UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended June 30, 2018

 

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

 

For the transition period from ____________ to ____________

 

Commission File Number: 000-53489

 

Bravatek Solutions, Inc.

(Exact name of registrant as specified in its charter)

 

Colorado

32-0201472

(State or other jurisdiction of incorporation)

(IRS Employer Identification Number)

 

2028 E Ben White Blvd, #240-2835

Austin, TX 78741

(Address of principal executive offices)

 

866-204-6703

(Registrant's telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. x Yes    ¨ No

 

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

 

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

 

Large accelerated filer

¨

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

x

(Do not check if a smaller reporting 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

 

As of August 14, 2018, the Company had 9,266,957,705 issued and outstanding shares of common stock.

 

 
 
 
 

BRAVATEK SOLUTIONS, INC.

INDEX

 

 

Page

PART I. FINANCIAL INFORMATION

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

Condensed Consolidated Balance Sheets at June 30, 2018 and December 31, 2017 (unaudited)

 

3

 

 

Condensed Consolidated Statements of Operations for the three and six months ended June 30, 2018, and 2017 (unaudited)

 

4

 

 

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2018, and 2017 (unaudited)

 

5

 

 

Notes to Condensed Financial Statements (unaudited)

 

6

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

31

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

 

35

 

Item 4.

Controls and Procedures

 

35

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

Item 1.

Legal Proceedings

 

36

 

Item 1A.

Risk Factors

 

36

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

36

 

Item 3.

Defaults Upon Senior Securities

 

36

 

Item 4.

Mine Safety Disclosures

 

36

 

Item 5.

Other Information

 

36

 

Item 6.

Exhibits

 

37

 

 

 

 

SIGNATURES

 

 39

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)  

 

 

 

June 30,

 

 

December 31,

 

 

 

2018

 

 

2017

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$ 62,824

 

 

$ 189,357

 

Accounts receivable

 

 

299,046

 

 

 

24,897

 

Accounts receivable, related party

 

 

24,837

 

 

 

-

 

Prepaid expenses

 

 

69,019

 

 

 

23,080

 

Other assets

 

 

251,413

 

 

 

25,000

 

Investment in unconsolidated investee

 

 

70,000

 

 

 

-

 

TOTAL CURRENT ASSETS

 

 

777,139

 

 

 

262,334

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

210,962

 

 

 

21,634

 

Intangible assets, net

 

 

1,770,842

 

 

 

133,929

 

Goodwill

 

 

1,339,259

 

 

 

-

 

TOTAL ASSETS

 

$ 4,098,202

 

 

$ 417,897

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Convertible notes payable, net of discounts  

 

$ 992,241

 

 

$ 797,797

 

Notes payable, current portion

 

 

904,652

 

 

 

830,788

 

Revolving line of credit

 

 

499,035

 

 

 

-

 

Bank term loans, current portion

 

 

97,139

 

 

 

-

 

Accounts payable and accrued liabilities 

 

 

633,312

 

 

 

64,023

 

Accounts payable, related party 

 

 

308,562

 

 

 

318,179

 

Accrued interest 

 

 

366,919

 

 

 

335,258

 

Capital leases payable, current portion

 

 

12,045

 

 

 

-

 

Derivative liabilities 

 

 

2,238,111

 

 

 

5,331,567

 

Deferred revenue

 

 

5,482

 

 

 

-

 

TOTAL CURRENT LIABILITIES

 

 

6,057,498

 

 

 

7,677,612

 

 

 

 

 

 

 

 

 

 

LONG- TERM LIABILITIES:

 

 

 

 

 

 

 

 

Notes payable, net of curent portion

 

 

82,268

 

 

 

-

 

Capital leases payable, net of current portion

 

 

449

 

 

 

-

 

Bank term loans, net of current portion

 

 

180,491

 

 

 

-

 

Series D convertible preferred stock, 100,000 shares authorized and issued and outstanding

 

 

2,400,000

 

 

 

-

 

TOTAL LONG-TERM LIABILITIES

 

 

2,663,208

 

 

 

-

 

 

 

 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENT LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Series A convertible preferred stock (5,000,000 shares authorized; par value $0.0001, -0- shares issued and outstanding at June 30, 2018, and December 31, 2017)

 

 

-

 

 

 

-

 

Series B preferred stock (350,000 shares authorized; par value $0.0001, 264,503 shares issued and outstanding at June 30, 2018, and December 31, 2017)

 

 

26

 

 

 

26

 

Series C preferred stock (1,000,000 shares authorized; par value $0.0001, 319,768 shares issued and outstanding at June 30, 2018, and December 31, 2017)

 

 

32

 

 

 

32

 

Series E preferred stock (1 share authorized; par value $0.0001, 1 share issued and outstanding at June 30, 2018)

 

 

-

 

 

 

-

 

Common stock (10,000,000,000 shares authorized; no par value; 9,266,957,705 and 8,040,670,036 shares issued and outstanding at June 30, 2018, and December 31, 2017, respectively)

 

 

6,431,060

 

 

 

5,385,977

 

Common stock to be issued (1,221 shares issuable at June 30, 2018, and December 31, 2017)

 

 

66,917

 

 

 

66,917

 

Additional paid in capital

 

 

21,053,191

 

 

 

17,370,682

 

Accumulated deficit 

 

 

(32,173,730 )

 

 

(30,083,349 )

TOTAL STOCKHOLDERS' DEFICIT

 

 

(4,622,504 )

 

 

(7,259,715 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 4,098,202

 

 

$ 417,897

 

 

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

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months

Ended June 30,

 

 

For the Six Months

Ended June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Sales, other

 

$ 774,204

 

 

$ -

 

 

$ 1,818,360

 

 

$ -

 

Sales, related party

 

 

-

 

 

 

-

 

 

 

24,837

 

 

 

-

 

Total revenues

 

 

774,204

 

 

 

-

 

 

 

1,843,197

 

 

 

-

 

Cost of services

 

 

627,439

 

 

 

-

 

 

 

1,448,531

 

 

 

1,083

 

GROSS PROFIT (LOSS)

 

 

146,765

 

 

 

-

 

 

 

394,666

 

 

 

(1,083 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees and expenses, related parties

 

 

2,489,424

 

 

 

57,000

 

 

 

2,625,905

 

 

 

113,500

 

Wages and employee expenses

 

 

15,799

 

 

 

-

 

 

 

90,275

 

 

 

-

 

Advertising and promotion

 

 

700

 

 

 

3,600

 

 

 

700

 

 

 

3,600

 

Rent, related party

 

 

34,500

 

 

 

-

 

 

 

65,714

 

 

 

-

 

General and administrative 

 

 

170,756

 

 

 

27,636

 

 

 

351,602

 

 

 

38,955

 

Research and development

 

 

6,750

 

 

 

2,250

 

 

 

16,750

 

 

 

4,500

 

Professional fees 

 

 

76,711

 

 

 

60,634

 

 

 

135,576

 

 

 

54,834

 

Amortization and depreciation 

 

 

109,899

 

 

 

20,689

 

 

 

307,105

 

 

 

27,977

 

TOTAL OPERATING EXPENSES 

 

 

2,904,539

 

 

 

171,809

 

 

 

3,593,627

 

 

 

243,366

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS 

 

 

(2,757,774 )

 

 

(171,809 )

 

 

(3,198,961 )

 

 

(244,449 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense 

 

 

(639,263 )

 

 

(367,730 )

 

 

(1,501,898 )

 

 

(488,899 )

Interest expense related party 

 

 

-

 

 

 

(2,915 )

 

 

-

 

 

 

(6,206 )

Other income

 

 

1,500

 

 

 

-

 

 

 

12,948

 

 

 

-

 

Gain (loss) on fair value of derivatives

 

 

843,192

 

 

 

(7,902,778 )

 

 

2,620,551

 

 

 

(7,443,912 )

Loss on extinguishment of debt 

 

 

(3,021 )

 

 

-

 

 

 

(23,021 )

 

 

-

 

TOTAL OTHER INCOME (EXPENSES), NET

 

 

202,408

 

 

 

(8,273,423 )

 

 

1,108,580

 

 

 

(7,939,017 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$ (2,555,367 )

 

$ (8,445,232 )

 

$ (2,090,381 )

 

$ (8,183,466 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic abnd diluted

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

$ (0.00 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

 

8,849,020,450

 

 

 

4,790,615,050

 

 

 

8,694,453,203

 

 

 

3,376,199,318

 

 

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

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

 

 

 

 

 

 

 

 

 

FOR THE SIX MONTHS

ENDED JUNE 30,

 

 

 

2018

 

 

2017

 

CASH FLOWS FROM OPERATING ACTIVITIES 

 

 

 

 

 

 

Net loss

 

$ (2,090,381 )

 

$ (8,183,466 )

Adjustments to reconcile net loss to net cash used in operations: 

 

 

 

 

 

 

 

 

Amortization and depreciation 

 

 

307,105

 

 

 

27,977

 

Non-cash interest and fees

 

 

-

 

 

 

72,504

 

Voting control value of preferred stock issued

 

 

2,333,140

 

 

 

-

 

Amortization of debt discounts

 

 

1,384,671

 

 

 

201,239

 

Loss (gain) on fair value of derivatives

 

 

(2,620,551 )

 

 

7,443,912

 

Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

112,815

 

 

 

-

 

Accounts receivable, related party

 

 

(24,837 )

 

 

-

 

Prepaid expenses  and other recevables

 

 

(5,626 )

 

 

-

 

Accounts payable and accrued liabilities 

 

 

(117,516 )

 

 

85,825

 

Accounts payable and accrued liabilities, related party

 

 

(4,171 )

 

 

52,040

 

Deferred revenue

 

 

5,482

 

 

 

-

 

NET CASH USED IN OPERATING ACTIVITIES 

 

 

(719,869 )

 

 

(299,969 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES 

 

 

 

 

 

 

 

 

Property and equipment

 

 

(10,190 )

 

 

-

 

Cash acquired in HelpComm acquisition

 

 

46,910

 

 

 

-

 

Investment in joint venture

 

 

(45,000 )

 

 

-

 

Purchase of note receivable

 

 

(25,000 )

 

 

-

 

Purchase of exclusive rights

 

 

(30,380 )

 

 

(200,000 )

NET CASH USED IN INVESTING ACTIVITIES 

 

 

(63,660 )

 

 

(200,000 )

 

 

 

 

 

 

 

 

 

CASH FLOWS PROVIDED BY FINANCING ACTIVITIES 

 

 

 

 

 

 

 

 

Payments of principal on notes and leases payable

 

 

(33,975 )

 

 

(323,162 )

Payments of principal on convertible notes payable 

 

 

(62,461 )

 

 

(32,720 )

Proceeds from issuance of convertible debt, net

 

 

715,000

 

 

 

948,250

 

Proceeds from loan-related party 

 

 

-

 

 

 

11,301

 

Repayments of loan-related party 

 

 

-

 

 

 

(38,151 )

Payments of principal on bank term notes payable

 

 

(45,114 )

 

 

-

 

Proceeds from revolving line of credit

 

 

626,600

 

 

 

-

 

Payments of revolving line of credit

 

 

(543,054 )

 

 

-

 

NET CASH PROVIDED BY FINANCING ACTIVITIES 

 

 

656,996

 

 

 

565,518

 

 

 

 

 

 

 

 

 

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 

 

 

(126,533 )

 

 

65,549

 

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS 

 

 

 

 

 

 

 

 

Beginning of period

 

 

189,357

 

 

 

257

 

End of period

 

$ 62,824

 

 

$ 65,806

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 63,446

 

 

$ 149,315

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES

 

 

 

 

 

 

 

 

Shares issued in settlement of debt and interest on convertible debt 

 

$ 1,045,083

 

 

$ 731,965

 

Shares to be issued in settlement of debt and interest on convertible debt 

 

$ -

 

 

$ 6,521

 

Original issue discounts 

 

$ 65,525

 

 

$ 72,075

 

Original debt discount against derivative liabilities

 

$ 900,965

 

 

$ 1,131,859

 

Initial value of derivative liabilities 

 

$ 1,271,999

 

 

$ 3,308,630

 

Reclassification of derivatives upon conversion of convertible debt

 

$ 1,324,370

 

 

$ 5,298,808

 

Issuances of notes payable for propery and equipment

 

$ 46,000

 

 

$ -

 

Series E Preferred Stock issued for debt forgiveness, related party

 

$ 25,000

 

 

$ -

 

 

 

 

 

 

 

 

 

 

Acquisition of HelpComm, Inc.

 

 

 

 

 

 

 

 

Issuance of Series D Preferred stock as consideration

 

$ 2,400,000

 

 

$ -

 

Assumed liabilities

 

 

1,711,389

 

 

 

-

 

Accounts receivable

 

 

(386,964 )

 

 

-

 

Property and equipment

 

 

(171,714 )

 

 

-

 

Other Assets

 

 

(292,994 )

 

 

-

 

Intangible assets

 

 

(3,212,807 )

 

 

-

 

Cash acquired

 

$ 46,910

 

 

$ -

 

 

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

 

 
5
 
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NOTE 1 - Nature of Operations

 

Bravatek Solutions, Inc., a Colorado corporation (the “Company”), was incorporated on April 19, 2007, as eCrypt Technologies, Inc. Effective October 23, 2015, the Company changed its name to “Bravatek Solutions, Inc.” in order to better reflect the Company's expanding operations and strategy. The Company's business operations are oriented around the marketing and distribution of proprietary and allied security, defense and information security software, hardware and services (including telecom services). Products include software, hardware and services, and span a diverse variety of industries including, but not limited to, email security, user authentication, telecommunications and cyber breach protection. Bravatek is a security platform company offering services, software, tools and systems that it provides, develops, acquires or obtains through strategic marketing or other agreements. The Company began taking pre-orders of Tuitio, a consumer software product (protected by two issued patents and licensed by the Company) in the second quarter of 2018.

 

NOTE 2 – Acquisition of HELPCOmm, Inc.

 

Effective January 1, 2018, the Company acquired all of the issued and outstanding shares of HELPCOmm. Inc. (“HelpComm”), a telecom construction and services corporation located in Manassas, Virginia, in exchange for $25,000 of cash and 100,000 shares of Series D Convertible Preferred Stock (the “Acquisition”). Each share of Series D Convertible Preferred Stock is convertible into a number of shares of Company common stock equal to $24.00 divided by the volume-weighted average price of the common stock as reported on OTCMarkets.com on the trading day immediately preceding conversion.

 

The Company also acquired an option to purchase 8760, LLC, a Virginia limited liability company (“8760, LLC”), for $100 at any time. 8760, LLC owns the real property from which HelpComm operates its business, and is subject to loan agreements, guaranteed by the Small Business Administration, which prohibit (i) any express change of ownership of 8760, LLC, or (ii) any disposition of 8760, LLC assets, including any real property, prior to repayment of the loans.

 

Based on the fair value of the 100,000 shares of Series D Convertible Preferred Stock of $2,400,000, the option to purchase 8760, LLC and $25,000 cash, the total consideration of the Acquisition is valued at $2,425,000. The Company also assumed liabilities of $1,711,389 for total purchase consideration of $4,136,389.

