Quarterly Report (10-q)

Date : 08/23/2017 @ 12:48PM
Source : Edgar (US Regulatory)
Stock : Bravatek Solutions, Inc. (PN) (BVTK)
Quote : 0.0051  -0.0002 (-3.77%) @ 2:04PM

Quarterly Report (10-q)

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

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

 

For the quarterly period ended  September 30, 2016

 

¨ 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. ¨ Yes   x 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).  ¨ Yes  x 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 Sectionn13(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 21, 2017, the Company had 7,504,753,526 issued and outstanding shares of common stock.

 

 
 
 

 

BRAVATEK SOLUTIONS, INC.

INDEX

 

 

Page

FORWARD-LOOKING STATEMENTS

 

 

 

    

 

 

 

 

PART I. FINANCIAL INFORMATION

 

 

 

 

 

 

 

 

 

 

Item 1.

Financial Statements

 

 

 

 

Condensed Balance Sheets at September 30, 2016 (Unaudited) and March 31, 2016

 

 

3

 

 

Condensed Statements of Operations for the three and six months ended September 30, 2016 and 2015 (Unaudited)

 

 

4

 

 

Condensed Statements of Cash Flows for the six months ended September 30, 2016 and 2015 (Unaudited)

 

 

5

 

 

Notes to Condensed Financial Statements (Unaudited)

 

 

6

 

Item 2.

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

 

 

28

 

Item 3.

Quantitative and Qualitative Disclosures about Market Risks

 

 

31

 

Item 4.

Controls and Procedures

 

 

31

 

 

 

 

 

PART II. OTHER INFORMATION

 

 

 

 

 

 

 

Item 1.

Legal Proceedings

 

 

32

 

Item 1A.

Risk Factors

 

 

32

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

32

 

Item 3.

Defaults Upon Senior Securities

 

 

35

 

Item 4.

Mine Safety Disclosures

 

 

35

 

Item 5.

Other Information

 

 

35

 

Item 6.

Exhibits

 

 

36

 

 

 

 

 

SIGNATURES

 

 

38

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED BALANCE SHEETS

(Unaudited)

 

 

 

September 30,

 

 

March 31,

 

 

 

2016

 

 

2016

 

ASSETS

CURRENT ASSETS

 

 

 

 

 

 

Cash

 

$ 994

 

 

$ 15,244

 

Accounts receivable

 

 

15,537

 

 

 

46,898

 

Prepaid expenses

 

 

-

 

 

 

1,150

 

Other assets

 

 

4,236

 

 

 

9,952

 

TOTAL CURRENT ASSETS

 

 

20,767

 

 

 

73,244

 

 

 

 

 

 

 

 

 

 

Property and equipment, net

 

 

33,366

 

 

 

37,631

 

Intangible assets, net

 

 

26,846

 

 

 

36,934

 

 

 

 

 

 

 

 

 

 

TOTAL ASSETS

 

$ 80,979

 

 

$ 147,809

 

 

 

 

 

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' DEFICIT

CURRENT LIABILITIES

 

 

 

 

 

 

 

 

Convertible notes payable, net of discount  

 

$ 1,193,437

 

 

$ 854,396

 

Notes payable, net of discount

 

 

1,142,627

 

 

 

1,093,598

 

Notes payable related party 

 

 

106,500

 

 

 

105,000

 

Accounts payable and accrued liabilities 

 

 

192,917

 

 

 

136,831

 

Accounts payable-related party 

 

 

174,250

 

 

 

106,500

 

Accrued interest 

 

 

338,845

 

 

 

246,745

 

Accrued interest related party 

 

 

16,829

 

 

 

11,550

 

Derivative liabilities 

 

 

2,685,517

 

 

 

1,955,721

 

TOTAL CURRENT LIABILITIES

 

 

5,850,922

 

 

 

4,510,341

 

 

 

 

 

 

 

 

 

 

STOCKHOLDERS' DEFICIT

 

 

 

 

 

 

 

 

Series A convertible preferred stock (5,000,000 Shares Authorized; Par Value $0.0001, -0- shares issued and outstanding at September 30, 2016 and March 31, 2016)

 

 

-

 

 

 

-

 

Series B preferred stock (350,000 Shares Authorized; Par Value $0.0001, 264,503 shares issued and outstanding at September 30, 2016 and March 31, 2016)

 

 

26

 

 

 

26

 

Series C preferred stock (1,000,000 Shares Authorized; Par Value $0.0001, 319,768 shares issued and outstanding at September 30, 2016 and March 31, 2016)

 

 

32

 

 

 

32

 

Common stock (10,000,000,000 Shares Authorized; No Par Value; 78,333,647 and 998,236 shares issued and outstanding as at September 30, 2016 and March 31, 2016, respectively)

 

 

3,608,661

 

 

 

3,461,300

 

Common stock to be issued (1,221 shares issuable as at September 30, 2016 and March 31, 2016)

 

 

66,917

 

 

 

66,917

 

Deferred stock compensation

 

 

-

 

 

 

(5,380 )

Additional paid in capital

 

 

10,048,090

 

 

 

9,880,912

 

Accumulated deficit 

 

 

(19,493,670

)

 

 

(17,766,338 )

TOTAL STOCKHOLDERS' DEFICIT

 

 

(5,769,943

)

 

 

(4,362,532 )

TOTAL LIABILITIES AND STOCKHOLDERS' DEFICIT

 

$ 80,979

 

 

$ 147,809

 

 

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

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED STATEMENTS OF OPERATIONS

(Unaudited)

 

 

 

For the Three Months Ended
September 30,

 

 

For the Six Months Ended
September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

REVENUES

 

 

 

 

 

 

 

 

 

 

 

 

Sales, related party

 

$ 94,828

 

 

$ -

 

 

$ 94,828

 

 

$ 186,837

 

Sales, other

 

 

12,543

 

 

 

62,973

 

 

 

57,692

 

 

 

62,973

 

Total sales

 

 

107,371

 

 

 

62,973

 

 

 

152,520

 

 

 

249,810

 

Cost of services

 

 

87,682

 

 

 

65,348

 

 

 

100,089

 

 

 

83,787

 

GROSS PROFIT (LOSS)

 

 

19,689

 

 

 

(2,375 )

 

 

52,431

 

 

 

166,023

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING EXPENSES

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Management fees and expenses, related parties

 

 

29,000

 

 

 

54,000

 

 

 

98,500

 

 

 

129,000

 

Advertisement and promotion 

 

 

9,624

 

 

 

27,698

 

 

 

25,724

 

 

 

58,649

 

General and administrative 

 

 

17,119

 

 

 

60,424

 

 

 

29,699

 

 

 

128,989

 

Research and development

 

 

2,250

 

 

 

171,606

 

 

 

21,494

 

 

 

408,249

 

Professional fees 

 

 

135,569

 

 

 

99,833

 

 

 

170,673

 

 

 

168,271

 

Amortization and depreciation 

 

 

7,529

 

 

 

8,475

 

 

 

14,352

 

 

 

15,350

 

TOTAL OPERATING EXPENSES 

 

 

201,091

 

 

 

422,036

 

 

 

360,442

 

 

 

908,508

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OPERATING LOSS 

 

 

(181,402 )

 

 

(424,411 )

 

 

(308,011 )

 

 

(742,485 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OTHER INCOME (EXPENSES) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Interest expense 

 

 

(59,601 )

 

 

(60,754 )

 

 

(116,493 )

 

 

(116,101 )

Interest expense related party 

 

 

(3,704 )

 

 

-

 

 

 

(5,279 )

 

 

(9,973 )

Other income

 

 

2,400

 

 

 

-

 

 

 

12,000

 

 

 

-

 

Gain (loss) on fair value of derivatives

 

 

(697,343 )

 

 

(69,560 )

 

 

(841,474 )

 

 

569,423

 

Amortization of debt discount 

 

 

(167,284 )

 

 

(362,578 )

 

 

(468,074 )

 

 

(520,441 )

TOTAL OTHER EXPENSES, NET

 

 

(925,532 )

 

 

(492,892 )

 

 

(1,419,320 )

 

 

(77,092 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NET LOSS

 

$ (1,106,934 )

 

$ (917,303 )

 

$ (1,727,331 )

 

$ (819,577 )

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted 

 

 

21,397,882

 

 

 

10,523

 

 

 

11,324,553

 

 

 

8,952

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

LOSS PER SHARE

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted 

 

$ (0.05 )

 

$ (87.17 )

 

$ (0.15 )

 

$ (91.55 )

 

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

 

 
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BRAVATEK SOLUTIONS, INC.

