The financial statements of the Company required by Article 8 of Regulation S-X are attached to this report.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 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, hardware and services, and telecom services. Products include software, hardware and services, and span a diverse variety of industries including, but not limited to, email security, user authentication, telecommunications and cyber breach protection.
On May 31, 2016, the Company filed Articles of Amendment to increase the number of shares of common stock the corporation is authorized to issue to 10,000,000,000.
On June 17, 2016, the Company affected a 1:2,500 reverse stock split on its’ shares common stock. The reverse stock split took effect on June 20, 2016. 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.
NOTE 2 - Significant Accounting Policies
Basis of Presentation
The financial statements and accompanying notes are prepared in accordance with generally accepted accounting principles of the United States of America ("U.S. GAAP").
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes.
Such estimates and assumptions impact both assets and liabilities, including but not limited to: net realizable value of accounts receivable, estimated useful lives and potential impairment of property and equipment, the valuation of intangible assets, estimate of fair value of share based payments and derivative liabilities, estimates of fair value of warrants issued and recorded as debt discount, estimates of 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 events. Accordingly, actual results could differ significantly from estimates.
Fiscal Year
The Company's fiscal year-end is March 31.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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.
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 years ended March 31, 2017, and 2016:
Customer
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|
Sales % Year Ended
March 31, 2017
|
|
|
Sales % Year Ended
March 31, 2016
|
Customer A, related party
|
|
71.4%
|
|
|
-
|
Customer B, related party
|
|
-
|
|
|
32.2%
|
Customer C, related party
|
|
-
|
|
|
15.5%
|
Customer D
|
|
-
|
|
|
23.2%
|
Customer E
|
|
-
|
|
|
28.7%
|
There was no accounts receivable at March 31, 2017.
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 March 31, 2017, and 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 occurrence of 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 $8,970 and $11,989 for the years ended March 31, 2017, and 2016, respectively.
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 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 years ended March 31, 2017, and 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 years ended March 31, 2017, and 2016, amortization expense for capitalized software development was $20,121 and $20,176, respectively.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
Long-Lived Assets
The Company reviews long-lived assets and certain identifiable intangibles held and used for possible impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. In evaluating the fair value and future benefits of its intangible assets, management performs an analysis of the anticipated undiscounted future net cash flow of the individual assets over the remaining amortization period. The Company recognizes an impairment loss if the carrying value of the asset exceeds the expected future cash flows.
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.
Research and Development
Costs and expenses that can be clearly identified as research and development are charged to expense as incurred in accordance with GAAP. All research and development costs have been expensed as incurred, totaling $29,998 and $492,986 for the years ended March 31, 2017, and 2016, respectively.
Advertising and Promotion
The Company expenses advertising costs as incurred. Advertising expenses for the years ended March 31, 2017, and 2016, was $26,074 and $105,778, respectively. Advertising expenses of $23,625 for the year ended March 31, 2017, were the result of barter transactions, whereby, the Company received advertising and promotional services in exchange for sales of software.
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. The Company recorded barter transactions during the year ended March 31, 2017, based on the entity’s own historical practice of receiving cash or other consideration.
Uncertainty as a Going Concern
The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. The Company has an accumulated deficit of $19,100,734, and has a working capital deficit of $5,173,933 as of March 31, 2017, 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.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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:
|
·
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Level 1 - Observable inputs that reflect quoted market prices in active markets for identical assets or liabilities.
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|
·
|
Level 2 - Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the assets or liabilities; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.
|
|
·
|
Level 3 - Unobservable inputs reflecting the Company's assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.
|
The carrying amounts of the Company's financial assets and liabilities, such as cash, prepaid expenses, other current assets, accounts payable and accrued expenses, certain notes payable and notes payable - related party, approximate their fair values because of the short maturity of these instruments.
The following table represents the Company’s financial instruments that are measured at fair value on a recurring basis as of March 31, 2017, and 2016, for each fair value hierarchy level:
March 31, 2017
|
|
Derivative
Liabilities
|
|
|
Total
|
|
Level I
|
|
$
|
-
|
|
|
$
|
-
|
|
Level II
|
|
$
|
-
|
|
|
$
|
-
|
|
Level III
|
|
$
|
1,654,015
|
|
|
$
|
1,654,015
|
|
|
|
|
|
|
|
|
|
|
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.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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.
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 initial carrying value of the note and is amortized to interest expense through the maturity of the debt. If a conversion of the underlying debt occurs prior to maturity a proportionate share of the unamortized amounts is immediately expensed.
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
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-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. The Company recognizes revenue from services at the time the services are completed. The Company’s sale of licensed software has significant standalone functionality with a perpetual right to use the Company’s intellectual property. Accordingly, the Company recognizes licensed software revenue at the time the software is delivered or available to the customer, at which time the company had no further obligations related to the sale of the software. Cost of products sold consists of the cost of the purchased goods and labor related to the corresponding sales transaction.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
Stock-Based Compensation – Employees
The Company accounts for its stock based compensation in which the Company obtains employee services in share-based payment transactions under the recognition and measurement principles of the fair value recognition provisions of section 718-10-30 of the FASB Accounting Standards Codification. Pursuant to paragraph 718-10-30-6 of the FASB Accounting Standards Codification, all transactions in which goods or services are the consideration received for the issuance of equity instruments are accounted for based on the fair value of the consideration received or the fair value of the equity instrument issued, whichever is more reliably measurable.
The measurement date used to determine the fair value of the equity instrument issued is the earlier of the date on which the performance is complete or the date on which it is probable that performance will occur.
The fair value of share options and similar instruments is estimated on the date of grant using a Black-Scholes option-pricing valuation model. The ranges of assumptions for inputs are as follows:
|
·
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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.
|
|
|
|
|
·
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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.
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|
|
|
|
·
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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.
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|
|
|
|
·
|
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.
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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.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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:
|
·
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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.
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·
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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.
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·
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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.
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|
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·
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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.
