BVTK Bravatek Solutions Inc (CE)

NOTE 1 - Nature of Operations 

Bravatek Solutions, Inc., a Colorado corporation ("the Company"), was incorporated on April 19, 2007 as Ecrypt Technologies, Inc. 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 June 17, 2016, the Company affected a 1:2,500 reverse stock split on its shares of 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"). On February 3, 2018, the Company changed our fiscal year end from March 31, to December 31. This transition report on Form 10-KT covers the nine-month period from April 1, 2017 through December 31, 2017 (the “Transition Period”) and reflects the Company’s financial results thereof. The balance sheets as of December 31, 2017 and March 31, 2017 are audited. The statement of operations for the nine months ended December 31, 2016 are unaudited and presented solely for the purpose of providing meaningful comparisons with the nine-month period ended December 31, 2017. The statement of operations, stockholder’s equity and cash flow for the fiscal year ended March 31, 2017, reflect financial results for the twelve-month period from April 1, 2016 to March 31, 2017.

Use of Estimates 

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

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

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

Cash and Cash Equivalents

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

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 nine months ended December 31, 2017, and 2016, and for the year ended March 31, 2017:

Accounts Receivable/Allowance for Doubtful Accounts

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

Property and Equipment

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

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

Depreciation expense was $7,027 and $6,643 for the nine months ended December 31, 2017, and 2016, respectively, and $8,970 for the year ended March 31, 2017.

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. Capitalized software is amortized over the software's estimated economic life of 3 years. For the nine months ended December 31, 2017, and 2016, the Company had no development costs required to be capitalized under ASC 985-20,  Costs of Software to be Sold, Leased or Marketed,  and under ASC 350-40,  Internal-Use Software.

For the nine months ended December 31, 2017, and 2016, amortization expense for capitalized software development was $15,159, and $20,121 for the year ended 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.

Intangible Assets

The Company accounts for amounts paid to acquire exclusivity rights as other assets. Other assets are amortized over the term of exclusivity. In June 2017, the Company purchased for $200,000 exclusivity rights from HelpComm, Inc. (“HelpComm”) (see Note 9) for a one-year term. Also, in June 2017, the Company purchased for $200,000 exclusivity rights from Mile High Construction (“MHC”), and in November and December 2017, the Company paid in the aggregate $107,520 to MHC. For the nine months ended December 31, 2017, the Company recorded amortization expense of $175,244.

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 $5,448 and $27,748 for the nine months ended December 31, 2017, and 2016, respectively, and $29,998 for the year ended March 31, 2017.

Advertising and Promotion

The Company expenses advertising costs as incurred. Advertising expenses for the nine months ended December 31, 2017, and 2016, was $9,150 and $26,074, respectively, and $26,074 for the year ended March 31, 2017.

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 $30,083,349 and has a working capital deficit of $7,415,278 as of December 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. 

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: 

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 December 31, 2017, and March 31, 2017, for each fair value hierarchy level:

Embedded Conversion Features

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

Derivative Financial Instruments

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

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

Debt Issue Costs and Debt Discount

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

Original Issue Discount (“OID”)

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

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 has 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.

Stock-Based Compensation – Employees

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

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

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

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

Stock-Based Compensation – Non-Employees

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

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

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

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

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

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

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. As of December 31, 2017, there were warrants and options to purchase 3,365 shares of common stock and the Company’s outstanding convertible debt is convertible into approximately 2,596,341,236 shares of common stock. These amounts are not included in the computation of dilutive loss per share because their impact is antidilutive.

Recent Accounting Pronouncements

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

In January 2017, the FASB issued ASU 2017-01, “ Business Combinations (Topic 805) Clarifying the Definition of a Business ” (“ASU 2017-01”). The Amendments in this Update clarify the definition of a business with the objective of adding guidance to assist entities with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The definition of a business affects many areas of accounting, including acquisitions, disposals, goodwill, and consolidation. The guidance is effective for annual periods beginning after December 15, 2018, including interim periods within those periods. Early adoption of this standard is permitted. The Company will adopt ASU 2017-01 on January 1, 2018, and the impact on the financial statements of the Company will depend on the facts and circumstances of any specific future transactions.

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

With the exception of the new standard discussed above, there have been no other recent accounting pronouncements or changes in accounting pronouncements during the nine months ended December 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, 2017, as filed on September 27, 2017, that are of significance or potential significance to us.

