurs losses, as their effect is anti-dilutive. For the years ended March 31, 2018
and 2017, basic and fully diluted earnings per share were the same as the Company had a loss in each of these periods.
Stock-Based
Compensation
The
Company accounts for Stock-Based Compensation under ASC 718 “
Compensation-Stock Compensation
,” which addresses
the accounting for transactions in which an entity exchanges its equity instruments for goods or services, with a primary focus
on transactions in which an entity obtains employee services in share-based payment transactions. ASC 718-10 requires measurement
of cost of employee services received in exchange for an award of equity instruments based on the grant-date fair value of the
award (with limited exceptions). Incremental compensation costs arising from subsequent modifications of awards after the grant
date must be recognized.
The
Company accounts for stock-based compensation awards to non-employees in accordance with ASC 505-50, “E
quity-Based Payments
to Non-Employees
.” Under ASC 505-50, the Company determines the fair value of the warrants or stock-based compensation
awards granted on the grant date as either the fair value of the consideration received, or the fair value of the equity instruments
issued, whichever is more reliably measurable. Any stock options or warrants issued to non-employees are recorded in expense and
an offset to additional paid-in capital in stockholders’ equity (deficit) over the applicable service periods using variable
accounting through the vesting dates based on the fair value of the options or warrants at the end of each period.
The
Company issues stock to consultants for various services. The costs for these transactions are measured at the fair value on the
grant date of the consideration received or the fair value of the equity instruments issued, whichever is more reliably measurable.
The Company recognized consulting expense and a corresponding increase to additional paid-in-capital related to stock issued for
services over the term of the related services.
Comprehensive
Income (Loss)
The
Company accounts for comprehensive income (loss) under ASC 220, “
Income Statement – Reporting Comprehensive Income
,”
which requires entities to report comprehensive income (loss) within a continuous statement of comprehensive income. Comprehensive
income (loss) is a more inclusive financial reporting methodology that includes disclosure of information that historically has
not been recognized in the calculation of net income (loss).
Reclassifications
Certain
prior year amounts have been reclassified to conform to the current period presentation. The reclassifications had no effect on
the net loss or cash flows of the Company.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Impairment
of Long-Lived Assets
Long-lived
assets, primarily fixed assets, are reviewed for impairment whenever events or changes in circumstances indicate that the carrying
amount of the assets might not be recoverable. The Company will perform a periodic assessment of assets for impairment in the
absence of such information or indicators. Conditions that would necessitate an impairment assessment include a significant decline
in the observable market value of an asset, a significant change in the extent or manner in which an asset is used, or a significant
adverse change that would indicate that the carrying amount of an asset or group of assets is not recoverable. For long-lived
assets to be held and used, the Company would recognize an impairment loss only if its carrying amount is not recoverable through
its undiscounted cash flows and measures the impairment loss based on the difference between the carrying amount and estimated
fair value.
Research
and Development
The
Company expenses research and development costs as incurred. Research and development costs were $11,440 and $108,942 for the
years ended March 31, 2018 and 2017, respectively. The Company is continually evaluating products and technologies in the natural
wellness space, including its cupuaçu butter lip balm, as well as any other intellectual property related technologies.
As the Company investigates and develops relationships in these areas resultant expenses for trademark filings, license agreements,
product development and design materials will be expensed as research and development. Some costs will be accumulated for subsidiaries
prior to formation of entities.
Fair
Value Measurements
ASC
820 “
Fair Value Measurements
” defines fair value, establishes a framework for measuring fair value in generally
accepted accounting principles and expands disclosure about fair value measurements.
The
following provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped
into Levels 1 to 3 based on the degree to which fair value is observable:
Level
1- fair value measurements are those derived from quoted prices (unadjusted in active markets for identical assets or liabilities);
Level
2- fair value measurements are those derived from inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices); and
Level
3- fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are
not based on observable market data (unobservable inputs).
Financial
instruments classified as Level 1 - quoted prices in active markets include cash.
These
consolidated financial instruments are measured using management’s best estimate of fair value, where the inputs into the
determination of fair value require significant management judgment to estimation. Valuations based on unobservable inputs are
highly subjective and require significant judgments. Changes in such judgments could have a material impact on fair value estimates.
In addition, since estimates are as of a specific point in time, they are susceptible to material near-term changes. Changes in
economic conditions may also dramatically affect the estimated fair values
Fair
value estimates discussed herein are based upon certain market assumptions and pertinent information available to management for
the respective periods. The respective carrying value of certain financial instruments approximated their fair values due to the
short-term nature of these instruments. These financial instruments include cash, investments, short-term notes payable, accounts
payable and accrued expenses.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative
Financial Instruments
Derivatives
are recorded on the consolidated balance sheet at fair value. The conversion features of the convertible debentures are embedded
derivatives and are separately valued and accounted for on the consolidated balance sheet with changes in fair value recognized
during the period of change as a separate component of other income/expense. Fair values for exchange-traded securities and derivatives
are based on quoted market prices. The pricing model we use for determining the fair value of our derivatives are binomial pricing
models. Valuations derived from this model are subject to ongoing internal and external verification and review. The model uses
market-sourced inputs such as interest rates and stock price volatilities. Selection of these inputs involves management’s
judgment and may impact net income (loss).
With
the issuance of the July 2017 FASB ASU 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity
(Topic 480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial
instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard
whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under
the amendments included in this update, the Company is no longer required to record changes in fair value during the period of
change as a separate component of other income (expense) in the consolidated Statements of Operations.
The
amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. When determining whether certain financial instruments should be classified as liabilities
or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is
indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are
now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “
Debt—Debt
with Conversion and Other Options
”), including related EPS guidance (in Topic 260). The amendments in Part II of this
Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in
the Codification, to a scope exception. Those amendments do not have an accounting effect.
Under
current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified
as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “
Derivatives and Hedging
,”
to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature)
is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies
for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments
that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for
net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature
results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being
required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity
must measure at fair value initially and at each subsequent reporting date.
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “
Derivatives
and Hedging—Contracts in Entity’s Own Equity
,” which is considered in determining whether an equity-linked
financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether
instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope
exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded
conversion options with down round features are no longer bifurcated.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Derivative
Financial Instruments (Continued)
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a
numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder
of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on
an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
Those
amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria
for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument
at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case
of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion
options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features
rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes
the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring
it at fair value each reporting period.
The
amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception.
This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the
guidance in Topic 480.
For
public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim
period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning
of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the
following ways:
|
|
1.
|
retrospectively
to outstanding financial instruments with a down round feature by means of a cumulative-effect adjustment to the statement
of financial position as of the beginning of the first fiscal year and interim period(s) in which the pending content that
links to this paragraph is effective; or
|
|
|
|
|
|
|
2.
|
retrospectively
to outstanding financial instruments with a down round feature for each prior reporting period presented in accordance with
the guidance on accounting changes in paragraphs 250-10-45-5 through 45-10.
|
The
amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.
The
Company has identified that instruments previously carried as derivative liabilities were deemed to be such on the basis of embedded
features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity
offerings. In accordance with the adoption of ASU 2017-11, the Company recorded a gain on derivative liability in the amount of
$271,280 for the year ended March 31, 2018 compared to loss of $95,779 for the same period in the prior year. The Company also
recorded a corresponding loss on extinguishment of debt in the amount of $271,280 for the year ended March 31, 2018 compared to
and a loss of $95,779 for the same period in the prior year. Along with this transaction, the Company recorded a deemed dividend
to shareholders in the amount of $271,280 for the year ended March 31, 2018. Prior year amounts are restated in current presentation
to reflect gain on derivative liability, loss on extinguishment of debt and deemed dividend.
The
three instruments affected by this adoption were the June 1, 2015, 7% Convertible Redeemable Note with a principal amount
of $104,000 with a maturity date of June 1, 2016 with Union Capital, LLC which contains an anti-ratchet clause; the July
14, 2015, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal amount of $96,000 issued with an original
issue discount of $16,000 and the November 7, 2016, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal
amount of $45,000 issued with an original issue discount of $7,000. The two Group 10 Holdings, LLC notes contain a most favored
nations clause, allowing the note holder to adopt any term of future convertible redeemable notes which would be beneficial to
them. All of these instruments have been fully repaid or converted as of October 10, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income
Taxes
Income
taxes are accounted for under the liability method of accounting for income taxes. Under the liability method, future tax liabilities
and assets are recognized for the estimated future tax consequences attributable to differences between the amounts reported in
the financial statement carrying amounts of assets and liabilities and their respective tax bases.
Future
tax assets and liabilities are measured using enacted or substantially enacted income tax rates expected to apply when the asset
is realized or the liability settled. The effect of a change in income tax rates on future income tax liabilities and assets is
recognized in income in the period that the change occurs. Future income tax assets are recognized to the extent that they are
considered more likely than not to be realized.
ASC
740 “
Income Taxes
” clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s
financial statements. This standard requires a company to determine whether it is more likely than not that a tax position will
be sustained upon examination based upon the technical merits of the position. If the more-likely-than-not threshold is met, a
company must measure the tax position to determine the amount to recognize in the financial statements.
As
a result of the implementation of this standard, the Company performed a review of its material tax positions in accordance with
recognition and measurement standards established by ASC 740 and concluded that the tax position of the Company does not meet
the more-likely-than-not threshold as of March 31, 2018.
Recent
Accounting Pronouncements
In
July 2017, the FASB issued ASU 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity (Topic
480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial instruments
with down round features. Down round features are features of certain equity-linked instruments (or embedded features) that result
in the strike price being reduced on the basis of the pricing of future equity offerings. Current accounting guidance creates
cost and complexity for entities that issue financial instruments (such as warrants and convertible instruments) with down round
features that require fair value measurement of the entire instrument or conversion option. For public business entities, the
amendments in Part I of this Update are effective for fiscal years, and interim periods within those fiscal years, beginning after
December 15, 2018. For all other entities, the amendments in Part I of this Update are effective for fiscal years beginning after
December 15, 2019, and interim periods within fiscal years beginning after December 15, 2020. The Company had chosen to early
adopt this standard as of this reporting period with retro-active restatement of comparative periods.
In
January 2017, the FASB issued Accounting Standard Update (“ASU”) 2017-04
Intangibles – Goodwill and Other
(Topic 350), Simplifying the Test for Goodwill Impairment.
The amendments in this update are required for public business
entities that have goodwill reported in their financial statements and have not elected the private company alternative for the
subsequent measurement of goodwill. The update is intended to simplify the annual or interim goodwill impairment test. A public
business entity that is a U.S. SEC filer should adopt the amendments in this update for its annual or interim goodwill impairment
tests in fiscal years beginning after December 15, 2019. Early adoption is permitted. The Company is assessing the impact, if
any, of implementing this guidance on its financial position and results of operations.
In January 2017, the FASB issued
ASU 2017-01
Business Combinations (Topic 805), Clarifying the Definition of a Business.
The amendments in this update are
required for public business entities that have goodwill reported in their financial statements and have not elected the private
company alternative for the subsequent measurement of goodwill. The update is intended to clarify the definition of a business
with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions
(or disposals) of assets or businesses. The definition of a business affects many areas of accounting including acquisitions,
disposals, goodwill, and consolidation. Public business entities should apply the amendments in this update to annual periods
beginning after December 15, 2017. Early application is permitted under certain conditions. The Company does not expect implementation
of this guidance to have a material impact on its financial position and results of operations.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Recent
Accounting Pronouncements
(Continued)
In August 2016, the FASB issued
ASU No. 2016-15, “
Statement of Cash Flows (Topic 230), Classification of Certain Cash Receipts and Cash Payments”
.
The amendments in this update provided guidance on eight specific cash flow issues. This update is to provide specific guidance
on each of the eight issues, thereby reducing the diversity in practice in how certain transactions are classified in the statement
of cash flows. ASU 2016-15 is effective for fiscal years and interim periods in those fiscal years beginning after December
31, 2017. Early adoption is permitted. The Company does not expect that implementing this guidance to have a material
impact on its financial position, results of operations and liquidity.
In
February 2016, FASB issued ASU 2016-02, “
Leases (Topic 842)
.” The new standard requires lessees to apply a
dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is
effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on
an effective interest method or on a straight-line basis over the term of the lease. A lessee is also required to record a right-of-use
asset and a lease liability for all leases with a term of greater than 12 months regardless of their classification. Leases with
a term of 12 months or less will be accounted for similar to existing guidance for operating leases. The new guidance will be
effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period
and is applied retrospectively. Early adoption is permitted. We are currently in the process of assessing the impact the adoption
of this guidance will have on the Company’s consolidated financial statements.
There
are several other new accounting pronouncements issued or proposed by the FASB. Each of these pronouncements, as applicable, has
been or will be adopted by the Company. Management does not believe any of these accounting pronouncements has had or will have
a material impact on the Company’s consolidated financial position or operating results.
Subsequent
Events
In
accordance with ASC 855 “
Subsequent Events
” the Company evaluated subsequent events after the balance sheet
date through the date of issuance.
NOTE
3– INVENTORY
As
a result of the quality control issues regarding the packaging, the Company has written off the remaining inventory of $16,897
as they complete the re-design of the packaging of this product as they have determined that the units are not usable.
The
Company has removed the product from the website and is working with the manufacturer to resolve these issues. The Company as
a result of this, has no Inventory as of March 31, 2018 and 2017, respectively.
NOTE
4– PROPERTY AND EQUIPMENT
The
Company’s property and equipment is as follows:
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
Estimated
Life
|
|
|
|
|
|
|
|
|
|
|
|
Computers,
office furniture and equipment
|
|
$
|
59,051
|
|
|
$
|
57,023
|
|
|
3-5
years
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Less:
accumulated depreciation
|
|
|
(56,560
|
)
|
|
|
(56,062
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
|
|
$
|
2,491
|
|
|
|
961
|
|
|
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
4– PROPERTY AND EQUIPMENT (CONTINUED)
Depreciation
expense for years ended March 31, 2018 and 2017 was $796 and $7,034, respectively. Included in depreciation expense for the year
ended March 31, 2018 was $298 which was recorded on computer equipment which was disposed of in this year. The Company recognized
a loss on disposal of $783.
NOTE
5 – COMMITMENTS
On
December 23, 2016, the Company entered into a non-exclusive, one-year, license agreement (the “License Agreement”)
with Cleveland, Ohio based cosmetics products firm Ice + Jam. Under terms of the License Agreement, the Company will market Ice
+ Jam’s proprietary cupuaçu butter lip balm sold under the trademark
HerMan®
and the two companies will share on a 50/50 basis any profits earned through the Company’s marketing, sales and distribution
efforts.
On
November 27, 2017, the Company announced a 2-year extension to the existing non-exclusive License Agreement, extending the life
of the License Agreement through December 23, 2019. Based on mutual agreement, at that time, the companies reserve the option
to extend for an additional two years (if exercised at that time, this License Agreement would be extended through December 23,
2021).
On
December 1, 2017, the Company relocated its corporate headquarters from Danbury, Connecticut to New York, New York. The Company
has entered into a two-year lease at $1,010 per month for the term of the lease. The Company recorded rent expense of $5,794 for
the year ended March 31, 2018 compared to $0 for the same period in prior year.
|
Lease
obligation for Fiscal Year Ended March 31,
|
|
2019
|
|
|
12,120
|
|
|
2020
|
|
|
8,080
|
|
NOTE
6 – INTANGIBLE ASSETS
Patents:
Pilus
Energy, LLC
The
Company, through the acquisition of Pilus Energy on January 28, 2014, acquired a patent to develop cleantech energy using proprietary
microbiological solution that creates electricity while consuming polluting molecules from wastewater.
On
December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company
sold 80% of its membership interest in Pilus to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the
unexercised portion of Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous
year’s earnings, if any. The first $75,000 of such payments would be retained by Pilus Energy as additional consideration
for the sale, which is reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further
agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership
interest on all matters for which a member vote is required. Through March 31, 2018, there has been no activity recorded by Open
Therapeutics with respect to Pilus Energy, and thus the $75,000 remains contingently owed to them.
The
Company had fully impaired the value of the patents prior to the sale, and the warrants canceled as a result of this transaction
was valueless as there is no intrinsic value to them. The Company recorded no gain or loss. Upon Open Therapeutics achieving
profitability with respect to this technology, the Company will be the beneficiary of a profit split as noted in the agreement
and will recognize revenue from that in the future.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
7 – DERIVATIVE LIABILITIES EMBEDDED IN CONVERTIBLE NOTES
The
Company has entered into several financial instruments, which consist of notes payable, containing various conversion features.
Generally, the financial instruments are convertible into shares of the Company’s common stock at prices that are either
marked to the volume weighted average price of the Company’s intended publicly traded stock or a static price determinative
from the financial instrument agreements. These prices may be at a significant discount to market determined by the volume weighted
average price once the Company completes its reverse acquisition with the intended publicly traded company. The Company, for all
intents and purposes, considers this discount to be fair market value as would be determined in an arm’s length transaction
with a willing buyer.
The
Company accounts for the fair value of the conversion feature in accordance with ASC 815-15, “
Derivatives and Hedging;
Embedded Derivatives
,” which requires the Company to bifurcate and separately account for the conversion features as
an embedded derivative contained in the Company’s convertible debt and original issue discount notes payable. The Company
is required to carry the embedded derivative on its balance sheet at fair value and account for any unrealized change in fair
value as a component in its results of operations. The Company valued the embedded derivatives using eight steps to determine
fair value under ASC 820: (1) Identify the item to be valued and the unit of account; (2) Determine the principal or most advantageous
market and the relevant market participants; (3) Select the valuation premise to be used for asset measurements; (4) Consider
the risk assumptions applicable to liability measurements; (5) Identify available inputs; (6) Select the appropriate valuation
techniques; (7) Make the measurement; (8) Determine amounts to be recognized and information to be disclosed.
With
the issuance of the July 2017 FASB ASU 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity
(Topic 480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial
instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard
whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under
the amendments included in this update, the Company is no longer required to record changes in fair value during the period of
change as a separate component of other income (expense) in the consolidated Statements of Operations.
The
amendments in Part I of this Update change the classification analysis of certain equity-linked financial instruments (or embedded
features) with down round features. When determining whether certain financial instruments should be classified as liabilities
or equity instruments, a down round feature no longer precludes equity classification when assessing whether the instrument is
indexed to an entity’s own stock. The amendments also clarify existing disclosure requirements for equity-classified instruments.
As a result, a freestanding equity-linked financial instrument (or embedded conversion option) no longer would be accounted for
as a derivative liability at fair value as a result of the existence of a down round feature. For freestanding equity classified
financial instruments, the amendments require entities that present earnings per share (EPS) in accordance with Topic 260 to recognize
the effect of the down round feature when it is triggered. That effect is treated as a dividend and as a reduction of income available
to common shareholders in basic EPS. Convertible instruments with embedded conversion options that have down round features are
now subject to the specialized guidance for contingent beneficial conversion features (in Subtopic 470-20, “
Debt—Debt
with Conversion and Other Options
”), including related EPS guidance (in Topic 260). The amendments in Part II of this
Update recharacterize the indefinite deferral of certain provisions of Topic 480 that now are presented as pending content in
the Codification, to a scope exception. Those amendments do not have an accounting effect.
Under
current GAAP, an equity-linked financial instrument with a down round feature that otherwise is not required to be classified
as a liability under the guidance in Topic 480 is evaluated under the guidance in Topic 815, “
Derivatives and Hedging
,”
to determine whether it meets the definition of a derivative. If it meets that definition, the instrument (or embedded feature)
is evaluated to determine whether it is indexed to an entity’s own stock as part of the analysis of whether it qualifies
for a scope exception from derivative accounting. Generally, for warrants and conversion options embedded in financial instruments
that are deemed to have a debt host (assuming the underlying shares are readily convertible to cash or the contract provides for
net settlement such that the embedded conversion option meets the definition of a derivative), the existence of a down round feature
results in an instrument not being considered indexed to an entity’s own stock. This results in a reporting entity being
required to classify the freestanding financial instrument or the bifurcated conversion option as a liability, which the entity
must measure at fair value initially and at each subsequent reporting date.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
7 – DERIVATIVE LIABILITIES EMBEDDED IN CONVERTIBLE NOTES (CONTINUED)
The
amendments in this Update revise the guidance for instruments with down round features in Subtopic 815-40, “
Derivatives
and Hedging—Contracts in Entity’s Own Equity
,” which is considered in determining whether an equity-linked
financial instrument qualifies for a scope exception from derivative accounting. An entity still is required to determine whether
instruments would be classified in equity under the guidance in Subtopic 815-40 in determining whether they qualify for that scope
exception. If they do qualify, freestanding instruments with down round features are no longer classified as liabilities and embedded
conversion options with down round features are no longer bifurcated.
For
entities that present EPS in accordance with Topic 260, and when the down round feature is included in an equity-classified freestanding
financial instrument, the value of the effect of the down round feature is treated as a dividend when it is triggered and as a
numerator adjustment in the basic EPS calculation. This reflects the occurrence of an economic transfer of value to the holder
of the instrument, while alleviating the complexity and income statement volatility associated with fair value measurement on
an ongoing basis. Convertible instruments are unaffected by the Topic 260 amendments in this Update.
Those
amendments in Part I of this Update are a cost savings relative to current GAAP. This is because, assuming the required criteria
for equity classification in Subtopic 815-40 are met, an entity that issued such an instrument no longer measures the instrument
at fair value at each reporting period (in the case of warrants) or separately accounts for a bifurcated derivative (in the case
of convertible instruments) on the basis of the existence of a down round feature. For convertible instruments with embedded conversion
options that have down round features, applying specialized guidance such as the model for contingent beneficial conversion features
rather than bifurcating an embedded derivative also reduces cost and complexity. Under that specialized guidance, the issuer recognizes
the intrinsic value of the feature only when the feature becomes beneficial instead of bifurcating the conversion option and measuring
it at fair value each reporting period.
The
amendments in Part II of this Update replace the indefinite deferral of certain guidance in Topic 480 with a scope exception.
This has the benefit of improving the readability of the Codification and reducing the complexity associated with navigating the
guidance in Topic 480.
For
public business entities, the amendments in Part I of this Update are effective for fiscal years, and interim periods within those
fiscal years, beginning after December 15, 2018. Early adoption is permitted for all entities, including adoption in an interim
period. If an entity early adopts the amendments in an interim period, any adjustments should be reflected as of the beginning
of the fiscal year that includes that interim period. The amendments in Part 1 of this Update should be applied in either of the
following ways: 1. Retrospectively to outstanding financial instruments with a down round feature by means of a cumulative-effect
adjustment to the statement of financial position as of the beginning of the first fiscal year and interim period(s) in which
the pending content that links to this paragraph is effective; or 2. Retrospectively to outstanding financial instruments with
a down round feature for each prior reporting period presented in accordance with the guidance on accounting changes in paragraphs
250-10-45-5 through 45-10.
The
amendments in Part II of this Update do not require any transition guidance because those amendments do not have an accounting
effect.
The
Company has identified that instruments previously carried as derivative liabilities were deemed to be such on the basis of embedded
features containing down round provisions, resulting in the strike price being reduced on the basis of the pricing of future equity
offerings. In accordance with the adoption of ASU 2017-11, the Company recorded a gain on derivative liability in the amount of
$271,280 for the year ended March 31, 2018 compared to a gain of $95,779 for the same period in the prior year. The Company also
recorded a corresponding loss on extinguishment of debt in the amount of $271,280 for the year ended March 31, 2018 compared to
a loss of $95,779 for the same period in the prior year. Along with this transaction, the Company recorded a deemed dividend to
shareholders in the amount of $271,280 for the year ended March 31, 2018.
The
three instruments affected by this adoption were the June 1, 2015, 7% Convertible Redeemable Note with a principal amount
of $104,000 with a maturity date of June 1, 2016 with Union Capital, LLC which contains an anti-ratchet clause; the July
14, 2015, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal amount of $96,000 issued with an original
issue discount of $16,000 and the November 7, 2016, 12% convertible redeemable note with Group 10 Holdings, LLC having a principal
amount of $45,000 issued with an original issue discount of $7,000. The two Group 10 Holdings, LLC notes contain a most favored
nations clause, allowing the note holder to adopt any term of future convertible redeemable notes which would be beneficial to
them. All of these instruments have been fully repaid or converted as of October 10, 2017.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES
Notes
payable and convertible notes consisted of the following as of:
|
|
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
Convertible
note payable – Union Capital – (Jun 15)
|
|
(a)
|
|
$
|
-
|
|
|
$
|
121,800
|
|
|
Convertible
note payable - Group 10 - (Jul 15)
|
|
(b)
|
|
|
-
|
|
|
|
113,280
|
|
|
Convertible
note payable - Group 10 - (Aug 16)
|
|
(c)
|
|
|
-
|
|
|
|
-
|
|
|
Convertible
note payable - Group 10 - (Nov 16)
|
|
(d)
|
|
|
-
|
|
|
|
45,000
|
|
|
Convertible
note payable - Group 10 - (Mar 17)
|
|
(e)
|
|
|
-
|
|
|
|
-
|
|
|
Alternative
Strategy Partners PTE Ltd. – (Sep 15)
|
|
(f)
|
|
|
90,000
|
|
|
|
90,000
|
|
|
ADAR
Bays -Dec 2016
|
|
(g)
|
|
|
-
|
|
|
|
67,045
|
|
|
ADAR
Bays -Feb 2017
|
|
(h)
|
|
|
-
|
|
|
|
27,500
|
|
|
Eagle
Equities, LLC - Jan 2017
|
|
(i)
|
|
|
-
|
|
|
|
18,000
|
|
|
Eagle
Equities, LLC - Mar 2017
|
|
(j)
|
|
|
-
|
|
|
|
35,000
|
|
|
Eagle
Equities, LLC - Jun 2017
|
|
(k)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - Apr 2017
|
|
(l)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - May 2017
|
|
(m)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - Jun 2017
|
|
(n)
|
|
|
-
|
|
|
|
-
|
|
|
ADAR
Bays -August 2017
|
|
(o)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - August 2017
|
|
(p)
|
|
|
-
|
|
|
|
-
|
|
|
ADAR
Bays -September 2017
|
|
(q)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - Oct 2017
|
|
(r)
|
|
|
105,000
|
|
|
|
-
|
|
|
ADAR
Bays -October 2017
|
|
(s)
|
|
|
-
|
|
|
|
-
|
|
|
ADAR Bays
- February 2018
|
|
(t)
|
|
|
-
|
|
|
|
-
|
|
|
GS
Capital Partners LLC - March 2018
|
|
(u)
|
|
|
48,000
|
|
|
|
-
|
|
|
Individuals
– June 2015
|
|
(v)
|
|
|
-
|
|
|
|
20,000
|
|
|
Individuals
– Feb to April 2013
|
|
(w)
|
|
|
15,000
|
|
|
|
48,775
|
|
|
Total
notes payable and convertible notes
|
|
|
|
|
258,000
|
|
|
|
586,400
|
|
|
Less
- note discounts
|
|
|
|
|
(3,153
|
)
|
|
|
(6,482
|
)
|
|
Less
- current portion of these notes
|
|
|
|
|
(254,847
|
)
|
|
|
(579,918
|
)
|
|
Total
notes payable and convertible notes, net discounts
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
(a)
|
Twelve-month
$104,000 convertible note, dated June 1, 2015 bearing interest at the rate of 7% per annum, and having a default rate
of 24%. The note matured in June 2016. The Company granted the noteholder 12,500,000 shares of Company common stock
as a commitment fee in consideration of the note. The Company defaulted on the note on July 15, 2015 with the Company’s
delisting from the OTCQB market resulting from failure to timely file the Company’s annual report with the SEC. Due
to the breach, the outstanding principal due under this note was increased by 50% to $156,000, then increased again another
10% to $171,600. Pursuant to the terms of the this note, at any time Union Capital (“Union”) was able to convert
any principal and interest due to it at a 20% discount to the lowest closing bid price of Company common stock for the five
trading days prior to the conversion notice. Additionally, the discount would have been adjusted on a ratchet basis in the
event the Company offers a more favorable discount rate or look-back period to a third party during the term of the Union.
Under multiple conversions, Union retired the entire note for 305,432,752 shares converting $171,600 of principal and $73,250
of interest.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(b)
|
Twelve-month
$96,000 convertible note, bearing 20% original issue discount, dated July 14, 2015 bearing interest at the rate of 12% per
annum, and having a default rate of 18%. The note matured in May 2016. The Company granted the noteholder 15,000,000 shares
of Company common stock as a commitment fee in consideration of the note. The Company defaulted on the note on July 15, 2015
with the Company’s delisting from the OTCQB market resulting from failure to timely file the Company’s annual
report with the SEC. Due to the breach, the outstanding principal due under this note was increased by 18% to $113,280. The
holder had the right, but not the obligation, to convert all or any portion of the outstanding principal amount, accrued interest
and fees due and payable thereon into fully paid and non-assessable shares of common stock of borrower at the conversion price,
which was the lesser of (a) 50% multiplied by the lowest closing price as of the date a notice of conversion is given (which
represents a discount rate of 50%) or (b) $0.005. If the market capitalization of the Company is less than $1,000,000 on the
day immediately prior to the date of the notice of conversion, then the conversion price shall be 25% multiplied by the lowest
closing price as of the date a notice of conversion is given (which represents a discount rate of 75%). Additionally, if the
closing price of the borrower’s common stock on the day immediately prior to the date of the notice of conversion is
less than $0.001 then the conversion price shall be 25% multiplied by the lowest closing price as of the date a notice of
conversion is given (which represents a discount rate of 75%). On October 10, 2017, the Company entered into an amendment
to a convertible note dated July 14, 2015 with the noteholder, Group 10, pursuant to a note amendment dated May 11, 2017.
This amendment waived the right of the holder to convert outstanding principal and interest at 75% discount to the lowest
conversion price and prescribed that future conversions would take place at a rate not lower than 55% of the lowest trading
price. Subsequent to the agreement, the noteholder completed a final conversion to fully retire this note, with the Company
issuing 121,249,200 shares for the amount of $27,281 of principal and interest ($0.000225 per share). On December 6, 2016,
Group 10 formally notified the Company of the amount of the default penalty being charged under their default penalty clause.
This penalty resulted in the amount of $348,000 being recorded as interest expense. On November 28, 2017, the Company entered
into a settlement agreement whereby this penalty was fully satisfied for a one-time cash payment of $60,000 and the issuance
of 25,000,000 shares of common stock valued at $15,000 ($0.0006 per share).
|
|
|
|
|
|
(c)
|
Twelve-month
$48,000 convertible note, with original issue discount in the amount of $8,000, dated August 3, 2016 bearing interest at the
rate of 12% per annum, and having a default rate of 18%. The note matured in May 2016. The Company granted noteholder 8,000,000
shares of Company common stock for a commitment fee in consideration of the note. For the period of October 1, 2016 to December
5, 2016, the Company was not current with its periodic reporting under Section 13 of the Exchange Act and failed to timely
file, when due, any SEC reports, which was considered an event of default. Following the occurrence and during the continuance
of an event of default, the Company agreed to pay to the holder in the amount equal to $1,000 per business day commencing
the business day following the date of the event of default. The default penalty of $45,000 for the period of 45 days was
settled for 10,000,000 common shares of Company stock ($0.0045 per share). This amount was recorded as interest expense. On
November 7, 2016, the holder converted $50,160 ($0.00114 per share) into 44,000,000 common shares. Upon conversion the note
had a face value of $48,000 with accrued interest of $2,160.
|
|
|
|
|
(d)
|
Twelve-month
$45,000 convertible note, with original issue discount in the amount of $7,000, dated November 7, 2016 bearing interest at
the rate of 12% per annum and having a default rate of 18%. The note matured in November 2017. The Company granted the noteholder
8,000,000 shares of Company common stock as a commitment fee in consideration of the note. If any event of default occurs,
the outstanding principal shall be increased to 118% of the outstanding principal. The holder had the right, but not the obligation,
to convert all or any portion of the outstanding principal amount, accrued interest and fees due and payable thereon into
fully paid and non-assessable shares of common stock of borrower at the conversion price, which meant the lesser of (a) 50%
multiplied by the lowest closing price as of the date a notice of conversion is given (which represented a discount rate of
50%) or (b) $0.003. If the market capitalization of the Company was less than $1,000,000 on the day immediately prior to the
date of the notice of conversion, then the conversion price was set at 25% multiplied by the lowest closing price as of the
date a notice of conversion is given (which represents a discount rate of 75%). Additionally, if the closing price of the
Company’s common stock on the day immediately prior to the date of the notice of conversion was less than $0.001, then
the conversion price was 25% multiplied by the lowest closing price as of the date a notice of conversion is given (which
represents a discount rate of 75%). This note was allowed to be prepaid in cash by the Company after 180 days until maturity,
including a prepayment penalty of 145% of the prepayment amount. On October 10, 2017, the Company fully retired this note
for a cash payment of $72,458, including principal of $45,000; a 45% prepayment penalty of $22,620, recorded as interest expense
as well as accrued interest of $4,838. As part of this negotiation, the Company agreed to and did issue 10,000,000 shares
of common stock on January 8, 2018 at a value of $1,000 ($0.0001 per share).
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(e)
|
Twelve-month
$40,000 convertible note with original issue discount in the amount of $5,000 dated March 31, 2017. As additional consideration
for the purchase of the note, the Company issued 15,000,000 shares of common stock. This note bore a 12% interest per annum
with a default interest rate of 18%. In the event default occurred, the outstanding principal amount of this debenture was
to increase to 118% of the outstanding principal amount of this debenture. The holder had the right to convert any portion
of the outstanding principal amount, accrued interest and fees due and payable thereon into fully paid and non-assessable
shares of common stock of borrower at the conversion price, (the “conversion shares”) which meant the lesser of
(a) 60% multiplied by the lowest closing price during the 35 trading days prior to the notice of conversion is given (which
represents a discount rate of 40%) or (b) $0.002. If the market capitalization of the Company was less than $1,000,000 or
the closing price of the Company’s common stock was below $0.001 on the day immediately prior to the date of the notice
of conversion, then the conversion price was to be 25% multiplied by the lowest closing price during the 35 trading days prior
to the date a notice of conversion is given (which represents a discount rate of 75%). The Company was able to prepay in cash
the principal amount of this debenture and accrued interest thereon, with a premium payment equal to 145% of the prepayment
amount. Prepayments after 180 days but before maturity were subject to the approval of holder. The note was effective as of
March 31, 2017 but was not funded until April 3, 2017; accordingly, this amount is not included in the balance of notes payable
and there was no accrued interest reflected as of March 31, 2017. On June 26, 2017, the Company settled this note in full
for a one-time cash payment in the amount of $59,659. The Company recorded, as interest expense, a prepayment penalty of $18,594
in addition to the repayment of accrued interest of $1,065.
|
|
|
|
|
(f)
|
Three-month
$180,000 non-convertible debenture (“note”) dated September 23, 2015 bearing and interest rate of 11.50% per annum.
The note matured in December 2015. The Company received cash of $90,000 ($75,000 wired directly to the Company and $15,000
wired directly from ASP to compensate a consultant). The balance of this note ($90,000) was to be wired directly to a Japanese
based consumer product firm called Eishin, Inc., but the holder never provided any documentation evidencing that $90,000 was
paid to Eishin. The Company is in dispute with the noteholder, and noteholder and has not recorded this liability as of December
31, 2017 or March 31, 2017. If the proper documentation is provided to the Company, the Company will record the liability
at that time. The Company has not received any type of default notice with respect to this $180,000 non-convertible note.
Additionally, the Company has not received any shares in Eishin Co., Ltd. up to this point. The Company did follow up with
Eishin in March 2017, and it was noted that Eishin did not reflect the Company as having this ownership. As a result, the
additional $90,000 has not been recognized as outstanding. As of March 31, 2018, this note had accrued interest of $23,468.
|
|
|
|
|
(g)
|
Fifty-eight-day
$60,950 convertible note dated December 19, 2016, with original issue discount in the amount of $7,950 bearing an interest
rate of 12% with a default interest rate of 24%. As additional consideration for the purchase of the note, the Company issued
the noteholder 5,000,000 common shares as a commitment fee recorded at a value of $32,000 ($0.0065 per share). The holder
of this note was entitled to convert any amount of the principal face amount of this note then outstanding into shares of
the Company’s common stock at a conversion price for each share of Common Stock equal to 80% of the lowest trading price
(representing a 20% discount) of the common stock for the 20 trading days immediately preceding the delivery of a notice of
conversion. If the note was outstanding on the 6-month anniversary, then the conversion discount would have increased from
20% to 35% such that the conversion price would be equal to 65%. On February 15, 2017, the Company defaulted on the note for
failure to timely pay principal and interest upon maturity. Since this note was not paid at maturity, the outstanding principal
due under this note increased by 10% to $67,045. This note was further guaranteed by Seth Shaw, Chief Executive Officer of
the Company. Mr. Shaw pledged 37,500,000 shares of his common stock as collateral for payment obligation under this note.
As of August 8, 2017, the Company fully converted the principal and accrued interest of $56,896 for 125,007,653 common shares.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(h)
|
Twelve-month
$27,500 convertible note dated February 8, 2017, with 10% original issue discount in the amount of $2,500 with an interest
rate of 8% and a default rate of 24%. The holder of this note was entitled to convert any amount of the principal face amount
of this note into shares of the Company’s common stock at a conversion price for each share of Common Stock equal to
60% of the lowest trading price (representing a 40% discount) of the common stock of the lowest trading price of the for the
twenty trading days immediately preceding the delivery of a notice of conversion. During the first 180 days, the Company may
have prepaid the principal amount of this note and accrued interest thereon, with a premium, as set forth below. The amount
of each prepayment premium was as follows: (a) 115% for redemptions in the first 30 days after the note issuance; (b) 120%
of the prepayment amount if such prepayment is made at any time from 31 days after the issuance date until 60 days after the
issuance date; (c) 125% of the prepayment amount if such prepayment is made at any time from 61 days after the issuance date
until 90 days after the issuance date made; (d) 130% of the prepayment amount if such prepayment is made at any time from
91 days after the issuance date until 120 days after the issuance date made; (e) 135% of the prepayment amount if such prepayment
is made at any time from 120 days after the issuance date until 150 days after the issuance; and (f) 140% of the prepayment
amount if such prepayment is made at any time from 120 days after the issuance date until 180 days after the issuance date
made. This note was not permitted to be prepaid after 180 days after the issuance date. If this Note was not paid at maturity,
the outstanding principal due under this Note would have increased by 10%. Under multiple conversions, the holder converted
$27,500 in principal and $2,413 in interest for 78,781,041 shares of common stock.
|
|
|
|
|
(i)
|
Twelve-month
$18,000 convertible note dated January 27, 2017 that bore an interest rate of 8% with a default interest rate of 24%. The
holder of this note may have converted any amount of the principal face amount of this note then outstanding into shares of
the Company’s common stock at a conversion price for each share equal to 75% of the lowest closing bid price as future
for the 10 prior trading days. As additional consideration for the purchase of the note, the Company issued note holder 3,500,000
shares of restricted common stock valued at $15,750 ($0.0045 per share). During the first 180 days, the Company may have prepaid
the principal amount of this note and accrued interest thereon, with a premium as follows: (a) there was no prepayment penalty
for redemptions in the first 30 days after the note issuance; (b) 110% of the prepayment amount if such prepayment was made
at any time from (31 days after the issuance date until 60 days after the issuance date; (c) 115% of the prepayment amount
if such prepayment was made at any time from 61 days after the issuance date until 90 days after the issuance date made; (d)
120% of the prepayment amount if such prepayment was made at any time from 91 days after the issuance date until 120 days
after the issuance date made; and (e) 125% of the prepayment amount if such prepayment was made at any time from 120 days
after the issuance date until 180 days after the issuance date. This note was not able to be prepaid after 180 days after
the issuance date. If there had been an event of default whereby the Company’s common stock got delisted from an exchange,
the outstanding principal due under this note would have increased by fifty percent (50%). If this note was not paid at maturity,
the outstanding principal due under this note would have increased by 10%. Further, if the Company had defaulted on the note
by becoming delinquent in its periodic report filings with the SEC and continued after the 6-month anniversary of the Note,
then the holder would have been entitled to use the lowest closing bid price during the delinquency period as a base price
for the conversion. On November 8, 2017 the noteholder fully converted the $18,000 in principal and $1,140 of interest into
31,900,000 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(j)
|
The
first of two twelve-month convertible notes as part of a securities purchase agreement, dated March 20, 2017, to sell one
year 8% convertible notes totaling $70,000 ($35,000 each). As additional consideration under this security purchase agreement,
the Company issued to the noteholder 16,000,000 shares of restricted common stock valued at $43,200 ($0.0027 per share). Both
notes mature on March 20, 2018. On March 22, 2017, the noteholder funded the first note through the direct payment of cash
to third parties. The holder of the notes was entitled to convert any amount of the principal face amount of this note then
outstanding into shares of the Company’s common stock at a conversion price for each share equal to 75% of the lowest
closing bid price for the 10 prior trading days. During the first 180 days, the Company was permitted to prepay the principal
amount of this note and accrued interest thereon, with a premium as follows: (a) there was no prepayment penalty for redemptions
in the first 30 days after the note issuance; (b) 110% of the prepayment amount if such prepayment was made at any time from
31 days after the issuance date until 60 days after the issuance date; (c) 115% of the prepayment amount if such prepayment
was made at any time from 61 days after the issuance date until90 days after the issuance date made; (d) 120% of the prepayment
amount if such prepayment was made at any time from 91 days after the issuance date until 120 days after the issuance date
made; and (e) 125% of the prepayment amount if such prepayment was made at any time after 120 days after the issuance date
until 180 days after the issuance date made. This note was not permitted to be prepaid after 180 days after the issuance date.
If this note was not paid at maturity, the outstanding principal due under this note would have increased by 10%. On June
8, 2017, the noteholder advanced funds in the amount of $8,623 in the form of a direct payment to a third party. On June 15,
2017, the Company was advanced $8,000 towards the second note. On June 26, 2017, the noteholder fully funded the second note
with a payment to the Company in the amount of $16,377. Legal fees in the amount of $2,000 were deducted from the proceeds.
On December 7, 2017 the noteholder fully converted the $35,000 in principal and $2,022 of interest into 98,725,920 common
shares.
|
|
|
|
|
(k)
|
The
second of two twelve-month convertible notes (back-end note) as part of a securities purchase agreement, dated March 20, 2017,
to sell one year 8% convertible notes totaling $70,000 ($35,000 each). On June 15, 2017, Eagle Equities advanced the Company
$8,000 as part of this back-end note. This back-end convertible note was to mature in twelve-months. On June 8, 2017, the
noteholder advanced funds in the amount of $8,623 to a third party for administrative services. The holder of the note was
entitled to convert any amount of the principal face amount of this note then outstanding into shares of the Company’s
common stock at a conversion price for each share equal to 75% of the lowest closing bid price for the 10 prior trading days.
During the first 180 days, the Company was able to be prepay the principal amount of this note and accrued interest thereon,
with a premium as follows: (a) there was no prepayment penalty for redemptions in the first 30 days after the note issuance;
(b) 110% of the prepayment amount if such prepayment was made at any time from 31 days after the issuance date until 60 days
after the issuance date; (c) 115% of the prepayment amount if such prepayment was made at any time from 61 days after the
issuance date until 90 after the issuance date made; (d) 120% of the prepayment amount if such prepayment was made at any
time from 91 days after the issuance date until 120 days after the issuance date made; and (e) 125% of the prepayment amount
if such prepayment was made at any time from 121 days after the issuance date until 180 days after the issuance date made.
This note was not able to be prepaid after 180 days. If this note was not paid at maturity, the outstanding principal due
under this note would have increased by 10%. On June 26, 2017, the noteholder fully funded the second note with a payment
to the Company in the amount of $16,377. Legal fees in the amount of $2,000 were deducted from the proceeds. On December 8,
2017 the Company fully repaid the note principal of $35,000 along with $1,327 of accrued interest and a prepayment penalty
of $13,689 which was recorded as interest in the Company’s consolidated financial statements.
|
|
(l)
|
One
year 8% $45,000 convertible note dated April 27, 2017. This note was funded May 2, 2017. This note had a maturity date of
April 27, 2018. This note had a default interest rate of 24%. If this note was not paid at maturity, the outstanding principal
due under this note would have increased by 10%. The holder was entitled to convert any amount of the principal and accrued
interest of then outstanding into shares of the Company’s common stock at a price for each share of common stock equal
to 70% of the lowest daily volume weighted average price (“VWAP”) of the common stock for the 15 prior trading
days. In the event the Company experienced a DTC “chill” on its shares, the conversion price would have decreased
to 60% instead of 70% while that “chill” was in effect. During the first 6 months this note was in effect, the
Company was permitted to redeem the note by paying to the holder an amount as follows: (i) if the redemption was within the
first 90 days of the issuance date, then for an amount equal to 120% of the unpaid principal amount of this Note along with
any interest that has accrued during that period, and (ii) if the redemption was after the 91st day, but less than the 180th
day of the issuance date, then for an amount equal to 133% of the unpaid principal amount of this note along with any accrued
interest. This note was not redeemable after 180 days. On November 2, 2017 the note principal of $45,000 was fully converted
along with $1,815 of accrued interest into 83,597,839 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(m)
|
On
May 30, 2017, GS Capital Partners, LLC funded a one year 8% $45,000 convertible redeemable note in accordance with a securities
purchase agreement dated May 30, 2017. As additional consideration under this security purchase agreement, the Company issued
note holder 25,000,000 shares of restricted common stock valued at $30,000 ($0.0012 per share). This note had a maturity date
of May 30, 2018. This note had a default interest rate of 24%. If this note was not paid at maturity, the outstanding principal
due under this note would have increased by 10%. The holder was entitled to convert any amount of the principal and accrued
interest of then outstanding into shares of the Company’s common stock at a price per share equal to 70% of the lowest
daily VWAP of the common stock for the 15 prior trading days. In the event the Company experienced a DTC “chill”
on its shares, the conversion price would be decreased to 60% instead of 70% while that “chill” is in effect.
