UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
x ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30, 2019MARCH 31, 2020
OR
¨ ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER
333-193220 000-55805
GULF WEST SECURITY NETWORK, INC. |
(Exact name of registrant as specified in its charter) |
Nevada |
|
|
(State of incorporation) |
| (I.R.S. Employer Identification No.) |
2851 Johnson Street, Unit #194
Lafayette, LA 7050370503
(Address of principal executive offices) (Zip Code)
Registrant’s telephone number, including area code: (337) 210-8790
Not applicable
(Former name, address and fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
N/A | N/A | N/A |
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for 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 x ☒ No ¨☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes x ☒ No ¨☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange Act:
Large accelerated filer |
| Accelerated filer |
|
Non-accelerated filer |
| Smaller reporting company |
|
| Emerging growth company |
|
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ ☐ No x☒
As of November 14, 2019,May 13, 2020, there were 4,518,250 shares of our common stock, par value $0.001 per share, outstanding.
GULF WEST SECURITY NETWORK, INC.
FORM 10-Q
FOR THE NINETHREE MONTHS ENDED SEPTEMBER 30, 2019MARCH 31, 2020
|
| PAGE |
| ||
|
| ||||
|
|
|
| ||
|
|
| |||
|
|
|
| ||
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
| 21 |
| ||
|
|
|
| ||
| |||||
| 24 |
| |||
|
|
|
| ||
| 24 |
| |||
|
|
|
| ||
| 25 |
| |||
|
|
|
| ||
| 25 |
| |||
|
|
|
| ||
Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities |
| 25 |
| ||
|
|
|
| ||
| 25 |
| |||
|
|
|
| ||
| 25 |
| |||
|
|
|
| ||
| 25 |
| |||
|
|
|
| ||
|
|
| |||
|
|
|
| ||
| 27 |
| |||
|
|
|
| ||
EXHIBIT INDEX |
|
|
| ||
| 2 |
| Table of Contents |
PART I – FINANCIAL INFORMATION
Gulf West Security Network, Inc.
A Nevada Corporation
Condensed Consolidated Financial Statements (Unaudited)
September 30, 2019March 31, 2020
| 3 |
Gulf West Security Network, Inc.
|
|
| Page |
|
|
|
| |
Condensed Consolidated Financial Statements: |
|
| |
|
|
| |
Condensed Consolidated Balance Sheets as of March 31, 2020 (Unaudited) and December 31, 2019 |
| 5 |
|
|
|
| |
| 6 |
| |
|
|
| |
| 7 |
| |
|
|
| |
| 8 |
| |
|
|
| |
Notes to Unaudited Condensed Consolidated Financial Statements |
|
|
|
| 4 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. CONDENSED CONSOLIDATED BALANCE SHEETS As of |
|
| March 31, |
|
| December 31, 2019 |
| ||
|
|
|
|
|
|
| ||
ASSETS |
|
|
|
|
|
| ||
Current Assets |
|
|
|
|
|
| ||
Cash |
| $ | 4,287 |
|
| $ | 10,045 |
|
Accounts receivable |
|
| 1,566 |
|
|
| 2,876 |
|
Prepaid expenses |
|
| 25,676 |
|
|
| 25,987 |
|
Total Current Assets |
|
| 31,529 |
|
|
| 38,908 |
|
|
|
|
|
|
|
|
|
|
Total assets |
| $ | 31,529 |
|
| $ | 38,908 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS’ EQUITY |
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Current Liabilities |
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities |
| $ | 254,743 |
|
| $ | 248,888 |
|
Accounts payable - related party |
|
| 10,216 |
|
|
| 3,565 |
|
Accrued wages - related party |
|
| 269,805 |
|
|
| 218,805 |
|
Bridge loan from affiliates |
|
| 1,122,550 |
|
|
| 1,072,050 |
|
Liabilities of discontinued operations |
|
| 571,551 |
|
|
| 601,128 |
|
Total Liabilities |
|
| 2,228,865 |
|
|
| 2,144,436 |
|
|
|
|
|
|
|
|
|
|
Deficiency in Stockholders’ equity |
|
|
|
|
|
|
|
|
Preferred Stock, $0.001 par value, 25,000,000 shares authorized |
|
|
|
|
|
|
|
|
Preferred stock Series A, 742,500 shares issued and outstanding |
|
| 743 |
|
|
| 743 |
|
Preferred stock Series B, nil issued or outstanding |
|
| - |
|
|
| - |
|
Preferred stock Series C, 1 share issued and outstanding |
|
| - |
|
|
| - |
|
Preferred stock Series D, 1,000 shares issued and outstanding |
|
| 1 |
|
|
| 1 |
|
Common stock, $0.001 par value; 475,000,000 shares authorized; 4,518,250 shares issued and outstanding |
|
| 4,518 |
|
|
| 4,518 |
|
Additional paid in capital |
|
| 177,210 |
|
|
| 177,210 |
|
Accumulated deficit |
|
| (2,379,808 | ) |
|
| (2,288,000 | ) |
Total deficiency in stockholders’ equity |
|
| (2,197,336 | ) |
|
| (2,105,528 | ) |
|
|
|
|
|
|
|
|
|
Total liabilities and deficiency in stockholders’ equity |
| $ | 31,529 |
|
| $ | 38,908 |
|
September 30, 2019 December 31, 2018 ASSETS Current Assets Cash Accounts receivable Prepaid expenses Total current assets Total assets LIABILITIES AND DEFICIENCY IN STOCKHOLDERS’ EQUITY (DEFICIENCY) Liabilities Current Liabilities Accounts payable and accrued liabilities Accounts payable - related party Accrued wages - related party Bridge Loan Liabilities of discontinued operations Total liabilities Deficiency in Stockholders’ equity Preferred Stock, $0.001 par value, 25,000,000 shares authorized Preferred stock Series A, 742,500 shares issued and outstanding Preferred stock Series B, nil issued or outstanding Preferred stock Series C, 1 share issued and outstanding Preferred stock Series D, 1,000 shares issued and outstanding Common stock, $0.001 par value; 475,000,000 shares authorized; 4,518,250 shares issued and outstanding Additional paid in capital Accumulated deficit Total deficiency in stockholders’ equity Total liabilities and deficiency in stockholders’ equity $ 29,340 $ 64,798 1,748 1,906 31,255 85,560 62,343 152,264 $ 62,343 $ 152,264 $ 140,945 $ 110,393 26,166 22,359 196,859 43,859 951,000 671,000 610,438 636,561 1,925,408 1,484,172 743 743 - - - - 1 1 4,518 4,518 177,210 177,210 (2,045,537 ) (1,514,380 ) (1,863,065 ) (1,331,908 ) $ 62,343 $ 152,264
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
| 5 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) For the |
|
| 3 Months Ended |
| |||||
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||
|
|
|
|
|
|
| ||
Revenue |
|
|
|
|
|
| ||
Monitoring and related services |
| $ | 2,699 |
|
| $ | 3,869 |
|
|
|
|
|
|
|
|
|
|
Cost of Revenue |
|
| 1,124 |
|
|
| 1,989 |
|
|
|
|
|
|
|
|
|
|
Gross Profit |
|
| 1,575 |
|
|
| 1,880 |
|
|
|
|
|
|
|
|
|
|
Operating Expenses |
|
|
|
|
|
|
|
|
General and administrative |
|
| 125,739 |
|
|
| 263,515 |
|
Sales and marketing |
|
| 26 |
|
|
| 10,044 |
|
Total Operating Expenses |
|
| 125,765 |
|
|
| 273,559 |
|
|
|
|
|
|
|
|
|
|
Operating Loss |
|
| (124,190 | ) |
|
| (271,679 | ) |
|
|
|
|
|
|
|
|
|
Loss from continuing operations before provision for income taxes |
|
| (124,190 | ) |
|
| (271,679 | ) |
|
|
|
|
|
|
|
|
|
Provision for Income Taxes |
|
| - |
|
|
| - |
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations |
|
| (124,190 | ) |
|
| (271,679 | ) |
|
|
|
|
|
|
|
|
|
Income from discontinued operations |
|
| 32,382 |
|
|
| 50,512 |
|
|
|
|
|
|
|
|
|
|
Net Loss |
| $ | (91,808 | ) |
| $ | (221,167 | ) |
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share, continuing operations |
| $ | (0.03 | ) |
| $ | (0.06 | ) |
Basic and diluted net income per common share, discontinued operations |
| $ | 0.01 |
|
| $ | 0.01 |
|
Weighted average shares outstanding |
|
| 4,518,250 |
|
|
| 4,518,250 |
|
