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Gulf West Security Network (GWSN)

Filed: 20 May 19, 5:24pm

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

FORM 10-Q

 

(Mark One)

 

     QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019

OR

 

   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER

333-193220

 

GULF WEST SECURITY NETWORK, INC.

      (Exact name of registrant as specified in its charter)

 

Nevada 46-3876675
(State of incorporation) (I.R.S. Employer Identification No.)

 

Park Tower Building, 4th Floor, Suite 4200-A, 400 East Kaliste Saloom Road

Lafayette, LA 70508-8517

 

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code: (337) 210-8790

   

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              No      

 

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

 

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 filerAccelerated filer
Non-accelerated filer   Smaller reporting 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      

 

As of May 20, 2019, 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 THREE MONTHS ENDED MARCH 31, 2019

 

INDEX

 

PART I - FINANCIAL INFORMATION PAGE
 
Item 1. Financial Statements              3
  
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  16
  
Item 3. Quantitative and Qualitative Disclosure About Market Risk  18
  
Item 4. Controls and Procedures  18
  
PART II – OTHER INFORMATION  19
  
Item 1.  Legal Proceedings              19
  
Item 1A.  Risk Factors  19
  
Item 2. Recent Sales of Unregistered Securities; Use of Proceeds from Registered Securities  19
  
Item 3. Defaults Upon Senior Securities  19
  
Item 4. Mine Safety Disclosures  19
  
Item 5. Other Information            19
  
Item 6. Exhibits              19
  
SIGNATURES         20
  
EXHIBIT INDEX              

 

 

 2 

 

PART I - FINANCIAL INFORMATION

 

Item 1. Financial Statements

  Gulf West Security Network, Inc.

Condensed Consolidated Balance Sheets

(Unaudited)

 

  

March 31, 

 December 31,
Assets 2019 2018
  Current Assets        
Cash $22,406  $64,798 
Accounts receivable  1,923   1,906 
Prepaid expenses  31,422   85,560 
Inventory  6,327   —   
Total Current Assets  62,078   152,264 
Total Assets $62,078  $152,264 
         
Liabilities and Stockholders’ Equity (Deficit)        
Current Liabilities:        
Accounts payable and accrued liabilities $283,104  $176,611 
Bridge loan  746,000   671,000 
Liabilities of discontinued operations  586,049   636,561 
         
Total Current Liabilities  1,615,153   1,484,172 
         
Commitments and contingencies        
         
Stockholders’ Equity (Deficit)        
 Preferred stock Series A, $0.001 par value; 15,000,000 shares authorized; 742,500 and 117,500 issued and outstanding, respectively  743   743 
 Preferred stock Series B, $0.001 par value; nil issued and outstanding  —     —   
 Preferred stock Series C, $0.001 par value; 1 share authorized; 1 and nill issued and outstanding, respectively  —     —   
 Preferred stock Series D, $0.001 par value; 1,000 shares authorized; 1,000 and nill issued and outstanding, respectively  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  (1,735,547)  (1,514,379)
Total Stockholders’ (Deficit)  (1,553,075)  (1,331,908)
Total Liabilities and Stockholders’ (Deficit) $62,078  $152,264 

 

 The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 3 

 

Gulf West Security Network, Inc.

Condensed Consolidated Statements of Operations

 (Unaudited)

  

  Three months ended Three months ended
  March 31, March 31,
  2019 2018
Revenue        
Monitoring and related services $3,869  $4,985 
Product sales and installation  —     —   
   3,869   4,985 
         
Cost of Product  1,989   1,052 
         
Gross Profit  1,880   3,933 
         
Operating Expenses        
General and administrative  263,515   77,673 
Sales and marketing  10,044   9,768 
Total operating expenses  273,559   87,441 
         
Operating loss  (271,679)  (83,507)
         
Loss from continuing operations before provision for income taxes  (271,679)  (83,507)
         
Provision for income taxes  —     —   
         
Loss from continuing operations  (271,679)  (83,507)
         
Income from discontinued operations  50,512   —   
         
Net Loss $(221,167) $(83,507)
         
Basic and diluted net loss per common share, continuing operations $(0.06) $(0.02)
Basic and diluted earnings per common share, discontinued operations $0.01  $—   
         
Weighted average shares outstanding  4,518,250   3,820,990 

 

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 

 

 

 4 

Gulf West Security Network, Inc.

Condensed Consolidated Statements of Stockholders Deficit

 (Unaudited)

  

 

  Preferred stock Series A Preferred stock Series B Preferred stock Series C Preferred stock Series D Common stock     Total
  Shares Amount Shares Amount Shares Amount Shares Amount Shares Amount Additional Paid in Capital Accumulated Deficit Stockholders' Equity/(Deficit)
 Balance as of 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)
 Net loss  —     —     —     —     —     —     —     —     —     —     —     (83,507)  (83,507)
 Balance as of March 31, 2018  142,500   143   —     —     —     —     —     —     4,065,824   4,065   162,266   (239,337)  (72,863)
                                                     
 Balance as of January 1, 2019  742,500   743   —     —     1   0   1,000   1   4,518,250   4,518   177,210   (1,514,380)  (1,331,908)
Net loss  —     —     —     —     —     —     —     —     —     —     —     (221,167)  (221,167)
 Balance as of March 31, 2019  742,500   743   —     —     1   0   1,000   1   4,518,250   4,518   177,210   (1,735,547)  (1,553,075)

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.