 

The following table summarizes the purchase price allocation of the fair value of assets acquired and liabilities assumed in the acquisition:

 

 

 

Purchase Price Allocation

 

Fair value of consideration for Acquisition

 

$ 2,425,000

 

Liabilities assumed

 

 

1,711,389

 

Total purchase consideration

 

$ 4,136,389

 

Tangible assets acquired

 

$ 898,582

 

Intellectual Property/Technology

 

 

391,600

 

Customer Base

 

 

961,000

 

Tradenames and Trademarks

 

 

431,300

 

Non- compete agreements

 

 

37,200

 

Option to buy 8760, LLC

 

 

77,448

 

Goodwill

 

 

1,339,259

 

 

 

$ 4,136,389

 

 

The total purchase price of $4,136,389 has been allocated on to the tangible and intangible assets acquired and liabilities assumed based on preliminary estimated fair values as of the completion of the Acquisition. The fair value of HelpComm’s identifiable intangible assets was estimated primarily using the income approach which requires an estimate or forecast of all the expected future cash flows, either through the use of the relief-from-royalty method or the multi-period excess earnings method. The Company will record amortization expense assuming a straight-line basis over the expected life of the finite lived intangible assets, which approximates expected future cash flows.

 

 
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Goodwill recorded of $1,339,259 represents the amount by which the fair value consideration transferred exceeds the fair value of the HelpComm assets the Company acquired and the liabilities the Company assumed. The Company will not amortize the goodwill, but will instead test the goodwill for impairment at least annually and whenever events or circumstances have occurred that may indicate a possible impairment.

 

NOTE 3 - Significant Accounting Policies

 

Basis of Presentation

 

On February 3, 2018, the Board of Directors of the Company changed the Company’s fiscal year end to December 31 st from March 31 st . On May 3, 2018, the Company filed a Transition Report on Form 10-KT covering the nine-month period from April 1, 2017, through December 31, 2017 (the “Transition Period”) which reflects the Company’s financial results during that nine-month period.

 

The accompanying condensed consolidated financial statements in this report have been prepared by the Company without audit. In the opinion of management, all adjustments necessary to present the financial position, results of operations and cash flows for the stated periods have been made. Except as described below, these adjustments consist only of normal and recurring adjustments. Certain information and note disclosures normally included in the Company’s annual financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. These condensed consolidated unaudited financial statements should be read in conjunction with a reading of the Company’s financial statements and notes thereto included in the Transition Report for the nine months ended December 31, 2017, filed with the United States Securities and Exchange Commission (the “SEC”) on May 3, 2018. Interim results of operations for the three and six months ended June 30, 2018, and 2017, are not necessarily indicative of future results for the full year. Certain amounts from the 2017 period have been reclassified to conform to the presentation used in the current period.

 

Use of Estimates

 

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including, but not limited to: net realizable value of accounts receivable, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of the valuation allowances on deferred tax assets and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near-term events. Accordingly, actual results could differ significantly from estimates.

 

Cash and Cash Equivalents

 

Cash and cash equivalents are carried at cost and represent cash on hand, demand deposits placed with banks or other financial institutions and all highly liquid investments with an original maturity of three months or less. The Company had no cash equivalents.

 

 
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Sales Concentration and credit risk

 

Following is a summary of customers who accounted for more than ten percent (10%) of the Company’s revenues for the three and six months ended June 30, 2018, and their accounts receivable balance as of June 30, 2018:

 

 

 

Sales % Three Months Ended

June 30,

2018

 

 

Sales % Six Months Ended

June 30,

2018

 

 

Accounts receivable balance

June 30,

2018

 

Customer A

 

 

28.6 %

 

 

37.3 %

 

$ 15,001

 

Customer B

 

 

16.7 %

 

 

13.3 %

 

$ 32,715

 

Customer C

 

 

14.3 %

 

 

21.8 %

 

$ 39,290

 

Customer D

 

 

15.8 %

 

 

13.8 %

 

$ 109,849

 

 

Accounts Receivable/Allowance for Doubtful Accounts

 

The Company records its client receivables at their face amounts less allowances. On a periodic basis, the Company evaluates its receivables and establishes allowances based on historical experience and other currently available information. As of June 30, 2018, and December 31, 2017, management determined to establish an allowance for doubtful accounts of $30,000. The Company has engaged a law firm to pursue the collection of the $30,000.

 

Property and Equipment

 

Property and equipment is stated at cost, less accumulated depreciation and is reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

 

Depreciation of property and equipment is provided utilizing the straight-line method over the estimated useful lives, ranging from 5-7 years of the respective assets. Expenditures for maintenance and repairs are charged to expense as incurred. Upon sale or retirement of property and equipment, the related cost and accumulated depreciation are removed from the accounts and any gain or loss is reflected in the statements of operations.

 

The Company's property and equipment consisted of the following at June 30, 2018, and December 31, 2017:

 

 

 

2018

 

 

2017

 

Vehicles

 

$ 164,900

 

 

$ 35,608

 

Machinery and Equipment

 

 

172,703

 

 

 

74,091

 

Total Property and Equipment

 

 

337,603

 

 

 

109,699

 

Less: Accumulated Depreciation

 

 

126,641

 

 

 

88,065

 

Property and Equipment, Net

 

$ 210,962

 

 

$ 21,634

 

 

Depreciation expense was $38,576 and $4,667 for the six months ended June 30, 2018, and 2017, respectively, and $18,073 and $2,340 for the three months ended June 30, 2018 and 2017, respectively.

 

Long-Lived Assets

 

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.

 

Intangible Assets

 

Software Development Costs

 

Costs for software developed for internal use are accounted for through the capitalization of those costs incurred in connection with developing or obtaining internal-use software. Capitalized costs for internal-use software are included in intangible assets in the consolidated balance sheet. Capitalized software development costs are amortized over three years.

 

 
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Costs incurred during the preliminary project along with post-implementation stages of internal use computer software development and costs incurred to maintain existing product offerings are expensed as incurred. The capitalization and ongoing assessment of recoverability of development costs require considerable judgment by management with respect to certain external factors, including, but not limited to, technological and economic feasibility and estimated economic life. Capitalized software is amortized over the software's estimated economic life of 3 years. For the six months ended June 30, 2018, and 2017, the Company had no development costs required to be capitalized under ASC 985-20, Costs of Software to be Sold, Leased or Marketed, and under ASC 350-40, Internal-Use Software.

 

Other intangible assets

 

The Company accounts for amounts paid to acquire exclusivity rights as intangible assets and are amortized over the term of exclusivity. In June 2017, the Company purchased for $200,000 exclusivity rights from HelpComm, Inc. (“HelpComm”) (see Note 9) for a one-year term. The Company acquired HelpComm in January 2018, and accordingly during the three months ended March 31, 2018, wrote off the remaining unamortized balance of $86,027. Also, in June 2017, the Company purchased for $200,000 exclusivity rights from Mile High Construction (“MHC”), of which $107,520 was funded in 2017. During the six months ended June 30, 2018, the Company funded an additional $30,380 to MHC.

 

In January 2018, the Company acquired HelpComm (See Note 2). The following intangible assets are being amortized over their useful lives as indicated below:

 

 

 

Life in years

 

 

2018

 

 

2017

 

Intellectual Property/Technology

 

 

10

 

 

$ 391,600

 

 

$ -

 

Customer Base

 

 

5

 

 

 

961,000

 

 

 

-

 

Tradenames and Trademarks

 

 

5

 

 

 

431,300

 

 

 

-

 

Non-compete agreements

 

 

5

 

 

 

37,200

 

 

 

-

 

Option to purchase building

 

 

5

 

 

 

77,448

 

 

 

-

 

Exclusivity rights

 

 

1

 

 

 

337,900

 

 

 

307,520

 

Software

 

 

3

 

 

 

60,362

 

 

 

60,362

 

Total intangible assets acquired

 

 

 

 

 

 

1,898,548

 

 

 

367,822

 

Less accumulated amortization

 

 

 

 

 

 

(525,968 )

 

 

(233,953 )

Intangible assets, net

 

 

 

 

 

$ 1,770,842

 

 

$ 133,929

 

 

Amortization expense was $292,015 and $9,977, for the six months ended June 30, 2018, and 2017, respectively and $115,312 and $5,016, for the three months ended June 30, 2018, and 2017, respectively.

 

Goodwill

 

Goodwill represents the difference between the purchase price and the estimated fair value of the net assets acquired in connection with the HelpComm Acquisition. Goodwill is tested at least annually for impairment or when events or changes in circumstances indicate that the carrying amount of such assets may not be recoverable, by assessing qualitative factors or performing a quantitative analysis in determining whether it is more likely than not that its fair value exceeds the carrying value. Examples of qualitative factors include our share price, our financial performance compared to budgets, long-term financial plans, industry and market conditions as well as the substantial excess of fair value over the carrying value of net assets from the annual impairment test previously performed.



 Income Taxes

 

The Company accounts for income taxes in accordance with ASC 740, Accounting for Income Taxes, as clarified by ASC 740-10, Accounting for Uncertainty in Income Taxes. Under this method, deferred income taxes are determined based on the estimated future tax effects of differences between the financial statement and tax basis of assets and liabilities given the provisions of enacted tax laws. Deferred income tax provisions and benefits are based on changes to the assets or liabilities from year to year. In providing for deferred taxes, the Company considers tax regulations of the jurisdictions in which the Company operates, estimates of future taxable income, and available tax planning strategies. If tax regulations, operating results or the ability to implement tax-planning strategies vary, adjustments to the carrying value of deferred tax assets and liabilities may be required. Valuation allowances are recorded related to deferred tax assets based on the "more likely than not" criteria of ASC 740.

 

ASC 740-10 requires that the Company recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the "more-likely-than-not" threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority.

 

 
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Research and Development

 

Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with GAAP. All research and development costs have been expensed as incurred, totaling $16,750 and $4,500 for the six months ended June 30, 2018 and 2017, respectively, and $6,750 and $2,250 for the three months ended June 30, 2018 and 2017, respectively.

 

Uncertainty as a Going Concern

 

The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $32,173,730 and has a working capital deficit of $5,280,359 as of June 30, 2018, which raises substantial doubt about its ability to continue as a going concern.

 

The Company's ability to continue as a going concern is dependent upon its ability to generate profitable operations in the future and/or obtain the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management has plans to seek additional capital through a private placement and public offering of its common stock. These plans, if successful, will mitigate the factors which raise substantial doubt about the Company's ability to continue as a going concern. These financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts, or amounts and classification of liabilities that might result from this uncertainty.

 

Fair Value of Financial Instruments

 

The Company measures assets and liabilities at fair value based on an expected exit price as defined by the authoritative guidance on fair value measurements, which represents the amount that would be received on the sale of an asset or paid to transfer a liability, as the case may be, in an orderly transaction between market participants. As such, fair value may be based on assumptions that market participants would use in pricing an asset or liability. The authoritative guidance on fair value measurements establishes a consistent framework for measuring fair value on either a recurring or nonrecurring basis whereby inputs, used in valuation techniques, are assigned a hierarchical level.

 

The following are the hierarchical levels of inputs to measure fair value:

 

 

·

Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.

 

·

Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

 

·

Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

 

The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.

 

The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of June 30, 2018, and December 31, 2017, for each fair value hierarchy level:

 

June 30, 2018

 

Derivative

Liabilities

 

 

Total

 

Level I

 

$ -

 

 

$ -

 

Level II

 

$ -

 

 

$ -

 

Level III

 

$ 2,238,111

 

 

$ 2,238,111

 

 

 

 

 

 

 

 

 

 

December 31, 2017

 

 

 

 

 

 

 

 

Level I

 

$ -

 

 

$ -

 

Level II

 

$ -

 

 

$ -

 

Level III

 

$ 5,331,567

 

 

$ 5,331,567

 

 

 
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Embedded Conversion Features

 

The Company evaluates embedded conversion features within convertible debt under ASC 815 "Derivatives and Hedging" to determine whether the embedded conversion feature(s) should be bifurcated from the host instrument and accounted for as a derivative at fair value with changes in fair value recorded in earnings. If the conversion feature does not require derivative treatment under ASC 815, the instrument is evaluated under ASC 470-20 "Debt with Conversion and Other Options" for consideration of any beneficial conversion feature.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Monte Carlo simulations to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

Debt Issue Costs and Debt Discount

 

The Company may record debt issue costs and/or debt discounts in connection with raising funds through the issuance of debt. These costs may be paid in the form of cash, or equity (such as warrants). These costs are amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.

 

Original Issue Discount (“OID”)

 

For certain convertible debt issued, the Company may provide the debt holder with an original issue discount. The original issue discount would be recorded to debt discount, reducing the face amount of the note and is amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.

 

Convertible Preferred Stock

 

The Company accounts for preferred stock in accordance with the guidance in Accounting Standards Codification (“ASC”) Topic 480 “Distinguishing Liabilities from Equity.” Preferred stock subject to mandatory redemption (if any) is classified as a liability instrument and is measured at fair value. Preferred stock (including preferred stock that features conversion rights that are either within the control of the holder or subject to the occurrence of uncertain events not solely within our control) is classified as temporary equity. The Company’s Series D Convertible Preferred Stock features a fixed dollar conversion right, with a variable amount of shares of common stock upon conversion, and are considered to be outside of our control and subject to occurrence of uncertain future events. Accordingly, at June 30, 2018, the Series D Preferred Stock subject to possible conversion is presented as a long-term liability in the condensed consolidated balance sheet presented herein.

 

Deferred Revenue

 

The Company records deferred revenues when cash has been received, but the related services or products have not been provided or delivered. Deferred revenue will be recognized when the services or products are provided and the terms of the agreements have been fulfilled. As of June 30, 2018, the Company has deferred revenue of $5,482 related to a down payment of $5,000 received from DarkPulse for a software build proposal and $482 of prepayments from customers for Tuitio, the Company’s new malware software. The company anticipates that the software build and Tuitio product will be available in August 2018.

 

 
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Revenue Recognition

 

The Company has adopted ASU 2014-09, as amended effective January 1, 2018, and determined that there was no significant impact on its revenue recognition. The Company’s contracts with customers are generally on a purchase order basis and represent obligations that are satisfied at a point in time as defined in the new guidance. Accordingly, revenue for each project is recognized when each project is complete, and any costs incurred before this point in time, are recorded as assets to be expensed during the period the related revenue is recognized. Product revenue and miscellaneous income are recognized as earned.

 

Stock-Based Compensation – Employees

 

The Company accounts for its stock-based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.

 

The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.

 

The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.

 

Generally, all forms of share-based payments, including stock option grants, warrants and restricted stock grants and stock appreciation rights are measured at their fair value on the awards' grant date, based on estimated number of awards that are ultimately expected to vest. The expense resulting from share-based payments is recorded in general and administrative expense in the statements of operations.