During the first six months this note was in effect, the Company may have redeemed the note by paying to the holder an amount
as follows: (i) if the redemption was within the first 90 days of the issuance date, then for an amount equal to 120% of the
unpaid principal amount of this note along with any interest that has accrued during that period, (ii) if the redemption was
after the 91st day, but less than the 180th day of the issuance date, then for an amount equal to 133% of the unpaid principal
amount of this note along with any accrued interest. This note was not redeemable after 180 days. On November 30, 2017, the
Company fully repaid the $45,000 of principal of this note along with accrued interest of $2,407 and a prepayment penalty
of $14,258 which was recorded as interest in the company’s consolidated financial statements.
|
|
|
|
|
(n)
|
On
June 27, 2017, the Company entered into a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners,
LLC. The noteholder was entitled, at its option, at any time after cash payment, to convert any amount of the principal face
amount of this note then outstanding into shares of the Company’s common stock at a price equal to $0.00125 per share.
Upon an event of default, interest would accrue at a default interest rate of 24% per annum. If this note was not paid at
maturity, the outstanding principal due under this note would have increased by 10%. Additionally, the Company issued the
noteholder 5,000,000 shares of restricted common stock, as well as 16,000,000 five-year cashless warrants with an exercise
price of $0.0035 per share, as additional consideration for the purchase of the note. All the terms set forth, including but
not limited to interest rate, prepayment terms, conversion discount or lookback period would be adjusted downward (i.e. for
the benefit of the holder) if the Company offers a more favorable conversion discount (whether via interest, rate, original
issue discount or otherwise) or lookback period to another party or otherwise grants any more favorable terms to any third
party than those contained herein while this note was in effect. During the first six months this Note was in effect, the
Company was able to redeem this note by paying to the holder an amount as follows: (i) if the redemption was within the first
90 days this note was in effect, then for an amount equal to 120% of the unpaid principal amount of this note along with any
interest that has accrued during that period; and (ii) if the redemption was after the 91st day this note was in effect, but
less than the 180th day this note is in effect, then for an amount equal to 133% of the unpaid principal amount of this note
along with any accrued interest. This note was not redeemable after 180 days. This note was funded on June 30, 2017. On December
13, 2017, the Company fully repaid the $80,000 of principal of this note along with accrued interest of $2,016 and a prepayment
penalty of $26,148 which was recorded as interest in the Company’s consolidated financial statements.
|
|
|
|
|
(o)
|
On
August 31, 2017, the Company entered into a twelve-month $27,500 convertible note dated February 8, 2017, with 10% original
issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. Legal fees of $2,000 were
deducted from the cash proceeds. The holder of this note was entitled to convert any amount of the principal face amount of
this note then outstanding into shares of the Company’s common stock at a conversion price for each share of Common
Stock equal to 60% of the lowest trading price (40% discount) of the common stock of the lowest trading price of the common
stock for the twenty trading days immediately preceding the delivery of a notice of conversion. If this note was not paid
at maturity, the outstanding principal due under this note would have increase by 10%. On December 27, 2017 the note principal
of $27,500 was fully converted along with $721 of accrued interest into 94,070,367 shares of common stock.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(p)
|
On
August 31, 2017, the Company entered into a Securities Purchase Agreement with GS Capital Partners, LLC, whereby the
Company issued two 8% convertible redeemable notes each in the principal amount of $48,000. The first 8% note was funded with
gross cash proceeds of $45,600, after the deduction of $2,400 in legal fees. The second 8% note (the “Back-End Note”)
was initially paid for by an offsetting promissory note issued by GS Capital Partners, LLC to the Company (the “Note
Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note Receivable
is due April 30, 2018, unless certain conditions are not met, in which case both the Back-End Note and the Note Receivable
may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance upon
which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price for each share
of common stock equal to 70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC
Markets market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in
the future, for the 15 prior trading days including the day upon which a notice of conversion is received by the Company or
its transfer agent. In the event the Company experiences a DTC “chill” on its shares, the conversion price shall
be decreased to 60% instead of 70% while that “chill” is in effect. The Back-End Note will not be cash funded
and such note, along with the Note Receivable, will be immediately cancelled if the shares do not maintain a minimum trading
price during the five days prior to such funding and a certain aggregate dollar trading volume during such period. Upon an
event of default, principal and accrued interest will become immediately due and payable under the notes. Additionally, upon
an event of default, both notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest
permitted by law. Further, certain events of default may trigger penalty and liquidated damage provisions. During the first
six months First Note and the Back-End Note are in effect, the Company may redeem either note by paying to GS Capital Partners,
LLC an amount as follows: (i) if the redemption is within the first 90 days either note is in effect, then for an amount
equal to 120% of the unpaid principal amount of either note along with any interest that has accrued during that period, and
(ii) if the redemption is after the 91st day the either note is in effect, but less than the 180th day, then for an amount
equal to 133% of the unpaid principal amount of either note along with any accrued interest. Neither note may be redeemed
after 180 days. Additionally, and pursuant to the Purchase Agreement, the Company issued to GS Capital Partners, LLC
17,000,000 shares of the Company’s common stock on December 19, 2017 at a value of $11,900 ($0.0007 per share). On February
15, 2018 the company paid $40,000 to retire $29,181 of principal and $1,842 of accrued interest along with a prepayment penalty
in the amount of $8,978 which was recorded as interest expense in the Company’s consolidated financial statements. On
March 8, 2017, the note holder had fully converted the balance of the note in exchange for 46,633,809 shares of Company stock
valued at $19,586 ($0.00042 per share).
|
|
|
|
|
(q)
|
On
September 11, 2017, the Company entered into a Securities Purchase Agreement with Adar Bays, LLC whereby the Company issued
to Adar Bays seven 8% convertible redeemable notes each in the principal amount of $30,000, or in the aggregate principal
amount of $210,000. The first 8% convertible redeemable note (the “First Note”) was funded with gross cash proceeds
of $28,000, after deduction of $2,000 in legal fees, by September 12, 2017. The remaining six 8% convertible redeemable notes
(collectively, the “Back-End Notes”) were each initially paid for by a corresponding offsetting promissory note
issued by Adar Bays to the Company (the “Note Receivables”). The terms of the Back-End Notes require cash funding
prior to any conversion thereunder. Upon the request of the Company, the Back-End Notes may be funded at any time from March
11, 2018 until September 11, 2018. The Company may cancel the Back-End Notes and the Note Receivables prior to funding by
giving written notice to Adar Bays by February 23, 2018 that the Company does not wish to close on the funding of the Back-End
Notes. Each of the First Note, the Back-End Notes and the Notes Receivable has a maturity date of September 11, 2018 upon
which any outstanding principal and interest is due and payable. The amounts of cash actually funded plus accrued interest
under both the First Note and the Back-End Notes are convertible into shares of the Company’s common stock at a price
for each share of common stock equal to 60% of the lowest daily trading price of the common stock as reported on the National
Quotations Bureau OTC Markets market which the Company’s shares are traded or any exchange upon which the common stock
may be traded in the future, for the 20 prior trading days including the day upon which a notice of conversion is received
by the Company or its transfer agent. In the event the Company experiences a DTC “chill” on its shares, the conversion
price shall be decreased to 50% instead of 60% while that “chill” is in effect. Upon an event of default, principal
and accrued interest will become immediately due and payable under the notes. Additionally, upon an event of default, both
notes will accrue interest at a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further,
certain events of default may trigger penalty and liquidated damage provisions. During the first six months First Note is
outstanding, the Company may redeem the First Note in cash pursuant to the terms of the First Note. The Back-End Notes may
not be prepaid. However, in the event the First Note is redeemed prior to its six-month anniversary, each of the Back-End
Notes and each of the Note Receivables shall be automatically cancelled in their entirety and have no further force or effect.
On March 2, 2018, the Company paid $43,045 to fully retire the face value of $30,000 plus $1,322 of accrued interest as well
as a prepayment penalty of $11,723, recorded as interest expense in the Company’s consolidated financial statements.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
(r)
|
On
October 17, 2017, the Company entered into a stock purchase agreement with GS Capital Partners LLC, whereby the Company
issued two 8% convertible redeemable notes each in the principal amount of $105,000. The first 8% note was funded with gross
cash proceeds of $100,000, after the deduction of $5,000 in legal fees. The second 8% note (the “Back-End Note”)
was initially paid for by an offsetting promissory note issued by GS Capital Partners LLC, to the Company (the “Note
Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note Receivable
is due June 17, 2018, unless certain conditions are not met, in which case both the Back-End Note and the Note Receivable
may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance upon
which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price per share
equal to 70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets market
on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for
the 15 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.
In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 60%
instead of 70% while that “chill” is in effect. Upon an event of default, principal and accrued interest will
become immediately due and payable under the notes. Additionally, upon an event of default, both notes will accrue interest
at a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further, certain events of default
may trigger penalty and liquidated damage provisions. During the first 6 months that the First Note and the Back-End Note
are outstanding, the Company may redeem either by paying to GS Capital Partners LLC an amount as follows: (i) if the
redemption is within the first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal
amount of either note along with any interest that has accrued during that period, and (ii) if the redemption is after the
91st day the either note is in effect, but less than the 180th day, then for an amount equal to 133% of the unpaid principal
amount of either note along with any accrued interest. Neither note may be redeemed after 180 days. Additionally, and pursuant
to the Purchase Agreement, the Company issued to GS Capital Partners LLC 23,000,000 shares of the Company’s common
stock valued at $20,700 ($0.0009 per share). At March 31, 2018, the first note had accrued interest of $3,751. On April 25,
2018, the noteholder, under their rights under the contract, canceled the back-end note. On May 1, 2018, the noteholder
converted $55,000 of principal $2,339 in exchange for 148,931,506 of the Company’s shares ($0.000385 per share).
|
|
|
|
|
(s)
|
On
October 3, 2017, ADAR Bays funded a $27,500 back end convertible note pursuant to an original note dated February 8, 2017,
with 10% original issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. The holder
of this note is entitled to convert any amount of the principal face amount of this note then outstanding into shares of the
Company’s common stock at a conversion price for each share of Common Stock equal to 60% of the lowest trading price
(representing a 40% discount) of the common stock of the lowest trading price of the common stock for the 20 trading days
immediately preceding the delivery of a notice of conversion. During the first 180 days, the Company may prepay the principal
amount of this note and accrued interest thereon, with a premium as follows: (a) 115% for redemptions in the first 30 days
after the note issuance; (b) 120% of the prepayment amount if such prepayment is made at any time from 31 days after the issuance
date until 60 days after the issuance date; (c) 125% of the prepayment amount if such prepayment is made at any time from
61 days after the issuance date until 90 days after the issuance date made; (d) 130% of the prepayment amount if such prepayment
is made at any time from 91 days after the issuance date until 120 days after the issuance date made; (e) 135% of the prepayment
amount if such prepayment is made at any time from 121 days after the issuance date until 150 days after the issuance; and
(f) 140% of the prepayment amount if such prepayment is made at any time from 151 days after the issuance date until 180 days
after the issuance date. This note may not be prepaid after 180 days. If this note is not paid at maturity, the outstanding
principal due under this note will increase by 10%. On February 13, 2018 the Company paid $39,313 to retire the $27,500 face
value and $1,079 of accrued interest as well as a prepayment penalty of $10,734 recorded interest in the Company’s consolidated
financial statements.
|
|
|
|
|
(t)
|
On
February 8, 2018, ADAR Bays funded a $27,500 back end convertible note pursuant to an original note dated February 8, 2017,
with 10% original issue discount in the amount of $2,500 bearing an interest rate of 8% with a default rate of 24%. The holder
of this note is entitled to convert any amount of the principal face amount of this note then outstanding into shares of the
Company’s common stock at a conversion price for each share of Common Stock equal to 60% of the lowest trading price
(representing a 40% discount) of the common stock of the lowest trading price of the common stock for the 20 trading days
immediately preceding the delivery of a notice of conversion. This note was not able to be prepaid. On March 1, 2018, the
noteholder converted the face value in full in addition to accrued interest of $122 in exchange for 76,728,389 common shares.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
|
NOTE
8 – NOTES PAYABLE AND CONVERTIBLE NOTES (CONTINUED)
|
|
|
|
|
(u)
|
On
March 9, 2018, GS Capital Partners, LLC funded the back-end note under the August 31, 2017 Securities Purchase Agreement
with GS Capital Partners, LLC whereby the Company issued two 8% convertible redeemable notes each in the principal
amount of $48,000. This Back-End Note was initially paid for by an offsetting promissory note issued by GS Capital Partners,
LLC to the Company (the “Note Receivable”). This note has a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under
the note are convertible into shares of the Company’s common stock at a price for each share of common stock equal to
70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets market on which
the Company’s shares are traded or any exchange upon which the common stock may be traded in the future, for the 15
prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent. In
the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 60%
instead of 70% while that “chill” is in effect. Upon an event of default, principal and accrued interest will
become immediately due and payable under the notes. Additionally, upon an event of default, notes will accrue interest at
a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further, certain events of default
may trigger penalty and liquidated damage provisions. During the first six months this note is in effect, the Company may
redeem by paying to GS Capital Partners, LLC an amount as follows: (i) if the redemption is within the first 90 days
either note is in effect, then for an amount equal to 120% of the unpaid principal amount of either note along with any interest
that has accrued during that period, and (ii) if the redemption is after the 91st day the either note is in effect, but less
than the 180th day, then for an amount equal to 133% of the unpaid principal amount of either note along with any accrued
interest. The note may be redeemed after 180 days. At March 31, 2018, this note had accrued interest of $231.
|
|
|
|
|
(v)
|
On
June 1, 2015, the Company entered into a securities purchase agreement (the “Purchase Agreement”) with various
accredited investors for the sale of certain debentures with aggregate gross proceeds to the Company of $133,000 ($18,000
of which was to a related party). Pursuant to the terms of the agreement, the investors were granted 13,300,000 shares of
Company common stock as a commitment fee. These shares were issued on June 15, 2016. Additionally, the Company was required
to repay the amounts raised under the Purchase Agreement prior to December 1, 2015 except as described below. The Purchase
Agreement provided the Company with the following prepayment options: (i) if prepaid prior to August 31, 2015, the Company
must pay each investor the amount invested plus a 10% premium and (ii) if prepaid after August 31, 2015 but prior to December
1, 2015, the Company must pay each investor the amount invested plus a 20% premium. Because the Company did not repay the
amounts as described above, on December 1, 2015, the Company had the option to convert all amounts raised under the Purchase
Agreements into shares of common stock based on a 20% discount to the Company’s VWAP for the three trading days prior
to December 1, 2015, which the Company has done. Excluding the 13,300,000 commitment shares, in May 2016 the Company agreed
to issue 33,900,000 shares of its common stock, which were issued on June 15, 2016, to settle all obligations under the Purchase
Agreement with the exception of one individual noteholder holding a note with a $20,000 principal amount. On December 1, 2017,
the Company settled the remaining $20,000 in principal and $4,440 of accrued interest for a one-time cash payment of $10,000
and 12,000,000 common shares valued at $6,000 ($0.0005 per share). A gain on settlement of debt in the amount of $8,880 was
recognized in the Company’s consolidated financial statements.
|
|
|
|
|
(w)
|
Individual
notes issued to 6 individuals bearing an interest rate of 8%. These notes were issued from February through April 2013. The
notes are convertible into common stock of the Company at $0.025 per share. On July 19, 2017, the Company paid an individual
note holder to retire a note having a principal balance of $1,000 and accrued interest of $340. During the three months ended
December 31, 2017, the company retired four additional notes with individuals having a total principal amount of $32,775 and
accrued interest of $13,305 for a cash payment of $5,000 and 73,500,000 shares of common stock valued at $39,450 ($0.00054
per share). A loss on the settlement of debt in the amount of $3,592 was recognized on this transaction in the Company’s
consolidated financial statements. There were no conversions during the year ended March 31, 2017. As of March 31, 2018, one
note remains to an individual remains unpaid in the amount of $15,000 principal and $6,424 of accrued interest.
|
Interest
expense for the years ended March 31, 2018 and 2017 was $291,610 and $721,408. For the year ended March 31, 2018 interest expense
consisted of interest on face value of convertible notes in the amount of $33,643, amortized debt discount of $36,259, commitment
shares issued as debt incentive valued at $98,071, finance charges of $25,608 on charges due to Cowan related to the legal settlement
(see NOTE 14) and prepayment penalties in the amount of $98,029. Accrued interest at March 31, 2018 and 2017 was $33,875 and $126,156,
respectively.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
9 – RELATED PARTIES
On
June 15, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $95,000. This investment is structured
as an equity private placement of 76,000,000 shares of Company common stock at $0.00125 per share. The Company used the proceeds
for general and administrative purposes. The shares were issued on August 1, 2017.
On
June 21, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $55,000. This investment is structured
as an equity private placement of 44,000,000 shares of Company common stock at $0.00125 per share. The Company used the proceeds
for general and administrative purposes. The shares were issued on August 1, 2017.
On
October 6, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $137,500. This investment is
structured as an equity private placement of 110,000,000 shares of Company common stock at $0.00125 per share. The Company used
the proceeds for general and administrative purposes. The shares were issued December 19, 2017.
As
a result of the Company’s joint venture with Ice + Jam, a receivable and a payable was recorded on the Company’s books.
As of March 31, 2018, these amounts represented cash Ice + Jam collected from sales of
HerMan®
through their website in the amount of $581 and a payable in the amount of $5,522 for expenses incurred through the operation
of the business.
NOTE
10 – CONCENTRATION OF RISK
Any
customer or vendor representing greater than 10% of the total sales or cost of sales is considered a major customer or major vendor.
The
Company had a certain customer whose receipts individually represented 10% or more of the Company’s total fiscal year to
date sales. This was one wholesale client whose purchase constituted a very large part of our total sales.
|
|
|
March
31, 2018
|
|
|
March
31, 2017
|
|
|
Customer
A
|
|
|
58
|
%
|
|
|
-
|
|
As
sales efforts continue we do not expect this customer to be a significant portion of total annual sales.
*
Less than 10% of total sales
The
Company, through its joint venture with Ice + Jam, has a certain vendor who represents 51.8% of the cost of goods sold cost for
the
HerMan®
product. The
HerMan®
product formulation and the filling of the plastic tubes housing the product has been outsourced and concentrated in this
vendor. As a major supplier, this vendor has significantly affected this operation of this joint venture through the supply of
product which was largely defective. As a result, the Company had written of the value of the inventory at March 31, 2018.
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT)
Common
Stock
As
of March 31, 2018, the Company is authorized to issue 7,500,000,000 shares of its common stock. As of March 31, 2018, there were
3,919,498,166 shares of common stock are outstanding.
On
April 27, 2017, the Company’s Board of Directors approved an amendment to the Company’s Articles of Incorporation
to increase the Company’s authorized common stock from 2,500,000,000 to 7,500,000,000 shares and on June 28, 2017, the Company
held a special meeting of the stockholders to approve the amendment. The articles of amendment were filed with the Florida Secretary
of State on June 29, 2017.
On
March 12, 2018, the Board of Directors approved moving forward with a reverse stock split which could be implemented at the discretion
of the Board of Directors at any time over a period of six months from the date of approval. On April 24, 2018, the Board of Directors
voted to implement this previously approved 1 for 75 reverse stock split for the Company’s common stock. There will be a
commensurate adjustment to the Company’s authorized shares (which will be reduced from its current figure of 7,500,000,000
to the post-split figure of 100,000,000).
The Company
believes that this reverse split will be effective during July 2018, and will file a current report on Form 8-K to announce the
specific effective date and other relevant information once completed.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Common
Stock
Fiscal
Year 2017
During
the year ended March 31, 2017, the Company issued 33,900,000 shares of common stock at a value $135,600 ($0.004 per share) to
convert notes payable in the aggregate amount of $113,000 (including a related party note in the amount of $18,000), plus a 20%
conversion premium, which was recorded as interest expense in the amount of $22,600.
During
the year ended March 31, 2017, the Company issued 104,375,000 shares of common stock ($0.004 per share) for aggregate proceeds
of $428,500.
During
the year ended March 31, 2017, the Company issued 197,000,000 shares of common stock for services rendered and to be rendered
which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant
date fair value amortized over the life of the contracts.
During
the year ended March 31, 2017, the Company issued 63,800,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $378,550 ($0.0027 to $0.01 per share).
During
the year ended March 31, 2017, the Company issued 100,639,501 shares of common stock to convert principal and interest of outstanding
notes in the aggregate amount of $118,126 ($0.00114 to $0.0012 per share).
On
November 18, 2016, the Company issued 15,384,615 shares of common stock to settle an outstanding payable in the amount of $194,516.
The Company recognized a gain on the settlement of this liability in the amount of $94,516, as the shares were valued at $100,000.
Fiscal
Year 2018
During
the year ended March 31, 2018, the Company issued 1,512,049,546 shares of common stock to holders of convertible notes to retire
$601,749 in principal and $85,055 of accrued interest (at $0.000225 to $0.0012 per share) under the convertible
notes.
During
the year ended March 31, 2018, the Company issued 141,428,571 shares of common stock to a private investor for an aggregate value
of $177,500 (at $0.0013 per share).
During
the year ended March 31, 2018, the Company issued 120,000,000 shares of common stock to Seth Shaw, the Company’s Chief Executive
Officer, for an aggregate value of $150,000 ($0.00125 per share).
During
the year ended March 31, 2018, the Company issued 144,500,000 shares of common stock for services rendered and to be rendered
which is reflected in stock-based compensation. Value represents contracts entered into with various consultants, with the grant
date fair value amortized over the life of the contracts.
During
the year ended March 31, 2018, the Company issued 85,000,000 shares of common stock as commitment fees to noteholders at an aggregate
value of $86,600 ($0.001 per share).
During
the year ended March 31, 2018, the Company issued 116,500,000 shares of common stock for debt and legal settlements at an aggregate
value of $75,050 ($0.0006 per share).
During
the year ended March 31, 2018, the Company issued 65,100,000 shares of common stock to former officers and directors for amounts
previously accrued at an aggregate value of $173,999 ($0.0027 per share).
In
connection with some of the consulting agreements and board advisory agreements the Company has entered into, as the following
clauses are part of the compensation arrangements: (a) the consultant will be reimbursed for all reasonable out of pocket expenses
and (b) the Company, in its sole discretion, may make additional cash payments and/or issue additional shares of common stock
to the consultant based upon the consultant’s performance. The Company recognized $701,347 in stock-based compensation expense
related to these agreements in the year ended March 31, 2018.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Warrants
for Common Stock
The
following table summarizes warrant activity for the years ended March 31, 2018 and 2017:
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2016
|
|
|
77,303,529
|
|
|
$
|
0.0200
|
|
|
|
3.49
Years
|
|
|
$
|
10,050,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
37,350,000
|
|
|
|
0.0100
|
|
|
|
2.44
Years
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
(23,134,118
|
)
|
|
$
|
(0.0200
|
)
|
|
|
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2017
|
|
|
91,519,411
|
|
|
$
|
0.0200
|
|
|
|
3.16
Years
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
16,000,000
|
|
|
|
0.0035
|
|
|
|
4.99
Years
|
|
|
|
-
|
|
|
Expired
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Canceled
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2018
|
|
|
107,519,411
|
|
|
$
|
0.0169
|
|
|
|
2.47
Years
|
|
|
$
|
-
|
|
The
warrants were valued utilizing the following assumptions employing the Black-Scholes Pricing Model:
|
|
|
Year
Ended
March 31, 2018
|
|
|
Year
Ended
March
31, 2017
|
|
|
Volatility
|
|
|
108.6
|
%
|
|
|
203
|
%
|
|
Risk-free
rate
|
|
|
1.24
|
%
|
|
|
0.66
|
%
|
|
Dividend
|
|
|
-
|
|
|
|
-
|
|
|
Expected
life of warrants
|
|
|
5.00
|
|
|
|
2.35
|
|
On
December 22, 2016, the Company entered in a membership interest transfer agreement with Open Therapeutics whereby the Company
sold 80% of its membership interest in Pilus to Open Therapeutics. Open Therapeutics agreed to terminate and cancel 80% of the
unexercised portion of Open Therapeutics agreed to pay to the Company 20% of the net profit generated Pilus Energy from its previous
year’s earnings, if any. The first $75,000 of such payments would be retained by Pilus Energy as additional consideration
for the sale, which is reflected as a contingent liability on the Company’s consolidated balance sheet. The Company further
agreed it would vote its 20% membership interest in Pilus Energy in the same manner that Open Therapeutics votes its membership
interest on all matters for which a member vote is required. Through March 31, 2018, there has been no activity recorded by Open
Therapeutics with respect to Pilus Energy, and thus the $75,000 remains contingently owed to them.
Warrants
for Common Stock
During
the year ended March 31, 2017, the Company entered into stock purchase agreements with 20 accredited investors, subsequently issuing
93,375,000 shares of common stock. Each investor was issued 1 non-cashless-exercise warrant with a term of 36 months for every
2.5 shares of stock purchased. The strike price of these warrants is 1 cent per share. The total warrants of 37,350,000 are classified
as additional paid in capital. The warrants are classified as equity as they contain no provisions that would enable liability
classification.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
11 – STOCKHOLDERS’ EQUITY (DEFICIT) (CONTINUED)
Warrants
for Common Stock (Continued)
On
June 27, 2017, the Company entered into a one-year 5% convertible note in the amount of $80,000 with GS Capital Partners, LLC.
As partial consideration for the purchase of the note the Company granted 16,000,000 five-year cashless warrants with an exercise
price of $0.0035 per share. Based on the relative fair value of the warrants, the Company recorded a debt discount of $12,546
on the $80,000 note, which is being amortized over a period of one-year.
Stock
Options
On
February 1, 2012, the Company awarded to each of two former executives options to purchase 5,000,000 common shares, an aggregate
of 10,000,000 shares. These options vested immediately and were for services performed.
|
Volatility
|
|
|
220
|
%
|
|
Expected
dividend rate
|
|
|
-
|
|
|
Expected
life of options in years
|
|
|
10
|
|
|
Risk-free
rate
|
|
|
1.87
|
%
|
The
following table summarizes option activity for the years ended March 31, 2018 and 2017:
|
|
|
Shares
|
|
|
Weighted-
Average
Exercise
Price
|
|
|
Weighted
Average
Remaining
Contractual
Term
|
|
|
Aggregate
Intrinsic
Value
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2016
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
5.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
at March 31, 2017
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
4.85
Years
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding
and exercisable at March 31, 2018
|
|
|
10,000,000
|
|
|
$
|
0.10
|
|
|
|
3.85
Years
|
|
|
$
|
—
|
|
NOTE
12 – PROVISION FOR INCOME TAXES
Deferred
income taxes are determined using the liability method for the temporary differences between the financial reporting basis and
income tax basis of the Company’s assets and liabilities. Deferred income taxes are measured based on the tax rates expected
to be in effect when the temporary differences are included in the Company’s tax return. Deferred tax assets and liabilities
are recognized based on anticipated future tax consequences attributable to differences between financial statement carrying amounts
of assets and liabilities and their respective tax bases.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
12 – PROVISION FOR INCOME TAXES (CONTINUED)
Deferred
tax assets consist of the following:
|
|
|
March
31
, 2018
|
|
|
March
31
, 2017
|
|
|
Net
operating losses
|
|
|
8,514,000
|
|
|
|
8,479,000
|
|
|
Effect
of TCJA recalculation
|
|
|
(3,107,000
|
)
|
|
|
(2,932,000
|
)
|
|
Valuation
allowance
|
|
|
(5,407,000
|
)
|
|
|
(5,547,000
|
)
|
|
|
|
$
|
-
|
|
|
$
|
-
|
|
At
March 31, 2018, the Company had a U.S. net operating loss carryforward in the approximate amount of $20 million available to offset
future taxable income through 2038. The Company established valuation allowances equal to the full amount of the deferred tax
assets due to the uncertainty of the utilization of the operating losses in future periods. The Company also has a Canadian carry
forward loss which approximates $700,000. The valuation allowance decreased by $140,000 in the year ended March 31, 2018 and increased
by and $527,000 for the year ended March 31, 2017.
On
December 22, 2017, Public Law 115-97, informally referred to as the Tax Cuts and Jobs Act (“the TCJA”) was enacted
into law. The TCJA provides for significant changes to the U.S. Internal Revenue Code of 1986, as amended, that impact corporate
taxation requirements. Effective January 1, 2018, the federal tax rate for corporations was reduced from 35% to 21% for US taxable
income and requires one-time re-measurement of deferred taxes to reflect their value at a lower tax rate of 21%. Also, mandatory
repatriation of untaxed foreign earnings and profits will be taxed at 15.5% to the extent the underlying assets are liquid and
8% on the remaining balance. There are other provisions to the TCJA, such as conversion of a worldwide system to a territorial
system, limitations on interest expense and domestic production deductions, which will be effective in fiscal 2019. The Company
anticipates its effective tax rate to be 28% to 30%, excluding the one-time impact of the TCJA for fiscal 2018 primarily due to
the reduction in the federal tax rate. The Company’s actual effective tax rate for fiscal 2018 may differ from management’s
estimate due to changes in interpretations and assumptions. Due to the timing of enactment and complexity of the TCJA, the Company
is unable to estimate a reasonable range of the one-time impact associated with mandatory repatriation, re-measurement of deferred
taxes and other provisions of the TCJA.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
13 – INVESTMENTS
Trading
securities
For
investments in securities of other companies that are owned, the Company records them at fair value with unrealized gains
and losses reflected in other operating income or loss. For investments in these securities that are sold by us,
the Company recognizes the gains and losses attributable to these securities investments as realized gains or losses in
other operating income or loss.
Investment
in Trading Securities:
|
At
March 31, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Beginning
of Period Cost
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
End
of Period Cost
|
|
|
Fair
Value
|
|
|
Realized
Gain (Loss)
|
|
|
Unrealized
Gain (Loss)
|
|
|
Green
Innovations Ltd (GNIN)*
|
|
(a)
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
249,375
|
|
|
Totals
|
|
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
250,000
|
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
249,375
|
|
|
At
March 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Company
|
|
|
|
|
Beginning
of Period Cost
|
|
|
Purchases
|
|
|
Sales
Proceeds
|
|
|
End
of Period Cost
|
|
|
Fair
Value
|
|
|
Realized
Gain (Loss)
|
|
|
Unrealized
Gain (Loss)
|
|
|
Green
Innovations Ltd (GNIN)*
|
|
(a)
|
|
|
$
|
250,000
|
|
|
$
|
-
|
|
|
$
|
6,815
|
|
|
|
-
|
|
|
|
-
|
|
|
$
|
(243,185
|
)
|
|
$
|
-
|
|
|
VistaGen
Therapeutics Inc (VTGN)
|
|
(b)
|
|
|
|
-
|
|
|
|
490,117
|
|
|
|
-
|
|
|
|
490,117
|
|
|
|
306,207
|
|
|
|
-
|
|
|
|
(183,910
|
)
|
|
Blink
Charging Co (BLNK)
|
|
(c)
|
|
|
|
-
|
|
|
|
190,350
|
|
|
|
-
|
|
|
|
190,350
|
|
|
|
123,750
|
|
|
|
-
|
|
|
|
(66,600
|
)
|
|
Blink
Charging Co (BLNKW) (Warrants)
|
|
(c)
|
|
|
|
-
|
|
|
|
900
|
|
|
|
-
|
|
|
|
900
|
|
|
|
31,545
|
|
|
|
-
|
|
|
|
30,645
|
|
|
Aytu
BioScience Inc (AYTU)
|
|
(d)
|
|
|
|
-
|
|
|
|
82,270
|
|
|
|
-
|
|
|
|
82,270
|
|
|
|
119,947
|
|
|
|
-
|
|
|
|
37,677
|
|
|
Lightbridge
Corp. (LTBR)
|
|
(e)
|
|
|
|
-
|
|
|
|
37,511
|
|
|
|
-
|
|
|
|
37,511
|
|
|
|
29,250
|
|
|
|
-
|
|
|
|
(8,261
|
)
|
|
Totals
|
|
|
|
|
$
|
250,000
|
|
|
$
|
801,148
|
|
|
$
|
6,815
|
|
|
$
|
801,148
|
|
|
$
|
610,699
|
|
|
$
|
(243,185
|
)
|
|
$
|
(190,449
|
)
|
*
During 2018, this security was reclassified from Available for Sale to Trading Security.
|
(a)
|
During
the year ended March 31, 2018, the Company’s investment in Green Innovations, Ltd. was sold for net proceeds of $6,815
and was previously carried as an investment included within Current Assets. The Company’s investment in Green Innovations,
Ltd. had a cost of $250,000. A loss of $243,185 was recognized on the sale of this security. At March 31, 2017, the unrealized
loss was $249,375 and the fair value was $625.
|
|
|
|
|
(b)
|
On
December 11, 2017 the Company invested $480,000 in the common stock of VistaGen Therapeutics, Inc. (“VTGN”). The
Company purchased 320,000 common shares along with 320,000 five-year warrants with a strike price of $1.50. On March 26, 2018,
the Company purchased an additional 10,000 common shares. The investment in the common shares is recorded at fair valve with
unrealized gains and losses, reflected in other operating income. The Company’s investment in VTGN has a cost of $490,117,
unrealized loss of $183,910 and a fair value of $306,207 at March 31, 2018.
|
|
|
|
|
(c)
|
The
Company participated in an $18,500,250 underwritten public offering by Blink Charging Co. (NASDAQ: BLNK) (“Blink”),
which closed on February 14, 2018. The Company invested $191,250 USD of its balance sheet cash and purchased 45,000 registered
shares of Blink common stock, as well as warrants exercisable immediately for a period of five (5) years from the date of
issuance for up to 90,000 additional shares of common stock of Blink. The Warrants carry an exercise price of $4.25 per share,
and also trade on the NASDAQ under the ticker symbol: BLNKW. The Company is in possession of the registered securities as
of the closing date. The Company’s investment in BLNK common stock and warrants had a cost of $191,150, unrealized loss
of $35,955 and a fair value of $155,295 at March 31, 2018.
|
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
13 – INVESTMENTS (CONTINUED)
Trading
securities (Continued)
|
(d)
|
On
March 2 and 8, 2018, the Company purchased 188,300 common shares of AYTU Bioscience (ATYU). The investment in the common shares
is recorded at fair valve with unrealized gains and losses, reflected in other operating income. The Company’s investment
in ATYU had a cost of $82,270, unrealized loss of $37,677 and a fair value of $119,947 at March 31, 2018.
|
|
|
|
|
(e)
|
On
March 12, 2018, the Company purchased 25,000 common shares of Lightbridge Corp (LTBR). The investment in the common shares
is recorded at fair valve with unrealized gains and losses, reflected in other operating income. The Company’s investment
in LTBR had a cost of $37,511, unrealized loss of $8,261 and a fair value of $29,250 at March 31, 2018.
|
At
March 31, 2018, the Company held warrants for AYTU Bioscience to purchase 111,100 common shares at a strike price of $0.54 with
an expiration of March 6, 2023. At March 31, 2018 these warrants were in the money by $0.0937 per share. Since these shares are
not publicly traded and therefore are not highly liquid the Company has chosen not to recognize the unrealized gain in this security.
At
March 31, 2018, the Company held warrants for VistaGen Therapeutics, Inc. to purchase 320,000 common shares at a strike price
of $1.50 with an expiration of December 13, 2022. At March 31, 2018 these warrants were out of the money by $0.5721 per share.
Since these shares are not publicly traded and therefore are not highly liquid the Company has chosen not to recognize the unrealized
gain in this security.
Digital
Currency
During
the year ended March 31, 2018, the Company completed cumulative purchases in the Groestlcoin cryptocurrency in the aggregate amount
of $35,000 for 27,919.133 units ($0.79 per unit). (Crypto Currency Code: GRS). The purchase of this currency cannot be executed
directly using $USD. The Company must purchase Bitcoin (BTC) and then purchase the Groestlcoin cryptocurrency by using BTC. This
two-step process generated actual losses or gains on the purchase of Groestlcoin. For the year ended March 31, 2018 the Company
realized a loss of $2,859 on exchange from BTC reflected as other operation income. The investment in Groestlecoin has a cost
of $31,481 net of fees, unrealized loss of $9,425 and a fair value of $22,056.
Equity
investments
Honeywood
Effective
August 1, 2017, the Company entered into a Debt Conversion Agreement in respect to a secured promissory note issued following
the unwinding of the Honeywood acquisition (See NOTE 1), whereby the Company agreed to convert the entire principal and accrued
but unpaid interest due under the note into a 5% membership interest in Honeywood.
The
Company made an assessment for impairment of its investment in Honeywood at the entity level. During the relationship between
the Company and Honeywood, Honeywood had a working capital deficiency and had a history of operating losses. In accordance with
FASB ASC 320-10-35-28, “
Investments—Debt and Equity Securities,
” a Company may not record an impairment
loss on the investment but shall continue to evaluate whether the investment is impaired (that is, shall estimate the fair value
of the investment) in each subsequent reporting period until either of the following occurs: (a) the investment experiences a
recovery of fair value up to (or beyond) its cost; or (b) the entity recognizes an other-than-temporary impairment loss.
At
the time of the Debt Conversion Agreement the receivable balance of $199,119 had been fully written off by the Company in a prior
period. As a result of this Debt Conversion Agreement, the Company deemed the investment to still have no current value. The Company
recorded this investment at $0. Thus, no recovery of bad debt and no impairment will be recognized in this period.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
14 –LITIGATION
On
November 9, 2017, the Company entered into a Confidential Settlement Agreement and Release (the “Settlement Agreement”)
in connection with the case entitled Tauriga Sciences, Inc. v. Cowan, Gunteski & Co., P.A., et al.) before the United States
District Court of the District of New Jersey, Civil Action No. 3:16-cv-06285 (the “Action”) to resolve all claims
between the parties in the Action for aggregate consideration to the Company of $2,050,000. Also, as part of the Settlement Agreement,
the defendants agreed to release any and all claims against the Company. Upon receipt of the Settlement Payment, the Company dismissed
the Action with prejudice. The settlement amount was funded in its entirety by professional liability insurance for the defendants.
The Company and the defendants also exchanged general releases of all claims against the other as part of the Settlement Agreement,
including any potential derivative actions, and to avoid any future public comments on the Action, unless required by law.
NOTE
15 – FAIR VALUE MEASUREMENTS
The
following summarizes the company’s financial assets and liabilities that are measured at fair value on a recurring basis
at March 31, 2018 and March 31, 2017:
|
|
|
March
31, 2018
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-trading
securities
|
|
$
|
610,699
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
610,699
|
|
|
Investment
in digital currency
|
|
$
|
22,056
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
22,056
|
|
|
|
|
March
31, 2017
|
|
|
|
|
Level
1
|
|
|
Level
2
|
|
|
Level
3
|
|
|
Total
|
|
|
Assets
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment-trading
securities
|
|
$
|
625
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
625
|
|
With
the issuance of the July 2017 FASB ASU 2017-11,
“Earnings Per Share (Topic 260) Distinguishing Liabilities from Equity
(Topic 480) Derivatives and Hedging (Topic 815),”
which addresses the complexity of accounting for certain financial
instruments with down round features, the Company has chosen the early adopt retroactively the amendments in Part I of the standard
whereby fair value derivative liabilities previously recognized were derecognized in the current and comparative periods. Under
the amendments included in this update, the Company is no longer required to record changes in fair value during the period of
change as a separate component of other income/expense in the Consolidated Statements of Operations.
NOTE
16 – SUBSEQUENT EVENTS
Common
Stock Issuances
Subsequent
to March 31, 2018, the Company issued 9,750,000 shares of its restricted common stock to consultants under consulting agreements
and 148,931,506 shares of restricted common stock to a noteholder for the conversion of debt and accrued interest having
a value of $57,339 ($0.0004 per share).
On
March 12, 2018, the Board of Directors approved moving forward with a reverse stock split which could be implemented at the discretion
of the Board of Directors at any time over a period of six months from the date of approval. On April 24, 2018, the Board of Directors
voted to implement this previously approved 1 for 75 reverse stock split for the Company’s common stock. There will be a
commensurate adjustment to the Company’s authorized shares (which will be reduced from its current figure of 7,500,000,000
to the post-split figure of 100,000,000).
The Company
believes that this reverse split will be effective during July 2018, and will file a current report on Form 8-K to announce the
specific effective date and other relevant information once completed.
TAURIGA
SCIENCES, INC. AND SUBSIDIARIES
NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS
FOR
THE YEARS ENDED MARCH 31, 2018 AND 2017
(IN
US$)
NOTE
16 – SUBSEQUENT EVENTS (CONTINUED)
Convertible
Notes
On
April 25, 2018 GS Capital Partners, LLC canceled the back-end note dated October 17, 2017. In accordance with Section 8(n) of
the original note, the note may be cancelled if the Company trades less than $40,000 in any consecutive 5-day period. From April
9 -13, 2018, the stock traded less than $17,000.
On
May 10, 2018, the Company entered into a securities purchase agreement with GS Capital Partners, LLC. GS Capital Partners,
LLC whereby the Company issued two 8% convertible redeemable notes in the cumulative principal amount of $56,000. The first
8% note for $28,000 was funded with net proceeds of $25,000, after the deduction of $3,000 for OID. The second 8% note (the “Back-End
Note”) is initially paid for by an offsetting promissory note issued by GS Capital Partners, LLC to the Company (the
“Note Receivable”). The terms of the Back-End Note require cash funding prior to any conversion thereunder. The Note
Receivable is due January 10, 2019., unless certain conditions are not met, in which case both the Back-End Note and the Note
Receivable may both be cancelled. Both the First Note and the Back-End Note have a maturity date one year from the date of issuance
upon which any outstanding principal and interest is due and payable. The amounts cash funded plus accrued interest under both
the First Note and the Back-End Note are convertible into shares of the Company’s common stock at a price for each share
of common stock equal to 70% of the lowest daily VWAP of the common stock as reported on the National Quotations Bureau OTC Markets
market on which the Company’s shares are traded or any exchange upon which the common stock may be traded in the future,
for the 15 prior trading days including the day upon which a notice of conversion is received by the Company or its transfer agent.
In the event the Company experiences a DTC “chill” on its shares, the conversion price shall be decreased to 60% instead
of 70% while that “chill” is in effect. The Back-End Note will not be cash funded and such note, along with the Note
Receivable, will be immediately cancelled if the shares do not maintain a minimum trading price during the five days prior to
such funding and a certain aggregate dollar trading volume during such period. Upon an event of default, principal and accrued
interest will become immediately due and payable under the notes. Additionally, upon an event of default, both notes will accrue
interest at a default interest rate of 24% per annum or the highest rate of interest permitted by law. Further, certain events
of default may trigger penalty and liquidated damage provisions. During the first six months First Note is in effect, the Company
may redeem either note by paying to GS Capital Partners, LLC an amount as follows: (i) if the redemption is within the
first 90 days either note is in effect, then for an amount equal to 120% of the unpaid principal amount of either note along with
any interest that has accrued during that period, and (ii) if the redemption is after the 91st day the either note is in effect,
but less than the 180th day, then for an amount equal to 133% of the unpaid principal amount of either note along with any accrued
interest. The note may be redeemed after 180 days. The back-end note may not be repaid. The note holder may redeem this note at
any time after the first six months.
Other
Mr.
Hingge Hsu tendered his resignation for his position on the Board of Directors of the Company effective April 9, 2018, in order
to pursue other business opportunities that required his attention and time. His resignation was not due to any disagreement with
the Company regarding any matter related to the Company’s operations, policies or practices. Mr. Hsu’s service to
the board has been greatly appreciated by management and the other board members of the Company. He had served on the Board of
Directors since 2014.
ITEM
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.
None.
ITEM
9A. CONTROLS AND PROCEDURES.
Evaluation
of Disclosure Controls and Procedures
The
Company’s Chief Executive Officer and Chief Financial Officer have evaluated the effectiveness of the Company’s disclosure
controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the year ended March 31, 2018
covered by this Form 10-K. Based upon such evaluation, the Chief Executive Officer and Chief Financial Officer have concluded
that, as of the end of such period, the Company’s disclosure controls and procedures were not effective as required under
Rules 13a-15(e) and 15d-15(e) under the Exchange Act.
Management’s
Annual Report on Internal Control Over Financial Reporting
The
management of the Company is responsible for the preparation of the consolidated financial statements and related financial information
appearing in this Annual Report on Form 10-K. The consolidated financial statements and notes have been prepared in conformity
with accounting principles generally accepted in the United States of America. The management of the Company is also responsible
for establishing and maintaining adequate internal control over financial reporting, as defined in Rules 13a-15(f) and 15d-15(f)
under the Exchange Act. A company’s internal control over financial reporting is defined as a process designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Our internal control over financial reporting includes those
policies and procedures that:
|
|
●
|
Pertain
to the maintenance of records that in reasonable detail accurately and fairly reflect the transactions and dispositions of
the assets of the Company;
|
|
|
|
|
|
|
●
|
Provide
reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the issuer are being made only in accordance
with authorizations of management and directors of the Company; and
|
|
|
|
|
|
|
●
|
Provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the Company’s
assets that could have a material effect on the financial statements.
|
Management,
including the Chief Executive Officer and Chief Financial officer, does not expect that the Company’s disclosure controls
and internal controls will prevent all error and all fraud. Because of its inherent limitations, a system of internal control
over financial reporting can provide only reasonable, not absolute, assurance that the objectives of the control system are met
and may not prevent or detect misstatements. Further, over time, control may become inadequate because of changes in conditions
or the degree of compliance with the policies or procedures may deteriorate.