 

 

 5 

 

 

Gulf West Security Network, Inc.

Condensed Consolidated Statements of Cash Flows

 (Unaudited)

  

  Three months ended Three months ended
  March 31, March 31,
  2019 2018
Cash Flows from Operating Activities        
Loss from continuing operations $(271,679) $(83,507)
Adjustments to reconcile net loss to net cash used in operating activities:        
Income from discontinued operations  50,512   —   
Depreciation  —     100 
Changes in operating assets and liabilities:        
Accounts receivable  (17)  (1,068)
Prepaid expenses  54,138   (10,094)
Inventory  (6,327)  —   
Accounts payable and accrued liabilities  106,493   3,545 
Net cash used in operating activities - continuing operations  (66,880)  (91,025)
Net cash used in operating activities - discontinued operations  (50,512)  —   
         
Cash Flows from Investing Activities:  —     —   
Net cash used in investing activities  —     —   
         
Cash Flows from Financing Activities        
Contributions, net  —     (1,796)
Proceeds from bridge loan  75,000   100,000 
Net cash provided by financing activities  75,000   98,204 
         
Net (decrease) increase in cash  (42,392)  7,180 
         
Cash, beginning of period  64,798   6,137 
         
Cash, end of period $22,406  $13,317 
         
Supplemental disclosure of cash flow information:        
      Cash paid for interest $—    $—   
      Cash paid for income taxes $—    $—   

 

The accompanying notes are an integral part of these unaudited condensed consolidated financial statements.   

 

 

 6 

 

 

Gulf West Security Network, Inc.

Notes to Condensed Consolidated Financial Statements

For the three months ended March 31, 2019 and 2018

(Unaudited)

 

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 consolidated 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.

 

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.

 7 

 

 

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 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 consolidated financial statements and related notes have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (the “SEC”).

 

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 March 31, 2019 and December 31, 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.

 

Goodwill

 

Goodwill is not amortized but are evaluated for impairment annually or when indicators of a potential impairment are present. The Company intends to perform its impairment testing of goodwill annually. The annual evaluation for impairment of goodwill is based on management’s assessment of the carrying values of such assets.

 

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 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.

 8 

 

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.

 

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 March 31, 2019

  Carrying Value Level 1 Level 2 Level 3
Derivative liabilities, debt and equity instruments $55,461   —     —    $55,461 
                 

 

 

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.

 

Changes in Level 3 assets measured at fair value for the three months ended March 31, 2019 were as follows:

 

Balance, December 31, 2018 $111,291 
Beneficial conversion derivative liability assumed in Merger  - 
Change in fair value of derivative  (55,830)
Balance, March 31, 2019 $55,461 

 

 9 

 

Derivative Financial Instruments

 

The Company evaluates our 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 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 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 of $221,167 for the three months ended March 31, 2019, and an accumulated deficit of $1,735,547 and a working capital deficit of $1,553,075 at March 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 three months ended March 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 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 is 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 evaluated the impact that the application of the new standard has on its consolidated financial statements and related disclosures and determined there has been no impact. The Company adopted the provisions of this standard in the first quarter of fiscal 2019.

 

 10 

 

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.

 

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.

 

Goodwill

 

The Company acquired goodwill through the Reverse Merger described above. The carrying value of $612,771 was impaired 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 is due on July 31, 2019 and carries an interest at the rate of 3%.
 11 

 

As of March 31, 2019, notes payable had total outstanding principal of $117,500 and accrued interest of $43,720. 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, 2019
(A)    Convertible note payable, annual interest rate of 8%, convertible into common stock at $0.11 per share and is due December 2019 $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 made in 2017, outstanding principal of $5,000, and accrued interest of $715.

B. Hayden note was made 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 made October 13, 2017, outstanding principal of $20,000, and accrued interest of $1,530.

 

As of March 31, 2019, convertible notes had total outstanding principal of $138,500 and accrued interest of $16,450. These liabilities have been incorporated into liabilities from discontinued operations.

 

Derivative Liability

 

As of March 31, 2019, the derivative liabilities were valued at $55,461, related to a convertible note due September 2018 (listed above). These liabilities have been incorporated into liabilities from discontinued operations.

 

The fair value of the described embedded derivative was determined using the Black-Scholes Model with the following assumptions:

 

 

March 31,

2019

(1) dividend yield of0%;
(2) expected volatility of336%;
(3) risk-free interest rate of2.18%;
(4) expected life of0.33 year;
(5) fair value of the Company’s common stock of$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 March 31, 2019 and December 31, 2018, the available barter credit balances were $23,222 and $22,760, respectively.

 

Note 5 – Bridge Loan

 

As of March 31, 2019, the Company received advances totaling $746,000 from certain unrelated third parties. The formal structure and terms of the advances have not yet been determined by the Company and the third parties. Subsequent to the period ended March 31, 2019 the Company has received an additional advances totaling $62,080 from the same parties.