CONDENSED STATEMENTS OF CASH FLOWS

FOR THE SIX MONTHS ENDED SEPTEMBER 30,

(Unaudited)

 

 

 

2016

 

 

2015

 

CASH FLOWS FROM OPERATING ACTIVITIES 

 

 

 

 

 

 

Net loss

 

$ (1,727,331 )

 

$ (819,577 )

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

 

 

 

 

 

 

 

 

Amortization and depreciation 

 

 

14,353

 

 

 

15,350

 

Non cash interest and fees

 

 

7,500

 

 

 

-

 

Common stock and options issued for compensation 

 

 

76,380

 

 

 

27,349

 

Common stock issued for services 

 

 

-

 

 

 

8,797

 

Non cash advertising expenses (barter)

 

 

23,625

 

 

 

-

 

Amortization of debt discounts

 

 

468,073

 

 

 

520,441

 

(Gain) loss on fair value of derivatives

 

 

841,474

 

 

 

(569,423 )

Changes in operating assets and liabilities: 

 

 

 

 

 

 

 

 

Accounts receivable

 

 

7,736

 

 

 

(249,853 )

Prepaid expenses  and other recevables

 

 

6,866

 

 

 

37,744

 

Accounts payable and accrued liabilities 

 

 

156,769

 

 

 

263,778

 

Accounts payable and accrued liabilities, related party

 

 

73,029

 

 

 

-

 

Accrued interest on loan-related party 

 

 

-

 

 

 

20,055

 

Accounts payable-related party 

 

 

-

 

 

 

(13,200 )

NET CASH USED IN OPERATING ACTIVITIES 

 

 

(51,526 )

 

 

(754,601 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM INVESTING ACTIVITIES 

 

 

 

 

 

 

 

 

Purchase of property and computer equipment 

 

 

-

 

 

 

(43,279 )

NET CASH USED IN INVESTING ACTIVITIES 

 

 

-

 

 

 

(43,279 )

 

 

 

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES 

 

 

 

 

 

 

 

 

Proceeds used in related party asset transfer

 

 

-

 

 

 

(157,000 )

Payments of principal on notes payable

 

 

-

 

 

 

(15,000 )

Payments of principal on convertible notes payable 

 

 

(12,224 )

 

 

-

 

Payments to loan-related party

 

 

-

 

 

 

(51,512 )

Proceeds from issuance of convertible debt 

 

 

48,000

 

 

 

784,174

 

Proceeds from loan-related party 

 

 

1,500

 

 

 

51,512

 

NET CASH PROVIDED BY FINANCING ACTIVITIES 

 

 

37,276

 

 

 

612,174

 

 

 

 

 

 

 

 

 

 

NET DECREASE IN CASH AND CASH EQUIVALENTS 

 

 

(14,250 )

 

 

(185,706 )

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS 

 

 

 

 

 

 

 

 

Beginning of period

 

 

15,244

 

 

 

203,072

 

End of period

 

$ 994

 

 

$ 17,366

 

 

 

 

 

 

 

 

 

 

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:

 

 

 

 

 

 

 

 

Cash paid for interest

 

$ 15,809

 

 

$ -

 

Cash paid for income taxes

 

$ -

 

 

$ -

 

 

 

 

 

 

 

 

 

 

SCHEDULE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:

 

 

 

 

 

 

 

 

Shares issued in settlement of debt and interest on convertible debt 

 

$ 76,361

 

 

$ 649,426

 

Original issue discounts 

 

$ 5,739

 

 

$ 813,008

 

Original debt discount against derivative liabilities

 

$ 55,500

 

 

$ -

 

Common stock issued to satisfy common stock to be issued

 

$ -

 

 

$ 3,496

 

Initial value of derivative liabilities 

 

$ 95,553

 

 

$ 1,669,633

 

Asset and intangibles purchased from related party with common stock

 

$ -

 

 

$ 740,000

 

Reclassification of derivatives upon conversion of convertible debt

 

$ 167,178

 

 

$ -

 

 

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

 

 
5
 
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BRAVATEK SOLUTIONS, INC.

NOTES TO CONDENSED FINANCIAL STATEMENTS

September 30, 2016

(UNAUDITED)

 

1. Nature of Operations 

 

Bravatek Solutions, Inc. a Colorado corporation ("the Company"), was incorporated on April 19, 2007. Effective September 29, 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, tools and systems, including telecom services. Solutions span a diverse variety of world-wide markets including, but not limited to, email security, user authentication, telecommunications and cyber breach protection.

 

2. Significant Accounting Policies

 

Basis of Presentation 

 

The accompanying condensed financial statements 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 unaudited financial statements should be read in conjunction with a reading of the Company’s consolidated financial statements and notes thereto included in Form 10-K for the year ended March 31, 2016, filed with the SEC on July 21, 2017. Interim results of operations for the three and six months ended September 30, 2016 and 2015 are not necessarily indicative of future results for the full year. Certain amounts from the 2015 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. 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. 

 

Fiscal Year

 

The Company's fiscal year-end is March 31. 

 

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 September 30, 2016 and 2015, and the accounts receivable balance as of September 30, 2016:

 

 

 

Sales %
Three Months
Ended
September 30,
2016

 

 

Sales %
Three Months
Ended
September 30,
2015

 

 

Sales %
Six Months
Ended
September 30,
2016

 

 

Sales %
Six Months
ended
September 30,
2015

 

 

Amount due
as of
September 30,
2016

 

Customer A, related party

 

 

88.0 %

 

 

-

 

 

 

62.0 %

 

 

-

 

 

$ 15,537

 

Customer B, related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

50.3 %

 

 

-

 

Customer C, related party

 

 

-

 

 

 

-

 

 

 

-

 

 

 

23.8 %

 

 

-

 

Customer D

 

 

-

 

 

 

100.0 %

 

 

-

 

 

 

25.2 %

 

 

-

 

 

Accounts Receivable/Allowance for Doubtful Accounts

 

The Company records its client receivables and unbilled services at their face amounts less allowances. On a periodic basis, the Company evaluates its receivables and unbilled services and establishes allowances based on historical experience and other currently available information. As of September 30, 2016, and March 31, 2016, management determined there was no need to establish an allowance for doubtful accounts because there had been little history of nonpayment or indicators of credit risk, such as bankruptcy.

 

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. 

 

Depreciation expense was $2,457 and $4,264 for the three and six months September 30, 2016, respectively, and $3,403 and $5,262 for the three and six months ended September 30, 2015, respectively.

 

Long-Lived Assets 

 

The Company reviews long-lived assets and certain identifiable intangible assets 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.

 

 
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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. 

  

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.

 

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. During the six months ended September 30, 2016, the Company incurred no capitalized software development costs. Capitalized software is amortized over the software's estimated economic life of 3 years. For the three and six months ended September 30, 2016 and 2015, amortization expense for capitalized software development was $5,072 and $10,088, respectively.

  

Research and Development

 

Costs and expenses that can be clearly identified as research and development (“R&D”) are charged to expense as incurred in accordance with GAAP. All research and development costs have been expensed as incurred, totaling $2,250 and $21,494 for the three and six months ended September 30, 2016, respectively, and $171,606 and $408,249 for the three and six months ended September 30, 2015, respectively. During the six months ended September 30, 2016, 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.

 

Advertising and Promotions  

 

The Company expenses advertising costs as incurred. Advertising expenses for the three and six months ended September 30, 2016, were $9,624 and $25,724, respectively, and for the three and six months ended September 30, 2015, were $27,698 and $58,649, respectively. Advertising expenses of $7,875 and $23,625 for the three and six months ended September 30, 2016 were the result of barter transactions, whereby, the Company received advertising and promotional services in exchange for sales of software.

 

 
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Advertising and Revenue Barter Transactions

 

The Company recognized revenue and expense, in accordance with ASC 845 - Nonmonetary Transactions, at fair value only if the fair value of the advertising received is determinable based in the entity’s own historical practice of receiving cash or other consideration that is readily convertible to a known amount of cash for similar advertising from buyers unrelated to the Company. If the fair value of the advertising received is not determinable within these limits, the barter transaction would be recorded based on the carrying amount of the advertising received, which likely will be zero.

 

Uncertainty as a Going Concern 

 

The accompanying condensed financial statements have been prepared assuming that the Company will continue as a going concern. The Company has suffered recurring losses from operations since inception (April 19, 2007) through September 30, 2016 of $19,493,670 and has a working capital deficit of $5,830,155 as of September 30, 2016, 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. 