With
the participation of the Chief Executive Officer and Chief Financial Officer, our management evaluated the effectiveness of the
Company’s internal control over financial reporting as of March 31, 2018 based upon the framework in Internal Control –Integrated
Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). Based on that evaluation, our
management has concluded that, as of March 31, 2018, the Company had material weaknesses in its internal control over financial
reporting and was deemed to be not effective. Specifically, management identified the following material weaknesses at March 31,
2018:
|
|
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.
|
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 effect
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.
|
The
additional hiring is contingent upon the Company’s efforts to obtain additional funding through equity or debt for its continued
operational activities and corporate expenses. Management hopes to secure funds in the coming fiscal year but provides
no assurances that it will be able to do so.
We
understand that remediation of material weaknesses and deficiencies in internal controls are a continuing work in progress due
to the issuance of new standards and promulgations. However, remediation of any known deficiency is among our highest priorities.
Our management will periodically assess the progress and sufficiency of our ongoing initiatives and make adjustments as and when
necessary.
This
annual report does not include an attestation report of our registered public accounting firm regarding internal control over
financial reporting. Management’s report was not subject to attestation by our registered public accounting firm pursuant
rules of the SEC that permit us to provide only management’s report in this annual report. On July 21, 2010, President Obama
signed the Dodd-Frank Wall Street Reform and Consumer Protection Act. Included in the Act is a provision that permanently exempts
smaller public companies that qualify as either a Non-Accelerated Filer or Smaller Reporting Company from the auditor attestation
requirement of Section 404(b) of the Sarbanes-Oxley Act of 2002.
Changes
in Internal Control over Financial Reporting
In
August 2012, the Company appointed Seth M. Shaw as chief executive officer and chairman. Mr. Shaw has more than fifteen
years’ experience in the business and financial profession. On February 27, 2015, Mr. Shaw resigned as our chief executive
officer and was replaced by Dr. Stella M. Sung. On July 9, 2015, Dr. Sung resigned as the Company’s Chief Executive Officer
and as a member of the Board of Directors. On July 10, 2015, Mr. Shaw was reappointed as the Company’s Chief Executive
Officer and as the Chairman of the Board of Directors.
In
July 2017, the Company appointed Kevin Lacey as chief financial officer. Mr. Lacey is a certified public accountant with more
than twenty years’ experience as a financial professional working with several publicly traded companies.
Except
as set forth above, 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, specifically, 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.
ITEM
9B. OTHER INFORMATION.
None.
PART
III
ITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE.
The
following table sets forth information with respect to persons who are serving as directors and officers of the Company during
the Company fiscal year end 2018. Hingge Hsu resigned as a Director on April 9, 2018. Each director holds office until the next
annual meeting of shareholders or until his successor has been elected and qualified.
|
Name
|
|
Age
|
|
|
Position
|
|
|
|
|
|
|
|
|
Seth
M. Shaw
|
|
39
|
|
|
Chief
Executive Officer and Director
|
|
Kevin
P. Lacey
|
|
49
|
|
|
Chief
Financial Officer
|
|
Dr.
David L. Wolitzky
|
|
81
|
|
|
Director
|
|
Thomas
J. Graham
|
|
69
|
|
|
Director
|
Biographies
of Directors and Officers
Seth
M. Shaw
has served as our chief executive officer and chairman of the Board since July 9, 2015. Mr. Shaw started his career
at American International Group (AIG) Global Investment Group, and furthered his growth capital experience working at a prestigious
Manhattan based hedge fund (Harvest Capital Management). In 2005, he founded Novastar Resources Ltd, a natural resources exploration
company focused on the exploration and acquisition of mineral properties containing the element thorium. During this period, Mr.
Shaw secured more than $17 million in financing from top tier institutional investors and was an integral stakeholder in the completion
of the merger between Novastar Resources and Thorium Power. During this period, he held the position of Director of Strategic
Planning until mid-2007. Subsequently, the company changed its name to Lightbridge Inc. and currently trades on the NASDAQ (NASDAQ:
LTBR).
Following
the merger, Mr. Shaw has assisted several other companies in securing value-added capital from institutional investors as well
as providing management consulting. Among those, Mr. Shaw was instrumental in securing $12,000,000 from Tudor Investment Corp.
for NASDAQ listed flat panel display developer Uni-Pixel Inc. (NASDAQ: UNXL). In addition, Mr. Shaw served as the founding CFO
of Los Angeles based Biotech firm Physician Therapeutics LLC (“PTL”) in 2004. Subsequently PTL merged with Targeted
Medical Pharma (“TMP”) (OTCQB: TRGM). Mr. Shaw had previously served as the CEO of the Company from August 22, 2012
through February 26, 2014. Throughout his tenure with the Company, Mr. Shaw has been instrumental in completing numerous private
placements. Mr. Shaw also served as the Chief Executive Officer and Chief Financial Officer for Breathe eCig Corp. from January
22, 2016 until April 1, 2106 and January 22, 2016 until August 12, 2016, respectively (OTCQB: BVAP).
Mr.
Shaw graduated from Cornell University in 2001 with a bachelor’s degree in Policy Analysis Management and a concentration
in Econometrics.
Dr.
David L. Wolitzky
has served as our director since March 2013. Dr. Wolitzky received his BA from The City College of New York
(1957) and his Ph.D. in Clinical Psychology from the University of Rochester (1961). He is also a graduate of the New York Psychoanalytic
Institute (1972). Since 1974 Dr. Wolitzky has been a tenured faculty member in the Department of Psychology, New York University.
His many years there of teaching, research, supervisory, and administrative experience included serving as the Director of the
Clinical Psychology Ph.D. Program, the N.Y.U Psychology Clinic, and as a Co-Director of the N.Y.U. Postdoctoral Program in Psychotherapy
and Psychoanalysis and as a supervisor of candidates in training. His other professional activities include publication of numerous
articles and book chapters, edited books, forensic evaluation in child custody cases, psychological assessments of individuals
being considered for high-level executive positions in industry, extensive experience as a book editor, and the practice of psychotherapy.
He also has served on the New State Board of Psychology, Office of Professional Discipline.
Mr.
Thomas J. Graham
has served as our director since August 2015. Mr. Graham is currently self-employed and leverages his industry
knowledge to help companies create effective strategies to successfully penetrate the retail market place. From 2000 to 2005,
Mr. Graham served as Director of Operations for Sears and Roebuck & Co., a national retailer with numerous stores nationwide.
He oversaw direct operations for all departments, including their managers and associates. In addition, he was accountable for
all sales, labor and operation standards as set by Sears Corporate. From 1993 to 2000, Mr. Graham from 1993 to 2000 served as
a results-oriented Marketing and Sales Director for a major Michigan retail supermarket called Goff Food Stores, with sales in
excess of $100,000,000.00 annually. He coordinated and oversaw all print and visual advertising including newspaper, radio and
television. Mr. Graham worked with local and national vendors to promote and increase sales and customer flow. In addition, he
was responsible for all product placement and developed category management standards for all departments and set merchandising
plans and ensured they were followed by all store level personal.
Mr.
Graham is also an U.S. Military Veteran, serving in the U.S. Army during the Vietnam War from 1969 to 1971. He was honorably discharged
in 1971 with the rank of Sergeant First Class, with twelve months combat service in Vietnam from 1970-1971.
Family
Relationships
There
are no family relationships among any of our directors and executive officers.
Our
directors are appointed by the Board of Directors, and serve until their successors are elected and qualified, or their earlier
resignation or removal. Officers are appointed by the board of directors and serve at the discretion of the board of directors
or until their earlier resignation or removal. Any action required can be taken at any annual or special meeting of stockholders
of the corporation which may be taken without a meeting, without prior notice and without a vote, if consent of consents in writing
setting forth the action so taken, shall be signed by the holders of the outstanding stock having not less than the minimum number
of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were
present and voted and shall be delivered to the corporation by delivery to its registered office, its principle place of business,
or an officer or agent of the corporation having custody of the book in which the proceedings of meetings are recorded.
Indemnification
of Directors and Officers
Florida
Corporation Law allows for the indemnification of officers, directors, and any corporate agents in terms sufficiently broad to
indemnify such persons under certain circumstances for liabilities, including reimbursement for expenses, incurred arising under
the 1933 Act. The Bylaws of the Company provide that the Company will indemnify its directors and officers to the fullest extent
authorized or permitted by law and such right to indemnification will continue as to a person who has ceased to be a director
or officer of the Company and will inure to the benefit of his or her heirs, executors and Consultants; provided, however, that,
except for proceedings to enforce rights to indemnification, the Company will not be obligated to indemnify any director or officer
in connection with a proceeding (or part thereof) initiated by such person unless such proceeding (or part thereof) was authorized
by the Board of Directors. The right to indemnification conferred will include the right to be paid by the Company the expenses
(including attorney’s fees) incurred in defending any such proceeding in advance of its final disposition.
The
Company may, to the extent authorized from time to time by the Board of Directors, provide rights to indemnification and to the
advancement of expenses to employees and agents of the Company similar to those conferred to directors and officers of the Company.
The rights to indemnification and to the advancement of expenses are subject to the requirements of the 1940 Act to the extent
applicable.
Furthermore,
the Company may maintain insurance, at its expense, to protect itself and any director, officer, employee or agent of the Company
or another company against any expense, liability or loss, whether or not the Company would have the power to indemnify such person
against such expense, liability or loss under the Florida General Corporation Law.
Directors’
and Officers’ Liability Insurance
The
Company currently does not have directors’ and officers’ liability insurance insuring our directors and officers against
liability for acts or omissions in their capacities as directors or officers.
Code
of Ethics
We
intend to adopt a code of ethics that applies to our officers, directors and employees, including our principal executive officer
and principal accounting officer, but have not done so to date due to our relatively small size. We intend to adopt a written
code of ethics in the near future.
Board
Committees
The
Company does not have any committees.
We
expect our board of directors, in the future, to appoint a nominating committee and any other applicable committee, as applicable,
and to adopt charters relative to each such committee. We intend to appoint such persons to committees of the board of directors
as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although
we are not required to comply with such requirements until we elect to seek a listing on a national securities exchange.
Advisory
Board
Business
Advisory Board
The
Company established its Business Advisory Board in 2013. Currently, the Business Advisory Board has four members.
Woodrow
H. Levin
has served on our Business Advisory Board since February 2014. Mr. Levin was the founder and CEO of BringIt which
was acquired by International Game Technology (NYSE:IGT) in the year 2012. An energetic and charismatic leader, he makes strategic
decisions for the company while guiding day-to-day operations, working with investors, and developing strategic and lasting partnerships
that benefit BringIt. Prior to founding BringIt, Mr. Levin was Managing Partner at Riverbank Capital Management, a successful
equity options trading firm he started, and helped to grow with offices in New York and Chicago. In 2001, he founded InStadium,
an advertising company that partnered with NFL and MLB stadiums to provide digital advertising, product sampling, stadium signage,
and innovative restroom advertising. Mr. Levin was President of InStadium for five years, during which he established the company’s
mission of expanding in-venue advertising and promotional opportunities for large to mid-sized companies through cost-efficient
and high impact programs. His efforts ultimately resulted in securing partnerships with 25 MLB and 15 NFL stadiums throughout
the top 20 advertising markets in the US. His competitive fire was firmly established by his school career as a competitive athlete.
He played NCAA Division I hockey at Wisconsin, an experience that taught him that discipline and hard work can transform a burning
desire for success into tangible results. Mr. Levin attended Chicago-Kent School of Law and is admitted to practice in IL. He
holds a BA in Business from the University of Wisconsin in Madison. Mr. Levin resides in San Francisco and was previously living
in Chicago where he is involved with multiple community and charitable organizations including the Jewish United Fund, Lynn Sage
Breast Cancer Foundation and most recently was on the executive committee of The Chicago Green Tie Ball.
General
Ronald R. Fogleman
has served on our Business Advisory Board since February, 2014. General Fogleman is a highly decorated
combat veteran who retired from the United States Air Force (“U.S. Air Force” or “USAF”) after 34 years
active commissioned service. On his final tour of duty he served as the 15th Chief of Staff of the U.S. Air Force and a member
of the Joint Chiefs of Staff (“JCS”) during the administration of President Clinton. Prior to that assignment he was
Commander in Chief of the United States Transportation Command (“CINCTRANS”). As Chief of Staff, he served as the
senior uniformed officer responsible for the organization, training and equipage of 750,000 active duty, Guard, Reserve and civilian
forces serving in the United States and Overseas. As a member of the JCS, he served as a military advisor to the Secretary of
Defense, the National Security Council and the President. Since retiring from the U.S. Air Force, General Fogleman has served
on the Defense Policy Board, The National Aeronautics and Space Administration (“NASA”) Advisory Council, the Jet
Propulsion Laboratory Advisory Board, chaired an Air Force Laboratory study on directed energy weapons, chaired a National Resource
Committee on Aeronautics Research and Technology for Vision 2050: An integrated Transportation System, served on the NASA Mars
Program Independent Assessment Team, the congressionally directed Commission to Assess United States National Security Space Management
and Organization, the NASA Shuttle Return to Flight Task Group and the Independent Assessment Panel to examine the Management
and Organization of National Security Space Assets. General Fogleman has served on and chaired several public and private company
boards. He is currently the Chairman of the Board of Alliant Techsystems Inc. (NYSE: ATK), the Lead Director on the Board of Directors
for AAR Corp. (NYSE: AIR), and serves on the boards of AGC Composites and Aerostructures, First National Bank of Durango, MITRE
Corporation, Tactical Air Support, Inc. and Thayles-Raytheon Systems. he has served as the chair of Audit and Governance Committees
throughout his career in the public and private sectors. He devotes considerable time to national security, governance of public
companies and community affairs. He is a member of the National Association of Corporate Directors, Council on Foreign Relations,
Falcon Foundation, Airlift Tanker Association, Fort Lewis College Foundation, and the Air Force Association. He lectures on leadership,
international affairs and military issues and has published numerous articles on air and space operations.
Bruno
Vanderschelden
has served as a business advisory board member since April 2012. Mr. Vanderschelden has over 15 years of experience
in the various fields of asset management and operations in a multi-cultural and multi-lingual environment with longstanding relationships
with key industry decision makers, venture investors, and thought leaders, with access to a broad and powerful network of influencers.
He has also served as an independent director of various Management Companies, has been instrumental in developing and implementing
strategic plans and has implemented risk management and corporate governance programs for public companies. Mr. Vanderschelden
has a Master’s Degree in Business Administration from ICHEC Brussels, Belgium and in European Studies from Université
Catholique de Louvain Louvain-la-Neuve, Belgium.
Frank
P. Orlowski
has served on our Business Advisory Board since April 2016. Mr. Orlowski serves as Senior Director Finance, emerging
markets and transition manufacturing sites at a global pharmaceutical company. Mr. Orlowski is responsible for managing all aspects
of Emerging Markets Manufacturing Supply Finance. In this global role he develops operational strategies for internal and external
pharmaceutical supply chain and sourcing throughout Asia, Africa/Middle East and South America. As a global leader he is highly
effective working in a multi-cultural, global organization partnering with senior government officials and business leaders, both
inside and outside the Pharma Company and the pharmaceutical industry. He manages a large team across the globe and is responsible
for a yearly operating budget of over $900 million. The specific countries which he supports from a manufacturing and business
development standpoint include Argentina, Brazil, China (all provinces), Egypt, India, Indonesia, Japan, Korea, Mexico, Morocco,
Russia, Singapore, Turkey, Tunisia, Thailand and Venezuela. He has over 20 years’ experience in the pharmaceutical industry
in positions of increased responsibility in strategy, finance and operations. Prior to his work in the pharmaceutical industry,
he worked at Accenture on various successful strategic consulting engagements in manufacturing. He was responsible for the global
integration of several major acquisitions. He was Project Lead for the global rollout of several widely used information systems.
He sits on the leadership team of several innovating manufacturing and drug development teams within the Pharma Company alongside
senior Company scientists. He sits on the leadership team of several innovating manufacturing and drug development teams within
the Pharma Company alongside senior Company scientists. This includes evaluating external business development and licensing opportunities.
In 2015, Mr. Orlowski was appointed to the Board of the American Cancer Society and serves on the Executive Board of the National
Corporate Theatre Forward. He completed two New York City Marathons and over 20 half marathons. Mr. Orlowski earned a BS in accounting
from Providence College and an MBA from NYU Stern School of Business.
Medical
Advisory Board
The
Company established its Medical Advisory Board in 2013. Currently, the Medical Advisory Board has one member.
Dr.
Jason Heikenfeld
has served on our Medical Advisory Board since October 2013. Mr. Heikenfeld is an internationally-known expert
in electrofluidics and flex-electronics, with work spanning displays, lab-on-chip, and now wearable sensors. Dr. Heikenfeld is
a recipient of NSF CAREER, and AFOSR and Sigma Xi Young-Investigator awards. He is currently a Prof. of Electrical Engineering
at the University of Cincinnati and also currently working with his second start-up company in color-video electronic paper. Dr.
Heikenfeld is a Senior member of the Institute for Electrical and Electronics Engineers, a Senior member of the Society for Information
Display, and a member of SPIE. Jason Heikenfeld received his B.S. and Ph.D. degrees from the University of Cincinnati in 1998
and 2001, respectively. During 2001-2005 Dr. Heikenfeld co-founded and served as principal scientist at Extreme Photonix Corp.
In 2005 he returned to the University of Cincinnati as a Professor in the Dept. of Electrical & Computer Engineering. In 2005,
Dr. Heikenfeld joined the University of Cincinnati (“UC”) as an Assistant Professor, and quickly propelled UC into
a position of international leadership in electrofluidic technology. Dr. Heikenfeld’s university laboratory, The Novel Devices
Laboratory, is currently engaged in electrofluidic device research spanning electronic paper and biomedical applications. Since
2006, he has secured more than $12,000,000 in funded research, including a prestigious NSF CAREER award and a AFOSR Young Investigator
Award (one of only 21 nationally in 2006, across all sciences). He has greater than 150 publications and his inventions have resulted
in over 10 granted patents. Dr. Heikenfeld has now launched his second company, Gamma Dynamics, which is pursuing commercialization
of color e-Readers that look as good as conventional printed media. Dr. Heikenfeld is a Senior member of the Institute for Electrical
and Electronics Engineers, a Senior member of the Society for Information Display, and a member of SPIE. In addition to his scholarly
work, Dr. Heikenfeld is an award winning educator at UC and has lead the creation of programs and coursework at the University
of Cincinnati that foster innovation, entrepreneurship, and an understanding of the profound change that technology can have on
society.
ITEM
11. EXECUTIVE COMPENSATION.
The
table below sets forth, for our last two fiscal years, the compensation earned by our named executive officers.
Name
and
Principal Position
|
|
Year
|
|
|
Salary
|
|
|
Deferred
Compensation
|
|
|
Bonus
|
|
|
Stock
Awards
|
|
|
Option/
Warrants
Awards
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seth
M. Shaw (1)
|
|
2018
|
|
|
$
|
125,907
|
|
|
$
|
-
|
|
|
$
|
55,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
180,907
|
|
|
Chief
Executive Officer
|
|
2017
|
|
|
$
|
128,873
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
8,500
|
|
|
$
|
137,373
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kevin
P. Lacey (2)
|
|
2018
|
|
|
$
|
45,000
|
|
|
$
|
-
|
|
|
$
|
13,500
|
|
|
$
|
26,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
84,500
|
|
|
Chief
Financial Officer
|
|
2017
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ghalia
Lahlou (3)
|
|
2018
|
|
|
$
|
36,750
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
9,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
45,750
|
|
|
Chief
Financial Officer (Former)
|
|
2017
|
|
|
$
|
62,133
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
62,133
|
|
(1)
Other Compensation includes medical benefits paid on behalf of non-employee officer.
(2)
Mr. Lacey was appointed Chief Financial Officer as of July 5, 2017. Compensation reflected above is based on amounts earned subsequent
to this appointment. Mr. Lacey has received fees for services prior to his appointment as Chief Financial Officer and are not
reflected in the chart above. Stock award was a one-time board approved grant upon appointment as Chief Financial Officer.
(3)
Ms. Lahlou was appointed chief financial officer on July 9, 2015. Ms. Lahlou resigned as chief financial officer on May 26, 2017.
Stock award was a one-time board approved grant paid out as a separation settlement for all monies owed to Ms. Lahlou.
The
general policy of the Board of Directors is that compensation for independent Directors should be a nominal cash fee plus equity-based
compensation. We do not pay employee Directors for Board service in addition to their regular employee compensation. The Board
of Directors have the primary responsibility for considering and determining the amount of Director compensation.
The
following table shows amounts earned by each Director in the fiscal year ended March 31, 2018.
|
Director
|
|
Fees
Earned
or Paid
in Cash
|
|
|
Stock
Awards
|
|
|
Warrant
Awards
|
|
|
Non-Equity
Incentive Plan
Compensation
|
|
|
Change
in
Pension Value
and
Nonqualified
Deferred
Compensation
Earnings
|
|
|
All
Other
Compensation
|
|
|
Total
|
|
|
Dr.
David L. Wolitzky
|
|
$
|
3,000
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
3,000
|
|
|
Hingge
Hsu
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
Thomas
Graham
|
|
$
|
15,750
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
15,750
|
|
ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS.
The
following table sets forth certain information as of June 6, 2018 regarding the beneficial ownership of our common stock by (i)
each person or entity who, to our knowledge, beneficially owns more than 5% of our common stock; (ii) each executive officer and
named officer; (iii) each director; and (iv) all of our officers and directors as a group. Unless otherwise indicated in the footnotes
to the following table, each of the stockholders named in the table has sole voting and investment power with respect to the shares
of our common stock beneficially owned. Except as otherwise indicated, the address of each of the stockholders listed below is:
c/o 555 Madison Avenue 5th Floor Suite 506, New York, NY 10022.
|
Name
|
|
Number
of Shares
Beneficially
Owned
(1)
|
|
|
Percentage
of
Outstanding
Common Stock
(1)
|
|
|
|
|
|
|
|
|
|
|
Non-employee
Directors:
|
|
|
|
|
|
|
|
|
|
David
L. Wolitzky
|
|
|
9,815,463
|
|
|
|
*
|
|
|
Thomas
J. Graham
|
|
|
9,000,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
Named
Executive Officers:
|
|
|
|
|
|
|
|
|
|
Seth
M. Shaw, Chief Executive Officer and Director
|
|
|
271,390,000
|
|
|
|
6.65
|
%
|
|
Kevin
P. Lacey, Chief Financial Officer
|
|
|
23,000,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
All
directors and named executive officers as a group (5 persons)
|
|
|
322,605,463
|
|
|
|
7.68
|
%
|
*
Denotes less than 1%.
(1)
Applicable percentage of ownership is based on 4,078,179,672 total shares comprised of our common stock as of June 6, 2018. Beneficial
ownership is determined in accordance with rules of the Securities and Exchange Commission and means voting or investment power
with respect to securities. Shares of our common stock issuable upon the exercise of stock options exercisable currently or within
60 days of June 6, 2018 are deemed outstanding and to be beneficially owned by the person holding such option for purposes of
computing such person’s percentage ownership but are not deemed outstanding for the purpose of computing the percentage
ownership of any other person. Shares of our preferred stock are deemed outstanding and to be beneficially owned by the person
holding such shares for purposes of computing such person’s percentage ownership.
ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE.
On
June 15, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $95,000. This investment is structured
as an equity private placement of 76,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
On
June 21, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $55,000. This investment is structured
as an equity private placement of 44,000,000 at $0.00125. The Company will utilize this infusion of working capital for general
and administrative purposes.
On
October 6, 2017, Seth Shaw, Chief Executive Officer made a personal investment into the Company of $137,500. This investment is
structured as an equity private placement of 110,000,000 shares of Company common stock at $0.00125 per share. The Company used
the proceeds for general and administrative purposes. The shares were issued December 19, 2017.
ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES.
The
following table sets forth the fees billed by our principal independent accountants, KBL, LLP for 2018 and 2017, for the categories
of services indicated.
|
|
|
Years
Ended March 31,
|
|
|
Category
|
|
2018
|
|
|
2017
|
|
|
KBL, LLP
|
|
|
|
|
|
|
|
|
|
Audit Fees
|
|
$
|
87,000
|
|
|
$
|
55,000
|
|
|
Audit Related Fees
|
|
|
-
|
|
|
|
-
|
|
|
Tax Fees
|
|
|
-
|
|
|
|
-
|
|
|
All
Other Fees
|
|
|
-
|
|
|
|
-
|
|
|
Total
|
|
$
|
87,000
|
|
|
$
|
55,000
|
|
Audit
fees.
Consists of fees billed for the audit of our annual financial statements and review of our interim financial information
and services that are normally provided by the accountant in connection with year-end and quarter-end statutory and regulatory
filings or engagements.
Audit-related
fees.
Consists of fees billed for services relating to review of other regulatory filings including registration statements,
periodic reports and audit related consulting.
Tax
fees.
Consists of professional services rendered by our principal accountant for tax compliance, tax advice and tax planning.
Other
fees.
Other services provided by our accountants.
PART
IV
ITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES.
Exhibits
See
the Exhibit Index following the signature page of this Registration Statement, which Exhibit Index is incorporated herein by reference.
|
Number
|
|
Description
|
|
|
|
|
|
Exhibit
4.1
|
|
Forms
of outstanding warrants common stock purchase warrant filed on current report 8k dated July 3, 2017
|
|
|
|
|
|
Exhibit
4.2
|
|
Forms
of outstanding warrants common stock purchase warrant filed on current report 8k dated November 4, 2013
|
|
|
|
|
|
Exhibit
4.3
|
|
GS
Capital Partners, LLC., convertible redeemable note filed on current report 8k dated October 23, 2017
|
|
|
|
|
|
Exhibit
4.4
|
|
Union
Capital convertible redeemable note issued June 2015 and filed on current report 8k dated June 8, 2015
|
|
|
|
|
|
Exhibit
4.5
|
|
Union
Capital Securities Purchase Agreement issued June 2015 and filed on current report 8k dated June 8, 2015
|
|
|
|
|
|
Exhibit
4.6
|
|
Group
10 Convertible Note Payable issued July 2015 (filed herewith)
|
|
|
|
|
|
Exhibit
4.7
|
|
Group
10 Convertible Note Payable First Amendment amended May 2017 and issued July 2015 filed on current report 8k dated May 15,
2017
|
|
|
|
|
|
Exhibit
4.8
|
|
Group
10 Convertible Note Payable issued August 2016 agreement filed on current report 8k dated August 9, 2016
|
|
|
|
|
|
Exhibit
4.9
|
|
Group
10 Convertible Note Payable November 2016 (filed herewith)
|
|
|
|
|
|
Exhibit
4.10
|
|
Group
10 Convertible Note Payable First Amendment amended May 2017 and issued November 2016 filed on current report 8k dated May
15, 2017
|
|
|
|
|
|
Exhibit
4.11
|
|
Group
10 Convertible Note Payable issued March 2017 filed on current report 8k dated May 15, 2017
|
|
|
|
|
|
Exhibit
4.12
|
|
Group
10 Convertible Note Payable First Amendment amended May 2017 and issued March 2017 filed on current report 8k dated May 15,
2017
|
|
|
|
|
|
Exhibit
4.13
|
|
Alternative
Strategy Partners PTE Ltd. Bridge loan and security agreement in October 2015 filed in current report 8k dated October 13,
2015
|
|
|
|
|
|
Exhibit
4.14
|
|
ADAR
Bays issued December 2016 (filed herewith)
|
|
|
|
|
|
Exhibit
4.15
|
|
ADAR
Bays Convertible Redeemable Note issued February 2017 filed on current report 8k dated May 15, 2017
|
|
|
|
|
|
Exhibit
4.16
|
|
Eagle
Equities, LLC Convertible Redeemable Note issued January 2017 filed on current report 8k dated May 15, 2017
|
|
|
|
|
|
Exhibit
4.17
|
|
Eagle
Equities, LLC Convertible Redeemable Note issued March 2017 filed on current report 8k dated May 15, 2017
|
|
Number
|
|
Description
|
|
Exhibit
4.18
|
|
Eagle
Equities, LLC Convertible Redeemable Note back end note issued March 2017 filed on current report 8k dated May 15, 2017
|
|
|
|
|
|
Exhibit
4.20
|
|
GS
Capital Partners, LLC Convertible Redeemable Note issued April 2017 filed on current report 8k dated -May 15, 2017
|
|
|
|
|
|
Exhibit
4.21
|
|
GS
Capital Partners, LLC Convertible Redeemable Note issued May 2017 filed on current report 8k dated June 2, 2017
|
|
|
|
|
|
Exhibit
4.22
|
|
GS
Capital Partners, LLC Amendment to Convertible Promissory Note Dated June 27, 2017 filed on current report 8k dated September
7, 2017
|
|
|
|
|
|
Exhibit
4.23
|
|
GS
Capital Partners, LLC Securities Purchase Agreement dated August 2017 to Back End Note filed on current report 8k dated September
7, 2017
|
|
|
|
|
|
Exhibit
4.24
|
|
GS
Capital Partners, LLC Convertible Redeemable Note dated due August 2017 filed on current report 8k dated September 7, 2017
|
|
|
|
|
|
Exhibit
4.25
|
|
GS
Capital Partners, LLC Convertible Redeemable Note due August 2018 Back End Note filed on current report 8k dated September
7, 2017
|
|
|
|
|
|
Exhibit
4.26
|
|
GS
Capital Partners, LLC Collateralized Secured Promissory Note dated August 2017 to Back End Note filed on current report 8k
dated September 7, 2017
|
|
|
|
|
|
Exhibit
4.27
|
|
GS
Capital Partners, LLC Security Purchase Agreement Dated June 2017 filed on current report 8k dated July 3, 2017
|
|
|
|
|
|
Exhibit
4.28
|
|
GS
Capital Partners, LLC Convertible Redeemable Note dated June 2017 filed on current report 8k dated July 3, 2017
|
|
|
|
|
|
Exhibit
4.29
|
|
12%
Convertible redeemable note ADAR Bays issued August 15, 2017 (filed herewith)
|
|
|
|
|
|
Exhibit
4.30
|
|
ADAR
Bays Security Purchase Agreement dated September 2017 filed on current report 8k dated September 15, 2017
|
|
|
|
|
|
Exhibit
4.31
|
|
ADAR
Bays Convertible Redeemable Note filed on current report 8k dated September 15, 2017
|
|
|
|
|
|
Exhibit
4.32
|
|
ADAR
Bays Back End Note filed on current report 8k September 15, 2017
|
|
|
|
|
|
Exhibit
4.33
|
|
ADAR
Bays Collateralized Secured Promissory Note dated September 2017 filed on current report 8k dated September 15, 2017
|
|
|
|
|
|
Exhibit
4.34
|
|
GS
Capital Partners, LLC Security Purchase Agreement dated October 2017 filed on current report 8k dated October 23, 2017
|
|
Number
|
|
Description
|
|
Exhibit
4.35
|
|
GS
Capital Partners, LLC Convertible Redeemable Note dated October 2017 filed on current report 8k dated October 23, 2017
|
|
|
|
|
|
Exhibit
4.36
|
|
GS
Capital Partners, LLC Convertible Redeemable Back End Note dated October 2018 filed on current report 8k dated October 23,2017
|
|
|
|
|
|
Exhibit
4.37
|
|
GS
Capital Partners, LLC Collateralized Secured Promissory Back End Note dated October 2017 filed on current report 8k dated
October 23, 2017
|
|
|
|
|
|
Exhibit
4.38
|
|
8%
Convertible redeemable back end note 2 of 3 dated ADAR Bays issued October 3, 2017 (filed herewith)
|
|
|
|
|
|
Exhibit
4.39
|
|
8%
Convertible redeemable back end note 3 of 3 dated ADAR Bays issued February 13, 2018 (filed herewith)
|
|
|
|
|
|
Exhibit
4.40
|
|
ALTERNATIVE
STRATEGY PARTNERS PTE. LTD bridge loan dated September 23, 2015 (filed herewith)
|
|
|
|
|
|
Exhibit
4.41
|
|
8% Convertible redeemable back end note 1 of 3 dated ADAR Bays issued February 13, 2018 (filed herewith)
|
|
|
|
|
|
Exhibit
10.2
|
|
Honeywood
termination agreement filed on current report 8k dated September 29, 2014
|
|
|
|
|
|
Exhibit
10.3
|
|
Honeywood
Amendment Number 1 to the agreement and plan of merger filed on current report 8k dated July 21, 2014
|
|
|
|
|
|
Exhibit
10.4
|
|
Honeywood
debt conversion agreement filed on current report 8k dated September 7, 2017
|
|
|
|
|
|
Exhibit
10.5
|
|
Honeywood
Standstill Agreement filed on current report 8k dated July 21, 2014
|
|
|
|
|
|
Exhibit
10.6
|
|
Bacterial
Robotics - Agreement and Plan of Merger filed on current report 8k dated February 4, 2014
|
|
|
|
|
|
Exhibit
10.7
|
|
Bacterial
Robotics - Strategic Alliance Agreement filed on current report 8k dated November 4, 2013
|
|
|
|
|
|
Exhibit
10.8
|
|
Green
Hygienics - License Agreement filed on current report 8k dated June 6, 2013
|
|
|
|
|
|
Exhibit
10.9
|
|
HerMan
license agreement (filed herewith)
|
|
|
|
|
|
Exhibit
10.10
|
|
2 year extension HerMan license agreement (filed herewith)
|
|
|
|
|
|
Exhibit
10.11
|
|
Securities
purchase agreement with Seth Shaw dated June 15, 2017 filed on current report 8k dated June 16, 2017
|
|
|
|
|
|
Exhibit
10.12
|
|
Securities
purchase agreement with Seth Shaw dated June 21, 2017 filed on current report 8k dated June 22, 2017
|
|
|
|
|
|
Exhibit
10.13
|
|
Membership
transfer agreement with Open Therapeutics dated December 2016 filed on current report 8k dated December 28, 2016
|
|
|
|
|
|
Exhibit
10.14
|
|
BLINK
sales agreement (filed herewith)
|
|
|
|
|
|
Exhibit
10.15
|
|
Securities
purchase agreement with Seth Shaw dated October 6, 2017 filed on current report 8k dated October 10, 2017
|
|
|
|
|
|
Exhibit
10.16
|
|
Employment
agreement Seth M. Shaw filed on current report 8k dated November 7, 2012
|
|
101.INS
|
|
XBRL
Instance Document
|
|
|
|
|
|
101.SCH
|
|
XBRL
Taxonomy Extension Schema Document
|
|
|
|
|
|
101.CAL
|
|
XBRL
Taxonomy Extension Calculation Linkbase Document
|
|
|
|
|
|
101.DEF
|
|
XBRL
Taxonomy Extension Definition Linkbase Document
|
|
|
|
|
|
101.LAB
|
|
XBRL
Taxonomy Extension Label Linkbase Document
|
|
|
|
|
|
101.PRE
|
|
XBRL
Taxonomy Extension Presentation Linkbase Document
|
Financial
Statement Schedules
None
SIGNATURES
Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report
to be signed on its behalf by the undersigned, thereunto duly authorized.
|
/s/
Seth M. Shaw
|
|
June
27, 2018
|
|
Seth
M. Shaw, Principal Executive Officer
|
|
Date
|
|
|
|
|
|
/s/
Kevin P. Lacey
|
|
June
27, 2018
|
|
Kevin
P. Lacey, Principal Accounting Officer
|
|
Date
|
Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the registrant and in the capacities and on the dates indicated.
|
/s/
Seth M. Shaw
|
|
June
27, 2018
|
|
Seth
M. Shaw, Director
|
|
Date
|
|
|
|
|
|
/s/
Dr. David L. Wolitzky
|
|
June
27, 2018
|
|
Dr.
David L. Wolitzky, Director
|
|
Date
|
|
|
|
|
|
/s/
Thomas J. Graham
|
|
June
27, 2018
|
|
Thomas
J. Graham, Director
|
|
Date
|
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
|
Issuance
Date: July 14, 2015
|
Principal
Amount: $96,000
|
GROUP
10 HOLDINGS, LLC
CONVERTIBLE
DEBENTURE
FOR
VALUE RECEIVED
, Tauriga Sciences, Inc., a Florida corporation (“
Borrower
”), hereby promises to pay to Group
10 Holdings LLC (“
Holder
”) or its registered assigns or successors in interest, the sum of Ninety Six Thousand
Dollars $96,000 (the “
Principal Amount
”), together with all accrued interest thereon, on the one (1) year anniversary
from the Issuance Date (the “
Maturity Date
”), if not sooner paid.
The
following terms and conditions shall apply to this Convertible Debenture (the “
Debenture
”):
ARTICLE
I
DEFINITIONS
1.1
Definitions
. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, the following terms
shall have the following meanings:
“
Bankruptcy
Event’’
means any of the following events: (a) Borrower or any subsidiary (as such term is defined in Rule l-02(w)
of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or
any subsidiary thereof; (b) there is commenced against Borrower or any subsidiary thereof any such case or proceeding that is
not dismissed within sixty (60) days after commencement; (c) Borrower or any subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is entered; (d) Borrower or any subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or
stayed within sixty (60) calendar days after such appointment; (e) Borrower or any subsidiary thereof makes a general assignment
for the benefit of creditors; (f) Borrower or any subsidiary thereof calls a meeting of its creditors with a view to arrange a
composition, adjustment or restructuring of its debts; or (g) Borrower or any subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action
for the purpose of effecting any of the foregoing.
“Business
Day”
means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States
or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action
to close.
“Change
of Control Transaction”
means the occurrence after the date hereof of any of (i) an acquisition after the date hereof
by an individual or legal entity or “group” (as described in Rule 13d- 5(b)(l) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of
in excess of 50% of the voting securities of Borrower (other than by means of conversion or exercise of this Debenture and the
securities issued together with this Debenture) or (ii) Borrower merges into or consolidates with any other Person, or any Person
merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately
prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction,
or (iii) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower
immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after
the transaction, or (iv) a replacement at one time or within a three (3) year period of more than one- half of the members of
Borrower’s board of directors which is not approved by a majority of those individuals who are members of the board of directors
on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination
to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof),
or (v) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the
events set forth in clauses (i) through (iv) above.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Issuance
Date
” means the date of the issuance of this Debenture, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence this Debenture.
“
Lowest
Closing Price
” means, for any date, the price determined by the first of the following clauses that applies: (a) the
lowest closing bid price of Borrower’s Common Stock during the twenty (20) Trading Days prior to such date or (b) if the
Common Stock is not then quoted on a Trading Market, the fair market value of a share of Common Stock as determined by an independent
appraiser selected in good faith by Holder and reasonably acceptable to Borrower.
“
Most
Recent Balance Sheet
” means a true and complete copy of the balance sheet of Borrower as of December 31, 2014 prepared
in accordance with GAAP and disclosed in Borrower’s Form 10-Q for the fiscal quarter ended on such date.
“
Permitted
Indebtedness
” means (a) the indebtedness evidenced by this Debenture, (b) lease obligations and purchase money indebtedness
of up to one hundred thousand dollars, in the aggregate, incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (c) indebtedness that (i) is expressly subordinate to this Debenture
pursuant to a written subordination agreement with Holder that is acceptable to Holder in its sole and absolute discretion and
(ii) matures at a date sixty (60) days later than the Maturity Date, (d) trade payables and other accounts payable of Borrower
incurred in the ordinary course of business in accordance with GAAP and not evidenced by a promissory note or other security,
and (e) indebtedness existing on the date hereof and set forth on the Most Recent Balance Sheet, provided that (x) the terms of
such indebtedness are not changed from the terms in effect as of the Most Recent Balance Sheet date, and (y) any such indebtedness
which is for borrowed money is not due and payable until after July 14, 2016.
“
Permitted
Lien
” means the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental
charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have
been established in accordance with GAAP; and (b) liens imposed by law which were incurred in the ordinary course of Borrower’s
business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other
similar liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business
of Borrower and its consolidated subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such lien.
“
Person
”
means a natural person, sole proprietorship, corporation, limited liability company, firm, partnership, association, joint venture,
trust, unincorporated organization, or other entity, whether acting in an individual, fiduciary, or other capacity.
“
Securities
Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Trading
Day
” means a day on which the principal Trading Market is open for business.
“
Trading
Market
” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange, the OTC Bulletin Board, or the OTC Markets QX Market, QB Market of Pink Market.
ARTICLE
II
INTEREST
& AMORTIZATION
2.1
Contract Rate
. Subject to Sections 7.1 and 8.8 hereof, interest payable on this Debenture shall accrue at a rate per annum
equal to twelve percent (12%) and shall be computed on the basis of a 365-day year.
2.2
Consideration
. In consideration for the Debenture, Holder shall pay to Borrower a purchase price equal to Eighty Thousand
Dollars $80,000 payable by wire transfer or other immediately available funds. Thus, as of the Issuance Date, there shall exist
a Sixteen Thousand Dollar $16,000 Original Issue Discount (the “
OID
”) from the Principal Amount. Interest shall
accrue and be payable on the full Principal Amount of the Debenture, inclusive of the OID, and payment of the full Principal Amount
shall be required regardless of time and manner of payment or prepayment by Borrower. Upon conversion, Holder shall receive credit
for the full Principal Amount converted.
2.3
Payments
. Payment of the aggregate Principal Amount, together with all accrued interest thereon shall be made on the Maturity
Date.
2.4
Prepayment Option
. Subject to the approval of Holder for prepayments after one hundred eighty (180) days, Borrower may
prepay in cash all or any portion of the Principal Amount of this Debenture and accrued interest thereon, with a premium, as set
forth below (each a “
Prepayment Premium
”), upon ten (10) Business Days prior written notice to Holder. Holder
shall have the right to convert all or any portion of the Principal Amount and accrued interest thereon in accordance with Article
III hereof during such ten (10) Business Day notice period. The amount of each Prepayment Premium shall be as follows: (a) one
hundred twenty-five percent (125%) of the prepayment amount if such prepayment is made at any time from the Issuance Date until
thirty (30) days thereafter; (b) one hundred thirty-five percent (135%) of the prepayment amount if such prepayment is made at
any time from thirty- one (31) days after the Issuance Date until one hundred seventy-nine (179) days after the Issuance Date;
and (c) one hundred forty-five percent (145%) of the prepayment amount if such prepayment is made at any time after one hundred
eighty (180) days from the Issuance Date.
2.5
Commitment Fee
. As consideration for Holder’s commitment to purchase this Debenture, Borrower shall issue to Holder
within fifteen (15) Business Days of the Issuance Date fifteen million (15,000,000) shares of Borrower’s common stock, par
value .00001 per share (“
Common Stock
”), as a commitment fee (the “
Commitment Fee Shares
”).
The Commitment Fee Shares have been earned in full upon Holder’s purchase of this Debenture; none of the Commitment Fee
Shares will be returned in the event that this Debenture is prepaid. Failure to issue and deliver the Commitment Fee Shares to
Holder within fifteen (15) Business Days shall constitute an Event of Default under this Debenture.
ARTICLE
III
CONVERSION
REPAYMENT
3.1.
Optional Conversion
. Subject to the terms of this Article III, Holder shall have the right, but not the obligation, at
any time after the Issuance Date and until the Maturity Date, or thereafter during an Event of Default, to convert all or any
portion of the outstanding Principal Amount, accrued interest and fees due and payable thereon into fully paid and non-assessable
shares of Common Stock of Borrower at the Conversion Price, as defined below (the “
Conversion Shares
”).
3.2.
Calculation of Conversion Price
. Subject to Section 3.2.1 and 4.6 hereof, the conversion price (the “
Conversion
Price
”) shall mean the
lesser
of (a) sixty percent (60%) multiplied by the Lowest Closing Price as of the date
a Notice of Conversion is given (which represents a discount rate of forty percent (40%)) or (b) one half penny ($0.005)
3.2.1
Conversion Price Adjustments
. Conversion Price shall be subject to the following Adjustments:
i.
If the market capitalization of the Borrower is less than Eight Hundred Thousand Dollars ($800,000) on the day immediately prior
to the date of the Notice of Conversion, then the Conversion Price shall be twenty-five percent (25%) multiplied by the Lowest
Closing Price as of the date a Notice of Conversion is given (which represents a discount rate of seventy-five percent (75%));
and
ii.
If the closing price of the Borrower’s Common Stock on the day immediately prior to the date of the Notice of Conversion
is less than $0.002 then the Conversion Price shall be twenty-five percent (25%) multiplied by the Lowest Closing Price as of
the date a Notice of Conversion is given (which represents a discount rate of seventy-five percent (75%)).
3.3.
Conversion Limitation
. Notwithstanding anything contained herein to the contrary, the number of Conversion Shares that
may be acquired by Holder upon conversion of this Debenture (or otherwise in respect hereof) shall be limited to the extent necessary
to ensure that, following such conversion (or other issuance), the total number of shares of Common Stock then beneficially owned
by Holder and its affiliates and any other Persons whose beneficial ownership of Common Stock would be aggregated with that of
Holder for purposes of Section 13(d) of the Exchange Act does not exceed 4.99% of the total number of issued and outstanding shares
of Common Stock, including, for such purpose, the shares of Common Stock issuable upon such conversion, but excluding the number
of shares of Common Stock issuable upon (a) conversion of the remaining, unconverted Principal Amount of this Debenture beneficially
owned by Holder or any of its affiliates and (b) exercise or conversion of the unexercised or unconverted portion of any other
securities of Borrower subject to a limitation on conversion or exercise analogous to the limitation contained herein (including,
without limitation, any other debenture or warrant) beneficially owned by Holder or any of its affiliates. For such purposes,
beneficial ownership shall be determined in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated
thereunder.
3.4.