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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.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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. For the years ended March 31, 2017, and 2016, there were warrants and options to purchase 3,365 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 22,762,118,935 and 8,095,224 shares of common stock, respectively. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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.
With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the year ended March 31, 2017, 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.
NOTE 3 - Related Party Activity
Asset Acquisition
On June 2, 2015, the Company completed an acquisition of certain of the assets and assumed certain liabilities of Viking Telecom Services, LLC (“Viking Telecom”) from Dependable Critical Infrastructure, Inc. (“DCI”), f/k/a DTREDS Consolidated, Inc., a related party due to the Company’s Chief Executive Officer (“CEO”) owned approximately 30% of DCI. To acquire the assets, the Company issued 2,265 shares of common stock, 224 shares of common stock to be issued (valued in the aggregate at $740,000), paid $200,000 cash and forgave $59,204 of a note receivable from DCI. The Company now provides telecom services under a new Viking Telecom brand. Services provided by Viking Telecom include cellular tower mapping and audits, ground audits, civil equipment installation, cellular site decommissioning, 3G/4G installations, project/construction management, battery installation and maintenance, shelter and compound preventative maintenance, site cleanup, and other related services. The Company recorded a loss on the acquisition of $1,044,817 for the year ended March 31, 2016.
Revenues
For the years ended March 31, 2017, and 2016, related party revenues were $145,362 and $186,837, respectively, representing revenues of 71.6% and 48.2%, respectively, for each period. For the year ended March 31, 2017, the related party was temporarily a related party based on the percentage of shares owned by management of the related party, 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 year ended March 31, 2016, the Company recorded sales to three related party companies in the amounts of $126,148, $59,404 and $1,750, respectively. The sales of $1,750 were to a limited liability company controlled by our CEO.
Notes payable
The Company issued multiple unsecured notes payable from June 27, 2015, to March 31, 2017, to the Company’s CEO, for amounts advanced to the Company, or expenses paid by the CEO, on behalf of the Company., For the years ended March 31, 2017 and 2016, advances were $31,850 and $156,512, and the Company made repayments of $51,512 for the year ended March 31, 2016. The notes carry interest at 10% per annum and are due on demand. As of March 31, 2017, and 2016, the principal balance of the notes was $136,850 and $105,000, respectively, (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 March 31, 2017, and 2016, of $23,153 and $11,550, respectively. For the years ended March 31, 2017, and 2016, the Company recorded interest expense related party of $11,603 and $11,550, respectively.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
Management Fees
For the years ended March 31, 2017, and 2016, the Company recorded expenses to its officers in the following amounts:
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Year Ended
March 31,
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|
|
2017
|
|
|
2016
|
|
CEO
|
|
$
|
140,000
|
|
|
$
|
523,220
|
|
CFO
|
|
|
72,000
|
|
|
|
33,500
|
|
Total
|
|
$
|
212,000
|
|
|
$
|
556,720
|
|
Included in the year ended March 31, 2016, expenses are $217,220 for the fair value of the amendment to the Series C Preferred Stock, whereby each share of preferred stock has voting rights equal to 10,000 shares of common stock. As of March 31, 2017, included in accounts payable - related party is $248,692 and $37,750, for amounts owed the Company’s CEO and CFO, respectively, for unpaid fees and expenses.
NOTE 4 - 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 other changes in original terms of the agreement.
On June 15, 2015, the 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 forgive $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 Series A Convertible Preferred Stock to the Company for cancellation, in consideration for the Company issuing 856 shares of common stock to Global. Due to the related party nature at the time of the Settlement Agreement, the $238 balance in Series A Convertible Preferred Stock and the debt forgiveness was recorded as additional paid in capital. As of March 31, 2017 and 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 March 31, 2017, and 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 other changes in original terms of the agreements. The notes payable were again extended on August 6, 2015, through January 1, 2016, with no other changes in original terms of the agreement. As of March 31, 2017, and 2016, the note balance was $199,960 and the notes are currently in default. Accrued interest as of March 31, 2017, and 2016, was $82,784 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 March 31, 2017, and 2016 the note balance was $230,828 and the notes are currently in default Accrued interest as of March 31, 2017, and 2016, was $74,765 and $51,682, respectively
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 March 31, 2017, and 2016, the loan with Joshua Claybaugh had a remaining principal balance of $20,000. There was no accrued interest as of March 31, 2017, and 2016.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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, initially valued at $75,000 as an advisory fee payment (the “Advisory Fee”) and is obligated to issue additional shares until TCA has recouped $75,000 from the sale of the shares. The Company recorded the Advisory Fee and loan cost and fees of $114,400 as a discount to the TCA note and amortized the costs over the maturity of the note. Accordingly, for the years ended March 31, 2017, and 2016, the Company expensed $80,352 and $34,048, respectively, included in amortization of debt discount in the Statement of Operations presented herein. As of March 31, 2017, and 2016, the TCA loan had a principal balance of $319,662. Interest expense for the years ended March 31, 2017, and 2016, was $73,051 and $15,750, respectively. Accrued interest as of March 31, 2017, and 2016, was $58,169 and $0, respectively.
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.
NOTE 5 - Convertible Notes Payable
The Company accounted for the conversion features embedded in the following Notes under ASC Topic 815-15 "Embedded Derivative." The derivative component of the obligation isinitially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts are amortized to interest expense over the respective terms of the related notes. See Note 6.
