UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D. C. 20549

FORM 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended March 31, 2017

[  ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from __________________ to __________________

Commission File No. 333-176256

MEGANET CORPORATION

(Exact name of registrant as specified in its Charter)

2510 E. Sunset Rd. Unit 5-777

(Address of Principal Executive Offices)

Registrant's telephone number, including area code: (702) 987-0087

Securities registered under Section 12(b) of the Exchange Act:  None

Securities registered under Section 12(g) of the Exchange Act:  None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [ ] No [X]

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.

Yes [X] No [  ]

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

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [X]

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

Large accelerated filer [ ]      Accelerated Filer [ ]       Non-accelerated filer  [ ]      Smaller reporting company[X]

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes [ ] No [X]

The aggregate market value of the common equity held by non-affiliates computed by reference to the average bid and asked price of such common equity as of the last business day of the registrant's most recently completed second fiscal quarter is $0.00 since there was no bid or asked price on that day being September 30, 2016.

As of July 28, 2017, the Company had outstanding 100,000,000 shares of Common Stock, $0.001 par value.

 

TABLE OF CONTENTS

FORWARD-LOOKING STATEMENTS

This annual report on Form 10-K includes forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which we refer to in this annual report as the Exchange Act. Forward-looking statements are not statements of historical fact but rather reflect our current expectations, estimates and predictions about future results and events. These statements may use words such as "anticipate," "believe," "estimate," "expect," "intend," "predict," "project" and similar expressions as they relate to us or our management. Unless the context otherwise requires, references in this annual report to "we," "us," "our," or the "Company" refer to Thermal. When we make forward-looking statements, we are basing them on our management's beliefs and assumptions, using information currently available to us. These forward-looking statements are subject to risks, uncertainties and assumptions, including but not limited to, risks, uncertainties and assumptions discussed in this annual report. Factors that can cause or contribute to these differences include those described under the headings "Risk Factors" and "Management Discussion and Analysis and Plan of Operation." If one or more of these or other risks or uncertainties materialize, or if our underlying assumptions prove to be incorrect, actual results may vary materially from what we projected. All subsequent written and oral forward-looking statements attributable to us or individuals acting on our behalf are expressly qualified in their entirety by this paragraph. You should specifically consider the factors identified in this annual report, which would cause actual results to differ before making an investment decision. We are under no duty to update any of the forward-looking statements after the date of this annual report or to conform these statements to actual results.

PART I

History

Meganet was organized under the laws of the State of Nevada on March 26, 2009. On March 26, 2009, the Company issued 100,000,000 shares of common stock to the founding shareholders, valued at $0.021833 per share or $2,183,379 as consideration for equipment with a historical net book value of $2,205,365, liabilities of $50,000 and other net receivables of $28,104. The valuation was determined based upon the predecessor value of the assets and liabilities which were contributed to the Company in exchange for the shares of common stock. Each shareholder received the same number of shares held in the prior company. Meganet is an inventor, developer and marketer of data security, intelligence/counter-intelligence and military operational devices. Its customers include governments including the military of and the intelligence agencies of the United States and NATO as well as private enterprise.

 

Our Products

Meganet's products are divided into twelve main categories.

1)

Encryption - The Company owns multiple patents worldwide for the world's most powerful encryption algorithm and the only unbreakable encryption in existence, therefore holding the promise to change the data security market forever. The company has developed a myriad of products and solutions with this algorithm and has been hugely successful in marketing these products to commercial, government and military users worldwide and has successfully secured major sales in those markets.

2)	Weapon Systems – The Company is a Weapon& Ammunition  Manufacturer, Importer, Exporter & Dealer.

3)	Armored Vehicles levels B6 & B7 with optional RF jamming – producing the best armored vehicles for military ^ VIP use worldwide with optional bomb jamming.

4)	Bomb Jamming - The world's most powerful and effective counter-IED products. Products include a 2,500 Watt Bomb Jammer on Wheels, Man Pack Jammers, Facility Jammers and many others used by the USA and NATO forces worldwide.

5)

Communication Interception – our line of cell phone interceptors includes on-the-fly real-time interception of GSM A5.1, GSM A5.2 & CDMA. Our line of Satellite interceptors includes Iridium, Inmarsat, Thuraya and Global Star. Our Wireless Interceptors includes Wi-Fi (both WEP and WPA), GPRS, UMTS and more. No other company in the world offers real-time GSM A5.1 interceptors; these are undetectable and can fit inside a small suitcase. The existing customer base includes the USA military and other agencies.

6)

Secure Communications – the world's most extensive solutions including encrypted cell phones, encrypted land lines, encrypted fax, encrypted PDA, encrypted radios, encrypted satellite phones and more – unparalleled by any other company. These are sold to and used by the USA military and select federal agencies.

7)

Intelligence / counter-intelligence products – providing the intelligence and counter-intelligence agencies with a plethora of tools to be able to perform their duties with complete success over a wide variety of fields. SPY & RAT phones and devices are the most sophisticated devices in existence providing unparalleled intelligence assets to select agencies. In addition, bugs, bug detectors, bomb sniffers, miniature cameras, DVRs and many others tools of the trade are offered by Meganet to effectively fulfill the needs of different agencies.

8)	Global Defense integrator offering complete national Security Solutions for border protection from land, sea & air.

9)	Unmanned Aerial Vehicles (UAVs) including airplanes, helicopters & classified. both for observation and weaponized.

10)	Ballistic projectiles & Anti Aircraft Guns and optics.

11)	Over the Horizon radar system enabling to see ships in sea over 400km away from the shore.