Mechanics of Holder’s Conversion
. Subject to Section 3.3 hereof, this Debenture may be converted by Holder, in whole
or in part from time to time after the Issuance Date, by submitting to Borrower and/or the transfer agent of record a notice of
conversion (“
Notice of Conversion
”), the form of which is attached hereto as
Exhibit A
. Such Notice
of Conversion shall specify the Principal Amount of the Debenture to be converted and the date on which such conversion shall
be effected (the “
Conversion Date
”). Pursuant to the terms of the Notice of Conversion, Borrower shall issue
instructions to the transfer agent within two (2) Trading Days from the receipt of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the Conversion Shares to Holder by physical delivery or crediting the
account of Holder’s designated broker with the Depository Trust Corporation (“
DTC
”) through its Deposit
Withdrawal Agent Commission (“
DWAC
”) system within two (2) Trading Days after receipt by Borrower of the Notice
of Conversion (the “
Delivery Date
”). In the case of the exercise of the conversion rights set forth herein,
the conversion privilege shall be deemed to have been exercised, and the Conversion Shares issuable upon such conversion shall
be deemed to have been issued, upon the Delivery Date and Holder shall be treated for all purposes as the record holder of such
Common Stock, unless Holder provides Borrower with written instructions to the contrary. Conversions hereunder shall have the
effect of lowering the outstanding Principal Amount of this Debenture in an amount equal to the applicable conversion. Holder
and Borrower shall maintain records showing the Principal Amount(s) converted and the Conversion Date(s). In the event of any
dispute or discrepancy, the records of Holder shall be controlling and determinative in the absence of manifest error.
3.5.
Conversion Mechanics
. The number of shares of Common Stock to be issued upon each conversion of this Debenture shall be
determined by dividing that portion of the Principal Amount and interest and fees to be converted, if any, by the then applicable
Conversion Price.
3.6
Fractional Shares
. No fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a
share which Holder would otherwise be entitled to upon such conversion, Borrower shall round up to the next whole share.
3.7
Late Delivery of Conversion Shares
. Borrower understands that a delay in the delivery of Conversion Shares in the form
required pursuant to this Article III beyond the Delivery Date could result in economic loss to Holder. As compensation to Holder
for such loss, Borrower agrees to pay late fees to Holder for late issuance of such shares in the form required pursuant to this
Article III upon conversion of the Debenture, in the amount equal to one thousand dollars ($1,000) per Business Day after the
Delivery Date. Borrower shall pay any fees incurred under this Section in immediately available funds upon demand and such fees
shall also be eligible to be converted into Common Stock pursuant to this Article III.
3.8
Authorized and Reserved Shares
. Borrower represents and warrants and covenants and agrees that upon issuance, the Conversion
Shares will be duly and validly issued, fully issued and non- assessable. Borrower agrees that its issuance of this Debenture
shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for Conversion Shares in accordance with the terms and conditions of this Debenture. At all
times during which this Debenture is outstanding, Borrower shall reserve and keep available from its authorized and unissued shares
of Common Stock (the “
Share Reserve
”) for the sole purpose of issuance upon conversion of this Debenture and
payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual or contingent
purchase rights of Persons other than Holder, not less than five times the aggregate number of shares of the Common Stock that
shall be issuable (taking account the adjustments of Article IV) upon the conversion of the outstanding Principal Amount of this
Debenture and payment of interest hereunder. Initially, the Share Reserve shall be equal to two hundred million (200,000,000),
and shall be adjusted by the transfer agent from time to time to comply with the required reserve. The Holder may request bi-monthly
increases to reserve such amounts based on a conversion price equal to the Lowest Closing Price, as defined in the Debenture,
as of such date, by written instructions from the Holder to the Transfer Agent to comply with the required reserve. Borrower agrees
that it will take all such reasonable actions as may be necessary to assure that the Conversion Shares may be issued as provided
herein without violation of any applicable law or regulation, or of any requirements of the applicable Trading Market upon which
the Common Stock may be listed. Borrower agrees to provide Holder with confirmation evidencing the execution of such share reservation
within fifteen (15) Business Days from the Issuance Date.
3.9
Issuance of New Debenture
. Upon any partial conversion of this Debenture, a new Debenture containing the same date and
provisions of this Debenture shall, at the request of Holder, be issued by Borrower to Holder for the principal balance of this
Debenture and accrued interest which shall not have been converted or paid. Subject to the provisions of Article VI, Borrower
will pay no costs, fees or any other consideration to Holder for the production and issuance of a new Debenture.
3.10
Par Value; Further Assurances
.
(a)
Borrower covenants that during the period that the Principal Amount of this Debenture and any accrued interest and fees thereon
remain outstanding, it will ensure that the par value of any Conversion Shares shall not exceed the amount payable therefor upon
such exercise immediately prior to such exercise. Borrower further covenants that it shall take all appropriate actions, including,
without limitation, amending its articles or certificate of incorporation and any other voluntary action, such as calling a meeting
of stockholders to approve any such amendment, to ensure that the amount payable for any Conversion Shares shall at all times
exceed the par value thereof by at least four hundred percent (400%).
(b)
Except and to the extent as waived or consented to by Holder, Borrower shall not by any action, including, without limitation,
amending its articles or certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Debenture, but will at all times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Debenture against
impairment. Without limiting the generality of the foregoing, Borrower will (a) not increase the par value of any Conversion Shares
above the amount payable therefor upon such exercise immediately prior to such exercise, (b) take all such action as may be necessary
or appropriate in order that Borrower may validly and legally issue fully paid and nonassessable Conversion Shares upon the exercise
of this Debenture and (c) use its commercially best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable Borrower to perform its obligations under this
Debenture.
3.11
Transfer Taxes
. The issuance of certificates for Conversion Shares shall be made without charge to Holder for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that Borrower shall
not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of Holder and Borrower shall not be required to issue or deliver such certificates
unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall
have established to the satisfaction of Borrower that such tax has been paid.
3.12
Rule 144 Issuer’s Representation Letter
. In the event that Holder’s brokers dealer requires a Rule 144 Issuer’s
Representation Letter (the “
144 Letter
”), Holder will submit to Borrower the 144 Letter along with a corresponding
Notice of Conversion upon which Borrower will have forty-eight (48) hours to execute and return the 144 Letter.
ARTICLE
IV
CERTAIN
ADJUSTMENTS
4.1
Stock Dividends and Stock Splits
. If Borrower, at any time while this Debenture is outstanding: (a) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of,
or payment of interest on, this Debenture); (b) subdivides outstanding shares of Common Stock into a larger number of shares;
or (c) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then
the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of Borrower) outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
4.2
Subsequent Rights Offerings
. If Borrower, at any time within six (6) months of the Issuance Date, shall issue rights, options
or warrants to all holders of Common Stock (and not to Holder) entitling them to subscribe for or purchase shares of Common Stock
at a price per share that is lower than the Lowest Closing Price on the record date referenced below, then the Conversion Price
shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering price of the total number of shares issued (assuming delivery
to Borrower in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such Lowest
Closing Price. Such adjustment shall be made whenever such rights or warrants are issued, other than to officers and directors
under equity incentive plans approved by the board of directors, and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights, options or warrants.
4.3
Pro Rata Distributions
. If Borrower, at any time while this Debenture is outstanding, distributes to all holders of Common
Stock (and not to Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 4.1), then in each such
case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be
the Lowest Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Lowest Closing
Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one (1) outstanding share of the Common Stock as determined by the board of directors of Borrower
in good faith. In either case the adjustments shall be described in a statement delivered to Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights applicable to one (1) share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned
above.
4.4
Fundamental Transaction
. If, at any time while this Debenture is outstanding, (a) Borrower effects any merger or consolidation
of Borrower with or into another Person, (b) Borrower effects any sale of all or substantially all of its assets in one transaction
or a series of related transactions, (c) any tender offer or exchange offer (whether by Borrower or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property,
or (d) Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “
Fundamental
Transaction
”), then, upon any subsequent conversion of this Debenture, Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, holder of one (1) share of Common Stock
(the “
Alternate Consideration
”). For purposes of any such conversion, the determination of the Conversion Price
shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor
to Borrower or surviving entity in such Fundamental Transaction shall issue to Holder a new Debenture consistent with the foregoing
provisions and evidencing Holder’s right to convert such Debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this Section 4.4 and insuring that this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
4.5
Calculations
. All calculations under this Article III shall be made to four decimal places or the nearest 1/100th of a
share, as the case may be. For purposes of this Article III, the number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued
and outstanding.
4.6
Notice to Holder
.
a)
Adjustment to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to any provision of this Article IV,
Borrower shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.
b)
Notice to Allow Conversion by Holder
. If (i) Borrower shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (ii) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(iii) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (iv) the approval of any stockholders of Borrower shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale
or transfer of all or substantially all of the assets of Borrower, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (v) Borrower shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to Holder at its last address as it shall appear
upon Borrower’s books and records, at least 20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to be determined or (B) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities,
cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided
that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holder is entitled to convert this Debenture during the 20-day period
commencing on the date of such notice through the effective date of the event triggering such notice.
4.7
Most Favored Nations Status
. So long as this Debenture is outstanding, upon any issuance by Borrower or any of its subsidiaries
of any security (in an amount under one million dollars ($1,000,000)) with any term more favorable to the holder of such security
or with a term in favor of the holder of such security that was not similarly provided to Holder in this Debenture, then Borrower
shall notify Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of
the transaction documents with Holder. Such more favorable terms include, but are not limited to, terms addressing conversion
discounts, conversion look-back periods, interest rates, original issue discounts, stock sale price, private placement price per
share and warrant coverage.
4.8
Holder’s Adjustments
. Upon the occurrence of either of the following events, Holder may provide the transfer agent
with written instructions to increase the Share Reserve in accordance therewith: (a) closing price of Borrower’s Common
Stock is less than $0.002 for three (3) consecutive Trading Days; or (b) Borrower’s issued and outstanding shares of Common
Stock is greater than seventy of their authorized shares. Then the Share Reserve shall increase to the number of shares of Common
Stock equal to the five (5) times the value of the outstanding principal amount plus accrued interest thereon as of such date
divided by the Conversion Price on such date.
ARTICLE
V
NEGATIVE
COVENANTS
As
long as any portion of this Debenture remains outstanding, unless Holder shall have otherwise given prior written consent, Borrower
shall not, and shall not permit any of its subsidiaries (whether or not a subsidiary on the Issuance Date) to, directly or indirectly:
5.1
other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;
5.2
other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens or security interests of any kind,
on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits
therefrom;
5.3
issue any shares of Common Stock in exchange for satisfaction or accord, in whole or in part, of any outstanding accounts payable
obligations of Borrower, where such shares would be freely tradable (without restrictions, manner of sale obligations or reporting
obligations) by the recipient thereof (or any transferee thereof) prior to the date which is six (6) months following the date
of issuance thereof, whether pursuant to Section 3(a)(10) of the Securities Act or otherwise;
5.4
amend its charter documents, including, without limitation, its articles or certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of Holder;
5.5
repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness for borrowed money (except for this Debenture
in accordance with the terms hereof and except for the Permitted Indebtedness described under clauses (a), (b) and (d) of the
definition thereof in accordance with the terms of such indebtedness as in effect on the date hereof), other than regularly scheduled
principal and interest payments as such terms are in effect as of the Issuance Date;
5.6
pay cash dividends or distributions on any equity securities of Borrower;
5.7
combine (including by way of a reverse stock split) outstanding shares of Common Stock into a smaller number of shares;
5.8
enter into any transaction with any affiliate of Borrower which would be required to be disclosed in any public filing with the
Securities and Exchange Commission (the “
SEC
”), unless such transaction is made on an arm’s-length basis
and expressly approved by a majority of the disinterested directors of Borrower (even if less than a quorum otherwise required
for board approval); or
5.9
enter into any agreement with respect to any of the foregoing.
ARTICLE
VI
EVENTS
OF DEFAULT
The
occurrence of any of the following events, while this Debenture is outstanding, shall be an “
Event of Default;
”
provided that any Event of Default may be cured within one (1) Business Day except as otherwise provided herein:
6.1
Failure to Pay Principal, Interest or Other Fees
. Borrower fails to pay the Principal Amount, interest or other fees hereon
as and when the same shall become due and payable and such failure shall continue for a period of one (1) Business Day following
the date upon which any such payment was due.
6.2
Breach of Covenant
. Borrower breaches any covenant or other term or condition of this Debenture, including, but not limited,
to the negative covenants provided in Article V, in any material respect and such breach, if subject to cure, continues for a
period of one (1) Business Day after the occurrence thereof.
6.3
Breach of Representations and Warranties
. Any representation or warranty of Borrower made herein or in any other report,
financial statement or certificate made or delivered to Holder shall be false or misleading in any material respect as of the
date when made or deemed made.
6.4
SEC Filings
. At any point while this Debenture is outstanding, Borrower is not current with its reporting responsibilities
under Section 13 of the Exchange Act. Furthermore, Borrower fails to timely file, when due, any SEC report, including any required
XBRL file along with such report (
e.g.
, Forms 8-K, 10-Q or 10-K, or Schedules 14A, 14C or 14(f)), or, if the filing date
of such report is properly extended pursuant to SEC Rule 12b-25, when the date of any such filing extension lapses, or any post-
effective amendment to any SEC Registration Statement.
6.5
Stop Trade
. An SEC stop trade order or trading suspension of the Common Stock on the applicable Trading Market shall be
in effect for five (5) consecutive Trading Days or five (5) Trading Days during a period of ten (10) consecutive Trading Days,
provided that Borrower shall not have been able to cure such trading suspension within thirty (30) Business Days of the notice
thereof or list the Common Stock on another Trading Market within sixty (60) Business Days of such notice.
6.6
SEC Reporting Status Matters
.
(a)
Borrower indicates by check mark on the cover page of an SEC report filing that it has not (i) 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 (ii) has been subject to such filing requirements for the past ninety (90) days.
(b)
Borrower indicates by check mark on the cover page of an SEC report filing that it has not 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 during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such
files).
(c)
Borrower indicates by check mark on the cover page of an SEC report filing that it is a shell company (as defined in Rule 12b-2
of the Exchange Act); or
(d)
Borrower files a Form 15 with the SEC to deregister its Common Stock. In such an event, Borrower shall file current reports with
attorney opinions on not less than a quarterly basis on www.otcmarkets.com until such time as Borrower re-registers its Common
Stock with the SEC.
6.7
Change of Control
. Borrower shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree
to sell or dispose of all or substantially all of its assets in one transaction or a series of related transactions (whether or
not such sale would constitute a Change of Control Transaction).
6.8
Receiver or Trustee
. Each of Borrower or its subsidiaries, if any, shall make an assignment for the benefit of creditors,
or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business;
or such a receiver or trustee shall otherwise be appointed; or shall become insolvent or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.
6.9
Judgments
. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its subsidiaries
or any of their respective property or other assets for more than one hundred thousand dollars ($100,000) in the aggregate for
Borrower, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days.
6.10
Bankruptcy
. Borrower or any of its subsidiaries shall be subject to a Bankruptcy Event.
6.11
DTC Eligibility
. Borrower shall lose its status as “DTC Eligible” or Borrower’s stockholders shall lose
the ability to deposit (either electronically or by physical certificates, or otherwise) shares into the DTC System through a
“deposit chill” or otherwise.
6.12
Reservation of Shares
. Borrower shall fail timely to reserve shares of Common Stock from its authorized and unissued shares
pursuant to Section 3.8.
6.13
Commitment Fee Shares
. Borrower shall fail to issue and deliver to Holder the Commitment Fee Shares prior to the tenth
Trading Day after a Conversion Date pursuant to Sections 2.5 and 3.4 or Borrower shall provide at any time notice to Holder, including
by way of public announcement, of Borrower’s intention to not honor requests for conversions of this Debenture in accordance
with the terms hereof.
ARTICLE
VII
DEFAULT RELATED PROVISIONS AND OTHER PRIVILEGES
7.1
Default Interest Rate
. If any Event of Default occurs, the outstanding Principal Amount of this Debenture, plus accrued
but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at Holder’s election, immediately due and payable in cash in the sum of (a) one hundred eighteen percent (118%) of the outstanding
Principal Amount of this Debenture plus one hundred percent (100%) of accrued and unpaid interest thereon and (b) all other amounts,
costs, expenses and liquidated damages due in respect of this Debenture (“
Mandatory Default Amount
”). After
the occurrence of any Event of Default, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser
of eighteen percent (18%) per annum or the maximum rate permitted under applicable law, effective as of the Issuance Date of this
Debenture. Upon the payment in full of the Mandatory Default Amount, Holder shall promptly surrender this Debenture to or as directed
by Borrower. In connection with such acceleration described herein, Holder need not provide, and Borrower hereby waives, any presentment,
demand, protest or other notice of any kind, and Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may
be rescinded and annulled by Holder at any time prior to payment hereunder and Holder shall have all rights as a holder of his
Debenture until such time, if any, as Holder receives full payment pursuant to this Section 7.1. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon.
7.2
Default Penalty Payment
. Following the occurrence and during the continuance of an Event of Default, Borrower agrees to
pay to Holder in the amount equal to one thousand dollars ($1,000) per Business Day commencing the Business Day following the
date of the Event of Default. Borrower shall pay any fees incurred under this Section in immediately available funds upon demand
and such fees shall also be eligible to be converted into Conversion Shares as set forth in Article III. Such conversion privileges
shall remain in full force and effect immediately from the date hereof and until this Debenture is paid in full.
ARTICLE
VIII
MISCELLANEOUS
8.1
Piggyback Registration Rights
. Borrower shall include on the next registration statement Borrower files with the SEC (or
on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this
Debenture. Failure to do so will result in liquidated damages of twenty-five percent (25%) of the outstanding Principal Amount
of this Debenture, but not less than twenty-five thousand dollars ($25,000), being immediately due and payable to Holder at its
election in the form of cash payment or addition to the balance of this Debenture. Notwithstanding the foregoing, in the event
a registration statement is filed with respect to an underwritten offering or a selling stockholder registration statement relating
solely to holders of Borrower’s Common Stock who paid cash for such Common Stock in a sale placed by an independent placement
agent, the number of shares of Common Stock owned by Holder to be included in any such registration statement may be limited if
in the opinion of the underwriter or placement agent, the sale of such shares by Holder would adversely impact the sale of shares
by the underwriter or selling stockholders included therein.
8.2
Failure or Indulgence Not Waiver
. No failure or delay on the part of Holder hereof in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
8.3
Notices
. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by FedEx or other reputable express courier service with
charges prepaid, (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or (v) sent via
Email whereby a return Email confirming receipt has been delivered. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (y) upon hand delivery or delivery by facsimile, with accurate confirmation generated
by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than
on a Business Day during normal business hours where such notice is to be received) or (z) on the next Business Day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If
to Borrower:
Tauriga
Sciences, Inc.
Seth
Shaw- CEO
39
Old Ridgebury
Road
Danbury, CT 06180
If
to Holder:
Group
10 Holdings LLC
Attn:
Adam Wasserman
11
Island Ave. #1108
Miami
Beach, FL 33139
EIN
# 32-0409845
adam@group10llc.com
No
change in any of such addresses shall be effective insofar as notices under this Section 8.3 are concerned unless such changed
address is located in the United States of America and notice of such change shall have been given to such other party hereto
as provided in this Section 8.3.
8.4
Amendment Provision
. Any term of this Debenture may be amended only with the written consent of Holder and Borrower. .The
term “
Debenture
” and all reference thereto, as used throughout this instrument, shall mean this instrument
as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument
as it may be amended or supplemented.
8.5
Assignability
. This Debenture shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit
of Holder and its successors and assigns, and may not be assigned by Borrower without the prior written consent of Holder, which
consent may not be unreasonably withheld.
8.6
Prevailing Party and Costs
. In the event any attorney is employed by any party with regard to any legal or equitable action,
arbitration or other proceeding brought by such party for the enforcement of this Debenture or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of this Debenture, the prevailing party in such
proceeding will be entitled to recover from the other party reasonable attorneys’ fees and other costs and expenses incurred,
in addition to any other relief to which the prevailing party may be entitled.
8.7
Governing Law; Consent to Jurisdiction; Waiver of Jury Trial
. This Debenture shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to principles of conflicts of law. HOLDER AND BORROWER WAIVE
ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS DEBENTURE OR ANY TRANSACTION CONTEMPLATED
HEREIN, INCLUDING CLAIMS BASED ON CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER COMMON LAW OR STATUTORY BASES. Each party hereby
submits to the exclusive jurisdiction of the state and federal courts located in the County of Miami-Dade, State of Florida. If
the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating
to this Debenture or any of the transactions contemplated herein will be finally settled by binding arbitration in Miami-Dade
County, Florida in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules. The arbitrator shall apply New York law to the resolution of any dispute,
without reference to rules of conflicts of law or rules of statutory arbitration. Judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph.
The expenses of the arbitration, including the arbitrator’s fees and expert witness fees, incurred by the parties to the
arbitration, may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties
in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or
a share) of such expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by
the arbitrator.
8.8
Maximum Payments. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or other
charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid or other
charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited against amounts
owed by Borrower to Holder and thus refunded to Borrower.
8.9
Construction. Borrower acknowledges that its legal counsel participated in the preparation of this Debenture and, therefore, stipulates
that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in the interpretation
of this Debenture to favor any party against the other.
8.10
Absolute Obligation. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation
of Borrower, which is absolute and unconditional, to pay the Principal Amount of, interest and liquidated damages (if any) on,
this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation
of Borrower.
8.11
Lost or Mutilated Debenture. If this Debenture shall be mutilated, lost, stolen or destroyed, Borrower shall execute and deliver,
in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for a lost,
stolen or destroyed Debenture, a new Debenture for the Principal Amount of this Debenture so mutilated, lost, stolen or destroyed.
8.12
Opinion of Counsel. An opinion of the following counsels shall be deemed acceptable to Borrower: Fox Rothschild LLP, Greenberg
Traurig LLP, Bauman & Associates Law Firm, Law firm of Richardson & Patel LLP and Law Office of Clifford J. Hunt.
[Signature
page follows.]
IN
WITNESS WHEREOF
, Borrower has caused this Convertible Debenture to be signed in its name effective as of the date first above
indicated.
BORROWER:
Tauriga
Sciences, Inc.
|
By:
|
Seth
M. Shaw
|
|
|
Title:
|
CEO
|
|
HOLDER:
Group
10 Holdings, LLC
|
By:
|
|
|
|
Name:
|
Adam
Wasserman
|
|
|
Title:
|
Managing
Member
|
|
NEITHER
THIS SECURITY NOR THE SECURITIES INTO WHICH THIS SECURITY IS CONVERTIBLE HAVE BEEN REGISTERED WITH THE SECURITIES AND EXCHANGE
COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE IN RELIANCE UPON AN EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT
OF 1933, AS AMENDED (THE “SECURITIES ACT”), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER THE SECURITIES ACT OR PURSUANT TO AN AVAILABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO,
THE REGISTRATION REQUIREMENTS OF THE SECURITIES ACT AND IN ACCORDANCE WITH APPLICABLE STATE SECURITIES LAWS. THIS SECURITY AND
THE SECURITIES ISSUABLE UPON CONVERSION OF THIS SECURITY MAY BE PLEDGED IN CONNECTION WITH A BONA FIDE MARGIN ACCOUNT OR OTHER
LOAN SECURED BY SUCH SECURITIES.
GROUP
10 HOLDINGS, LLC
CONVERTIBLE
DEBENTURE
|
Issuance
Date: November 7, 2016
|
Principal
Amount: $45,000
|
FOR
VALUE RECEIVED
, Tauriga Sciences, Inc., a Florida corporation (“
Borrower
”), hereby promises to pay to Group
10 Holdings LLC (“
Holder
”) or its registered assigns or successors in interest, the sum of Forty Five Thousand
Dollars $45,000 (the “
Principal Amount
”), together with all accrued interest thereon, on the one (1) year anniversary
from the Issuance Date (the “
Maturity Date
”), if not sooner paid.
The
following terms and conditions shall apply to this Convertible Debenture (the “
Debenture
”):
ARTICLE
I
DEFINITIONS
1.1
Definitions
. For the purposes hereof, in addition to the terms defined elsewhere in this Debenture, the following terms
shall have the following meanings:
“
Bankruptcy
Event
’’ means any of the following events: (a) Borrower or any subsidiary (as such term is defined in Rule l-02(w)
of Regulation S-X) thereof commences a case or other proceeding under any bankruptcy, reorganization, arrangement, adjustment
of debt, relief of debtors, dissolution, insolvency or liquidation or similar law of any jurisdiction relating to Borrower or
any subsidiary thereof; (b) there is commenced against Borrower or any subsidiary thereof any such case or proceeding that is
not dismissed within sixty (60) days after commencement; (c) Borrower or any subsidiary thereof is adjudicated insolvent or bankrupt
or any order of relief or other order approving any such case or proceeding is entered; (d) Borrower or any subsidiary thereof
suffers any appointment of any custodian or the like for it or any substantial part of its property that is not discharged or
stayed within sixty (60) calendar days after such appointment; (e) Borrower or any subsidiary thereof makes a general assignment
for the benefit of creditors; (f) Borrower or any subsidiary thereof calls a meeting of its creditors with a view to arrange a
composition, adjustment or restructuring of its debts; or (g) Borrower or any subsidiary thereof, by any act or failure to act,
expressly indicates its consent to, approval of or acquiescence in any of the foregoing or takes any corporate or other action
for the purpose of effecting any of the foregoing.
“
Business
Day
” means any day except any Saturday, any Sunday, any day which shall be a federal legal holiday in the United States
or any day on which banking institutions in the State of New York are authorized or required by law or other governmental action
to close.
“
Change
of Control Transaction
” means the occurrence after the date hereof of any of (i) an acquisition after the date hereof
by an individual or legal entity or “group” (as described in Rule 13d- 5(b)(l) promulgated under the Exchange Act)
of effective control (whether through legal or beneficial ownership of capital stock of Borrower, by contract or otherwise) of
in excess of 50% of the voting securities of Borrower (other than by means of conversion or exercise of this Debenture and the
securities issued together with this Debenture) or (ii) Borrower merges into or consolidates with any other Person, or any Person
merges into or consolidates with Borrower and, after giving effect to such transaction, the stockholders of Borrower immediately
prior to such transaction own less than 50% of the aggregate voting power of Borrower or the successor entity of such transaction,
or (iii) Borrower sells or transfers all or substantially all of its assets to another Person and the stockholders of Borrower
immediately prior to such transaction own less than 50% of the aggregate voting power of the acquiring entity immediately after
the transaction, or (iv) a replacement at one time or within a three (3) year period of more than one- half of the members of
Borrower’s board of directors which is not approved by a majority of those individuals who are members of the board of directors
on the date hereof (or by those individuals who are serving as members of the board of directors on any date whose nomination
to the board of directors was approved by a majority of the members of the board of directors who are members on the date hereof),
or (v) the execution by Borrower of an agreement to which Borrower is a party or by which it is bound, providing for any of the
events set forth in clauses (i) through (iv) above.
“
Exchange
Act
” means the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder.
“
Issuance
Date
” means the date of the issuance of this Debenture, regardless of any transfers of any Debenture and regardless
of the number of instruments which may be issued to evidence this Debenture.
“
Lowest
Closing Price
” means, for any date, the price determined by the first of the following clauses that applies: (a) the
lowest closing bid price of Borrower’s Common Stock during the thirty five (35) Trading Days prior to such date or (b) if
the Common Stock is not then quoted on a Trading Market, the fair market value of a share of Common Stock as determined by an
independent appraiser selected in good faith by Holder and reasonably acceptable to Borrower.
“
Most
Recent Balance Sheet
” means a true and complete copy of the balance sheet of Borrower as of March 31, 2016 prepared
in accordance with GAAP and disclosed in Borrower’s Form 10-Q for the fiscal quarter ended on such date.
“
Permitted
Indebtedness
” means (a) the indebtedness evidenced by this Debenture, (b) lease obligations and purchase money indebtedness
of up to one hundred thousand dollars, in the aggregate, incurred in connection with the acquisition of capital assets and lease
obligations with respect to newly acquired or leased assets, (c) indebtedness that (i) is expressly subordinate to this Debenture
pursuant to a written subordination agreement with Holder that is acceptable to Holder in its sole and absolute discretion and
(ii) matures at a date sixty (60) days later than the Maturity Date, (d) trade payables and other accounts payable of Borrower
incurred in the ordinary course of business in accordance with GAAP and not evidenced by a promissory note or other security,
and (e) indebtedness existing on the date hereof and set forth on the Most Recent Balance Sheet, provided that (x) the terms of
such indebtedness are not changed from the terms in effect as of the Most Recent Balance Sheet date, and (y) any such indebtedness
which is for borrowed money is not due and payable until after August 3, 2017.
“
Permitted
Lien
” means the individual and collective reference to the following: (a) liens for taxes, assessments and other governmental
charges or levies not yet due or liens for taxes, assessments and other governmental charges or levies being contested in good
faith and by appropriate proceedings for which adequate reserves (in the good faith judgment of the management of Borrower) have
been established in accordance with GAAP; and (b) liens imposed by law which were incurred in the ordinary course of Borrower’s
business, such as carriers’, warehousemen’s and mechanics’ liens, statutory landlords’ liens, and other
similar liens arising in the ordinary course of Borrower’s business, and which (x) do not individually or in the aggregate
materially detract from the value of such property or assets or materially impair the use thereof in the operation of the business
of Borrower and its consolidated subsidiaries or (y) are being contested in good faith by appropriate proceedings, which proceedings
have the effect of preventing for the foreseeable future the forfeiture or sale of the property or asset subject to such lien.
“
Person
”
means a natural person, sole proprietorship, corporation, limited liability company, firm, partnership, association, joint venture,
trust, unincorporated organization, or other entity, whether acting in an individual, fiduciary, or other capacity.
“
Securities
Act
” means the Securities Act of 1933, as amended, and the rules and regulations promulgated thereunder.
“
Trading
Day
” means a day on which the principal Trading Market is open for business.
“
Trading
Market
” means the following markets or exchanges on which the Common Stock is listed or quoted for trading on the date
in question: the American Stock Exchange, the Nasdaq Capital Market, the Nasdaq Global Market, the Nasdaq Global Select Market,
the New York Stock Exchange, the OTC Bulletin Board, or the OTC Markets QX Market, QB Market of Pink Market.
ARTICLE
II
INTEREST
& AMORTIZATION
2.1
Contract Rate
. Subject to Sections 7.1 and 8.8 hereof, interest payable on this Debenture shall accrue at a rate per annum
equal to twelve percent (12%) and shall be computed on the basis of a 365-day year.
2.2
Consideration
. In consideration for the Debenture, Holder shall pay to Borrower a purchase price equal to Thirty Eight
Thousand Dollars ($38,000) payable by wire transfer or other immediately available funds. Thus, as of the Issuance Date, there
shall exist a Seven Thousand Dollar ($7,000) Original Issue Discount (the “
OID
”) from the Principal Amount.
Interest shall accrue and be payable on the full Principal Amount of the Debenture, inclusive of the OID, and payment of the full
Principal Amount shall be required regardless of time and manner of payment or prepayment by Borrower. Upon conversion, Holder
shall receive credit for the full Principal Amount converted.
2.3
Payments
. Payment of the aggregate Principal Amount, together with all accrued interest thereon shall be made on the Maturity
Date.
2.4
Prepayment Option
. Subject to the approval of Holder for prepayments after one hundred eighty (180) days, Borrower may
prepay in cash all or any portion of the Principal Amount of this Debenture and accrued interest thereon, with a premium, as set
forth below (each a “
Prepayment Premium
”), upon ten (10) Business Days prior written notice to Holder. Holder
shall have the right to convert all or any portion of the Principal Amount and accrued interest thereon in accordance with Article
III hereof during such ten (10) Business Day notice period. The amount of each Prepayment Premium shall be as follows: (a) one
hundred forty-five percent (145%) of the prepayment amount if such prepayment is made at any time from the Issuance Date until
the Maturity Date.
2.5
Commitment Fee
. As consideration for Holder’s commitment to purchase this Debenture, Borrower shall issue to Holder
within fifteen (15) Business Days of the Issuance Date eight million (8,000,000) shares of Borrower’s common stock, par
value .00001 per share (“
Common Stock
”), as a commitment fee (the “
Commitment Fee Shares
”).
The Commitment Fee Shares have been earned in full upon Holder’s purchase of this Debenture; none of the Commitment Fee
Shares will be returned in the event that this Debenture is prepaid. Failure to issue and deliver the Commitment Fee Shares to
Holder within fifteen (15) Business Days shall constitute an Event of Default under this Debenture.
ARTICLE
III
CONVERSION
REPAYMENT
3.1.
Optional Conversion
. Subject to the terms of this Article III, Holder shall have the right, but not the obligation, at
any time after the Issuance Date and until the Maturity Date, or thereafter during an Event of Default, to convert all or any
portion of the outstanding Principal Amount, accrued interest and fees due and payable thereon into fully paid and non-assessable
shares of Common Stock of Borrower at the Conversion Price, as defined below (the “
Conversion Shares
”).
3.2.
Calculation of Conversion Price
. Subject to Section 3.2.1 and 4.6 hereof, the conversion price (the “
Conversion
Price
”) shall mean the
lesser
of (a) sixty percent (60%) multiplied by the Lowest Closing Price as of the date
a Notice of Conversion is given (which represents a discount rate of forty percent (40%)) or (b) three-tenths of a penny ($0.003)
3.2.1
Conversion Price Adjustments
. Conversion Price shall be subject to the following adjustments:
i.
If the market capitalization of the Borrower is less than Two Million Dollars ($2,000,000) on the day immediately prior to the
date of the Notice of Conversion, then the Conversion Price shall be twenty-five percent (25%) multiplied by the Lowest Closing
Price as of the date a Notice of Conversion is given (which represents a discount rate of seventy-five percent (75%)); and
ii.
If the closing price of the Borrower’s Common Stock on the day immediately prior to the date of the Notice of Conversion
is less than two-tenths of a penny ($0.002) then the Conversion Price shall be twenty-five percent (25%) multiplied by the Lowest
Closing Price as of the date a Notice of Conversion is given (which represents a discount rate of seventy-five percent (75%)).
3.3.
Conversion
Limitation
. Notwithstanding anything contained herein to the contrary, the number of Conversion Shares that may be
acquired by Holder upon conversion of this Debenture (or otherwise in respect hereof) shall be limited to the extent
necessary to ensure that, following such conversion (or other issuance), the total number of shares of Common Stock then
beneficially owned by Holder and its affiliates and any other Persons whose beneficial ownership of Common Stock would be
aggregated with that of Holder for purposes of Section 13(d) of the Exchange Act does not exceed 4.99% of the total number of
issued and outstanding shares of Common Stock, including, for such purpose, the shares of Common Stock issuable upon such
conversion, but excluding the number of shares of Common Stock issuable upon (a) conversion of the remaining,
unconverted Principal Amount of this Debenture beneficially owned by Holder or any of its affiliates and (b) exercise or
conversion of the unexercised or unconverted portion of any other securities of Borrower subject to a limitation on
conversion or exercise analogous to the limitation contained herein (including, without limitation, any other debenture or
warrant) beneficially owned by Holder or any of its affiliates. For such purposes, beneficial ownership shall be determined
in accordance with Section 13(d) of the Exchange Act and the rules and regulations promulgated thereunder.
3.4.
Mechanics of Holder’s Conversion
. Subject to Section 3.3 hereof, this Debenture may be converted by Holder, in whole
or in part from time to time after the Issuance Date, by submitting to Borrower and/or the transfer agent of record a notice of
conversion (“
Notice of Conversion
”), the form of which is attached hereto as
Exhibit A
. Such Notice
of Conversion shall specify the Principal Amount of the Debenture to be converted and the date on which such conversion shall
be effected (the “
Conversion Date
”). Pursuant to the terms of the Notice of Conversion, Borrower shall issue
instructions to the transfer agent within two (2) Trading Days from the receipt of the Notice of Conversion and shall cause the
transfer agent to transmit the certificates representing the Conversion Shares to Holder by physical delivery or crediting the
account of Holder’s designated broker with the Depository Trust Corporation (“
DTC
”) through its Deposit
Withdrawal Agent Commission (“
DWAC
”) system within two (2) Trading Days after receipt by Borrower of the Notice
of Conversion (the “
Delivery Date
”). In the case of the exercise of the conversion rights set forth herein,
the conversion privilege shall be deemed to have been exercised, and the Conversion Shares issuable upon such conversion shall
be deemed to have been issued, upon the Delivery Date and Holder shall be treated for all purposes as the record holder of such
Common Stock, unless Holder provides Borrower with written instructions to the contrary. Conversions hereunder shall have the
effect of lowering the outstanding Principal Amount of this Debenture in an amount equal to the applicable conversion. Holder
and Borrower shall maintain records showing the Principal Amount(s) converted and the Conversion Date(s). In the event of any
dispute or discrepancy, the records of Holder shall be controlling and determinative in the absence of manifest error.
3.5.
Conversion Mechanics
. The number of shares of Common Stock to be issued upon each conversion of this Debenture shall be
determined by dividing that portion of the Principal Amount and interest and fees to be converted, if any, by the then applicable
Conversion Price.
3.6
Fractional Shares
. No fractional shares shall be issued upon the conversion of this Debenture. As to any fraction of a
share which Holder would otherwise be entitled to upon such conversion, Borrower shall round up to the next whole share.
3.7
Late Delivery of Conversion Shares
. Borrower understands that a delay in the delivery of Conversion Shares in the form
required pursuant to this Article III beyond the Delivery Date could result in economic loss to Holder. As compensation to Holder
for such loss, Borrower agrees to pay late fees to Holder for late issuance of such shares in the form required pursuant to this
Article III upon conversion of the Debenture, in the amount equal to one thousand dollars ($1,000) per Business Day after the
Delivery Date. Borrower shall pay any fees incurred under this Section in immediately available funds upon demand and such fees
shall also be eligible to be converted into Common Stock pursuant to this Article III.
3.8
Authorized and Reserved Shares
. Borrower represents and warrants and covenants and agrees that upon issuance, the Conversion
Shares will be duly and validly issued, fully issued and non- assessable. Borrower agrees that its issuance of this Debenture
shall constitute full authority to its officers and agents who are charged with the duty of executing stock certificates to execute
and issue the necessary certificates for Conversion Shares in accordance with the terms and conditions of this Debenture. At all
times during which this Debenture is outstanding, Borrower shall reserve and keep available from its authorized and unissued shares
of Common Stock (the “
Share Reserve
”) for the sole purpose of issuance upon conversion of this Debenture and
payment of interest on this Debenture, each as herein provided, free from preemptive rights or any other actual or contingent
purchase rights of Persons other than Holder, not less than five times the aggregate number of shares of the Common Stock that
shall be issuable (taking account the adjustments of Article IV) upon the conversion of the outstanding Principal Amount of this
Debenture and payment of interest hereunder. Initially, the Share Reserve shall be equal to one hundred fifty million (150,000,000)
shares. The Holder may request bi-monthly increases to reserve such amounts based on a conversion price equal to the Lowest Closing
Price, as defined in the Debenture, as of such date, by written instructions from the Holder to the Transfer Agent to comply with
the required reserve. Borrower agrees that it will take all such reasonable actions as may be necessary to assure that the Conversion
Shares may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of the applicable
Trading Market upon which the Common Stock may be listed. Borrower agrees to provide Holder with confirmation evidencing the execution
of such share reservation within fifteen (15) Business Days from the Issuance Date.
3.9
Issuance of New Debenture
. Upon any partial conversion of this Debenture, a new Debenture containing the same date and
provisions of this Debenture shall, at the request of Holder, be issued by Borrower to Holder for the principal balance of this
Debenture and accrued interest which shall not have been converted or paid. Subject to the provisions of Article VI, Borrower
will pay no costs, fees or any other consideration to Holder for the production and issuance of a new Debenture.
3.10
Par Value; Further Assurances
.
(a)
Borrower covenants that during the period that the Principal Amount of this Debenture and any accrued interest and fees thereon
remain outstanding, it will ensure that the par value of any Conversion Shares shall not exceed the amount payable therefor upon
such exercise immediately prior to such exercise. Borrower further covenants that it shall take all appropriate actions, including,
without limitation, amending its articles or certificate of incorporation and any other voluntary action, such as calling a meeting
of stockholders to approve any such amendment, to ensure that the amount payable for any Conversion Shares shall at all times
exceed the par value thereof by at least four hundred percent (400%).
(b)
Except and to the extent as waived or consented to by Holder, Borrower shall not by any action, including, without limitation,
amending its articles or certificate of incorporation or through any reorganization, transfer of assets, consolidation, merger,
dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms of this Debenture, but will at all times in good faith assist in the carrying out of all such terms and in the
taking of all such actions as may be necessary or appropriate to protect the rights of Holder as set forth in this Debenture against
impairment. Without limiting the generality of the foregoing, Borrower will (a) not increase the par value of any Conversion Shares
above the amount payable therefor upon such exercise immediately prior to such exercise, (b) take all such action as may be necessary
or appropriate in order that Borrower may validly and legally issue fully paid and nonassessable Conversion Shares upon the exercise
of this Debenture and (c) use its commercially best efforts to obtain all such authorizations, exemptions or consents from any
public regulatory body having jurisdiction thereof as may be necessary to enable Borrower to perform its obligations under this
Debenture.
3.11
Transfer Taxes
. The issuance of certificates for Conversion Shares shall be made without charge to Holder for any documentary
stamp or similar taxes that may be payable in respect of the issue or delivery of such certificates, provided that Borrower shall
not be required to pay any tax that may be payable in respect of any transfer involved in the issuance and delivery of any such
certificate upon conversion in a name other than that of Holder and Borrower shall not be required to issue or deliver such certificates
unless or until the Person or Persons requesting the issuance thereof shall have paid to Borrower the amount of such tax or shall
have established to the satisfaction of Borrower that such tax has been paid.
3.12
Rule 144 Issuer’s Representation Letter
. In the event that Holder’s brokers dealer requires a Rule 144 Issuer’s
Representation Letter (the “
144 Letter
”), Holder will submit to Borrower the 144 Letter along with a corresponding
Notice of Conversion upon which Borrower will have forty-eight (48) hours to execute and return the 144 Letter.
ARTICLE
IV
CERTAIN
ADJUSTMENTS
4.1
Stock Dividends and Stock Splits
. If Borrower, at any time while this Debenture is outstanding: (a) pays a stock dividend
or otherwise makes a distribution or distributions payable in shares of Common Stock on shares of Common Stock or any Common Stock
equivalents (which, for avoidance of doubt, shall not include any shares of Common Stock issued by Borrower upon conversion of,
or payment of interest on, this Debenture); (b) subdivides outstanding shares of Common Stock into a larger number of shares;
or (c) issues, in the event of a reclassification of shares of the Common Stock, any shares of capital stock of Borrower, then
the Conversion Price shall be multiplied by a fraction of which the numerator shall be the number of shares of Common Stock (excluding
any treasury shares of Borrower) outstanding immediately before such event and of which the denominator shall be the number of
shares of Common Stock outstanding immediately after such event. Any adjustment made pursuant to this Section shall become effective
immediately after the record date for the determination of stockholders entitled to receive such dividend or distribution and
shall become effective immediately after the effective date in the case of a subdivision, combination or re-classification.
4.2
Subsequent Rights Offerings
. If Borrower, at any time within six (6) months of the Issuance Date, shall issue rights, options
or warrants to all holders of Common Stock (and not to Holder) entitling them to subscribe for or purchase shares of Common Stock
at a price per share that is lower than the Lowest Closing Price on the record date referenced below, then the Conversion Price
shall be multiplied by a fraction of which the denominator shall be the number of shares of the Common Stock outstanding on the
date of issuance of such rights or warrants plus the number of additional shares of Common Stock offered for subscription or purchase,
and of which the numerator shall be the number of shares of the Common Stock outstanding on the date of issuance of such rights
or warrants plus the number of shares which the aggregate offering price of the total number of shares issued (assuming delivery
to Borrower in full of all consideration payable upon exercise of such rights, options or warrants) would purchase at such Lowest
Closing Price. Such adjustment shall be made whenever such rights or warrants are issued, other than to officers and directors
under equity incentive plans approved by the board of directors, and shall become effective immediately after the record date
for the determination of stockholders entitled to receive such rights, options or warrants.
4.3
Pro Rata Distributions
. If Borrower, at any time while this Debenture is outstanding, distributes to all holders of Common
Stock (and not to Holder) evidences of its indebtedness or assets (including cash and cash dividends) or rights or warrants to
subscribe for or purchase any security (other than the Common Stock, which shall be subject to Section 4.1), then in each such
case the Conversion Price shall be adjusted by multiplying such Conversion Price in effect immediately prior to the record date
fixed for determination of stockholders entitled to receive such distribution by a fraction of which the denominator shall be
the Lowest Closing Price determined as of the record date mentioned above, and of which the numerator shall be such Lowest Closing
Price on such record date less the then fair market value at such record date of the portion of such assets or evidence of indebtedness
so distributed applicable to one (1) outstanding share of the Common Stock as determined by the board of directors of Borrower
in good faith. In either case the adjustments shall be described in a statement delivered to Holder describing the portion of
assets or evidences of indebtedness so distributed or such subscription rights applicable to one (1) share of Common Stock. Such
adjustment shall be made whenever any such distribution is made and shall become effective immediately after the record date mentioned
above.