 

 
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The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of September 30, 2016 and March 31, 2016 for each fair value hierarchy level:

 

September 30, 2016

 

Derivative

Liability

 

 

Total

 

Level I

 

$ -

 

 

$ -

 

Level II

 

$ -

 

 

$ -

 

Level III

 

$ 2,685,517

 

 

$ 2,685,517

 

March 31, 2016

 

 

 

 

 

 

 

 

Level I

 

$ -

 

 

$ -

 

Level II

 

$ -

 

 

$ -

 

Level III

 

$ 1,955,721

 

 

$ 1,955,721

 

 

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 Black-Scholes option-pricing model 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 over the life of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed. 

 

 
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Original Issue Discount

 

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 over the life of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed. 

 

Extinguishments of Liabilities

 

The Company accounts for extinguishments of liabilities in accordance with ASC 860-10 (formerly SFAS 140) "Accounting for Transfers and Servicing of Financial Assets and Extinguishment of Liabilities." When the conditions are met for extinguishment accounting, the liabilities are derecognized and the gain or loss on the sale is recognized. 

 

Revenue Recognition

 

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-S99, Revenue Recognition, Overall, SEC Materials ("Section 605-10-S99"). Section 605-10-S99 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. Cost of products sold consists of the cost of the purchased goods and labor related to the corresponding sales transaction. The Company recognizes revenue from services at the time the services are completed.

 

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.

 

 
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The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows: 

 

 

·

Expected term of share options and similar instruments: The expected life of options and similar instruments represents the period of time the option and/or warrant are expected to be outstanding. Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and employees' expected exercise and post-vesting employment termination behavior into the fair value (or calculated value) of the instruments. Pursuant to paragraph 718-10-S99-1, it may be appropriate to use the simplified method, i.e., expected term = ((vesting term + original contractual term) / 2), if (i) A company does not have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term due to the limited period of time its equity shares have been publicly traded; (ii) A company significantly changes the terms of its share option grants or the types of employees that receive share option grants such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term; or (iii) A company has or expects to have significant structural changes in its business such that its historical exercise data may no longer provide a reasonable basis upon which to estimate expected term. The Company uses the actual method to calculate expected term of share options and similar instruments as the company does have sufficient historical exercise data to provide a reasonable basis upon which to estimate expected term.

 

 

 

 

·

Expected volatility of the entity's shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses its actual historical volatility over the expected contractual life of the share options or similar instruments as its expected volatility. If shares of a company are thinly traded the use of weekly or monthly price observations would generally be more appropriate than the use of daily price observations as the volatility calculation using daily observations for such shares could be artificially inflated due to a larger spread between the bid and asked quotes and lack of consistent trading in the market.

 

 

 

 

·

Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company's current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. We expect and use zero rate.

 

 

 

 

·

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

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. 

 

 
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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. The ranges of assumptions for inputs are as follows: 

 

 

·

Expected term of share options and similar instruments: Pursuant to Paragraph 718-10-50-2(f)(2)(i) of the FASB Accounting Standards Codification the expected term of share options and similar instruments represents the period of time the options and similar instruments are expected to be outstanding taking into consideration of the contractual term of the instruments and holder's expected exercise behavior into the fair value (or calculated value) of the instruments. The Company uses historical data to estimate holder's expected exercise behavior.

 

 

 

 

·

Expected volatility of the entity's shares and the method used to estimate it. Pursuant to ASC Paragraph 718-10-50-2(f)(2)(ii) a thinly-traded or nonpublic entity that uses the calculated value method shall disclose the reasons why it is not practicable for the Company to estimate the expected volatility of its share price, the appropriate industry sector index that it has selected, the reasons for selecting that particular index, and how it has calculated historical volatility using that index. The Company uses its actual historical volatility over the expected contractual life of the share options or similar instruments as its expected volatility.

 

 

 

 

·

Expected annual rate of quarterly dividends. An entity that uses a method that employs different dividend rates during the contractual term shall disclose the range of expected dividends used and the weighted-average expected dividends. The expected dividend yield is based on the Company's current dividend yield as the best estimate of projected dividend yield for periods within the expected term of the share options and similar instruments. We expect and use zero rate.

 

 

 

 

·

Risk-free rate(s). An entity that uses a method that employs different risk-free rates shall disclose the range of risk-free rates used. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for periods within the expected term of the share options and similar instruments.

 

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. 

  

 
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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. 

 

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 

 

Basic and diluted net loss per share information is presented under the requirements of ASC Topic 260, Earnings per Share. Basic net loss per share is computed by dividing net loss by the weighted average number of shares of common stock outstanding for the period, less shares subject to repurchase. Diluted net loss per share reflects the potential dilution of securities by adding other common stock equivalents, including stock options, shares subject to repurchase, warrants and convertible notes in the weighted-average number of common shares outstanding for a period, if dilutive.

 

 
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3. Recent Accounting Pronouncements

 

On May 28, 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers, requiring an entity to recognize the amount of revenue to which it expects to be entitled for the transfer of promised goods or services to customers. The updated standard will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective and permits the use of either the retrospective or cumulative effect transition method. Early adoption is not permitted. The updated standard is effective for us in the first quarter of fiscal 2018. However, in April 2015, the FASB approved to defer the effective date by one year which we will evaluate if approved. Further, we have not yet selected a transition method and we are currently evaluating the effect that the updated standard will have on our consolidated financial statements and related disclosures.

 

On August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements - Going Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern, which requires management to evaluate, at each annual and interim reporting period, whether there are conditions or events that raise substantial doubt about the entity's ability to continue as a going concern within one year after the date the financial statements are issued and to provide related disclosures. ASU 2014-15 is effective for us for our fiscal year ending March 31, 2017 and for interim periods thereafter. We are currently evaluating the impact of this standard on our consolidated financial statements.

 

With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the quarter ended September 30, 2016, as compared to the recent accounting pronouncements described in our Annual Report on Form 10-K for the fiscal year ended March 31, 2016, that are of significance or potential significance to us.

 

4. Related party activity

 

Revenues

 

For the three and six months ended September 30, 2016, and 2015, related party sales were $94,497 and $94,828, respectively, representing sales of 88% and 62%, respectively for each period. The party that accounted for $94,497 of revenues the three and six months ended September 30, 2016, was temporarily a related party based on the percentage of shares owned of the issued and outstanding common stock of the Company at the time of the sales. The party is no longer a related party. For the six months ended September 30, 2015, the Company recorded sales to three related party companies in the amounts of $125,682, $59,404 and $1,750, respectively. The sales of $1,750 were to a limited liability company controlled by the Company’s chief executive officer (“CEO”). Total related party revenues for the six months ended September 30, 2015 was $186,837

 

Notes payable

 

The Company issued multiple unsecured notes payable from June 27, 2015 to September 30, 2016, to the Company’s CEO, for amounts advanced to the Company, or paid by the CEO, on behalf of the Company, totaling $158,258. The notes carry interest at 10% per annum and are due on demand. As of September 30, 2016, and March 31, 2016, the principal balance of the notes was $106,500 and $105,000 (included in note payable related party in the balance sheets presented herein), and included in accrued interest related party is the accrued and unpaid interest as of September 30, 2016, and March 31, 2016, of $16,829 and $11,550, respectively. For the three and six months ended September 30, 2016, the Company recorded interest expense related party of $3,704 and $5,279, respectively.

 

 
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Management Fees

 

For the three and six months ended September 30, 2016 and 2015, the Company recorded expenses to its officers the following amounts:

 

 

 

Three months ended

September 30,

 

 

Six months ended

September 30,

 

 

 

2016

 

 

2015

 

 

2016

 

 

2015

 

CEO

 

$ 14,000

 

 

$ 49,000

 

 

$ 56,000

 

 

$ 124,000

 

CFO

 

 

15,000

 

 

 

5,000

 

 

 

42,500

 

 

 

5,000

 

Total

 

$ 29,000

 

 

$ 54,000

 

 

$ 98,500

 

 

$ 129,000

 

 

Included in the CEO’s three and six months ended September 30, 2016, compensation is a credit of $28,000, whereby, the CEO agreed to reduce past amounts due. As of September 30, 2016, included in accounts payable - related party is $159,000 and $15,250, for amounts owed the Company’s CEO and CFO, respectively, for unpaid fees.