3 Months Ended 9 Months Ended September 30, 2019 September 30, 2018 September 30, 2019 September 30, 2018 Revenue Monitoring and related services Product sales and installation Total Revenue Cost of Revenue Gross Profit (Loss) Operating Expenses General and administrative Sales and martketing Total Operating Expenses Operating Loss Loss from continuing operations before provision for income taxes Provision for income taxes Loss from continuing operations Income from discontinued operations Net loss Basic and diluted net loss per common share, continuing operations Basic and diluted net loss per common share, discontinued operations Weighted average shares outstanding $ 3,562 $ 3,940 $ 9,769 $ 13,108 - - 1,025 - 3,562 3,940 10,794 13,108 7,142 975 11,733 4,437 (3,562 ) 2,965 (939 ) 8,671 127,580 188,081 546,941 381,486 5,193 15,124 20,281 34,732 132,773 203,205 567,222 416,218 (136,335 ) (200,240 ) (568,161 ) (407,547 ) (136,335 ) (200,240 ) (568,161 ) (407,547 ) - - - - (136,335 ) (200,240 ) (568,161 ) (407,547 ) 37,237 - 37,004 - $ (99,098 ) $ (200,240 ) $ (531,157 ) $ (407,547 ) $ (0.03 ) $ (0.05 ) $ (0.13 ) $ (0.10 ) $ 0.01 $ - $ 0.01 $ - 4,518,250 4,050,439 4,518,250 4,050,439
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
| 6 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. CONDENSED CONSOLIDATED STATEMENTS OF DEFICIENCY IN STOCKHOLDERS’ EQUITY(UNAUDITED) For the |
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
|
| Preferred Stock |
|
| Common Stock |
|
| Additional |
|
|
|
|
| Total Deficiency in |
| ||||||||||||||||||||||||||||
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Number of Shares |
|
| Amount |
|
| Paid-In Capital |
|
| Accumulated Deficit |
| Stockholders' Equity |
| ||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |||||||||||||
Balance at January 1, 2019 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (1,514,380 | ) |
| $ | (1,331,908 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (221,167 | ) |
|
| (221,167 | ) |
Balance at March 31, 2019 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (1,735,547 | ) |
| $ | (1,553,075 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (210,892 | ) |
|
| (210,892 | ) |
Balance at June 30, 2019 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (1,946,439 | ) |
| $ | (1,763,967 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (129,211 | ) |
|
| (129,211 | ) |
Balance at September 30, 2019 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (2,075,650 | ) |
| $ | (1,893,178 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (212,350 | ) |
|
| (212,350 | ) |
Balance at December 31, 2019 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (2,288,000 | ) |
| $ | (2,105,528 | ) |
Net loss |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
|
| (91,808 | ) |
|
| (91,808 | ) |
Balance at March 31, 2020 |
|
| 742,500 |
|
| $ | 743 |
|
|
| - |
|
| $ | - |
|
|
| 1 |
|
| $ | - |
|
|
| 1,000 |
|
| $ | 1 |
|
|
| 4,518,250 |
|
| $ | 4,518 |
|
| $ | 177,210 |
|
| $ | (2,379,808 | ) |
| $ | (2,197,336 | ) |
Preferred Stock Series A Preferred Stock Series B Preferred Stock Series C Preferred Stock Series D Common Stock Additional Total Number of Shares Amount Number of Shares Amount Number of Shares Amount Number of Shares Amount Number of Shares Amount Paid-In Capital Accumulated Deficit Stockholders' Deficit Balance at January 1, 2018 Shares issued for debt settlement Net loss Balance at March 31, 2018 Net loss Balance at June 30, 2018 Shares issued in connection with reverse merger Net loss Balance at September 30, 2018 Balance at January 1, 2019 Net loss Balance at March 31, 2019 Net loss Balance at June 30, 2019 Net loss Balance at September 30, 2019 117,500 $ 118 - $ - - $ - - $ - 4,050,439 $ 4,050 $ 164,102 $ (155,830 ) $ 12,440 25,000 25 - - - - - - 15,385 15 (1,836 ) - (1,796 ) - - - - - - - - - - - (83,507 ) (83,507 ) 142,500 $ 143 - $ - - $ - - $ - 4,065,824 $ 4,065 $ 162,266 $ (239,337 ) $ (72,863 ) - - - - - - - - - - - (123,800 ) (123,800 ) 142,500 $ 143 - $ - - $ - - $ - 4,065,824 $ 4,065 $ 162,266 $ (363,137 ) $ (196,663 ) 600,000 600 - - 1 - 1,000 1 452,426 452 10,791 - 11,844 - - - - - - - - - - - (200,240 ) (200,240 ) 742,500 $ 743 - $ - 1 $ - 1,000 $ 1 4,518,250 $ 4,517 $ 173,057 $ (563,377 ) $ (385,059 ) 742,500 $ 743 - $ - 1 $ - 1,000 $ 1 4,518,250 $ 4,518 $ 177,210 $ (1,514,380 ) $ (1,331,908 ) - - - - - - - - - - - (221,167 ) (221,167 ) 742,500 $ 743 - $ - 1 $ - 1,000 $ 1 4,518,250 $ 4,518 $ 177,210 $ (1,735,547 ) $ (1,553,075 ) - - - - - - - - - - - (210,892 ) (210,892 ) 742,500 $ 743 - $ - 1 $ - 1,000 $ 1 4,518,250 $ 4,518 $ 177,210 $ (1,946,439 ) $ (1,763,967 ) - - - - - - - - - - - (99,098 ) (99,098 ) 742,500 $ 743 - $ - 1 $ - 1,000 $ 1 4,518,250 $ 4,518 $ 177,210 $ (2,045,537 ) $ (1,863,065 )
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
| 7 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) For the |
|
| 3 Months Ended |
| |||||
|
| March 31, 2020 |
|
| March 31, 2019 |
| ||
Cash Flows From Operating Activities |
|
|
|
|
|
| ||
Net Loss |
| $ | (91,808 | ) |
| $ | (271,679 | ) |
Adjustments to reconcile net loss to net cash used in operating activities |
|
|
|
|
|
|
|
|
Net loss from discontinued operations |
|
| 32,382 |
|
|
| 50,512 |
|
Bad debts |
|
| 2,147 |
|
|
| - |
|
Changes in operating assets and liabilities: |
|
|
|
|
|
|
|
|
Accounts receivable |
|
| (837 | ) |
|
| (17 | ) |
Inventory |
|
| - |
|
|
| (6,327 | ) |
Prepaid expenses |
|
| 311 |
|
|
| 54,138 |
|
Accounts payable and accrued liabilities |
|
| 5,855 |
|
|
| 37,016 |
|
Accrued wages - related party |
|
| 51,000 |
|
|
| 69,477 |
|
Net cash used in operating activities – continuing operations |
|
| (950 | ) |
|
| (66,880 | ) |
Net cash used in operating activities – discontinued operations |
|
| (61,959 | ) |
|
| (50,512 | ) |
|
|
|
|
|
|
|
|
|
Cash Flows From Financing Activities |
|
|
|
|
|
|
|
|
Advances from related party, net |
|
| 6,651 |
|
|
| - |
|
Proceeds from bridge loan |
|
| 50,500 |
|
|
| 75,000 |
|
Cash provided by financing activities |
|
| 57,151 |
|
|
| 75,000 |
|
|
|
|
|
|
|
|
|
|
Net Change In Cash |
|
| (5,758 | ) |
|
| (42,392 | ) |
|
|
|
|
|
|
|
|
|
Cash at Beginning of Year |
|
| 10,045 |
|
|
| 64,798 |
|
Cash at End of Year |
| $ | 4,287 |
|
| $ | 22,406 |
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information |
|
|
|
|
|
|
|
|
Cash paid for interest |
| $ | - |
|
| $ | - |
|
Cash paid for income taxes |
| $ | - |
|
| $ | - |
|
September 30, 2019 September 30, 2018 Cash Flows from Operating Activities Net loss Adjustments to reconcile net loss to net cash used in operating activities: Loss from discontinued operations Depreciation Changes in operating assets and liabilities Accounts receivable Prepaid expenses Other current assets Accounts payable and accrued liabilities Accrued wages - related party Net cash used in operating activities – continuing operations Net cash provided by operating activities – discontinued operations Cash Flows from Investing Activities Cash Flows from Financing Activities Contributions, net Proceeds from bridge loan Proceeds from advances from related party, net Cash flow provided by financing activities Net Change in Cash Cash at Beginning of Period Cash at End of Period Supplemental Disclosure of Cash Flow Information Cash paid for interest Cash paid for income taxes Net assets acquired via stock issued $ (531,157 ) $ (407,547 ) (37,004 ) - - 1,320 158 (2,748 ) 54,305 (91,816 ) - (4,871 ) 30,552 57,078 153,000 - (330,146 ) (448,584 ) 10,881 - - - - 10,049 280,000 471,000 3,807 4,561 283,807 485,610 (35,458 ) 37,026 64,798 6,137 $ 29,340 $ 43,163 $ - $ - $ - $ - $ - $ 612,774
See accompanying notes, which are an integral part of these unaudited condensed consolidated financial statements.