4.4
Fundamental Transaction
. If, at any time while this Debenture is outstanding, (a) Borrower effects any merger or consolidation
of Borrower with or into another Person, (b) Borrower effects any sale of all or substantially all of its assets in one transaction
or a series of related transactions, (c) any tender offer or exchange offer (whether by Borrower or another Person) is completed
pursuant to which holders of Common Stock are permitted to tender or exchange their shares for other securities, cash or property,
or (d) Borrower effects any reclassification of the Common Stock or any compulsory share exchange pursuant to which the Common
Stock is effectively converted into or exchanged for other securities, cash or property (in any such case, a “
Fundamental
Transaction
”), then, upon any subsequent conversion of this Debenture, Holder shall have the right to receive, for each
Conversion Share that would have been issuable upon such conversion immediately prior to the occurrence of such Fundamental Transaction,
the same kind and amount of securities, cash or property as it would have been entitled to receive upon the occurrence of such
Fundamental Transaction if it had been, immediately prior to such Fundamental Transaction, holder of one (1) share of Common Stock
(the “
Alternate Consideration
”). For purposes of any such conversion, the determination of the Conversion Price
shall be appropriately adjusted to apply to such Alternate Consideration based on the amount of Alternate Consideration issuable
in respect of one (1) share of Common Stock in such Fundamental Transaction, and Borrower shall apportion the Conversion Price
among the Alternate Consideration in a reasonable manner reflecting the relative value of any different components of the Alternate
Consideration. If holders of Common Stock are given any choice as to the securities, cash or property to be received in a Fundamental
Transaction, then Holder shall be given the same choice as to the Alternate Consideration it receives upon any conversion of this
Debenture following such Fundamental Transaction. To the extent necessary to effectuate the foregoing provisions, any successor
to Borrower or surviving entity in such Fundamental Transaction shall issue to Holder a new Debenture consistent with the foregoing
provisions and evidencing Holder’s right to convert such Debenture into Alternate Consideration. The terms of any agreement
pursuant to which a Fundamental Transaction is effected shall include terms requiring any such successor or surviving entity to
comply with the provisions of this Section 4.4 and insuring that this Debenture (or any such replacement security) will be similarly
adjusted upon any subsequent transaction analogous to a Fundamental Transaction.
4.5
Calculations
. All calculations under this Article III shall be made to four decimal places or the nearest 1/100th of a
share, as the case may be. For purposes of this Article III, the number of shares of Common Stock deemed to be issued and outstanding
as of a given date shall be the sum of the number of shares of Common Stock (excluding any treasury shares of Borrower) issued
and outstanding.
4.6
Notice to Holder.
a)
Adjustment to Conversion Price
. Whenever the Conversion Price is adjusted pursuant to any provision of this Article IV,
Borrower shall promptly deliver to each Holder a notice setting forth the Conversion Price after such adjustment and setting forth
a brief statement of the facts requiring such adjustment.
b)
Notice to Allow Conversion by Holder
. If (i) Borrower shall declare a dividend (or any other distribution in whatever form)
on the Common Stock, (ii) Borrower shall declare a special nonrecurring cash dividend on or a redemption of the Common Stock,
(iii) Borrower shall authorize the granting to all holders of the Common Stock of rights or warrants to subscribe for or purchase
any shares of capital stock of any class or of any rights, (iv) the approval of any stockholders of Borrower shall be required
in connection with any reclassification of the Common Stock, any consolidation or merger to which Borrower is a party, any sale
or transfer of all or substantially all of the assets of Borrower, of any compulsory share exchange whereby the Common Stock is
converted into other securities, cash or property or (v) Borrower shall authorize the voluntary or involuntary dissolution, liquidation
or winding up of the affairs of Borrower, then, in each case, Borrower shall cause to be filed at each office or agency maintained
for the purpose of conversion of this Debenture, and shall cause to be delivered to Holder at its last address as it shall appear
upon Borrower’s books and records, at least 20 calendar days prior to the applicable record or effective date hereinafter
specified, a notice stating (A) the date on which a record is to be taken for the purpose of such dividend, distribution, redemption,
rights or warrants, or if a record is not to be taken, the date as of which the holders of the Common Stock of record to be entitled
to such dividend, distributions, redemption, rights or warrants are to be determined or (B) the date on which such reclassification,
consolidation, merger, sale, transfer or share exchange is expected to become effective or close, and the date as of which it
is expected that holders of the Common Stock of record shall be entitled to exchange their shares of the Common Stock for securities,
cash or other property deliverable upon such reclassification, consolidation, merger, sale, transfer or share exchange, provided
that the failure to deliver such notice or any defect therein or in the delivery thereof shall not affect the validity of the
corporate action required to be specified in such notice. Holder is entitled to convert this Debenture during the 20-day period
commencing on the date of such notice through the effective date of the event triggering such notice.
4.7
Most Favored Nations Status
. So long as this Debenture is outstanding, upon any issuance by Borrower or any of its subsidiaries
of any security (in an amount under one million dollars ($1,000,000)) with any term more favorable to the holder of such security
or with a term in favor of the holder of such security that was not similarly provided to Holder in this Debenture, then Borrower
shall notify Holder of such additional or more favorable term and such term, at Holder’s option, shall become a part of
the transaction documents with Holder. Such more favorable terms include, but are not limited to, terms addressing conversion
discounts, conversion look-back periods, interest rates, original issue discounts, stock sale price, private placement price per
share and warrant coverage.
4.8
Holder’s Adjustments
. Upon the occurrence of either of the following events, Holder may provide the transfer agent
with written instructions to increase the Share Reserve in accordance therewith: (a) closing price of Borrower’s Common
Stock is less than $0.002 for three (3) consecutive Trading Days; or (b) Borrower’s issued and outstanding shares of Common
Stock is greater than seventy of their authorized shares. Then the Share Reserve shall increase to the number of shares of Common
Stock equal to the five (5) times the value of the outstanding principal amount plus accrued interest thereon as of such date
divided by the Conversion Price on such date.
ARTICLE
V
NEGATIVE
COVENANTS
As
long as any portion of this Debenture remains outstanding, unless Holder shall have otherwise given prior written consent, Borrower
shall not, and shall not permit any of its subsidiaries (whether or not a subsidiary on the Issuance Date) to, directly or indirectly:
5.1
other than Permitted Indebtedness, enter into, create, incur, assume, guarantee or suffer to exist any indebtedness for borrowed
money of any kind, including but not limited to, a guarantee, on or with respect to any of its property or assets now owned or
hereafter acquired or any interest therein or any income or profits therefrom;
5.2
other than Permitted Liens, enter into, create, incur, assume or suffer to exist any liens or security interests of any kind,
on or with respect to any of its property or assets now owned or hereafter acquired or any interest therein or any income or profits
therefrom;
5.3
issue any shares of Common Stock in exchange for satisfaction or accord, in whole or in part, of any outstanding accounts payable
obligations of Borrower, where such shares would be freely tradable (without restrictions, manner of sale obligations or reporting
obligations) by the recipient thereof (or any transferee thereof) prior to the date which is six (6) months following the date
of issuance thereof, whether pursuant to Section 3(a)(10) of the Securities Act or otherwise;
5.4
amend its charter documents, including, without limitation, its articles or certificate of incorporation and bylaws, in any manner
that materially and adversely affects any rights of Holder;
5.5
repay, repurchase or offer to repay, repurchase or otherwise acquire any indebtedness for borrowed money (except for this Debenture
in accordance with the terms hereof and except for the Permitted Indebtedness described under clauses (a), (b) and (d) of the
definition thereof in accordance with the terms of such indebtedness as in effect on the date hereof), other than regularly scheduled
principal and interest payments as such terms are in effect as of the Issuance Date;
5.6
pay cash dividends or distributions on any equity securities of Borrower;
5.7
combine (including by way of a reverse stock split) outstanding shares of Common Stock
into a smaller number of
shares;
5.8
enter into any transaction with any affiliate of Borrower which would be required to be disclosed in any public filing with the
Securities and Exchange Commission (the “
SEC
”), unless such transaction is made on an arm’s-length basis
and expressly approved by a majority of the disinterested directors of Borrower (even if less than a quorum otherwise required
for board approval); or
5.9
enter into any agreement with respect to any of the foregoing.
ARTICLE
VI
EVENTS
OF DEFAULT
The
occurrence of any of the following events, while this Debenture is outstanding, shall be an “
Event of Default;
”
provided that any Event of Default may be cured within one (1) Business Day except as otherwise provided herein:
6.1
Failure to Pay Principal, Interest or Other Fees
. Borrower fails to pay the Principal Amount, interest or other fees hereon
as and when the same shall become due and payable and such failure shall continue for a period of one (1) Business Day following
the date upon which any such payment was due.
6.2
Breach of Covenant
. Borrower breaches any covenant or other term or condition of this Debenture, including, but not limited,
to the negative covenants provided in Article V, in any material respect and such breach, if subject to cure, continues for a
period of one (1) Business Day after the occurrence thereof.
6.3
Breach of Representations and Warranties
. Any representation or warranty of Borrower made herein or in any other report,
financial statement or certificate made or delivered to Holder shall be false or misleading in any material respect as of the
date when made or deemed made.
6.4
SEC Filings
. Beginning on January 3, 2017 and continuing thereafter, so long as this Debenture remains outstanding, Borrower
is not current with its reporting responsibilities under Section 13 of the Exchange Act. Furthermore, Borrower fails to timely
file, when due, any SEC report, including any required XBRL file along with such report (
e.g.
, Forms 8-K, 10-Q or 10-K,
or Schedules 14A, 14C or 14(f)), or, if the filing date of such report is properly extended pursuant to SEC Rule 12b-25, when
the date of any such filing extension lapses, or any post-effective amendment to any SEC Registration Statement.
6.5
Stop Trade
. An SEC stop trade order or trading suspension of the Common Stock on the applicable Trading Market shall be
in effect for five (5) consecutive Trading Days or five (5) Trading Days during a period of ten (10) consecutive Trading Days,
provided that Borrower shall not have been able to cure such trading suspension within thirty (30) Business Days of the notice
thereof or list the Common Stock on another Trading Market within sixty (60) Business Days of such notice.
6.6
SEC Reporting Status Matters
.
(a)
Borrower indicates by check mark on the cover page of an SEC report filing that it has not (i) 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 (ii) has been subject to such filing requirements for the past ninety (90) days.
(b)
Borrower indicates by check mark on the cover page of an SEC report filing that it has not 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 during the preceding twelve (12) months (or for such shorter period that the registrant was required to submit and post such
files).
(c)
Borrower indicates by check mark on the cover page of an SEC report filing that it is a shell company (as defined in Rule 12b-2
of the Exchange Act); or
(d)
Borrower files a Form 15 with the SEC to deregister its Common Stock. In such an event, Borrower shall file current reports with
attorney opinions on not less than a quarterly basis on www.otcmarkets.com until such time as Borrower re-registers its Common
Stock with the SEC.
6.7
Change of Control
. Borrower shall be a party to any Change of Control Transaction or Fundamental Transaction or shall agree
to sell or dispose of all or substantially all of its assets in one transaction or a series of related transactions (whether or
not such sale would constitute a Change of Control Transaction).
6.8
Receiver or Trustee
. Each of Borrower or its subsidiaries, if any, shall make an assignment for the benefit of creditors,
or apply for or consent to the appointment of a receiver or trustee for it or for a substantial part of its property or business;
or such a receiver or trustee shall otherwise be appointed; or shall become insolvent or generally fails to pay, or admits in
writing its inability to pay, its debts as they become due, subject to applicable grace periods, if any.
6.9
Judgments
. Any money judgment, writ or similar final process shall be entered or filed against Borrower or any of its subsidiaries
or any of their respective property or other assets for more than one hundred thousand dollars ($100,000) in the aggregate for
Borrower, and shall remain unvacated, unbonded or unstayed for a period of thirty (30) days.
6.10
Bankruptcy
. Borrower or any of its subsidiaries shall be subject to a Bankruptcy Event.
6.11
DTC Eligibility
. Borrower shall lose its status as “DTC Eligible” or Borrower’s stockholders shall lose
the ability to deposit (either electronically or by physical certificates, or otherwise) shares into the DTC System through a
“deposit chill” or otherwise.
6.12
Reservation of Shares
. Borrower shall fail timely to reserve shares of Common Stock from its authorized and unissued shares
pursuant to Section 3.8.
6.13
Commitment Fee Shares and Conversion Shares
. Borrower shall fail to issue and deliver to Holder the Commitment Fee Shares
and/or Conversion Shares pursuant to Sections 2.5 and 3.4, or Borrower shall provide at any time notice to Holder, including by
way of public announcement, of Borrower’s intention to not honor requests for conversions of this Debenture in accordance
with the terms hereof.
ARTICLE
VII
DEFAULT
RELATED PROVISIONS AND OTHER PRIVILEGES
7.1
Default Interest Rate
. If any Event of Default occurs, the outstanding Principal Amount of this Debenture, plus accrued
but unpaid interest, liquidated damages and other amounts owing in respect thereof through the date of acceleration, shall become,
at Holder’s election, immediately due and payable in cash in the sum of (a) one hundred eighteen percent (118%) of the outstanding
Principal Amount of this Debenture plus one hundred percent (100%) of accrued and unpaid interest thereon and (b) all other amounts,
costs, expenses and liquidated damages due in respect of this Debenture (“
Mandatory Default Amount
”). After
the occurrence of any Event of Default, the interest rate on this Debenture shall accrue at an interest rate equal to the lesser
of eighteen percent (18%) per annum or the maximum rate permitted under applicable law, effective as of the Issuance Date of this
Debenture. Upon the payment in full of the Mandatory Default Amount, Holder shall promptly surrender this Debenture to or as directed
by Borrower. In connection with such acceleration described herein, Holder need not provide, and Borrower hereby waives, any presentment,
demand, protest or other notice of any kind, and Holder may immediately and without expiration of any grace period enforce any
and all of its rights and remedies hereunder and all other remedies available to it under applicable law. Such acceleration may
be rescinded and annulled by Holder at any time prior to payment hereunder and Holder shall have all rights as a holder of his
Debenture until such time, if any, as Holder receives full payment pursuant to this Section 7.1. No such rescission or annulment
shall affect any subsequent Event of Default or impair any right consequent thereon.
7.2
Default Penalty Payment
. Following the occurrence and during the continuance of an Event of Default, Borrower agrees to
pay to Holder in the amount equal to one thousand dollars ($1,000) per Business Day commencing the Business Day following the
date of the Event of Default. Borrower shall pay any fees incurred under this Section in immediately available funds upon demand
and such fees shall also be eligible to be converted into Conversion Shares as set forth in Article III. Such conversion privileges
shall remain in full force and effect immediately from the date hereof and until this Debenture is paid in full.
ARTICLE
VIII
MISCELLANEOUS
8.1
Piggyback Registration Rights
. Borrower shall include on the next registration statement Borrower files with the SEC (or
on the subsequent registration statement if such registration statement is withdrawn) all shares issuable upon conversion of this
Debenture. Failure to do so will result in liquidated damages of twenty-five percent (25%) of the outstanding Principal Amount
of this Debenture, but not less than twenty-five thousand dollars ($25,000), being immediately due and payable to Holder at its
election in the form of cash payment or addition to the balance of this Debenture. Notwithstanding the foregoing, in the event
a registration statement is filed with respect to an underwritten offering or a selling stockholder registration statement relating
solely to holders of Borrower’s Common Stock who paid cash for such Common Stock in a sale placed by an independent placement
agent, the number of shares of Common Stock owned by Holder to be included in any such registration statement may be limited if
in the opinion of the underwriter or placement agent, the sale of such shares by Holder would adversely impact the sale of shares
by the underwriter or selling stockholders included therein.
8.2
Failure or Indulgence Not Waiver
. No failure or delay on the part of Holder hereof in the exercise of any power, right
or privilege hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such power, right or
privilege preclude other or further exercise thereof or of any other right, power or privilege. All rights and remedies existing
hereunder are cumulative to, and not exclusive of, any rights or remedies otherwise available.
8.3
Notices
. All notices, demands, requests, consents, approvals, and other communications required or permitted hereunder
shall be in writing and, unless otherwise specified herein, shall be (i) personally served, (ii) deposited in the mail, registered
or certified, return receipt requested, postage prepaid, (iii) delivered by FedEx or other reputable express courier service with
charges prepaid, (iv) transmitted by hand delivery, telegram, e-mail or facsimile, addressed as set forth below or (v) sent via
Email whereby a return Email confirming receipt has been delivered. Any notice or other communication required or permitted to
be given hereunder shall be deemed effective (y) upon hand delivery or delivery by facsimile, with accurate confirmation generated
by the transmitting facsimile machine, at the address or number designated below (if delivered on a Business Day during normal
business hours where such notice is to be received), or the first Business Day following such delivery (if delivered other than
on a Business Day during normal business hours where such notice is to be received) or (z) on the next Business Day following
the date of mailing by express courier service, fully prepaid, addressed to such address, or upon actual receipt of such mailing,
whichever shall first occur. The addresses for such communications shall be:
If
to Borrower:
Tauriga
Sciences, Inc.
Seth
Shaw- CEO
39
Old Ridgebury Road
Danbury,
CT 06180
If
to Holder:
Group
10 Holdings LLC
Attn:
Adam Wasserman
11
Island Ave. #1108
Miami
Beach, FL 33139
EIN
# 32-0409845
adam@group10llc.com
No
change in any of such addresses shall be effective insofar as notices under this Section 8.3 are concerned unless such changed
address is located in the United States of America and notice of such change shall have been given to such other party hereto
as provided in this Section 8.3.
8.4
Amendment Provision
. Any term of this Debenture may be amended only with the written consent of Holder and Borrower. .The
term “
Debenture
” and all reference thereto, as used throughout this instrument, shall mean this instrument
as originally executed, or if later amended or supplemented, then as so amended or supplemented, and any successor instrument
as it may be amended or supplemented.
8.5
Assignability
. This Debenture shall be binding upon Borrower and its successors and assigns, and shall inure to the benefit
of Holder and its successors and assigns, and may not be assigned by Borrower without the prior written consent of Holder, which
consent may not be unreasonably withheld.
8.6
Prevailing Party and Costs
. In the event any attorney is employed by any party with regard to any legal or equitable action,
arbitration or other proceeding brought by such party for the enforcement of this Debenture or because of an alleged dispute,
breach, default or misrepresentation in connection with any of the provisions of this Debenture, the prevailing party in such
proceeding will be entitled to recover from the other party reasonable attorneys’ fees and other costs and expenses incurred,
in addition to any other relief to which the prevailing party may be entitled.
8.7
Governing Law; Consent to Jurisdiction
; Waiver of Jury Trial. This Debenture shall be governed by, and construed in accordance
with, the internal laws of the State of New York, without regard to principles of conflicts of law. HOLDER AND BORROWER WAIVE
ANY RIGHT TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS DEBENTURE OR ANY TRANSACTION CONTEMPLATED
HEREIN, INCLUDING CLAIMS BASED ON CONTRACT, TORT, BREACH OF DUTY AND ALL OTHER COMMON LAW OR STATUTORY BASES. Each party hereby
submits to the exclusive jurisdiction of the state and federal courts located in the County of Miami-Dade, State of Florida. If
the jury waiver set forth in this Section is not enforceable, then any dispute, controversy or claim arising out of or relating
to this Debenture or any of the transactions contemplated herein will be finally settled by binding arbitration in Miami-Dade
County, Florida in accordance with the then current Commercial Arbitration Rules of the American Arbitration Association by one
arbitrator appointed in accordance with said rules. The arbitrator shall apply New York law to the resolution of any dispute,
without reference to rules of conflicts of law or rules of statutory arbitration. Judgment on the award rendered by the arbitrator
may be entered in any court having jurisdiction thereof. Notwithstanding the foregoing, the parties may apply to any court of
competent jurisdiction for preliminary or interim equitable relief, or to compel arbitration in accordance with this paragraph.
The expenses of the arbitration, including the arbitrator’s fees and expert witness fees, incurred by the parties to the
arbitration, may be awarded to the prevailing party, in the discretion of the arbitrator, or may be apportioned between the parties
in any manner deemed appropriate by the arbitrator. Unless and until the arbitrator decides that one party is to pay for all (or
a share) of such expenses, both parties shall share equally in the payment of the arbitrator’s fees as and when billed by
the arbitrator.
8.8
Maximum Payments
. Nothing contained herein shall be deemed to establish or require the payment of a rate of interest or
other charges in excess of the maximum permitted by applicable law. In the event that the rate of interest required to be paid
or other charges hereunder exceed the maximum permitted by such law, any payments in excess of such maximum shall be credited
against amounts owed by Borrower to Holder and thus refunded to Borrower.
8.9
Construction
. Borrower acknowledges that its legal counsel participated in the preparation of this Debenture and, therefore,
stipulates that the rule of construction that ambiguities are to be resolved against the drafting party shall not be applied in
the interpretation of this Debenture to favor any party against the other.
8.10
Absolute Obligation
. Except as expressly provided herein, no provision of this Debenture shall alter or impair the obligation
of Borrower, which is absolute and unconditional, to pay the Principal Amount of, interest and liquidated damages (if any) on,
this Debenture at the time, place, and rate, and in the coin or currency, herein prescribed. This Debenture is a direct debt obligation
of Borrower.
8.11
Lost or Mutilated Debenture
. If this Debenture shall be mutilated, lost, stolen or destroyed, Borrower shall execute and
deliver, in exchange and substitution for and upon cancellation of a mutilated Debenture, or in lieu of or in substitution for
a lost, stolen or destroyed Debenture, a new Debenture for the Principal Amount of this Debenture so mutilated, lost, stolen or
destroyed.
8.12
Opinion of Counsel
. An opinion of the following counsels shall be deemed acceptable to Borrower: Drinker Biddle & Reath
LLP, Fox Rothschild LLP, Greenberg Traurig LLP, Bauman & Associates Law Firm, and Law Office of Clifford J. Hunt.
[Signature
page follows.]
IN
WITNESS WHEREOF
, Borrower has caused this Convertible Debenture to be signed in its name effective as of the date first above
indicated.
BORROWER:
Tauriga
Sciences, Inc.
|
By:
|
Seth
M. Shaw
|
|
|
Title:
|
CEO
|
|
HOLDER:
Group
10 Holdings, LLC
|
By:
|
|
|
|
Name:
|
Adam
Wasserman
|
|
|
Title:
|
Managing
Member
|
|
THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US
$60,950.00
TAURIGA
SCIENCES, INC.
12% CONVERTIBLE REDEEMABLE NOTE
DUE
FEBRUARY 14, 2017
FOR
VALUE RECEIVED, Tauriga Sciences, Inc. (the “Company”) promises to pay to the order of ADAR BAYS, LLC and its authorized
successors and Permitted Assigns, defined below, (“
Holder
”), the aggregate principal face amount of Sixty Thousand
Nine Hundred Fifty Dollars exactly (U.S. $60,950.00) on February 14, 2017 (“
Maturity Date
”) and to pay interest
on the principal amount outstanding hereunder at the rate of 12% per annum commencing on December 19, 2016. This Note contains
a 15% OID such that the purchase price is $53,000.00. The interest will be paid to the Holder in whose name this Note is registered
on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note
are payable at 3411 Indian Creek Drive, Suite 403, Miami Beach, FL 33140, initially, and if changed, last appearing on the records
of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and
the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records
of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means
any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for
in Section 2(f) of the Securities Purchase Agreement.
This
Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange,
except that Holder shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder
subsequently transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that
it will provide the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase
Agreement.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable
laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended
(“
Act
”), applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement.
Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for
transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly
registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue,
and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note
electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in
Section 4(a), and any prequalified prospective transferee of this Note, also is required to give the Company written
confirmation that this Note is being converted (“
Notice of Conversion
”) in the form annexed hereto as
Exhibit
A
. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date. All
notices of conversion will be accompanied by an Opinion of Counsel.
4.
(a) The Holder of this Note is entitled, at its option, at any time commencing 60
days after the date of funding to the Company by the Holder, to convert all or any amount of the principal face amount of
this Note then outstanding into shares of the Company’s common stock (the “
Common Stock
”) at a price
(“
Conversion Price
”) for each share of Common Stock equal to
80%
of the
lowest trading
price
of the Common Stock as reported on the National Quotations Bureau OTC Market exchange which the Company’s
shares are traded or any exchange upon which the Common Stock may be traded in the future (“Exchange”), for the
twenty
prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of
Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method of communication to the
Company after 4 P.M. Eastern Standard or Day- light Savings Time if the Holder wishes to include the same day closing price).
If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. Such con- version
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. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. 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 70% instead
of 80% while that “Chill” is in effect.
If the Note is still outstanding on the 6 month anniversary, then the
conversion discount shall be increased from 20% to 35% such that the conversion price will be equal to 65% of the lowest
trading price of the Common Stock for the twenty trading days immediately preceding the delivery of a Notice of Conversion.
In no event shall the Holder be allowed to effect a conversion if such conversion, along with all other shares of 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.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 12% per annum. Interest shall be paid by
the Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of
funding to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula
provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued
interest calculated on the unpaid principal balance of this Note to the date of such notice.
(c)
Intentionally Deleted.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series
of related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or
other change or exchange of out-standing shares of the Common Stock, other than a forward or reverse stock split or stock
dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is
not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of
Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the
Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus ac-crued but
unpaid interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid
principal amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock
immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection
with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder
of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and
number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have
been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such
Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the
holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or
successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay
the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing
hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be
incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described “Events of Default” shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the
Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of
this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect;
or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or
obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such
petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as
applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in excess of one hundred thousand dollars
($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall
remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days
prior to the date of any proposed sale thereunder; or
(h)
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; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common
Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases
to file its 1934 act reports with the SEC;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of
the Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within
3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which
supports the removal of a restrictive legend; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the
Holder.
(m)
The Company shall be delinquent in its periodic report filings with the Securities and Exchange Commission; or
(n)
The Company shall cause to lose the “bid” price for its stock in a market (including the OTC marketplace or other
exchange).
Then,
or at any time thereafter, unless cured within 5 days, and in each and every such case, unless such Event of Default shall have
been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any subsequent default) at the option
of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately due and payable, without
present- ment, demand, protest or (further) notice of any kind (other than notice of acceleration), all of which are hereby expressly
waived, anything herein or in any note or other instruments contained to the contrary notwithstanding, and the Holder may immediately,
and without expiration of any period of grace, enforce any and all of the Holder’s rights and remedies provided herein or
any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue at a default interest rate of 24%
per annum or, if such rate is usurious or not permitted by current law, then at the highest rate of interest permitted by law.
In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not issued beginning on the 4th day
after the conversion notice was delivered to the Company. This penalty shall increase to $500 per day beginning on the 10
th
day. The penalty for a breach of Section 8(n) shall be an increase of the outstanding principal amounts by 20%. In case
of a breach of Section 8(i), the outstanding principal due under this Note shall increase by 50%. If this Note is not paid at
maturity, the outstanding principal due under this Note shall increase by 10%. Further, if a breach of Section 8(m) occurs or
is continuing after the 6 month anniversary of the Note, then the Holder shall be entitled to use the lowest closing bid price
during the delinquency period as a base price for the conversion. For example, if the lowest closing bid price during the delinquency
period is $0.01 per share and the conversion dis- count is 50% the Holder may elect to convert future conversions at $0.005 per
share
If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, in-cluding, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the
conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder
incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable
to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure
to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum
extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected
or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and that if it previously has been a “shell”
issuer that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer
a “shell issuer.
12.
The Company shall reserve 53,464,000 shares of its Common Stock for conversions under this Note (the “Share
Reserve”). Upon full conversion of this Note, any shares remaining in the Share Reserve shall be cancelled. The Company
shall pay all transfer agent costs associated with issuing and delivering the share certificates to Holder. If such amounts
are to be paid by the Holder, it may deduct such amounts from the Conversion Price. The company should at all times reserve a
minimum of four times the amount of shares required if the note would be fully converted. The Holder may reasonably request
increases from time to time to reserve such amounts. The Company will instruct its transfer agent to provide the outstanding
share information to the Holder in connection with its conversions.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock
splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly
to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of
the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in
counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an
original.
15.
This Note shall be guaranteed by Seth Shaw, Chief Executive Officer of the Company. Mr. Shaw will be pledge 37,500,000 shares
of Common Stock as collateral for payment obligation under this Note which will be subject to the terms of a stock pledge
agreement, dated December 19, 2016.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
12/19/2016
|
|
TAURIGA SCIENCES, INC.
|
|
|
|
|
|
|
By:
|
Seth
M. Shaw
|
|
|
Title:
|
CEO/Chairman
|
THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US
$60,950.00
TAURIGA
SCIENCES, INC.
12%
CONVERTIBLE REDEEMABLE NOTE
DUE
DECEMBER 19, 2017
BACK
END NOTE
FOR
VALUE RECEIVED, Tauriga Sciences, Inc. (the “Company”) promises to pay to the order of ADAR BAYS, LLC and its authorized
successors and Permitted Assigns, defined below, (“
Holder
”), the aggregate principal face amount of Sixty Thousand
Nine Hundred Fifty Dollars exactly (U.S. $60,950.00) on December 19, 2017 (“
Maturity Date
”) and to pay interest
on the principal amount outstanding hereunder at the rate of 12% per annum commencing on December 19, 2016. This Note contains
a 15% OID such that the purchase price is $53,000.00. The interest will be paid to the Holder in whose name this Note is registered
on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note
are payable at 3411 Indian Creek Drive, Suite 403, Miami Beach, FL 33140, initially, and if changed, last appearing on the records
of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and
the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records
of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means
any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for
in Section 2(f) of the Securities Purchase Agreement.
This
Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as
requested by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange,
except that Holder shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder
subsequently transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that
it will provide the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase
Agreement.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable
laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended
(“
Act
”), applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement.
Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for
transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly
registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue,
and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note
electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in
Section 4(a), and any prequalified prospective transferee of this Note, also is required to give the Company written
confirmation that this Note is being converted (“
Notice of Conversion
”) in the form annexed hereto as
Exhibit
A
. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date. All
notices of conversion will be accompanied by an Opinion of Counsel.
4.
(a) The Holder of this Note is entitled, at its option, at any time after the date of
funding to the Company by the Holder, to convert all or any amount of the principal face amount of this Note then outstanding
into shares of the Company’s common stock (the “
Common Stock
”) at a price (“
Conversion
Price
”) for each share of Common Stock equal to
65%
of the
lowest trading price
of the Common
Stock as reported on the National Quotations Bureau OTC Market exchange which the Company’s shares are traded or any
exchange upon which the Common Stock may be traded in the future (“
Exchange
”), for the
twenty
prior trading days including the day upon which a Notice of Conversion is received by the Company (provided such Notice of
Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method of communication to the
Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same day closing price).
If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. 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. No fractional shares or
scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. 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 55% instead
of 65% while that “Chill” is in effect.
In no event shall the Holder be allowed to effect a conversion if
such conversion, along with all other shares of 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.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 12% per annum. Interest shall be paid by
the Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of
funding to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula
provided in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued
interest calculated on the unpaid principal balance of this Note to the date of such notice.
(c)
This Note may not be prepaid after cash payment by the Holder.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series
of related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or
other change or exchange of out- standing shares of the Common Stock, other than a forward or reverse stock split or stock
dividend, or (iii) any consolidation or merger of the Company with or into another person or entity in which the Company is
not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation of the
Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares of
Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the
Company shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid
interest through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal
amount of this Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior
to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection
with which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder
of this Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and
number of shares of stock or other securities or property (including cash) receivable upon such reclassification, capital
reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could have
been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such
Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by
the holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or
successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company,
which is absolute and unconditional,
to pay the principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing
hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be
incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described “Events of Default” shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the
Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written
statements heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of
this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect;
or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or
obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its
inability to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence
proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or
for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such
petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state laws as
applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business
without its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the in- stance of any governmental agency shall assume
custody or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process,
in excess of one hundred
thousand dollars ($100,000) in the aggregate, shall be entered or filed against the Company or any of its properties or other
assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than
five (5) days prior to the date of any proposed sale thereunder; or
(h)
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; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common
Stock trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases
to file its 1934 act reports with the SEC;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of
the Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend
within 3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion
which supports the removal of a restrictive legend; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the
Holder.
(m)
The Company’s Common Stock has a closing bid price of less than $0.003 per share for at least 5 consecutive trading
days; or
(n)
The aggregate dollar trading volume of the Company’s Common Stock is less than thirty thousand dollars ($30,000.00) in
any 5 consecutive trading days; or
(o)
The Company shall cease to be “current” in its filings with the Securities and Exchange Commission; or
(p)
The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other
exchange)
Then,
or at any time thereafter, unless cured within 5 days (except for 8(m) and 8(n) which are incurable defaults, the
sole remedy
of which is to allow the Holder to cancel both this Note and the Holder Issued Note, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately
due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all
of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights
and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue
at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest
rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not
issued beginning on the 4
th
day after the conversion notice was delivered to the Company. This penalty shall increase
to $500 per day beginning on the 10
th
day. The penalty for a breach of Section 8(p) shall be an increase of the outstanding
principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by
50%. Further, if a breach of Section 8(o) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall
be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example,
if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder
may elect to convert future con- versions at $0.005 per share.
If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the
conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder
incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable
to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure
to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum
extent possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected
or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument
signed by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and that if it previously has been a “shell”
issuer that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer
a “shell issuer.
12.
Prior to cash funding of this Note, The Company will issue irrevocable 6 transfer agent instructions reserving 3x the number
of shares of Common Stock necessary to allow the holder to convert this note based on the discounted conversion price set
forth in Section 4(a) herewith. Upon full conversion of this Note, the reserve representing this Note shall be cancelled. The
Company will pay all transfer agent costs associated with issuing and delivering the shares. If such amounts are to be paid
by the Holder, it may deduct such amounts from the Conversion Price. Conversion Notices may be sent to the Company or its
transfer agent via electric mail. The Company will instruct its transfer agent to provide the outstanding share information
to the Holder in connection with its conversions.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock
splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly
to be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The
Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of
the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in
counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an
original.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
12/19/2016
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T
AURIGA SCIENCES, INC.
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By:
|
Seth
M. Shaw
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Title:
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CEO/Chairman
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THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US
$27,500.00
TAURIGA
SCIENCES, INC.
8% CONVERTIBLE REDEEMABLE NOTE
DUE
FEBRUARY 8, 2018
BACK
END NOTE 2 OF 3
FOR
VALUE RECEIVED, Tauriga Sciences, Inc. (the “Company”) promises to pay to the order of ADAR BAYS, LLC and its authorized
successors and Permitted Assigns, defined below, (“
Holder
”), the aggregate principal face amount of Twenty Seven
Thousand Five Hundred Dollars exactly (U.S. $27,500.00) on February 8, 2018 (“
Maturity Date
”) and to pay interest
on the principal amount outstanding hereunder at the rate of 8% per annum commencing on February 8, 2017. This Note contains a
10% OID such that the purchase price is $25,000. The interest will be paid to the Holder in whose name this Note is registered
on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note
are payable at 3411 Indian Creek Drive, Suite 403, Miami Beach, FL 33140, initially, and if changed, last appearing on the records
of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and
the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records
of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means
any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for
in Section 2(f) of the Securities Purchase Agreement.
This
Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested
by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that
Holder shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder subsequently
transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that it will provide
the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase Agreement.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“
Act
”),
applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement. Any attempted transfer to a
non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company
and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as
the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall
be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth
in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prequalified prospective transferee
of this Note, also is required to give the Company written confirmation that this Note is being converted (“
Notice of
Conversion
”) in the form annexed hereto as
Exhibit A
. The date of receipt (including receipt by telecopy) of such
Notice of Conversion shall be the Conversion Date. All notices of conversion will be accompanied by an Opinion of Counsel.
4.
(a) The Holder of this Note is entitled, at its option, at any time after the full cash payment by the Holder, to convert all
or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the
“
Common Stock
”) at a price (“
Conversion Price
”) for each share of Common Stock equal to
60%
of the
lowest trading price
of the Common Stock as reported on the National Quotations Bureau OTC Market exchange
which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“
Exchange
”),
for the
twenty
prior trading days including the day upon which a Notice of Conversion is received by the
Company (provided such Notice of Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method
of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same
day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. 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. No fractional shares
or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. 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 50% instead of 60% while that
“Chill” is in effect.
In no event shall the Holder be allowed to effect a conversion if such conversion, along
with all other shares of 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.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the
Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of funding
to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided
in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated
on the unpaid principal balance of this Note to the date of such notice.
(c)
This Note may not be prepaid, except that if the $27,500 Rule 144 convertible redeemable note issued by the Company of even date
herewith is redeemed by the Company within 6 months of the issuance date of such Note, all obligations of the Company under this
Note and all obligations of the Holder under the Holder issued Back End Note will be automatically be deemed satisfied and this
Note and the Holder issued Back End Note will be automatically be deemed cancelled and of no further force or effect.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of
related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or other change
or exchange of out- standing shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii)
any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity
(other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and
(iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem
this Note in cash for 150% of the principal amount, plus accrued but unpaid interest through the date of redemption, or at the
election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued
but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with
which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this
Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares
of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other
change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise
of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions
shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash,
the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice
of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred
by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described “Events of Default” shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company;
or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or
the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation
of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its inability
to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its
dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part
of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against
it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the in- stance of any governmental agency shall assume custody
or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000)
in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of
any proposed sale thereunder; or
(h)
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; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common Stock
trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file
its 1934 act reports with the SEC;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the
Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within
3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which supports
the removal of a restrictive legend; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.
(m)
The Company’s Common Stock has a closing bid price of less than $0.002 per share for at least 5 consecutive trading days;
or
(n)
The aggregate dollar trading volume of the Company’s Common Stock is less than twenty five thousand dollars ($25,000.00)
in any 5 consecutive trading days; or
(o)
The Company shall cease to be “current” in its filings with the Securities and Exchange Commission; or
(p)
The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange)
Then,
or at any time thereafter, unless cured within 5 days (except for 8(m) and 8(n) which are incurable defaults, the
sole remedy
of which is to allow the Holder to cancel both this Note and the Holder Issued Note, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately
due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all
of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights
and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue
at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest
rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not
issued beginning on the 4
th
day after the conversion notice was delivered to the Company. This penalty shall increase
to $500 per day beginning on the 10
th
day. The penalty for a breach of Section 8(p) shall be an increase of the outstanding
principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by
50%. Further, if a breach of Section 8(o) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall
be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example,
if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder
may elect to convert future con- versions at $0.005 per share.
If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the
conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder
incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable
to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder as follows:
Failure to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired
thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed
by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and that if it previously has been a “shell” issuer
that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer a “shell
issuer.
12.
Prior to cash funding of this Note, The Company will issue irrevocable transfer agent instructions reserving 3x the number of
shares of Common Stock necessary to allow the holder to convert this note based on the discounted conversion price set forth in
Section 4(a) herewith. Upon full conversion of this Note, the reserve representing this Note shall be cancelled. The Company will
pay all transfer agent costs associated with issuing and delivering the shares. If such amounts are to be paid by the Holder,
it may deduct such amounts from the Conversion Price. Conversion Notices may be sent to the Company or its transfer agent via
electric mail. The Company will instruct its transfer agent to provide the outstanding share information to the Holder in connection
with its conversions.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits,
recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to
be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder
and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State
of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts,
and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
Feb 8, 2017
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TAURIGA
SCIENCES, INC.
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By:
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Seth
M. Shaw
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Title:
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CEO/Chairman
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THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US
$27,500.00
TAURIGA
SCIENCES, INC.
8% CONVERTIBLE REDEEMABLE NOTE
DUE
FEBRUARY 8, 2018
BACK
END NOTE 3 OF 3
FOR
VALUE RECEIVED, Tauriga Sciences, Inc. (the “Company”) promises to pay to the order of ADAR BAYS, LLC and its authorized
successors and Permitted Assigns, defined below, (“
Holder
”), the aggregate principal face amount of Twenty Seven
Thousand Five Hundred Dollars exactly (U.S. $27,500.00) on February 8, 2018 (“
Maturity Date
”) and to pay interest
on the prin- cipal amount outstanding hereunder at the rate of 8% per annum commencing on February 8, 2017. This Note contains
a 10% OID such that the purchase price is $25,000. The interest will be paid to the Holder in whose name this Note is registered
on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note
are payable at 3411 Indian Creek Drive, Suite 403, Miami Beach, FL 33140, initially, and if changed, last ap- pearing on the records
of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and
the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records
of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means
any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for
in Section 2(f) of the Securities Purchase Agreement.
This
Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different
authorized denominations, as requested by the Holder surrendering the same. No service charge will be made for such registration
or transfer or exchange, except that Holder shall pay any tax or other governmental charges payable in connection therewith. To
the extent that Holder subsequently transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder
acknowledges that it will provide the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase
Agreement.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable
laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended
(“
Act
”), applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement.
Any attempted transfer to a non-qualifying party shall be treated by the Company as void. Prior to due presentment for
transfer of this Note, the Company and any agent of the Company may treat the person in whose name this Note is duly
registered on the Company’s records as the owner hereof for all other purposes, whether or not this Note be overdue,
and neither the Company nor any such agent shall be affected or bound by notice to the contrary. Any Holder of this Note
electing to exercise the right of conversion set forth in Section 4(a) hereof, in addition to the requirements set forth in
Section 4(a), and any prequalified prospective transferee of this Note, also is required to give the Company written
confirmation that this Note is being converted (“
Notice of Conversion
”) in the form annexed hereto as
Exhibit
A
. The date of receipt (including receipt by telecopy) of such Notice of Conversion shall be the Conversion Date. All
notices of conversion will be accompanied by an Opinion of Counsel.
4.
(a) The Holder of this Note is entitled, at its option, at any time after the full cash payment by the Holder, to convert
all or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the
“
Common Stock
”) at a price (“
Conversion Price
”) for each share of Common Stock equal to
60%
of the
lowest trading price
of the Common Stock as reported on the National Quotations Bureau OTC Market exchange which
the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“
Exchange
”),
for the
twenty
prior trading days including the day upon which a Notice of Conversion is received by the
Company (provided such Notice of Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method
of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same
day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. 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. No fractional shares
or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. 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 50% instead of 60% while that
“Chill” is in effect.
In no event shall the Holder be allowed to effect a conversion if such conversion, along
with all other shares of 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.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the
Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of funding
to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided
in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated
on the unpaid principal balance of this Note to the date of such notice.
(c)
This Note may not be prepaid, except that if the $27,500 Rule 144 convertible redeemable
note issued by the Company of even date herewith is redeemed by the Company within 6 months of the issuance date of such Note,
all obligations of the Company under this Note and all obligations of the Holder under the Holder issued Back End Note will be
automatically be deemed satisfied and this Note and the Holder issued Back End Note will be automatically be deemed cancelled
and of no further force or effect.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any
person in a single transaction or series of related transactions, (ii) a reclassification, capital reorganization (excluding an
increase in authorized capital) or other change or exchange of out- standing shares of the Common Stock, other than a forward
or reverse stock split or stock dividend, or (iii) any consolidation or merger of the Company with or into another person or entity
in which the Company is not the surviving entity (other than a merger which is effected solely to change the jurisdiction of incorporation
of the Company and results in a reclassification, conversion or exchange of outstanding shares of Common Stock solely into shares
of Common Stock) (each of items (i), (ii) and (iii) being referred to as a “Sale Event”), then, in each case, the Company
shall, upon request of the Holder, redeem this Note in cash for 150% of the principal amount, plus accrued but unpaid interest
through the date of redemption, or at the election of the Holder, such Holder may convert the unpaid principal amount of this
Note (together with the amount of accrued but unpaid interest) into shares of Common Stock immediately prior to such Sale Event
at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the
Company’s assets) in connection with which this Note is not redeemed or converted, the Company shall cause effective provision
to be made so that the Holder of this Note shall have the right thereafter, by converting this Note, to purchase or convert this
Note into the kind and number of shares of stock or other securities or property (including cash) receivable upon such reclassification,
capital reorganization or other change, consolidation or merger by a holder of the number of shares of Common Stock that could
have been purchased upon exercise of the Note and at the same Conversion Price, as defined in this Note, immediately prior to
such Sale Event. The foregoing provisions shall similarly apply to successive Sale Events. If the consideration received by the
holders of Common Stock is other than cash, the value shall be as determined by the Board of Directors of the Company or successor
person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest,
notice of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts
called for hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing
hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys’
fees and expenses, which may be incurred by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described “Events of Default” shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any
other note issued to the Holder by the Company; or
(b)
Any of the representations or warranties made by the Company herein or in any certificate
or financial or other written statements heretofore or hereafter furnished by or on behalf of the Company in connection with the
execution and delivery of this Note, or the Securities Purchase Agreement under which this note was issued shall be false or misleading
in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision,
condition, agreement or obligation of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent (which does not include a “going concern
opinion); (2) admit in writing its inability to pay its debts generally as they mature; (3) make an assignment for the benefit
of creditors or commence proceedings for its dissolution; (4) apply for or consent to the appointment of a trustee, liquidator
or receiver for its or for a substantial part of its property or business; (5) file a petition for bankruptcy relief, consent
to the filing of such petition or have filed against it an involuntary petition for bankruptcy relief, all under federal or state
laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial
part of its property or business without its consent and shall not be discharged within sixty (60) days after such appointment;
or
(f)
Any governmental agency or any court of competent jurisdiction at the in- stance of
any governmental agency shall assume custody or control of the whole or any substantial portion of the properties or assets of
the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in
excess of fifty thousand dollars ($50,000) in the aggregate, shall be entered or filed against the Company or any of its properties
or other assets and shall remain unpaid, unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later
than five (5) days prior to the date of any proposed sale thereunder; or
(h)
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; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTC
Markets exchange) or, if the Common Stock trades on an exchange, then trading in the Common Stock shall be suspended for more
than 10 consecutive days or ceases to file its 1934 act reports with the SEC;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the
Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within
3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which supports
the removal of a restrictive legend; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business
days of the request of the Holder.
