Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
Forward-Looking Statements
This annual report contains certain information that may constitute “forward-looking statements” within the meaning of the U.S. Private Securities Litigation Reform Act of 1995. While we have specifically identified certain information as being forward-looking in the context of its presentation, we caution you that all statements contained in this report that are not clearly historical in nature, including statements regarding anticipated financial performance, management’s plans and objectives for future operations, business prospects, market conditions, and other matters are forward-looking. Forward-looking statements are contained principally in the sections of this report entitled “Business,” “Risk Factors,” and “Management’s Discussion and Analysis of Financial Condition and Results of Operations.” Without limiting the generality of the preceding sentence, any time we use the words “expects,” “intends,” “will,” “anticipates,” “believes,” “confident,” “continue,” “propose,” “seeks,” “could,” “may,” “should,” “estimates,” “forecasts,” “might,” “goals,” “objectives,” “targets,” “planned,” “projects,” and similar expressions, we intend to clearly express that the information deals with possible future events and is forward-looking in nature. However, the absence of these words or similar expressions does not mean that a statement is not forward-looking. For GWSN, particular uncertainties that could cause our actual results to be materially different than those expressed in our forward-looking statements include,
without limitation:
|
·
|
our ability to maintain and grow our existing customer base;
|
|
|
|
|
·
|
the amount and timing of our cash flows and earnings, which may be impacted by customer, competitive, supplier and other dynamics and conditions;
|
|
|
|
|
·
|
our ability to maintain or improve margins through business efficiencies;
|
|
|
|
|
·
|
our ability to launch new product and service offerings that achieve market acceptance with acceptable margins;
|
|
|
|
|
·
|
changes in law, economic and financial conditions, including tax law changes, changes to privacy requirements, changes to telemarketing, email marketing and similar consumer protection laws, interest and exchange rate volatility, and trade tariffs applicable to the products we sell;
|
|
|
|
|
·
|
the impact of potential information technology, cybersecurity or data security breaches.
|
Forward-looking information involves risks, uncertainties, and other factors that could cause actual results to differ materially from those expressed or implied in, or reasonably inferred from, such statements, including without limitation, the risks and uncertainties disclosed above. Therefore, caution should be taken not to place undue reliance on any such forward-looking statements. Much of the information in this report that looks toward future performance of our Company is based on various factors and important assumptions about future events that may or may not actually occur. As a result, our operations and financial results in the future could differ materially and substantially from those we have discussed in the forward-looking statements included in the Annual Report. We assume no obligation (and specifically disclaim any such obligation) to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
Business Overview
Gulf West Security Network, Inc., a Nevada corporation (“Gulf West”) and its wholly-owned subsidiaries, are principally engaged in the sale, installation, servicing, and monitoring of electronic home and business security and automation systems in the United States.
Gulf West Security Network, Inc. and LJR Security Services, Inc. (“LJR”) are active 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”). Both Gulf West and LJR are based in Lafayette, Louisiana and were 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.
Results of Operations
Year ended December 31, 2019 and 2018
We had revenue of $14,601 for the year ended December 31, 2019, as compared to $16,530 for year ended December 31, 2018 a decrease of $1,929 or 12%. 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 year ended December 31, 2019 was $12,848, as compared to $6,880 for the year ended December 31, 2018. The increase in cost of revenue is due to write-off of inventory amounting to $6,035.
General and Administrative
Our general and administrative expenses for the year ended December 31, 2019 were $808,441, an increase of $157,803, or 24%, compared to $650,638 for the year ended December 31, 2018. General and administrative expenses increased mainly due to timing of wages, audit and accounting expenses associated with the public company operations.
Sales and marketing
Our sales and marketing expenses for the year ended December 31, 2019 were $0, compared to $46,538 for the year ended December 31, 2018. 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, management decided to discontinue the activities of NuLife. As a result, we recorded income of $33,068 primarily due to a change in the fair value of a derivative liability.
Net loss
As a result of the foregoing, for the year ended December 31, 2019, we recorded a net loss of $773,620 compared to a net loss of $1,358,550 for the year ended December 31, 2018.
Liquidity and Capital Resources
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 $806,688 for the year ended December 31, 2019, and an accumulated deficit of $2,288,000, and a working capital deficit of $2,105,528 at December 31, 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 year ended December 31, 2019, 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.