 

Stock-Based Compensation – Non-Employees

 

Equity Instruments Issued to Parties Other Than Employees for Acquiring Goods or Services

 

The Company accounts for equity instruments issued to parties other than employees for acquiring goods or services under guidance of Sub-topic 505-50 of the FASB Accounting Standards Codification ("Sub-topic 505-50").

 

Pursuant to ASC Section 505-50-30, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable. The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur. The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model.

 

Pursuant to ASC paragraph 505-50-25-7, if fully vested, non-forfeitable equity instruments are issued at the date the grantor and grantee enter into an agreement for goods or services (no specific performance is required by the grantee to retain those equity instruments), then, because of the elimination of any obligation on the part of the counterparty to earn the equity instruments, a measurement date has been reached. A grantor shall recognize the equity instruments when they are issued (in most cases, when the agreement is entered into). Whether the corresponding cost is an immediate expense or a prepaid asset (or whether the debit should be characterized as contra-equity under the requirements of paragraph 505-50-45-1) depends on the specific facts and circumstances. Pursuant to ASC paragraph 505-50-45-1, a grantor may conclude that an asset (other than a note or a receivable) has been received in return for fully vested, non-forfeitable equity instruments that are issued at the date the grantor and grantee enter into an agreement for goods or services (and no specific performance is required by the grantee in order to retain those equity instruments). Such an asset shall not be displayed as contra-equity by the grantor of the equity instruments. The transferability (or lack thereof) of the equity instruments shall not affect the balance sheet display of the asset. This guidance is limited to transactions in which equity instruments are transferred to other than employees in exchange for goods or services. Section 505-50-30 provides guidance on the determination of the measurement date for transactions that are within the scope of this Subtopic.

 

Pursuant to Paragraphs 505-50-25-8 and 505-50-25-9, an entity may grant fully vested, non-forfeitable equity instruments that are exercisable by the grantee only after a specified period of time if the terms of the agreement provide for earlier exercisability if the grantee achieves specified performance conditions. Any measured cost of the transaction shall be recognized in the same period(s) and in the same manner as if the entity had paid cash for the goods or services or used cash rebates as a sales discount instead of paying with, or using, the equity instruments. A recognized asset, expense, or sales discount shall not be reversed if a share option and similar instrument that the counterparty has the right to exercise expires unexercised.

 

Pursuant to ASC paragraph 505-50-30-S99-1, if the Company receives a right to receive future services in exchange for unvested, forfeitable equity instruments, those equity instruments are treated as unissued for accounting purposes until the future services are received (that is, the instruments are not considered issued until they vest). Consequently, there would be no recognition at the measurement date and no entry should be recorded.

 

 
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Related Parties

 

The Company follows subtopic 850-10 of the FASB Accounting Standards Codification for the identification of related parties and disclosure of related party transactions.

 

Pursuant to Section 850-10-20 the related parties include a) affiliates of the Company; b) Entities for which investments in their equity securities would be required, absent the election of the fair value option under the Fair Value Option Subsection of Section 825-10-15, to be accounted for by the equity method by the investing entity; c) trusts for the benefit of employees, such as pension and profit-sharing trusts that are managed by or under the trusteeship of management; d) principal owners of the Company; e) management of the Company; f) other parties with which the Company may deal if one party controls or can significantly influence the management or operating policies of the other to an extent that one of the transacting parties might be prevented from fully pursuing its own separate interests; and g) Other parties that can significantly influence the management or operating policies of the transacting parties or that have an ownership interest in one of the transacting parties and can significantly influence the other to an extent that one or more of the transacting parties might be prevented from fully pursuing its own separate interests.

 

The financial statements shall include disclosures of material related party transactions, other than compensation arrangements, expense allowances, and other similar items in the ordinary course of business. However, disclosure of transactions that are eliminated in the preparation of consolidated or combined financial statements is not required in those statements. The disclosures shall include: a) the nature of the relationship(s) involved; b) a description of the transactions, including transactions to which no amounts or nominal amounts were ascribed, for each of the periods for which income statements are presented, and such other information deemed necessary to an understanding of the effects of the transactions on the financial statements; c) the dollar amounts of transactions for each of the periods for which income statements are presented and the effects of any change in the method of establishing the terms from that used in the preceding period; and d) amounts due from or to related parties as of the date of each balance sheet presented and, if not otherwise apparent, the terms and manner of settlement.

 

Net Earnings (Loss) per Share

 

The Company computes net loss per share in accordance with FASB ASC 260, “Earnings per Share.” ASC 260 requires presentation of both basic and diluted earnings per share (EPS) on the face of the statement of operations. Basic EPS is computed by dividing net income (loss) available to common shareholders by the weighted average number of common shares outstanding during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible notes and stock warrants, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options, warrants and conversion of convertible notes. As of June 30, 2018, there were warrants and options to purchase 3,365 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 2,435,339,815 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

 

Recent Accounting Pronouncements

 

In February 2016, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2016-02, “Leases (Topic 842)”. Under this guidance, an entity is required to recognize right-of-use assets and lease liabilities on its balance sheet and disclose key information about leasing arrangements. This guidance offers specific accounting guidance for a lessee, a lessor and sale and leaseback transactions. Lessees and lessors are required to disclose qualitative and quantitative information about leasing arrangements to enable a user of the financial statements to assess the amount, timing and uncertainty of cash flows arising from leases. This guidance is effective for annual reporting periods beginning after December 15, 2018, including interim periods within that reporting period, and requires a modified retrospective adoption, with early adoption permitted. The Company is currently evaluating the impact of the adoption of this standard will have on our consolidated financial statements.

 

In January 2017, the FASB issued ASU 2017-01, “ Business Combinations (Topic 805) Clarifying the Definition of a Business ” (“ASU 2017-01”). The Amendments in this Update 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. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted. The Company adopted ASU 2017-01 on January 1, 2018, with no significant impact on the condensed consolidated financial statements.

 

 
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In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). ASU 2014-09 is amended by ASU 2015-14, ASU 2016-08, ASU 2016-10, ASU 2016-11, ASU 2016-12, ASU 2016-20, ASU 2017-10, ASU 2017-13 and ASU 2017-14, which FASB issued in August 2015, March 2016, April 2016, May 2016, May 2016, December 2016, May 2017, September 2017 and November 2017, respectively (collectively, the amended ASU 2014-09). The amended ASU 2014-09 provides a single comprehensive model for the recognition of revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. It requires an entity to recognize revenue when the entity transfers promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amended ASU 2014-09 creates a five-step model that requires entities to exercise judgment when considering the terms of contract(s). The amended ASU 2014-09 requires additional disclosure about the nature, amount, timing and uncertainty of revenue and cash flows arising from customer contracts, including qualitative and quantitative information about contracts with customers, significant judgments and changes in judgments and assets recognized from costs incurred to obtain or fulfill a contract. The effective date for the amended ASU 2014-09 is for years beginning after December 15, 2017 with early adoption permitted. The Company adopted the new guidance effective January 1, 2017 under the modified retrospective transition approach and it did not have a material impact on the condensed consolidated financial statements of the Company.

 

With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the six months ended June 30, 2018, as compared to the recent accounting pronouncements described in the Company’s Annual Report on Form 10-KT for the fiscal year ended December 31, 2017, as filed on May 3, 2018, that are of significance or potential significance to the Company.

 

NOTE 4 - Related Party Transactions

 

Management Fees and related party payables

 

For the three and six months ended June 30, 2018, and 2017, the Company recorded expenses to its officers, and the officers of one of the Company’s subsidiaries, in the following amounts:

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

CEO

 

$ 42,000

 

 

$ 42,000

 

 

$ 84,000

 

 

$ 84,000

 

Voting control value of preferred stock issued to CEO

 

 

2,333,140

 

 

 

-

 

 

 

2,333,140

 

 

-

 

CFO

 

 

18,000

 

 

 

15,000

 

 

 

36,000

 

 

 

29,500

 

HelpComm President

 

 

46,708

 

 

 

-

 

 

 

88,307

 

 

 

-

 

HelpComm Vice President

 

 

49,576

 

 

 

-

 

 

 

84,458

 

 

 

-

 

Total

 

$ 2,489,424

 

 

$ 57,000

 

 

$ 2,625,905

 

 

$ 113,500

 

 

On June 1, 2018, the Company issued 1 share of its Series E Preferred Stock to Dr. Cellucci, in consideration of $25,000 of accrued and unpaid wages, Dr. Cellucci’s stock pledge of Series C Preferred Stock as collateral to a lender, the Company’s failure to timely pay current and past salaries, and Dr. Cellucci’s willingness to accrue unpaid payroll and non-reimbursement of business expenses without penalty or action for all amounts. The Company determined that the issuance of the Series E Preferred Stock resulted in a change of control of the Company. The Company determined that fair value of the Series E Preferred Stock (see Note 11) issued to the Company’s CEO was $2,333,140.

 

The HelpComm President and Vice President are the holders of 60,000 and 40,000 shares, respectively, of the Company’s Series D Convertible Preferred Stock. As of June 30, 2018, and December 31, 2017, included in accounts payable – related party is $287,500 and $318,179, respectively, for amounts owed the Company’s CEO. Amounts due to the HelpComm President and Vice President of $21,062 as of June 30, 2018, is also included in the accounts payable – related party balance.

 

Deferred revenue

 

Included in deferred revenue for the six months ended June 30, 2018 is $5,000 from DarkPulse Technology Holdings Inc. (“DarkPulse”) (see Note 12) for a down payment received for a software build proposal.

 

 
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Sales and Accounts Receivables

 

On June 2, 2017, Bravatek Solutions, Inc. (the “Company”) entered into a Strategic Alliance Agreement with Mile High Construction (“MHC”), a telecom construction service provider with a principal place of business in Colorado, pursuant to which (i) the Company will provide at least $200,000 in business expansion funding to MHC and 30% of profits from services performed by MHC will be allotted to the Company, (ii) MHC will assign all purchase orders (the “Exclusive Rights”) to the Company for administration, accounting and fund distribution, (iii) the Company will provide project management and sales services to MHC, and (iv) MHC will promote the Company’s products and services and assist in sales calls. The Company funded $107,520 during the year ended December 31, 2017, and during the six months ended June 30, 2018, the Company funded an additional $30,380 to MHC. As of June 30, 2018, the Company has included $137,900 in intangible assets for the Exclusive Rights and has amortized $137,900 ($27,338 and $76,628 for the three and six months ended June 30, 2018).

 

For the six months ended June 30, 2018, the Company billed MHC $24,837, which is included in Sales, related party, and MHC owes the Company $25,837 which is included in Accounts receivable, related party, on the June 30, 2018, condensed consolidated financial statements.

 

Rent

 

On June 27, 2011, HelpComm entered into a twenty (20) year lease with 8760, LLC. The sole member of 8760, LLC is HelpComm’s President and the holder of 60,000 shares of the Company’s Series D Convertible Preferred Stock. Per the terms of the lease as amended, and assumed by the Company, pursuant to the Acquisition of HelpComm, the rent was $8,700 per month in January and February and $11,500 effective March 1, 2018, and HelpComm is responsible for property taxes, insurance and repairs and maintenance. For the three and six months ended June 30, 2018, total occupancy costs were $34,500 and $65,714, respectively. Pursuant to the HelpComm acquisition, the Company acquired an option to purchase 8760, LLC, for $100.00 at any time.

 

NOTE 5 - Notes Payable

 

From May 18, 2010 through June 27, 2013, the Company issued in the aggregate $558,500 of unsecured notes payable to a Nevada corporation, lender and preferred shareholder of the Company ("Global"). The notes bear interest at 10%, compounded annually and $553,000 and $5,500 matured on November 30, 2014, and June 27, 2015, respectively. On February 16, 2015, the Company secured extensions on all of the notes that matured on November 30, 2014 through April 1, 2015, with no change in original terms of the agreement.

 

On June 15, 2015, Company entered into a Settlement Agreement and Partial Waiver and Release (the "Settlement Agreement") with Global. Global owned 2,377,500 shares of the Company's Series A Convertible Preferred Stock and was the holder of outstanding promissory notes in the original principal amount of $558,500, with accrued interest thereon due to Global of approximately $267,960 (the "Global Notes") immediately prior to the Settlement Agreement. Pursuant to the Settlement Agreement, Global agreed to (1) waive interest due of $267,960 under the Global Notes and $158,500 of principal, such that only $400,000 of principal and interest would be considered outstanding as of the settlement agreement date, and (2) immediately return all of the Preferred Stock to the Company for cancellation, in consideration for the Company issuing 856 shares of common stock to Global. As of June 15, 2015, the note is payable on demand as part of the Settlement Agreement. As of June 30, 2018, and December 31, 2017, the note balance was $400,000. Accrued interest as of June 30, 2018, and December 31, 2017, was $40,110.

 

The Company issued five notes from December 18, 2012 to May 30, 2013 totaling $199,960 in unsecured notes payable to a third party. The notes bear an interest rate of 10%, compounded annually and matured from December 18, 2014 through May 30, 2015. On February 16, 2015, the Company secured a notes payable extension through April 1, 2015, with no change in original terms of the agreements. The notes payable were again extended on August 6, 2015, through January 1, 2016, with no change in original terms of the agreement. As of June 30, 2018, and December 31, 2017, the note balance was $199,960 and the notes are currently in default. Accrued interest as of June 30, 2018, and December 31, 2017, was $107,777 and $97,781, respectively.

 

The Company issued six notes from July 12, 2013 to June 16, 2014, totaling $230,828 in unsecured notes payable to a third party. The notes bear an interest rate of 10%, compounded annually and matured from July 12, 2014 through June 16, 2015. On February 16, 2015, the Company secured a notes payable extension through April 1, 2015, with no other changes in original terms of the agreements. The notes payable were again extended on August 6, 2015, through January 1, 2016, with no other changes in original terms of the agreements. As of June 30, 2018, and December 31, 2017, the note balance was $230,828 and the notes are currently in default. Accrued interest as of June 30, 2018, and December 31, 2017, was $103,619 and $92,077, respectively.

 

 
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Pursuant to the acquisition of HelpComm, the Company assumed all of the outstanding notes payable of HelpComm. As of June 30, 2018, the Company has the following note payables related to HelpComm outstanding:

 

 

 

June 30,

2018

 

 

 

 

 

Note payable on truck, payable in monthly installments of $643, including interest at approximately 5.24%, through February, 2019.

 

$ 6,385

 

 

 

 

 

 

Note payable on truck, payable in monthly installments of $798, including interest at approximately 4.24% per annum, through April, 2020.

 

 

17,052

 

 

 

 

 

 

Note payable on truck, payable in monthly installments of $724, including interest at approximately 5.99% per annum, through April, 2021.

 

 

23,485

 

 

 

 

 

 

Note payable on truck, payable in monthly installments of $437, including interest at approximately 5.19% per annum, through May 2021.

 

 

14,228

 

 

 

 

 

 

Note payable on equipment, payable in monthly installments of $1,196, including interest at approximately 0.9% per annum, through January, 2020.

 

 

23,902

 

 

 

 

 

 

Note payable on dump truck, payable in monthly installments of $843 including interest at approximately 9.54% per annum, through November, 2018.