12)	Many classified military products

The Company is an assignee of patent rights (U.S. Patent # 6,219,421) to an encryption algorithm which has yet to be broken or compromised and which the Company believes is the most powerful on the market. Standard USA government encryption standard of AES is 256 bits while VME is over 1 million bits. Using this algorithm, the Company has developed a line of products using what Meganet calls Virtual Matrix Encryption or VME. These products have the capacity to protect data in biometric USB storage devices, computer files, email, chat, File Transfer Protocol (FTP), and more. VME also has digital signature applications and an electronic file shredder that allows for the secure shredding of confidential files, folders and disks. The company has put the encryption technology to multiple public challenges to try and break it for a prize of $1 million USD and even though hundreds of thousands of people tried all of them failed to break it.

A bomb jammer prevents the detonation of an improvised explosive device (IED) also known as a roadside bomb. Meganet's bomb jammers include motorcade applications for protecting convoys and soldier backpack applications for protecting foot patrols. Meganet has sold bomb jammers to the U.S. military, the U.S. intelligence agencies and for purposes of NATO applications. Meganet can also sell its bomb jammers outside the U.S. with a proper export license issued under the International Traffic in Arms Regulations ("ITAR").

 

The Company's products include real-time cell phone, WiFi and other communication interceptors. Our client base for interceptors is the U.S. military and certain U.S. intelligence agencies and other countries and agencies of those countries upon obtaining the necessary export licensing under ITAR.

The Company's secure communication applications include encrypted cell phones, encrypted land lines, encrypted fax, encrypted PDA, encrypted radios, encrypted satellite phones and more. These are sold to and used by the U.S. military and select federal agencies and worldwide under ITAR licensing.

In addition to products already described in other categories, Meganet has a plethora of tools enabling the intelligence/counter-intelligence world to better perform its duties. In this realm, the Company provides bugs, bug detectors, bomb sniffers, miniature cameras and SPY and RAT phones. SPY phones include such functions as the carrier being able to activate the phone for purposes of recording and/or transmitting the proceedings of face to face meeting or conferences without any indication that the phone is active or has been activated. Also, other SPY phones allow for an outside party to activate a phone for the same purposes without even the carrier being aware that the phone has been activated.

Patents and Trademarks

Meganet has applied for patent protection on a technology it calls T-Sequence. A patent on this technology has not been granted but is pending. This technology allows for deterministic prime numbers testing in polynomial time and factoring in real time.

Meganet has the following registered trademarks that it uses to identify its products and ideas in the marketplace: Secure Information is Power ™, Virtual Matrix Encryption ™, Meganet Corporation ™, Solutions for a Large Universe ™, VME ™, Ciphertext ™, Cipherlock ™, and Cipherfile ™.

 

VMEware ©

VME Office ©

VME Sign ©

VME Mail ©

VME Shredder ©

VME Cell ©

VME Phone ©

VME Satellite ©

VME Radio ©

VME Fax ©

VME PDA ©

VME Spy ©

VME RAT ©

VME Interceptor ©

VME Jammer ©

VME Terminator ©

VME ManPack ©

VME Drive ©

VME Gateway ©

VME BioDrive ©

VME USB Drive ©

VME Suite ©

VME Control ©

VME Central ©

VME Config ©

VME Editor ©

VME Batch ©

Our Business Structure

Much of the value of our company and its products is based upon our intellectual property that provides, for example, the effectiveness of our encryption products and interceptor products. The intellectual property is normally in the form of software. The hardware such as USB storage devices or phones that we sell are typically comprised of off the shelf technology. However, when the hardware component is loaded with our proprietary software, the data on the storage device or the communications on the phones become encrypted to an extent that the product obtains it value. Though some of our intellectual property is protected by patent rights, much of it is protected by trade secrets. Accordingly, to protect our intellectual property from a rogue employee for example, access to our intellectual property is very limited within the Company.

The manufacturing of the hardware components of our products is conducted by independent third parties. We have no production contracts with these parties but rather order product via purchase orders when we have obtained an order from a client. We have manufacturers that over time we have come to trust, that deliver superior hardware product, whose identities we even consider as trade secrets. However, as stated previously, when the hardware product reaches us, it is superior product but does not go beyond what would be considered off the shelf technology. The software component that Meganet is assigned is then loaded into the product and shipped.

 

With the exception of the creation and production of our 59 software products which are created in house by our CEO, Mr. Saul Backal, many elements of our business operations from hardware manufacturing to sells to shipping are handled by third parties pursuant to purchase orders or invoicing without ongoing contractual arrangements. In this way, the Company has the flexibility to change suppliers as needed and the Company's intellectual property is protected. Because of this, Meganet has only two employees. However, because of these two employees and the reliable third parties at the Company's disposal, the ability of the Company to handle product orders is scalable and almost any size of a product order can be handled. It is possible that as the Company grows, additional employees will become necessary.

Marketing

Meganet actively markets its products. It is difficult, however, to track immediate results from specific marketing activities since our products typically have a long sales cycles. We market direct via a federal government GSA (U.S. General Services Administration) schedule, via a government SEWP (Solutions for Enterprise-Wide Procurement), via our website, via email, via electronic catalogs and domestic and international distributors.

We use database marketing to create personalized communications to customers or potential customers. We accumulate all data in the database and then use analytical tools to target a new product at the best matching customers or potential customers. We also use traditional marketing tools such as newspapers, TV interviews and mailings. We reach out with new products to potential markets through press releases and other trade show and/or media events. We network heavily with existing clients and potential clients that we know can benefit from new products or improved products we are bringing to market.