Operating Activities
During the year ended December 31, 2019, we used $425,227 of cash in operating activities primarily as a result of our loss of $773,620 from continuing operations, offset by net changes in working capital items of operating assets and liabilities of $381,461.
During the year ended December 31, 2018, we used $598,549 of cash in operating activities primarily as a result of our net loss of $ $1,358,550, depreciation expenses of $1,319, and net changes in operating assets and liabilities of $87,658.
Financing Activities
During the year ended December 31, 2019, financing activities provided $401,050 in proceeds from a bridge loan and used $28,211 in net payments to advances from related party.
During the year ended December 31, 2018, financing activities provided $671,000 in proceeds from a bridge loan, $14,202 of net contribution and $6,471 in proceeds from advances from related party.
Off-Balance Sheet Transactions
At December 31, 2019, the Company did not have any transactions, obligations or relationships that could be considered off-balance sheet arrangements.
Item 8. Financial Statements and Supplementary Data.
Gulf West Security Network, Inc.
A Nevada Corporation
Consolidated Financial Statements
December 31, 2019 and 2018
Gulf West Security Network, Inc.
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and
Stockholders of Gulf West Security Network, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheet of Gulf West Security Network, Inc. (the Company) as of December 31, 2019, and the related consolidated statements of operations, deficiency in stockholders’ equity, and cash flow for the year ended December 31, 2019, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2019, and the results of its operations and its cash flow for the year ended December 31, 2019, in conformity with accounting principles generally accepted in the United States of America. The financial statements of Gulf West Security Network, Inc. as of December 31, 2018 were audited by other auditors whose report dated April 16, 2019 expressed an unqualified opinion on those statements.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 2 to the consolidated financial statements, the Company suffered a net loss from operations and has a net capital deficiency, which raises substantial doubt about its ability to continue as a going concern. Management's plans regarding those matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty.
/s/ M&K CPAS, PLLC
|
|
|
We have served as the Company’s auditor since 2019.
|
|
|
Houston, TX
|
March 30, 2020
|
|
Report of Independent Registered Public Accounting Firm
To the Board of Directors and
Stockholders of Gulf West Security Network, Inc. F/K/A LJR Security Services, Inc.
Lafayette, Louisiana
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Gulf West Security Network, Inc. (formerly known as LJR Security Services, Inc.) (the “Company”) at December 31, 2018, and the related consolidated statements of operations, changes in stockholders’ equity (deficit), and cash flows for each of the years in the year ended December 31, 2018, and the related notes (collectively referred to as the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 31, 2018, and the results of its operations and its cash flows for the year ended December 31, 2018, in conformity with accounting principles generally accepted in the United States of America.
Going Concern Uncertainty
The accompanying consolidated financial statements have been prepared assuming that the Company will continue as a going concern. As described in Note 2 to the consolidated financial statements, the Company has experienced net losses and has accumulated and working capital deficits, which raise substantial doubt about its ability to continue as a going concern. Management’s plans in regard to these matters are described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. Our opinion is not modified with respect to this matter.
Basis for Opinion
These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on the Company’s consolidated financial statements based on our audits. We are a public accounting firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. As part of our audits, we are required to obtain an understanding of internal control over financial reporting, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion.
Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ Daszkal Bolton LLP
Daszkal Bolton LLP
|
April 16, 2019
Boca Raton, Florida
We have served as the Company’s auditor since 2018.
|
|
|
2019
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Assets
|
|
|
|
|
|
|
Cash
|
|
$
|
10,045
|
|
|
$
|
64,798
|
|
Accounts receivable
|
|
|
2,876
|
|
|
|
1,906
|
|
Prepaid expenses
|
|
|
25,987
|
|
|
|
85,560
|
|
Total current assets
|
|
|
38,908
|
|
|
|
152,264
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
38,908
|
|
|
$
|
152,264
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND DEFICIENCY IN STOCKHOLDERS’ EQUITY (DEFICIENCY)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
248,888
|
|
|
$
|
100,976
|
|
Accounts payable - related party
|
|
|
3,565
|
|
|
|
31,776
|
|
Accrued wages - related party
|
|
|
218,805
|
|
|
|
43,859
|
|
Bridge Loan from affiliates
|
|
|
1,072,050
|
|
|
|
671,000
|
|
Liabilities of discontinued operations
|
|
|
601,128
|
|
|
|
636,561
|
|
Total liabilities
|
|
|
2,144,436
|
|
|
|
1,484,172
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
(2,288,000
|
)
|
|
|
(1,514,380
|
)
|
Total deficiency in stockholders’ equity
|
|
|
(2,105,528
|
)
|
|
|
(1,331,908
|
)
|
|
|
|
|
|
|
|
|
|
Total liabilities and deficiency in stockholders’ equity
|
|
$
|
38,908
|
|
|
$
|
152,264
|
|
See accompanying notes, which are an integral part of these consolidated financial statements.