 

 

4,962

 

 

 

 

 

 

Note payable on equipment, payable in monthly installments of $295, including interest at approximately 11.08% per annum, through July, 2019.

 

 

3,647

 

 

 

 

 

 

Note payable on truck, payable in monthly installments of $912, including interest at approximately 5.94% per annum, through March, 2023.

 

 

45,443

 

 

 

 

 

 

Note payable on truck, payable in monthly installments of $647 including interest at approximately 5.84% per annum, through August, 2020.

 

 

17,029

 

Total notes payable

 

 

156,132

 

Less current portion

 

 

73,864

 

Notes payable non- current portion

 

$ 82,268

 

 

The combined activity for notes payable for the six months ended June 30, 2018, is as follows:

 

 

 

June 30,

2018

 

Beginning balance

 

$ 830,788

 

Notes assumed in HelpComm acquisition

 

 

133,267

 

New note issued for vehicle

 

 

46,000

 

Payments

 

 

(23,135 )

Ending balance notes payable

 

 

986,920

 

Less current portion

 

 

904,652

 

Notes payable, non-current portion

 

$ 82,268

 

 

 
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Future minimum payments on notes payable are as follows:

 

12 months ending June 30,

 

Principal Note Payments

 

2019

 

$ 904,652

 

2020

 

 

41,920

 

2021

 

 

22,435

 

2022

 

 

10,024

 

2023

 

 

7,889

 

 

 

$ 986,920

 

 

NOTE 6 – Bank term loans

 

The following bank term loans were assumed by the Company pursuant to the HelpComm acquisition.

 

On April 15, 2013, HelpComm entered into a $500,000 Variable Rate Nondisclosable SBA Loan (the “First Term Loan”) with Sonabank (the “Lender”). The initial interest rate for borrowings under the First Term Loan accrues at a per annum rate equal to 6.0%. The interest rate changes monthly and is equal to 2.75% above the Prime Rate in effect on the first business day of each month. The Prime Rate is as published in the Wall Street Journal. The First Term Loan requires monthly principal and interest payments of $7,305 and matures on May 1, 2020. The obligations of the Company are secured by a blanket lien on all the assets of HelpComm.

 

On December 1, 2017, HelpComm entered into a $125,000 Variable Rate Nondisclosable SBA Loan (the “Second Term Loan”) with the same Lender. The initial interest rate for borrowings under the Second Term Loan accrues at a per annum rate equal to 7.0%. The interest rate changes monthly and is equal to 2.75% above the Prime Rate in effect on the first business day of each month. The Prime Rate is as published in the Wall Street Journal newspaper). The Second Term Loan requires monthly principal and interest payments of $1,887 and matures on December 1, 2024. The obligations of the Company are secured by a blanket lien on all the assets of HelpComm.

 

The combined activity for the bank term loans for the six months ended June 30, 2018, is as follows:

 

 

 

June 30,

2018

 

Assumed in HelpComm acquisition

 

$ 322,744

 

Payments of principal

 

 

(45,114 )

Ending balance term loans

 

 

277,630

 

Less current portion

 

 

97,139

 

Bank term loans, non-current portion

 

$ 180,491

 

 

Future minimum payments on the bank term loans are as follows:

 

12 months ending June 30,

 

Principal Term Loan Payments

 

2019

 

$ 97,138

 

2020

 

 

92,270

 

2021

 

 

16,019

 

2022

 

 

17,177

 

2023

 

 

18,419

 

Thereafter

 

 

36,607

 

 

 

$ 277,630

 

 

NOTE 7 – Revolving line of credit

 

The revolving line of credit liability was assumed by the Company pursuant to the HelpComm acquisition.

 

On April 15, 2013, the HelpComm entered into a $250,000 Variable Rate Revolving Line of Credit SBA Loan (the Revolving Facility”) with Sonabank. The initial interest rate for borrowings under the Revolving Facility accrues at a per annum rate equal to 5.5%, and is due monthly. The interest rate changes monthly and is equal to 2.25% above the Prime Rate in effect on the first business day of each month. The Prime Rate is as published in the Wall Street Journal newspaper). The Revolving Facility was increased to $500,000 on October 1, 2015, and the current maturity date has been extended to September 15, 2018. The obligations of the Company are secured by a blanket lien on all the assets of HelpComm.

 

 
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The activity for the three months ended June 30, 2018, is as follows:

 

 

 

June 30,

2018

 

Assumed n the HelpComm acquisition

 

$ 415,489

 

Advances

 

 

626,600

 

Payments

 

 

(543,054 )

Ending balance

 

$ 499,035

 

 

NOTE 8 – Capital leases payable

 

The following capital leases payable were assumed in the HelpComm acquisition. As of June 30, 2018, the Company has the following leases outstanding:

 

 

 

June 30,

2018

 

 

 

 

 

Lease obligation on equipment, payable in monthly installments of $1,042 including interest at approximately 10.9% per annum, through November, 2018.

 

$ 5,063

 

 

 

 

 

 

Lease obligation on equipment, payable in monthly installments of $552 including interest at approximately 13.9% per annum, through January, 2019.

 

 

3,690

 

 

 

 

 

 

Lease obligation on truck, payable in monthly installments of $137 including interest at approximately 12.0% per annum, through January, 2020.

 

 

2,094

 

 

 

 

 

 

Lease obligation on equipment, payable in monthly installments of $266 including interest at approximately 13.3% per annum, through February, 2019.

 

 

1,647

 

 

 

 

 

 

Total lease obligations

 

 

12,494

 

Less current portion

 

 

12,045

 

Lease obligations non- current portion

 

$ 449

 

 

The activity for the six months ended June 30, 2018, is as follows:

 

 

 

June 30,

2018

 

Assumed in HelpComm acquisition

 

$ 23,332

 

Payments

 

 

(10,838 )

Total lease obligations

 

$ 12,494

 

 

The carrying amount of property and equipment acquired pursuant to capital leases as of June 30, 2018, is as follows:

 

 

 

June 30,

2018

 

Cost

 

$ 79,783

 

Accumulated depreciation

 

 

(52,606 )

Net book value

 

$ 27,177

 

 

NOTE 9 - Convertible Notes Payable

 

The Company accounted for the following Notes under ASC Topic 815-15 "Embedded Derivative." The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective terms of the related notes. See Note 10.

 

On December 19, 2014, the Company issued a convertible back-end note, with a face value of $156,000 and stated interest of 8% to a third-party investor due December 19, 2015. The note is convertible at any time into a variable number of the Company's common stock, based on a conversion ratio of 68% of the lowest closing bid prices for 20 days prior to conversion. The note was funded on June 18, 2015, when the Company received proceeds of $143,333, net of $12,663 of OID and costs. As of June 30, 2018, and December 31, 2017, the outstanding principal amount of the note was $135,371.

 

 
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On May 1, 2017, the Company issued to a third-party investor, three convertible notes, two of which were for $50,000 each and one for $17,500, and three back-end convertible notes, two of which were for $50,000 each and one for $25,000. All of the notes have a stated interest of 8% and each note is convertible at any time following the funding of such note, into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion subject to a ceiling of $0.0005. The three convertible notes were funded on May 1, 2017, when the Company received proceeds of $111,625, after disbursements for the lender’s transaction costs, fees and expenses of $5,875, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the three notes resulted in an initial debt discount of $117,500, an initial derivative expense of $319,692 and an initial derivative liability of $437,192. For the six months ended June 30, 2018, amortization of the debt discounts of $39,752 was charged to interest expense. As of June 30, 2018, the outstanding principal balance of the three convertible notes was $117,500. On August 8, 2017, the investor funded the $25,000 back-end note when the Company received $23,750 after disbursements for the lender’s transaction costs, fees and expenses of $1,250, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the $25,000 back-end resulted in an initial debt discount of $25,000, an initial derivative expense of $258,904 and an initial derivative liability of $283,904. For the six months ended June 30, 2018, amortization of the debt discounts of $8,449 was charged to interest expense. As of June 30, 2018, the outstanding principal balance of the funded back-end convertible note was $25,000.

 

On May 2, 2017, the Company issued a convertible note for legal services previously provided with a face value of $23,000 and stated interest of 10% to a third-party investor. The note is convertible into a variable number of the Company's common stock, based on a conversion ratio of 70% of the average of the three lowest closing bid prices for 10 days prior to conversion. The embedded conversion feature included in the note resulted in an initial debt discount of $15,715 and an initial derivative liability of $15,715. The investor sold the note to a third party on May 3, 2017, and the Company issued a replacement note to the buyer, as described below.

 

On May 3, 2017, the Company issued three replacement notes to a third-party investor. The replacement notes were in the amounts of $22,000, $29,700 and $25,300, respectively, and replaced notes issued in the amounts of $20,000, $27,000 and $23,000, respectively, all due May 3, 2018. The three replacement notes have a stated interest of 8% and each note is convertible at any time into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion. Beginning on the six- month anniversary of the notes the conversion price shall have ceiling of $0.0005. The embedded conversion feature included in the three replacement notes resulted in an initial debt discount of $77,000, an initial derivative expense of $158,790 and an initial derivative liability of $235,790. For the six months ended June 30, 2018, amortization of the debt discount of $25,239 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the principal balance of the three replacement notes in the aggregate was $77,000.

 

On June 8, 2017, the Company issued to a third-party investor a convertible promissory note for $140,750 and a back-end convertible note for $140,750. The notes mature on June 8, 2018, have a stated interest of 8% and each note is convertible at any time following the funding of such note into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion. Beginning on the six-month anniversary of the note the conversion price shall have ceiling of $0.0005. The note was funded on June 15, 2017, when the Company received proceeds of $135,000, after disbursements for the lender’s transaction costs, fees and expenses of $5,750, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $140,750, an initial derivative expense of $454,574 and an initial derivative liability of $595,324. For the six months ended June 30, 2018, amortization of the debt discounts of $62,782 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the principal balance of the note is $140,750. On August 8, 2017, the investor funded the $140,750 back-end note when the Company received $135,000 after disbursements for the lender’s transaction costs, fees and expenses of $5,750, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the back-end resulted in an initial debt discount of $140,750, an initial derivative expense of $1,454,021 and an initial derivative liability of $1,594,771. For the six months ended June 30, 2018, amortization of the debt discounts of $62,782 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the outstanding principal balance of the back-end convertible note was $140,750.

 

 
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On June 8, 2017, the Company issued to a third-party investor a convertible promissory note for $140,750 and a back-end convertible note for $140,750. The notes mature on June 8, 2018, have a stated interest of 8% and each note is convertible at any time following the funding of such note, convertible into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion. Beginning on the six-month anniversary of the note the conversion price shall have ceiling of $0.0005. The note was funded on June 15, 2017, when the Company received proceeds of $135,000, after disbursements for the lender’s transaction costs, fees and expenses of $5,750, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $140,750, an initial derivative expense of $454,574 and an initial derivative liability of $595,324. For the six months ended June 30, 2018, amortization of the debt discount of $62,782 was charged to interest expense. During the six months ended June 30, 2018, the investor converted $60,200 of principal and $2,916 of accrued interest into 60,398,076 shares of common stock. On January 26, 2018, the investor sold the remaining principal portion of the note of $80,550 and accrued interest of $3,920, and the Company issued a replacement note of $84,469 to the buyer (see below). As of June 30, 2018, and December 31, 2017, the principal balance of the initial note is $-0- and $140,750, respectively. On August 8, 2017, the investor funded the $140,750 back-end note when the Company received $135,000 after disbursements for the lender’s transaction costs, fees and expenses of $5,750, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the back-end resulted in an initial debt discount of $140,750, an initial derivative expense of $1,454,021 and an initial derivative liability of $1,594,771. During the six months ended June 30, 2018, the investor converted $140,750 of principal and $5,152 of accrued interest into 139,618,981 shares of common stock. For the six months ended June 30, 2018, amortization of the debt discount of $62,782 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the outstanding principal balance of the back-end convertible note was $-0- and $140,750, respectively.

 

On June 9, 2017, the Company issued a convertible promissory note, with a face value of $165,025 and stated interest of 10% to a third-party investor. The note is convertible at any time after ninety days following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The note was funded on May 12, 2017, when the Company received proceeds of $135,000, after OID of $21,525, and disbursements for the lender’s transaction costs, fees and expenses of $8,500, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $143,500, an initial derivative expense of $134,496 and an initial derivative liability of $277,996. For the six months ended June 30, 2018, amortization of the debt discounts of $54,048 was charged to interest expense. The note also requires 240 daily payments of $680 per day via ACH, however, there were no payments made for the six months ended June 30, 2018. During the six months ended June 30, 2018, the investor converted a total of $52,565 of the face value of the note and $7,663 of accrued interest into 54,752,409 shares of common stock. As of June 30, 2018, and December 31, 2017, the outstanding principal balance of the note was $-0- and $52,565, respectively.

 

On June 23, 2017, the Company issued a convertible promissory note, with a face value of $262,775 and stated interest of 10% to a third-party investor. The note is convertible at any time after ninety days following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The note was funded on June 23, 2017, when the Company received proceeds of $220,000, after OID of $34,275, and disbursements for the lender’s transaction costs, fees and expenses of $8,500, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $228,500, an initial derivative expense of $187,733 and an initial derivative liability of $416,233. The note also required 180 daily payments of $1,460 per day via ACH. During the six months ended June 30, 2018, the investor converted a total of $227,735 of the face value of the note and $13,914 of accrued interest into 212,848,780 shares of common stock. For the six months ended June 30, 2018, amortization of the debt discounts of $127,348 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the outstanding principal balance of the note was $-0- and $227,735, respectively.

 

On August 1, 2017, the Company issued a convertible promissory note, with a face value of $181,700, maturing on February 1, 2018, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on August 3, 2017, when the Company received proceeds of $150,000, after OID of $23,700, and disbursements for the lender’s transaction costs, fees and expenses of $8,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $158,000, an initial derivative expense of $104,654 and an initial derivative liability of $262.654. During the six months ended March 31, 2018, the investor converted a total of $51,349 of the face value of the note and $2,420 of accrued interest into 49,786,212 shares of common stock. For the six months ended June 30, 2018, amortization of the debt discounts of $50,598 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the note balance is $-0- and $51,349, respectively.

 

On August 7, 2017, the Company issued a convertible promissory note, with a face value of $223,422, maturing on August 7, 2018, and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The note was funded on August 9, 2017, when the Company received proceeds of $186,280, after OID of $29,142, and disbursements for the lender’s transaction costs, fees and expenses of $8,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The note also requires 240 daily payments of $931 per day via ACH, no payments were made on the note. The embedded conversion feature included in the note resulted in an initial debt discount of $194,280, an initial derivative expense of $112,250 and an initial derivative liability of $306,530. During the six months ended June 30, 2018, the investor converted a total of $197,022 of the face value of the note and $461 of accrued interest into 266,781,430 shares of common stock. For the six months ended June 30, 2018, amortization of the debt discounts of $138,853 was charged to interest expense. On March 27, 2018, the investor sold $26,400 of the note to a third party (see below). As of June 30, 2018, and December 31, 2017, the note balance is $-0- and $223,422, respectively.