NOTE 3 - Related Party Transactions

Notes payable

The Company issued multiple unsecured notes payable from June 27, 2015, to December 31, 2017, to the Company’s CEO, for amounts advanced to the Company, or paid by the CEO, on behalf of the Company. For the nine months ended December 31, 2016, the CEO advanced to the Company or made payments on behalf of the Company of $26,850. For the nine months ended December 31, 2017, the CEO advanced to the Company or made payments on behalf of the Company of $17,801, and the Company repaid the CEO $154,651. The notes carried interest at 10% per annum and were due on demand. As of December 31, 2017, and March 31, 2017, the principal balance of the notes was $-0- and $136,850, respectively, (included in notes payable related party in the balance sheets presented herein), and included in accrued interest related party is the accrued and unpaid interest as of December 31, 2017, and March 31, 2017, of $-0- and $23,153, respectively. For the nine months ended December 31, 2017, and 2016, the Company recorded interest expense related party of $7,965 and $8,312, respectively, and $11,603 for the year ended March 31, 2017.

As of December 31, 2017, included in accounts payable - related party is $318,179 for amounts owed the Company’s CEO. As of March 31, 2017, included in accounts payable - related party is $248,693 and $37,750, for amounts owed the Company’s CEO and CFO, respectively.

Sales and Accounts Receivables

On October 25, 2017, the Company entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with Johnny Bolton (the “Seller”), the owner of HelpComm, a telecom construction services corporation located in Manassas, Virginia, to purchase HelpComm from the Sellers in exchange for $25,000 of cash and 100,000 shares of Series D Convertible Preferred Stock (the “Acquisition”). Each share of Series D Convertible Preferred Stock is convertible into a number of shares of Company common stock equal to $24.00 divided by the volume-weighted average price of the common stock as reported on OTCMarkets.com on the trading day immediately preceding conversion. On January 12, 2018, the Company and the Seller, entered into an Amended and Restated Stock Purchase Agreement (the “Amended Agreement”), amending the Stock Purchase Agreement to (i) add Johnathan Bolton (“Jonathan”) as a seller (the seller and Jonathan are referred to as the “Sellers”) of HelpComm, (ii) add an option to purchase pursuant to which the Corporation shall have the right to purchase 8760, LLC, a Virginia limited liability company (“8760, LLC”), for $100.00 at any time in the Corporation’s discretion, (iii) update certain exhibits and schedules to the Stock Purchase Agreement, and (iv) make the effective date of the Acquisition January 1, 2018. For the nine months ended December 31, 2017, the Company billed HelpComm $14,897 which is included in Sales, related party and Accounts receivable, related parties on the financial statements.

On September 5, 2017, the Company entered into a Strategic Alliance Agreement with DarkPulse Technology Holdings, Inc. (“DarkPulse”), a New York corporation engaged in manufacturing hardware and software based on its BOTDA (Brillouin Optical Time Domain Analysis) technology, designating the Company as DarkPulse’s project-based partnership channel for government and non-governmental departments, agencies and units, for the purpose of promoting DarkPulse’s products, and pursuant to which DarkPulse will cross-promote the Company’s products and services, and the Company will be paid sales commissions for clients introduces to DarkPulse by the Company. Effective December 21, 2017, the Company entered into a Joint Venture Agreement (the “Agreement”) with DarkPulse, pursuant to which (1) the parties will form a joint venture limited liability company in Delaware to develop, market and sell products and services based on Dark Pulse’s patented BOTDA dark-pulse technology (the “Technology”) to be owned 40% by the Company and 60% by Dark Pulse; (2) the Company shall fund $10,000 in initial capital to the joint venture; and (3) and the joint venture shall have an irrevocable royalty-free non-exclusive license to use the Technology in the North America, Asia and European government, military and CI/KR (Critical Infrastructure / Key Resources) market segments. For the nine months ended December 31, 2017, the Company billed Dark Pulse $10,000 which is included in Sales, related party and Accounts receivable, related parties on the financial statements.