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenue
|
|
|
|
|
|
|
Monitoring and related services
|
|
$
|
13,335
|
|
|
$
|
16,530
|
|
Product sales and installation
|
|
|
1,266
|
|
|
|
-
|
|
Total Revenue
|
|
|
14,601
|
|
|
|
16,530
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue
|
|
|
12,848
|
|
|
|
6,880
|
|
|
|
|
|
|
|
|
|
|
Gross Profit
|
|
|
1,753
|
|
|
|
9,650
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
General and administrative
|
|
|
808,441
|
|
|
|
650,638
|
|
Sales and martketing
|
|
|
-
|
|
|
|
46,538
|
|
Total Operating Expenses
|
|
|
808,441
|
|
|
|
697,176
|
|
|
|
|
|
|
|
|
|
|
Operating Loss
|
|
|
(806,688
|
)
|
|
|
(687,526
|
)
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations before provision for income taxes
|
|
|
(806,688
|
)
|
|
|
(687,526
|
)
|
|
|
|
|
|
|
|
|
|
Provision for income taxes
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Loss from continuing operations
|
|
|
(806,688
|
)
|
|
|
(687,526
|
)
|
|
|
|
|
|
|
|
|
|
Income (loss) from discontinued operations
|
|
|
33,068
|
|
|
|
(671,024
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(773,620
|
)
|
|
$
|
(1,358,550
|
)
|
|
|
|
|
|
|
|
|
|
Basic and diluted net loss per common share, continuing operations
|
|
$
|
(0.11
|
)
|
|
$
|
(0.16
|
)
|
Basic and diluted net loss per common share, discontinued operations
|
|
$
|
0.01
|
|
|
$
|
(0.16
|
)
|
Weighted average shares outstanding
|
|
|
4,518,250
|
|
|
|
4,172,198
|
|
See accompanying notes, which are an integral part of these consolidated financial statements.
|
|
Preferred Stock Series A
|
|
|
Preferred Stock Series B
|
|
|
Preferred Stock Series C
|
|
|
Preferred Stock Series D
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares
|
|
|
Amount
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Number of Shares
|
|
|
Amount
|
|
|
Number
of
Shares
|
|
|
Amount
|
|
|
Additional
Paid-In Capital
|
|
|
Accumulated Deficit
|
|
|
Total
Stockholders' Deficit
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at January 1, 2018
|
|
|
117,500
|
|
|
$
|
118
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
4,050,439
|
|
|
$
|
4,050
|
|
|
$
|
164,102
|
|
|
$
|
(155,830
|
)
|
|
$
|
12,440
|
|
Shares issued for debt settlement
|
|
|
25,000
|
|
|
|
25
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
15,385
|
|
|
|
15
|
|
|
|
(1,836
|
)
|
|
|
-
|
|
|
|
(1,796
|
)
|
Shares issued in connection with reverse merger
|
|
|
600,000
|
|
|
|
600
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1
|
|
|
|
-
|
|
|
|
1,000
|
|
|
|
1
|
|
|
|
452,426
|
|
|
|
453
|
|
|
|
10,791
|
|
|
|
-
|
|
|
|
11,845
|
|
Shares issued for debt settlement
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,153
|
|
|
|
-
|
|
|
|
4,153
|
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(1,358,550
|
)
|
|
|
(1,358,550
|
)
|
Balance at December 31, 2018
|
|
|
742,500
|
|
|
$
|
743
|
|
|
|
-
|
|
|
$
|
-
|
|
|
|
1
|
|
|
$
|
-
|
|
|
|
1,000
|
|
|
$
|
1
|
|
|
|
4,518,250
|
|
|
$
|
4,518
|
|
|
$
|
177,210
|
|
|
$
|
(1,514,380
|
)
|
|
$
|
(1,331,908
|
)
|
Net loss
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(773,620
|
)
|
|
|
(773,620
|
)
|
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
|
)
|
See accompanying notes, which are an integral part of these consolidated financial statements.