 

 
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On October 12, 2017 (the “Issue Date”), the Company issued a convertible promissory note, with a face value of $40,111 maturing October 12, 2018, and stated interest of 12% to a third-party investor. The note is convertible at any time following ninety (90) days after the Issue Date of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The embedded conversion feature included in the note resulted in an initial debt discount of $40,111, an initial derivative expense of $35,941 and an initial derivative liability of $76,052. On April 2, 2018, the Company paid $45,000, including $4,889 of interest and prepayment costs. For the six months ended June 30, 2018, amortization of the debt discounts of $31,297 was charged to interest expense. As of June 30, 2018, and December 31, 2017, the note balance of this note is $-0- and $40,111, respectively.

 

On November 1, 2017, the Company issued a convertible promissory note, with a face value of $239,200 maturing November 1, 2018, and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The note was funded on November 1, 2017, when the Company received proceeds of $200,000, after OID of $31,200, and disbursements for the lender’s transaction costs, fees and expenses of $8,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $208,000, an initial derivative expense of $233,718 and an initial derivative liability of $441,718. For the six months ended June 30, 2018, amortization of the debt discounts of $206,001 was charged to interest expense. The note also requires 240 daily payments of $997 per day via ACH, no payments have been made on the note. During the six months ended June 30, 2018, the investor converted a total of $239,200 of the face value of the note and 17,337 of interest into 377,101,781 shares of common stock. As of June 30, 2018, and December 31, 2017, the note balance is $-0- and $239,200, respectively.

 

On November 9, 2017, the Company issued a convertible promissory note, with a face value of $120,750, maturing on May 1, 2018, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on November 10, 2017, when the Company received proceeds of $100,000, after OID of $15,750, and disbursements for the lender’s transaction costs, fees and expenses of $5,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $105,000, an initial derivative expense of $41,897 and an initial derivative liability of $146,897. For the six months ended June 30, 2018, amortization of the debt discounts of $107,585 was charged to interest expense. The note also requires daily payments of $503 until the note is paid in full, no payments have been made and the Company is in default of the note. As of June 30, 2018, and December 31, 2017, the note balance is $120,750.

 

On December 26, 2017, the Company issued a convertible promissory note, with a face value of $120,750 and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The note was funded on December 27, 2017, when the Company received proceeds of $100,000, after OID of $15,750, and disbursements for the lender’s transaction costs, fees and expenses of $5,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $105,000, an initial derivative expense of $93,767 and an initial derivative liability of $198,767. For the six months ended June 30, 2018, amortization of the debt discounts of $62,146 was charged to interest expense. The note also requires 240 daily payments of $503 per day via ACH, no payments have been made and the Company is in default of the note. As of June 30, 2018, and December 31, 2017, the note balance is $120,750, with a carrying value as of June 30, 2018 of $58,892, net of unamortized discounts of $61,858.

 

On January 26, 2018, the Company issued a replacement convertible promissory note in the face amount of $84,469, to a third-party that replaced a portion of the convertible promissory note issued on June 8, 2017, with a face value of $80,550, and accrued interest of $3,913. The embedded conversion feature included in the replacement note resulted in an initial debt discount of $84,465, an initial derivative expense of $58,121 and an initial derivative liability of $142,586. For the six months ended June 30, 2018, amortization of the debt discounts of $36,367 was charged to interest expense. As of June 30, 2018, the outstanding principal amount of the replacement note issued was $84,469, with a carrying value as of June 30, 2018, of $36,371, net of unamortized discounts of $48,098.

 

On January 26, 2018 (the “Issue Date”), the Company issued a convertible promissory note, with a face value of $20,000, maturing on January 26, 2019, and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The note was funded on January 26, 2018, when the Company received proceeds of $20,000. The note also requires daily ACH payments of $83, no payments have been made and the Company is in default of the note. The embedded conversion feature included in the note resulted in an initial debt discount of $20,000, an initial derivative expense of $15,403 and an initial derivative liability of $35,403. For the six months ended June 30, 2018, amortization of the debt discounts of $8,611 was charged to interest expense. As of June 30, 2018, the note balance is $20,000 with a carrying value as of June 30, 2018, of $8,611, net of unamortized discounts of $11,389.

 

 
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On January 29, 2018, the Company issued a convertible promissory note, with a face value of $84,525, maturing on July 29, 2018, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on February 5, 2018, when the Company received proceeds of $70,000, after disbursements for the lender’s transaction costs, fees and expenses. The note also requires daily ACH payments of $263, no payments have been made and the Company is in default of the note. The embedded conversion feature included in the note resulted in an initial debt discount of $89,525, an initial derivative expense of $7,909 and an initial derivative liability of $97,434. For the six months ended June 30, 2018, amortization of the debt discounts of $69,466 was charged to interest expense. As of June 30, 2018, the note balance is $84,525 with a carrying value as of June 30, 2018, of $64,466, net of unamortized discounts of $20,059.

 

On February 21, 2018, the Company issued a convertible promissory note, with a face value of $184,000, maturing on February 21, 2019, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on February 21, 2018, when the Company received proceeds of $150,000, after disbursements for the lender’s transaction costs, fees and expenses. The note also requires daily ACH initial payments of $250 for the first 30 days, then an increase to a daily ACH range of $251 to $766. During the six months ended June 30, 2018, the Company made principal payments of $20,250. The embedded conversion feature included in the note resulted in an initial debt discount of $198,000, an initial derivative expense of $114,501 and an initial derivative liability of $312,501. For the six months ended June 30, 2018, amortization of the debt discounts of $70,950 was charged to interest expense. As of June 30, 2018, the note balance is $163,750 with a carrying value as of June 30, 2018, of $36,700, net of unamortized discounts of $127,050.

 

On March 27, 2018, the Company issued a replacement convertible promissory note in the face amount of $26,400, to a third-party that replaced a portion of the convertible promissory note issued on August 7, 2017. During the six months ended June 30, 2018, the buyer converted the face value of $26,400 of the replacement convertible note into 40,000,000 shares of common stock. As of June 30, 2018, the outstanding principal amount of the replacement note issued was $-0-.

 

On April 2, 2018 (the “Issue Date”), the Company issued a convertible promissory note, with a face value of $45,000, maturing on April 2, 2019, and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices for the 20 days prior to conversion. The note also requires daily ACH payments of $83, no payments have been made and the Company is in default of the note. The embedded conversion feature included in the note resulted in an initial debt discount of $45,000, an initial derivative expense of $32,083 and an initial derivative liability of $77,083. For the six months ended June 30, 2018, amortization of the debt discount of $11,125 was charged to interest expense. As of June 30, 2018, the note balance is $45,000 with a carrying value as of June 30, 2018, of $11,125, net of unamortized discounts of $33,875.

 

On April 8, 2018, the Company issued a convertible promissory note, with a face value of $34,500, maturing on October 8, 2018, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on April 10, 2018, when the Company received proceeds of $30,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $34,500, an initial derivative expense of $29,712 and an initial derivative liability of $64,212. For the six months ended June 30, 2018, amortization of the debt discounts of $15,908 was charged to interest expense. As of June 30, 2018, the note balance is $34,500 with a carrying value as of June 30, 2018, of $15,908, net of unamortized discounts of $18,592.

 

On May 11, 2018, the Company issued a convertible promissory note, with a face value of $215,000, maturing on May 11, 2019, (the “Maturity Date”) and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note was funded on May 11, 2018, when the Company received proceeds of $200,000, after disbursements for the lender’s transaction costs, fees and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $215,000, an initial derivative expense of $40,845 and an initial derivative liability of $255,845. For the six months ended June 30, 2018, amortization of the debt discounts of $31,944 was charged to interest expense. As of June 30, 2018, the note balance is $215,000 with a carrying value as of June 30, 2018, of $16,944, net of unamortized discounts of $198,056.

 

On June 15, 2018, the Company issued a convertible promissory note, with a face value of $63,000, maturing on December 15, 2018, (the “Maturity Date”) and stated interest of 10% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note also requires daily ACH payments of $350 beginning on August 15, 2018.The note was funded on June 15, 2018, when the Company received proceeds of $50,000, after OID of $8,000, and disbursements for the lender’s transaction costs, fees and expenses of $5,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $58,000, an initial derivative expense of $26,864 and an initial derivative liability of $84,864. For the six months ended June 30, 2018, amortization of the debt discounts of $5,917 was charged to interest expense. As of June 30, 2018, the note balance is $63,000 with a carrying value as of June 30, 2018, of debit balance of $2,083, net of unamortized discounts of $65,083.

 

 
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On June 20, 2018, the Company issued a convertible promissory note, with a face value of $184,000, maturing on June 20, 2019, (the “Maturity Date”) and stated interest of 12% to a third-party investor. The note is convertible at any time following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest trading prices quoted for the 20 days prior to conversion. The note also requires daily ACH payments of $350. During the six months ended June 30, 2018, principal payments of $2,100 were made. The note was funded on June 20, 2018, when the Company received proceeds of $150,000, after OID of $24,000, and disbursements for the lender’s transaction costs, fees and expenses of $10,000, which were recorded as discounts against the debt to be amortized into interest expense through maturity. The embedded conversion feature included in the note resulted in an initial debt discount of $160,000, an initial derivative expense of $42,071 and an initial derivative liability of $202,071. For the six months ended June 30, 2018, amortization of the debt discounts of $5,389 was charged to interest expense. As of June 30, 2018, the note balance is $181,900 with a carrying value as of June 30, 2018, of a debit balance of $6,711, net of unamortized discounts of $188,611.

 

A summary of the convertible notes payable balance as of June 30, 2018, and December 31, 2017, is as follows:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Principal balance

 

$ 1,770,016

 

 

$ 1,993,753

 

Unamortized discounts

 

 

(777,775 )

 

 

(1,195,956 )

Ending balance, net

 

$ 992,241

 

 

$ 797,797

 

 

The following is a roll-forward of the Company’s convertible notes and related discounts for the six months ended June 30, 2018, and the nine months ended December 31, 2017:

 

 

 

Principal Balance

 

 

Debt Discounts

 

 

Total

 

Balances at April 1, 2017

 

$ 1,311,163

 

 

$ (39,436 )

 

$ 1,271,727

 

New issuances

 

 

2,378,873

 

 

 

(2,515,972 )

 

 

(137,099 )

Liquidated damages added to note

 

 

42,504

 

 

 

(42,144 )

 

 

360

 

Conversions

 

 

(1,470,005 )

 

 

-

 

 

 

(1,470,005 )

Cash payments

 

 

(268,782 )

 

 

-

 

 

 

(268,782 )

Amortization

 

 

-

 

 

 

1,401,596

 

 

 

1,401,596

 

Balance at December 31, 2017

 

 

1,993,753

 

 

 

(1,195,956 )

 

 

797,797

 

New issuances

 

 

833,945

 

 

 

(966,490 )

 

 

(132,545 )

Conversions

 

 

(995,221 )

 

 

-

 

 

 

(995,221 )

Cash payments

 

 

(62,461 )

 

 

-

 

 

 

(62,461 )

Amortization

 

 

-

 

 

 

1,384,671

 

 

 

1,384,671

 

Balances June 30, 2018

 

$ 1,770,016

 

 

$ (777,775 )

 

$ 992,241

 

 

NOTE 10 - Derivative liabilities

 

The Company determined that the conversion features of the convertible notes represented embedded derivatives since the Notes are convertible into a variable number of shares upon conversion. Accordingly, the notes are not considered to be conventional debt under EITF 00-19 and the embedded conversion feature is bifurcated from the debt host and accounted for as a derivative liability. Accordingly, the fair value of these derivative instruments is recorded as liabilities on the consolidated balance sheet with the corresponding amount recorded as a discount to each Note, with any excess of the fair value of the derivative component over the face amount of the note recorded as an expense on the issue date. Such discounts are amortized from the date of issuance to the maturity dates of the Notes. The change in the fair value of the derivative liabilities are recorded in other income or expenses in the condensed consolidated statements of operations at the end of each period, with the offset to the derivative liabilities on the balance sheet. See Note 9.

 

 
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The Company valued the derivative liabilities at June 30, 2018, and December 31, 2017, at $2,238,111 and $5,331,567, respectively. The Company used the Monte Carlo simulation valuation model with the following assumptions as of June 30, 2018; risk-free interest rates from 2.06% to 2.24% and volatility of 121% to 164%, and the following assumptions at December 31, 2017, risk-free interest rates from 1.06% to 1.28% and volatility of 140% to 260%. The initial derivative liabilities for convertible notes issued during the six months ended June 30, 2018, used the following assumptions; risk-free interest rates from 1.89% to 2.29% and volatility of 120% to 331%.

 

A summary of the activity related to derivative liabilities for the six months ended June 30, 2018, and the nine months ended December 31, 2017, is as follows:

 

 

 

June 30,

2018

 

 

December 31,

2017

 

Beginning Balance

 

$ 5,331,567

 

 

$ 1,645,015

 

Initial Derivative Liability

 

 

1,271,999

 

 

 

8,472,521

 

Reclassification for note conversions and payments

 

 

(1,324,370 )

 

 

(7,200,168 )

Fair Value Change

 

 

(3,041,085 )

 

 

2,405,199

 

Ending Balance

 

$ 2,238,111

 

 

$ 5,331,567

 

 

Gain or (loss) on fair value of derivatives for the three and six months ended June 30, 2018 and 2017 is comprised of:

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Initial derivative expense

 

$ 176,075

 

 

$ 2,176,771

 

 

$ 420,534

 

 

$ 2,176,771

 

Fair value change in derivatives

 

 

(1,019,267 )

 

 

5,726,007

 

 

 

(3,041,085 )

 

 

5,267,141

 

Loss (gain) on fair value of derivatives

 

$ (843,192 )

 

$ 7,902,778

 

 

$ (2,620,551 )

 

$ 7,443,912

 

 

.

NOTE 11 - Stockholders' Deficit

 

Preferred Stock

 

10,000,000 shares of preferred stock, $0.0001 par value have been authorized.

 

Series A Convertible Preferred Stock .

 

5,000,000 shares of preferred stock are designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”). Each share of Series A Convertible Preferred Stock is convertible at the election of the holder into 0.004 shares of common stock, subject to a 4.9% beneficial ownership limitation, but has no voting rights until converted into common stock. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the outstanding shares of Series A Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus funds or earnings, and before any payment is made in respect of the shares of Common Stock, an amount equal to $2.50 per share of Series A Convertible Preferred Stock, subject to adjustment for stock dividends, combinations, splits, recapitalizations and the like with respect to the Series A Convertible Preferred Stock, plus any and all accrued but unpaid dividends. The holders of Series A Convertible Preferred Stock are entitled to dividends when declared by the board of directors. As of June 30, 2018, and December 31, 2017, there are no shares of Series A Preferred Stock outstanding.

 

Series B Preferred Stock

 

350,000 shares of preferred stock are designated as Series B Preferred Stock. Each share of Series B Preferred Stock is convertible at the election of the holder into .004 shares of common stock, subject to a 4.9% beneficial ownership limitation. Series B Preferred Stock has no voting rights until converted into common stock. The holders of the Series B Preferred Stock do not have any rights to dividends or any liquidation preferences. As of June 30, 2018, and December 31, 2017, there are 264,503 shares of Series B Preferred Stock outstanding.