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, and based on a conversion ratio of 68% of the lowest closing bid prices for 20 days prior to conversion. For the year ended March 31, 2017, 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. During the year ended March 31, 2016, the investor converted a total of $142,495 of the face value and $13,440 of accrued interest into 120,984 shares of common stock. For the year ended March 31, 2016, amortization of the debt discount of $89,462 was charged to interest expense. As of March 31, 2017, and 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 prices for 20 days prior to conversion. The note was funded on June 18, 2015, when the Company received proceeds of $143,333, net of $12,663 of OID and costs. For the year ended March 31, 2017, the investor converted a total of $24,300 of the face value and $4,146 of accrued interest into 373,844,490 shares of common stock. The embedded conversion feature included in the note resulted in an initial debt discount of $150,000, an initial derivative expense of $84,000 and an initial derivative liability of $234,000. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $32,055 and $117,945, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $131,700 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 68% of the lowest closing bid prices for 20 days prior to conversion. For the year ended March 31, 2017, the investor had converted a total of $12,543 of the face value into 102,692,184 shares of common stock. During the year ended March 31, 2016, the investor converted a total of $97,500 of the face value into 247,818 shares of common stock. For the year ended March 31, 2016, amortization of the debt discount of $89,462 was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $45,957 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 prices for 20 days prior to conversion. The note was funded on June 18, 2015, when the Company received proceeds of $143,333, net of $12,663 of OID and costs The embedded conversion feature included in the note resulted in an initial debt discount of $150,000, an initial derivative expense of $84,000 and an initial derivative liability of $234,000. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $32,055 and $117,945, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $156,000.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
On January 11, 2015, the Company entered in to a securities purchase agreement providing for the issuance of 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. The embedded conversion feature included in the second note resulted in an initial debt discount of $50,000, an initial derivative expense of $45,000 and an initial derivative liability of $95,000. For the year ended March 31, 2016, amortization of the debt discount of $86,471 was charged to interest expense. During the year ended March 31, 2017, the investor converted a total of $32,094 of the face value of the second note and $4,154 of accrued interest into 308,572,080 shares of common stock. During the year ended March 31, 2016, the investor converted a total of $52,000 of the face value of the first note and $3,357 of accrued interest into 82,604 shares of common stock. As of March 31, 2017, and 2016, the outstanding principal amount of the second note was $19,906 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. During the year ended March 31, 2017, the investor converted a total of $24,403 of the face value into 282,194,706 shares of common stock. During the year ended March 31, 2016, the investor converted a total of $41,177 of the face value into 202,075 shares of common stock. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $35,732 and $54,214, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $34,420 and $58,823, respectively.
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 (the “Second Funding”) 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. During the year ended March 31, 2016, the investor converted a total of $67,885 of the face value and $6,667 of accrued interest into 115,055 shares of common stock. The embedded conversion feature included in the Second Funding resulted in an initial debt discount of $25,000, an initial derivative expense of $26,000 and an initial derivative liability of $51,000. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $29,635 and $45,221, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $15,480.
On February 3, 2015, the Company issued a collateralized secured convertible promissory for a 10% convertible promissory note with an aggregate principal amount of $252,500, of which the company is to assume an OID of $22,500 and legal fees and other expenses totaling $5,000, which together with any unpaid accrued interest was due on November 3, 2015. The note is to be issued in tranches with an initial tranche of $87,500, of which the company received $75,000 on February 6, 2015, with the remaining $5,000 being used for legal and other expenses and the Company assuming $7,500 of the OID. This convertible note together with any unpaid accrued interest is convertible into shares of Company common stock at a conversion price equal to the 60% of the average of the lowest three closing bid prices during the 20 prior trading days. The remaining three tranches, which have not yet been funded, of $55,000 under the note will consist of $50,000 in principal and $5,000 of the OID, and may be offset by three $50,000 promissory notes issued in favor of the Company, accruing interest at 8% per annum and maturing on November 3, 2015. In conjunction with the convertible note issued by the Company and the three promissory notes issued to the Company for the three additional tranches of funding to the Company, the Company issued four warrants for a total number of shares equal to $123,750 ($41,250 for the first warrant corresponding to funding on February 6, 2015, and $27,500 for the other three warrants corresponding to the future tranches of funding to the Company) divided by the conversion market price in the convertible note. The warrants have an exercise price of $0.10, subject to adjustment, and expire on January 3, 2020. Each of the warrants is only exercisable after the corresponding tranche of funding to the Company has been paid.
Therefore, the first warrant is currently exercisable, but the other three warrants are not. On or about September 17, 2015, the company added $27,832 in principal and $3,333 of fees as part of a true up add back (the “True Up”). During the year ended March 31, 2016, the investor converted a total of $71,853 of the face value and $5,383 of accrued interest into 2,808 shares of common stock. The embedded conversion feature included in the True Up resulted in an initial debt discount of $27,832, an initial derivative expense of $11,168 and an initial derivative liability of $39,000. For the year ended March 31, 2016, amortization of the debt discount of $94,734 was charged to interest expense. On November 12, 2015, the investor sold the note and the Company issued a replacement note of $47,808, as described below.
On April 10, 2015, the Company issued a convertible note, with a face value of $105,000, of which the company was to assume an OID of $5,000, and stated interest of 10% to a third-party investor. The outstanding balance of this note was convertible into a variable number of the Company's common stock, based on a conversion ratio of 65% of the lowest closing bid prices for 15 days prior to conversion. The embedded conversion feature included in the note resulted in an initial debt discount of $100,000, an initial derivative expense of $65,000 and an initial derivative liability of $165,000. For the years ended March 31, 2016, amortization of the debt discount of $100,000 was charged to interest expense. On October 12, 2015, the investor sold the note and the Company issued a replacement note of $110,351, as described below.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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, was 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. During the year ended March 31, 2017, the Company and the noteholder agreed to add $30,000 to the principal balance of the note in exchange for the noteholder’s waiver of Liquidated Damages as defined in the note. During the year ended March 31, 2017, the investor converted $29,741 of accrued interest into 435,574,242 shares of common stock. The embedded conversion feature included in the note resulted in an initial debt discount and derivative liability of $139,286. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $52,661 and $86,624, respectively was charged to interest expense. The embedded conversion feature included in the warrant resulted in an initial debt discount and derivative liability of $181,818. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $36,364 and $113,076, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $355,000 and $325,000, respectively.