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Cash Flows from Operating Activities
|
|
|
|
|
|
|
Net loss
|
|
$
|
(773,620
|
)
|
|
$
|
(1,358,550
|
)
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
(Income) loss from discontinued operations
|
|
|
(33,068
|
)
|
|
|
671,024
|
|
Depreciation
|
|
|
-
|
|
|
|
1,319
|
|
Changes in operating assets and liabilities
|
|
|
|
|
|
|
|
|
Accounts receivable
|
|
|
(970
|
)
|
|
|
(1,906
|
)
|
Prepaid expenses
|
|
|
59,573
|
|
|
|
(55,271
|
)
|
Accounts payable and accrued liabilities
|
|
|
147,912
|
|
|
|
100,976
|
|
Accrued wages - related party
|
|
|
174,946
|
|
|
|
43,859
|
|
Net cash used in operating activities – continuing operations
|
|
|
(425,227
|
)
|
|
|
(598,549
|
)
|
Net cash used by operating activities – discontinued operations
|
|
|
(2,365
|
)
|
|
|
(34,463
|
)
|
|
|
|
|
|
|
|
|
|
Cash Flows from Investing Activities
|
|
|
-
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash Flows from Financing Activities
|
|
|
|
|
|
|
|
|
Contributions, net
|
|
|
-
|
|
|
|
14,202
|
|
Proceeds from bridge loan
|
|
|
401,050
|
|
|
|
671,000
|
|
Advances from related party, net
|
|
|
(28,211
|
)
|
|
|
6,471
|
|
Cash flow provided by financing activities
|
|
|
372,839
|
|
|
|
691,673
|
|
|
|
|
|
|
|
|
|
|
Net Change in Cash
|
|
|
(54,753
|
)
|
|
|
58,661
|
|
|
|
|
|
|
|
|
|
|
Cash at Beginning of Period
|
|
|
64,798
|
|
|
|
6,137
|
|
Cash at End of Period
|
|
$
|
10,045
|
|
|
$
|
64,798
|
|
|
|
|
|
|
|
|
|
|
Supplemental Disclosure of Cash Flow Information
|
|
|
|
|
|
|
|
|
Cash paid for interest
|
|
$
|
-
|
|
|
$
|
-
|
|
Cash paid for income taxes
|
|
$
|
-
|
|
|
$
|
-
|
|
Net assets acquired via stock issued
|
|
$
|
-
|
|
|
$
|
612,774
|
|
See accompanying notes, which are an integral part of these consolidated financial statements.
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 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-nine 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.
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.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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 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 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 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 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”).
Reclassifications
Certain reclassifications have been made to the prior year’s financial statements to enhance comparability with the current year’s financial statements. As a result, certain line items have been amended in the consolidated balance sheets and consolidated statements of cash flow. Comparative figures have been adjusted to conform to the current year’s presentation. These reclassifications had no effect on the reported net loss
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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 December 31, 2019 and 2018, 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 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.
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.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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
|
|
|
|
Carrying Value
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
As of December 31, 2019
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments
|
|
$
|
72,904
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
72,904
|
|
As of December 31, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities, debt and equity instruments
|
|
$
|
111,291
|
|
|
|
—
|
|
|
|
—
|
|
|
$
|
111,291
|
|
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.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
Changes in Level 3 assets measured at fair value for the year ended December 31, 2019 and 2018 were as follows:
Balance, December 31, 2017
|
|
$
|
—
|
|
Beneficial conversion derivative liability assumed in Merger
|
|
|
172,532
|
|
Changes in fair value of derivative
|
|
|
(61,241
|
)
|
Balance, December 31, 2018
|
|
$
|
111,291
|
|
Change in fair value of derivative
|
|
|
(38,387
|
)
|
Balance, December 31, 2019
|
|
$
|
72,904
|
|
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 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.