(m)
The Company’s Common Stock has a closing bid price of less than $0.002 per share
for at least 5 consecutive trading days; or
(n)
The aggregate dollar trading volume of the Company’s Common Stock is less than
twenty five thousand dollars ($25,000.00) in any 5 consecutive trading days; or
(o)
The Company shall cease to be “current” in its filings with the Securities
and Exchange Commission; or
(p)
The Company shall lose the “bid” price for its stock in a market (including
the OTC marketplace or other exchange)
Then,
or at any time thereafter, unless cured within 5 days (except for 8(m) and 8(n) which are incurable defaults, the
sole remedy
of which is to allow the Holder to cancel both this Note and the Holder Issued Note, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately
due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all
of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights
and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue
at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest
rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not
issued beginning on the 4
th
day after the conversion notice was delivered to the Company. This penalty shall increase
to $500 per day beginning on the 10
th
day. The penalty for a breach of Section 8(p) shall be an increase of the outstanding
principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by
50%. Further, if a breach of Section 8(o) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall
be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example,
if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder
may elect to convert future con- versions at $0.005 per share.
If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder the
conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if the Holder
incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating the amounts payable
to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as follows:
Failure
to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Com- pany.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be
excessive in scope or otherwise invalid or unenforceable, such provision shall be adjusted rather than voided, if possible, so
that it is enforceable to the maximum extent possible, and the validity and enforceability of the remaining provisions of this
Note will not in any way be affected or impaired thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated
other than by a written instrument signed by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and that if it previously has been a “shell” issuer
that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer a “shell
issuer.
12.
Prior to cash funding of this Note, The Company will issue irrevocable transfer agent
instructions reserving 3x the number of shares of Common Stock necessary to allow the holder to convert this note based on the
discounted conversion price set forth in Section 4(a) herewith. Upon full conversion of this Note, the reserve representing this
Note shall be cancelled. The Company will pay all transfer agent costs associated with issuing and delivering the shares. If such
amounts are to be paid by the Holder, it may deduct such amounts from the Conversion Price. Conversion Notices may be sent to
the Company or its transfer agent via electric mail. The Com- pany will instruct its transfer agent to provide the outstanding
share information to the Holder in connection with its conversions.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock
splits, recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14. This Note shall be governed by and construed in accordance with the laws of New York
applicable to contracts made and wholly to be performed within the State of New York and shall be binding upon the successors
and assigns of each party hereto. The Holder and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction
and venue in the courts of the State of New York or in the Federal courts sitting in the county or city of New York. This Agreement
may be executed in counterparts, and the facsimile transmission of an executed counterpart to this Agreement shall be effective
as an original.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
Feb 8, 2017
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TAURIGA
SCIENCES, INC.
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By:
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Seth
M. Shaw
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Title:
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CEO/Chairman
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BRIDGE
LOAN
AND
SECURITY
AGREEMENT
Dated
as of September 23, 2015 between
TAURIGA
SCIENCES INC.,
a
Nevada corporation, as
“
Borrower”,
and
ALTERNATIVE
STRATEGY PARTNERS PTE. LTD.,
a
Singapore private limited company, as
“
Lender”
BRIDGE
LOAN AND SECURITY AGREEMENT
This
Bridge Loan and Security Agreement (as further amended, restated, supplemented or otherwise modified from time to time, this “
Agreement
”)
is dated as of September 23, 2015 is entered into by and between TAURIGA SCIENCES INC., a Nevada corporation (the “
Borrower
”)
and ALTERNATIVE STRATEGY PARTNERS PTE. LTD., a Singapore private limited company (the “
Lender
”).
WHEREAS
,
the Lender and the Borrower have agreed to enter into this Agreement in order to, among other things (a) set forth the terms and
conditions under which the Lender will make the Bridge Loan to Borrower, (b) evidence the Bridge Loan; and,
WHEREAS
,
it is the intention of the Borrower and the Lender that, subject to the terms and conditions of the “
Loan Documents
”
(defined herein below), all of the “
Obligations
” (defined herein below) shall be secured by a first
priority “
Lien
” (defined herein below) on all of the Borrower’s personal and real property, including
without limitation, all of the Borrower’s assets;
NOW
THEREFORE
, in consideration of the foregoing, and for other good and valuable consideration, the receipt, sufficiency and
adequacy of which are hereby acknowledged, the parties hereto hereby agree to amend and restate the Original Agreement in its
entirety and otherwise agree as follows:
ARTICLE
1 – INTERPRETATION
1.1
Definitions
. The terms defined in Article 10 will have the meanings therein specified for purposes of this Agreement.
1.2
Inconsistency
. In the event of any inconsistency between the provisions of any Loan
Document and this Agreement, the provisions of this Agreement will be controlling for the purpose of all relevant transactions.
1.3
General
. All capitalized terms used which are not specifically defined herein shall
have meanings provided in Article 9 of the UCC to the extent the same are used or defined therein. Unless otherwise specified
herein, any agreement, contract, instrument or other document referred to herein shall mean such agreement, contract, instrument
or other document as modified, amended, restated or supplemented from time to time. Unless otherwise specified, as used in the
Loan Documents or in any certificate, report, instrument or other document made or delivered pursuant to any of the Loan Documents,
all accounting terms not defined in this Agreement shall have the meanings given to such terms in and shall be interpreted in
accordance with GAAP. The terms “herein”, “hereof” and similar terms refer to this Agreement as a whole.
In the computation of periods of time from a specified date to a later specified date in any Loan Document, the terms “from”
means “from and including” and the words “to” and “until” each mean “to but excluding”
and the word “through” means “to and including.” In any other case, the terms “includes”,
“include” and “including” when used in any Loan Document means “including without limitation.”
Unless otherwise expressly indicated, the meaning of any term defined (including by reference) in any Loan Document shall be equally
applicable to both the singular and plural forms of such term. All references in a Loan Document to Articles, Sections, Exhibits,
Attachments, Appendices and Schedules shall be construed to refer to Articles and Sections of, and Exhibits, Attachments, Appendices
and Schedules to, the Loan Document in which such references appear. Any reference to any law shall include all statutory and
regulatory provisions consolidating, amending, replacing or interpreting such law and any reference to any law or regulation shall,
unless otherwise specified, refer to such law or regulation as amended, modified or supplemented from time to time.
ARTICLE
2 - THE LOANS
2.1
Bridge Loan
.
(a)
Subject to the terms and conditions of this Agreement, Lender agrees make a term loan to Borrower on the date of Closing A in
an amount not to exceed $180,000 (the “
Bridge Loan
”).
(b)
Subject to the terms and conditions of this Agreement, the Lender may, in its sole
discretion, during the Availability Period make additional term loans, (the “
Additional Loans
”). The
proceeds of the Bridge Loan and the Additional Loans, if any, may be used solely to fund Borrower’s obligation(s) to
make the Investor Deposit and the “
Investment
” (as defined in the Term Sheet) pursuant to the Term
Sheet, and the Bridge Loan and each Additional Loan, if any, shall be treated as one of the term Loans under this Agreement
and the other Loan Documents.
(c)
The Loans are not a revolving credit facility and Borrower does not have the right to
repay and re-borrow hereunder and payments of principal on the Loans shall permanently reduce the Loans.
2.2
Notes Evidencing Loans; Repayment
. Each Loan shall be evidenced by a separate Note
payable to the order of Lender, in the total principal amount of the Loan. Principal and interest of each Loan shall be payable
at the times and in the manner set forth in the Note payment thereof shall be effected by automatic debit of the appropriate funds
from Borrower’s Primary Operating Account as set forth in Section 5.10. Repayment of the Loans and payment of all other
amounts owed to Lender will be paid by Borrower in the currency in Dollars.
2.3
Procedures for Borrowing
.
(a)
At least five (5) Business Days’ prior to a proposed Borrowing Date (or such lesser period of time as may be agreed upon
by Lender in its sole discretion), Lender shall have received from Borrower a written request for a borrowing hereunder (a “
Borrowing
Request
”). Each Borrowing Request shall be in substantially the form of
Exhibit B
, shall be irrevocable,
shall be executed by a responsible executive or financial officer of Borrower, shall be accompanied by such other information
and documentation as Lender may reasonably request, including the original executed Note(s) for the Loan(s) covered by the Borrowing
Request and with respect to each Additional Loan, shall specify: (i) the proposed date of such requested Loan, which shall be
a Business Day, (ii) the specific uses for the requested Loan including, with respect to each payment to be made with the proceeds
of such Loan, (A) the payee, (B) the amount (C) the date of payment, (D) the bank and wire transfer information, if available,
and (iii) after giving effect to the proposed Loan, the undisbursed portion of the Maximum Amount.
(b)
No later than 1:00 p.m. Eastern Time (Standard Time or Daylight Time, as then applicable) on the Borrowing Date, if Borrower has
satisfied the conditions precedent in Article 4 by 9:00 a.m. Eastern Time (Standard Time or Daylight Time, as then applicable)
on such Borrowing Date, Lender shall make the Loan available to Borrower in immediately available funds; provided that with respect
to any or all Loans hereunder, the Lender, may at its sole option, disburse the proceeds of such Loan directly to another payee
in the amounts and on the dates specified in the Borrowing Request that was submitted in connection with such Loan.
2.4
Interest
. Interest on the outstanding principal balance of each Loan shall accrue
daily at the Designated Rate from the Borrowing Date. Interest shall be due and payable in full on the Maturity Date (defined
hereinafter).
2.5
Interest Rate Calculation
. Interest, along with charges and fees under this Agreement
and any Loan Document, shall be calculated for actual days elapsed on the basis of a 360-day year, which results in higher interest,
charge or fee payments than if a 365-day year were used. In no event shall Borrower be obligated to pay Lender interest, charges
or fees at a rate in excess of the highest rate permitted by applicable law from time to time in effect.
2.6
Default Interest
. Any unpaid payments in respect of the Obligations shall bear interest
from their respective maturities, whether scheduled or accelerated, at the Default Rate. If an Event of Default exists, the Obligations
shall bear interest at the Default Rate. In all such events, the Default Rate may be accrued from the initial date of any nonpayment
or Event of Default until all existing Events of Default are waived in writing in accordance with the terms of this Agreement.
Borrower shall pay such interest in cash on demand. The Lender shall not be required to (A) accelerate the Loans or (B) exercise
any other rights or remedies under the Loan Documents or applicable law in order to charge the Default Rate.
2.7
Late Charges
. If Borrower is late in making any payment in respect of the Obligations
by more than five (5) days, then Borrower agrees to pay a late charge of five percent (5%) of the payment due, but not less than
fifty dollars ($50.00) for any one such delinquent payment. This late charge may be charged by Lender for the purpose of defraying
the expenses incidental to the handling of such delinquent amounts. Borrower acknowledges that such late charge represents a reasonable
sum considering all of the circumstances existing on the date of this Agreement and represents a fair and reasonable estimate
of the costs that will be sustained by Lender due to the failure of Borrower to make timely payments. Borrower further agrees
that proof of actual damages would be costly and inconvenient. Such late charge shall be paid without prejudice to the right of
Lender to collect any other amounts provided to be paid or to declare a default under this Agreement or any of the other Loan
Documents or from exercising any other rights and remedies of Lender.
2.8
Repayment; Prepayment
.
(a)
Scheduled Repayment. Borrower shall pay interest at Lender’s office in like money
on the unpaid principal amount of the Loan at a rate per annum equal to eleven and one-half (11.5%) percent. The entire principal
balance in the amount of ONE HUNDRED EIGHTY and 00/100’s ($180,000.00) U.S. Dollars, plus all accrued but unpaid interest
shall be due and payable at Lender’s office in full on the Maturity Date (hereinafter defined) , unless an earlier date
is otherwise required under the terms of this Loan Agreement or the Note.
(b)
Voluntary Prepayments. No Loan may be prepaid except as set forth in subsection 2.8(c)
below for mandatory prepayment.
(c)
Mandatory Prepayments. If the Borrower or any Subsidiary, whether in a single transaction
or a series of transactions sells or issues any equity interests or any Indebtedness that results in gross proceeds to the Borrower
in any fiscal year in excess of $8,000,000 (a “Next Financing”) then Borrower promptly shall pay so much of such amounts
to the Lender, for application to the Obligations as set forth in 2.8(e), up to a maximum equal to such amount as may be required
to fully satisfy such Obligations.
(d)
Maturity Date. Notwithstanding anything to the contrary in any Loan Document, the full
amount of the Obligations shall be due and payable (the “
Maturity Date
”) no later than the earlier to occur
of (1) the date upon which the Obligations are accelerated following the occurrence of an Event of Default or otherwise become
due and payable prior to their scheduled maturity or (2)(A) with respect to the Bridge Loan, December 23, 2015 and (B) with respect
to each of the Additional Loans (if any), on December 23, 2015 unless an earlier date is otherwise required under the terms hereof.
(e)
Application of Payments. All payments pursuant to this Section 2.8 shall be applied
in the following order of priority to the payment of: (i) all then unpaid fees and expenses of Lender under the Loan Documents;
(ii) any and all other Obligations that are due and owing under the Loan Documents, except the principal balance of the Loans
and accrued and unpaid interest thereon; (iii) accrued and unpaid interest on the Loans (pro rata based on the outstanding principal
balances thereof); (iv) the principal amount of the Bridge Loan and the Additional Loans, on a pro rata basis; and (v) with respect
to payments pursuant to Section 2.8(c), ratably against the remaining Obligations.
2.9
Lender’s Records
. Principal, interest, and all other sums owed under any Loan Document shall be evidenced by entries
in records maintained by Lender for such purpose. Each payment on and any other credits with respect to principal, interest, and
all other sums outstanding under any Loan Document shall be evidenced by entries in such records. Absent manifest error, Lender’s
records shall be conclusive evidence thereof.
2.10
Grant of Security Interests; Filing of Financing Statements
.
(a)
To secure the timely payment and performance of all of Borrower’s Obligations,
Borrower hereby grants to Lender continuing security interests in all of the Collateral. In connection with the foregoing, Borrower
authorizes Lender to prepare and file any financing statements describing the Collateral without otherwise obtaining Borrower’s
signature or consent with respect to the filing of such financing statements.
(b)
In furtherance of Borrower’s grant of the security interests in the Collateral
pursuant to Section 2.10(a) above, Borrower hereby pledges and grants to Lender a security interest in all the Shares, together
with all proceeds and substitutions thereof, all cash, stock and other moneys and property paid thereon, all rights to subscribe
for securities declared or granted in connection therewith, and all other cash and noncash proceeds of the foregoing, as security
for the performance of the Obligations. On the Execution Date or at any time thereafter following Lender’s request, the
certificate or certificates for the Shares will be delivered to Lender, accompanied by an instrument of assignment duly executed
in blank by Borrower, unless such Shares have not been certificated. To the extent required by the terms and conditions governing
the Shares, Borrower shall cause the books of each entity whose Shares are part of the Collateral and any transfer agent to reflect
the pledge of the Shares. Upon the occurrence and during the continuance of an Event of Default hereunder, Lender may effect the
transfer of any securities included in the Collateral (including but not limited to the Shares) into the name of Lender and cause
new certificates representing such securities to be issued in the name of Lender or its transferee(s). Borrower will execute and
deliver such documents, and take or cause to be taken such actions, as Lender may reasonably request to perfect or continue the
perfection of Lender’s security interest in the Shares. Unless an Event of Default shall have occurred and be continuing,
Borrower shall be entitled to exercise any voting rights with respect to the Shares and to give consents, waivers and ratifications
in respect thereof, provided that no vote shall be cast or consent, waiver or ratification given or action taken which would be
inconsistent with any of the terms of this Agreement or which would constitute or create any violation of any of such terms. All
such rights to vote and give consents, waivers and ratifications shall terminate upon the occurrence and continuance of an Event
of Default.
(c)
Borrower is and shall remain absolutely and unconditionally liable for the performance
of its obligations under the Loan Documents, including, without limitation, any deficiency by reason of the failure of the Collateral
to satisfy all amounts due Lender under any of the Loan Documents.
(d)
All Collateral pledged by Borrower under this Agreement shall secure the timely payment
and performance of all Obligations (other than inchoate indemnity obligations) under this Agreement, the Notes and the other Loan
Documents (excluding the Warrants). Except as expressly provided in this Agreement, no Collateral pledged under this Agreement
shall be released until such time as all Obligations (other than inchoate indemnity obligations) under this Agreement and the
other Loan Documents (excluding the Warrants) have been satisfied and paid in full.
ARTICLE
3 - REPRESENTATIONS AND WARRANTIES
Borrower
represents and warrants that, as of the Execution Date and each Borrowing Date:
3.1
Due Organization
. Borrower is a corporation duly organized and validly existing
in good standing under the laws of the jurisdiction of its incorporation, and is duly qualified to conduct business and is in
good standing in e ach other jurisdiction in which its business is conducted or its prope rties are located, except where the
failure to be so qualified would not reasonably be expected to have a Material Adverse Effect.
3.2
Authorization, Validity and Enforceability
. The execution, delivery and performance
of all Loan Documents executed by Borrower are within Borrower’s powers, have been duly authorized, and are not in conflict
with Borrower’s certificate of incorporation or by-laws, or the terms of any charter or other organizational document of
Borrower, as amended from time to time; and all such Loan Documents constitute valid and binding obligations of Borrower, enforceable
in accordance with their terms (except as may be limited by bankruptcy, insolvency and similar laws affecting the enforcement
of creditors’ rights in general, and subject to general principles of equity).
3.3
Compliance with Applicable Laws
. Borrower has complied with all licensing, permit
and fictitious name requirements necessary to lawfully conduct the business in which it is engaged, and to any sales, leases or
the furnishing of services by Borrower, including without limitation those requiring consumer or other disclosures, the noncompliance
with which would have a Material Adverse Effect.
3.4
No Conflict
. The execution, delivery, and performance by Borrower of all Loan Documents
are not in conflict in any material respect with any law, rule, regulation, order or directive, or any indenture, agreement, or
undertaking to which Borrower is a party or by which Borrower may be bound or affected. Without limiting the generality of the
foregoing, the issuance of the Warrants to Lender (or its designee) and the grant of registration rights in connection therewith
do not violate any agreement or instrument by which Borrower is bound or require the consent of any holders of Borrower’s
securities other than consents which have been obtained prior to the Execution Date.
3.5
No Litigation, Claims or Proceedings
. There is no litigation, tax claim, proceeding
or dispute pending, or, to the knowledge of Borrower, threatened against or affecting Borrower, its property or the conduct of
its business which could reasonably be expected to have a Material Adverse Effect.
3.6
Correctness of Financial Statements
. Borrower’s financial statements which
have been delivered to Lender fairly and accurately reflect in all material respects Borrower’s financial condition in accordance
with GAAP as of the latest date of such financial statements (except in the case of unaudited financial statements, for the omission
of footnotes and subject to normal year-end adjustments); and, since that date there has been no Material Adverse Change. It is
understood and acknowledged by Lender that projections and forecasts delivered by or on behalf of Borrowers in good faith shall
not be viewed as facts and that actual results may vary from such projections and forecasts.
3.7
Capital Structure; No Subsidiaries
. As of the Execution Date, Schedule 3 (a) identifies
the capital structure of the Borrower, both immediately before and immediately after giving effect to the issuance of the Warrants
and other transactions anticipated to occur on the Execution Date. Schedule 3 sets forth the name and percentage ownership or
other control relationship for each entity in which Borrower is, or will by reason of the Bridge Loan and/or any Additional Loans
is likely to become, a majority owner or has a control relationship. Except as set forth on Schedule 3, Borrower is not a majority
owner of or in a control relationship with any other business entity. Following the Execution Date, the summary of Borrower’s
capital structure most recently delivered to the Lender pursuant to 5.1(h) is true and correct in all material respects
3.8
Environmental Matters
. To its knowledge after reasonable inquiry, Borrower has concluded
that Borrower is in compliance with Environmental Laws, except to the extent a failure to be in such compliance would not reasonably
be expected to have a Material Adverse Effect.
3.9
No Event of Default
. No Default or Event of Default has occurred and is continuing.
3.10
Full Disclosure
. None of the representations or warranties made by Borrower in the
Loan Documents as of the date such representations and warranties are made or deemed made, and none of the statements contained
in any exhibit, report, statement or certificate furnished by or on behalf of Borrower in connection with the Loan Documents (including
disclosure materials delivered by or on behalf of Borrower to Lender prior to the Execution Date or purs uan t to Section 5.2
her eof ), contains any unt rue state men t of a ma terial fact or omits any material fact required to be stated therein or necessary
to make the statements made the rein, in light of the circumstances under which they are made, not misleading as of the time when
made or delivered. It is understood and acknowledged by Lender that projections and forecasts delivered by or on behalf of Borrowers
in good faith shall not be viewed as facts and that actual results may vary from such projections and forecasts.
3.11
Specific Representations Regarding Collateral
.
(a)
Title
. Except for the security interests created by this Agreement and Permitted
Liens, (i) Borrower is and will be the unconditional legal and beneficial owner of the Collateral, and (ii) the Collateral is
genuine and subject to no Liens, rights or defenses of others. There exist no prior assignments or encumbrances of record with
the U.S. Patent and Trademark Office or U.S. Copyright Office affecting any Collateral in favor of any third party, other than
Permitted Liens.
(b)
Rights to Payment
. The names of the obligors, amount owing to Borrower, due dates
and all other information with respect to the Rights to Payment are and will be correctly stated in all material respects in all
Records relating to the Rights to Payment. Borrower further represents and warrants, to its knowledge, that each Person appearing
to be obligated on a Right to Payment has authority and capacity to contract and is bound as it appears to be.
(c)
Location of Collateral
. Borrower’s chief executive office, Inventory, Records,
Equipment, and any other offices or places of business are located at the address(es) shown on Schedule 3 (not including moveable
items of Equipment in the possession of Borrower’s employees, such as laptops, monitors, printers and cell phones), or in
transit to such locations, as updated by Borrower from time to time in accordance with Section 5.9(c).
(d)
Business Names
. Other than its full corporate name, Borrower has not conducted
business using any trade names or fictitious business names except as shown on Schedule 3.
(e)
Bank Accounts
. The Borrower and its subsidiaries do not maintain any Deposit,
securities, commodities or other investment accounts except as shown on Schedule 3.
3.12
Copyrights, Patents, Trademarks and Licenses
.
(a)
Borrower owns or is licensed or otherwise has the right to use all of the patents, trademarks,
service marks, trade names, copyrights, contractual franchises, authorizations and other similar rights that are reasonably necessary
for the operation of its business, without conflict with the rights of any other Person, and each patent, trademark and copyright
owned by Borrower is listed on the exhibits to the Intellectual Property Security Agreement or has been disclosed in writing to
the Lender and the Lender has a first priority security interest in such patent, trademark or copyright.
(b)
To Borrower’s knowledge, no slogan or other advertising device, product, process,
method, substance, part or other material now employed, or now contemplated to be employed, by Borrower infringes upon any rights
held by any other Person.
(c)
No claim or litigation regarding any of the foregoing is pending or, to Borrower’s
knowledge, threatened, and to Borrower’s knowledge no patent, invention, device, application, principle or any statute,
law, rule, regulation, standard or code is pending or proposed which, in either case, could reasonably be expected to have a Material
Adverse Effect.
3.13
Regulatory Compliance
. Borrower has met the minimum funding requirements of ERISA
with respect to any employee benefit plans subject to ERISA. No event has occurred resulting from Borrower’s failure to
comply with ERISA that is reasonably likely to result in Borrower’s incurring any liability that could have a Material Adverse
Effect. Borrower is not an “investment company” or a company “controlled” by an “investment company”
within the meaning of the Investment Company Act of 1940. Borrower is not engaged principally, or as one of its important activities,
in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulations
T and U of the Board of Governors of the Feder al Reserve System). Borrower has complied, in all material respects with all the
provisions of the Federal Fair Lab or Standards Act.
3.14
Shares
. Borrower h as full power and authority to create a first priority Lien on
the Shares and no disability or contractual obligation exists that would prohibit Borrower from pledging the Shares pursuant to
this Agreement. To Borrower’s knowledge, there are no subscriptions, warrants, rights of first refusal or other restrictions
on transfer relative to, or options exercisable with respect to the Shares. The Shares have been and will be duly authorized and
validly issued, and are fully paid and non-assessable. To Borrower’s knowledge, the Shares are not the subject of any present
or threatened suit, action, arbitration, administrative or other proceeding, and Borrower knows of no reasonable grounds for the
institution of any such proceedings.
3.15
Survival
. The representations and warranties of Borrower as set forth in this Agreement
survive the execution and delivery of this Agreement.
ARTICLE
4 - CONDITIONS PRECEDENT
4.1
Conditions to Bridge Loan and Additional Loans
. The Borrower shall not be entitled
to request that the Lender make, and the Lender shall not be obligated to make, the Bridge Loan on the Execution Date or any Additional
Loan thereafter until the following conditions have been fulfilled and the Lender has received the documents described below,
duly executed and in form and substance satisfactory to Lender and its counsel:
(a)
Resolutions
.
A certified copy of the resolutions of (i) the Board of Directors of Borrower (which, if in the form of a unanimous written consent,
shall be duly executed by each member of the Board of Directors and notarized) authorizing the execution, delivery and performance
by Borrower of the Loan Documents, an increase in the number of directors sitting on the Board of Directors by one and the election
of the additional director, which shall be the Investor Director, and (ii) the shareholders of the Borrower confirming the appointment
of the Investor Director and approving the entry into an indemnification agreement with respect to the Investor Director.
(b)
Incumbency and Signatures
. A certificate of the secretary of Borrower certifying
the names of the officer or officers of Borrower authorized to sign the Loan Documents, together with a sample of the true signature
of each such officer.
(c)
Charter Documents
. Copies of the organizational and charter documents of Borrower
(e.g., Articles or Certificate of Incorporation and Bylaws), as amended through the Execution Date, together with (i) a summary
of the Borrower’s capital structure as of the Execution Date and (ii) copies of all documents related to the stock of the
Borrower and any other agreements, instruments or other documents that relate in any way to voting, rights of first refusal, anti-dilution
rights, rights to acquire equity, rights to incur debt or any other restrictive agreement pursuant to which a third party consent
or approval is required for the Borrower to enter into and perform its obligations under this Agreement, certified by an officer
of Borrower as being true, correct and complete as of the Execution Date.
(d)
Intellectual Property Security Agreement
. Short form Intellectual Property Security
Agreement executed by Borrower in form and substance satisfactory to Lender suitable for filing with the United States Patent
and Trademark Office.
(e)
This Agreement
. Original counterparts of this Agreement, with all schedules completed
and attached thereto, and disclosing such information as is acceptable to Lender.
(f)
Reserved.
(g)
Warrants.
Warrants issued by Borrower to Lender (or its designee), substantially
in the forms attached hereto as Exhibits E-1 and E-2 and satisfactory to Lender in its sole and absolute discretion, exercisable
for such number, type and class of shares of Borrower’s capital stock, and for an initial exercise price as is specified
therein.
(h)
Financing Statements
. Filing copies (or other evidence of filing satisfactory
to Lender and its counsel) of such UCC financing statements, collateral assignments, account control agreements, and termination
statements, with respect to the Collateral as Lender shall request.
(i)
Lien Searches
. UCC lien, judgment, bankruptcy and tax lien searches of Borrower
from such jurisdictions or offices as Lender may reasonably request, all as of a date reasonably satisfactory to Lender and its
counsel.
(j)
Good Standing Certificate
. A certificate of status or good standing of Borrower
as of a date acceptable to Lender from the jurisdiction of Borrower’s organization and any foreign jurisdictions where Borrower
is required to be qualified to do business and the failure to be so qualified could reasonably be expected to have a Material
Adverse Effect.
(k)
Other Conditions
. Each of the conditions set forth in Section 4.3 are fulfilled
and the Lender has received the documents described in Section 4.3, duly executed and in form and substance satisfactory to Lender
and its counsel.
(l)
Other Documents
. Such other documents and instruments as Lender may reasonably request to effectuate the intents and purposes
of this Agreement.
4.2
Conditions to Additional Loan
. The Borrower shall not be entitled to request that
the Lender make any Additional Loan(s), until the following conditions have been fulfilled and the Lender has received the documents
described below, duly executed and in form and substance satisfactory to Lender and its counsel:
(a)
Legal Opinion
. The opinion of legal counsel for Borrower as to such matters as
Lender may reasonably request, in form and substance satisfactory to Lender.
(b)
Insurance Certificates
. Insurance certificates showing Lender as loss payee or
additional insured.
(c)
Employment Agreements.
Copies of an employment agreement with each of the Key
Employees shall have been delivered to the Lender within thirty (30) days of the Execution Date, which agreement shall contain
an acknowledgement from such Key Employee of the terms of Sections 5.13, 7.1(k), and Section 5.14.
(d)
Charter Documents. Cop
ies of the organizational and charter documents of Borrower
(e.g., Articles or Certificate of Incorporation and Bylaws), as amended through the proposed date of the second Additional Loan,
including the provisions contemplated by Section 5.17, certified by an officer of Borrower as being true, correct and complete
as such date.
(e)
Other Conditions. Each
of the conditions set forth in Section 4.3 are fulfilled
and the Lender has received the documents described in Section 4.3, duly executed and in form and substance satisfactory to Lender
and its counsel.
(f)
Other Documents. Such
other documents and instruments as Lender may reasonably
request to effectuate the intents and purposes of this Agreement, including releases in favor of the Released Parties from the
Chief Executive Officer and Chief Financial Officer of the Borrower.
4.3
Conditions to All Loan
s. The Borrower shall not be entitled to request that the
Lender make any Loans hereunder, until the following conditions are fulfilled and the Lender has received the documents described
below, duly executed and in form and substance satisfactory to Lender and its counsel:
(a)
No Default.
No Default or Event of Default has occurred and is continuing or will result from the making of any such Loan,
and the representations and warranties of Borrower contained in Article 3 of this Agreement are true and correct in all material
respects as of the Borrowing Date of such Loan, except to the extent such representations and warranties are made as of a specified
date in which case such representations and warranties shall be true and correct in all material respects as of such earlier date
and provided that such materiality qualifier shall not be applicable to any representation or warranty already qualified or modified
by materiality in the text thereof.
(b)
No Material Adverse Change
. No event has occurred that has had or could reasonably
be expected to have a Material Adverse Change. Loan. Borrowing Request. Borrower shall have delivered to Lender a Borrowing Request
for such Note. Borrower shall have delivered an original executed Note evidencing such Loan, substantially in the form attached
hereto as Exhibit A.
(c)
Supplemental Lien Filings
. Borrower shall have executed and delivered such amendments
or supplements to this Agreement and additional Security Documents, financing statements and third party waivers as Lender may
reasonably request in connection with the proposed Loan, in order to create, protect or perfect or to maintain the perfection
of Lender’s Liens on the Collateral.
(d)
Financial Projections
. Borrower shall have delivered to Lender Borrower’s
business plan and/or financial projections or forecasts as most recently approved by Borrower’s Board of Directors.
ARTICLE
5 - AFFIRMATIVE COVENANTS
During
the term of this Agreement and until its performance of all Obligations (other than inchoate indemnity obligations), Borrower
will:
5.1
Notice to Lender
. Promptly give written notice to Lender of:
(a)
Any litigation or administrative or regulatory proceeding affecting Borrower where the
amount claimed against Borrower is at the Threshold Amount or more, or where the granting of the relief requested could reasonably
be expected to have a Material Adverse Effect; or of the acquisition by Borrower of any commercial tort claim, including brief
details of such claim and such other information as Lender may reasonably request to enable Lender to better perfect its Lien
in such commercial tort claim as Collateral.
(b) Any
dispute which may exist between Borrower and any governmental or regulatory authority which, if determined adversely to Borrower,
could reasonably be expected to have a Material Adverse Effect.
(c) The
occurrence of any Default or any Event of Default after Borrower has knowledge or becomes aware thereof.
(d)
Any change in the location of any of Borrower’s places of business or Collateral
with an aggregate value in excess of $25,000 (not including moveable items of Equipment in the possession of Borrower’s
employees, such as laptops, monitors, printers and cell phones) at least ten (10) days in advance of such change, or of the establishment
of any new, or the discontinuance of any existing, place of business. Any dispute or default by Borrower or any other party under
any joint venture, partnering, distribution, cross-licensing, strategic alliance, collaborative research or manufacturing, license
or similar agreement which could reasonably be expected to have a Material Adverse Effect.
(e)
Any other matter which has resulted or could reasonably be expected to result in a Material
Adverse Change.
(f)
Any Subsidiary Borrower intends to acquire or create.
(g)
Any change in the capital structure of the Borrower, along with a revised and updated
capital
structure
summary.
5.2 Financial
Statements
. Deliver to Lender or cause to be delivered to Lender, in form and detail reasonably satisfactory to Lender the
following financial and other information, which Borrower warrants shall be accurate and complete in all material respects:
(a)
Monthly
Financial Statements
. As soon as available but no later than thirty (30) days after the end of each month, Borrower’s
balance sheet as of the end of such period, and Borrower’s income statement and Borrower’s cash flow statement for
such period and for that portion of Borrower’s financial reporting year ending with such period, prepared in accordance
with GAAP (except for the omission of footnotes and subject to normal year end adjustments) and attested by a responsible financial
officer of Borrower as being complete and correct and fairly presenting in all material respects Borrower’s financial condition
and the results of Borrower’s operations. After a Qualified Public Offering, the foregoing interim financial statements
shall be delivered no later than 45 days after each fiscal quarter and for the quarter-annual fiscal period then ended.
(b)
Year-End Financial Statements
. Contemporaneously with delivery to Borrower’s
Board of Directors, after and as of the end of each financial reporting year, a complete copy of Borrower’s audit report,
which shall include balance sheet; income statement, statement of changes in equity and statement of cash flows for such year,
prepared in accordance with GAAP and certified by an independent certified public accountant selected by Borrower and satisfactory
to Lender (the “
Accountant
”). The Accountant’s certification shall not be qualified or limited due to
a restricted or limited examination by the Accountant of any material portion of Borrower’s records or otherwise. Notwithstanding
the foregoing, if Borrower’s Board of Directors does not require Borrower’s financial statements to be audited for
a particular reporting year, then Borrower shall deliver to Lender unaudited financial statements for such year, including the
items described in, and in the timeframe specified in, this Section 5.2(b).
(c)
Compliance Certificates
. Simultaneously with the delivery of each set of financial
statements referred to in paragraphs (a) and (b) above, a certificate of the chief financial officer of Borrower (or other executive
officer) substantially in the form of Exhibit C hereto (i) setting forth in reasonable detail any calculations required to establish
whether Borrower is in compliance with any covenants or tests set forth herein, and (ii) stating, among other things, whether
any Default or Event of Default exists on the date of such certificate, and if so, setting forth the details thereof and the action
which Borrower is taking or proposes to take with respect thereto.
(d)
Government Required Reports; Press Releases
. Promptly after sending, issuing,
making available, or filing, copies of all material statements released to any news media for publication, all reports, proxy
statements, and financial statements that Borrower sends or makes generally available to its stockholders, and, not later than
five (5) days after actual filing or the date such filing was first due, all registration statements and reports that Borrower
files or is required to file with the Securities and Exchange Commission.
(e)
Other Information
. Such other statements, lists of property and accounts, budgets
(as updated), sales projections, forecasts, reports, 409A valuation reports (as updated), operating plans, financial exhibits,
capitalization tables (as updated) and information relating to equity and debt financings consummated after the Execution Date
(including post-closing capitalization table(s)), or other information as Lender may from time to time reasonably request. In
addition to the foregoing, Borrower will promptly provide Lender with copies of all notices, minutes, consents and other materials,
financial or otherwise, which Borrower provides to its board of directors, provided that in all cases Borrower may exclude confidential
compensation information, attorney/client privileged communications, matters that present a direct conflict of interest to Lender,suchas
atake-outfinancing proposal, and executive session materials.
5.3
Managerial Assistance from Lender
.
(a)
Borrower ag rees that (i) i t will make its offi cers , directors, employee s a nd affi
liat es av ailable at such times a s Lend er m ay reasonably request for Lender to consult with and advise as to the conduct of
Borrower’s business, its equipme nt and financing plans, a nd its financial condition and prospects, (ii) Lender shall h
ave the righ t to in spe ct B orrower’s books, r ecords, f acil ities and propert ies at rea son able times during normal
b usiness h our s on reaso nab le advance notice (b ut in no cas e more than onc e pe r calend ar year at Borrower’s expense
if no Event of Default has occurred and is continuing), (iii) Lender shall be entitled to appoint a non-voting observer to the
Board of Directors of the Borrower, who shall be entitled to attend all board and committee meetings and receive all notices,
minutes, consents and other materials the Borrower provides to its Board of Directors, and (vi) Lender shall be entitled to recommend
prospective candidates for election or nomination for election to Borrower’s Board of Directors and Borrower shall give
due consideration to (but shall not be bound by) such recommendations, it being the intention of the parties that Lender shall
be entitled through such rights, inter alia, to furnish “significant managerial assistance”, as defined in Section
2(a)(47) of the Investment Company Act of 1940, to Borrower.
(b)
Without limiting the generality of (a) above, if Lender reasonably believes that financial
or other developments affecting Borrower have impaired or are likely to impair Borrower’s ability to perform its obligations
under this Agreement, permit Lender reasonable access to Borrower’s management and Board of Directors and opportunity to
present Lender’s views with respect to such developments.
Lender
shall cooperate with Borrower to ensure that the exercise of Lender’s rights shall not disrupt the business of Borrower.
The rights enumerated above shall survive the payment and satisfaction of all of Borrower’s Obligations to Lender but shall
not be construed as giving Lender control over Borrower’s management or policies.
5.4
Existence
. Maintain and preserve Borrower’s existence, present form of business, and all rights and privileges necessary
in the normal course of its business; and keep all Borrower’s property in good working order and condition, ordinary wear
and tear excepted.
5.5
Insurance
. Obtain and keep in force insurance in such amounts and types as is usual
in the type of business conducted by Borrower, with insurance carriers having a policyholder rating of not less than “A”
and financial category rating of Class VII in “Best’s Insurance Guide,” unless otherwise approved by Lender.
Such insurance policies must be in form and substance reasonably satisfactory to Lender, and shall list Lender as an additional
insured or loss payee, as applicable, on endorsement(s) in form reasonably acceptable to Lender. Borrower shall furnish to Lender
such endorsements, and upon Lender’s request, copies of any or all such policies. If no Event of Default has occurred and
is continuing, proceeds payable under any casualty policy will, at Borrower’s option, be payable to Borrower to replace
the property subject to the claim to the extent set forth in Section 2.8(c), provided that any such replacement property shall
be deemed Collateral in which Lender has been granted a first priority security interest. If an Event of Default has occurred
and is continuing (other than, during the Forbearance Period, the Existing Defaults), then proceeds payable under any policy will
be payable to Lender toward the satisfaction of the Obligations in accordance with the terms of this Agreement.
5.6
Accounting Records
. Maintain adequate books, accounts and records, and prepare all
financial statements in accordance with GAAP (except in the case of unaudited financial statements for the omission of footnotes
and subject to normal year-end adjustments), and in compliance with the regulations of any governmental or regulatory authority
having jurisdiction over Borrower or Borrower’s business; and permit employees or agents of Lender at such reasonable times
and upon reasonable advance written notice as Lender may request, at Borrower’s expense, for one such inspection each calendar
year and for all such inspections while an Event of Default has occurred and is continuing, to inspect Borrower’s properties,
and to examine, and make copies and memoranda of Borrower’s books, accounts and records.
5.7
Compliance with Laws
. Comply with all laws (including Environmental Laws), rules,
regulations applicable to, and all orders and directives of any governmental or regulatory authority having jurisdiction over,
Borrower or Borrower’s business, and with all material agreements to which Borrower is a party, except where the failure
to so comply would not have a Material Adverse Effect.
5.8
Taxes and Other Liabilities
. Pay all Borrower’s Indebtedness when due (subject
to applicable cure periods); pay all taxes and other governmental or regulatory assessments, in each case, before delinquency
or before any penalty attaches thereto, except as may be contested in good faith by the appropriate procedures and for which Borrower
shall maintain appropriate reserves; and timely file all required tax returns.
5.9
Special Collateral Covenants
.
(a)
Maintenance of Collateral; Inspection
. Do all things reasonably necessary to
maintain, preserve, protect and keep all Collateral in good working order and salable condition, ordinary wear and tear excepted,
deal with the Collateral in all ways as are considered good practice by owners of like property, and use the Collateral lawfully
and, to the extent applicable, only as permitted by Borrower’s insurance policies. Maintain, or cause to be maintained,
complete and accurate Records relating to the Collateral. Upon reasonable prior notice at reasonable times during normal business
hours (but not more than once per calendar year unless an Event of Default has occurred and is continuing), Borrower hereby authorizes
Lender’s officers, employees, representatives and agents to inspect the Collateral and to discuss the Collateral and the
Records relating thereto with Borrower’s officers and employees, and, in the case of any Right to Payment, after the occurrence
and during the continuance of an Event of Default, with any Person which is or may be obligated thereon.
(b)
Documents of Title
. Not sign or authorize the signing of any financing statement
or other document naming Borrower as debtor or obligor (other than a precautionary financing statement with respect to a lease
that is not in the nature of a security interest), or acquiesce or cooperate in the issuance of any bill of lading, warehouse
receipt or other document or instrument of title with respect to any Collateral, except those negotiated to Lender, or those naming
Lender as secured party, or if solely to create, perfect or maintain a Permitted Lien.
(c)
Change in Location or Name
. Without at least 10 days’ prior written notice
to Lender: (a) not relocate any Collateral with an aggregate value in excess of $25,000 (not including moveable items of Equipment
in the possession of Borrower’s employees such as laptops, monitors, printers, and cell phones) or Records, its chief executive
office, or establish a place of business at a location other than as specified in Schedule 3; and (b) not change its name, mailing
address, location of Collateral with an aggregate value in excess of $25,000 or Records, jurisdiction of incorporation or its
legal structure.
(d)
Decals,
Markings
. At the request of Lender, firmly affix a decal, stencil or other marking to designated items of Equipment, indicating
thereon the security interest of Lender.
(e)
Agreement with Persons in Possession of Collateral
. Use commercially reasonable
efforts to obtain and maintain such acknowledgments, consents, waivers and agreements (each a “
Waiver
”) from
the owner, operator, lienholder, mortgagee, landlord or any Person in possession of tangible Collateral in excess of $25,000 (not
including moveable items of Equipment in the possession of Borrower’s employees such as laptops, monitors, printers, and
cell phones) per location as Lender may require, all in form and substance satisfactory to Lender.
(f)
Certain Agreements on Rights to Payment
. Other than in the ordinary course of
business, not make any material discount, credit, rebate or other reduction in the original amount owing on a Right to Payment
or accept in satisfaction of a Right to Payment less than the original amount thereof.
(g)
Authorization for Automated Clearinghouse Funds Transfer
. (i) Authorize Lender
to initiate debit entries to Borrower’s account specified in Schedule 5.10 (the “
Primary Operating Account
”)
through Automated Clearinghouse (“
ACH
”) transfers, in order to satisfy the regularly scheduled payments of
principal and interest (if any); (ii) provide Lender at least thirty (30) days’ notice of any change in Borrower’s
Primary Operating Account; and (iii) grant Lender any additional authorizations necessary to begin ACH debits from a new account
which becomes the Primary Operating Account.
5.10
Reserved.
5.11
Additional Software Products.
From the Execution Date until the fifth anniversary thereof, ensure that affiliates of the Lender
are provided with most favored nation pricing and other material terms on the Borrower’s software development services and
products.
5.12
Non-Compete
. Ensure that, prior t o the date that the Obligations are repaid in
full, none of the Key Employees shall, directly or indirectly, (i) engage in any activity that is in any way competitive, or prepare
to compete, with the business or demonstrably anticipated business of the Borrower (a “
Competitive Business
”),
whether through ownership, service or otherwise or (ii) solicit, induce, recruit or encourage any of the Borrower’s employees,
consultants or other service providers to termination their relationship with the Borrower or attempt to do so. Within thirty
(30) days of the Execution Date, the Borrower shall cause each such Key Employee to enter into an employment agreement that contains
an acknowledgment of the requirements of this Section 5.13 and the Borrower shall deliver a copy of the same to the Lender.
5.13
Right of First Refusal.
If any Competitive Business in which a Key Employee participates, whether as an owner, service provider
or otherwise, raises capital through the sale of debt or equity securities at any time prior to the date that the Obligations
are repaid in full, the Borrower shall cause such Key Employee to offer a right of first refusal for the Lender to purchase such
debt or equity securities on terms no less favorable to the Lender than the terms the Key Employee has received from a third party
on arm’s-length basis.
5.14
Third Party Releases.
Within 180 (180) days of the Execution Date, cause each vendor, supplier and other Person with whom
Borrower has a valid account payable as of the Execution Date, as specified on Schedule 5.15, to deliver to the Lender a release,
in form and substance satisfactory to the Lender.
5.15
Pre-Emptive Rights.
Until the occurrence of a Qualified Public Offering or Change
of Control, the Borrower shall ensure that at all times Lender or its affiliate has the pro rata right, but not an obligation,
based on the Lender’s and its affiliate’s aggregate percentage equity ownership, assuming full conversion and exercise
of all outstanding convertible and exercisable securities, to participate in subsequent debt and equity financings of the Borrower,
other than issuances in connection with employee equity incentive plans, bona fide business acquisitions by the Borrower, conversion
of existing convertible securities, or distribution, licensing, development or similar commercial transactions that are not primary
for financing purposes.
5.16
Amendment of Certificate of Incorporation.