On October 12, 2015, the Company issued a replacement convertible promissory note in the face amount of $110,351, to Carebourn Capital, LLC (“Carebourn”) that replaced 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. During the year ended March 31, 2017, Carebourn converted a total of $24,308 of the face value into 189,121 shares of common stock. During the year ended March 31, 2016, Carebourn converted a total of $61,043 of the face value into 189,121 shares of common stock. Additionally, on January 19, 2016, Carebourn assigned $10,000 of the note to Carebourn Partners, LLC (“Carebourn Partners”). As of March 31, 2017, and 2016, the outstanding principal amount of the note was $-0- and $34,308, respectively.
Also on October 12, 2015, Carebourn and the Company assigned $15,000 of the replacement issued to Carebourn, to 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. During the year ended March 31, 2016, the investor converted a total of $12,950 of the face value into 28,726 shares of common stock. As of March 31, 2017, and 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 embedded conversion feature included in the note resulted in an initial debt discount of $100,000, an initial derivative expense of $149,496 and an initial derivative liability of $249,496. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $42,700 and $57,300, respectively, was charged to interest expense. 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 year ended March 31, 2017, the Company paid $6,003 of the note. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $78,997.
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. The embedded conversion feature included in the note resulted in an initial debt discount of $100,000, an initial derivative expense of $102,000 and an initial derivative liability of $202,000. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $57,377 and $42,623, respectively, was charged to interest expense. As of March 31, 2017, and 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. During the year ended March 31, 2017, the investor converted a total of $5,445 of the face value into 90,748,151 shares of common stock. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $42,363 and $47,808, respectively.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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. The embedded conversion feature included in the note resulted in an initial debt discount of $25,000, an initial derivative expense of $851 and an initial derivative liability of $25,851. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $4,808 and $20,192, respectively, was charged to interest expense. As of March 31, 2017, and 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. The embedded conversion feature included in the note resulted in an initial debt discount and derivative liability of $19,149. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $10,101 and $9,048, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $20,000.
On January 19, 2016, Carebourn assigned $10,000 of the October 12, 2015, replacement note to Carebourn Partners, LLC (“Carebourn Partners”). As of March 31, 2017, and 2016, the outstanding principal amount of the replacement note was $10,000.
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, of which the Company assumed 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. The embedded conversion feature included in the note resulted in an initial debt discount of $80,000, an initial derivative expense of $70,000 and an initial derivative liability of $150,000. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $67,760 and $12,240, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $82,500.
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, of which the Company assumed 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. The embedded conversion feature included in the note resulted in an initial debt discount of $80,000, an initial derivative expense of $67,009 and an initial derivative liability of $147,009. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $64,818 and $15,182, respectively, was charged to interest expense. As of March 31, 2017, and 2016, the outstanding principal amount of the note was $80,000.
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, 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 a maturity date of December 24, 2016. The embedded conversion feature included in the note resulted in an initial debt discount of $19,000, an initial derivative expense of $15,915 and an initial derivative liability of $34,915. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $18,516 and $484, respectively, was charged to interest expense. As of March 31, 2017, and 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. The embedded conversion feature included in the note resulted in an initial debt discount of $15,000, an initial derivative expense of $18,077 and an initial derivative liability of $33,077. For the years ended March 31, 2017, and 2016, amortization of the debt discount of $14,618 and $382, respectively, was charged to interest expense. As of March 31, 2017, and 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 net proceeds of $13,000 on April 28, 2016, after disbursements for the lender’s transaction costs, fees, and expenses. The embedded conversion feature included in the note resulted in an initial debt discount of $18,889 an initial derivative expense of $9,991 and an initial derivative liability of $28,880. For the year ended March 31, 2017, amortization of the debt discount of $18,889 was charged to interest expense. As of March 31, 2017, the outstanding principal amount of the note was $18,889.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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. During the year ended March 31, 2017, the investor converted a total of $19,476 of the face value and $3,332 of accrued interest and fees into 356,215,238 shares of common stock. As of March 31, 2017, the outstanding principal amount of the replacement note was $6,647.
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 conversion feature included in the note resulted in an initial debt discount of $42,350, an initial derivative liability expense of $24,323 and an initial derivative liability of $66,673. The note also requires 177 daily payments of $239 per day via ACH. For the year ended March 31, 2017, amortization of the debt discount of $35,292 was charged to interest expense. For the year ended March 31, 2017, the Company paid $6,221 of the note. The balance of the note as of March 31, 2017, was $36,129.
A summary of the convertible notes payable balance as of March 31, 2017, and 2016 is as follows:
|
|
March 31,
2017
|
|
|
March 31,
2016
|
|
Principal Balance
|
|
$
|
1,311,163
|
|
|
$
|
1,385,974
|
|
Unamortized discount
|
|
|
(39,436
|
)
|
|
|
(531,578
|
)
|
Ending Balance, net
|
|
$
|
1,271,727
|
|
|
$
|
854,396
|
|
The following is a roll-forward of the Company’s convertible notes and related discounts for the years ended March 31, 2017, and 2016:
|
|
Principal
Balance
|
|
|
Debt
Discounts
|
|
|
Total
|
|
Balance April 1, 2015
|
|
$
|
603,723
|
|
|
$
|
(422,099
|
)
|
|
$
|
181,624
|
|
New issuances
|
|
|
1,329,123
|
|
|
|
(1,262,085
|
)
|
|
|
67,038
|
|
Conversions
|
|
|
(546,872
|
)
|
|
|
-
|
|
|
|
(546,872
|
)
|
Amortization
|
|
|
-
|
|
|
|
1,152,606
|
|
|
|
1,152,606
|
|
Balance March 31, 2016
|
|
|
1,385,974
|
|
|
|
(531,578
|
)
|
|
|
854,396
|
|
New issuances
|
|
|
62,362
|
|
|
|
(61,239
|
)
|
|
|
1,123
|
|
Liquidated damages added to note
|
|
|
30,000
|
|
|
|
-
|
|
|
|
30,000
|
|
Conversions
|
|
|
(154,949
|
)
|
|
|
-
|
|
|
|
(154,949
|
)
|
Cash payments
|
|
|
(12,224
|
)
|
|
|
-
|
|
|
|
(12,224
|
)
|
Amortization
|
|
|
-
|
|
|
|
553,381
|
|
|
|
553,381
|
|
Balance at March 31, 2017
|
|
$
|
1,311,163
|
|
|
$
|
(39,436
|
)
|
|
$
|
1,271,727
|
|
NOTE 6 - 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. See Note 5.