Income Taxes
Income taxes are provided in accordance with ASC 740, Income Taxes. A deferred tax asset or liability is recorded for all temporary differences between financial and tax reporting and net operating loss carry forwards. Deferred tax expense (benefit) results from the net change during the year of deferred tax assets and liabilities.
Deferred tax assets are reduced by a valuation allowance when, in the opinion of management, it is more likely than not that some portion or all of the deferred tax assets will not be realized. Deferred tax assets and liabilities are adjusted for the effects of changes in tax laws and rates on the date of enactment.
No provision was made for Federal or State income taxes.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
Going Concern
The Company’s 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 $806,688 for the year ended December 31, 2019, and an accumulated deficit of $2,288,000 and a working capital deficit of $2,105,528 at December 31, 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 consolidated financial statements for the year ended December 31, 2019, 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.
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 consolidated financial statements are issued. The accompanying 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 year 2019 but did not have any impact since all leases are 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 consolidated financial statements.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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.
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 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 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-nine 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
|
|
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 consolidated financial statements.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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.
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 was paid on December 5, 2019.
|
As of December 31, 2019 and 2018, notes payable had total outstanding principal of $99,500 and $117,700, and accrued interest of $51,179 and $41,044, 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:
|
|
December 31,
2019
|
|
(A) Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and is 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
|
|
|
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 December 31, 2019 and 2018, convertible notes had total outstanding principal of $138,500 and $138,500 and accrued interest of $24,626 and $13,806, all respectively. These liabilities have been incorporated into liabilities from discontinued operations.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
Derivative Liability
As of December 31, 2019 and 2018, the derivative liabilities were valued at $39,873 and $111 ,291, respectively, related to a convertible note [(C) 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:
|
|
December 31,
2019
|
|
December 31,
2018
|
|
(1) dividend yield of
|
|
|
0%;
|
|
|
0%;
|
|
(2) expected volatility of
|
|
|
39%;
|
|
|
336%;
|
|
(3) risk-free interest rate of
|
|
|
1.55%;
|
|
|
2.18%;
|
|
(4) expected life of
|
|
|
0.33 year;
|
|
|
0.33 year;
|
|
(5) fair value of the Company’s common stock of
|
|
$
|
0.06 per share.
|
|
$
|
0.08 per share.
|
|
NOTE 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 December 31, 2019 and 2018, the available barter credit balances were $20,987 and $22,760, respectively.
As of December 31, 2019 this account also includes prepaid expense for legal expenses amounting to $5,000. As of December 31, 2018, this account also includes prepaid expense for legal expenses, insurance expenses and other professional fees amounting to $5,000, $12,800 and $45,000, respectively.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
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 $218,805 and $43,859 as of December 31, 2019 and 2018, 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 December 31, 2019 and 2018 were $3,565 and $31,776, respectively.
NOTE 6: BRIDGE LOAN FROM AFFILIATES
As of December 31, 2019 and 2018, the Company has received advances totaling to $1,072,050 and $671,000, respectively, from its affiliates. The formal structure and payment terms of these advances have not yet been determined by the Company and its affiliates.
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 December 31, 2019 and 2018, 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.
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GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
|
·
|
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.
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|
|
|
|
·
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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.
|
|
|
|
|
·
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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.
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|
|
|
|
·
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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 “Conversion Price”). Redemption payments shall only be made in cash within sixty (60) days of notice by the Company to redeem.
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|
·
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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.
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GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
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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 thirty-nine thousand five hundred forty-one (50,239,541) shares of common stock of the Company. Additionally, the Series D Preferred Stock has pari passu dividend, distribution and liquidation rights with the common stock.