Effective December 21, 2017, the Company entered into a Joint Venture Agreement (the “Agreement”) with The Go Eco Group, a corporation organized under the laws of the State of Nevada (“LIBE”), pursuant to which (1) the parties will form a joint venture limited liability company in Delaware to develop, market and sell products, services and technology based on a web-enabled Light Guard System (the “System”), (2) the joint venture will be owned 35% by the Company and 65% by LIBE; (3) the Company shall fund $25,000 in initial capital to the joint venture; and (4) the joint venture shall have an irrevocable royalty-free non-exclusive license to use all of LIBE’s direct and/or licensed intellectual property necessary for the joint venture to develop and sell the System. Based on the lack of any developments in the joint venture and LIBE’s non-performance, the Company has recognized a loss of investment in the joint venture of $25,000 for the nine months ended December 31, 2017, which is included in Other expenses in the accompanying statement of operations. For the nine months ended December 31, 2017, the Company billed LIBE $30,000 which is included in Sales, related party on the financial statements. As of December 31, 2017, the Company recorded an allowance for doubtful accounts of $30,000 related to this account receivable. For the nine months ended December 31, 2017, the Company billed LIBE $30,000 which is included in Sales, related party on the financial statements. As of December 31, 2017, management recorded an allowance for doubtful accounts of $30,000. The Compny has engaged a law firm to pursue the collection of the $30,000.

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 change in original terms of the agreement.

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

The Company issued five notes from December 18, 2012 to May 30, 2013 totaling $199,960 in unsecured notes payable to a third party. The notes bear an interest rate of 10%, compounded annually and matured from December 18, 2014 through May 30, 2015. On February 16, 2015, the Company secured a notes payable extension through April 1, 2015, with no change in original terms of the agreements. The notes payable were again extended on August 6, 2015, through January 1, 2016, with no change in original terms of the agreement. As of December 31, 2017, and March 31, 2017, the note balance was $199,960 and the notes are currently in default. Accrued interest as of December 31, 2017, and March 31, 2017, was $97,781 and $82,784, respectively.

The Company issued six notes from July 12, 2013 to June 16, 2014, totaling $230,828 in unsecured notes payable to a third party. The notes bear an interest rate of 10%, compounded annually and matured from July 12, 2014 through June 16, 2015. On February 16, 2015, the Company secured a notes payable extension through April 1, 2015, with no other changes in original terms of the agreements. The notes payable were again extended on August 6, 2015, through January 1, 2016, with no other changes in original terms of the agreements. As of December 31, 2017, and March 31, 2017, the note balance was $230,828 and the notes are currently in default. Accrued interest as of December 31, 2017, and March 31, 2017, was $92,077 and $74,765, respectively.

On June 2, 2015, as part of the Asset Purchase Agreement with Dependable Critical Infrastructure, Inc., f/k/a DTREDS Consolidated Inc., a Delaware corporation ("DCI"), the Company assumed limited liabilities associated with Viking Telecom Services, LLC, a Minnesota limited liability company ("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. On July 12, 2017, the Company entered into a Settlement Agreement and Mutual Release with Claybaugh. The Company paid $9,000 and executed a mutual release between the parties, in full settlement of the note payable of $20,000.

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 was secured against all existing and after-acquired tangible and intangible assets of the Company. On November 25, 2015, the Company received $310,600, net of loan costs and fees of $39,400. In connection with the Credit Agreement, the Company issued 1,412 shares of common stock upon execution valued by TCA at $75,000 as an advisory fee payment. The Company recorded the advisory fee and loan cost and fees of $114,400 as a discount to the TCA note and has amortized the costs over the maturity of the note. On September 6, 2016, TCA commenced an action against the Company and the Company’s CEO, Dr. Cellucci, as “validity guarantor,” filed in the Circuit Court of the 17 ^th  Judicial Circuit in and for Broward County, Florida, for amounts owed to TCA by the Company under their revolving credit agreement with the Company. On April 21, 2017, the Company, Dr. Cellucci and TCA executed a settlement agreement (the “Settlement Agreement”). Pursuant to the Settlement Agreement, the Company paid $2,500 on April 27, 2017, $2,500 on May 4, 2017 and $405,357 on June 15, 2017. The Company fully complied with its obligations under the settlement agreement, paying TCA all amounts owed thereunder within the times required. As of December 31, 2017, the note has been paid in full, and the case has now been dismissed. As of March 31, 2017, the TCA loan had a principal balance of $319,662 and accrued interest was $58,169. Interest expense for the nine months ended December 31, 2017, and 2016, was $27,526 and $29,085, respectively, and $73,051 for the year ended March 31, 2017.