The Company valued the derivative liabilities at March 31, 2017, and 2016, at $1,645,015 and $1,955,721, respectively. The Company used the Monte Carlo simulation valuation model with the following assumptions for the year ended March 31, 2017; a risk-free interest rate of .76% and volatility of 225%. The assumptions used in the Monte Carlo simulation valuation for the year ended March 31, 2016 were; a risk free interest rate of 1.5% and a volatility of 300%.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
A summary of the activity related to derivative liabilities for the year ended on March 31, 2017, and 2016, is as follows:
|
|
2017
|
|
|
2016
|
|
Beginning Balance
|
|
$
|
1,955,721
|
|
|
$
|
824,763
|
|
Initial Derivative Liability
|
|
|
95,553
|
|
|
|
2,049,004
|
|
Reclassification for note conversions
|
|
|
(289,603
|
)
|
|
|
(1,073,408
|
)
|
Fair Value Change
|
|
|
(107,656
|
)
|
|
|
155,362
|
|
Ending Balance
|
|
$
|
1,654,015
|
|
|
$
|
1,955,721
|
|
For the year ended March 31, 2017, the Company recorded a net credit to derivative expense of $67,603 consisting of the initial derivative expense of $40,053 and the above fair value change of $107,656. For the year ended March 31, 2016, derivative expense of $942,280 was comprised of the initial derivative expense of $786,918 and the above fair value change of $155,362.
NOTE 7 - Stockholders' Deficit
Common stock
On May 31, 2016, the registrant filed Articles of Amendment to increase the number of shares of common stock the corporation is authorized to issue to 10,000,000,000.
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. 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.
As of March 31, 2017, and 2016, there were 2,053,703,772 and 998,236 shares of common stock issued and outstanding, respectively, and 1,221 shares of common stock to be issued.
During the year ended March 31, 2017, the Company issued 2,042,701,037 shares of common stock for conversion of $154,949 of principal and $47,537 of accrued interest, for a total of $202,486 and 4,499 shares were issued for rounding up in the reverse split
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 year ended March 31, 2017, as no further services were expected to be performed after March 31, 2017.
During the year ended March 31, 2016, the Company issued 989,180 shares of common stock for conversion of $546,872 of principal and $28,847of accrued interest, for a total of $575,719.
In connection with the TCA Credit Agreement (See Note 4), the Company issued 1,412 shares of common stock, initially valued at $75,000 as an advisory fee payment (the “Advisory Fee”) and was obligated to issue additional shares until TCA has recouped $75,000 from the sale of the shares. The Company recorded the Advisory Fee and loan cost and fees of $114,400 as a discount to the TCA note and amortized the costs over the maturity of the note. Accordingly, for the years ended March 31, 2017, and 2016, the Company expensed $80,352 and $34,048, respectively, included in amortization of debt discount in the Statement of Operations presented herein.
During the year ended year ended March 31, 2016, the Company issued 59 shares of common stock for the shares of common stock to be issued that were to be issued as of March 31, 2015. The shares were valued at $55,480.
During the year ended year ended March 31, 2016, the Company issued 14 shares of common stock in exchange for legal services valued at $9,000.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
On June 15, 2015, the Company issued 856 shares of common stock to Global pursuant to a settlement agreement. Due to the related party nature at the time of the Settlement Agreement, the $238 balance in Series A Convertible Preferred Stock and the debt forgiveness (see Note 3) was recorded as additional paid in capital.
On July 9, 2015, the Company issued 1,208 shares of common stock and reserved 224 shares of common stock to be issued, and issued 264,503 shares of Series B Preferred Stock to the owners of DCI, pursuant to the Asset Purchase Agreement (see below).
On July 20, 2015, the Company pursuant to a Settlement Agreement (the "Micro-Tech Settlement Agreement") with Micro-Tech Industries, Ltd., a lender and preferred shareholder of the Company ("Micro-Tech"). Micro-Tech owned 839,500 shares of the Company's shares of Series A Convertible Preferred Stock. Pursuant to the Micro-Tech Settlement Agreement, Micro-Tech agreed to immediately return the 839,500 shares of Series A Preferred Stock to the Company for cancellation and the Company agreed to issue 319 shares of common stock to Micro-Tech. The Company debited the par value of the Series A preferred stock of $84, with the offset to common stock to be issued. As of the date of this report Micro-Tech has not returned the Series A Preferred Stock and the Company has not certificated and delivered the 319 shares of common stock. As of March 31, 2017, and 2016, the Company has included 319 shares as common stock to be issued.
Also on July 20, 2015, the Company entered into a Settlement Agreement (the "Whonon Settlement Agreement") with Whonon Trading S. A., lender and preferred shareholder of the Company ("Whonon"). Whonon owned 1,783,000 shares of the Company's shares of Series A Convertible Preferred Stock. Pursuant to the Whonon Settlement Agreement, Whonon agreed to immediately return the 1,783,000 shares of Series A Preferred Stock to the Company for cancellation and the Company agreed to issue 678 shares of common stock to Whonon. The Company debited the par value of the Series A preferred stock of $178, with the offset to common stock to be issued. As of the date of this report Micro-Tech has not returned the Series A Preferred Stock and the Company has not certificated and delivered the 319 shares of common stock. As of March 31, 2017, and 2016, the Company has included 997 shares as common stock to be issued.
During the year ended March 31, 2016, the Company's CEO and another shareholder returned a total of 1,279 shares of common stock to the Company for cancellation in exchange for the issuance of 319,768 shares of Series C Preferred Stock.
During the year ended March 31, 2016, 347 shares were issued for rounding up in the reverse split.