 

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 is 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 September 30, 2016, and March 31, 2016, the note balance was $400,000. As of June 15, 2015, the note is payable on demand as part of the Settlement Agreement. Accrued interest as of September 30, 2016, and March 31, 2016, 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 September 30, 2016, and March 31, 2016 the note balance was $199,960 and the notes are currently in default. Accrued interest as of September 30, 2016 and March 31, 2016, was $72,786 and $62,788, 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 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 agreements. As of September 30, 2016, and March 31, 2016 the note balance was $230,828 and the notes are currently in default Accrued interest as of September 30, 2016, and March 31, 2016, was $63,223 and $51,682, respectively.

 

 
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On June 2, 2015, as part of the Asset Purchase Agreement with DCI, the Company assumed limited liabilities associated with Viking (loan payment for Chevrolet truck in the amount of $668 per month with a principal balance of $36,202, and a loan payment to Joshua Claybaugh of $5,000 per month for 11 months for a total of $55,000). The Chevrolet truck loan was paid off as of March 31, 2016. As of September 30, 2016, and March 31, 2016, the loan with Joshua Claybaugh had a remaining principal balance of $20,000. There was no accrued interest as of September 30, 2016, and March 31, 2016.

 

The Company entered into a Senior Secured Credit Facility Agreement (the “Credit Agreement”) dated June 30, 2015 with TCA Global Credit Master Fund, LP (“TCA”) that was executed on June 30, 2015 and made effective as of November 25, 2015, which was to allow the Company to borrow up to $3,000,000. The Credit Agreement bears interest at 18%, compounded annually, and matured on January 25, 2017. The loan is secured against all existing and after-acquired tangible and intangible assets of the Company. On November 25, 2015, the Company received $310,600, net of loan costs and fees of $39,400. In connection with the Credit Agreement, the Company issued 1,412 shares of common stock upon execution valued by TCA at $75,000 as an advisory fee payment. The Company recorded the advisory fee and loan cost and fees of $114,400 as a discount to the TCA note and will amortize the costs over the maturity of the note. Accordingly, for the three and six months ended September 30, 2016, the Company expensed $24,515 and $46,029, respectively, included in amortization of debt discount in the Condensed Consolidated Statement of Operations presented herein. As of September 30, 2016, and March 31, 2016, the TCA loan had a principal balance of $323,162. Interest expense was $14,542 and $29,424 for the three and six months ended September 30, 2016, respectively. Accrued interest as of September 30, 2016, and March 31, 2016, was $14,542 and $0, respectively.

 

A summary of the notes payable balance as of September 30, 2016 is as follows:

 

Principal Balance

 

$ 1,173,950

 

Unamortized discount

 

 

(31,323 )

Ending Balance, net

 

$ 1,142,627

 

 

The following is a roll-forward of the Company’s notes payable and related discounts for the six months ended September 30, 2016:

 

 

 

Principal
Balance

 

 

Debt
Discounts

 

 

Total

 

Balance March 31, 2016

 

$ 1,173,950

 

 

$ (80,352 )

 

$ 1,093,598

 

Amortization

 

 

-

 

 

 

49,029

 

 

 

49,029

 

Balance at September 30, 2016

 

$ 1,173,950

 

 

$ (31,323 )

 

$ 1,142,627

 

 

On September 6, 2016, TCA commenced an action against the Company and the Company’s CEO, Dr. Cellucci, as “validity guarantor,” filed in the Circuit Court of the 17 th  Judicial Circuit in and for Broward County, Florida, for amounts owed to TCA by the Company under their revolving credit agreement with the Company. On April 21, 2017, the Company, Dr. Cellucci and TCA executed a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay $2,500 by April 30, 2017, $2,500 by May 31, 2017 and $405,357 on or before June 16, 2017. The Company fully complied with its obligations under the settlement agreement, paying TCA all amounts owed thereunder within the times required, and the case has now been dismissed.

 

 
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6. Convertible notes payable

 

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

 

On December 19, 2014, the Company issued a convertible note payable, with a face value of $156,000 and stated interest of 8% 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 68% of the lowest closing bid price for 20 days prior to conversion. For the six months ended September 30, 2016, the investor converted a total of $12,380 of the face value and $2,332 of accrued interest into 6,593,919 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $1,125 and $13,505, respectively.

 

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. 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 68% of the lowest closing bid price 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. For the six months ended September 30, 2016, the investor converted a total of $7,000 of the face value and $1,044 of accrued interest into 23,082,672 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $149,000 and $156,000, respectively.

 

On December 19, 2014, the Company issued a convertible note payable, with a face value of $156,000 and stated interest of 8% to a third-party investor. The outstanding balance of this note is convertible into a variable number of the Company's common stock, based on a conversion ratio of 67% of the lowest closing bid price for 20 days prior to conversion. For the six months ended September 30, 2016, the investor converted a total of $7,210 of the face value into 5,722,184 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $51,290 and $58,500, respectively.

 

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. 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 68% of the lowest closing bid price 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 September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $156,000.

 

On January 11, 2015, the Company issued two convertible promissory notes in the principal amount of $52,000 each. One of the notes was funded on January 13, 2015, with the Company receiving $47,500 of net proceeds after payment of legal and origination expenses. The note bears interest at the rate of 8% per annum, is due and payable on January 9, 2015, and may be converted at any time after funding into shares of Company common stock at a conversion price equal to 67% of the lowest closing bid price on the OTCQB during the 15 prior trading days. The second note, which was funded on August 7, 2015, has the same interest and conversion terms as the first note, but may be offset by a secured promissory note issued to the Company for $50,000, due on September 9, 2015, and accruing interest at the rate of 8% per annum. For the six months ended September 30, 2016, the investor converted a total of $12,490 of the face value and $1,067 of accrued interest into 11,682,681 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $39,510 and $52,000, respectively.

 

On January 19, 2015, the Company issued a convertible promissory note in the face amount of $100,000, which bears interest at the rate of 12% per annum, is due and payable on July 16, 2015, and may be converted at any time after funding into shares of Company common stock at a conversion price equal to the lesser of (a) 55% of the lowest trading price during the 20 days preceding the execution of the note, or (b) 55% of the of the lowest traded price during the 20 trading days preceding conversion. The note was funded on January 28, 2015, with the Company receiving $93,000 of net proceeds after payment of legal and origination expenses. For the six months ended September 30, 2016, the investor converted a total of $6,942 of the face value into 8,694,132 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $51,881 and $58,823, respectively.

 

 
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On January 21, 2015, the Company issued a convertible promissory note in the face amount of $400,000, of which the Company is to assume $40,000 in original interest discount ("OID"), which together with any unpaid accrued interest is due two years after any funding of the note. The note is to be funded at the note holder's discretion, and the initial tranche was funded on January 21, 2015, when the Company received cash in the amount of $50,000, and received an additional $25,000 on April 28, 2015. The note is pre-payable for 90 days without interest, and incurs a one-time interest charge of 12% thereafter. The note balance funded (plus a pro rata portion of the OID together with any unpaid accrued interest) is convertible into shares of Company common stock at a conversion price equal to the lesser of $0.08 or 60% of the lowest traded price during the 25 prior trading days. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $15,480.

 

On August 17, 2015, the Company issued a convertible promissory note in the face amount of $325,000, which bears interest at the rate of 10% per annum, is due and payable on August 17, 2016, and may be converted at any time after funding into shares of Company common stock at a conversion price equals the lesser of $.02 or 70% of the closing trading prices immediately preceding the conversion date. In conjunction with the convertible note issued by the Company, the Company issued 2,064 warrants valued at $412,698. The warrants have an exercise price of $270, subject to adjustment, and expire on August 17, 2020. For the six months ended September 30, 2016, the investor converted a total of $2,401 of accrued and unpaid interest into 2,587,717 shares of common stock. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $325,000.

 

On October 12, 2015, the Company issued a replacement convertible promissory note in the face amount of $110,351, to Carebourn Capital LP (“Carebourn”) that replaces the convertible promissory note issued on April 10, 2015, with a face value of $105,000, and accrued interest of $5,351. The outstanding balance of this note is convertible 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 also bears an interest rate of 10% per annum. For the six months ended September 30, 2016, the investor converted a total of $22,065 of the face value into 8,892,369 shares of common stock. Additionally, Carebourn assigned $10,000 of the note to Carebourn Partners. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $2,243 and $34,308, respectively. On March 23, 2016, as collateral security for this note and the $80,000 convertible promissory note entered into with Carebourn on February 8, 2016, the Company’s CEO agreed to pledge 111,884 shares of his Series C Preferred Stock.