 

 
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Series C Preferred Stock

 

1,000,000 shares of preferred stock are designated as Series C Preferred Stock. Each share of Series C Preferred stock is convertible at the election of the holder into 100 shares of common stock. On October 23, 2015, (the “Amendment Date”), the Company amended the terms and conditions of the Series C Preferred stock, whereby each share of Series C Preferred stock entitles the holder thereof to 10,000 votes on all matters submitted to a vote of the stockholders of the Company. The Company determined that on the Amendment Date, the amended voting rights of the preferred stock resulted in a change of control of the Company. The holders of the Series C Preferred stock do not have any rights to dividends or any liquidation preferences. During the year ended March 31, 2016, the Company's CEO and another shareholder returned a total of 12,791 shares of common stock to the Company for cancellation in exchange for the issuance of 319,768 shares of Series C Preferred Stock. As of June 30, 2018, and December 31, 2017, there are 319,768 shares of Series C preferred stock outstanding, of which 223,768 shares are owned by our Chairman and CEO, Dr. Thomas Cellucci. On October 30, 2017, Dr. Cellucci, and Carebourn Capital L.P. executed Amendment No.1 to their Pledge Agreement, whereby, Dr. Cellucci, as collateral security, pledged 223,768 shares of his Series C Preferred Stock to Carebourn.

 

Series D Convertible Preferred Stock

 

On January 12, 2018, the Corporation amended its Articles of Incorporation (the “Articles of Amendment”) to designate a series of preferred stock, the “Series D Preferred Stock.” There were 100,000 shares of preferred stock designated as Series D Preferred Stock, $0.0001 par value. Each share of Series D Preferred Stock is convertible at the election of the holder into a number of shares of Corporation common stock equal to $24.00 divided by the volume-weighted average price of the common stock as reported on OTCMarkets.com on the trading day immediately preceding conversion, subject to a 4.99% beneficial ownership limitation. The holders of the Series D Preferred Stock do not have any rights to dividends or any liquidation preferences, and they do not have any voting rights prior to conversion into common stock. The Company issued in the aggregate 100,000 shares of the Series D Preferred Stock to the sellers of HelpComm. As of March 31, 2018, there are 100,000 shares of Series D Preferred Stock outstanding. Pursuant to the Purchase Price Allocation of the HelpComm acquisition, the fair value of the 100,000 Series D Preferred shares was estimated to be $2,400,000, which the Company has recorded as a long- term liability because the Series D Preferred shares represent an obligation to issue a variable number of shares based on a fixed dollar amount upon conversion.

 

A summary of the transactions related to the Company’s Series D convertible preferred stock classified as a long-term liability during the six months ended June 30, 2018, is as follows:

 

 

 

Shares

 

 

Dollar Amount

 

Issuance of shares in acquisition of HelpComm

 

 

100,000

 

 

$ 2,400,000

 

 

Series E Preferred Stock

 

On June 1, 2018, the Company amended its Articles of Incorporation in the State of Colorado to designate a series of preferred stock, the Series E Preferred Stock. One (1) share of preferred stock was designated as Series E Preferred Stock. The Series E Preferred Stock is not convertible into common stock, nor does the Series E Preferred Stock have any right to dividends and any liquidation preference. The Series E Preferred Stock entitles its holder to a number of votes per share equal to twice the number of votes of all outstanding shares of capital stock of the Company. On June 1, 2018, the Company issued 1 share of its Series E Preferred Stock to Dr. Cellucci, in consideration of $25,000 of accrued and unpaid wages, Dr. Cellucci’s stock pledge of Series C Preferred Stock as collateral to a lender, the Company’s failure to timely pay current and past salaries, and Dr. Cellucci’s willingness to accrue unpaid payroll and non-reimbursement of business expenses without penalty or action for all amounts. The issuance to Dr. Cellucci was made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, and Rule 506(b) promulgated thereunder, as Dr. Cellucci is an accredited investor, there was no general solicitation, and the transaction did not involve a public offering. The Company determined that the issuance of the Series E Preferred Stock resulted in a change of control of the Company. The Company determined that fair value of the Series E Preferred Stock issued to the Company’s CEO was $2,333,140. The fair value was determined as set forth in the Statement of Financial Accounting Standard ASC 820-10-35-37, Fair Value in Financial Instruments.

 

Common stock

 

On May 31, 2016, the registrant filed Articles of Amendment to increase the number of shares of common stock the corporation is authorized to issue to 10,000,000,000.

 

During the six months ended June 30, 2018, the Company issued 1,201,287,669 shares of common stock for conversion of $995,221 of principal and $49,862 of accrued interest, for a total of $1,045,083. The Company also issued 25,000,000 shares to Triton Funds LLC (see Note 12).

 

On May 9, 2018, the Company agreed to issue 25,000,000 shares of the Company’s common stock to Triton Funds LP (“Triton”) affiliate, Triton Funds LLC (See note 12). The shares were issued on May 18, 2018.

 

 
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As of June 30, 2018, there were 9,266,957,705 shares of common stock issued and outstanding and 1,221 shares of common stock to be issued.

 

Stock Options

 

The following table summarizes activities related to stock options of the Company for the six months ended June 30, 2018:

 

 

 

Number of Options

 

 

Weighted-Average Exercise Price per Share

 

 

Weighted-Average Remaining Life (Years)

 

Outstanding and exercisable at December 31, 2017

 

 

102

 

 

$ 1,103

 

 

 

7.19

 

Outstanding and exercisable at June 30, 2018

 

 

102

 

 

$ 1,103

 

 

 

6.69

 

 

The following table summarizes stock option information as of June 30, 2018:

 

Exercise Prices

 

 

Outstanding

 

 

Weighted Average Contractual Life

 

Exercisable

 

$

7,500

 

 

 

12

 

 

3.63 Years

 

 

12

 

$

250

 

 

 

90

 

 

7.10 Years

 

 

90

 

Total

 

 

 

102

 

 

6.69 Years

 

 

102

 

 

Warrants

 

For the six months ended June 30, 2018, the Company did not grant any warrants, and there were no exercises of any existing warrants. The following table summarizes the activity related to warrants of the Company for the six months ended June 30, 2018:

 

 

 

Number of Warrants

 

 

Weighted-Average Exercise Price per Share

 

 

Weighted-Average Remaining Life (Years)

 

Outstanding and exercisable at December 31, 2017

 

 

3,263

 

 

$ 447

 

 

 

2.49

 

Outstanding and exercisable at June 30, 2018

 

 

3,263

 

 

$ 447

 

 

 

1.99

 

 

NOTE 12 - Commitments and Contingencies

 

Legal Matters

 

The Company is not a party to any significant pending legal proceedings other than as disclosed below, and no other such proceedings are known to be contemplated. No director, officer or affiliate of the Company, and no owner of record or beneficial owner of more than

5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

 

On or about March 27, 2018, Global Capital Partners, LLC (“Global”) sent a demand for payment of amounts allegedly owed by the Company to Global pursuant to several promissory notes and threatening legal action. The Company retained Texas litigation counsel and responded to the demand letter.

 

 
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Strategic Alliance Agreements

 

On August 2, 2017, the Company entered into a Strategic Alliance Agreement, dated August 3, 2017, with ProActive IT (“ProActive”), an Illinois corporation that provides information technology products and services, designating ProActive as the Company’s sales agent for government departments/agencies/units and privately owned and publicly traded companies within the State of Illinois, and providing for the cross-promotion of the parties’ products and services. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On August 10, 2017, the Company entered into a Strategic Alliance Agreement, dated August 10, 2017, with CrucialTrak Inc. (“CrucialTrak”), a Texas corporation engaged in providing identification technology that delivers improved security with effective use of servers and workstations for the purpose of identifying those entering a building, office or other secured space. The Strategic Alliance Agreement designates the Company as the project-based business partnership channel for government departments, agencies and units for the purpose of promoting CrucialTrak’s relevant products and service solutions delivered through CrucialTrak’s designated distribution affiliate(s) or channel(s). As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On September 5, 2017, the Company entered into a Strategic Alliance Agreement with DarkPulse Technology Holdings Inc. (“DarkPulse”), a New York corporation engaged in manufacturing hardware and software based on its BOTDA (Brillouin Optical Time Domain Analysis) technology, designating the Company as DarkPulse’s project-based partnership channel for government and non-governmental departments, agencies and units, for the purpose of promoting DarkPulse’s products, and pursuant to which DarkPulse will cross-promote the Company’s products and services, and the Company will be paid sales commissions for clients introduces to DarkPulse by the Company. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement. On October 19, 2017, the Company entered into an Addendum (the “Addendum”) to the Strategic Alliance Agreement with DarkPulse, pursuant to which Addendum the Company shall receive 20% of project revenue for DarkPulse’s “Five Deployments Eurasian Mining Project,” and 10% of project revenue for two additional DarkPulse agency agreements more specifically described in the Addendum. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On October 25, 2017, the Company entered into a Strategic Market Alliance Agreement with NeQter Labs (“NeQter”), a New York corporation engaged in building solutions for NIST compliance needs and appliances that are designed to improve security via monitoring login access and other control services, designating the Company as NeQter’s sales agent for government departments, agencies and units and public and private small to medium-sized businesses for the purpose of promoting NeQter’s products, and pursuant to which NeQter will cross-promote the Company’s products and services, and the Company will receive a 15% discount off the purchase price of NeQter products for resale to Bravatek’s customers. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On November 1, 2017, the Company entered into a Strategic Alliance Agreement with IDdriven, Inc. (“IDdriven”), a Nevada corporation engaged in the business of providing identity and access management software to increase data security, designating the Company as IDdriven’s project-based business partnership channel for governmental and non-governmental departments, agencies and units, for the purpose of promoting IDdriven’s products, and pursuant to which IDdriven will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 15%-20% of project revenue for clients introduced to IDdriven by the Company. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On December 13, 2017, the Company entered into a Strategic Alliance Agreement with Cobweb Security Ltd (“Cobweb Security”), an Israeli corporation engaged in providing website security for small and medium businesses as well as for hosting companies, designating the Company as Cobweb Security’s project-based business partnership channel for small and medium businesses and hosting companies for the purpose of promoting Cobweb Security’s products and services, and pursuant to which Cobweb Security will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 15%-20% of project revenue for clients introduced by the Company and registered with Cobweb Security via its system, and delivered through the Company or a Cobweb Security-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

 
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On December 13, 2017, the Company entered into a Strategic Alliance Agreement with QBRICS, Inc. (“QBRICS"), a corporation organized under the laws of Delaware engaged in providing customized private blockchain platforms and solutions for governmental and non-governmental departments / agencies / units for the purpose of promoting QBRICS’s relevant capabilities, products and/or service solutions, and pursuant to which QBRICS will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with QBRICS, and delivered through the Company or a QBRICS-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On January 5, 2018, the Company entered into a Strategic Alliance Agreement with AppGuard LLC (“AppGuard”), a corporation organized under the laws of Delaware engaged in providing anti-malware software for Windows devices, for the purpose of promoting AppGuard’s relevant capabilities, products and/or service solutions, and pursuant to which AppGuard will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with AppGuard, and delivered through the Company or a AppGuard-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On January 10, 2018, the Company entered into a Strategic Alliance Agreement with Fazync LLC (“Fazync”), a Colorado limited liability company engaged in providing energy-saving solutions and capabilities to the Critical Infrastructure/Key Resources arena, for the purpose of promoting Fazync’s relevant capabilities, products and/or service solutions, and pursuant to which Fazync will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with Fazync, and delivered through the Company or a Fazync-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On February 15, 2018, the Company entered into a Strategic Alliance Agreement (the “DP Telecom Strategic Alliance Agreement”) with IEVOLV Ventures, Inc., a California corporation engaged in providing turnkey telecom services (“IEVOLV”), and with DP Telecom Inc., a Wyoming corporation engaged in providing telecommunications implementation support for turn-key vendors with a focus on electrical and ground-based projects while providing logistical management for strategic partners in the northern California market (“DP Telecom” and together with IEVOLV the “MAP Partners”), for the purpose of promoting the MAP Partners’ relevant capabilities, products and/or service solutions, and pursuant to which the MAP Partners will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 15%-20% of project net profit for clients introduced by the Company. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

Pursuant to the DP Telecom Strategic Alliance Agreement, the parties also agreed that the Company would make every reasonable effort to fund $200,000 to DP Telecom within 60 days pursuant to a Credit Agreement attached to the DP Telecom Strategic Alliance Agreement as Exhibit A (the “Credit Agreement”), which the MAP Partners and the Company would execute at closing of the funding (the “Closing”). At the Closing, (1) Bravatek was to fund DP Telecom $200,000, (2) DP Telecom was to execute a secured promissory note (the “Note”) and security agreement (the “Security Agreement”) in the forms attached as exhibits to the Credit Agreement, (3) IEVOLV was to execute a guaranty (the “Guaranty”) in the form attached as an exhibit to the Credit Agreement, (4) each of DP Telecom and IEVOLV were to pay Bravatek 20% of their net profits for a minimum of 6 months following the Closing, and (5) each of DP Telecom and IEVOLV were to grant the Company a right of first refusal to provide telecom services for all telecom projects that either DP Telecom or IEVOLV receive for a minimum of 6 months following Closing. On March 1, 2018, the Company remitted $25,000 to DP Telecom in exchange for a Promissory Note. Since the entire $200,000 was not funded, other than the issuance of the Promissory Note, the parties have not proceeded to Closing and executed the additional agreements that were to be executed at Closing. The Company is currently monitoring DP Telecom’s operational progress, and the parties may still proceed to Closing depending on such progress.

 

On March 14, 2018, the Company entered into a Strategic Alliance Agreement with OrangeHook, Inc. (“OrangeHook”), a Florida corporation engaged in the business of providing identification authentication and credentialing software, for the purpose of promoting OrangeHook’s relevant capabilities, products and/or service solutions, and pursuant to which OrangeHook will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with OrangeHook, and delivered through the Company or a OrangeHook-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On March 28, 2018, the Company entered into a Strategic Alliance Agreement with Center for Threat Intelligence, LLC (“Center”), a Washington limited liability company engaged in the business of providing critical threat intelligence training, for the purpose of promoting Center’s relevant capabilities, products and/or service solutions, and pursuant to which Center will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with Center, and delivered through the Company or a Center-designated distribution affiliate or sales channel. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

 
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On April 2, 2018, the Company entered into a consulting agreement with AWS Services, Inc. (“AWS”) and David Singer (the “Consultant”). The Consultant will act as the Company’s Vice President of Sales and provide the Company with services consisting of managing the Company’s sales team and efforts and proprietary and partner product solution and sales. The Company will pay the Consultant $2,000 per month and a 10% commission on mutually agreed upon sales, to be paid within 30 days after the Company receives payment of such sales, and an amount of shares to be determined at the discretion of the Company’s CEO. The agreement will continue until terminated by either party in their sole and absolute discretion.