| 8 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
NOTE 1: NATURE OF THE BUSINESS
Gulf West Security Network, Inc. (a Nevada Corporation), and its wholly-owned subsidiaries, formerly known as “NuLife Sciences, Inc.” (“we”, “us”, “our”, “Gulf West”, “GWSN”, or the “Company”), are principally engaged in providing residential and commercial electronic security, home automation, and systems integration services on both a retail and wholesale basis.
The Company’s retail division, which includes its wholly-owned subsidiary LJR Security Services, Inc. (a Louisiana Corporation) (“LJR”), is actively engaged in the hands-on design, engineering, sales, installation, after-market servicing, inspection and remote electronic monitoring of home (residential) burglar, fire and medical alarm systems as well as fully-integrated business (commercial) security and automation systems in the United States.
The Company’s wholesale division, which operates under the name Gulf West Security Network (or “Gulf West”), is further engaged in the development and expansion of a proprietary coalition (alliance or network) of independently-branded life safety and property protection providers, fire alert and suppression system installers, electronic remote monitoring and video surveillance specialists, smart home designers, commercial systems integrators, structured wiring professionals and electrical contractors.
Merger
On August 9, 2018, the Board of Directors of the Company through its wholly-owned subsidiary NuLife Acquisition Corp. (“NuLife Sub”) approved and executed an agreement of merger and plan of reorganization (the “Merger Agreement”), to become effective at such time as the articles of merger have been filed with the Secretary of State of Louisiana (the “Effective Time”), and after the satisfaction or waiver by the parties thereto of the conditions set forth in Article VI of the Merger Agreement. Pursuant to the terms of the Merger Agreement, and in exchange for all one hundred (100) issued and outstanding shares of LJR Security Services, Inc. (“LJR”), LJR stockholders received one thousand (1,000) shares of series D senior convertible preferred stock, par value $.001 per share (the “Series D Preferred Stock”) of the Company, convertible into fifty million two hundred thirty-ninethirty-three thousand five hundred forty-one (50,239,541) shares of common stock of the Company. In addition, the LJR shareholder received one share of series C super-voting preferred stock of NuLife which granted the holder 50.1% of the votes of NuLife at all times.
The merger was accounted for as a reverse merger, whereby LJR was considered the accounting acquirer and became our wholly-owned subsidiary. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the reverse merger has been replaced with the historical financial statements of LJR prior to the reverse merger. The financial statements after completion of the reverse merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the reverse merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.
| 9 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
Restatement of Articles of Incorporation
On September 19, 2018, LJR Security Services, Inc. amended and restated its articles of incorporation providing for a change in the Company’s name to “Gulf West Security Network, Inc.” The Company’s authorized shares of common stock, preferred stock and the par value of the stock will remain unchanged. The Company also amended and restated its bylaws to reflect the name change.
On September 20, 2018, the Board of Directors of the Company designated one (1) share of Series C Preferred Stock (the “Series C Stock”) and one thousand (1,000) shares of Series D Preferred Stock (the “Series D Stock”). The classes of Series C Stock and Series D Stock were created in anticipation of the closing of the Merger Agreement.
Change of Fiscal Year
On September 28, 2018, the Company’s Board approved a change in fiscal year end from September 30th to December 31st. The decision to change the fiscal year end was related to the recent merger of the Company with LJR to closely align its operations and internal controls with that of its wholly owned subsidiary LJR.
NOTE 2: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Use of Estimates
The preparation of the condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
Principles of Consolidation
The Company’s condensed consolidated financial statements include all accounts of Gulf West Security Network, Inc., LJR, and NuLife Sciences, Inc. from September 28, 2018, the consummation of the Merger Agreement. All inter-company balances and transactions have been eliminated in consolidation.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with Generally Accepted Accounting Principles (“GAAP”) in the United States of America (“U.S.”) as promulgated by the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) and with the rules and regulations of the U.S Securities and Exchange Commission (“SEC”). In our opinion, the accompanying unaudited condensed consolidated financial statements contain all adjustments (which are of a normal recurring nature) necessary for a fair presentation. Interim results are not necessarily indicative of results for a full year. Therefore, the interim unaudited condensed consolidated financial statements should be read in conjunction with the consolidated financial statements contained in the Company’s Annual Report on Form 10-K.
| 10 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
Reclassifications
Certain reclassifications have been made to the prior period’s financial statements to enhance comparability with the current year’s financial statements. As a result, certain line items have been amended in the condensed consolidated balance sheets and consolidated statements of cash flow. Comparative figures have been adjusted to conform to the period’s presentation. These reclassifications had no effect on the reported net loss.
Cash and Cash Equivalents
The Company considers all cash on hand and in banks, including accounts in book overdraft positions, certificates of deposit and other highly-liquid investments with maturities of one year or less, when purchased, to be cash. As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the Company had no cash equivalents. The Company maintains its cash in bank deposit accounts which, at times, may exceed federally insured limits. The Company has not experienced any losses in such accounts and periodically evaluates the credit worthiness of the financial institutions and has determined the credit exposure to be negligible.
Capitalization of Fixed Assets
The Company capitalizes expenditures related to property and equipment, subject to a minimum rule, that have a useful life greater than one year for: (1) assets purchased; (2) existing assets that are replaced, improved or the useful lives have been extended; or (3) all land, regardless of cost. Acquisitions of new assets, additions, replacements and improvements (other than land) costing less than the minimum rule in addition to maintenance and repair costs, including any planned major maintenance activities, are expensed as incurred.