Competition

Our competition consists principally of other defense industry contractors. Of this group, the five that are among the largest and constitute our main competition are Lockheed Martin, General Dynamics, Northrop Grumman, Harris Corporation and ITT Corporation. Because of the effectiveness of the VME Technology that supports our encryption products and which is protected by U.S. Patent # 6,219,421, and the effectiveness of certain of our real-time interceptor products that to date, no one we know of has been able to duplicate, Meganet feels it does not have competition in relation to these products. However, because of the effectiveness of some of these products and because of their importance in military and intelligence applications, our markets in some products are limited to the U.S. military and certain federal agencies. However, with most of our products our market is worldwide after obtaining the necessary export license under ITAR. If these entities are not purchasing these products at a particular time or if we have supplied them all that they need at any particular time, our opportunity to sell product is limited, even if we do not have competition with respect to these products.

 

Government Regulation

The U.S. military and other federal agencies are almost the exclusive end-users of many of our products. To market to the military and these agencies, it is necessary that we have proper certifications from the U.S. government which we do have at this time. We are also subject to import/export laws which prohibit us from selling our products to anyone other than U.S. federal agencies and military unless we obtain proper export licensing under ITAR. It is necessary for us to continue to comply with these rules and regulations to which we are subject.

Research and Development

Our products have been and are development through the fertile and genius mind of our founder and CEO. When he conceives of a hardware component the Company needs in connection with a new product, he orders the hardware from one of the manufacturers in whom he has come to trust. If the manufacturer does not have the type of hardware needed as a ready product, the engineers of the manufacturer develop the product in order to fill the order to Meganet. Therefore the cost of the engineering work is included in the cost of the product to Meganet and is not borne directly by the customer. The cost of the development of the software by our CEO is merely a component of his salary. It is possible that the Company may outsource development work and incur research and development expense in that manner. However, it has not done so during the last two years. Our CEO spends 30% of his full working time on research and development. Accordingly, that is the amount of time spent by Meganet on research and development.

If we lose our government certification, we would lose the ability to market to the U.S. Military and federal agencies.

The U.S. military and U.S. federal agencies comprise almost our entire sales market. We have the right to market to these agencies because we are certified as a government supplier. If we should ever lose this certification, it is almost certain that our business would fail.

If we fail to convince the market place that we have competitive products, we will not be commercially successful.

Even if we are successful in designing products competitive to those of our competitors, it is an ongoing need for us to educate and convince the market place of that competitiveness. If we are unable to do so, we will not be able to achieve the market penetration necessary to remain commercially successful and our investors may lose their investments.

 

If third party manufacturers do not perform in a commercially reasonable manner, Meganet may not be successful.

The Company relies on third parties to manufacture the hardware components of its products while our software components and products are created in house by our CEO, Mr. Saul Backal. The Company does not have supply contracts with the hardware manufacturers and instead works on an order-by-order basis. By not having supply contracts, the Company runs the risk that its current suppliers of hardware components will opt to discontinue their relationship with the Company thereby interrupting the flow of hardware components and limiting the Company's ability to operate its business. If alternative third party manufacturers could not be located in a timely manner, the Company would go out of business and investors would lose their entire investment.

Our primary competitors are large department of defense contractors who have established names, products and almost unlimited resources to develop new products.

There are approximately five dominant defense contractors in our industry. They include Lockheed Martin, General Dynamics, Northrop Grumman, Harris Corporation and ITT Corporation. They have been able to successfully launch their products, and penetrate the marketplace. While we hope to design and market products that are competitive with those offered by these contractors, there is no assurance that we will be able to do so. Unless we are able to persuade government agencies that we have products superior to those of these dominant defense contractors, we will be unable to generate sufficient sales of our products to continue to be successful. Further, these contractors have numerous contracts within the government and its agencies, who may be unwilling to switch their buying habits to our Company.

Claims by others that our products infringed their patents or other intellectual property rights could adversely affect our financial condition.

Any claim of patent or other proprietary right infringement brought against us would be time consuming to defend and would likely result in costly litigation, diverting the time and attention of our management. Moreover, an adverse determination in a judicial or administrative proceeding could prevent us from developing, manufacturing and/or selling some of our products, which could harm our business, financial condition and operating results. Claims against our patents may cost the Company significant expenses to defend and if our patents are not upheld, the Company may not be able to continue operations and the investors may lose their entire investment.

We may not be able to protect our patent rights, trademarks, and other proprietary rights.

We believe that our patent rights, trademarks, and other proprietary rights are important to our success and our competitive position. While we have patents and licenses with respect to certain of our products, there is no assurance that they are adequate to protect our proprietary rights. Furthermore, manufacturers in third world countries have a reputation for abusing such rights, which abuse is almost impossible to prevent. Accordingly, we plan to devote substantial resources to the maintenance of these rights. However, the actions taken by us may be inadequate to prevent others from infringing upon our rights which could compromise any competitive position we may develop in the marketplace.

 

Military and intelligence operations are government agencies which are subject to budgetary constraints, which may inhibit sales.

Government agencies are generally subject to budgets which limit the amount of money that they can spend on weapons and device procurement. It may be that although a government agency is interested in acquiring our products, it will be unable to purchase our products because of budgetary constraints. Further, the lead time for an agency acquiring new weapons and receiving approval to acquire them may delay sales to such agencies. Any such delay will have an adverse effect upon our revenues.

If we cannot retain or hire qualified personnel, our business could fail.

Our business is a technical and highly specialized area of the military and intelligence supply industry. We are dependent on the genius and skills of our CEO and founder Mr. Saul Backal. The loss of Mr. Backal could disrupt our research and development and product promotion activities. We believe that our future success will depend in large part upon our ability to retain the services of Mr. Backal or attract and retain highly skilled, scientific and managerial personnel to replace him if that ever became necessary. We face intense competition for these kinds of personnel from other companies and organizations. We might not be successful in hiring or retaining the personnel needed for our company to be successful.