 

On May 11, 2018, the Company entered into a Strategic Alliance Agreement with KP Consulting, a Guam-based systems integration consulting services business. Pursuant to the agreement, the Company will offer a business advisory role to KP Consulting for prospective clients in the private and public sectors. KP Consulting will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with KP Consulting. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

On June 26, 2018, the Company entered into a Strategic Alliance Agreement with AG Capital Management, LLP (“AG”), a Kazakhstan-based company engaged in the business of providing scalable integrated secure IT services focused on financial, security, commerce and other markets for the purpose to streamline secure low-cost transactions. Pursuant to the agreement, the Company will offer a business advisory role to KP Consulting for prospective clients in the private and public sectors. AG will cross-promote the Company’s products and services, and the Company will be paid sales commissions in the range of 10%-20% of project revenue for clients introduced by the Company, registered with AG. As of June 30, 2018, the Company has not recognized any revenue or expenses related to this agreement.

 

Joint Venture Agreements

 

Effective December 21, 2017, the Company entered into a Joint Venture Agreement (the “Agreement”) with DarkPulse, pursuant to which (1) the parties will form a joint venture limited liability company in Delaware to develop, market and sell products and services based on DarkPulse’s patented BOTDA dark-pulse technology (the “Technology”) to be owned 40% by the Company and 60% by Dark Pulse (the “JV”); (2) the Company shall fund $10,000 in initial capital to the JV; and (3) and the JV shall have an irrevocable royalty-free non-exclusive license to use the Technology in the North America, Asia and European government, military and CI/KR (Critical Infrastructure / Key Resources) market segments. While DarkPulse has a controlling financial interest in the JV, the Company and DarkPulse jointly manage the JV and any significant decisions and/or actions of the JV require the mutual consent of both parties. Therefore, the Company is accounting for its 40% ownership interest in the JV using the equity method of accounting. The JV is a related party to the Company. During the six months ended June 30, 2018, the Company funded $45,000 to the JV.

 

Effective December 21, 2017, the Company entered into a Joint Venture Agreement (the “Agreement” or the “JV”) with The Go Eco Group, a corporation organized under the laws of the State of Nevada (“LIBE”), pursuant to which (1) the parties will form a JV limited liability company in Delaware to develop, market and sell products, services and technology based on a web-enabled Light Guard System (the “System”), (2) the JV will be owned 35% by the Company and 65% by LIBE; (3) the Company shall fund $25,000 in initial capital to the JV; and (4) the JV shall have an irrevocable royalty-free non-exclusive license to use all of LIBE’s direct and/or licensed intellectual property necessary for the JV to develop and sell the System. While LIBE has a controlling financial interest in the JV, the Company and LIBE jointly manage the JV and any significant decisions and/or actions of the JV require the mutual consent of both parties. Therefore, the Company is accounting for its 40% ownership interest in the JV using the equity method of accounting. The JV is a related party to the Company. As of June 30, 2018, the JV owes the Company $30,000, and management has recorded an allowance for doubtful accounts of $30,000. The Company has engaged a law firm to pursue the collection of the $30,000.

 

Other

 

On July 10, 2017, the Company filed an Affidavit of Claim in the amount of $552,444 with The Hanover Insurance Company (“Hanover”) as surety for YKTG, related to YKTG’s alleged breaches of contract and failure to cure. Hanover denied the claim on the basis that the Company did not render “labor, materials and equipment” to YKTG relating to the YKTG construction contract for which Hanover was surety, and the Company is evaluating its options for legal recourse.

 

On October 30, 2017, Dr. Cellucci, and Carebourn Capital L.P. executed Amendment No.1 to their Pledge Agreement (the “Pledge Agreement”), whereby, Dr. Cellucci, as collateral security, pledged 223,768 shares of his Series C Preferred Stock to Carebourn.

 

On April 19, 2018, the Company entered into a three-year White Label Distribution and Marketing Agreement with a MAP partner, whereas, they developed a security application product that blocks the ability of malware to execute (the “Software”). The Company will market, distribute and sell the Software under the Company’s registered trademark “Tuitio”. The Company will amortize the $40,000 over the three-year term of the agreement beginning on the date that the product is delivered and by the vendor fulfilling all of their product delivery obligations of the agreement. Product delivery commenced in August 2018.

 

 
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On May 9, 2018, the Company entered into an Equity Purchase Agreement (the “EPA”) with Triton Funds LP (“Triton”) for $500,000. Triton, a new fund launched by students at the University of California, San Diego (UCSD), is making the investment to drive the continued expansion of BVTK’s proprietary technology which assists corporate entities, governments, and individuals in protecting their organizations against errors, as well as cyber and physical attacks. Pursuant to the EPA, each closing for Capital Call Shares shall occur on the date that is 5 business days following the date that the Investor receives Capital Call Shares from the Company. The purchase price for the shares to be paid by Triton at each closing shall be 75% of the lowest daily volume-weighted average price of the Company’s common stock during the 5 trading days prior to a closing date. Triton’s obligation to purchase Capital Call Shares is subject to several conditions, including (i) that the Company has filed a registration statement with the SEC registering the Capital Call Shares within 60 calendar days from the date of the EPA, and (ii) that the purchase of Capital Call Shares shall not cause Triton to own more than 4.99% of the outstanding shares of the Company’s common stock. As of the filing of this report, the Company has not filed the registration statement and the parties continue to discuss potential fundings. Pursuant to the EPA, the Company issued 25,000,000 shares common stock to Triton’s affiliate, Triton Funds LLC, on May 18, 2018.

 

Management and the Board of Directors believes it is owed monies in the following amounts, by the following firms, for breaches of executed agreements of the given party. None of the amounts below are included in the assets of the Company reflected on its balance sheet. In April of 2018, the Company engaged a law firm to pursue collections of the following:

 

DTREDS, LLC

 

$ 1,376,167

 

YKTG LLC

 

 

4,857,441

 

TOTAL

 

$ 6,233,608

 

 

NOTE 13 - Subsequent Events

 

The Company has evaluated subsequent events through the date the financial statements were issued and filed with the Securities and Exchange Commission. The Company has determined that there are no other such events that warrant disclosure or recognition in the financial statements, except as stated herein.

 

On July 27, 2018, the Company amended its Articles of Incorporation in the State of Colorado to increase the authorized shares of common stock to 10,600,000,000 shares.

 

 
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

 

Certain statements in this report, including statements in the following discussion, are what are known as “forward looking statements,” which are basically statements about the future. For that reason, these statements involve risk and uncertainty since no one can accurately predict the future. Words such as “plans,” “intends,” “will,” “hopes,” “seeks,” “anticipates,” “expects” and the like often identify such forward looking statements, but are not the only indication that a statement is a forward-looking statement. Such forward looking statements include statements concerning our plans and objectives with respect to the present and future operations of the Company, and statements which express or imply that such present and future operations will or may produce revenues, income or profits. Numerous factors and future events could cause the Company to change such plans and objectives or fail to successfully implement such plans or achieve such objectives, or cause such present and future operations to fail to produce revenues, income or profits. Therefore, the reader is advised that the following discussion should be considered in light of the discussion of risks and other factors contained in this report on Form 10-K and in the Company’s other filings with the Securities and Exchange Commission. No statements contained in the following discussion should be construed as a guarantee or assurance of future performance or future results.

 

Overview and Plan of Operation

 

Bravatek Solutions, Inc., a Colorado corporation, was incorporated in the State of Colorado, on April 19, 2007. The Company provides security, defense, and information security solutions, which assist corporate entities, governments and individuals in protecting their organizations and/or critical infrastructures against error, and physical and cyber-attack. The Company's business operations are oriented around the marketing and distribution of proprietary and allied security, defense and information security software, hardware and services, including telecom services. Products include software, hardware and services, and span a diverse variety of industries including, but not limited to, email security, user authentication, telecommunications and cyber breach protection.

 

The Company acquired HelpComm effective January 1, 2018, and the consolidated results for the three and six months ended June 30, 2018, include results of HelpComm and the Company. The results for the three and six months ended June 30, 2017, are only for the Company.

 

Additionally, the Company's primary business operations are focused on establishing a strategic leadership position in cybersecurity email solutions and telecom services within the U.S. and abroad. To accomplish this, the Company has a “Market Alliance Program” (“MAP”) that enables Bravatek to rapidly introduce additional allied software, tools and systems to the worldwide marketplace through “win-win” contracts offering Bravatek, in virtually all cases, exclusive distribution rights in specified markets.

 

The Company has also developed and plans to continue selling an enterprise-level secure email software appliance named Ecrypt One. Ecrypt One is a patent-pending email server with integrated security technology. It was designed to protect email and attachments in transit and at rest. It incorporates multiple security technologies and techniques, such as encryption, role based access controls, server rules that enforce security, and multi-factor authentication. It was designed to assist organizations and governments to meet and maintain compliance with information security regulations such as HIPAA. The Company began taking pre-orders of Tuitio, a consumer software product (protected by two issued patents) in the second quarter of 2018.

 

The Company has filed patent applications for multiple attributes and processes contained in Ecrypt One .

 

The foregoing business actions are goals of the Company. There is no assurance that the Company will be able to complete any, or all, of the foregoing actions.

 

Results of Operations

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with the financial statements and notes thereto for the nine months ended December 31, 2017 and 2016, and filed by the Company in its Transition Report on Form 10-KT with the United States Securities and Exchange Commission on May 3, 2018.

 

Our financial statements are stated in U.S. Dollars and are prepared in accordance with generally accepted accounting principles of the United States (“GAAP”).

 

Results of Operation for the three and six months ended June 30, 2018, compared to the three and six months ended June 30, 2017.

 

Revenue

 

For the three and six months ended June 30, 2018, the Company had revenues of $774,204 and $1,843,197, respectively, compared to $-0- for the three and six months ended June 30, 2017. The 2018 revenues were comprised of revenues from HelpComm and related party sales of $24,837 for Bravatek.

 

 
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Cost of Services

 

For the three and six months ended June 30, 2018, cost of services of $627,439 and $1,448,531, respectively, were related to the HelpComm revenues, and are comprised of materials, labor, sub-contractors and related expenses.

 

Operating Expenses

 

For the three and six months ended June 30, 2018, the Company had operating expenses of $2,904,539 and $3,593,627, respectively, compared to $171,809 and $243,366 for the three and six months ended June 30, 2017, respectively. The increase in operating expenses was predominantly attributable to $274,605 and $683,160, respectively, of HelpComm’s operating expenses for the three and six months ended June 30, 2018 and $63,853 and $127,706 for the three and six months ended June 30, 2018, respectively, related to the amortization of the intangible assets acquired in the HelpComm acquisition.

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Bravatek expenses

 

$ 2,566,081

 

 

$ 171,809

 

 

$ 2,782,761

 

 

$ 243,366

 

HelpComm expenses

 

 

274,605

 

 

 

-

 

 

 

683,160

 

 

 

-

 

Amortization of acquired assets

 

 

63,853

 

 

 

-

 

 

 

127,706

 

 

 

-

 

Total

 

$ 2,904,539

 

 

$ 171,809

 

 

$ 3,593,627

 

 

$ 243,366

 

 

Expenses for Bravatek for the three and six months ended June 30, 2018, include $2,333,140 related to the issuance of Sereis E Preferred Stock to the Company’s CEO (see Note 11 to the financial statements).

 

Other Income (Expenses)

 

Other income, net, for the three and six months ended June 30, 2018 was $202,408 and $1,108,580, respectively, compared to other expense, net, of $8,273,423 and $7,939,017, respectively, for the three and six months ended June 30, 2017.

 

 

 

Three months ended

June 30,

 

 

Six months ended

June 30,

 

 

 

2018

 

 

2017

 

 

2018

 

 

2017

 

Interest expense

 

$ 639,263

 

 

$ 367.730

 

 

$ 1,501,898

 

 

$ 488,899

 

Loss (gain) on fair value of derivatives

 

 

(843,192 )

 

 

7,902,778

 

 

 

(2,620,551 )

 

 

7,443,912

 

Loss on debt extinguishment

 

 

3,021

 

 

 

-

 

 

 

23,021

 

 

 

-

 

Other expense (income)

 

 

(1,500 )

 

 

2,915

 

 

 

(12,948 )

 

 

6,206

 

Total

 

$ (202,408 )

 

$ 8,273,423

 

 

$ (1,108,580 )

 

$

7.939,017

 

 

Included in interest expense for the three and six months ended June 30, 2018 is $582,587 and $1,384,671, respectively for amortization expense of debt discounts, and for the three and six months ended June 30, 2017, amortization of debt discounts was $176,616 and $194,430, respectively.

 

Net Loss

 

The Company had a net loss of $2,555,367 and $2,090,381 for the three and six months ended June 30, 2018, respectively, compared to net losses of $8,445,232 and $8,183,466 for the three and six months ended June 30, 2017, respectively. The decrease in the net loss for the three and six months ended June 30, 2018, compared to the three and six months ended June 30, 2017, was predominantly due to the changes in other income (expenses), detailed above, partially offset by the voting control value of the Series E Preferred Stock of $2,333,140

 

Liquidity and Capital Resources

 

Currently, we have limited operating capital. The Company anticipates that it will require approximately $4,000,000 of working capital to complete all of its desired business activity during the next twelve months. The Company has earned limited revenue from its business operations. Our current capital and our other existing resources will be sufficient only to provide a limited amount of working capital, and, to date, the revenues generated from our business operations have not been sufficient to fund our operations or planned growth. As noted above, we will likely require additional capital to continue to operate our business, and to further expand our business. We may be unable to obtain the additional capital required. Our inability to generate capital or raise additional funds when required will have a negative impact on our operations, business development and financial results.

 

 
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For the six months ended June 30, 2018, we primarily funded our business operations with $626,600 of advances on our revolving line of credit as well as $715,000 of proceeds from convertible note financings. These proceeds funded our business operations and were also used to make payments on our revolving line of credit as well as to pay off existing debt of approximately $141,550, to fund $30,380 for our Agreement with MHC, and invest an additional $45,000 in our joint venture with DarkPulse. We may conduct a private placement offering to seek to raise the necessary working capital to continue to fund our business operations, or continue to rely on the issuance of convertible promissory notes to fund our business operations. We also intend to register shares of common stock for issuance to and purchase by Triton Funds LP pursuant to the Equity Purchase Agreement we executed with them on May 9, 2018.

 

As of June 30, 2018, we had cash of $62,824, as compared to $189,357 at December 31, 2017. As of June 30, 2018, we had current liabilities of $6,057,498 (including $2,238,111 of non-cash derivative liabilities), compared to current assets of $777,139, which resulted in a working capital deficit of $5,280,359. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, revolving line of credit, bank term loans and notes payable.