Within thirty (30) days of the Execution
Date, (a) amend its certificate of incorporation to (i) require a unanimous vote of the Board of Directors of the Borrower in
order to approve any action which would cause the Borrower to liquidate, dissolve or commence any voluntary Insolvency Proceeding
and (ii) provide for the Lender’s permanent right to designate an Investor Director for election to the Board of Directors
of the Borrower without the consent of the Borrower’s stockholders or any third parties, and (b) deliver to the Lender a
copy of such amended certificate of incorporation, certified by the Secretary of State of Nevada.
ARTICLE
6 - - NEGATIVE COVENANTS
During
the term of this Agreement and until the performance of all Obligations (other than inchoate indemnity obligations), Borrower
will not:
6.1
Indebtedness
. Incur, or otherwise become liable (as principal obligor, guarantor, surety, accommodation party or otherwise)
for, any Indebtedness, except, and subject to Section 5.16:
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(a)
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Indebtedness
incurred for the acquisition of supplies or inventory on normal trade credit;
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(b)
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Indebtedness
incurred pursuant to one or more transactions permitted under Section 6.4;
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(c)
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Indebtedness
of Borrower under this Agreement;
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(d)
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Subordinated
Debt;
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(e)
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any
Indebtedness approved by Lender prior to the Execution Date as shown on Schedule 6.1;
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(f)
Indebtedness of Borrower secured only by the security interests covered by subsection
(c) of the definition of Permitted Lien not to exceed $50,000 in aggregate amount outstanding at any time;
(g)
Indebtedness consisting of interest rate, currency, or commodity swap agreements, interest
rate cap or collar agreements or arrangements entered into in the ordinary course of business and designated to protect Borrower
against fluctuations in interest rates, currency exchange rates, or commodity prices and not for speculative purposes;
(h)
Indebtedness in respect of bank guarantees and similar instruments issued for the account
of Borrower in the ordinary course of business supporting obligations under (A) workers’ compensation, unemployment insurance
and other social security laws and (B) bids, trade contracts, statutory obligations, surety and appeal bonds, performance bonds
and obligations of a like nature;
(i)
Indebtedness in respect of letters of credit issued for the account of Borrower in the
ordinary course of business supporting obligations under real property leases not to exceed $50,000 in aggregate amount outstanding
at any time;
(j)
extensions, refinancings, modifications, amendments and restatements of any items of (a) through (i) above, provided that the
principal amount thereof is not increased or the terms thereof are not modified to impose more burdensome terms upon Borrower.
6.2
Liens
. Create, incur, assume or permit to exist any Lien, or grant any other Person
a negative pledge, on any of Borrower’s property, except Permitted Liens. Borrower and Lender agree that this covenant is
not intended to constitute a lien, deed of trust, equitable mortgage, or security interest of any kind on any of Borrower’s
real property, and this Agreement shall not be recorded or recordable. Notwithstanding the foregoing, however, violation of this
covenant by Borrower shall constitute an Event of Default.
6.3
Dividends
. Pay any dividends or purchase, redeem or otherwise acquire or make any other distribution with respect to any of
Borrower’s capital stock, except (a) dividends or other distributions solely of capital stock of Borrower, (b) so long as
no Event of Default has occurred and is continuing, repurchases of stock from employees, directors or consultants at the lower
of cost or fair market value upon termination of employment under reverse vesting or similar repurchase plans not to exceed $25,000
in any calendar year, (c) conversion of any of its securities into other securities or otherwise in exchange therefor, and (d)
purchases or distributions of capital stock in connection with the exercise of stock options or stock appreciation rights.
6.4
Fundamental Changes
. (a) Liquidate, dissolve or commence, or permit any of Borrower’s
Subsidiaries to commence, any voluntary Insolvency Proceeding with respect to itself or any of Borrower’s Subsidiaries;
(b) enter into, or permit any of Borrower’s Subsidiaries to enter into, any Change of Control; or (c) acquire, or permit
any of Borrower’s Subsidiaries to acquire, all or substantially all of the capital stock or property of another Person.
Notwithstanding anything to the contrary in this Section 6.4, Borrower may enter into a transaction that will constitute a Change
of Control so long as: (i) the Person that results from such Change of Control (the “
Surviving Entity
”) shall
be reasonably acceptable to the Lender and shall have executed and delivered to Lender an agreement in form and substance reasonably
satisfactory to Lender, containing an assumption by the Surviving Entity of the due and punctual payment and performance of all
Obligations and performance and observance of each covenant and condition of Borrower in the Loan Documents; (ii) all such obligations
of the Surviving Entity to Lender shall be guaranteed by any Person that directly or indirectly owns or controls 50% or more of
the voting stock of the Surviving Entity; (iii) immediately after giving effect to such Change of Control, no Event of Default
or, event which with the lapse of time or giving of notice or both, would result in an Event of Default shall have occurred and
be continuing; (iv) the Investor Director shall have approved of such Change of Control; and (v) the credit risk to Lender, in
its sole discretion, with respect to the Obligations and the Collateral shall not be increased. In determining whether the proposed
Change of Control would result in an increased credit risk, Lender may consider, among other things, changes in Borrower’s
management team, employee base, access to equity markets, venture capital support, financial position and/or disposition of intellectual
property rights which may reasonably be anticipated as a result of the Change of Control. In addition, (i) a Subsidiary may merge
or consolidate into another Subsidiary and (ii) Borrower may consolidate or merge with any of Borrower’s Subsidiaries provided
that Borrower is the continuing or surviving Person. Except in connection with a transaction permitted by this Section 6.4 or
as contemplated by Section 5.17, the Borrower shall not amend its organizational documents or remove the Investor Director without
the express prior written consent of the Lender.
6.5
Sales of Assets.
Sell, transfer, lease, license or otherwise dispose of (a “Transfer”)
any of Borrower’s assets except (i) non-exclusive licenses of Intellectual Property in the ordinary course of business consistent
with industry practice, provided that such licenses of Intellectual Property neither result in a legal transfer of title of the
licensed Intellectual Property nor have the same effect as a sale of such Intellectual Property; Transfers of worn-out, obsolete
or surplus property (each as determined by Borrower in its reasonable judgment); (iii) Transfers of Inventory in the ordinary
course of business; (iv) Transfers constituting Permitted Liens; (v) Transfers permitted in Section 6.6 hereunder; and (vi) Transfers
of Collateral (other than Intellectual Property) for fair consideration and in the ordinary course of its business.
6.6
Loans/Investments.
Make or suffer to exist any loans, guaranties, advances,
or investments, except:
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a)
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accounts
receivable in the ordinary course of Borrower’s business;
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b)
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investments
in domestic certificates of deposit issued by, and other domestic investments with, financial institutions organized under
the laws of the United States or a state thereof, having at least One Hundred Million Dollars ($100,000,000) in capital and
a rating of at least “investment grade” or “A” by Moody’s or any successor rating agency;
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c)
investments in marketable obligations of the United States of America or its agencies in any State and in open market commercial
paper given the highest credit rating by a national credit agency and maturing not more than one year from the creation thereof;
(d)
temporary advances to cover incidental expenses to be incurred in the ordinary course of business;
(e)
investments in joint ventures, strategic alliances, licensing and similar arrangements customary in Borrower’s industry
and which do not require Borrower to assume or otherwise become liable for the obligations of any third party not directly related
to or arising out of such arrangement or, without the prior written consent of Lender, require Borrower to transfer ownership
of non-cash assets to such joint venture or other entity;
(f)
investments of cash in one or more wholly-owned Subsidiaries of Borrower, so long as each such Person has been made a co-borrower
hereunder or has executed and delivered to Lender an agreement, in form and substance reasonably satisfactory to Lender, containing
a guaranty of the Obligations.
(g)
Investments (including debt obligations) received in connection with the bankruptcy or reorganization of customers or suppliers
and in settlement of delinquent obligations of, and other disputes with, customers or suppliers arising in the ordinary course
of business;
(h)
Investments consisting of notes receivable of, or prepaid royalties and other credit extensions, to customers and suppliers who
are not Affiliates, in the ordinary course of business;
(i)
the formation or acquisition of Subsidiaries after the Execution Date, subject to compliance with Section 6.14 of this Agreement;
and
(j)
other investments in an aggregate amount not to exceed $100,000 in any calendar year.
For
the avoidance of doubt, this Section 6.6 shall not be deemed to prohibit Borrower from making cash capital expenditures in the
ordinary course of business.
6.7
Transactions with Related Persons
. Directly or indirectly enter into any transaction with or for the benefit of a Related
Person on terms more favorable to the Related Person than would have been obtainable in an “arms’ length” dealing
other than sales of equity securities to existing investors and employees in Borrower for capital raising purposes.
6.8
Other Business
. Engage in any material line of business other than the business Borrower conducts as of the Execution Date,
or any business closely related thereto.
6.9
Financing Statements and Other Actions
. Fail to execute and deliver to Lender all financing statements, notices and other
documents (including, without limitation, any filings with the United States Patent and Trademark Office and the United States
Copyright Office) from time to time reasonably requested by Lender to maintain a perfected first priority security interest in
the Collateral in favor of Lender, subject to Permitted Liens; perform such other acts, and execute and deliver to Lender such
additional conveyances, assignments, agreements and instruments, as Lender may at any time request in connection with the administration
and enforcement of this Agreement or Lender’s rights, powers and remedies hereunder, in the case of each of the foregoing
promptly following Lender’s request.
6.10
Compliance
. Become an “investment company” or controlled by an “investment company,” within the meaning
of the Investment Company Act of 1940, or become principally engaged in, or undertake as one of its important activities, the
business of extending credit for the purpose of purchasing or carrying margin stock, or use the proceeds of any Loan for such
purpose. Fail to meet the minimum funding requirements of ERISA, permit a Reportable Event or Prohibited Transaction, as defined
in ERISA, to occur, fail to comply with the Federal Fair Labor Standards Act or violate any law or regulation, which violation
could reasonably be expected to have a Material Adverse Effect or a material adverse effect on the Collateral or the priority
of Lender’s Lien on the Collateral, or permit any of its subsidiaries to do any of the foregoing.
6.11
Other Deposit and Securities Accounts
. Maintain any Deposit Accounts or accounts holding 16 securities owned by Borrower except
(i) Deposit Accounts and investment/securities accounts as set forth in Schedule 3, and (ii) other Deposit Accounts and securities/investment
accounts, in each case, with respect to which Borrower and Lender shall have taken such action as Lender reasonably deems necessary
to obtain a perfected first priority security interest therein, subject to Permitted Liens. The provisions of the previous sentence
shall not apply to Deposit Accounts (x) exclusively used for payroll, payroll taxes and other employee wage and benefit payments
to or for the benefit of Borrower’s employees provided that the aggregate balance in such accounts does not exceed $100,000
for more than seven (7) consecutive days.
6.12
Prepayment of Indebtedness
. Prepay, redeem or otherwise satisfy in any manner prior to the scheduled repayment thereof any
Indebtedness (other than the Loans). Notwithstanding the foregoing, Lender agrees that the conversion or exchange into Borrower’s
equity securities of any Indebtedness (other than the Loans) shall not be prohibited by this Section 6.12.
6.13
Repayment of Subordinated Debt
. Repay, prepay, redeem’ or otherwise satisfy in any manner any Subordinated Debt, except
in accordance with the terms of any subordination agreement among Borrower, Lender and the holder(s) of such Subordinated Debt.
Notwithstanding the foregoing, Lender agrees that the conversion or exchange into Borrower’s equity securities of any Subordinated
Debt and the payment of cash in lieu of fractional shares shall not be prohibited by this Section 6.13.
6.14
Subsidiaries
.
(a)
Acquire or create any Subsidiary, unless such Subsidiary becomes, at Lender’s option, either a co- borrower hereunder or
executes and delivers to Lender one or more agreements, in form and substance reasonably satisfactory to Lender, containing a
guaranty of the Obligations that is secured by first priority Liens on such Person’s assets. For clarity, the parties acknowledge
and agree that Lender shall have the exclusive right to determine whether any such Person will be made a co-borrower hereunder
or a guarantor of the Obligations. Prior to the acquisition or creation of any such Subsidiary, Borrower shall notify Lender thereof
in writing, which notice shall contain the jurisdiction of such Person’s formation and include a description of such Person’s
fully diluted capitalization and Borrower’s purpose for its acquisition or creation of such Subsidiary. Notwithstanding
the foregoing, Lender shall not have the right to require a Foreign Subsidiary to become a co-borrower hereunder or execute and
deliver to Lender one or more agreements containing a guaranty of the Obligations that is secured by first priority Liens on such
Person’s assets if any of the foregoing actions could reasonably be expected to result in material adverse tax consequences
to Borrower.
(b)
Sell, transfer, encumber or otherwise dispose of Borrower’s ownership interest in any Subsidiary other than Permitted Liens.
(c)
Cause or permit a Subsidiary to do any of the following: (i) grant Liens on such Subsidiary’s assets, except for Liens that
would constitute Permitted Liens if incurred by Borrower and Liens on any property held or acquired by such Subsidiary in the
ordinary course of its business securing Indebtedness incurred or assumed for the purpose of financing all or any part of the
cost of acquiring such property; provided, that such Lien attaches solely to the property acquired with such Indebtedness and
the proceeds thereof and that the principal amount of such Indebtedness does not exceed one hundred percent (100%) of the cost
of such property; and (ii) issue any additional Shares.
6.15
Leases
. Create, incur, assume, or suffer to exist any obligation as lessee for the rental or hire of any personal property
(“
Personal Property Leases
”), except (i) Personal Property Leases constituting Indebtedness (which shall be
subject to Section 6.1(f)) and (ii) Personal Property Leases not constituting Indebtedness that do not in the aggregate require
Borrower to make payments (including taxes, insurance, maintenance and similar expenses which Borrower is required to pay under
the terms of any lease) in any fiscal year of Borrower in excess of $50,000.
6.16
Use of Proceeds
. Use the proceeds of any Additional Loan for any purpose other than the uses specified in Section 2.1(b)
and in the Borrowing Request pursuant to which such Additional Loan was made.
ARTICLE
7 - EVENTS OF DEFAULT
7.1
Events of Default; Acceleration
. Upon the occurrence and during the continuation of any Default, the obligation of Lender
to make any additional Loan shall be suspended. The occurrence of any of the following (each, an “
Event of Default
”)
shall terminate any obligation of Lender to make any additional Loan; and shall, at the option of Lender (1) make all sums of
interest and principal, as well as any other Obligations and amounts owing under any Loan Documents immediately due and payable
without notice of default, presentment or demand for payment, protest or notice of nonpayment or dishonor or any other notices
or demands and (2) give Lender the right to exercise any other right or remedy provided by contract or applicable law:
(a)
Borrower shall fail to pay any principal or interest under this Agreement or any Note, or fail to pay any fees or other charges
when due under any Loan Document; provided that with respect to the first such failure, the Borrower shall have a period of five
(5) days from the date such payment first became due in which to cure such Default before it shall be an Event of Default hereunder.
(b)
An Event of Default as defined in any other Loan Document shall have occurred.
(c)
Any representation or warranty made, or financial statement, certificate or other document provided, by Borrower under any Loan
Document shall prove to have been false or misleading in any material respect when made or deemed made herein.
(d)
(i) Borrower shall fail to pay its debts generally as they become due; or (ii) Borrower shall commence any Insolvency Proceeding
with respect to itself, an involuntary Insolvency Proceeding shall be filed against Borrower, or a custodian, receiver, trustee,
assignee for the benefit of creditors, or other similar official, shall be appointed to take possession, custody or control of
the properties of Borrower, and such involuntary Insolvency Proceeding, petition or appointment is acquiesced to by Borrower or
is not dismissed within forty five (45) days; or (ii)! the dissolution, winding up, or termination of the business or cessation
of operations of Borrower (including any transaction or series of related transactions deemed to be a liquidation, dissolution
or winding up of Borrower pursuant to the provisions of Borrower’s charter documents); or (iv) Borrower shall take any corporate
action for the purpose of effecting, approving, or consenting to any of the foregoing.
(e)
Borrower shall be in default beyond any applicable period of grace or cure under any other agreement involving the borrowing of
money, the purchase of property, the advance of credit or any other monetary liability of any kind to Lender or to any Person
in an amount in excess of the Threshold Amount.
(f)
Any governmental or regulatory authority shall take any judicial or administrative action, or any defined benefit pension plan
maintained by Borrower shall have any unfunded liabilities, any of which, in the reasonable judgment of Lender, could reasonably
be expected to have a Material Adverse Effect.
(g)
Any sale, transfer or other disposition of all or substantially all of the assets of Borrower, including without limitation to
any trust or similar entity, shall occur.
(h)
Any judgment(s) singly or in the aggregate in excess of the Threshold Amount shall be entered against Borrower which, if not fully
covered by insurance, remain unsatisfied, unvacated or unstayed pending appeal for ten (10) or more days after entry thereof.
(i)
Borrower shall fail to perform or observe any covenant contained in Sections 5.11 through 5.16 or Article 6 of this Agreement,
and, with respect to the covenants contained in Section 5.15, if capable of being cured, the breach of such covenant is not cured
within 5 days after the date on which such breach occurred.
(j)
Borrower shall fail to perform or observe any covenant contained in Article 5 (other than Sections 5.11 through 5.16) or elsewhere
in this Agreement or any other Loan Document (other than a covenant which is dealt with specifically elsewhere in this Article
7) and, if capable of being cured, the breach of such covenant is not cured within 30 days after the sooner to occur of Borrower’s
receipt of notice of such breach from Lender or the date on which such breach first becomes known to any officer of Borrower;
provided, however that if such breach is not capable of being cured within such 30-day period and Borrower timely notifies Lender
of such fact and Borrower diligently pursues such cure, then the cure period shall be extended to the date requested in Borrower’s
notice but in no event more than 90 days from the initial breach; provided, further, that such additional 60-day opportunity to
cure shall not apply in the case of any failure to perform or observe any covenant which has been the subject of a prior failure
within the preceding 180 days or which is a willful and knowing breach by Borrower.
(k)
Any of the Key Employees ceases to be employed full-time by the Borrower for a period of more than five 5 days, other than as
a result of the death or disability of such Key Employee.
7.2
Remedies upon Default
. Upon the occurrence and during the continuance of an Event of Default, Lender shall be entitled to,
at its option, exercise any or all of the rights and remedies available to a secured party under the UCC or any other applicable
law, and exercise any or all of its rights and remedies provided for in this Agreement and in any other Loan Document. The obligations
of Borrower under this Agreement shall continue to be effective or be reinstated, as the case may be, if at any time any payment
of any Obligations is rescinded or must otherwise be returned by Lender upon, on account of, or in connection with, the insolvency,
bankruptcy or reorganization of Borrower or otherwise, all as though such payment had not been made.
7.3
Sale of Collateral
. Subject to the Forbearance Period, upon the occurrence and during the continuance of an Event of Default,
Lender may sell all or any part of the Collateral, at public or private sales, to itself, a wholesaler, retailer or investor,
for cash, upon credit or for future delivery, and at such price or prices as Lender may deem commercially reasonable. To the extent
permitted by law, Borrower hereby specifically waives all rights of redemption and any rights of stay or appraisal which it has
or may have under any applicable law in effect from time to time. Any such public or private sales shall be held at such times
and at such place(s) as Lender may determine. In case of the sale of all or any part of the Collateral on credit or for future
delivery, the Collateral so sold may be retained by Lender until the selling price is paid by the purchaser, but Lender shall
not incur any liability in case of the failure of such purchaser to pay for the Collateral and, in case of any such failure, such
Collateral may be resold. Lender may, instead of exercising its power of sale, proceed to enforce its security interest in the
Collateral by seeking a judgment or decree of a court of competent jurisdiction. Without limiting the generality of the foregoing,
if an Event of Default is in existence,
(1)
Subject to the rights of any third parties, Lender may license, or sublicense, whether general, special or otherwise, and whether
on an exclusive or non-exclusive basis, any Copyrights, Patents or Trademarks included in the Collateral throughout the world
for such term or terms, on such conditions and in such manner as Lender shall in its sole discretion determine;
(2)
Lender may (without assuming any obligations or liability thereunder), at any time and from time to time, enforce (and shall have
the exclusive right to enforce) against any licensee or sublicensee all rights and remedies of Borrower in, to and under any Copyright
Licenses, Patent Licenses or Trademark Licenses and take or refrain from taking any action under any thereof, and Borrower hereby
releases Lender from, and agrees to hold Lender free and harmless from and against any claims arising out of, any lawful action
so taken or omitted to be taken with respect thereto other than claims arising out of Lender’s gross negligence or willful
misconduct; and
(3)
Upon request by Lender, Borrower will execute and deliver to Lender a power of attorney, in form and substance reasonably satisfactory
to Lender for the implementation of any lease, assignment, license, sublicense, grant of option, sale or other disposition of
a Copyright, Patent or Trademark. In the event of any such disposition pursuant to this clause 3, Borrower shall supply its know-how
and expertise relating to the products or services made or rendered in connection with Patents, the manufacture and sale of the
products bearing Trademarks, and its customer lists and other records relating to such Copyrights, Patents or Trademarks and to
the distribution of said products, to Lender.
(4)
If, at any time when Lender shall determine to exercise its right to sell the whole or any part of the Shares hereunder, such
Shares or the part thereof to be sold shall not, for any reason whatsoever, be effectively registered under the Securities Act
(or any similar statute), then Lender may, in its discretion (subject only to applicable requirements of law), sell such Shares
or part thereof by private sale in such manner and under such circumstances as Lender may deem necessary or advisable, but subject
to the other requirements of this Article 7, and shall not be required to effect such registration or to cause the same to be
effected. Without limiting the generality of the foregoing, in any such event, Lender in its discretion may (i) in accordance
with applicable securities laws proceed to make such private sale notwithstanding that a registration statement for the purpose
of registering such Shares or part thereof could be or shall have been filed under the Securities Act (or similar statute), (ii)
approach and negotiate with a single possible purchaser to effect such sale, and (iii) restrict such sale to a purchaser who is
an accredited investor under the Securities Act and who will represent and agree that such purchaser is purchasing for its own
account, for investment and not with a view to the distribution or sale of such Shares or any part thereof. in addition to a private
sale as provided above in this Article 7, if any of the Shares shall not be freely distributable to the public without registration
under the Securities Act (or similar statute) at the time of any proposed sale pursuant to this Article 7, then Lender shall not
be required to effect such registration or cause the same to be effected but, in its discretion (subject only to applicable requirements
of law), may require that any sale hereunder (including a sale at auction) be conducted subject to restrictions:
(A)
as to the financial sophistication and ability of any Person permitted to bid or purchase at any such sale;
(B)
as to the content of legends to be placed upon any certificates representing the Shares sold in such sale, including restrictions
on future transfer thereof;
(C)
as to the representations required to be made by each Person bidding or purchasing at such sale relating to such Person’s
access to financial information about Borrower or any of its Subsidiaries and such Person’s intentions as to the holding
of the Shares so sold for investment for its own account and not with a view to the distribution thereof; and
(D)
as to such other matters as Lender may, in its discretion, deem necessary or appropriate in order that such sale (notwithstanding
any failure so to register) may be effected in compliance with the Bankruptcy Code and other laws affecting the enforcement of
creditors’ rights and the Securities Act and all applicable state securities laws.
(5)!
Borrower recognizes that Lender may be unable to effect a public sale of any or all the Shares and may be compelled to resort
to one or more private sales thereof in accordance with clause (4) above. Borrower also acknowledges that any such private sale
may result in prices and other terms less favorable to the seller than if such sale were a public sale and, notwithstanding such
circumstances, agrees that any such private sale shall not be deemed to have been made in a commercially unreasonable manner solely
by virtue of such sale being private. Lender shall be under no obligation to delay a sale of any of the Shares for the period
of time necessary to permit the applicable Subsidiary to register such securities for public sale under the Securities Act, or
under applicable state securities laws, even if Borrower and/or the Subsidiary would agree to do so.
7.4
Borrower’s Obligations upon Default
. Upon the request of Lender after the occurrence and during the continuance of an
Event of Default, Borrower will:
(a)
Assemble and make available to Lender the Collateral at such place(s) as Lender shall reasonably designate, segregating all Collateral
so that each item is capable of identification; and
(b)
Subject to the rights of any lessor, permit Lender, by Lender’s officers, employees, agents and representatives, to enter
any premises where any Collateral is located, to take possession of the Collateral, to complete the processing, manufacture or
repair of any Collateral, and to remove the Collateral, or to conduct any public or private sale of the Collateral, all without
any liability of Lender for rent or other compensation for the use of Borrower’s premises.
7.5
Control Agreements
. Lender agrees that it shall not deliver a notice of exclusive control, or any similar notice, to any depositary
bank or securities intermediary pursuant to a control agreement among Borrower, Lender, and such depositary bank or securities
intermediary unless an Event of Default has occurred and is continuing.
7.6
Forbearance
. Neither this Agreement, nor any actions taken in accordance with this Agreement or the Loan Documents, including
Lender’s continued making of Loans to Borrower, shall be construed as a waiver of or consent to any existing or future defaults
under the Loan Documents, as to which Lender’s rights shall remain reserved. Should Lender, in its sole discretion, forbear
upon the declaration, demand or enforcement of any of Lender’s rights or remedies, all of Lender’s rights and remedies
under the Loan Documents and at law and in equity shall be available without restriction or modification, as if the forbearance
had not occurred. Lender has fully and timely performed all of its obligations and duties in compliance with the Loan Documents
and applicable law, and has acted reasonably, in good faith and appropriately under the circumstances.
ARTICLE
8 - SPECIAL COLLATERAL PROVISIONS
8.1
Compromise and Collection
. Borrower and Lender recognize that setoffs, counterclaims, defenses and other claims may be asserted
by obligors with respect to certain of the Rights to Payment; that certain of the Rights to Payment may be or become uncollectible
in whole or in part; and that the expense and probability of success of litigating a disputed Right to Payment may exceed the
amount that reasonably may be expected to be recovered with respect to such Right to Payment. Borrower hereby authorizes Lender,
after and during the continuance of an Event of Default, to compromise with the obligor, accept in full payment of any Right to
Payment such amount as Lender shall negotiate with the obligor, or abandon any Right to Payment. Any such action by Lender shall
be considered commercially reasonable so long as Lender acts in good faith based on information known to it at the time it takes
any such action.
8.2
Performance of Borrower’s Obligations
. Without having any obligation to do so, upon reasonable prior notice to Borrower,
Lender may perform or pay any obligation which Borrower has agreed to perform or pay under this Agreement, including, without
limitation, the payment or discharge of taxes or Liens levied or placed on or threatened against the Collateral. In so performing
or paying, Lender shall determine the action to be taken and the amount necessary to discharge such obligations. Borrower shall
reimburse Lender on demand for any amounts paid by Lender pursuant to this Section, which amounts shall constitute Obligations
secured by the Collateral and shall bear interest from the date of demand at the Default Rate.
8.3
Power of Attorney
. For the purpose of protecting and preserving the Collateral and Lender’s rights under this Agreement,
Borrower hereby irrevocably appoints Lender, with full power of substitution, as its attorney-in-fact with full power and authority,
after the occurrence and during the continuance of an Event of Default, to do any act which Borrower is obligated to do hereunder;
to exercise such rights with respect to the Collateral as Borrower might exercise; to use such Inventory, Equipment, Fixtures
or other property as Borrower might use; to enter Borrower’s premises; to give notice of Lender’s security interest
in, and to collect the Collateral; and before or after Default, to execute and file in Borrower’s name any financing statements,
amendments and continuation statements, account control agreements or other Security Documents necessary or desirable to create,
maintain, perfect or continue the perfection of Lender’s security interests in the Collateral. Borrower hereby ratifies
all that Lender shall lawfully do or cause to be done by virtue of this appointment.
8.4
Authorization for Lender to Take Certain Action
. The power of attorney created in Section 8.3 is a power coupled with an interest
and shall be irrevocable. The powers conferred on Lender hereunder are solely to protect its interests in the Collateral and shall
not impose any duty upon Lender to exercise such powers. Lender shall be accountable only for amounts that it actually receives
as a result of the exercise of such powers and in no event shall Lender or any of its directors, officers, employees, agents or
representatives be responsible to Borrower for any act or failure to act, except for gross negligence or willful misconduct. After
the occurrence and during the continuance of an Event of Default, Lender may exercise this power of attorney without notice to
or assent of Borrower, in the name of Borrower, or in Lender’s own name, from time to time in Lender’s sole discretion
and at Borrower’s expense. To further carry out the terms of this Agreement, after the occurrence and during the continuance
of an Event of Default, Lender may:
(a)
Execute any statements or documents or take possession of, and endorse and collect and receive delivery or payment of, any checks,
drafts, notes, acceptances or other instruments and documents constituting Collateral, or constituting the payment of amounts
due and to become due or any performance to be rendered with respect to the Collateral.
(b)
Sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts; drafts, certificates
and statements under any commercial or standby letter of credit relating to Collateral; assignments, verifications and notices
in connection with Accounts; or any other documents relating to the Collateral, including without limitation the Records.
(c)
Use or operate Collateral or any other property of Borrower for the purpose of preserving or liquidating Collateral.
(d)
File any claim or take any other action or proceeding in any court of law or equity or as otherwise deemed appropriate by Lender
for the purpose of collecting any and all monies due or securing any performance to be rendered with respect to the Collateral.
(e)
Commence, prosecute or defend any suits, actions or proceedings or as otherwise deemed appropriate by Lender for the purpose of
protecting or collecting the Collateral. In furtherance of this right, upon the occurrence and during the continuance of an Event
of Default, Lender may apply for the appointment of a receiver or similar official to operate Borrower’s business.
(f)
Prepare, adjust, execute, deliver and receive payment under insurance claims, and collect and receive payment of and endorse any
instrument in payment of loss or returned premiums or any other insurance refund or return, and apply such amounts at Lender’s
sole discretion, toward repayment of the Obligations or replacement of the Collateral.
8.5
Application of Proceeds
. Any Proceeds and other monies or property received by Lender pursuant to the terms of this Agreement
or any Loan Document may be applied by Lender first to the payment of expenses of collection, including without limitation reasonable
attorneys’ fees, and then to the payment of the Obligations in such order of application as Lender may elect.
8.6
Deficiency
. If the Proceeds of any disposition of the Collateral are insufficient to cover all costs and expenses of such
sale and the payment in full of all the Obligations, plus all other sums required to be expended or distributed by Lender, then
Borrower shall be liable for any such deficiency.
8.7
Lender Transfer
. Upon the transfer of all or any part of the Obligations, Lender may transfer all or part of the Collateral
and shall be fully discharged thereafter from all liability and responsibility with respect to such Collateral so transferred,
and the transferee shall be vested with all the rights and powers of Lender hereunder with respect to such Collateral so transferred,
but with respect to any Collateral not so transferred, Lender shall retain all rights and powers hereby given.
8.8
Lender’s Duties
.
(a)
Lender shall use reasonable care in the custody and preservation of any Collateral in its possession. Without limitation on other
conduct which may be considered the exercise of reasonable care, Lender shall be deemed to have exercised reasonable care in the
custody and preservation of such Collateral if such Collateral is accorded treatment substantially equal to that which Lender
accords its own property, it being understood that Lender shall not have any responsibility for ascertaining or taking action
with respect to calls, conversions, exchanges, maturities, declining value, tenders or other matters relative to any Collateral,
regardless of whether Lender has or is deemed to have knowledge of such matters; or taking any necessary steps to preserve any
rights against any Person with respect to any Collateral. Under no circumstances shall Lender be responsible for any injury or
loss to the Collateral, or any part thereof, arising from any cause beyond the reasonable control of Lender.
(b)
Lender may at any time deliver the Collateral or any part thereof to Borrower and the receipt of Borrower shall be a complete
and full acquittance for the Collateral so delivered, and Lender shall thereafter be discharged from any liability or responsibility
therefor.
(c)
Neither Lender, nor any of its directors, officers, employees, agents, attorneys or any other person affiliated with or representing
Lender shall be liable for any claims, demands, losses or damages, of any kind whatsoever, made, claimed, incurred or suffered
by Borrower or any other party through the ordinary negligence of Lender, or any of its directors, officers, employees, agents,
attorneys or any other person affiliated with or representing Lender.
8.9
Termination of Security Interests
. Upon the payment in full of the Obligations (other than inchoate Indemnity obligations)
and satisfaction of all Borrower’s obligations under this Agreement and the other Loan Documents (other than the Warrants
and inchoate indemnity obligations), the security interest granted hereby shall terminate and all rights to the Collateral shall
revert to Borrower. Upon any such termination, Lender shall, at Borrower’s expense, execute and deliver to Borrower such
documents as Borrower shall reasonably request to evidence such termination. In connection therewith, Borrower agrees to provide
Lender with information as to whether the securities issuable upon the exercise of any Warrant issued in connection with this
Agreement constitute “qualified small business stock” for purposes of Section 1202(c) of the Internal Revenue Code
and Section 18152.5 of the California Revenue and Taxation Code.
ARTICLE
9 - GENERAL PROVISIONS
9.1
Notices
. Any notice given by any party under any Loan Document shall be in writing and personally delivered, sent by overnight
courier, or United States mail, postage prepaid, or sent by facsimile, email, or other authenticated message, charges prepaid,
to the other party’s or parties’ addresses as follows:
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If
to the Lender:
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Alternative
Strategy Partners Pte. Ltd.
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10
Collyer Quay Level 40 #40-53
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Ocean
Financial Centre, Singapore 049315
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Fax:
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Attn:
Email:
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If
to the Borrower:
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TAURIGA
SCIENCES INC.
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39
Old Ridgebury Road,
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Danbury,
Connecticut 06180 U.S.A.
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Fax:
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Attn:
Seth Shaw
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CEO
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Email:
sshaw@tauriga.com
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Each
party may change the address or facsimile number to which notices, requests and other communications are to be sent by giving
written notice of such change to each other party. Notice given by hand delivery shall be deemed received on the date delivered;
if sent by overnight courier, on the next Business Day after delivery to the courier service; if by first class mail, on the third
Business Day after deposit in the U.S. Mail; if by facsimile or e-mail of a PDF document (with confirmation of transmission),
on the date of transmission if sent during normal business hours of the recipient, and on the next Business Day if sent after
normal business hours of the recipient.
9.2
Binding Effect
. The Loan Documents shall be binding upon and inure to the benefit of Borrower and Lender and their respective
successors and assigns; provided, however, that Borrower may not assign or transfer Borrower’s rights or obligations under
any Loan Document. Lender reserves the right to sell, assign, transfer, negotiate or grant participations in all or any part of,
or any interest in, Lender’s rights and obligations under the Loan Documents. In connection with any of the foregoing, Lender
may disclose all documents and information which Lender now or hereafter may have relating to the Loans, Borrower, or its business,
provided that any Person who receives such information shall have agreed in writing in advance to maintain the confidentiality
of such information on terms no less favorable to Borrower than are set forth in Section 9.13 hereof.
9.3
No Waiver
. Any waiver, consent or approval by Lender of any Event of Default or breach of any provision, condition, or covenant
of any Loan Document must be in writing and shall be effective only to the extent set forth in writing. No waiver of any breach
or default shall be deemed a waiver of any later breach or default of the same or any other provision of any Loan Document. No
failure or delay on the part of Lender in exercising any power, right, or privilege under any Loan Document shall operate as a
waiver thereof, and no single or partial exercise of any such power, right, or privilege shall preclude any further exercise thereof
or the exercise of any other power, right or privilege. Lender has the right at its sole option to continue to accept interest
and/or principal payments due under the Loan Documents after default, and such acceptance shall not constitute a waiver of said
default or an extension of the maturity of any Loan unless Lender agrees otherwise in writing.
9.4
Rights Cumulative
. All rights and remedies existing under the Loan Documents are cumulative to, and not exclusive of, any
other rights or remedies available under contract or applicable law.
9.5
Unenforceable Provisions
. Any provision of any Loan Document executed by Borrower which is prohibited or unenforceable in
any jurisdiction, shall be so only as to such jurisdiction and only to the extent of such prohibition or unenforceability, but
all the remaining provisions of any such Loan Document shall remain valid and enforceable.
9.6
Accounting Terms
. Except as otherwise provided in this Agreement, accounting terms and financial covenants and information
shall be determined and prepared in accordance with GAAP.
9.7
Indemnification; Exculpation
. Borrower shall pay and protect, defend and indemnify Lender and Lender’s employees, officers,
directors, shareholders, affiliates, correspondents, agents and representatives (other than Lender, collectively “
Agents
”)
against, and hold Lender and each such Agent harmless from, all claims, actions, proceedings, liabilities, damages, losses, expenses
(including, without limitation, reasonable attorneys’ fees and costs) and other amounts incurred by Lender and each such
Agent, arising from (i) the matters contemplated by this Agreement or any other Loan Documents, (ii) any dispute between Borrower
and a third party, or (iii) any contention that Borrower has failed to comply with any law, rule, regulation, order or directive
applicable to Borrower’s business; provided, however, that this indemnification shall not apply to any of the foregoing
incurred solely as the result of Lender’s or any Agent’s gross negligence or willful misconduct. This indemnification
shall survive the payment and satisfaction of all of Borrower’s Obligations to Lender.
9.8
Reimbursement
. Borrower shall reimburse Lender for all costs and expenses, including without limitation reasonable attorneys’
fees and disbursements expended or incurred by Lender in any arbitration, mediation, judicial reference, legal action or otherwise
in connection with (a) the preparation and negotiation of the Loan Documents, (b) the amendment and enforcement of the Loan Documents,
including without limitation during any workout, attempted workout, and/,or in connection with the rendering of legal advice as
to Lender’s rights, remedies and obligations under the Loan Documents, (c) collecting any sum which becomes due Lender under
any Loan Document, (d) any proceeding for declaratory relief, any counterclaim to any proceeding, or any appeal, or (e) the protection,
preservation or enforcement of any rights of Lender. For the purposes of this section, attorneys’ fees shall include, without
limitation, fees incurred in connection with the following: (1) contempt proceedings; (2) discovery; (3) any motion, proceeding
or other activity of any kind in connection with an Insolvency Proceeding; (4) garnishment, levy, and debtor and third party examinations;
and (5) post judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce
any judgment. All of the foregoing costs and expenses shall be payable upon demand by Lender, and if not paid within forty-five
(45) days of presentation of invoices shall bear interest at the Default Rate.
9.9
Execution in Counterparts
. This Agreement and the other Loan Documents may be executed in any number of counterpar ts, each
of whi ch sh all be deemed a n origin al, but all of wh ich toget her shall cons titut e on e and the s ame agreement . Any party
may execute this Agreement and the other Loan Documents by facsimile signature or scanned signature in PDF (or like) format, and
any such facsimile signature or scanned signature shall be deemed an original signature and each of the parties is hereby authorized
to rely thereon.
9.10
Entire Agreement
. The Loan Documents are intended by the parties as the final expression of their agreement and therefore
contain the entire agreement between the parties and supersede all prior understandings or agreements concerning the subject matter
hereof. This Agreement may be amended only in a writing signed by Borrower and Lender.
9.11
Governing Law and Jurisdiction
.
(a)
THIS AGREEMENT AND THE LOAN DOCUMENTS SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
NEW YORK.
(b)
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE
OF NEW YORK OR OF THE UNITED STATES FOR THE SOUTHERN DISTRICT OF NEW YORK, AND BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH
OF BORROWER AND LENDER CONSENTS, FOR ITSELF AND IN RESPECT OF ITS PROPERTY, TO THE NON-EXCLUSIVE JURISDICTION OF THOSE COURTS.
EACH OF BORROWER AND LENDER IRREVOCABLY WAIVES ANY OBJECTION, INCLUDING ANY OBJECTION TO THE LAYING OF VENUE OR BASED ON THE GROUNDS
OF FORUM NON CONVENIENS, WHICH IT MAY NOW OR HEREAFTER HAVE TO THE BRINGING OF ANY ACTION OR PROCEEDING IN SUCH JURISDICTION IN
RESPECT OF THIS AGREEMENT OR ANY DOCUMENT RELATED HERETO. BORROWER AND LENDER EACH WAIVE PERSONAL SERVICE OF ANY SUMMONS, COMPLAINT
OR OTHER PROCESS, WHICH MAY BE MADE BY ANY OTHER MEANS PERMITTED BY NEW YORK LAW.
9.12
Waiver of Jury Trial.
TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW, BORROWER AND LENDER EACH WAIVES ITS RESPECTIVE RIGHTS
TO A TRIAL BY JURY OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF OR RELATED TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS,
OR THE TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY, IN ANY ACTION, PROCEEDING OR OTHER LITIGATION OF ANY TYPE BROUGHT BY ANY OF
THE PARTIES AGAINST ANY OTHER PARTY OR ANY PARTICIPANT OR ASSIGNEE, WHETHER WITH RESPECT TO CONTRACT CLAIMS, TORT CLAIMS, OR OTHERWISE.
BORROWER AND LENDER EACH AGREES THAT ANY SUCH CLAIM OR CAUSE OF ACTION SHALL BE TRIED BY A COURT TRIAL WITHOUT A JURY. WITHOUT
LIMITING THE FOREGOING, THE PARTIES FURTHER AGREE THAT THEIR RESPECTIVE RIGHT TO A TRIAL BY JURY IS WAIVED BY OPERATION OF THIS
SECTION AS TO ANY ACTION, COUNTERCLAIM OR OTHER PROCEEDING WHICH SEEMS, IN WHOLE OR IN PART, TO CHALLENGE THE VALIDITY OR ENFORCEABILITY
OF THIS AGREEMENT OR THE OTHER LOAN DOCUMENTS OR ANY PROVISION HEREOF OR THEREOF. THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT AND THE OTHER LOAN DOCUMENTS.
9.13
No Consequential Damages
. Neither the Lender nor any of its respective affiliates, nor the managers, members, employees, officers,
directors, trustees, partners, equity owners, agents, advisors, representatives, accountants, attorneys, successors, assigns or
affiliates of any of the foregoing shall be liable for any special, indirect, consequential or punitive damages.
9.14
Release of Claims
. Borrower hereby acknowledges and agrees that as of the date hereof it has no defense, counter claim, offset,
cross-complaint, claim or demand of any kind or nature whatsoever that can be asserted to reduce or eliminate all or any part
of its li ability to repay the obligations or to seek affirmative relief or damages of any kind or nature from the Lender. To
the extent permitted by applicable law, Borrower hereby voluntarily and knowingly releases and forever discharges Lender and each
of its affiliates’ respective predecessors, agents, employee s, directors, officers, partners, affiliates, attorneys, successors
and assigns (collectively, the “
Released Parties
”) from any and all liabilities, obligations, losses, damages,
penalties, claims, fees, costs, expenses, charges, advances and disbursements of any kind (including fees, costs, expenses and
charges of counsel (including in-house counsel)) resulting from any action, litigation, proceeding, investigation, judgment or
suit, of any nature whatsoever, whether known or unknown, anticipated or unanticipated, suspected or unsuspected, fixed, contingent
or conditional, or at law or in equity, in any case originating in whole or in part on or before the date this Agreement is executed
that Borrower may now or hereafter have against the Released Parties, if any, irrespective of whether any such claims arise, directly
or indirectly, out of contract, tort, violation of law or regulations, or otherwise, and that arise, directly or indirectly, from
any of the Loans, the exercise of any rights and remedies under this Agreement or any of the other Loan Documents, or the negotiation
for and execution of this Agreement, including, without limitation, any contracting for, charging, taking, reserving, collecting
or receiving interest in excess of the highest lawful rate applicable. Borrower hereby further specifically waives any rights
that it may have under Section 1542 of the California Civil Code (to the extent applicable), which provides as follows: “A
GENERAL RELEASE DOES NOT EXTEND TO CLAIMS WHICH THE CREDITOR DOES NOT KNOW OR SUSPECT TO EXIST IN HIS FAVOR AT THE TIME OF EXECUTING
THE RELEASE, WHICH IF KNOWN BY HIM MUST HAVE MATERIALLY AFFECTED HIS SETTLEMENT WITH THE DEBTOR,” and further waives any
similar rights under applicable laws.
9.15!
Confidentiality
. Lender agrees to hold in confidence all confidential information that it receives from Borrower pursuant
to the Loan Documents, except for disclosure as shall be reasonably required (it being understood that the Persons to whom such
disclosure is made will be informed of the confidential nature of such information and instructed to keep such information confidential):
(a) to legal counsel and accountants for Lender;
(b)
to other professional advisors to Lender; (c) to regulatory officials having jurisdiction over Lender to the extent re qui red
by la w; (d) to L ender’s investors and prospective investors, and in Lender’s SEC filings; ( e) as required by law
or legal process or in connection with any legal proceeding to which Lender and Borrower are adverse parties; (f) in connection
with a disposition or proposed disposition of any or all of Lender’s rights hereunder; (g) to L ender’s subsidiaries
or Affiliates in connection with their business with Borrower (subject to the same confidentiality obligation set forth herein);
(h) as required by valid order of a court of competent jurisdiction, administrative agency or governmental body, or by any applicable
law, rule, regulation, subpoena, or any other administrative or legal process, or by applicable regulatory or professional standards,
including in connection wi th any judicial or other proceeding involving Lender relating to this Agreement and the transactions
contemplated here by; and (i) as required in connection with Lender’s examination or audit. For purposes of this section,
Lender and Borrower agree that “confidential information” shall mean any information regarding or relating to Borrower
other than: (i ) in formation wh ich is or becomes generally available to the public other than as res ult of a disc losure by
Len der in violation of this section, (ii) information which becomes available to Lender from any other source (other than Borrower)
which Lender does not know is bound by a confidentiality agreement with respect to the information made available, and (iii) information
that Lender knows on a non- confidential basis prior to Borrower disclosing it to Lender. In addition, Bor rower agrees that Lender
may us e Borrower’s name, logo and/or trademark in connection with certain promotional materials that Lender may disseminate
to the public, including, but are not limited to, brochures, internet website, press releases and any other materials relating
the fact that Lender has a financing relationship with Borrower.