 

Also on October 12, 2015, Carebourn and the Company assigned $15,000 of the replacement issued to Carebourn, to More Capital, LLC. (“More Capital”). The outstanding balance of this note is convertible 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 also bears an interest rate of 10% per annum. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $2,050.

 

On October 26, 2015, the Company issued a convertible note, with a face value of $110,000 and stated interest of 10% to a third-party investor, of which the company was to assume an OID of $10,000. The outstanding balance of this note was convertible into a variable number of the Company's common stock, based on a conversion ratio of 60% of the lowest average of the three lowest closing bid prices for 20 days prior to conversion. The investor sold $25,000 of the note on April 27, 2016, and the Company issued a replacement note to the buyer, as described below. On June 7, 2016, the Company and the third-party investor agreed to extend the maturity of the note from July 26, 2016 to October 26, 2016, and to require daily payments of $250 per day via ACH. For the six months ended September 30, 2016, the Company paid $6,003 of the note. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $78,997 and $110,000, respectively.

 

On October 27, 2015, the Company issued a convertible note, with a face value of $110,000 and stated interest of 8% to a third-party investor, of which the company was to assume an OID of $10,000. The outstanding balance of this note was convertible into a variable number of the Company's common stock, based on a conversion ratio of 60% of the lowest average of the three lowest closing bid prices for 20 days prior to conversion. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $110,000.

 

On November 12, 2015, the Company issued a replacement convertible promissory note in the face amount of $47,808, to Carebourn that replaces the collateralized secured convertible promissory issued on February 3, 2015, that had a remaining face value of $43,479 and accrued interest of $4,326. The replacement note is convertible 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 also bears an interest rate of 10% per annum. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $47,808.

 

 
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On November 27, 2015, the Company issued a convertible note for legal services previously provided with a face value of $27,000 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. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $27,000.

 

On January 5, 2016, the Company issued a convertible note for legal services previously provided with a face value of $20,000 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. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $20,000.

 

On February 4, 2016, the Company issued a convertible note, with a face value of $82,500 and stated interest of 8% to a third-party investor, LG Capital Funding LLC (“LG”), of which the Company was to assume an OID of $7,500, and stated interest of 8% to a third-party investor. The outstanding balance of this note is convertible 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. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $82,500. The Company’s CEO agreed to guarantee this note by pledging 111,884 shares of his Series C Preferred Stock.

 

On February 8, 2016, the Company issued a convertible note, with a face value of $80,000 and stated interest of 10% to a third-party investor, Carebourn, of which the Company was to assume an original issue discount of $5,000. The outstanding balance of this note is convertible 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 and a maturity date of November 8, 2016. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $80,000. On March 23, 2016, as collateral security for this note and the $110,351 convertible promissory note entered into with Carebourn on October 12, 2015, the Company’s CEO agreed to pledge 111,884 shares of his Series C Preferred Stock.

 

On March 24, 2016, the Company issued a convertible note, with a face value of $19,000 and stated interest of 10% to a third-party investor, Carebourn, of which the company received $16,000 in proceeds. The outstanding balance of this note is convertible 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 and matured on December 24, 2016. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $19,000.

 

On March 24, 2016, the Company issued a convertible note, with a face value of $18,000 and stated interest of 10% to a third-party investor, of which the Company received $15,000 in proceeds. The outstanding balance of this note is convertible 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 and a maturity date of December 24, 2016. As of September 30, 2016, and March 31, 2016, the outstanding principal amount of the note was $18,000.

 

On April 11, 2016, the Company issued a convertible note, with a face value of $18,889 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 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The Company received proceeds of $13,000 on April 28, 2016, of $13,000, after disbursements for the lender’s transaction costs, fees, and expenses. The embedded feature included in the note resulted in an initial debt discount of $17,000 an initial derivative liability expense of $11,880 and an initial derivative liability of $28,880. As of September 30, 2016, the outstanding principal amount of the note was $18,889.

 

On April 11, 2016, the Company issued a replacement convertible promissory note in the face amount of $26,123, to a third-party investor that replaces part of the convertible promissory note issued on October 26, 2015, with a face value of $25,000, and accrued interest of $1,123. The outstanding balance of this note is convertible 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 also bears an interest rate of 10% per annum. For the six months ended September 30, 2016, the investor converted a total of $815 of the face value and $615 of accrued interest and fees into 75,238 shares of common stock. As of September 30, 2016, the outstanding principal amount of the replacement note was $25,308.

 

 
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On June 3, 2016, the Company issued a convertible note, with a face value of $42,350 and stated interest of 12% 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 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The Company received proceeds on June 3, 2016, of $35,000, after disbursements for the lender’s transaction costs, fees, and expenses. The embedded feature included in the note resulted in an initial debt discount of $38,500, an initial derivative liability expense of $28,173 and an initial derivative liability of $66,673. The note also requires 177 daily payments of $239 per day via ACH. For the six months ended September 30, 2016, the Company paid $6,003 of the note. The balance of the note on September 30, 2016 was $36,129.

 

A summary of the convertible notes payable balance as of September 30, 2016 and March 31, 2016 is as follows:

 

 

 

September 30,
2016

 

 

March 31,
2016

 

Principal Balance

 

$ 1,367,209

 

 

$ 1,385,975

 

Unamortized discount

 

 

173,772

 

 

 

531,578

 

Ending Balance, net

 

$ 1,193,437

 

 

$ 854,396

 

 

The following is a roll-forward of the Company’s convertible notes and related discounts for the six months ended September 30, 2016:

 

 

 

Principal
Balance

 

 

Debt
Discounts

 

 

Total

 

Balance March 31, 2016

 

$ 1,385,974

 

 

$ (531,578 )

 

$ 854,396

 

New issuances

 

 

62,362

 

 

 

(61,239 )

 

 

1,123

 

Conversions

 

 

(68,902 )

 

 

-

 

 

 

(68,902 )

Cash payments

 

 

(12,224 )

 

 

-

 

 

 

(12,224 )

Amortization

 

 

-

 

 

 

419,045

 

 

 

419,045

 

Balance at September 30, 2016

 

$ 1,367,209

 

 

$ (173,772 )

 

$ 1,193,437

 

 

7. 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 are 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.

 

The Company valued the derivative liabilities at September 30, 2016, and March 31, 2016, at $2,685,517 and $1,955,721, respectively. The Company used the Monte Carlo simulation valuation model with the following assumptions for the six months ended September 30, 2016; a risk-free interest rates from .26% to 1.76%, volatility of 419%, trading prices from $.0004 to $.235 per share and conversion prices from $.0002 to $.407 per share.

 

 
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A summary of the activity related to derivative liabilities for the six months ended on September 30, 2016 is as follows:

 

 

 

September 30,
2016

 

Beginning Balance

 

$ 1,955,721

 

Initial Derivative Liability

 

 

95,553

 

Reclassification for Notes Converted

 

 

(167,178 )

Fair Value Change

 

 

801,421

 

Ending Balance

 

$ 2,685,517

 

 

Derivative liability expense of $841,474 for the six months ended September 30, 2106, consisted of the initial derivative expense of $40,053 and the above fair value change of $801,421.

 

8. Stockholders' Deficit

 

Common stock

 

On June 17, 2016, the Financial Industry Regulatory Authority ("FINRA") announced the registrant's 1:2,500 reverse stock split of the registrant's common stock. The reverse stock split took effect on June 20, 2016. Unless otherwise noted, impacted amounts and share information included in the financial statements and notes thereto have been retroactively adjusted for the stock split as if such stock split occurred on the first day of the first period presented. Certain amounts in the notes to the financial statements may be slightly different than previously reported due to rounding of fractional shares as a result of the reverse stock split.

 

During the six months ended September 30, 2016, the Company issued 67,330,911 shares of common stock for conversion of $68,902 of principal and $7,459 of accrued interest, for a total of $76,361 (see Note 6).

 

On August 1, 2016, the Company entered into a consulting agreement with YKTG, LLC ("YKTG"), pursuant to which YKTG would, in consideration of the issuance of 10,000,000 shares of Company common stock, assist in the selection and management of subcontractors for new and forthcoming POs from major telecom carries (Verizon, Sprint, AT&T, etc.), offer PMO skills, systems, tools, and advice to the Company and the Company's strategic alliance partners, provide sales personnel and management to assist the Company with obtaining additional telecom purchase orders, provide sales leads for government telecom applications, assist the Company to drive sales for its existing indefinite delivery/indefinite quantity ("IDIQ") contracts, and assist the Company in updating its five-year strategic business plan. On August 3, 2016, the Company issued the 10,000,000 shares to YKTG. The Company valued the shares at $0.0071 per share (the market price on the date of the consulting agreement), and recorded stock compensation expense of $71,000 for the three and six months ended September 30, 2016.