 

Operating Activities

 

For the six months ended June 30, 2018, net cash used in operating activities was $719,869, compared to $299,969 for the six months ended June 30, 2017. For the six months ended June 30, 2018, our net cash used in operating activities was primarily attributable to the net loss of $2,090,381 adjusted by the non-cash expenses of the voting control value of the Series E Preferred Stock of $2,333,140 and amortization and depreciation expense of $1,691,776, and reduced by the non-cash gain of $2,620,551 on the fair value change of derivatives. Net changes of $34,853 in operating assets and liabilities increased the cash used in operating activities. For the six months ended June 30, 2017, our net cash used in operating activities was primarily attributable to the net loss adjusted by the loss on fair value of derivatives, amortization of debt discounts, non-cash interest and fees related to convertible promissory notes and depreciation. Net changes of $137,865 in operating assets and liabilities impacted the cash flows from operating activities.

 

Investing Activities

 

For the six months ended June 30, 2018, cash used in investing activities of $63,660 was comprised of the Company investing $45,000 in our joint venture with DarkPulse, made payments of $30,380 towards the Company’s exclusivity agreement with MHC, purchased a note receivable of $25,000 and purchased fixed assets of $10,190. For the six months ended June 30, 2017, the Company invested $200,000 in a strategic alliance with HelpComm.

 

Financing Activities

 

For the six months ended June 30, 2018, the net cash provided by financing activities was $656,996, compared to $565,518 for the six months ended June 30, 2017. During the six months ended June 30, 2018, we received advances of $625,600 on our revolving line of credit and $715,000 from the issuance of $830,025 of convertible notes. The Company made payments of $543,054 on the revolving line of credit and made payments of $141,550 against notes payable, capital leases payable and convertible notes payable. The net cash provided by financing activities of $565,518 for the six months ended June 30, 2017, resulted from proceeds of $948,250 from the issuances of convertible notes and $11,301 from related party notes. The company made payments of $355,882 against notes payable and convertible notes payable and $38,151 repayments of notes payable- related.

 

Critical Accounting Policies

 

Our financial statements are based on the application of accounting principles generally accepted in the United States ("GAAP"). GAAP requires the use of estimates; assumptions, judgments and subjective interpretations of accounting principles that have an impact on the assets, liabilities, revenue, and expense amounts reported. These estimates can also affect supplemental information contained in our external disclosures including information regarding contingencies, risk and financial condition. We believe our use of estimates and underlying accounting assumptions adhere to GAAP and are consistently and conservatively applied. We base our estimates on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results may differ materially from these estimates under different assumptions or conditions. We continue to monitor significant estimates made during the preparation of our financial statements.

 

Our significant accounting policies are summarized in Note 2 of our financial statements are included in the Company's Transition Report on Form 10-KT filed on May 3, 2018. While all these significant accounting policies impact our financial condition and results of operations, we view certain of these policies as critical. Policies determined to be critical are those policies that have the most significant impact on our financial statements and require management to use a greater degree of judgment and estimates. Actual results may differ from those estimates. Our management believes that given current facts and circumstances, it is unlikely that applying any other reasonable judgments or estimate methodologies would cause an effect on our results of operations, financial position or liquidity for the periods presented in this report.

 

 
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Use of Estimates

 

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.

 

Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of tax liabilities and estimates of the probability and potential magnitude of contingent liabilities.

 

Making estimates requires management to exercise significant judgment. It is at least reasonably possible that the estimate of the effect of a condition, situation or set of circumstances that existed at the date of the financial statements, which management considered in formulating its estimate could change in the near term due to one or more future non-conforming events. Accordingly, actual results could differ significantly from estimates.

 

Long-Lived Assets

 

The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.

 

Derivative Financial Instruments

 

The Company does not use derivative instruments to hedge exposures to cash flow, market, or foreign currency risks. The Company evaluates all of it financial instruments, including stock purchase warrants, to determine if such instruments are derivatives or contain features that qualify as embedded derivatives. For derivative financial instruments that are accounted for as liabilities, the derivative instrument is initially recorded at its fair value and is then re-valued at each reporting date, with changes in the fair value reported as charges or credits to income.

 

For option-based simple derivative financial instruments, the Company uses the Monte Carlo simulations to value the derivative instruments at inception and subsequent valuation dates. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is re-assessed at the end of each reporting period.

 

Revenue Recognition

 

Product revenue and miscellaneous income are recognized as earned.

 

The Company recognizes revenue and gains when earned and related costs of sales and expenses when incurred. The Company recognizes revenue in accordance with Accounting Standards Codification Section 605-10-599, Revenue Recognition, Overall, SEC Materials ("Section 605-10-599"). Section 605-10-599 requires that four basic criteria must be met before revenue can be recognized: (1) persuasive evidence of an arrangement exists; (2) delivery has occurred or services rendered; (3) the fee is fixed and determinable; and (4) collectability is reasonably assured. The Company recognizes revenue from services at the time the services are completed. The Company’s sale of licensed software has significant standalone functionality with a perpetual right to use the Company’s intellectual property. Accordingly, the Company recognizes licensed software revenue at the time the software is delivered or available to the customer, at which time the company had no further obligations related to the sale of the software. Cost of products sold consists of the cost of the purchased goods and labor related to the corresponding sales transaction.

 

Off Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

 
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

 

Not Applicable.

 

ITEM 4. CONTROLS AND PROCEDURES.

 

Disclosure Controls and Procedures

 

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

 

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of our CEO and chief financial officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures. Based on this evaluation, our CEO and CFO concluded that our disclosure controls and procedures are not designed to provide reasonable assurance of achieving the objectives of timely alerting them to material information required to be included in our periodic SEC reports and of ensuring that such information is recorded, processed, summarized and reported with the time periods specified. Our CEO and CFO also concluded that our disclosure controls and procedures were not effective as of the end of the period covered by this report to provide reasonable assurance of the achievement of these objectives.

 

During the period, we did not have additional personnel to allow segregation of duties to ensure the completeness or accuracy of our information. The Company does not have an Audit Committee to oversee management activities, and the Company is dependent on third party consultants for the financial reporting function.

 

Changes in Internal Control over Financial Reporting

 

There were no changes in the Company’s internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Rule 13a-15 or 15d-15 of the Exchange Act that occurred during the quarter ended June 30, 2018, that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 
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PART II - OTHER INFORMATION

 

ITEM 1. LEGAL PROCEEDINGS.

 

The Company is not a party to any significant pending legal proceedings other than as disclosed below, and no other such proceedings are known to be contemplated. No director, officer or affiliate of the Company and no owner of record or beneficial owner of more than 5.0% of the securities of the Company, or any associate of any such director, officer or security holder is a party adverse to the Company or has a material interest adverse to the Company in reference to pending litigation.

 

On or about March 27, 2018, Global Capital Partners, LLC (“Global”) sent a demand for payment of amounts allegedly owed by the Company to Global pursuant to several promissory notes and threatening legal action. The Company retained Texas litigation counsel and responded to the demand letter.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

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

 

On April 17, 2018, the Company issued 106,781,430 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $76,422 principal portion and $461 of accrued interest, of, the Company's convertible promissory note issued to Carebourn on August 9, 2017.

 

On May 23, 2018, the Company issued 100,000,000 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $74,000 principal portion of, the Company's convertible promissory note issued to Carebourn on November 1, 2017.

 

On May 30, 2018, the Company issued 50,000,000 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $37,000 principal portion of the Company's convertible promissory note issued to Carebourn on November 1, 2017.

 

On June 18, 2018, the Company issued 70,000,000 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $44,800 principal portion of, the Company's convertible promissory note issued to Carebourn on November 1, 2017.

 

On June 25, 2018, the Company issued 157,101,781 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $83,400 principal portion and $17,337 accrued interest, of, the Company's convertible promissory note issued to Carebourn on November 1, 2017.

 

The issuances described above were made in reliance on the exemption from registration provided by Sections 3(a)(9) and 4(a)(1) of the Securities Act as the common stock was issued in exchange for debt securities of the Company held by each shareholder, there was no additional consideration for the exchange, there was no remuneration for the solicitation of the exchange, the shareholders were not affiliates, and they had held the underlying debt securities for a long time. The holders provided legal opinions pursuant to Section 4(a)(1) of Securities Act, or Rule 144 promulgated thereunder.

 

On May 18, 2018, the Company issued 25,000,000 shares of restricted common stock to Triton Funds LLC.

 

On June 1, 2018, the Company issued 1 share of its Series E Preferred Stock to the Company’s CEO, Dr. Cellucci, in consideration of $25,000 of accrued and unpaid wages, Dr. Cellucci’s stock pledge of Series C Preferred Stock as collateral to a lender, the Company’s failure to timely pay current and past salaries, and Dr. Cellucci’s willingness to accrue unpaid payroll and non-reimbursement of business expenses without penalty or action for all amounts.

 

The issuances to Triton Funds LLC and Dr. Cellucci were made in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, and Rule 506(b) promulgated thereunder, as the shareholders were accredited investors, there was no general solicitation, and the transactions did not involve a public offering.

 

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

 

None.

 

ITEM 4. MINE SAFETY DISCLOSURES.

 

None.

 

ITEM 5. OTHER INFORMATION.

 

None.

 

 
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ITEM 6. EXHIBITS.

 

Number

Description

 

 

 

3.1

Articles of Incorporation (incorporated by reference to our General Form for Registration of Securities on Form 10 filed on November 10, 2008)

3.2

Bylaws (incorporated by reference to our General Form for Registration of Securities on Form 10 filed on November 10, 2008)

3.3

Articles of Amendment to Articles of Incorporation (incorporated by reference to our Current Report on Form 8-K filed on April 1, 2014)

3.4

Certificate of Designation of Series B Preferred Stock (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2015)

3.5

Certificate of Designation of Series C Preferred Stock (incorporated by reference to our Current Report on Form 8-K filed on July 23, 2015)

3.6

Certificate of Designation of Series D Preferred Stock (incorporated by reference to our Form 8-K filed on January 24, 2018)

3.7

Articles of Amendment to Articles of Incorporation (changing the Company’s name) (incorporated by reference to our Current Report on Form 8-K filed on November 3, 2015)

3.8

Articles of Amendment to Articles of Incorporation (increasing the Company’s authorized common stock) (incorporated by reference to our Current Report on Form 8-K filed on June 6, 2016)

3.9

Articles of Amendment to Articles of Incorporation (amending the Designation of the Series C Preferred Stock) (incorporated by reference to our Current Report on Form 8-K filed on November 3, 2015)

 

3.10

 

Certificate of Designation of Series E Preferred Stock (incorporated by reference to our Form 8-K filed on June 5, 2018)

 

10.1

Commodity Classification Document (incorporated by reference to our General Form for Registration of Securities on Form 10 filed on November 10, 2008)

 

10.2

Director Agreement and Restricted Shares Agreement dated March 27, 2014, with Thomas Cellucci (incorporated by reference to our Current Report on Form 8-K filed on April 1, 2014)

 

10.3

Employment Agreement and Restricted Shares Agreement dated June 16, 2014, with Thomas Cellucci (incorporated by reference to our Current Report on Form 8-K filed on June 18, 2014)

 

10.4

Amendments to Employment Agreement and Restricted Shares Agreement with Thomas Cellucci (incorporated by reference to our Quarterly Report on Form 10-Q filed on February 22, 2016)

 

10.5

Asset Purchase Agreement with Dependable Critical Infrastructure, Inc. dated June 2, 2015 (incorporated by reference to our Form 8-K filed on June 9, 2015)

 

10.6

Settlement Agreement with Global Capital Corporation dated June 10, 2015 (incorporated by reference to our Form 8-K filed on June 16, 2015)

 

10.7

Settlement Agreement with Micro-Tech Industries, Ltd., dated July 20, 2015 (incorporated by reference to our Form 8-K filed on July 23, 2015)

 

10.8

Settlement Agreement with Whonon Trading S.A., dated July 20, 2015 (incorporated by reference to our Form 8-K filed on July 23, 2015)

 

10.9

 

Consulting Agreement dated December 1, 2015, with Debbie King (incorporated by reference to our Annual Report on Form 10-K filed July 21, 2017)

 

10.10

 

Amendment to Consulting Agreement dated March 1, 2016, with Debbie King (incorporated by reference to our Annual Report on Form 10-K filed July 21, 2017)

 

10.11

Director Agreement and Nonqualified Stock Option Agreement dated July 23, 2015, with Debbie King (incorporated by reference to our Annual Report on Form 10-K filed July 21, 2017)

 

 
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10.12

Director Agreement and Nonqualified Stock Option Agreement dated July 23, 2015, with Charles Brooks (incorporated by reference to our Annual Report on Form 10-K filed July 21, 2017)

 

10.13

Director Agreement and Nonqualified Stock Option Agreement dated August 26, 2015, with Hans Holmer (incorporated by reference to our Annual Report on Form 10-K filed July 21, 2017)

 

10.14

Reseller Agreement with i3 Integrative Creative Solutions, LLC, dated April 17, 2017 (incorporated by reference to our Form 8-K filed on April 18, 2017)

 

10.15

Strategic Alliance Agreement with Mile High Construction dated June 2, 2017 (incorporated by reference to our Form 8-K filed on June 2, 2017)

 

10.16

 

Joint Venture Agreement with DarkPulse Technologies, Inc. dated December 21, 2017 (incorporated by reference to our Form 8-K filed on December 28, 2017)

 

10.17

 

Joint Venture Agreement with The Go Eco Group, dated December 21, 2017 (incorporated by reference to our Form 8-K filed on December 29, 2017)

 

10.18

 

Amended and Restated Stock Purchase Agreement dated January 12, 2018 and effective January 1, 2018, by and among Bravatek Solutions, Inc. and Johnny Bolton and Jonathan Bolton (incorporated by reference to our Form 8-K filed on January 24, 2018)

 

10.19

 

Joint Venture Agreement with AmbiCom Holdings, Inc. dated January 24, 2018 (incorporated by reference to our Form 8-K filed on January 25, 2018)

 

10.20

 

Joint Venture Agreement with IEVOLV Ventures, Inc. dated February 15, 2018 (incorporated by reference to our Form 8-K filed on February 16, 2018)

 

10.21

 

Equity Purchase Agreement with Triton Funds LP dated May 7, 2018 (incorporated by reference to our Form 8-K filed on May 14, 2018)

 

10.22

 

Registration Rights Agreement with Triton Funds LP dated May 7, 2018 (incorporated by reference to our Form 8-K filed on May 14, 2018)

 

14.1

Code of Ethics (incorporated by reference to our Annual Report on Form 10-K filed July 13, 2010)

 

31.1*

Certification of CEO required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

31.2*

Certification of CFO required by Rule 13a-14(1) or Rule 15d-14(a) of the Securities Exchange Act of 1934, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

 

32.1*

Certification of CEO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

 

32.2*

Certification of CFO pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and Section 1350 of 18 U.S.C. 63

 

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

 ____________

* Filed Herewith

 

** XBRL (Extensible Business Reporting Language) information is furnished and not filed or a part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933, as amended, is deemed not filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and otherwise is not subject to liability under these sections.

 

 
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SIGNATURES

 

Pursuant to the requirements 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.

 

BRAVATEK SOLUTIONS, INC.

Date: August 14, 2018

By:

/s/ Thomas A. Cellucci

Thomas A. Cellucci

CEO

 

 

39

 

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