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Stock Options
As a result of the Reverse Merger the Company has outstanding stock options as of December 31, 2019 and 2018 as follows:
|
|
December 31, 2019
|
|
|
December 31, 2018
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|
|
|
Stock
Options
|
|
|
Weighted Average Exercise Price
|
|
|
Stock
Options
|
|
|
Weighted Average Exercise Price
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding - beginning of year
|
|
|
2,120,000
|
|
|
$
|
0.17
|
|
|
|
-
|
|
|
$
|
-
|
|
Granted
|
|
|
-
|
|
|
|
-
|
|
|
|
2,120,000
|
|
|
|
0.17
|
|
Exercised
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Forfeited
|
|
|
(1,500,000
|
)
|
|
|
0.14
|
|
|
|
-
|
|
|
|
-
|
|
Outstanding - end of year
|
|
|
145,200
|
|
|
$
|
0.23
|
|
|
|
2,120,000
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable and vested - end of year
|
|
|
145,200
|
|
|
|
|
|
|
|
2,120,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average remaining term
|
|
|
0.09
|
|
|
|
|
|
|
|
1.00
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average intrinsic value
|
|
$
|
145,200
|
|
|
|
|
|
|
$
|
355,200
|
|
|
|
|
|
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
NOTE 8: INCOME TAXES
Deferred income taxes reflect the net tax effects of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for income tax purposes. Significant components of the Company’s deferred tax assets as of December 31, 2019 and 2018 are summarized below.
|
|
2019
|
|
|
2018
|
|
Net operating loss carryforward
|
|
$
|
(373,451
|
)
|
|
$
|
(210,736
|
)
|
Other
|
|
|
—
|
|
|
|
—
|
|
Total deferred tax assets
|
|
|
(373,451
|
)
|
|
|
(210,736
|
)
|
Valuation allowance
|
|
|
373,451
|
|
|
|
210,736
|
|
Net deferred tax asset
|
|
$
|
—
|
|
|
$
|
—
|
|
In assessing the potential realization of deferred tax assets, management considers whether it is more likely than not that some portion or all of the deferred tax assets will be realized. The ultimate realization of deferred tax assets is dependent upon the Company attaining future taxable income during the periods in which those temporary differences become deductible. As of December 31, 2019 and 2018, management was unable to determine if it is more likely than not that the Company’s deferred tax assets will be realized, and has therefore recorded an appropriate valuation allowance against deferred tax assets at such dates.
No federal tax provision has been provided for the years ended December 31, 2019 and 2018 due to the losses incurred during such periods. Reconciled below is the difference between the income tax rate computed by applying the U.S. federal statutory rate and the effective tax rate for the years ended December 31, 2019 and 2018.
|
|
2019
|
|
|
2018
|
|
U.S federal statutory income tax
|
|
|
-21.00
|
%
|
|
|
-21.00
|
%
|
State tax, net of federal tax benefit
|
|
|
-5.80
|
%
|
|
|
-5.80
|
%
|
Stock based compensation
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
Change in valuation allowance
|
|
|
26.80
|
%
|
|
|
26.80
|
%
|
Effective tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
At December 31, 2019, the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $1.78 million, which, if not utilized earlier, expire through 2039.
The U.S. tax reform bill that Congress voted to approve December 20, 2017, also known as the “Tax Cuts and Jobs Act”, made sweeping modifications to the Internal Revenue Code, including a much lower corporate tax rate, changes to credits and deductions, and a move to a territorial system for corporations that have overseas earnings. The act replaced the prior-law graduated corporate tax rate, which taxed income over $10 million at 35%, with a flat rate of 21%.
GULF WEST SECURITY NETWORK, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
As of December 31, 2019 and December 31, 2018 and for the years then ended
|
The Tax Reform Act of 1986 limits the annual utilization of net operating loss and tax credit carry forwards, following an ownership change of the Company. Note that as a result of the Company’s equity financings in recent years, the Company underwent changes in ownership for purposes of the Tax Reform Act. Pursuant to Sections 382 and 383 of the Internal Revenue Code, annual use of any of the Company’s net operating loss carry forwards may be limited if cumulative changes in ownership of more than 50% occur during any three-year period.
NOTE 9: COMMITMENT AND CONTINGENCIES
Office Lease
During the year ended December 31, 2019, the Company rented space on a month-to-month basis in a Class 1 office in Lafayette, LA. The monthly rent is $3,000. For the year ended December 31, 2019 and 2018, the Company incurred $18,000 and $29,500 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 10: 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 December 31, 2019 up through the date of the these consolidated financial statements.
Subsequent to the period ended December 31, 2019, the Company received an additional advance amounting to $40,000 from its affiliate. The formal structure and payment terms of these advances have not yet been determined by the Company and its affiliate.