Revenue Recognition
The Company retrospectively adopted FASB Accounting Standards Update No. 2014-09 “Revenue from Contracts with Customers”, on January 1, 2018, which did not have a material impact on the Company’s condensed consolidated financial statements. The Company generates revenue primarily through contractual monthly recurring fees received for monitoring and related services provided to customers. In transactions involving security systems that are sold outright to the customer, or where equipment is already owned by the customer, the Company’s performance obligations include monitoring, related services, and the sale and installation, or refurbish and repair, of the security systems. Revenue associated with the sale and installation of security systems is recognized once installation is complete and is reflected in installation and repair revenue in the consolidated statements of operations. Revenue associated with monitoring and related services is recognized as those services are provided and is reflected in monitoring and related services revenue in the consolidated statements of operations.
Early termination of the contract by the customer results in a termination charge in accordance with the contract terms. Contract termination charges are recognized in revenue when collectability is probable and are reflected in monitoring and related revenue in the consolidated statements of operations. Amounts collected from customers for sales and other taxes are reported net of the related amounts remitted.
| 11 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
Barter Transactions
The Company conducts certain barter sales through trade organizations for which it is a member, as are some of its customers. The barter transactions are generally related to the Company providing its security services, and the value of these services is recorded at fair value which is the contracted for value of the services with the customer, which is the more readily available measure as to its valuation.
|
Fair Value Measurements
Disclosures about fair value of financial instruments require disclosure of the fair value information, whether or not recognized in its balance sheet, where it is practicable to estimate that value.
In accordance with ASC Topic 820, “Fair Value Measurements and Disclosures,” the Company measures certain financial instruments at fair value on a recurring basis. ASC Topic 820 defines fair value, established a framework for measuring fair value in accordance with accounting principles generally accepted in the United States, and expands disclosures about fair value measurements.
Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. ASC Topic 820 established a three-tier fair value hierarchy, which prioritizes the inputs used in measuring fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). These tiers include:
| · | Level 1, defined as observable inputs such as quoted prices for identical instruments in active markets; |
|
|
|
| · | Level 2, defined as inputs other than quoted prices in active markets that are either directly or indirectly observable such as quoted prices for similar instruments in active markets or quoted prices for identical or similar instruments in markets that are not active; and |
|
|
|
| · | Level 3, defined as unobservable inputs in which little or no market data exists, therefore requiring an entity to develop its own assumptions, such as valuations derived from valuation techniques in which one or more significant inputs or significant value drivers are unobservable. |
|
| Fair Value Measurement at September 30, 2019 |
| |||||||||||||
|
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
Derivative liabilities, debt and equity instruments |
| $ | 68,969 |
|
|
| — |
|
|
| — |
|
| $ | 68,969 |
|
|
| Fair Value Measurement |
| |||||||||||||
|
| Carrying Value |
|
| Level 1 |
|
| Level 2 |
|
| Level 3 |
| ||||
As of March 31, 2020 |
|
|
|
|
|
|
|
|
|
|
|
| ||||
Derivative liabilities, debt and equity instruments |
| $ | 40,522 |
|
|
| — |
|
|
| — |
|
| $ | 40,522 |
|
As of December 31, 2019 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments |
| $ | 72,904 |
|
|
| — |
|
|
| — |
|
| $ | 72,904 |
|
Financial assets are considered Level 3 when their fair values are determined using pricing models, discounted cash flow methodologies or similar techniques and at least one significant model assumption or input is unobservable.
| 12 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
Changes in Level 3 assets measured at fair value for the ninethree months ended September 30,March 31, 2020 and for the year ended December 31, 2019 were as follows:
Balance, December 31, 2018 |
| $ | 111,291 |
|
Changes in fair value of derivative |
|
| (38,387 | ) |
Balance, December 31, 2019 |
| $ | 72,904 |
|
Change in fair value of derivative |
|
| (32,382 | ) |
Balance, March 31, 2020 |
| $ | 40,522 |
|
Balance, December 31, 2018 Change in fair value of derivative Balance, September 30, 2019 $ 111,291 (42,322 ) $ 68,969
|
Derivative Financial Instruments
The Company evaluates its financial instruments 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 in the statements of operations. For stock-based financial instruments, the Company uses the Black-Scholes-Merton pricing model to value the derivative instruments. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or as equity, is evaluated at the end of each reporting period. Derivative instrument liabilities are classified in the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument could be required within 12 months of the balance sheet date.
The Company estimates the fair value of these instruments using the Black-Scholes option pricing model and the intrinsic value if the convertible notes are due on demand.
The Company determined that certain convertible debt instruments outstanding as of the date of these unaudited condensed consolidated financial statements include an exercise price “reset” adjustment that qualifies as derivative financial instruments under the provisions of ASC 815-40, Derivatives and Hedging - Contracts in an Entity’s Own Stock (“ASC 815-40”). Certain of the convertible notes payable have a variable exercise price, thus are convertible into an indeterminate number of shares for which we cannot determine if we have sufficient authorized shares to settle the transaction with. Accordingly, the embedded conversion option is a derivative liability and is marked to market through earnings at the end of each reporting period. Any change in fair value during the period is recorded in earnings as “Income (loss) from discontinued operations.” Please refer to Note 3 below.
Going Concern
The Company’s condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has limited commercial experience and had a net loss from continuing operations of $568,161$124,190 for the ninethree months ended September 30, 2019,March 31, 2020, and an accumulated deficit of $2,045,537,$2,379,808, and a working capital deficit of $1,863,065$2,197,336 at September 30, 2019.March 31, 2020. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying condensed consolidated financial statements for the ninethree months ended September 30, 2019,March 31, 2020, have been prepared assuming the Company will continue as a going concern. The Company’s cash resources will likely be insufficient to meet its anticipated needs during the next twelve months. The Company will require additional financing to fund its future planned operations, including research and development and commercialization of its products.
| 13 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
The ability of the Company to continue as a going concern is dependent on the Company obtaining adequate capital to fund its operating losses until it establishes a revenue stream and becomes profitable. Management’s plans to continue as a going concern include raising additional capital through sales of equity securities and borrowing. However, management cannot provide any assurances that the Company will be successful in accomplishing any of its plans. If the Company is not able to obtain the necessary additional financing on a timely basis, the Company will be forced to delay or scale down some or all of its development activities or perhaps even cease the operation of its business. The ability of the Company to continue as a going concern is dependent upon its ability to successfully secure other sources of financing and attain profitable operations. There is substantial doubt about the ability of the Company to continue as a going concern within one year after the date that the unaudited condensed consolidated financial statements are issued. The accompanying unaudited condensed consolidated financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
Recent Accounting Pronouncements
In February 2016, the FASB issued ASU No. 2016-02, Leases. ASU 2016-02 requires a lessee to record a right of use asset and a corresponding lease liability on the balance sheet for all leases with terms longer than 12 months. ASU 2016-02 was effective for all interim and annual reporting periods beginning after December 15, 2018. Early adoption is permitted. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest period presented in the consolidated financial statements. The Company adopted the provisions of this standard in the first quarter of fiscalyear 2019 but did not have any impact since all leases areCompany lease is short-term in nature.
In January 2017, the FASB issued Accounting Standards Update No. 2017-04, Simplifying the Test for Goodwill Impairment (“(“ASU 2017-04”). ASU 2017-04 simplifies the accounting for goodwill impairment by removing Step 2 of the goodwill impairment test, which requires a hypothetical purchase price allocation and may require the services of valuation experts. ASU 2017-04 is effective for annual or interim goodwill impairment tests in fiscal years beginning after December 15, 2019 and should be applied on a prospective basis. Early adoption is permitted for interim or annual goodwill impairment tests performed on testing dates after January 1, 2017. The Company does not anticipate the adoption of ASU 2017-04 will have a material impact on its unaudited condensed consolidated financial statements.