Preferred Stock
10,000,000 shares of preferred stock, $0.0001 par value have been authorized.
Series A Convertible Preferred Stock
.
5,000,000 shares of preferred stock are designated as Series A Convertible Preferred Stock (“Series A Preferred Stock”). Each share of Series A Convertible Preferred Stock is convertible at the election of the holder into 0.004 shares of common stock, subject to a 4.9% beneficial ownership limitation, but has no voting rights until converted into common stock. In the event of any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary, the holders of the outstanding shares of Series A Convertible Preferred Stock shall be entitled to be paid out of the assets of the Corporation available for distribution to its shareholders, whether from capital, surplus funds or earnings, and before any payment is made in respect of the shares of Common Stock, an amount equal to $2.50 per share of Series A Convertible Preferred Stock, subject to adjustment for stock dividends, combinations, splits, recapitalizations and the like with respect to the Series A Convertible Preferred Stock, plus any and all accrued but unpaid dividends. The holders of Series A Convertible Preferred Stock are entitled to dividends when declared by the board of directors. As of March 31, 2017, and 2016, there are no shares of Series A Preferred Stock outstanding.
On June 15, 2015, pursuant to the Settlement Agreement with Global (see Note 3), Global returned 2,377,500 shares of Series A Convertible Preferred Stock to the Company and the Company issued 856 shares of common stock to Global. Due to the related party nature at the time of the Settlement Agreement, the $238 balance in Series A Convertible Preferred Stock and the debt forgiveness was recorded as additional paid in capital.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
On July 20, 2015, pursuant to the Micro-Tech Settlement Agreement, Micro-Tech agreed to immediately return 839,500 shares of Series A Preferred Stock they owned to the Company for cancellation and the Company agreed to issue 319 shares of common stock to Micro-Tech.
Also on July 20, 2015, pursuant to the Whonon Settlement Agreement, Whonon agreed to immediately return the 1,783,000 shares of Series A Preferred Stock they owned to the Company for cancellation and the Company agreed to issue 678 shares of common stock to Whonon.
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 March 31, 2017, and 2016, there are 264,503 shares of Series B Preferred Stock outstanding.
On June 2, 2015, the Company entered into an Asset Purchase Agreement with Dependable Critical Infrastructure, Inc., f/k/a DTREDS Consolidated Inc., a Delaware corporation ("DCI"), a related party due to the Company’s Chief Executive Officer (“CEO”) owned approximately 30% of DCI, and Viking Telecom Services, LLC, a Minnesota limited liability company ("Viking"). Pursuant to the Agreement, the parties agreed that the Company would purchase assets of DCI relating to Viking which DCI had acquired from Viking (general intangibles, including contract rights, office furniture totaling $7,392, IBM server, 2011 Chevrolet Silverado 2500 Diesel truck for $35,608, and accounts receivable after January 1, 2015 totaling $0), in consideration of the Company (1) assuming limited liabilities associated with Viking (loan payment for Chevrolet truck with a principal balance of $36,202, loan payment to a third party of $5,000 per month for 11 months totaling $55,000), (2) issuing the owners of DCI a total of 2,489 shares of Company common stock valued at $740,000, and (3) paying DCI $200,000, which was paid on June 19, 2015, and an initial deposit of $59,204. Since the Company’s CEO owned approximately 30% of DCI, the Company recorded a loss on the acquisition of $1,044,817 for the year ended March 31, 2016. On July 9, 2015, the Company issued 1,208 shares of common stock, reserved 224 shares of common stock and issued 264,503 shares of Series B Preferred Stock to the owners of DCI, in lieu of 1,048 shares of common stock. The shares of Series B Preferred Stock are convertible into 1,048 shares of common stock (ignoring the 4.9% conversion limitation in the Series B designation of rights). The 224 shares reserved for issuance are included in common stock to be issued as of March 31, 2017, and 2016.
Series C Preferred Stock
1,000,000 shares of preferred stock are designated as Series C Preferred Stock. Each share of Series C Preferred stock is convertible at the election of the holder into 100 shares of common stock. On October 23, 2015, (the “Amendment Date”), the Company amended the terms and conditions of the Series C Preferred stock, whereby each share of Series C Preferred stock entitles the holder thereof to 10,000 votes (the “Voting Rights”) 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. During the year ended March 31, 2016, the Company's CEO and another shareholder returned a total of 1,279 shares of common stock to the Company for cancellation in exchange for the issuance of 319,768 shares of Series C Preferred Stock. As of March 31, 2017, there are 319,768 shares of Series C preferred stock outstanding, of which 223,768 shares are owned by our Chairman and CEO, Dr. Thomas Cellucci. The Company determined that on the Amendment Date, the amended voting rights of the preferred stock resulted in a change of control of the Company. The Company determined that the excess of the fair value of the Series C Preferred Stock over the value of the common stock, for the 223,768 shares issued to the Company’s CEO was $208,951. The Company determined that the fair value of the other 96,000 shares of Series C Preferred Stock did not exceed the fair value of the associated returned common stock. The fair value was determined as set forth in the Statement of Financial Accounting Standard ASC 820-10-35-37, Fair Value in Financial Instruments and incorporated the Voting Rights which had increased to approximately 64%
Stock Options