Our CEO and founder, Mr. Saul Backal, is an at-will employee and could leave Meganet's employ upon his own volition.

Mr. Backal has an employment contract with Meganet. However, the contract provides that Mr. Backal's employment is at-will and that he can leave Meganet at any time should he decide to do so. Should Mr. Backal leave Meganet's employ at this time or in the near future, it would be very disruptive to the immediate future economic prospects of Meganet and probably the long term economic prospects as well.

Meganet's officers and directors own over 50% of Meganet's shares of common stock and can effectively control Meganet's affairs.

Meganet's officers and directors own approximately 54% of Meganet's shares of common stock. As a result, they are able to control matters requiring approval by Meganet's shareholders, including the election of directors and the approval of mergers, acquisitions or other extraordinary transactions. The officers and directors may have interests that differ from other shareholders and may vote in a way with which disagree and which may be adverse to minority shareholder interests. This concentration of ownership may have the effect of delaying, preventing or deterring a change of control of Meganet, could deprive Meganet's shareholders of an opportunity to receive a premium for their shares of common stock as part of a sale of Meganet and might ultimately affect the market price of Meganet's common stock.

 

If the controlling shareholders sell a large number of shares all at once or in blocks, the value of Meganet's shares would most likely decline.

The three officers and directors own approximately 54,000,000 of the 100,000,000 common shares that are issued and outstanding.  Meganet's common stock is presently traded on the Over-the-Counter Bulletin Board securities exchange and shares sold at a price below the current market price at which the common stock is trading will cause that market price to decline. Moreover, the offer or sale of large numbers of shares at any price may cause the market price to fall.

Meganet's sales are sporadic making it impossible to sustain a steady cash flow from month to month.

The purchasers of our products are predominantly governments and militaries which can create sporadic sales cycles typified by large purchases separated by low or quite periods in between. In the event Meganet does not have a larger sale over a long period of time, the Company will not have the business revenue necessary to sustain business operations without obtaining capital from sources other than from business operations.

Meganet's business operations suffer in a down world economy.

Meganet's clients are predominantly governments and militaries that often have budget cut backs during a down economy due to declines in tax revenue. Management believes Meganet's sales have been less over the past several years than they otherwise would have been because of the down world economy. Unless the world economy improves, it is possible that it will be difficult for the Company to obtain larger product sales in the future.

Item 1B. Unresolved Staff Comments.

None

On January 1, 2010, the Company entered into a 60 month lease for its 10,000 square foot office and shop space located in Las Vegas Nevada. The lease required no security deposit and provides for monthly payments of $10,000. The lease term expired on January 1, 2015 and the Company has been renting on a month-to-month basis.  The lease provides for a 60 month renewal period which the Company anticipates exercising.  However, at the present time the Company occupies the space on a month to month basis.

The Company is not a party to any pending legal proceeding.

 

Not applicable

PART II

Market Information

There is no "established trading market" for our shares of common stock. We are not listed on any OTC Market or any other listing system or exchange. The Company has no common equity that is subject to outstanding options or warrants to purchase, or securities convertible into, common equity. The Company has 100,000,000 common shares issued and outstanding, 46,374,950 of which could be sold at this time pursuant to Rule 144 promulgated under the Securities Act.

Holders

As of July 28, 2017, the number of record holders of the Company's common stock is approximately 684.

Dividends

Holders of shares of common stock are entitled to share pro rata in dividends and distributions with respect to the common stock when, as and if declared by the Board of Directors out of funds legally available therefore. We have not paid any dividends on our common stock and intend to retain earnings, if any, to finance the development and expansion of our business. Future dividend policy is subject to the discretion of the Board of Directors and will depend upon a number of factors, including future earnings, capital requirements and the financial condition of Meganet.

Securities Authorized for Issuance under Equity Compensation Plans

We have no equity compensation plans.

Not required for smaller reporting companies.

Forward-looking Statements

Statements made in this Form 10-K which are not purely historical are forward-looking statements with respect to the goals, plan objectives, intentions, expectations, financial condition, results of operations, future performance and business of Meganet. Such forward-looking statements include those that are preceded by, followed by or that include the words "may", "would", "could", "should", "expects", "projects", "anticipates", "believes", "estimates", "plans", "intends", "targets" or similar expressions.

Forward-looking statements involve inherent risks and uncertainties, and important factors (many of which are beyond our control) that could cause actual results to differ materially from those set forth in the forward-looking statements, including the following, in addition to those contained in this Annual Report: general economic or industry conditions nationally and/or in the communities in which we conduct business; fluctuations in global gold and silver markets; legislation or regulatory requirements, including environmental requirements; conditions of the securities markets; competition; our ability to raise capital; changes in accounting principles, policies or guidelines; financial or political instability; acts of war or terrorism; and other economic, competitive, governmental, regulatory and technical factors affecting our operations, products, services and prices.

Accordingly, results actually achieved may differ materially from expected results in these statements. Forward- looking statements speak only as of the date they are made. Meganet does not undertake, and specifically disclaims, any obligation to update any forward-looking statements to reflect events or circumstances occurring after the date of such statements.

Business Operations

Meganet is focused on the development of data security solutions for enterprise, large organizations and corporations around the globe, including the U.S. Department of Defense, Military Intelligence and the Federal Government. The Company has developed and does develop products that it believes are attractive and important to these markets.

Working with government in a business capacity can be a long and arduous process. Governments and their agencies have constant budget restraints and lengthy product procurement processes. In many if not in most cases, a bidding process is required before an order for goods can be placed with a private supplier. Before products can be sold to the U.S. Government or to any of its agencies, the product and/or its supplier must be certified by the U.S. Government, which certification is not easy to obtain. From the time a product is developed until the time it is actually shipped to an agency in return for payment can be months if not years.