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) and has issued subsequent amendments to this guidance. This new standard will replace all current guidance on this topic and eliminate all industry-specific guidance. The new revenue recognition standard provides a unified model to determine when and how revenue is recognized. The core principle is that a company should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration for which the entity expects to be entitled in exchange for those goods or services. The guidance is effective for interim and annual periods beginning after December 31, 2018. The standard may be applied either retrospectively to each period presented or as a cumulative-effect adjustment as of the date of adoption. The Company adopted this standard effective in these financial statements, which did not have an effect on its revenues or earnings.
| 14 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
Other recent accounting pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants, and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s present or future condensed consolidated financial statements.
|
NOTE 3: ACQUIRED ASSETS AND ASSUMED LIABILITIES OF DISCONTINUED OPERATIONS
Assets Acquired and Liabilities Assumed through Reverse Merger
Pursuant to the terms of the Merger Agreement, and in exchange for all one hundred (100) issued and outstanding shares of LJR Security Services, Inc., LJR stockholders received one thousand (1,000) shares of series D senior convertible preferred stock, par value $.001 per share (the “Series D Preferred Stock”) of the Company, convertible into fifty million two hundred thirty-ninethirty-three thousand five hundred forty-one (50,239,541) shares of common stock of the Company. In addition, the LJR shareholder received one (1) share of series C super-voting preferred stock of the Company which granted the holder 50.1% of the votes of the Company at all times.
As a result of the Reverse Merger, the Company has acquired the following assets and liabilities which were recorded at fair value. The fair values of assets acquired and liabilities assumed are as follows:
Security deposit |
| $ | 4,871 |
|
Goodwill |
|
| 612,771 |
|
Accrued expenses |
|
| (125,647 | ) |
Accrued interest |
|
| (49,261 | ) |
Notes payable |
|
| (117,500 | ) |
Convertible notes |
|
| (138,500 | ) |
Derivative liability |
|
| (172,532 | ) |
Total identified net assets |
| $ | 14,202 |
|
Security deposit Goodwill Accrued expenses Accrued interest Notes payable Convertible notes Derivative liability Total identified net assets $ 4,871 612,771 (125,647 ) (49,261 ) (117,500 ) (138,500 ) (172,532 ) $ 14,202
As a result of the Reverse Merger, we acquired approximately $0.6 million of liabilities of the former operations of NuLife Sciences, Inc., which have been discontinued. We are evaluating the means to relieve the Company of these liabilities. The assets and liabilities described below have been classified as discontinued operations in the condensed consolidated financial statements.
Goodwill
The Company acquired goodwill through the Reverse Merger described above. The carrying value of $612,771 was impaired and written down to $0 as of December 31, 2018.
| 15 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
Notes Payable
As a result of the Reverse Merger the Company assumed notes payable with total outstanding principal of $117,500 and accrued interest of $36,304, detailed as follows:
| · | Demand note payable with outstanding principal of $25,000, and accrued interest of $17,400. The note matured on June 30, 2015 and carries an interest rate of 12%. This note is in default. |
|
|
|
| · | Demand notes payable to East West Secured Developments, LLC, with a combined outstanding principal of $74,500, and accrued interest of $18,061. These notes matured on October 31, 2016 and carry an interest rate of 12%. These notes are in default. |
|
|
|
| · | Term note payable with outstanding principal of $18,000, and accrued interest of $843. The note matured on July 31, 2019 and carries an interest at the rate of 3%. This note is in default. |
As of September 30,March 31, 2020 and December 31, 2019, notes payable had total outstanding principal of $117,500$99,500 and $99,500 and accrued interest of $49,194.$53,784 and $51,179, all respectively. These liabilities have been incorporated into liabilities from discontinued operations.
|
Convertible Notes
As a result of the Reverse Merger the Company assumed convertible notes with total outstanding principal of $138,500 and accrued interest of $11,078, detailed as follows:
|
| March 31, 2020 |
| |
(A) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and was due December 2019 (in default) |
| $ | 5,000 |
|
(B) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and is due August 2020 |
|
| 50,000 |
|
(C) Convertible note payable, annual interest rate of 5%, convertible into common stock at a variable rate per share and was due September 2018 (in default) |
|
| 63,500 |
|
(D) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.30 per share and is due October 13, 2020 |
|
| 20,000 |
|
Total convertible debt |
| $ | 138,500 |
|
September 30, 2019 (A) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and is due December 2019 (B) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and is due August 2020 (C) Convertible note payable, annual interest rate of 5%, convertible into common stock at a variable rate per share and was due September 2018 (in default) (D) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.30 per share and is due October 13, 2020 Total convertible debt $ 5,000 50,000 63,500 20,000 $ 138,500
A. | Originally issued in 2017, outstanding principal of $5,000, and accrued interest of $715. | |
|
| |
B. | Hayden note was issued on August 23, 2017, outstanding principal of $50,000, and accrued interest of $4,538. | |
|
| |
C. | Current holder acquired the note in May 2018. Current outstanding principal of $63,500, and accrued interest of $4,295. | |
|
| |
D. | Escala note was issued October 13, 2017, outstanding principal of $20,000, and accrued interest of $1,530. |
As of September 30,March 31, 2020 and December 31, 2019, convertible notes had total outstanding principal of $138,500 and $138,500 and accrued interest of $21,856.$24,827 and $24,626, all respectively. These liabilities have been incorporated into liabilities from discontinued operations.
| 16 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of March 31, 2020 and December 31, 2019 and for the three months ended March 31, 2020 and 2019 |
Derivative Liability
As of September 30,March 31, 2020 and December 31, 2019, the derivative liabilities were valued at $68,969,$40,522 and $72,904, respectively, related to a convertible note [(C)notes [A to D above] due September 2018.. This derivative liability has been incorporated into liabilities from discontinued operations.
|
The fair value of the embedded derivative was determined using the Black-Scholes Model with the following assumptions:
| March 31, 2020 |
2019 | ||
(1) dividend yield of | 0%; |
|
| |
(2) expected volatility of | 77%; |
|
| |
(3) risk-free interest rate of | 0.11%; |
|
| |
(4) expected life of | 0.33 year; | 0.33 year; | ||
(5) fair value of the Company’s common stock of | $ | 0.06 per share. | $0.06 per share. |
NOTE 4: 4: PREPAID EXPENSES
The Company has available to its credit through certain trade organizations as a result of barter transactions for services. These amounts are available for use with certain vendors and establishments who are part of the same trade organization. These balances do not represent cash available to the Company, and as such are recorded as the prepaid expenses account as incurred.
As of September 30, 2019March 31, 2020 and December 31, 2018,2019, the available barter credit balances were $26,255$20,676 and $22,760,$20,987, respectively.
As of September 30,March 31, 2020 and December 31, 2019, this account also includes prepaid expense for legal expenses amounting to $5,000.
NOTE 5: RELATED PARTY TRANSACTIONS AND BALANCES
An officer of the Company agreed to defer portions of his salaries annually since inception. The balances due under this arrangement were $196,859$269,805 and $43,859$218,805 as of September 30, 2019March 31, 2020 and December 31, 2018,2019, respectively. This balance has no formal repayment terms or interest.
The same officer of the Company advances funds to the Company and receives repayments on such advances throughout the year in the form of allowing Company use of personal credit cards. The balances due under this arrangement as of September 30, 2019March 31, 2020 and December 31, 20182019 were $26,166$10,216 and $22,359,$3,565, respectively.