 

As of September 30, 2016, there are 78,333,647 shares of common stock issued and outstanding and 1,221 shares of common stock to be issued.

 

Preferred Stock

 

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

 

 
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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 .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 September 30, 2016, 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 September 30, 2016, there are 264,503 shares of Series B Preferred Stock outstanding.

 

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, as amended, is convertible at the election of the holder into 100 shares of common stock, and entitles the holder thereof to 10,000 votes on all matters submitted to a vote of the stockholders of the Company. The holders of the Series C Preferred Stock do not have any rights to dividends or any liquidation preferences. As of September 30, 2016, there are 319,768 shares of Series C preferred stock outstanding, of which 223,768 shares are owned by our Chairman and CEO, Dr. Cellucci. As collateral security on certain obligations of the Company, Dr. Cellucci has pledged all of his shares of Series C Preferred Stock to holders of certain convertible promissory notes (see note 6).

 

Stock Options

 

For the six months ended September 30, 2016, the Company did not issue any stock options, and there were no exercises of any existing stock f. All option grants are 100% vested. The following table summarizes activities related to stock options of the Company for the six months ended September 30, 2016:

 

 

 

Number of
Options

 

 

Weighted-Average Exercise Price per share

 

 

Weighted-Average Remaining Life (Years)

 

Outstanding at March 31, 2016

 

 

102

 

 

$ 1,102.94

 

 

 

8.94

 

Outstanding at September 30, 2016

 

 

102

 

 

$ 1,102.94

 

 

 

8.44

 

Exercisable at September 30, 2016

 

 

102

 

 

$ 1,102.94

 

 

 

8.44

 

 

 
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The following table summarizes stock option information as of September 30, 2016:

 

Exercise Prices

 

 

Outstanding

 

 

Weighted Average Contractual Life

 

Exercisable

 

$ 7,500.00

 

 

 

12

 

 

5.38 Years

 

 

12

 

$ 250.00

 

 

 

90

 

 

8.85 Years

 

 

90

 

Total

 

 

 

102

 

 

8.44 Years

 

 

102

 

 

Warrants

 

For the six months ended September 30, 2016, 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 September 30, 2016:

 

 

 

Number of Warrants

 

 

Weighted-Average

Exercise Price per share

 

 

Weighted-Average Remaining Life (Years)

 

Outstanding at March 31, 2016

 

 

3,263

 

 

$ 446.52

 

 

 

4.24

 

Outstanding at September 30, 2016

 

 

3,263

 

 

$ 446.52

 

 

 

3.74

 

Exercisable at September 30, 2016

 

 

3,263

 

 

$ 446.52

 

 

 

3.74

 

 

9. 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 January 27, 2016, one of the Company’s creditors, JSJ Investments Inc. (“JSJ”), sent a demand for payment of amounts allegedly owed by the Company to JSJ pursuant to a convertible note dated January 19, 2015, in the original principal amount of $100,000, and threatening potential legal action against the Company. Since that time, JSJ has continued to convert the note into shares of common stock and the parties are currently negotiating a settlement of remaining amounts due under the note.

 

 
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On September 6, 2016, TCA commenced an action against the Company and the Company’s CEO, Dr. Cellucci, as “validity guarantor,” filed in the Circuit Court of the 17 th  Judicial Circuit in and for Broward County, Florida, for amounts owed to TCA by the Company under their revolving credit agreement with the Company. On April 21, 2017, the Company, Dr. Cellucci and TCA executed a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay $2,500 by April 30, 2017, $2,500 by May 31, 2017 and $405,357 on or before June 16, 2017. The Company fully complied with its obligations under the settlement agreement, paying TCA all amounts owed thereunder within the times required, and the case has now been dismissed.

 

Other

 

On August 8, 2016, the Company entered into a Master Subcontract Agreement (the “MSA”) and $8,400,000 purchase order with YKTG for decommissioning tower services for major telecom carriers.

 

On August 11, 2016, the Company received a $438,000 purchase order from JWH Telecommunications Inc. (“JWH”) relating to radio-swap tower services in Ohio. The purchase order remains open as the Company is capable of fulfilling this order and is awaiting detailed instructions from JWH on scheduling our crews for designated locations during specified dates within the USA. The Company cannot give any assurances that it will receive the detailed instructions regarding the purchase order.

 

On August 11, 2016, the Company received a $2,109,942 purchase order from JWH relating to LTE (Long-Term Evolution) tower services. The purchase order remains open as the Company is capable of fulfilling this order and is awaiting detailed instructions from JWH on scheduling our crews for designated locations during specified dates within the USA. The Company cannot give any assurances that it will receive the detailed instructions regarding the purchase order.

 

10. Subsequent Events 

 

From October 1, 2016 through August 21, 2017 (the date the last conversion notice has been received), the Company has issued 7,426,419,880 shares of common stock in satisfaction of $1,178,657 and $211,267 of principal and accrued interest, respectively, pursuant to conversion notices received by the Company from convertible debt holders.

 

From October 1, 2016 through August 11, 2017, our CEO has advanced to the Company, or made payments directly to vendors of the Company, in the aggregate $48,151. On May 4, 2017, and August 11, 2017, the Company repaid our CEO $38,151 and $11,500, respectively, of amounts previously advanced.

 

On April 21, 2017, the Company, Dr. Cellucci and TCA executed a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay $2,500 by April 30, 2017, $2,500 by May 31, 2017 and $405,357 on or before June 16, 2017. The Company has fully complied with its obligations under the settlement agreement, paying TCA all amounts owed thereunder within the times required, and the case has now been dismissed.

 

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. Beginning on the six-month anniversary of the note the conversion price shall have 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. 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.

 

 
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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. Beginning on the six-month anniversary of the note the conversion price shall have ceiling of $0.0005.The three convertible notes were funded on April 28, 2017 and May 3, 2017, when the Company received proceeds of $85,000 and $26,625, respectively, after disbursements for the lender’s transaction costs, fees and expenses. 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.

 

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.

 

On May 3, 2017, the Company issued a convertible promissory note, with a face value of $124,775 and stated interest of 10% to Carebourn. 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 4, 2017, when the Company received proceeds of $100,000, after disbursements for the lender’s transaction costs, fees and expenses. The note also requires 240 daily payments of $520 per day via ACH.

 

On May 3, 2017, the Company issued three replacement convertible promissory notes in the amounts of $29,700, $25,300 and $22,000, respectively, which replaces three convertible promissory notes issued on November 27, 2015, with a face value of $27,000, January 5, 2016 with a face value of $23,000 and May 2, 2017, with a face value of $20,000, respectively. Each of the replacement convertible 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 note the conversion price shall have a ceiling of $0.0005.

 

On June 6, 2017, the Company entered into a Strategic Alliance Agreement with HelpComm, Inc. (“HelpComm”), a telecom construction services corporation located in Manassas, Virginia, pursuant to which (i) the Company will provide at least $200,000 in business expansion funding to HelpComm within ten (10) business days of execution of the agreement, and 40% of profits from services performed by HelpComm pursuant to receipt of the expansion funding from the Company will be allotted to the Company, (ii) the Company will provide HelpComm up to an additional $100,000 of expansion funding per fiscal quarter, (ii) HelpComm will provide job-related purchase orders to the Company for administration, accounting and fund distribution, (iii) the Company will provide project management and sales services to HelpComm, and (iv) the parties will support each other’s marketing and promotional efforts. The Company remitted the $200,000 to HelpComm on June 26, 2017.

 

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 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 a 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.

 

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 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 a 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. On August 8, 2017, the investor funded the back end note when the Company received proceeds of $135,000, after disbursements for the lender’s transaction costs, fees and expenses.

 

On June 9, 2017, the Company issued a convertible promissory note, with a face value of $165,025 and stated interest of 10% to Carebourn. 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 disbursements for the lender’s transaction costs, fees and expenses. The note also requires 240 daily payments of $680 per day via ACH.

 

 
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On June 23, 2017, the Company issued a convertible promissory note, with a face value of $262,775 and stated interest of 10% to Carebourn. 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 disbursements for the lender’s transaction costs, fees and expenses. The note also requires 180 daily payments of $1,460 per day via ACH.