On July 23, 2015 (the “Grant Date”), the Company granted non-qualified stock options to two of its directors as compensation for their services. The directors are entitled to purchase a total of thirty (30) shares each of restricted common stock for a price equal to $250.00 per share (Exercise Price), exercisable over a ten-year period thereafter. The option shall be vested during the 12-month period. As to the total number of Shares with respect to which the Option is granted, the Option shall be exercisable as follows: (i) 25% of the Option in the aggregate may be exercised upon the mutual execution of this Agreement (ii) 50% of the Option in the aggregate may be exercised on or after the four month anniversary of the Grant Date; (iii) 75% of the Option in the aggregate may be exercised on or after the eight month anniversary of the Grant Date; and (iv) 100% of the Option in the aggregate may be exercised on or after the twelve month anniversary of the Grant Date (the twelve month period commencing on the Grant Date and ending on the twelve month anniversary of the Grant Date being referred to as the "Vesting Period"). As of March 31, 2017, none of the options have been exercised. The total fair value of these options at the date of grant was estimated to be $15,750 and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk-free interest rate of 2.28%, a dividend yield of 0% and expected volatility of 230.55%. For the years ended March 31, 2017, and 2016, the Company has included $3,937 and $11,813, respectively, as stock based compensation expense based on the period when options vested.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
On August 26, 2015 (the “Grant Date”), the Company granted non-qualified stock options to a member of its board of directors as compensation for his services. The director is entitled to purchase a total of thirty (30) shares of restricted common stock for a price equal to $250.00 per share (Exercise Price), exercisable over a ten-year period thereafter. The option shall be vested during the 12-month period. As to the total number of Shares with respect to which the Option is granted, the Option shall be exercisable as follows: (i) 25% of the Option in the aggregate may be exercised upon the mutual execution of this Agreement (ii) 50% of the Option in the aggregate may be exercised on or after the four month anniversary of the Grant Date; (iii) 75% of the Option in the aggregate may be exercised on or after the eight month anniversary of the Grant Date; and (iv) 100% of the Option in the aggregate may be exercised on or after the twelve month anniversary of the Grant Date (the twelve month period commencing on the Grant Date and ending on the twelve month anniversary of the Grant Date being referred to as the "Vesting Period"). As of March 31, 2017, none of the options have been exercised. The total fair value of these options at the date of grant was estimated to be $5,775 and was determined using the Black-Scholes option pricing model with an expected life of 10 years, a risk-free interest rate of 2.18%, a dividend yield of 0% and expected volatility of 230.25%. For the year ending March 31, 2017, and 2016, the Company has included $1,444 and $4,331, respectively, as stock based compensation expense.
The following table summarizes activities related to stock options of the Company for the years ended March 31, 2017, and 2016:
|
|
Number of
Options
|
|
|
Weighted-Average Exercise Price per share
|
|
|
Weighted-Average Remaining Life (Years)
|
|
Outstanding April 1, 2015
|
|
|
12
|
|
|
$
|
7,500
|
|
|
|
6.88
|
|
Granted
|
|
|
90
|
|
|
|
250
|
|
|
|
10.0
|
|
Outstanding at March 31, 2016
|
|
|
102
|
|
|
$
|
1,102.94
|
|
|
|
8.94
|
|
Exercisable at March 31, 2016
|
|
|
80
|
|
|
|
1,337.50
|
|
|
|
|
|
Outstanding and exercisable at March 31, 2017
|
|
|
102
|
|
|
$
|
1,102.94
|
|
|
|
7.94
|
|
The following table summarizes stock option information as of March 31, 2017:
Exercise Prices
|
|
|
Outstanding
|
|
|
Weighted Average Contractual Life
|
|
Exercisable
|
|
$
|
7,500.00
|
|
|
|
12
|
|
|
4.88 Years
|
|
|
12
|
|
$
|
250.00
|
|
|
|
90
|
|
|
8.35 Years
|
|
|
90
|
|
Total
|
|
|
|
102
|
|
|
7.94 Years
|
|
|
102
|
|
Warrants
On March 27, 2015, the Company granted a non-qualified cashless stock warrant to its officer as compensation for his services. The officer is entitled to purchase a total of one thousand two hundred (1,200) shares of restricted common stock for a price equal to $750.00 per share (Exercise Price), exercisable over a five-year period thereafter. The total fair value of these warrants at the date of grant was estimated to be $813,827 and was determined using the Black-Scholes option pricing model with an expected life of 5 years, a risk-free interest rate of 1.42%, a dividend yield of 0% and expected volatility of 207.12%. As of March 31, 2017, the warrants to purchase 1,200 shares of common stock are outstanding and exercisable.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
On August 17, 2015, the Company issued 2,063 warrants in conjunctions with a convertible note issued by the Company with an estimated value of $412,698. The warrants have an exercise price of $270.00, subject to adjustment, and expire on August 17, 2020. As of March 31, 2017, the warrants to purchase 2,063 shares of common stock are outstanding and exercisable.
For the year ended March 31, 2017, 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 year ended March 31, 2017, and 2016:
|
|
Number of Warrants
|
|
|
Weighted-Average Exercise Price per share
|
|
|
Weighted-Average Remaining Life (Years)
|
|
Outstanding April 1, 2015
|
|
|
1,266
|
|
|
$
|
870
|
|
|
|
5.00
|
|
Granted
|
|
|
2,063
|
|
|
|
270
|
|
|
|
5.00
|
|
Cancelled/expired
|
|
|
(66
|
)
|
|
|
(3,049
|
)
|
|
|
-
|
|
Outstanding at March 31, 2016
|
|
|
3,263
|
|
|
$
|
446.52
|
|
|
|
4.24
|
|
Outstanding and exercisable at March 31, 2017
|
|
|
3,263
|
|
|
$
|
446.52
|
|
|
|
3.24
|
|
NOTE 8 - Income Taxes
The Company has a deferred tax asset as shown in the following:
|
|
2017
|
|
|
2016
|
|
Deferred tax asset:
|
|
|
|
|
|
|
Tax loss carryforward
|
|
$
|
4,068,832
|
|
|
$
|
3,833,589
|
|
Stock and warrant compensation
|
|
|
733,673
|
|
|
|
704,167
|
|
Depreciation and amortization
|
|
|
954,834
|
|
|
|
710,023
|
|
Derivative expense
|
|
|
492,024
|
|
|
|
518,139
|
|
Other
|
|
|
461,558
|
|
|
|
461,558
|
|
Valuation allowance
|
|
|
(6,710,921
|
)
|
|
|
(6,227,476
|
)
|
Net deferred tax asset
|
|
$
|
-
|
|
|
$
|
-
|
|
A valuation allowance has been recognized to offset the deferred tax assets because realization of such assets is uncertain.