NOTE 6: BRIDGE LOAN
As of September 30,March 31, 2020 and December 31, 2019, the Company has received advances totaling $951,000$1,122,550 and $1,072,050, respectively, from certain unrelated third parties.its affiliates. The formal structure and payment terms of these advances have not yet been determined by the Company and the third parties.
| 17 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
NOTE 7: CAPITAL STOCK
The Company is authorized to issue 475,000,000 shares of $0.001 par value common stock and 25,000,000 shares of $0.001 par value preferred stock.
As of September 30,March 31, 2020 and December 31, 2019, the Company had 4,518,250 shares of its common stock issued and outstanding, with 742,500 shares of its Series A Convertible Preferred Stock issued and outstanding, 0 shares of its Series B Convertible Preferred Stock issued and outstanding, 1 share of its Series C Super-Voting Preferred Stock issued and outstanding, and 1,000 shares of its Series D Senior Convertible Preferred Stock issued and outstanding.
Description of Preferred Stock:
Series A Preferred Stock
The Company has 742,500 shares of Preferred Stock designated as Series A Preferred Stock with the following characteristics:
| · | Holders of the Series A Stock are entitled to receive dividends or other distributions with the holders of the common stock on an “as converted” basis when, as, and if declared by the Board of Directors of the Company. |
|
|
|
| · | Holders of shares of Series A Stock, upon Board of Directors approval, may convert at any time following the issuance upon sixty-one (61) day written notice to the Company. Each share of Series A Stock shall be convertible into such number of fully paid and non-assessable shares of common stock as is determined by multiplying the number of issued and outstanding shares of the Company’s common stock together with all other derivative securities, including securities convertible into or exchangeable for common stock, whether or not then convertible or exchangeable (b) subscriptions, rights, options and warrants to purchase shares of common stock, whether or not then exercisable, but entitled to vote on matters submitted to the shareholders, issued by the Company and outstanding as of the date of conversion, by .000001, then multiplying that number of shares of Series A Stock to be converted. |
|
|
|
| · | In case of any consolidation, merger of the Company, or a change of control of the Company’s Board, the holders are entitled, without any further action required or permission by the Board, to exercise their conversions rights. In the case of any consolidation, merger of the Company, the Board shall mail to each holder of Series A Stock at least thirty (30) days prior to the consummation of such event, a notice thereof and each such holder shall have the option to either (i) convert such holder’s shares of Series A Stock into shares of common stock pursuant to this paragraph and thereafter receive the number of shares of common stock or other securities or property, or cash, as the case may be, to which a holder of the number of shares of common stock of the Company deliverable upon conversion of such Series A Stock would have been entitled upon conversion immediately preceding such consolidation, merger or conveyance, or (ii) exercise such holder’s rights pursuant to Section 8.1(a) hereof; provided however that the Series A Stock shall not be subject to or affected as to the number of conversion shares or the redemption or liquidation price by reason of any reverse stock split affected prior or as a result of any reorganization. |
| 18 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
| · | In the event of a liquidation, the holders of shares of the Series A Stock shall be entitled to receive, prior to the holders of the other series of preferred stock and prior and in preference to any distribution of the assets or surplus funds of the Company to the holders of any other shares of stock of the Company by reason of their ownership of such stock, an amount equal to five dollars ($5.00) per share with respect to each share of Series B Stock owned as of the date of Liquidation, plus all declared but unpaid dividends with respect to such shares, and thereafter they shall share in the net Liquidation proceeds on an “as converted basis” on the same basis as the holders of the common stock. |
|
|
|
| · | The holders of each share of Series A Stock shall have that number of votes as determined by multiplying the number of issued and outstanding shares of the Company’s common Stock together with all other derivative securities issued by the Company and outstanding as of the date of conversion, whether or not then convertible or exchangeable, entitled to vote on matters submitted to the shareholders, by .000001, then multiplying that number of shares of Series A Stock to be converted. |
|
|
|
| · | The Corporation shall have the option to redeem all of the outstanding shares of Series A Stock at any time on an “all or nothing” basis, unless otherwise mutually agreed in writing between the Corporation and the holders of shares of Series A Stock holding at least 51% of such Series A Stock, beginning ten (10) business days following notice by the Company, at a redemption price the higher of (a) five dollars ($5.00) per share, or (b) fifty percent (50%) of the trailing average highest closing bid price of the Company’s common stock as quoted on www.OTCMarkets.com or the Company’s primary listing exchange on the date of notice of redemption, unless otherwise modified by mutual written consent between the Company and the holders of the Series A Stock (the |
|
|
|
| · | The shares of Series A Stock acquired by the Company by reason of conversion or otherwise can be reissued, but only as an amended class, not as shares of Series A Stock. |
Series C Preferred Stock
| · | The Company has 1 share of Preferred Stock designated as Series C Preferred Stock. Although the Series C Preferred Stock carries no dividend, distribution, liquidation or conversion rights, each share of Series C Preferred Stock grants the holder 50.1% of the total votes of all classes of capital stock of the Company and are able to vote together with the common stockholders on all matters. Consequently, the holder of the Company’s Series C Preferred Stock is able to unilaterally control the election of its board of directors and, ultimately, the direction of the Company. |
Series D Preferred Stock
| · | The Company has 1,000 shares of Preferred Stock designated as Series D Preferred Stock. Although the Series D Preferred Stock have no voting rights, shares of Series D Preferred Stock in the aggregate are convertible into fifty million two hundred |
| 19 |
| Table of Contents |
GULF WEST SECURITY NETWORK, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) As of |
Stock Options
As a result of the Reverse Merger the Company has outstanding the following stock options as of September 30, 2019March 31, 2020 and December 31, 2019:
|
| March 31, 2020 |
|
| December 31, 2019 |
| ||||||||||
|
| Stock Options |
|
| Weighted Average Exercise Price |
|
| Stock Options |
|
| Weighted Average Exercise Price |
| ||||
|
|
|
|
|
|
|
|
|
|
|
|
| ||||
Outstanding - beginning of year |
|
| 620,000 |
|
| $ | 0.23 |
|
|
| 2,120,000 |
|
| $ | 0.17 |
|
Granted |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Exercised |
|
| - |
|
|
| - |
|
|
| - |
|
|
| - |
|
Forfeited |
|
| (120,000 | ) |
|
| 0.71 |
|
|
| (1,500,000 | ) |
|
| 0.14 |
|
Outstanding - end of year |
|
| 500,000 |
|
| $ | 0.12 |
|
|
| 620,000 |
|
| $ | 0.23 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and vested - end of year |
|
| 500,000 |
|
|
|
|
|
|
| 620,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining term |
|
| 0.12 |
|
|
|
|
|
|
| 0.09 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average intrinsic value |
| $ | 60,000 |
|
|
|
|
|
| $ | 145,200 |
|
|
|
|
|
Shares Weighted Average Exercise Price Weighted Average Remaining Term Aggregate Intrinsic Value Outstanding, September 30, 2019 Exercisable, September 30, 2019 2,120,000 $ 0.17 0.26 $ 355,200 2,120,000 $ 0.17 0.26 $ 355,200
NOTE 8: COMMITMENT AND CONTINGENCIES
Office Lease
During the nine months ended September 30, 2019,In April 2018, the Company rentedstarted to rent space on a month-to-month basis in a Class 1 office in Lafayette, LA. The monthly rent is $3,000. In June 2019, the Company ceased to rent the space. For the ninethree months ended September 30,March 31, 2020 and 2019, and 2018, the Company incurred $18,000$0 and $20,500$9,000 in rent expense, respectively.
Laboratory Lease
During 2017, the Company executed a 5-year lease for a laboratory located at NOVA Southeastern University to be used by NuLife for conducting bench research. The lease calls for monthly payments of base rent of $1,925 along with applicable taxes and shared operating expenses. The lease required a security deposit in the amount of $4,871 and requires a 4% increase in base rent annually. During the year ended December 31, 2018, the agreement was terminated, with rent declared due and payable immediately in the amount of $142,944, including $46,052 past due rent, $92,850 estimated future rent payments, and $4,042 brokerage fees. These liabilities have been incorporated into liabilities from discontinued operations.