 

On July 10, 2017, the Company filed an Affidavit of Claim in the amount of $552,444 with The Hanover Insurance Company as surety for YKTG, related to YKTG’s alleged breaches of contract and failure to cure.

 

On July 12, 2017, the Company entered into a Settlement Agreement and Mutual Release with a holder of a note payable. The Company paid $9,000 and mutual releases between the parties, in full settlement of a note payable of $20,000.

 

On July 25, 2017, the Company entered into a Settlement Agreement with a vendor regarding previous services provided by the vendor to the Company. The parties agreed to settle the outstanding liability of $6,545 for $1,348, which the Company remitted to the vendor on July 25, 2017.

 

On August 1, 2017, Dr. Cellucci as collateral security, pledged 111,884 shares of his Series C Preferred Stock to the convertible promissory notes issued to Carebourn on the following dates and amounts; February 8, 2016 $80,000, March 24, 2016, $19,000, June 3, 2016, $42,350, May 3, 2017, $124,775, June 9, 2017, $165,025 and June 23, 2017, $262,775. This pledge replaces the pledge dated March 23, 2016.

 

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 More Capital. 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 disbursements for the lender’s transaction costs, fees and expenses. The note also requires daily ACH payments beginning on September 5, 2017, in the amount equal to the remaining balance on September 5, 2017, divided by the remaining days to the Maturity Date. As of August 11, 2017, the lender has converted $130,351 of the note in exchange for 141,330,143 restricted shares of common stock. As of August 11, 2017, the note balance is $51,349.

 

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.

 

On August 7, 2017, the Company issued a convertible promissory note, with a face value of $223,422 and stated interest of 10% to Carebourn. 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 disbursements for the lender’s transaction costs, fees and expenses. The note also requires 240 daily payments of $931 per day via ACH.

 

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).

 

In August 2017, the Company entered into three Settlement Agreements with vendors that were owed in the aggregate $94,524. Pursuant to the three Settlement Agreements, in August 2017, the Company remitted $48,113 in the aggregate to the three vendors.

 

 
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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 & Plan of Operation 

 

Bravatek Solutions, Inc., a Colorado corporation, was incorporated in the State of Colorado, on April 19, 2007. The Company is a security platform company that provides security, defense, and information security solutions, which assist corporate entities, governments and individuals in protecting their organizations and/or critical infrastructure against error, as well as 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, tools and systems.

 

Currently, 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. The Company also 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.

 

Additionally, the Company has developed and plans to continue selling an enterprise-level secure email software appliance named  Ecrypt One. Ecrypt One  is an email security solution (software) with integrated 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, as well as 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 has filed patent applications for multiple attributes and processes contained in  Ecrypt One .

 

In addition to the foregoing, in an effort to advance the business operations of the Company, over the next twelve (12) months the Company plans to undertake the following actions in the order in which they are listed:

 

1.

Continue distribution on  Ecrypt One  Software packages;

2.

Continue fulfilling Viking services backlog;

3.

Continue distribution of allied products and services;

4.

Continue developing strategic marketing alliance program; and

5.

Continue development and testing of additional  Ecrypt One  features and capabilities;

 

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 years ended March 31, 2016 and 2015, and filed by the Company on Form 10-K with the Securities and Exchange Commission on July 21, 2017.

 

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

 

 
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Results of Operation for Bravatek Solutions, Inc. for the three and six months ended September 30, 2016 compared to the three and six months ended September 30, 2015.

 

Revenue

 

During the three and six months ended September 30, 2016, the Company had revenues of $107,371 and $152,520, respectively, compared to $62,973 and $249,810, respectively, for the three and six months ended September 30, 2015. Related party revenue (YKTG) for the three and six months ended September 30, 2016, was $94,497, compared to related party revenue for the six months ended September 30, 2015 of $186,837. For the three and six months ended September 30, 2016, revenues were $7,875 and $23,625, respectively, recorded in barter transactions in exchange for advertising and promotional expenses.

 

Operating Expenses 

 

For the three and six months ended September 30, 2016, the Company had operating expenses of $201,091 and $360,442, respectively, compared to $422,036 and $908,508 for the three and six months ended September 30, 2015. The decrease in operating expenses experienced by the Company was primarily attributable to decreases in research and development, professional fees, advertising and promotional costs and general and administrative costs, partially offset by an increase in stock compensation expense.

 

Other Income (Expenses)

 

Other expenses for the three and six months ended September 30, 2016, were $925,532 and $1,419,320, respectively, compared to $492,892 and $77,092, respectively, for the three and six months ended September 30, 2015. The increases were primarily due to changes in the fair value of derivatives of $697,343 and $841,474 for the three and six months ended September 30, 2016, compared to $69,560 and a decrease of $569,423 for the three and six months ended September 30, 2015, respectively. These increases were partially offset by decreases in the amortization of debt discounts on convertible notes, as more notes matured and the amortization of the debt discount decreased.

 

Net Loss

 

The Company had a net loss of $1,106,934 and $1,727,331 for the three and six months ended September 30, 2016, compared to $917,303 and $819,577 for the three and six months ended September 30, 2015. The increase in net loss experienced by the Company was primarily attributable to the increases in other expenses and lower sales, offset by the decreases on operating expenses as described above.

 

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.

 

For the six months ended September 30, 2016, we primarily funded our business operations with $159,927 of cash collected from accounts receivable and $48,000 from the proceeds from convertible note financing. During the following twelve months, we collected approximately $63,800 from accounts receivable and received proceeds of $1,467,003 from the issuance of $1,664,947 of convertible promissory notes. These activities funded our business operations since September 30, 2016, which funds were also used to pay off existing debt of approximately $754,000, and to fund $200,000 for our Strategic Alliance Agreement with Helpcomm. 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.

 

As of September 30, 2016, we had cash of $994, as compared to $15,244 at March 31, 2016. The Company’s accounts receivable decreased to $15,537 as of September 30, 2016, from $46,898 as of March 31, 2016. As of September 30, 2016, we had current liabilities of $5,850,922 (including $2,685,517 of non-cash derivative liabilities) compared to current assets of $20,767 which resulted in a working capital deficit of $5,830,155. The current liabilities are comprised of accounts payable, accrued expenses, convertible debt, derivative liabilities, note payable-related party and notes payable.

 

 
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Operating Activities  

 

For the six months ended September 30, 2016, net cash used in operating activities was $51,526 compared to $754,601 for the six months ended September 30, 2015. For the six months ended September 30, 2016, our net cash used in operating activities was primarily attributable to the net loss adjusted by amortization of debt discounts, derivative liability expenses non-cash interest and fees related to convertible promissory notes and depreciation. Net changes of $244,400 in operating assets and liabilities positively impacted the cash used in operating activities. The 2015 results were primarily attributable to net loss and gain on the fair value change of derivative liabilities, adjusted by amortization and depreciation, and net changes of $58,524 in operating assets and liabilities positively impacted the cash used in operating activities.

 

Investing Activities  

 

There was no investing activity for the six months ended September 30, 2016, compared to net cash used in investing activities of $43,279 during the six months ended June 30, 2015. The 2015 period cash used in investing activities was primarily attributable to the Company purchased assets from a related party.

 

Financing Activities  

 

For the six months ended September 30, 2016, the net cash provided by financing activities was $37,276 compared to $612,174 for the six months ended September 30, 2015. The results for the 2016 period was the result of proceeds received of $48,000 from the issuance of $61,239 of convertible promissory notes, receipt of $1,500 of proceeds from a related party loan and the repayment of $12,224 against convertible promissory notes. The 2015 activity was the result of proceeds from convertible promissory notes and proceeds received from a related party of $784,174 and $51,512 respectively, and payments of $157,000 in a related party asset transaction, $51,512 related party loan repayments and $15,000 note repayment.

 

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 Current Report on Form 10-K filed on July 21, 2017. 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.

 

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 Black-Scholes option-pricing model 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.

 

 
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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. Cost of products sold consists of the cost of the purchased goods and labor related to the corresponding sales transaction. When a right of return exists, the Company defers revenues until the right of return expires. The Company recognizes revenue from services at the time the services are completed.

 

Off Balance Sheet Arrangements

 

We have no off-balance sheet arrangements.

 

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 September 30, 2016, 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 January 27, 2016, one of the Company’s creditors, JSJ Investments Inc. (“JSJ”), sent a demand for payment of amounts allegedly owed by the Company to JSJ pursuant to a convertible note dated January 19, 2015, in the original principal amount of $100,000, and threatening potential legal action against the Company. Since that time, JSJ has continued to convert the note into shares of common stock and the parties are currently negotiating a settlement of remaining amounts due under the note.