The financial statements that form part of this annual report have been prepared on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. Our independent accountants that audited the financial statements observed that the Company requires capital for its contemplated operational and marketing activities and that the Company's ability to raise additional capital through the future issuances of common stock is unknown and that the obtainment of additional financing, the successful development of the Company's contemplated plan of operations, and its transition to the attainment of profitable operations are necessary for the Company to continue operations. The independent accountants concluded that the ability to successfully resolve these factors raise substantial doubt about the Company's ability to continue as a going concern.

Our management has been with Meganet from its inception and has in the past shepherded all software products from the development stage through the government procurement process to final delivery and payment. Management believes that despite the Company's current illiquid position, the Company is in a position to receive significant income in the upcoming 18 to 24 months from the sale of products in the so-called product pipeline. Being in the pipeline does not mean that product has necessarily been bought, sold or ordered. It does mean that products are somewhere in the bidding and/or procurement process and in management's opinion have a reasonable chance of becoming orders, having a portion of those orders delivered and thereby producing collected revenues for the Company in material amounts within the next 18 to 24 months. Management reasonably expects 50% of the potential product sales in its pipeline to produce revenue.

Product Lines

Meganet is a technology company supplying world markets with products primarily instrumental in military defense, personal protection, data protection, home land security and other intelligence and counter-intelligence uses. Examples of products for these uses are bomb jammers and cell phone interceptors.

This product base lends itself to sporadic sales cycles for the following reasons. In times of war which can come upon a country quickly, a country will have immediate need of products for military defense uses such as bomb jammers. In times of peace, bomb jammers may not be needed for many years. To the contrary, as a country develops and implements a long term homeland security strategy, it may put out bids for certain types of intelligence and counter-intelligence products that it may leave out to bid for one to two years. To participate in such a bidding process, Meganet must maintain protectable state of the art technologies over a lengthy bidding process that it can deliver in quick fashion in the event it is awarded the bid for a particular product.

Customer Mix

Meganet's focus is on government and military markets which has advantages and disadvantages. Advantages include the fact that governments have deep pockets and when they really need a product they can procure it and pay for it. Also, when a company such as Meganet has a technology that a government really needs, the product can sustain a large margin in the sales price. In addition, technology is often scalable. Once developed, products based upon a technology can bring close to a 100% return.

Disadvantages in selling to governments and militaries include the fact that there is fierce competition for these lucrative markets and large suppliers are notorious for using underhanded methods. Also, governments are subject to budgetary issues and budgetary crises and ever changing priorities for fixed budgeted funds. Governments have bidding requirements. This can be good and bad. Bidding does allow for companies such as Meganet to bid against the large suppliers. However, it makes for lengthy and unwieldy sales cycles that make it difficult to predict and sustain cash flow.

Examples Illustrative of Meganet's Sales Cycle

A good way to understand Meganet's sales cycle is to see examples of past sales. Meganet obtained its product base and its business plan from a company called Meganet Corporation, a California corporation ("Meganet California"). In 2002, Meganet California made a sale to the U.S. Department of Labor. After soliciting the U.S. Dept of Labor for over a year, Meganet California received a software order for $4,200,000. Development costs of the software had been expensed as they were incurred and since it was software it had no production cost. Therefore the sale was virtually 100% profit to the company at the time it was realized. However, in the 12 months leading to this sale, total sales were only $100,000.

Another example is Meganet California's sale to the U.S. Department of Transportation (the "DOT") in 2005. After pursuing a sale for only three months which would typically be just the beginning of a solicitation cycle, an internal security breach at the DOT heightened security concerns and it issued Meganet California a $10,000,000 contract immediately. In the 12 months prior to the sale, Meganet California had sales of under $1,000,000 dollars total.

A third example is a sale to the U.S. Department of Veteran Affairs (the "DVA") in 2007. Meganet California had been soliciting the DVA's business for three years trying to sell a biometric USB storage device without success. One day without prior notice, Meganet California was selected as the sole source provider of biometric USB storage devices nationwide to over 5,000 facilities. Like before, sales for the prior 12 months had been under $1,000,000.

Prior Two Years

For the past two years, Meganet has been working hard toward securing some large sales which it believes will materialize in the near future. However, the financial statements included in this annual report show only sales totaling $120 for the fiscal year ending March 31, 2017 and $82,620 for the year ending March 31, 2016.  However, this pattern of sporadic sales is typical for this Company.

Our sporadic sales cycle is not the only reason for the lack of sales in the prior two years. The global economic crisis has made many of our customers put purchases on hold. The U.S. government in particular has had many departments put projects on hold, cancel some existing projects and in many cases simply run out of budget for new products. Also in the private sector, the economic downturn has made the purchase of products like ours not a possibility at this time.

Meganet is a company that goes from one large sale to the next with low or quiet periods in between.

Critical Accounting Policies

Our discussion and analysis of our financial condition and results of operations are based upon our financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosures of contingent assets and liabilities. We continuously evaluate our critical accounting policies and estimates. We base our estimates on historical experience and on various assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ materially from these estimates under different assumptions or conditions.

We believe the following critical accounting policies are important to the portrayal of our financial condition and results of operations and require our management's subjective or complex judgment because of the sensitivity of the methods, assumptions and estimates used in the preparation of our condensed financial statements.