NOTE 5 - Convertible Notes Payable

The Company accounted for the following Notes under ASC Topic 815-15 "Embedded Derivative." The derivative component of the obligation is initially valued and classified as a derivative liability with an offset to discounts on convertible debt. Discounts have been amortized to interest expense over the respective terms of the related notes. See Note 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 was 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. During the nine months ended December 31, 2017, the investor added $360 of fees to the principal balance of the note. For the year ended March 31, 2017, the investor had converted a total of $12,380 of the face value and $2,332 of accrued interest into 6,593,919 shares of common stock. For the nine months ended December 31, 2017, the investor converted a total of $1,485 of the face value and $546 of accrued interest into 36,926,585 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $1,125, 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. During the nine months ended December 31, 2017, the Company and the investor agreed to add $42,144 to the principal balance of the note for penalties under the note. The embedded conversion feature included in the penalty added to the note, resulted in an initial debt discount of $42,144, an initial derivative expense of $17,136 and an initial derivative liability of $59,280. For the nine months ended December 31, 2017, amortization of the debt discount of $42,144 was charged to interest expense. For the year ended March 31, 2017, the investor had converted a total of $24,300 of the face value and $4,146 of accrued interest into 373,844,490 shares of common stock. For the nine months ended December 31, 2017, the investor converted a total of $173,844 of the face value and $68,347 of accrued interest into 867,842,062 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $131,700, 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. For the nine months ended December 31, 2017, the investor converted a total of $45,957 of the face value and $17,469 of accrued interest into 1,153,206,726 shares of common stock. As of December 31, 2017, and March 31, 2017, and the outstanding principal amount of the note was $-0- and $45,957, 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 due December 19, 2015. 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 nine months ended December 31, 2017, the investor converted a total of $20,629 of the face value into 218,572,117 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $135,371 and $156,000, respectively.

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, was 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, matured on January 9, 2016. During the year ended March 31, 2017, the investor had 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. For the nine months ended December 31, 2017, the investor converted a total of $19,906 of the face value and $6,448 of accrued interest into 23,138,244 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the second note was $-0- and $19,906, 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. On September 1, 2017, the investor sold $14,712 of the principal to a third party (see below). During the year ended March 31, 2017, the investor had converted a total of $24,403 of the face value and $0 of accrued interest into 282,194,706 shares of common stock. During the nine months ended December 31, 2017, the investor converted a total of $19,708 of the face value into 358,332,489 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $34,420, 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 OID, which together with any unpaid accrued interest is due two years after any funding of the note. The note is to be funded at the note holder's discretion, and the initial tranche was funded on January 21, 2015, when the Company received cash in the amount of $50,000 and received an additional $25,000 on April 28, 2015. The note was 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. For the nine months ended December 31, 2017, the investor converted a total of $15,480 of the face value and $3,332 of accrued interest into 313,530,500 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $15,480, respectively.

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. During the nine months ended December 31, 2017, the investor converted $284,093 of the face value and $29,707 of accrued interest into 1,190,000,000 shares of common stock. On June 13, 2017, the investor sold $70,907 of the principal to a third party (see below). As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $355,000, respectively.

On October 12, 2015, the Company issued a replacement convertible promissory note in the face amount of $110,351, to 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. On October 12, 2015, Carebourn and the Company assigned $15,000 of the replacement note to More Capital, LLC. (“More Capital Assigned Note”). On January 19, 2016, Carebourn assigned $10,000 of the replacement note to Carebourn Partners, LLC (“Carebourn Partners Assigned Note”). During the year ended March 31, 2017, the investor had converted a total of $24,308 of the face value into 189,121 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the replacement note issued to Carebourn was $-0-.

The outstanding balance of the More Capital Assigned 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 nine months ended December 31, 2017, More Capital converted $2,050 of the face value into 34,132,000 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the More Capital Assigned Note was $-0- and $2,050, respectively.

The outstanding balance of the Carebourn Partners Assigned 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 nine months ended December 31, 2017, Carebourn Partners converted $10,000 of the face value into 61,111,111 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the Carebourn Partners Assigned Note was $-0- and $10,000, respectively.

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 note was convertible into a variable number of the Company's common stock, based on a conversion ratio of 60% of the lowest average of the three lowest closing bid prices for 20 days prior to conversion. The investor sold $25,000 of the note on April 27, 2016, and the Company issued a replacement note to the buyer, as described below. On June 7, 2016, the Company and the third-party investor agreed to extend the maturity of the note from July 26, 2016, to October 26, 2016, and to require daily payments of $250 per day via ACH. During the nine months ended December 31, 2017, the investor converted $78,997 of the face value and $13,950 of accrued interest into 624,136,735 shares of common stock. As of December 31, 2017, and March 31, 2017, the outstanding principal amount of the note was $-0- and $78,997, respectively.