 

On September 6, 2016, TCA commenced an action against the Company and the Company’s CEO, Dr. Cellucci, as “validity guarantor,” filed in the Circuit Court of the 17 th  Judicial Circuit in and for Broward County, Florida, for amounts owed to TCA by the Company under their revolving credit agreement with the Company. On April 21, 2017, the Company, Dr. Cellucci and TCA executed a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company agreed to pay $2,500 by April 30, 2017, $2,500 by May 31, 2017 and $405,357 on or before June 16, 2017. The Company fully complied with its obligations under the settlement agreement, paying TCA all amounts owed thereunder within the times required, and the case has now been dismissed.

 

ITEM 1A. RISK FACTORS.

 

Not applicable.

 

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

 

On July 5, 2016, the Company issued 149,338 shares of common stock to Union Capital, LLC (“Union”) in partial satisfaction of its obligations under, and the holder's election to convert an $821 portion of, the Company's convertible promissory note, which included $695 in principal and $126 in accrued interest, issued to Union on December 19, 2014.

 

On July 6, 2016, the Company issued 97,630 shares of common stock to LG Capital Funding LLC. (“LG”) in partial satisfaction of its obligations under, and the holder's election to convert a $1,047 portion of, the Company's convertible promissory back end note, which included $975 in principal and a $72 portion of accrued interest issued to LG on January 9, 2015.

 

On July 7, 2016, the Company issued 95,764 shares of common stock to JSJ Investments, Inc. (“JSJ”) in partial satisfaction of its obligations under, and the holder's election to convert a $527 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015.

 

On July 11, 2016, the Company issued 99,443 shares of common stock to Carebourn Capital LP (“Carebourn”) in partial satisfaction of its obligations under, and the holder's election to convert a $609 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On July 11, 2016, the Company issued 193,709 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,065 portion of, the Company's convertible promissory note, which included $900 in principal and $165 in accrued interest, issued to Union on December 19, 2014.

 

On July 12, 2016, the Company issued 194,840 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,072 portion of, the Company's convertible promissory note, which included $905 in principal and $167 in accrued interest, issued to Union on December 19, 2014.

 

On July 12, 2016, the Company issued 158,673 shares of common stock to Adar Bays, LLC (“Adar Bays”) in partial satisfaction of its obligations under, and the holder's election to convert a $785 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014.

 

 
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On July 12, 2016, the Company issued 125,729 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $629 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015.

 

On July 15, 2016, the Company issued 193,925 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,067 portion of, the Company's convertible promissory note, which included $900 in principal and $167 in accrued interest, issued to Union on December 19, 2014.

 

On July 21, 2016, the Company issued 312,955 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,721 portion of, the Company's convertible promissory note, which included $1,450 in principal and $271 in accrued interest, issued to Union on December 19, 2014.

 

On July 22, 2016, the Company issued 155,812 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $771 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On August 2, 2016, the Company issued 186,557 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $451 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015.

 

On August 3, 2016, the Company issued 1,230,727 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $2,978 portion of, the Company's convertible promissory note, which included $2,500 in principal and $478 in accrued interest, issued to Union on December 19, 2014.

 

On August 4, 2016, the Company issued 688,979 shares of common stock to Adar Bays in partial satisfaction of its obligations under, and the holder's election to convert a $1,667 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014.

 

On August 15, 2016, the Company issued 779,763 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $1,501 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On August 18, 2016, the Company issued 831,834 shares of common stock to LG in partial satisfaction of its obligations under, and the holder's election to convert a $1,235 portion of, the Company's convertible note, and $103 of accrued interest issued to LG on January 9, 2015.

 

On August 22, 2016, the Company issued 832,992 shares of common stock to Adar Bays in partial satisfaction of its obligations under, and the holder's election to convert a $1,604 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014.

 

On August 24, 2016, the Company issued 817,972 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $1,718 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On August 31, 2016, the Company issued 954,823 shares of common stock to LG in partial satisfaction of its obligations under, and the holder's election to convert a $1,100 portion of, the Company's convertible note, and $115 of accrued interest issued to LG on January 9, 2015.

 

On August 31, 2016, the Company issued 779,763 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $643 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On September 1, 2016, the Company issued 1,892,291 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,300 portion of, the Company's convertible note, and $261 of accrued interest issued to Union on December 19, 2014.

 

On September 1, 2016, the Company issued 956,885 shares of common stock to Adar Bays in partial satisfaction of its obligations under, and the holder's election to convert a $789 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014.

 

On September 2, 2016, the Company issued 1,907,370 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,310 portion of, the Company's convertible note, and $264 of accrued interest issued to Union on December 19, 2014.

 

 
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On September 2, 2016, the Company issued 817,972 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $1,194 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 6, 2016, the Company issued 2,501,018 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,800 portion of, the Company's convertible note, and $263 of accrued interest issued to Union on December 19, 2014.

 

On September 6, 2016, the Company issued 939,629 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $1,372 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 6, 2016, the Company issued 958,232 shares of common stock to LG in partial satisfaction of its obligations under, and the holder's election to convert a $1,100 portion of, the Company's convertible note, and $120 of accrued interest issued to LG on January 9, 2015.

 

On September 7, 2016, the Company issued 1,398,655 shares of common stock to Adar Bays in partial satisfaction of its obligations under, and the holder's election to convert a $1,154 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014.

 

On September 8, 2016, the Company issued 2,979,117 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $2,000 portion of, the Company's convertible note, and $294 of accrued interest issued to Union on December 19, 2014.

 

On September 9, 2016, the Company issued 939,629 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $958 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 13, 2016, the Company issued 1,581,854 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $783 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On September 13, 2016, the Company issued 1,610,909 shares of common stock to Adar Bays in partial satisfaction of its obligations under, and the holder's election to convert a $797 portion of, the Company's convertible promissory note issued to Adar Bays on December 19, 2014

 

On September 15, 2016, the Company issued 1,727,831 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $795 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 16, 2016, the Company issued 1,727,800 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $691 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 20, 2016, the Company issued 2,929,564 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $700 portion of, the Company's convertible note, and $106 of accrued interest issued to Union on December 19, 2014.

 

On September 21, 2016, the Company issued 4,186,291 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,000 portion of, the Company's convertible note, and $151 of accrued interest issued to Union on December 19, 2014.

 

 
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On September 21, 2016, the Company issued 1,727,820 shares of common stock to Carebourn in partial satisfaction of its obligations under, and the holder's election to convert a $587 portion of, the Company's convertible promissory note issued to Carebourn on October 12, 2015.

 

On September 21, 2016, the Company issued 2,014,982 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $554 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On September 22, 2016, the Company issued 4,360,865 shares of common stock to LG in partial satisfaction of its obligations under, and the holder's election to convert a $1,305 portion of, the Company's convertible note, and $156 of accrued interest issued to LG on January 9, 2015.

 

On September 27, 2016, the Company issued 4,398,805 shares of common stock to LG in partial satisfaction of its obligations under, and the holder's election to convert a $1,050 portion of, the Company's convertible note, and $129 of accrued interest issued to LG on January 9, 2015.

 

On September 27, 2016, the Company issued 5,241,864 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $1,000 portion of, the Company's convertible note, and $8153 of accrued interest issued to Union on December 19, 2014.

 

On September 28, 2016, the Company issued 2,532,984 shares of common stock to YP Holdings in partial satisfaction of its obligations under, and the holder's election to convert a $759 portion of, the Company's convertible promissory notes accrued interest issued to YP Holdings on August 17, 2015.

 

On September 28, 2016, the Company issued 2,845,401 shares of common stock to JSJ in partial satisfaction of its obligations under, and the holder's election to convert a $313 portion of, the Company's replacement convertible promissory note issued to JSJ on January 19, 2015. 

 

On September 29, 2016, the Company issued 5,244,818 shares of common stock to Union in partial satisfaction of its obligations under, and the holder's election to convert a $500 portion of, the Company's convertible note, and $77 of accrued interest issued to Union on December 19, 2014.

 

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.

 

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

 

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)

    

3.7

 

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)

   

3.8

 

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)

 

 

 

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)

 
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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)

   

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

 

Strategic Alliance Agreement with HelpComm dated June 6, 2017 (incorporated by reference to our Form 8-K filed on June 7, 2017)

 

 

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.

    

 
37
 
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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 23, 2017

By:

/s/ Thomas A. Cellucci

Thomas A. Cellucci

CEO

 

 

38

 

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