ARTICLE
10 - DEFINITIONS
“
Account
”
means any “account,” as such term is defined i n the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any int erest and, in any event, shall include, w ithout limitat ion, all accou nts receiv
able, boo k de bts a nd ot her for ms o f obligations (other than forms of obligations evidenced by Chattel Paper, Documents or
Instruments) now owned or hereafter received or acquired by or belonging or owing to Borrower (including, without limitation,
under any trade name, style or division thereof) whether arising out of goods sold or services rendered by Borrower or from any
other transaction, whether or not the same involves the sale of goods or services by Borrower (including, without limitation,
any such obligation that may be characterized as an account or contract right under the UCC) and all of Borrower’s rights
in, to and under all purchase orders or receipts now owned or hereafter acquired by it for goods or services, and all of Borrower’s
rights to any goods represented by any of the foregoing (including, without limitation, unpaid seller’s rights of rescission,
replevin, reclamation and stoppage in transit and rights to returned, reclaimed or repossessed goods), and all monies due or to
become due to Borrower under all purchase orders and contracts for the sale of goods or the performance of services or both by
Borrower or in connection with any other transaction (whether or not yet earned by performance on the part of Borrower), now in
existence or hereafter occurring, including, without limitation, the right to receive the proceeds of said purchase orders and
contracts, and all collateral security and guarantees of any kind given by any Person with respect to any of the foregoing.
“
ACH
”
has the meaning set forth in Section 5.10.
“
Additional
Loans
” has the meaning set forth in Section 2.1(b).
“
Affiliate
”
means any Person which directly or indirectly controls, is controlled by, or is under common control with Borrower. “Control,”
“controlled by” and “under common control with” mean direct or indirect possession of the power to direct
or cause the direction of management or policies (whether through ownership of voting securities, by contract or otherwise); provided,
that control shall be conclusively presumed when any Person or affiliated group directly or indirectly owns five percent (5%)
or more of the securities having ordinary voting power for the election of directors of a corporation.
“
Agreement
”
has the meaning set forth in the preamble.
“
Availability
Period
” means the period from the Execution Date until December 22, 2015.
“
Bankruptcy
Code
” means the Federal Bankruptcy Reform Act of 1978 (11 U.S.C. §101, et seq.), as amended.
“
Borrower
”
has the meaning set forth in the preamble.
“
Borrowing
Date
” means the Business Day on which the proceeds of a Loan are disbursed by Lender.
“
Borrowing
Request
” has the meaning set forth in Section 2.3(a).
“
Bridge
Loan
” has the meaning set forth in Section 2.1(a).
“
Business
Day
” means any day other than a Saturday, Sunday or other day on which commercial banks in New York City .or San Francisco
are authorized or required by law to close.
“
Change
of Control
” means: (a) any sale, license, or other disposition of all or substantially all of the assets of Borrower;
(b) any reorganization, consolidation, merger or other transaction involving Borrower; or (c) any transaction or series of related
transactions in which any Person or two or more Persons acting in concert shall have acquired by contract or otherwise, or shall
have entered into a contract or arrangement that, upon consummation thereof, will result in its or their acquisition of the power
to control the management of Borrower, or to control the equity interests of Borrower entitled to vote for members of the board
of directors or equivalent governing body of Borrower on a fully-diluted basis (and taking into account all such securities that
such Person or Persons have the right to acquire pursuant to any option right) representing 50% or more of the combined voting
power of such securities (other than (1) in connection with a Qualified Public Offering or (2) a sale to recognized venture capital
investors in a transaction or series of transactions effected by Borrower for financing purposes, so long as Borrower identifies
to Lender the venture capital investors prior to the closing of the transaction and provides Lender with a description of the
material terms of such transaction).
“
Chattel
Paper
” means any “chattel paper,” as such term is defined in the UCC, now owned or hereafter acquired by
Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Collateral
”
means all of Borrower’s right, title and interest in and to the following property, whether now owned or hereafter acquired
and wherever located: (a) all Receivables; (b) all Equipment; (c) all Fixtures; (d) all General Intangibles; (e) all Inventory;
(f) all Investment Property; (g) all Deposit Accounts; (h) all Shares; (i) all other Goods and personal property of Borrower,
whether tangible or intangible and whether now or hereafter owned or existing, leased, consigned by or to, or acquired by, Borrower
and wherever located; (j) all Records; and (k) all Proceeds of each of the foregoing and all accessions to, substitutions and
replacements for, and rents, profits and products of each of the foregoing. Notwithstanding the foregoing the term “Collateral”
shall not include more than sixty-five percent (65%) of the issued and outstanding capital stock, membership units or other securities
entitled to vote owned or held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in
the Internal Revenue Code), provided that the Collateral shall include one hundred percent (100%) of the issued and outstanding
non-voting capital stock of such Subsidiary.
“
Competitive
Business
” has the meaning set forth in Section 5.14.
“
Copyright
License
” means any written agreement granting any right to use any Copyright or Copyright registration now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Copyrights
”
means all of the following now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any
interest: (i) all copyrights, whether registered or unregistered, held pursuant to the laws of the United States, any State thereof
or of any other country; (ii) all registrations, applications and recordings in the United States Copyright Office or in any similar
office or agency of the United States, any State thereof or any other country; (iii) all continuations, renewals or extensions
thereof; and (iv) any registrations to be issued under any pending applications.
“
Default
”
means an event which with the giving of notice, passage of time, or both would constitute an Event of Default.
“
Default
Rate
” means the lesser of (i) eighteen percent (18%) per annum or (ii) the maximum rate of interest permitted under
applicable law.
“
Deposit
Accounts
” means any “deposit accounts,” as such term is defined in the UCC, now owned or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Designated
Rate
” means a fixed rate of interest per annum equal to eleven and one-half percent (11.50%).
“
Documents
”
means any “documents,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
“
Dollars
”
or “
$
” means lawful currency of the United States.
“
Environmental
Laws
” means all federal, state or local laws, statutes, common law duties, rules, regulations, ordinances and codes,
together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with,
any governmental authorities, in each case relating to environmental, health, or safety matters.
“
Equipment
”
means any “equipment,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest and any and all additions, substitutions and replacements of any of the
foregoing, wherever located, together with all attachments, components, parts, equipment and accessories installed thereon or
affixed thereto.
“
Event
of Default
” means any event described in Section 7.1.
“
Fixtures
”
means any “fixtures,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
“
Foreign
Subsidiary
” means any Subsidiary that is organized under any laws other than the laws of the United States, any of its
states or the District of Columbia.
“
GAAP
”
means generally accepted accounting principles and practices consistent with those principles and practices promulgated or adopted
by the Financial Accounting Standards Board and the Board of the American Institute of Certified Public Accountants, their respective
predecessors and successors. Each accounting term used but not otherwise expressly defined herein shall have the meaning given
it by GAAP.
“
General
Intangibles
” means any “general intangibles,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest and, in any event, shall include, without
limitation, all right, title and interest that Borrower may now or hereafter have in or under any contract, all customer lists,
Copyrights, Trademarks, Patents, websites, domain names, and all applications therefor and reissues, extensions, or renewals thereof,
other items of, and rights to, Intellectual Property, interests in partnerships, joint ventures and other business associations,
Licenses, permits, trade secrets, proprietary or confidential information, inventions (whether or not patented or patentable),
technical information, procedures, designs, knowledge, know-how, software, data bases, data, skill, expertise, recipes, experience,
processes, models, drawings, materials and records, goodwill (including, without limitation, the goodwill associated with any
Trademark, Trademark registration or Trademark licensed under any Trademark License), claims in or under insurance policies, including
unearned premiums, uncertificated securities, money, cash or cash equivalents, deposit, checking and other bank accounts, rights
to sue for past, present and future infringement of Copyrights, Trademarks and Patents, rights to receive tax refunds and other
payments and rights of indemnification.
“
Goods
”
means any “goods,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which Borrower
now holds or hereafter acquires any interest.
“
Indebtedness
”
of any Person means at any date, without duplication and without regard to whether matured or unmatured, absolute or contingent:
(i) all obligations of such Person for borrowed money; (ii) all obligations of such Person of such Person to pay the deferred
purchase price of property or services, except trade accounts payable arising in the ordinary course of business; (iv) all obligations
of such Person as lessee under capital leases; (v) all obligations of such Person to reimburse or prepay any bank or other Person
in respect of amounts paid under a letter of credit, banker’s acceptance, or similar instrument, whether drawn or undrawn;
(vi) all obligations of such Person to purchase securities which arise out of or in connection with the sale of the same or substantially
similar securities; (vii) all obligations of such Person to purchase, redeem, exchange, convert or otherwise acquire for value
any capital stock of such Person or any warrants, rights or options to acquire such capital stock, now or hereafter outstanding,
except to the extent that such obligations remain performable solely at the option of such Person and excluding obligations arising
from repurchases of Borrower’s stock to the extent permitted in Section 6.3 hereof; (viii) all obligations to repurchase
assets previously sold (including any obligation to repurchase any accounts or chattel paper under any factoring, receivables
purchase, or similar arrangement); (ix) obligations of such Person under interest rate swap, cap, collar or similar hedging arrangements;
and (x) all obligations of others of any type described in clause (i) through clause (ix) above guaranteed by such Person.
“
Insolvency
Proceeding
” means with respect to a Person (a) any case, action or proceeding before any court or other governmental
authority relating to bankruptcy, reorganization, insolvency, liquidation, receivership, dissolution, winding-up or relief of
debtors with respect to such Person, or (b) any general assignment for the benefit of creditors, composition, marshalling of assets
for creditors, or other, similar arrangement in respect of such Person’s creditors generally or any substantial portion
of its creditors, undertaken under U.S. Federal, state or foreign law, including the Bankruptcy Code, but in each case, excluding
any avoidance or similar action against such Person commenced by an assignee for the benefit of creditors, bankruptcy trustee,
debtor in possession, or other representative of another Person or such other Person’s estate.
“
Instruments
”
means any “instrument,” as such term is defined in the UCC, now owned or hereafter acquired by Borrower or in which
Borrower now holds or hereafter acquires any interest.
“
Intellectual
Property
” means all of Borrower’s Copyrights, Trademarks, Patents, Licenses, trade secrets, source codes, customer
lists, proprietary or confidential information, inventions (whether or not patented or patentable), technical information, procedures,
designs, knowledge, know-how, software, data bases, skill, expertise, experience, processes, models, drawings, materials, records
and goodwill associated with the foregoing.
“
Intellectual
Property Security Agreement
” means any Intellectual Property Security Agreement executed and delivered by Borrower in
favor of Lender, as the same may be amended, supplemented, or restated from time to time.
“
Inventory
”
means any “inventory,” as such term is defined in the UCC, wherever located, now owned or hereafter acquired by Borrower
or in which Borrower now holds or hereafter acquires any interest, and, in any event, shall include, without limitation, all inventory,
goods and other personal property that are held by or on behalf of Borrower for sale or lease or are furnished or are to be furnished
under a contract of service or that constitute raw materials, work in process or materials used or consumed or to be used or consumed
in Borrower’s business, or the processing, packaging, promotion, delivery or shipping of the same, and all finished goods,
whether or not the same is in transit or in the constructive, actual or exclusive possession of Borrower or is held by others
for Borrower’s account, including, without limitation, all goods covered by purchase orders and contracts with suppliers
and all goods billed and held by suppliers and all such property that may be in the possession or custody of any carriers, forwarding
agents, truckers, warehousemen, vendors, selling agents or other Persons.
“
Investment
Property
” means any “investment property,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Investor
Director
” means any Person designated by the Lender, who shall be elected to the Board of Directors of the Borrower
and whose approval will be required for the decision of Borrower to file a petition for bankruptcy or otherwise to wind up or
liquidate or enter into any transaction that would constitute a Change of Control.
“
Key
Employees
” means Seth Shaw and Ghalia Lahlou.
“
Lender
”
has the meaning set forth in the preamble.
“
Letter
of Credit Rights
” means any “letter of credit rights,” as such term is defined in the UCC, now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest, including any right to payment
under any letter of credit.
“
License
”
means any Copyright License, Patent License, Trademark License or other license of rights or interests now held or hereafter acquired
by Borrower or in which Borrower now holds or hereafter acquires any interest and any renewals or extensions thereof.
“
Lien
”
means any mortgage, deed of trust, pledge, hypothecation, assignment for security, security interest, encumbrance, levy, lien
or charge of any kind, whether voluntarily incurred or arising by operation of law or otherwise, against any property, any conditional
sale or other title retention agreement, any lease in the nature of a security interest, and the filing of any financing statement
(other than a precautionary financing statement with respect to a lease that is not in the nature of a security interest) under
the UCC or comparable law of any jurisdiction.
“
Loan
”
means an extension of credit by Lender under this Agreement.
“
Loan
Documents
” means, individually and collectively, this Agreement, each Note, the Intellectual Property Security Agreement,
and any other security or pledge agreement(s), any Warrants issued by Borrower to Lender (or its designee) in connection with
this Agreement, the guarantee executed by the Guarantor and all other contracts, instruments, addenda and documents executed in
connection with this Agreement or the extensions of credit which are the subject of this Agreement.
“
Material
Adverse Effect
” or “
Material Adverse Change
” means (a) a material adverse change in, or a material
adverse effect upon, the operations, business, properties, or condition (financial or otherwise) of Borrower; (b) a material impairment
of the ability of Borrower to perform under any Loan Document; or (c) a material adverse effect upon the legality, validity, binding
effect or enforceability against Borrower of any Loan Document.
“
Maximum
Amount
” means, with respect to Additional Loans, two hundred and fifty thousand Dollars ($250,000.00).
“
Next
Financing
” shall mean the next sale after the Execution Date by the Company of debt or equity that results in gross
proceeds to the Company of at least $8,000,000.
“
Note
”
means a promissory note substantially in the form attached hereto as Exhibit A, executed by Borrower evidencing each Loan.
“
Obligations
”
means all debts, obligations and liabilities of Borrower to Lender currently existing or now or hereafter made, incurred or created
under, pursuant to or in connection with this Agreement or any other Loan Document (other than any Warrant), whether voluntary
or involuntary and however arising or evidenced, whether direct or acquired by Lender by assignment or succession, whether due
or not due, absolute or contingent, liquidated or unliquidated, determined or undetermined, and whether Borrower may be liable
individually or jointly, or whether recovery upon such debt may be or become barred by any statute of limitations or otherwise
unenforceable; and all renewals, extensions and modifications thereof; and all attorneys’ fees and costs incurred by Lender
in connection with the collection and enforcement thereof as provided for in any Loan Document (other than any Warrant). For the
avoidance of doubt, the Obligations shall not include any obligations under the Warrants.
“
Patent
License
” means any written agreement granting any right with respect to any invention on which a Patent is in existence
now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Patents
”
means all of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest: (a) all letters patent of, or rights corresponding thereto in, the United States or any other country, all registrations
and recordings thereof, and all applications for letters patent of, or rights corresponding thereto in, the United States or any
other country, including, without limitation, registrations, recordings and applications in the United States Patent and Trademark
Office or in any similar office or agency of the United States, any State thereof or any other country; (b) all reissues, continuations,
continuations-in-part or extensions thereof; (c) all petty patents, divisionals, and patents of addition; and (d) all patents
to be issued under any such applications.
“
Permitted
Lien
” means:
(a)
involuntary Liens which, in the aggregate, would not have a Material Adverse Effect and which in any event would not exceed, in
the aggregate, the Threshold Amount;
(b)
Liens for current taxes or other governmental or regulatory assessments which are not delinquent, or which are contested in good
faith by the appropriate procedures and for which appropriate reserves are maintained;
(c)
security interests on any property held or acquired by Borrower in the ordinary course of business securing Indebtedness incurred
or assumed for the purpose of financing all or any part of the cost of acquiring such property; provided, that such Lien attaches
solely to the property acquired with such Indebtedness and the proceeds thereof and that the principal amount of such Indebtedness
does not exceed one hundred percent (100%) of the cost of such property;
(d)
Liens in favor of Lender;
(e)
bankers’ liens, rights of setoff and similar Liens incurred on deposits made in the ordinary course of business as long
as an account control agreement (or equivalent) for each account in which such deposits are held in a form acceptable to Lender
has been executed and delivered to Lender unless waived by Lender in writing;
(f)
materialmen’s, mechanics’, repairmen’s, employees’ or other like Liens arising in the ordinary course
of business and which are not delinquent for more than 45 days or are being contested in good faith by appropriate proceedings;
(g)
any judgment, attachment or similar Lien, unless the judgment it secures has not been discharged or execution thereof effectively
stayed and bonded against pending appeal within 30 days of the entry thereof;
(h)
licenses or sublicenses of Intellectual Property in accordance with the terms of Section 6.5 hereof;
(i)
Liens securing Subordinated Debt;
(j)
Liens which have been approved by Lender in writing prior to the Execution Date, as shown on Schedule 6.2 hereto;
(k)
Liens in favor of any depository bank or securities intermediary as described in any deposit account control agreement or securities
account control agreement among a Borrower, Lender, and such depository bank or securities intermediary;
(l)
Liens incurred or deposits made to secure the performance of tenders, bids, real property leases, letters of credit that secure
real property leases, statutory or regulatory obligations (other than Liens arising under ERISA or environmental Liens), surety
and appeal bonds, government contracts, performance and return-of-money bonds, and other obligations of like nature, in each case,
in the ordinary course of business;
(m)
Liens incurred or deposits made in the ordinary course of business in connection with workers’ compensation, unemployment
insurance and other types of social security; and
(n)
easements, reservations, rights-of-way, restrictions, minor defects or irregularities in title and other similar Liens affecting
real property not interfering in any material respect with the ordinary course of the business of Borrower;
(o)
Liens in favor of customs and revenue authorities arising as a matter of law, in the ordinary course of Borrowers’ business,
to secure payment of customs duties in connection with the importation of goods; and
(p)
Liens incurred in the extension, renewal or refinancing of the indebtedness secured by Liens described in (a) through (n) above,
but any extension, renewal or replacement Lien must be limited to the property encumbered by the existing Lien and the principal
amount of the indebtedness may not increase.
“
Person
”
means any individual, sole proprietorship, partnership, joint venture, trust, unincorporated organization, association, corporation,
limited liability company, institution, public benefit corporation, other entity or government (whether federal, state, county,
city, municipal, local, foreign, or otherwise, including any instrumentality, division, agency, body or department thereof).
“
Personal
Property Leases
” has the meaning set forth in Section 6.15.
“
Primary
Operating Account
” has the meaning set forth in Section 5.10.
“
Proceeds
”
means “proceeds,” as such term is defined in the UCC and, in any event, shall include, without limitation, (a) any
and all Accounts, Chattel Paper, Instruments, cash or other forms of money or currency or other proceeds payable to Borrower from
time to time in respect of the Collateral, (b) any and all proceeds of any insurance, indemnity, warranty or guaranty payable
to Borrower from time to time with respect to any of the Collateral, (c) any and all payments (in any form whatsoever) made or
due and payable to Borrower from time to time in connection with any requisition, confiscation, condemnation, seizure or forfeiture
of all or any part of the Collateral by any governmental authority (or any Person acting under color of governmental authority),
(d) any claim of Borrower against third parties (i) for past, present or future infringement of any Copyright, Patent or Patent
License or (ii) for past, present or future infringement or dilution of any Trademark or Trademark License or for injury to the
goodwill associated with any Trademark, Trademark registration or Trademark licensed under any Trademark License and (e) any and
all other amounts from time to time paid or payable under or in connection with any of the Collateral.
“
Qualified
Public Offering
” means the closing of a firmly underwritten public offering (other than U. S. O T C Markets ) of Borrower’s
common stock with aggregate proceeds of not less than $20,000,000 (prior to underwriting expenses and commissions).
“
Receivables
”
means all of Borrower’s Accounts, Instruments, Documents, Chattel Paper, Supporting Obligations, and letters of credit and
Letter of Credit Rights.
“
Records
”
means all Borrower’s computer programs, software, hardware, source codes and data processing information, all written documents,
books, invoices, ledger sheets, financial information and statements, and all other writings concerning Borrower’s business.
“
Reinvestment
Amount
” has the meaning set forth in Section 2.8(c).
“
Related
Person
” means any Affiliate of Borrower, or any officer, employee, director or equity security holder of Borrower or
any Affiliate.
“
Released
Parties
” has the meaning set forth in Section 9.14.
“
Execution
Date
” means the date of this Agreement.
“
Rights
to Payment
” means all Borrower’s accounts, instruments, contract rights, documents, chattel paper and all other
rights to payment, including, without limitation, the Accounts, all negotiable certificates of deposit and all rights to payment
under any Patent License, any Trademark License, or any commercial or standby letter of credit.
“
Security
Documents
” means this Agreement, the guaranty executed by the Guarantor, the Intellectual Property Security Agreement,
and any and all account control agreements, collateral assignments, chattel mortgages, financing statements, amendments to any
of the foregoing and other documents from time to time executed or filed to create, perfect or maintain the perfection of Lender’s
Liens on the Collateral.
“
Shares
”
means: (a) one hundred percent (100%) of the issued and outstanding capital stock, membership units or other securities owned
or held of record by Borrower in any Subsidiary that is not a controlled foreign corporation (as defined in the Internal Revenue
Code), and (b) 65% of the issued and outstanding capital stock, membership units or other securities entitled to vote owned or
held of record by Borrower in any Subsidiary that is a controlled foreign corporation (as defined in the Internal Revenue Code).
“
Subordinated
Debt
” means Indebtedness (i) approved by Lender; and (ii) where the holder’s right to payment of such Indebtedness,
the priority of any Lien securing the same, and the rights of the holder thereof to enforce remedies against Borrower following
default have been made subordinate to the Liens of Lender and to the prior payment to Lender of the Obligations, either (A) pursuant
to a written subordination agreement approved by Lender in its sole but reasonable discretion or (B) on terms otherwise approved
by Lender in its sole but reasonable discretion.
“
Subsidiary
”
means any Person a majority (determined on a “fully diluted” basis) of the equity ownership or voting stock of which
is directly or indirectly now owned or hereafter acquired by Borrower or by one or more other Subsidiaries, or in which Borrower
or one or more other Subsidiaries directly or indirectly now holds or hereafter acquires any interest.
“
Supporting
Obligations
” means any “supporting obligations,” as such term is defined in the UCC, now owned or hereafter
acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Surviving
Entity
” has the meaning set forth in Section 6.4.
“
Threshold
Amount
” means one hundred thousand Dollars ($10,000).
“
Trademark
License
” means any written agreement granting any right to use any Trademark or Trademark registration now owned or
hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires any interest.
“
Trademarks
”
means all of the following property now owned or hereafter acquired by Borrower or in which Borrower now holds or hereafter acquires
any interest: (a) all trademarks, tradenames, corporate names, business names, trade styles, service marks, logos, other source
or business identifiers, prints and labels on which any of the foregoing have appeared or appear, designs and general intangibles
of like nature, now existing or hereafter adopted or acquired, all registrations and recordings thereof, and any applications
in connection therewith, including, without limitation, registrations, recordings and applications in the United States Patent
and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political
subdivision thereof and (b) reissues, extensions or renewals thereof.
“
Transfer
”
has the meaning set forth in Section 6.5.
“
UCC
”
means the Uniform Commercial Code as the same may, from time to time, be in effect in the State of New York; provided, that in
the event that, by reason of mandatory provisions of law, any or all of the attachment, perfection or priority of, or remedies
with respect to, Lender’s Lien on any Collateral is governed by the Uniform Commercial Code as enacted and in effect in
a jurisdiction other than the State of New York, the term “UCC” shall mean the Uniform Commercial Code as enacted
and in effect in such other jurisdiction solely for purposes of the provisions thereof relating to such attachment, perfection,
priority or remedies and for purposes of definitions related to such provisions. Unless otherwise defined herein, terms that are
defined in the UCC and used herein shall have the meanings given to them in the UCC.
“
Waiver
”
has the meaning set forth in Section 5.9(e).
“
Warrants
”
means the warrants to be issued with respect to the Bridge Loan and the warrants to be issued with respect to the Additional Loan.
[Signature
page follows]
IN
WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written.
|
BORROWER:
|
|
|
|
|
|
TAURIGA
SCIENCE INC.
|
|
|
|
|
|
By:
___________
|
|
|
|
|
|
Name:
Seth Shaw
|
|
|
Title:
CEO
|
|
|
LENDER:
|
|
|
|
|
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ALTERNATIVE
STRATEGY PARTNERS PTE. LTD.
|
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By:
______________________
|
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Name:
|
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Title:
Director
|
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[Signature
page lo#Loan and Security Agreement ]
THIS
NOTE AND THE COMMON STOCK ISSUABLE UPON CONVERSION OF THIS NOTE HAVE NOT BEEN AND WILL NOT BE REGISTERED WITH THE UNITED STATES
SECURITIES AND EXCHANGE COMMISSION OR THE SECURITIES COMMISSION OF ANY STATE PURSUANT TO AN EXEMPTION FROM REGISTRATION PROVIDED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND THE RULES AND REGULATIONS PROMULGATED THEREUNDER (THE “1933 ACT”)
US
$27,500.00
TAURIGA
SCIENCES, INC.
8% CONVERTIBLE REDEEMABLE NOTE
DUE
FEBRUARY 8, 2018
BACK
END NOTE 1 OF 3
FOR
VALUE RECEIVED, Tauriga Sciences, Inc. (the “Company”) promises to pay to the order of ADAR BAYS, LLC and its authorized
successors and Permitted Assigns, defined below, (“
Holder
”), the aggregate principal face amount of Twenty Seven
Thousand Five Hundred Dollars exactly (U.S. $27,500.00) on February 8, 2018 (“
Maturity Date
”) and to pay interest
on the principal amount outstanding hereunder at the rate of 8% per annum commencing on February 8, 2017. This Note contains a
10% OID such that the purchase price is $25,000. The interest will be paid to the Holder in whose name this Note is registered
on the records of the Company regarding registration and transfers of this Note. The principal of, and interest on, this Note
are payable at 3411 Indian Creek Drive, Suite 403, Miami Beach, FL 33140, initially, and if changed, last appearing on the records
of the Company as designated in writing by the Holder hereof from time to time. The Company will pay each interest payment and
the outstanding principal due upon this Note before or on the Maturity Date, less any amounts required by law to be deducted or
withheld, to the Holder of this Note by check or wire transfer addressed to such Holder at the last address appearing on the records
of the Company. The forwarding of such check or wire transfer shall constitute a payment of outstanding principal hereunder and
shall satisfy and discharge the liability for principal on this Note to the extent of the sum represented by such check or wire
transfer. Interest shall be payable in Common Stock (as defined below) pursuant to paragraph 4(b) herein. Permitted Assigns means
any Holder assignment, transfer or sale of all or a portion of this Note accompanied by an Opinion of Counsel as provided for
in Section 2(f) of the Securities Purchase Agreement.
This
Note is subject to the following additional provisions:
1.
This Note is exchangeable for an equal aggregate principal amount of Notes of different authorized denominations, as requested
by the Holder surrendering the same. No service charge will be made for such registration or transfer or exchange, except that
Holder shall pay any tax or other governmental charges payable in connection therewith. To the extent that Holder subsequently
transfers, assigns, sells or exchanges any of the multiple lesser denomination notes, Holder acknowledges that it will provide
the Company with Opinions of Counsel as provided for in Section 2(f) of the Securities Purchase Agreement.
2.
The Company shall be entitled to withhold from all payments any amounts required to be withheld under applicable laws.
3.
This Note may be transferred or exchanged only in compliance with the Securities Act of 1933, as amended (“
Act
”),
applicable state securities laws and Sections 2(f) and 5(f) of the Securities Purchase Agreement. Any attempted transfer to a
non-qualifying party shall be treated by the Company as void. Prior to due presentment for transfer of this Note, the Company
and any agent of the Company may treat the person in whose name this Note is duly registered on the Company’s records as
the owner hereof for all other purposes, whether or not this Note be overdue, and neither the Company nor any such agent shall
be affected or bound by notice to the contrary. Any Holder of this Note electing to exercise the right of conversion set forth
in Section 4(a) hereof, in addition to the requirements set forth in Section 4(a), and any prequalified prospective transferee
of this Note, also is required to give the Company written confirmation that this Note is being converted (“
Notice of
Conversion
”) in the form annexed hereto as
Exhibit A
. The date of receipt (including receipt by telecopy) of such
Notice of Conversion shall be the Conversion Date. All notices of conversion will be accompanied by an Opinion of Counsel.
4.
(a) The Holder of this Note is entitled, at its option, at any time after the full cash payment by the Holder, to convert all
or any amount of the principal face amount of this Note then outstanding into shares of the Company’s common stock (the
“
Common Stock
”) at a price (“
Conversion Price
”) for each share of Common Stock equal to
60%
of the
lowest trading price
of the Common Stock as reported on the National Quotations Bureau OTC Market exchange
which the Company’s shares are traded or any exchange upon which the Common Stock may be traded in the future (“
Exchange
”),
for the
twenty
prior trading days including the day upon which a Notice of Conversion is received by the
Company (provided such Notice of Conversion is delivered together with an Opinion of Counsel, by fax or other electronic method
of communication to the Company after 4 P.M. Eastern Standard or Daylight Savings Time if the Holder wishes to include the same
day closing price). If the shares have not been delivered within 3 business days, the Notice of Conversion may be rescinded. 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. No fractional shares
or scrip representing fractions of shares will be issued on conversion, but the number of shares issuable shall be rounded to
the nearest whole share. 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 50% instead of 60% while that
“Chill” is in effect.
In no event shall the Holder be allowed to effect a conversion if such conversion, along
with all other shares of 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.
(b)
Interest on any unpaid principal balance of this Note shall be paid at the rate of 8% per annum. Interest shall be paid by the
Company in Common Stock (“Interest Shares”). Holder may, at any time commencing six months after the date of funding
to the Company by the Holder, send in a Notice of Conversion to the Company for Interest Shares based on the formula provided
in Section 4(a) above. The dollar amount converted into Interest Shares shall be all or a portion of the accrued interest calculated
on the unpaid principal balance of this Note to the date of such notice.
(c)
This Note may not be prepaid, except that if the $27,500 Rule 144 convertible redeemable note issued by the Company of even date
herewith is redeemed by the Company within 6 months of the issuance date of such Note, all obligations of the Company under this
Note and all obligations of the Holder under the Holder issued Back End Note will be automatically be deemed satisfied and this
Note and the Holder issued Back End Note will be automatically be deemed cancelled and of no further force or effect.
(d)
Upon (i) a transfer of all or substantially all of the assets of the Company to any person in a single transaction or series of
related transactions, (ii) a reclassification, capital reorganization (excluding an increase in authorized capital) or other change
or exchange of out- standing shares of the Common Stock, other than a forward or reverse stock split or stock dividend, or (iii)
any consolidation or merger of the Company with or into another person or entity in which the Company is not the surviving entity
(other than a merger which is effected solely to change the jurisdiction of incorporation of the Company and results in a reclassification,
conversion or exchange of outstanding shares of Common Stock solely into shares of Common Stock) (each of items (i), (ii) and
(iii) being referred to as a “Sale Event”), then, in each case, the Company shall, upon request of the Holder, redeem
this Note in cash for 150% of the principal amount, plus ac- crued but unpaid interest through the date of redemption, or at the
election of the Holder, such Holder may convert the unpaid principal amount of this Note (together with the amount of accrued
but unpaid interest) into shares of Common Stock immediately prior to such Sale Event at the Conversion Price.
(e)
In case of any Sale Event (not to include a sale of all or substantially all of the Company’s assets) in connection with
which this Note is not redeemed or converted, the Company shall cause effective provision to be made so that the Holder of this
Note shall have the right thereafter, by converting this Note, to purchase or convert this Note into the kind and number of shares
of stock or other securities or property (including cash) receivable upon such reclassification, capital reorganization or other
change, consolidation or merger by a holder of the number of shares of Common Stock that could have been purchased upon exercise
of the Note and at the same Conversion Price, as defined in this Note, immediately prior to such Sale Event. The foregoing provisions
shall similarly apply to successive Sale Events. If the consideration received by the holders of Common Stock is other than cash,
the value shall be as determined by the Board of Directors of the Company or successor person or entity acting in good faith.
5.
No provision of this Note shall alter or impair the obligation of the Company, which is absolute and unconditional, to pay the
principal of, and interest on, this Note at the time, place, and rate, and in the form, herein prescribed.
6.
The Company hereby expressly waives demand and presentment for payment, notice of non-payment, protest, notice of protest, notice
of dishonor, notice of acceleration or intent to accelerate, and diligence in taking any action to collect amounts called for
hereunder and shall be directly and primarily liable for the payment of all sums owing and to be owing hereto.
7.
The Company agrees to pay all costs and expenses, including reasonable attorneys’ fees and expenses, which may be incurred
by the Holder in collecting any amount due under this Note.
8.
If one or more of the following described “Events of Default” shall occur:
(a)
The Company shall default in the payment of principal or interest on this Note or any other note issued to the Holder by the Company;
or
(b)
Any of the representations or warranties made by the Company herein or in any certificate or financial or other written statements
heretofore or hereafter furnished by or on behalf of the Company in connection with the execution and delivery of this Note, or
the Securities Purchase Agreement under which this note was issued shall be false or misleading in any respect; or
(c)
The Company shall fail to perform or observe, in any respect, any covenant, term, provision, condition, agreement or obligation
of the Company under this Note or any other note issued to the Holder; or
(d)
The Company shall (1) become insolvent (which does not include a “going concern opinion); (2) admit in writing its inability
to pay its debts generally as they mature; (3) make an assignment for the benefit of creditors or commence proceedings for its
dissolution; (4) apply for or consent to the appointment of a trustee, liquidator or receiver for its or for a substantial part
of its property or business; (5) file a petition for bankruptcy relief, consent to the filing of such petition or have filed against
it an involuntary petition for bankruptcy relief, all under federal or state laws as applicable; or
(e)
A trustee, liquidator or receiver shall be appointed for the Company or for a substantial part of its property or business without
its consent and shall not be discharged within sixty (60) days after such appointment; or
(f)
Any governmental agency or any court of competent jurisdiction at the instance of any governmental agency shall assume custody
or control of the whole or any substantial portion of the properties or assets of the Company; or
(g)
One or more money judgments, writs or warrants of attachment, or similar process, in excess of fifty thousand dollars ($50,000)
in the aggregate, shall be entered or filed against the Company or any of its properties or other assets and shall remain unpaid,
unvacated, unbonded or unstayed for a period of fifteen (15) days or in any event later than five (5) days prior to the date of
any proposed sale thereunder; or
(h)
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; or
(i)
The Company shall have its Common Stock delisted from an exchange (including the OTC Markets exchange) or, if the Common Stock
trades on an exchange, then trading in the Common Stock shall be suspended for more than 10 consecutive days or ceases to file
its 1934 act reports with the SEC;
(j)
If a majority of the members of the Board of Directors of the Company on the date hereof are no longer serving as members of the
Board;
(k)
The Company shall not deliver to the Holder the Common Stock pursuant to paragraph 4 herein without restrictive legend within
3 business days of its receipt of a Notice of Conversion which includes an Opinion of Counsel expressing an opinion which supports
the removal of a restrictive legend; or
(l)
The Company shall not replenish the reserve set forth in Section 12, within 3 business days of the request of the Holder.
(m)
The Company’s Common Stock has a closing bid price of less than $0.002 per share for at least 5 consecutive trading days;
or
(n)
The aggregate dollar trading volume of the Company’s Common Stock is less than twenty five thousand dollars ($25,000.00)
in any 5 consecutive trading days; or
(o)
The Company shall cease to be “current” in its filings with the Securities and Exchange Commission; or
(p)
The Company shall lose the “bid” price for its stock in a market (including the OTC marketplace or other exchange)
Then,
or at any time thereafter, unless cured within 5 days (except for 8(m) and 8(n) which are incurable defaults, the
sole remedy
of which is to allow the Holder to cancel both this Note and the Holder Issued Note, and in each and every such case, unless
such Event of Default shall have been waived in writing by the Holder (which waiver shall not be deemed to be a waiver of any
subsequent default) at the option of the Holder and in the Holder’s sole discretion, the Holder may consider this Note immediately
due and payable, without presentment, demand, protest or (further) notice of any kind (other than notice of acceleration), all
of which are hereby expressly waived, anything herein or in any note or other instruments contained to the contrary notwithstanding,
and the Holder may immediately, and without expiration of any period of grace, enforce any and all of the Holder’s rights
and remedies provided herein or any other rights or remedies afforded by law. Upon an Event of Default, interest shall accrue
at a default interest rate of 24% per annum or, if such rate is usurious or not permitted by current law, then at the highest
rate of interest permitted by law. In the event of a breach of Section 8(k) the penalty shall be $250 per day the shares are not
issued beginning on the 4
th
day after the conversion notice was delivered to the Company. This penalty shall increase
to $500 per day beginning on the 10
th
day. The penalty for a breach of Section 8(p) shall be an increase of the outstanding
principal amounts by 20%. In case of a breach of Section 8(i), the outstanding principal due under this Note shall increase by
50%. Further, if a breach of Section 8(o) occurs or is continuing after the 6 month anniversary of the Note, then the Holder shall
be entitled to use the lowest closing bid price during the delinquency period as a base price for the conversion. For example,
if the lowest closing bid price during the delinquency period is $0.01 per share and the conversion discount is 50% the Holder
may elect to convert future con- versions at $0.005 per share.
If
the Holder shall commence an action or proceeding to enforce any provisions of this Note, including, without limitation, engaging
an attorney, then if the Holder prevails in such action, the Holder shall be reimbursed by the Company for its attorneys’
fees and other costs and expenses incurred in the investigation, preparation and prosecution of such action or proceeding.
Make-Whole
for Failure to Deliver Loss. At the Holder’s election, if the Company fails for any reason to deliver to the Holder
the conversion shares by the by the 3rd business day following the delivery of a Notice of Conversion to the Company and if
the Holder incurs a Failure to Deliver Loss, then at any time the Holder may provide the Company written notice indicating
the amounts payable to the Holder in respect of the Failure to Deliver Loss and the Company must make the Holder whole as
follows:
Failure to Deliver Loss = [(High trade price at any time on or after the day of exercise) x (Number of conversion shares)]
The
Company must pay the Failure to Deliver Loss by cash payment, and any such cash payment must be made by the third business day
from the time of the Holder’s written notice to the Company.
9.
In case any provision of this Note is held by a court of competent jurisdiction to be excessive in scope or otherwise invalid
or unenforceable, such provision shall be adjusted rather than voided, if possible, so that it is enforceable to the maximum extent
possible, and the validity and enforceability of the remaining provisions of this Note will not in any way be affected or impaired
thereby.
10.
Neither this Note nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument signed
by the Company and the Holder.
11.
The Company represents that it is not a “shell” issuer and that if it previously has been a “shell” issuer
that at least 12 months have passed since the Company has reported Form 10 type information indicating it is no longer a “shell
issuer.
12.
Prior to cash funding of this Note, The Company will issue irrevocable transfer agent instructions reserving 3x the number of
shares of Common Stock necessary to allow the holder to convert this note based on the discounted conversion price set forth in
Section 4(a) herewith. Upon full conversion of this Note, the reserve representing this Note shall be cancelled. The Company will
pay all transfer agent costs associated with issuing and delivering the shares. If such amounts are to be paid by the Holder,
it may deduct such amounts from the Conversion Price. Conversion Notices may be sent to the Company or its transfer agent via
electric mail. The Company will instruct its transfer agent to provide the outstanding share information to the Holder in connection
with its conversions.
13.
The Company will give the Holder direct notice of any corporate actions, including but not limited to name changes, stock splits,
recapitalizations etc. This notice shall be given to the Holder as soon as possible under law.
14.
This Note shall be governed by and construed in accordance with the laws of New York applicable to contracts made and wholly to
be performed within the State of New York and shall be binding upon the successors and assigns of each party hereto. The Holder
and the Company hereby mutually waive trial by jury and consent to exclusive jurisdiction and venue in the courts of the State
of New York or in the Federal courts sitting in the county or city of New York. This Agreement may be executed in counterparts,
and the facsimile transmission of an executed counterpart to this Agreement shall be effective as an original.
IN
WITNESS WHEREOF, the Company has caused this Note to be duly executed by an officer thereunto duly authorized.
Dated:
Feb 8, 2017
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TAURIGA SCIENCES, INC.
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|
|
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|
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By:
|
Seth
M. Shaw
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|
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Title:
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CEO/Chairman
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Exhibit
10.10
DATE:
November 22, 2017 From: Tauriga Sciences Inc.
39
Old Ridgebury Road, Ste. C4 Danbury, CT 06810
CEO – Seth M. Shaw
Emails:
sshaw@tauriga.com
Cell # (917)-796-9926
To:
Ice + Jam LLC 4906 Bridge Avenue
Cleveland,
Ohio 44102
Co
– CEO(s) -- Jamie Murphy & Ivy Evans
Re:
AMENDMENT to AGREEMENT; Mutually Agreed Upon 2-Year Extension to Existing Non-Exclusive License Agreement for the Marketing and
Distribution of “HerMan” Branded Cupuacu Butter Based Lip Balm Product (Original 12 month License Agreement Effective
Date: December 22, 2016):
This
Amendment to the original 12 month non-exclusive License Agreement entered into on December 22, 2016 by Tauriga Sciences Inc.
and Ice + Jam LLC serves purely as a MUTUALLY AGREED UPON EXTENSION to EXISTING AGREEMENT:
See
Below the Following Recitals:
A.
All Material Terms of the Original Non-Exclusive License Agreement (Referenced Above in “Re:” Section) remain fully
effective and in force.
B.
Ice + Jam LLC and Tauriga Sciences Inc. both agree (Mutual Agreement) to a 2-year Extension to “Existing Non-Exclusive License
Agreement for the Marketing and Distribution of “HerMan” Branded Cupuacu Butter Based Lip Balm Product (Original 12
month License Agreement Effective Date: December 22, 2016)”
C.
Both Parties Agree that at end of Extension Period (defined as: December 23, 2019), based on mutual agreement, there will be an
option at that time – for a further 2 Year Extension.
D.
The termination date of the original agreement (referenced above), which was to occur on December 23, 2017, has legally and formally
been amended to reflect this 2-Year Extension; The new termination date shall now occur on December 23, 2019.
SIGNATURES:
Seth M. Shaw
X________________________________
CEO, Tauriga Sciences Inc.
Jamie
Murphy and Ivy Evans
X______________________
and X_______________________ Co-CEO(s), Ice + Jam LLC
Exhibit
31.1
CERTIFICATION
OF PRINCIPAL EXECUTIVE OFFICER
REQUIRED
BY RULE 13A-14(a) OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,
AS
ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I,
Seth M. Shaw, certify that:
1.
I have reviewed this annual report on Form 10-K of Tauriga Sciences, Inc.;
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary
to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect
to the period covered by this report;
3.
Based on my knowledge, the consolidated financial statements, and other financial information included in this report, fairly
present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for,
the periods presented in this report;
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and
procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined
in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial
reporting; and
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control
over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors
(or persons performing the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
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Date:
June 27, 2018
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By:
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/s/ Seth M. Shaw
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Chief
Executive Officer
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(Principal
Executive Officer)
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Exhibit 31.2
CERTIFICATION OF PRINCIPAL
EXECUTIVE OFFICER
REQUIRED BY RULE 13A-14(a)
OF THE SECURITIES EXCHANGE ACT OF 1934 AS AMENDED,
AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Kevin Lacey, certify
that:
1. I have reviewed this
annual report on Form 10-K of Tauriga Sciences, Inc.;
2. Based on my knowledge,
this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements
made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by
this report;
3. Based on my knowledge,
the consolidated financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented
in this report;
4. The registrant’s
other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined
in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules
13a-15(f) and 15d-15(f)) for the registrant and have:
a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision,
to ensure that material information relating to the registrant, is made known to us by others within those entities, particularly
during the period in which this report is being prepared;
b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of
consolidated financial statements for external purposes in accordance with generally accepted accounting principles;
c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on
such evaluation; and
d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that
has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting;
and
5. The registrant’s
other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting,
to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing
the equivalent functions):
a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information;
and
b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
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Date:
June 27, 2018
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By:
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/s/ Kevin P. Lacey
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Chief Financial Officer
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(Principal Accounting Officer)
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Exhibit 32.1
CERTIFICATION OF
PRINCIPAL EXECUTIVE
OFFICER
PURSUANT TO 18 U.S.C.
SECTION 1350,
AS ADOPTED PURSUANT
TO SECTION 906 OF
THE SARBANES-OXLEY
ACT OF 2002
I, Seth M. Shaw, Chief
Executive Officer of Tauriga Sciences, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section 1350 adopted pursuant
to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) the Annual Report
on Form 10-K of the Company for the year ended March 31, 2018 (the “Report”) fully complies with the requirements of
Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2) the information contained
in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
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Date:
June 27, 2018
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By:
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/s/ Seth M. Shaw
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Chief Executive Officer
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(Principal Executive Officer)
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Exhibit
32.2
CERTIFICATION
OF
PRINCIPAL
EXECUTIVE OFFICER
PURSUANT
TO 18 U.S.C. SECTION 1350,
AS
ADOPTED PURSUANT TO SECTION 906 OF
THE
SARBANES-OXLEY ACT OF 2002
I,
Seth Shaw, Chief Financial Officer of Tauriga Sciences, Inc. (the “Company”), certify, pursuant to 18 U.S.C. Section
1350 adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1)
the Annual Report on Form 10-K of the Company for the year ended March 31, 2018 (the “Report”) fully complies with
the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934 (15 U.S.C. 78m or 78o(d)); and
(2)
the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations
of the Company.
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Date:
June 27, 2018
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By:
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/s/
Kevin P Lacey
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Chief
Financial Officer
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(Principal
Accounting Officer)
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