Revenue recognition – The Company's revenue consists primarily of revenue from the sale of jamming and interceptor hardware and data security software.  The Company recognizes revenue when persuasive evidence of an arrangement exists, delivery has occurred, the sales price is fixed or determinable, and collection is probable. Product is considered delivered to the customer once it has been shipped and title and risk of loss have been transferred. For most of the Company's product sales, these criteria are met at the time the product is shipped. The Company recognizes revenue from the sale of hardware products (e.g., jammers and cell phone interceptors) and software included with hardware that is essential to the functionality of the hardware, in accordance with general revenue recognition accounting guidance. The Company recognizes revenue in accordance with industry specific software accounting guidance for the following types of sales transactions: (i) standalone sales of software and (ii) sales of software upgrades.

The Company has no continuing obligations, such as providing software updates, subsequent to the delivery of its products. This is true of software products as well as of hardware products for which software is a component. Accordingly, revenue recognition takes place pursuant to the guidelines in the preceding paragraph without any adjustments that would otherwise be required because of an ongoing obligation to maintain software.

Generally, the Company requires customers to deposit 50% of the gross sales price upon execution of a formal intent to sell with the remaining 50% due upon delivery of the product. The Company records deferred revenue when it receives payments in advance of the delivery of products.

Software development costs – Research and development costs are expensed as incurred. Development costs of computer software to be sold, leased, or otherwise marketed are subject to capitalization beginning when a product's technological feasibility has been established and ending when a product is available for general release to customers. The Company's products are released soon after technological feasibility has been established. Therefore, costs incurred subsequent to achievement of technological feasibility are usually not significant, and software development costs have been expensed as incurred.

 Liquidity

Current assets at March 31, 2017 totaled $164, which was comprised of cash.

During fiscal years 2017 and 2016, our operating activities used net cash of $41,786 and $88,732, respectively. Adjustments items to reconcile net loss to net cash used in operating activities for the year ended March 31, 2017 totaled $98,934 and consisted depreciation of $13,345, imputed interest on officer advances of $78,325 and a $7,264 loss on impairment of assets.

Net cash used in investing activities was $2,505 in 2017 compared to $3,975 in 2016. The Company purchased furniture and computer equipment.

Net cash provided by financing activities was $42,828 in 2017, compared to $94,240 in 2016.  The decrease in cash provided by financing activities is mainly due to the decrease in proceeds of $92,843 from the issuance of related party notes payable, partially offset by a $41,431 decrease in officer advance repayments.

At March 31, 2017 and 2016, the Company had a working capital deficit of $2,171,649 and $1,880,321, respectively.

It is common for companies to resolve illiquid positions by attempting to raise additional working capital through the sale of equity capital or short term borrowing from third parties. However, our management does not believe this will be necessary. Rather management believes there will be sales sufficient to cover the next 18 to 24 months of cash operating expenses; however, there can be no surety that anticipated sales will materialize.  Also, in the event that sales anticipated during the next 18 to 24 months are funded in the later end of the 18 to 24 month period, it will be necessary for the Company to procure additional operating capital during the early months of the next 18 to 24 month period.  In order to provide for this potential situation, our CEO has agreed to contribute additional amounts to capital as needed to cover operating expenses.

Results of Operations

Comparison of the Fiscal Years Ended March 31, 2017 and 2016

During the fiscal years ended March 31, 2017 and 2016, Meganet realized revenue of $120 and $86,260 and cost of sales of $0 and $0, respectively, resulting in gross profit of $120 and $82,620, respectively. Gross profit was offset by operating expenses of $291,448 and $391,682, resulting in a net loss after interest and other expenses of $369,653 and $374,227 for the years ended March 31, 2017 and 2016, respectively. For the years ended March 31, 2017 and 2016, $13,345 and $42,381, respectively, of the operating expense was non-cash depreciation expense. The decrease in operating expenses and is due primarily to a $63,355 decrease in general and administrative expenses during the fiscal year ended March 31, 2017 when compared to the prior year, mainly due to decreased legal and professional associated with getting the Company listed on a public exchange in 2016.

Off-Balance Sheet Arrangements

We had no off-balance sheet arrangements of any kind for the year ended March 31, 2017.

Contractual Obligations

We had no contractual obligations of any kind for the year ended March 31, 2017.

 Item 7A.  Quantitative and Qualitative Disclosures about Market Risk.

Not Required.

 

 

MEGANET CORPORATION

BALANCE SHEETS

ASSETS		March 31,
		2017				2016
Current assets:
Cash		$	164			$	1,627
Total current assets			164				1,627
Property and equipment, net			--				18,104
Total assets		$	164			$	19,731
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current liabilities:
Accounts payable and accrued liabilities		$	1,368,700			$	1,139,767
Officer loan			803,113				760,285
Total current liabilities			2,171,813				1,900,052
Total liabilities			2,171,813				1,900,052
Stockholders' deficit:
Common stock; $0.001 par value, 100,000,000 shares authorized and
100,000,000 and 100,000,000 shares issued and outstanding, respectively			100,000				100,000
Additional paid-in capital			3,003,880				2,925,555
Accumulated deficit			(5,275,529	)			(4,905,876	)
Total stockholders' deficit			(2,171,649	)			(1,880,321	)
Total liabilities and stockholders' deficit		$	164			$	19,731

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

 

 

MEGANET CORPORATION

STATEMENTS OF OPERATIONS

		For the Years Ended March 31,
		2017				2016
Revenues		$	120			$	82,620
Cost of revenues			--				--
Gross profit			120				82,620
Operating expenses
General and administrative			30,289				100,908
Impairment expense			7,264				--
Depreciation			13,345				42,381
Compensation and related payroll taxes			120,550				128,262
Rent			120,000				120,131
Total operating expenses			291,448				391,682
Loss before other expenses			(291,328	)			(309,062	)
Other income (expenses)
Bitcoin mining income			--				7,867
Bitcoin mining expense			--				(608	)
Interest expense			(78,325	)			(72,424	)
Total other (expenses)			(78,325	)			(65,165	)
Loss before income taxes			(369,653	)			(374,227	)
Provision for income taxes			-				-
Net loss		$	(369,653	)		$	(374,227	)
Basic loss per common share		$	(0.00	)		$	(0.00	)
Basic weighted average common
shares outstanding			100,000,000				100,000,000