The income tax provision differs from the amount of income tax determined by applying the U.S. federal and state income statutory tax rates to pretax income (loss) from continuing operations as follows:
|
|
2017
|
|
|
2016
|
|
Tax benefit at statutory rates
|
|
$
|
483,445
|
|
|
$
|
3,064,131
|
|
Valuation allowance
|
|
$
|
(483,445
|
)
|
|
$
|
(3,064,131
|
)
|
Net provision for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Reconciliation of the differences between income tax benefit computed at the federal and state statutory tax rates and the provision for income tax benefit for the years ended March 31, 2017 and 2016 is as follows:
|
|
2017
|
|
|
2016
|
|
Income tax expense (benefit) at federal statutory rate
|
|
(34.00%)
|
|
|
(34.00%)
|
|
State taxes, net of federal benefit
|
|
(4.63%)
|
|
|
(4.63%)
|
|
Change in valuation allowance
|
|
|
38.63%
|
|
|
|
38.63%
|
|
The Company has net operating loss carry-forwards of approximately $11,967,000 at March 31, 2017, that expire beginning in 2026. However, utilization of these losses may be limited pursuant to Section 382 of the Internal Revenue Code due to a recapitalization and subsequent stock issuances.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
NOTE 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 or about April 13, 2015, the Company was served with a lawsuit filed by an individual residing in the State of California against the Company and numerous other defendants, with a cause of action against the Company for its alleged participation in sending "spam" emails to the individual. The Company did not participate in sending any emails to the individual, retained California litigation counsel, and filed a demurrer in California. On, or about, June 3, 2015, the Company entered into a settlement agreement, and the case against the Company was subsequently dismissed with prejudice. Pursuant to the settlement agreement the Company paid $7,500.
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. On or about September 5, 2017, JSJ assigned its interest in the note to Carebourn Partners, LLC, and the Company and JSJ mutually released each other from all claims.
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.
On or about December 7, 2016, Bears Global Construction Holdings LLC (“Bears”) commenced an action against the Company in the County Court at Law No. 1 for Travis County, Texas, the Company denied liability and filed a counterclaim and motion to dismiss, and the parties entered into a settlement agreement on or about February 23, 2017, whereby they each released the other party from all claims. The case was subsequently dismissed.
NOTE 10 - Subsequent Events
From April 1, 2017, through September 27, 2017, the Company has issued 5,477,480,814 shares of common stock in satisfaction of $1,107,987 and $190,701 of principal and accrued interest, respectively, pursuant to conversion notices received by the Company from convertible debt holders.
From April 1, 2017 through September 27, 2017, our CEO has advanced to the Company, or made payments directly to vendors of the Company, in the aggregate $22,801. On May 4, 2017, and August 11, 2017, the Company repaid our CEO $38,151 and $11,500, respectively, of amounts previously advanced.
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.
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.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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 a third-party investor. The note is convertible at any time after ninety days following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The note was funded on May 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 notes to a third-party investor. The replacement notes were in the amounts of $22,000, $29,700 and $25,300 and replaced notes issued in the amounts of $20,000, $27,000 and $23,000, respectively. The three replacement notes have a stated interest of 8% and each note is convertible at any time into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion. Beginning on the six-month anniversary of the notes the conversion price shall have ceiling of $0.0005. As of June 30, 2017, the principal balance of the three replacement notes in the aggregate is $77,000.
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 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, convertible into a variable number of the Company's common stock, based on a conversion ratio of 55% of the lowest traded price for 20 days prior to conversion. Beginning on the six-month anniversary of the note the conversion price shall have ceiling of $0.0005. The note was funded on June 15, 2017, when the Company received proceeds of $135,000, after disbursements for the lender’s transaction costs, fees and expenses.
On June 9, 2017, the Company issued a convertible promissory note, with a face value of $165,025 and stated interest of 10% to a third-party investor. The note is convertible at any time after ninety days following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The note was funded on May 12, 2017, when the Company received proceeds of $135,000, after disbursements for the lender’s transaction costs, fees and expenses. The note also requires 240 daily payments of $680 per day via ACH.
On June 23, 2017, the Company issued a convertible promissory note, with a face value of $262,775 and stated interest of 10% to a third-party investor. The note is convertible at any time after ninety days following the funding of the note into a variable number of the Company's common stock, based on a conversion ratio of 60% of the average of the three lowest closing bid prices for 20 days prior to conversion. The note was funded on June 23, 2017, when the Company received proceeds of $220,000, after disbursements for the lender’s transaction costs, fees and expenses. The note also requires 180 daily payments of $1,460 per day via ACH.
BRAVATEK SOLUTIONS, INC.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2017
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 the 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 September 27, 2017, the lender has converted $130,351 of the note in exchange for 141,330,143 restricted shares of common stock. As of September 27, 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.
On August 25, 2017, the Company entered into a Strategic Alliance Agreement, dated August 24, 2017, with AmbiCom Holdings Inc. (“AMBICOM”), a Nevada corporation engaged in acquiring and investing in technology, designating the Company as AMBICOM’s non-exclusive sales lead finder and project-based business partnership channel for governmental and non-governmental departments, agencies and units, for the purpose of promoting AMBICOM’S technologies, and pursuant to which AMBICOM will cross-promote the Company’s products and services, the Company will investigate and propose new joint investment opportunities for AMBICOM and the Company, and the Company will be paid sales commissions for clients introduced to AMBICOM by the Company.
On September 5, 2017, the Company entered into a Strategic Alliance Agreement with DarkPulse Technology Holdings, Inc. (“DarkPulse”), a New York corporation engaged in manufacturing hardware and software based on its BOTDA (Brillouin Optical Time Domain Analysis) technology, designating the Company as DarkPulse’s project-based business partnership channel for governmental and non-governmental departments, agencies and units, for the purpose of promoting DarkPulse’s products, and pursuant to which DarkPulse will cross-promote the Company’s products and services, and the Company will be paid sales commissions for clients introduced to DarkPulse by the Company