Litigation
From time to time the Company may become a party to litigation in the normal course of business. Management believes that there are no current legal matters that would have a material effect on the Company’s financial position or results of operations.
NOTE 9: SUBSEQUENT EVENTS
In accordance with ASC Topic 855, “Subsequent Events”, which establishes general standards of accounting for and disclosure of events that occur after the balance sheet date but before financial statements are issued, the Company has evaluated all events or transactions that occurred after March 31, 2020 up through the date of the these condensed consolidated financial statements.
Subsequent to the period ended March 31, 2020, the Company received an additional advance amounting to $30,000 from its affiliate. The formal structure and payment terms of these advances have not yet been determined by the Company and its affiliate.
| 20 |
| Table of Contents |
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Forward-Looking Statements
This quarterly report contains forward-looking statements and information relating to us that are based on the beliefs of our management as well as assumptions made by, and information currently available to, our management. When used in this report, the words “believe,” “anticipate,” “expect,” “will,” “estimate,” “intend”, “plan” and similar expressions, as they relate to us or our management, are intended to identify forward-looking statements. Although we believe that the plans, objectives, expectations and prospects reflected in or suggested by our forward-looking statements are reasonable, those statements involve risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by these forward-looking statements, and we can give no assurance that our plans, objectives, expectations and prospects will be achieved. Important factorsYou should not place undue certainty on these forward-looking statements, which apply only as of the date of this report. These forward-looking statements are subject to certain risks and uncertainties that mightcould cause our actual results to differ materially from thehistorical results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere inor our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. predictions. The terms GWSN,“GWSN,” “we,” “us,” “our,” and the “Company” refer to Gulf West Security Network, Inc., a Nevada corporation.
Business Overview
Gulf West Security Network, Inc., a Nevada corporation, and its wholly-owned subsidiaries (formerly known as NuLife Sciences, Inc.), are principally engaged in the sale, installation, servicing, and monitoring of electronic home and business security and automation systems in the United States.
Gulf WestThe Company’s retail division, which includes its wholly-owned subsidiary, LJR Security Network,Services, Inc., a Louisiana corporation (“Gulf West”LJR”) and LJR are active, is actively engaged in the engineering, design, installation, remote monitoring and after-market servicing of electronic intrusion alert and fire detection systems for homes and businesses (the “alarm industry”).
The Company’s wholesale division, which operates under the name Gulf West Security Network (or “Gulf West”), is further engaged in the development and expansion of a proprietary coalition (alliance or network) of independently-branded life safety and property protection providers, fire alert and suppression system installers, electronic remote monitoring and video surveillance specialists, smart home designers, commercial systems integrators, structured wiring professionals and electrical contractors.
Both Gulf West and LJR are based in Lafayette, Louisiana and were previously owned by Louis J. (“Lou”) Resweber, a long-time veteran of the alarm industry, who has also previously served as a corporate officer, board member and executive consultant to a number of NYSE and NASDAQ-listed public companies over the past 35 years.
Reverse Merger
On August 9, 2018, the Board of Directors of the Company through its wholly-owned subsidiary NuLife Acquisition Corp., a Louisiana corporation (“NuLife Sub”), approved and executed an agreement of merger and plan of reorganization (the “Merger Agreement”), to become effective at such time as the articles of merger havehad been filed with the Secretary of State of Louisiana (the “Effective Time”), and after the satisfaction or waiver by the parties thereto of the conditions set forth in Article VI of the Merger Agreement. Pursuant to the terms of the Merger Agreement, NuLife Sub merged with and in exchange forinto LJR, with LJR being the surviving entity and becoming a wholly-owned subsidiary of the Company, all one hundred (100) issued and outstanding shares of common stock of LJR Security Services, Inc.held by the sole stockholder of LJR (“LJR”), LJR receivedStockholder”) were exchanged into one thousand (1,000) shares of series D senior convertible preferred stock, par value $.001$0.001 per share (the “Series D Preferred Stock”), of the Company, convertible into fifty million two hundred thirty-nine thousand five hundred forty-one (50,239,541) shares of common stock of the Company.Company (the “Merger”). In addition, the LJR shareholderStockholder received one share of series C super-voting preferred stock of NuLifethe Company which granted the holder 50.1% of the votes of NuLifethe Company at all times.
| 21 |
| Table of Contents |
The Merger was intended to constitute a tax-free reorganization within the meaning of Section 368 of the United States Internal Revenue Code of 1986, as amended. In accordance with the accounting treatment for a “reverse merger”, the Company’s historical financial statements prior to the Merger has been replaced with the historical financial statements of LJR prior to the Merger. The financial statements after completion of the Merger include the assets, liabilities, and results of operations of the combined company from and after the closing date of the Merger, with only certain aspects of pre-consummation stockholders’ equity remaining in the consolidated financial statements.
On September 19, 2018, the Company amended and restated its articles of incorporation of the Company providing for a change in the Company’s name to “Gulf West Security Network, Inc.” The Company also amended and restated its bylaws to reflect the name change.
Change of Fiscal Year
On September 28, 2018, the Company’s Board approved a change in fiscal year end from September 30th to December 31st. The decision to change the fiscal year end was related to the Merger to closely align the Company’s operations and internal controls with that of its wholly owned subsidiary LJR.
Our corporate office is located at Gulf West Security Network, Inc., 2851 Johnson Street, Unit #194, Lafayette, LA, 70503 and our telephone number is (337) 210-8790.
Critical Accounting Policies and Estimates
Use of Estimates
The preparation of the unaudited condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent liabilities at the date of the condensed consolidated financial statements and the reported amounts of expenses during the reporting period. Actual results could differ from those estimates.
Management makes estimates that affect certain accounts including deferred income tax assets, accrued expenses, fair value of equity instruments and reserves for any other commitments or contingencies. Any adjustments applied to estimates are recognized in the period in which such adjustments are determined.
Recent Accounting Pronouncements
See Note 2 of the accompanying unaudited consolidated financial statements for a discussion of recently issued accounting standards.
Results of Operations
Three months ended September 30,Months Ended March 31, 2020 and 2019 and 2018
Revenues
We had revenue of $3,562$2,699 for the three months ended September 30, 2019,March 31, 2020, as compared to $3,940$3,869 for the three months ended September 30, 2018March 31, 2019, a decrease of $378.$1,170. The decrease in revenue was due to a lesser concentration on new alarm system sales and installations, with our focus moving more toward alarm system monitoring and the corresponding recurring monthly revenue (RMR) that is associated with monitoring services.
Cost of Revenue
Cost of revenue sold for the three months ended September 30, 2019March 31, 2020 was $7,124,$1,124, as compared to $975$1,989 for the three months ended September 30, 2018. The increase in costMarch 31, 2019, a decrease of revenue is due to write-off of inventory amounting to $6,035.$865.
| 22 |
| Table of Contents |
General and Administrative
Our general and administrative expenses for the three months ended September 30, 2019March 31, 2020 were $127,580,$125,739, a decrease of $60,501,$137,776, or 32.6%52.3%, compared to $188,081$263,515 for the three months ended September 30, 2018.March 31, 2019. General and administrative expenses decreased mainly due to timing of auditdecreased in wages, rent and accountinglegal expenses associated with the public company operations.
Sales and marketingMarketing
Our sales and marketing expenses for the three months ended September 30, 2019March 31, 2020 were $5,193,$26, compared to $15,124$10,044 for the three months ended September 30, 2018.March 31, 2019. The decrease in sales and marketing expenses reflected management’s decision to shift its focus from retail to wholesale alarm operations.