 

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

 

1.	DESCRIPTION OF BUSINESS AND HISTORY

2.	SUMMARY OF SIGNIFICANT POLICIES

Description	Estimated Life
Equipment	5 years
Computers	5 years
Office furniture	7 years
Leasehold improvements	5 years

3.	GOING CONCERN

4.	PROPERTY AND EQUIPMENT, NET

		March 31, 2017				March 31, 2016
Furniture and equipment		$	-			$	2,557,122
Leasehold improvements			-				99,094
Vehicles			-				5,500
			-				2,661,716
Less: accumulated depreciation			-				(2,643,612	)
		$	-			$	18,104

5.	ACCOUNTS PAYABLE AND ACCRUED LIABILITIES

		March 31, 2017				March 31, 2016
Accounts payable		$	309,272			$	190,314
Accrued payroll			991,329				871,317
Other accrued expenses			68,099				78,136
		$	1,368,700			$	1,139,767

6.	OPERATING LEASE

7.	RELATED PARTY TRANSACTIONS

8.	INCOME TAXES

		March 31, 2017				March 31, 2016
Deferred tax assets:
Net operating loss carry forward		$	815,574			$	755,663
Valuation allowance			(815,574	)			(755,663	)
Net deferred tax asset		$	-			$	-

		March 31, 2017				March 31, 2016
Pre-tax book income (loss)		$	(129,379	)		$	(130,979	)
Unpaid salaries			42,004				44,892
Tax depreciation under (over) book			-				2,847
Non-deductible portion of meals and entertainment			85				337
Imputed interest on officer loan			27,414				25,348
Valuation allowance			(59,876	)			(57,555)
Federal income tax		$	-			$	-

None

Under the supervision and with the participation of our management including our chief executive officer and chief financial officer, we evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) as of the end of the period covered by this report. Based upon that evaluation, our chief executive officer and our chief financial officer concluded that our disclosure controls and procedures as of the end of the period covered by this report were not effective such that the information required to be disclosed by us in reports filed under the Securities Exchange Act of 1934 is (i) recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, (ii) accumulated and communicated to our management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding disclosure, and (iii) is not subject to effective duel control allowing for appropriate segregation of duties.

Our management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act). Our internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes of accounting principles generally accepted in the United States.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore, even those systems determined to be effective can provide only reasonable assurance of achieving their control objectives.

Our management, including our sole executive and accounting officer, evaluated the effectiveness of the Company's internal control over financial reporting as of March 31, 2017.  In making this assessment, our management used the COSO framework, an integrated framework for the evaluation of internal controls issued by the Committee of Sponsoring Organizations of the Treadway Commission.  Based on its evaluation, our management concluded that there are multiple material weaknesses in our internal control over financial reporting.  A material weakness is a deficiency, or combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company's annual or interim financial statements will not be prevented or detected on a timely basis.

The material weaknesses identified are primarily due to insufficient personnel in the finance department which results in an inability to provide effective oversight and review of financial transactions with regard to accumulating and compiling financial data in the preparation of financial statements in a timely manner.  The lack of sufficient personnel also results in a lack of segregation of duties and the accounting technical expertise necessary for an effective system of internal control.

We have begun to take steps to mitigate this material weakness to the fullest extent possible.  As soon as our finances allow, we plan on hiring additional finance staff and, where necessary, utilizing competent outside consultants to provide a layer of review and technical expertise that is currently lacking in our internal controls over financial reporting.

Based on our evaluation under the frameworks described above, our management has concluded that our internal control over financial reporting was not effective as of March 31, 2017.

This annual report does not include an attestation report of the company's registered public accounting firm regarding internal control over financial reporting.  Management's report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management's report in this annual report.

Changes in internal control over financial reporting

Our management, with the participation of the chief executive officer and chief financial officer, has concluded there were no significant changes in our internal controls over financial reporting that occurred during our last fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

Item 9(B). Other Information.

None.

PART III

Management

Executive Officers and Directors

Set forth below is certain information with respect to our executive officers and directors:

Saul Backal is our Chairman and CEO and has held these positions since the inception of the Company on March 26, 2009. Prior thereto from 1997 to 2009, Mr. Backal was the Chairman and CEO of Meganet Corporation, a California corporation, which was also engaged in encryption, jamming, interception, biometric products and government & military products. With both companies, Mr. Backal was over management, organizational structure, finance, sales and marketing. Because of Mr. Backal's intimate knowledge of Meganet, its products, clients, technologies and business operations, it is a natural fit for Mr. Backal to serve as Chairman of our board of directors.

Merav Backal is vice president of the Company working with international sales, marketing, distribution, and production. She is also a director of Meganet. She has held this position since June, 2012. For approximately the past 20 years, Ms. Backal owned with her husband a large publishing house in Europe. This ownership has given Ms. Backal vast business experience in sales, marketing and international trade, all of which is helpful to our company and qualifies her as a member of our board of directors.

Orna Mizrahi is treasurer of the Company working with financial management and planning, accounting and controller duties. She has held this position since the inception of the Company in 2009. Prior thereto she held the same position in Meganet Corporation, the California corporation from 1999 to 2009. She is also a member of our board of directors. Ms. Mizrahi has worked as a CPA in Europe for approximately 20 years. During this time she has served as the controller for the European operations of large international companies including Sony Electronics, DES Electronics, and RAFA Pharmaceuticals. Because of this experience she is valuable to Meganet as treasurer and as a member of the board of directors.

Saul Backal and Orna Mizrahi are siblings.  Merav Backal is their sister-in-law.

Section 16(a) Beneficial Ownership Reporting Compliance

Since we have no stock registered under Section 12(b) or Section 12(g) of the Exchange Act, there are no persons who need to file reports under Section 16(a) of the Exchange Act.

Code of Ethics

The Company adopted a Code of Ethics that is filed as exhibit 14.1 hereto.

Director Compensation

The Company does not compensate its directors for serving on the board of directors.

Executive Compensation

                                                                                               

(1)  Mr. Backal has an employment agreement which provides he is to receive a base annual salary of $120,000. In addition he is to receive 10% of the gross product sales he brings to the Company. Mr. Backal has declined to take earned compensation when the Company is not in a cash position to pay it.  In 2015 Mr. Backal had total compensation of $121,232 all of which was accrued.  In 2016 Mr. Backal had total compensation of $128,262 all of which was accrued.  In 2017 Mr. Backal had total compensation of $120,012 all of which was accrued. As of March 31, 2017, $991,329 of Mr. Backal's total compensation was unpaid and accrued in current liabilities. Pursuant to his employment agreement, Mr. Backal is an at-will employee and may terminate his employment at any time. Also pursuant to his employment agreement, Mr. Backal has the authority to increase his own salary and the discretion to pay himself a bonus if he believes major progress in being made with the business operations of the company.

 

As of July 28, 2017, we had 100,000,000 shares of common stock outstanding, which are our only outstanding voting securities. The following table sets forth information regarding the beneficial ownership of our common stock as of July 28, 2017, by:

·	each person who is known by us to own beneficially more than 5% of our common stock;

·	each of our executive officers;

·	each of our current directors; and

·	all officers and directors as a group.

(1)	Person's address is 2510 E. Sunset Rd. Unit 5-777, Las Vegas, NV 89120.

Changes in Control

There are no additional present arrangements or pledges of the Company's securities, which may result in a change in control of the Company.

Related Party Transactions

Officer loan – During the years ended March 31, 2017 and 2016, the Company received net cash advances from the president in the amount of $58,332 and $151,175, respectively. All amounts advanced to the Company are unsecured, non-interest bearing and due upon demand by the president.

Interest has been imputed on all advances made to Company by the president. During the years ended March 31, 2017 and 2016, interest has been imputed and charged to additional paid-in capital in the amount of $78,325 and $72,424, respectively.

Employment agreements – as of March 31, 2017 the Company had only one employment agreement which was with the President and majority shareholder. The employment agreement stipulates that the President is to receive a base salary of $120,000 per annum. The agreement also contains a provision allowing for a commission to be paid equal to 10% of gross sales achieved by the President. The total expense related to this agreement was $120,012 and $128,262 for the years ended March 31, 2017 and 2016, respectively.  As of March 31, 2017 and 2016, $991,329 and $871,317 respectively, of total compensation was unpaid and accrued in current liabilities.

 

The Company has accrued for unpaid payroll taxes related to these payroll expenses which amount to $73,714 and $73,714 as of March 31, 2017 and 2016, respectively. These accruals include $4,935 in interest or penalties related to the late status of these payments. Nonetheless, the Company anticipates that it will reasonably be able to negotiate the total past due amount of payroll taxes in order to effectively eliminate penalties and interest.

Subsequent to March 31, 2017, the Company received net cash advances from its President in the amount of $17,547 in order to cover certain obligations that were due. All amounts advanced to the Company are unsecured, non-interest bearing and due upon demand by the president.

Director Independence

We do not have any independent directors serving on our Board of Directors. The definition the Company uses to determine whether a director is independent is NASDAQ Rule 4200(a)(15). The text of this rule is attached to this Annual Report as Exhibit 99.1.

The Following is a summary of the fees billed to the Company by its principal accountants during the fiscal years ended March 31, 2017 and 2016:

Audit Fees - Consists of fees for professional services rendered by our principal accountants for the audit of the Company's annual financial statements and review of the financial statements included in the Company's Forms 10-Q or services that are normally provided by our principal accountants in connection with statutory and regulatory filings or engagements.

Audit-related Fees - Consists of fees for assurance and related services by our principal accountants that are reasonably related to the performance of the audit or review of the Company's financial statements and are not reported under "Audit fees."

Tax Fees - Consists of fees for professional services rendered by our principal accountants for tax compliance, tax advice and tax planning.

All Other Fees - Consists of fees for products and services provided by our principal accountants, other than the services reported under "Audit fees," "Audit-related fees," and "Tax fees" above.

Item. 15. Exhibits

(1) Filed as an exhibit to the Annual Report on Form 10-K filed on September 11, 2014.

SIGNATURES

In accordance with Section 13 or 15(d) of the Exchange Act, the registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

MEGANET CORPORATION

By: /s/ Saul Backal

-----------------------------------------------------

Saul Backal, CEO

Date: August 10, 2017

In accordance with the Securities Exchange Act, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.

By: /s/ Saul Backal

-----------------------------------------

Saul Backal, Director and

Principal Executive Officer

Principal Financial Officer

Principal Accounting Officer

Date: August 10, 2017

By: /s/ Merav Backal

-----------------------------------------------------

Merav Backal, Director

Date: August 10, 2017

By: /s/ Orna Mizrahi

-----------------------------------------------------

Orna Mizrahi, Director

Date: August 10, 2017