Income from discontinued operations
Subsequent to the Merger,reverse merger with LJR on August 9, 2018, management decided to discontinue the activities of NuLife. As a result, we recorded income of $37,237$32,382 primarily due to a change in the fair value of a derivative liability.
Net loss
As a result of the foregoing, for the three months ended September 30, 2019,March 31, 2020, we recorded a net loss of $ $99,098$91,808 compared to a net loss of $200,240$221,167 for the three months ended September 30, 2018.March 31, 2019.
Nine months ended September 30, 2019Liquidity and 2018Capital Resources
WeAt March 31, 2020, the Company had revenue of $10,794 for the nine months ended September 30, 2019, as compared to $13,108 for the nine months ended September 30, 2018 a decrease of $2,314 or 18%.$4,287 cash on hand. The decrease in revenue was due to a lesser concentration on new alarm system salesCompany has limited commercial experience and installations, with our focus moving more toward alarm system monitoring and the corresponding recurring monthly revenue (RMR) that is associated with monitoring services.
Cost of Revenue
Cost of revenue sold for the nine months ended September 30, 2019 was $11,733, as compared to $4,437 for the nine months ended September 30, 2018. The increase in cost of revenue further reflected the shift from retail to wholesale alarm operations.
General and Administrative
Our general and administrative expenses for the nine months ended September 30, 2019 were $546,941, an increase of $165,455, or 43%, compared to $ 381,486 for the nine months ended September 30, 2018. General and administrative expenses increased mainly due to wages, professional fees and interest expense associated with the public company operations.
Sales and marketing
Our sales and marketing expenses for the nine months ended September 30, 2019 were $20,281, compared to $34,732 for the nine months ended September 30, 2018. The decrease in sales and marketing costs was consistent with the shift from retail to wholesale alarm operations.
Income from discontinued operations
Subsequent to the Merger, management decided to discontinue the activities of NuLife. As a result, we recorded income of $37,004 primarily due to a change in the fair value of derivative liability.
Net loss
As a result of the foregoing, for the nine months ended September 30, 2019, we recordedhad a net loss from continuing operations of $531,157 compared to a net loss of $ $407,547$124,190 for the ninethree months ended September 30, 2018.
LiquidityMarch 31, 2020, and Capital Resources
an accumulated deficit of $2,379,808, and a working capital deficit of $2,197,336 at March 31, 2020. The Company’s condensed consolidated financial statements are prepared using accounting principles generally accepted in the United States (“U.S. GAAP”) applicable to a going concern, which contemplates the realization of assets and liquidation of liabilities in the normal course of business. The Company has limited commercial experience and had a net loss from continuing operations of $568,161 for the nine months ended September 30, 2019, and an accumulated deficit of $2,045,537, and a working capital deficit of $1,863,065 at September 30, 2019. The Company has not yet established an ongoing source of revenue sufficient to cover its operating costs and to allow it to continue as a going concern. The accompanying condensed consolidated financial statements for the ninethree months ended September 30, 2019,March 31, 2020, have been prepared assuming the Company will continue as a going concern. The Company’s
We do not believe that we have enough cash resources will likely be insufficienton hand to meet its anticipated needsoperate of business during the next twelve12 months. The Company will require additional financing to fund its future planned operations, including research and development and commercialization of its products. To date, the Company has financed its operation primarily from advances from its affiliates. As of March 31, 2020 and December 31, 2019, the Company has received advances totaling $1,122,550 and $1,072,050, respectively, from its affiliates. The formal structure and payment terms of these advances have not yet been determined by the Company and the third parties. We do not have verbal or formal contracts with our affiliates obligating them to loan funds to us.
We may seek to raise additional funding that we require in the form of equity financing from the sale of our common stock. However, we cannot provide investors with any assurance that we will be able to raise sufficient funding from the sale of our common stock to fund our operations. We currently do not have any agreements or arrangements in place for any future financing.
Operating Activities
During the ninethree months ended September 30, 2019,March 31, 2020, we used $330,146$950 of cash in operating activities primarily as a result of our loss of $568,161$91,808 from continuing operations, offset by net changes in working capital items of operating assets and liabilities of $238,015.$56,329.
During the ninethree months ended September 30, 2018,March 31, 2019, we used $448,584$66,880 of cash in operating activities primarily as a result of our net loss of $ $407,547, depreciation expenses of $1,320,$271,679 and net changes in operating assets and liabilities of $42,357.$154,287.
| 23 |
| Table of Contents |
Financing Activities
During the ninethree months ended September 30, 2019,March 31, 2020, financing activities provided $280,000$57,151 in proceeds from a bridge loan and $3,807 in proceeds from advances from related party.
During the ninethree months ended September 30, 2018,March 31, 2019, financing activities provided $471,000$75,000 in proceeds from a bridge loan, $10,049 of net contribution and $4,561 in proceeds from advances from related party.loan.
Off-Balance Sheet Transactions
At September 30, 2019,March 31, 2020, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
As a smaller reporting company, we are not required to provide the information required by this Item 3.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
As of the end of the period covered by this Form 10-Q, management performed, with the participation of our principal executive officer and principal financial officer, an evaluation of the effectiveness of our disclosure controls and procedures as defined in Rules 13a-15(e) and 15d-15(e) of the Securities and Exchange Act of 1934, as amended (the “Exchange Act”). Our disclosure controls and procedures are designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, to allow timely decisions regarding required disclosures. Based on the evaluation, our principal executive officer and principal financial officer concluded that, as of September 30, 2019,March 31, 2020, our disclosure controls and procedures were not effective.
Due to resource constraints, material weaknesses are evident to management regarding our inability to generate all the necessary disclosure for inclusion in our filings with the Securities and Exchanges Commission, which is due to the lack of resources and segregation of duties. We lack sufficient personnel with the appropriate level of knowledge, experience and training in GAAP to meet the demands for a public company, including the accounting skills and understanding necessary to fulfill the requirements of GAAP-based reporting. This weakness causes us to not fully identify and resolve accounting and disclosure issues that could lead to a failure to perform timely internal control and reviews. In addition, the Company has not established an audit committee, does not have any independent outside directors on the Company’s Board of Directors, and lacks documentation of its internal control processes.
Changes in Internal Control over Financial Reporting
There were no changes in the Company’s internal control over financial reporting during the first half of 2019quarter ended March 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
| 24 |
| Table of Contents |
We are not currently a party to any pending legal proceedings that we believe will have a material adverse effect on our business or financial condition. We may, however, be subject to various claims and legal actions arising in the ordinary course of business from time to time.
Not required for smaller reporting companies.
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 4. Mine Safety Disclosures
Not applicable.
None
| 25 |
| Table of Contents |
Exhibit No. |
| Description of Exhibit |
| Rule 13a14(a)/15d-14(a) Certification of | |
| Rule 13a14(a)/15d-14(a) Certification of | |
| Section 1350 Certification of | |
| ||
101.INS** |
| XBRL Instance Document |
101.SCH** |
| XBRL Taxonomy Extension Schema Document |
101.CAL** |
| XBRL Taxonomy Extension Calculation Linkbase Document |
101.LAB** |
| XBRL Taxonomy Extension Label Linkbase Document |
101.PRE** |
| XBRL Taxonomy Extension Presentation Linkbase Document |
101.DEF** |
| XBRL Taxonomy Definition Linkbase Document |
______________
______
* Filed herewith
** Furnished herewith (not filed)
| 26 |
| Table of Contents |
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GULF WEST SECURITY NETWORK INC. | |||
| Date: | By: | /s/ Louis J. Resweber | |
|
| Louis J. Resweber | |
President | |||
| (Principal Executive | |||
(Principal Financial and Accounting Officer) | |||
| 27 |