 

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Note 6 – Capital Stock

 

The Company is authorized to issue 475,000,000 shares of $.001 par value common stock and 25,000,000 shares of $.001 par value preferred stock.

 

As of March 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

 

As authorized in the Company’s Amended and Restated Articles of Incorporation, the Company has 2,000,000 shares of Series A Preferred Stock (“Series A Stock”) authorized 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.

 

● 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.

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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.

 

● 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

 

● 1 share of the Company’s authorized Series C Preferred Stock is issued and outstanding. 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

 

● 1,000 of the Company’s authorized 25,000,000 shares of preferred stock are 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.

 

Stock Options

 

As a result of the Reverse Merger the Company has outstanding the following stock options as of the period ended March 31, 2019

 

  Shares 

 

Weighted

Average

Exercise

Price

 

 

Weighted

Average

Remaining

Term

 

 

Aggregate

Intrinsic Value

 Outstanding, March 31, 2019   2,120,000  $0.17   1.00  $355,200 
 Exercisable, March 31, 2019   2,120,000  $0.17   1.00  $355,200 

 

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Note 8 – Commitments & Contingencies

 

Office Lease

 

During the three months ended March 31, 2019, the Company rented space on a month-to-month basis in a Class 1 office in Lafayette, LA which it currently occupies. The monthly rent is $3,000. For the three months ended March 31, 2019 and 2018, the Company incurred $9,000 and $0 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.

 

 

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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 factors that might cause our actual results to differ materially from the results contemplated by the forward-looking statements are contained in the “Risk Factors” section of and elsewhere in our Annual Report on Form 10-K for the fiscal year ended December 31, 2018. The terms GWSN,” “we,” “us,” “our,” and the “Company” refer to Gulf West Security Network, Inc. 

 

Business Overview

 

 Gulf West Security Network, Inc. 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., a Louisiana corporation (“Gulf West”) and 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.

 

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 will receive 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 will receive one share of series C super-voting preferred stock of NuLife which grants the holder 50.1% of the votes of NuLife at all times.

 

Our corporate office is located at Gulf West Security Network, Inc., Park Tower Building, 4th Floor, Suite 4200-A, 400 East Kaliste Saloom Road, Lafayette, Louisiana, 70508, (337) 304-4043.

 

Critical Accounting Policies and Estimates

 

Use of Estimates

 

The preparation of the 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 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 consolidated financial statements for a discussion of recently issued accounting standards.

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Results of Operations

 

Three months ended March 31, 2019 and 2018

 

We had revenue of $3,869 for the three months ended March 31, 2019, as compared to $4,985 for the three months ended March 31, 2018 a decrease of $1,116 or 22%. The decrease in revenue was due toa 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 Product

 

Cost of product sold for the three months ended March 31, 2019 was $1,989, as compared to $1,052 for the three months ended March 31, 2018.

 

General and Administrative

 

Our general and administrative expenses for the three months ended March 31, 2019 were $263,515, an increase of $185,842, or 239%, compared to $77,673 for the three months ended March 31, 2018. General and administrative expenses increased mainly due to legal and accounting costs associated with the public company operations.

 

Sales and marketing

 

Our sales and marketing expenses for the three months ended March 31, 2019 were $10,044, compared to $9,768 for the three months ended March 31, 2018.

 

Income (loss) from discontinued operations

 

Subsequent to the Merger, management decided to discontinue the activities of NuLife. As a result, we recorded income of $50,512 primarily due to a change in the fair value of derivative liability.

 

Net loss

 

As a result of the foregoing, for the three months ended March 31, 2019, we recorded a net loss of $221,167 compared to a net loss of $83,507 for the three months ended March 31, 2018.

 

Liquidity and Capital Resources

 

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 of $221,167 for the three months ended March 31, 2019, and an accumulated deficit of $1,735,547 at March 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 three months ended March 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 three months ended March 31, 2019, we used $117,392 of cash in operating activities primarily as a result of our loss of $271,679 from continuing operations, offset by net changes in working capital items of operating assets and liabilities of $154,287.

 

During the three months ended March 31, 2018, we used $91,025 of cash in operating activities primarily as a result of our net loss of $83,507, depreciation expenses of $100, and net changes in operating assets and liabilities of $7,617.

 

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Financing Activities

 

During the three months ended March 31, 2019, financing activities provided $75,000 in proceeds from a bridge loan.

 

During the three months ended March 31, 2018, financing activities provided $100,000 in proceeds from a bridge loan and $1,796 of net contribution.

 

  Off-Balance Sheet Transactions

 

At March 31, 2019, 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 March 31, 2019, 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 quarter of 2019 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

 

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PART II – OTHER INFORMATION

 

Item 1.  Legal Proceedings

 

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.

 

Item 1A.  Risk Factors

 

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

 

Not applicable.

 

Item 4. Mine Safety Disclosures

 

Not applicable.

 

Item 5. Other Information

 

None.

 

Item 6. Exhibits

 

Exhibit No, Description of Exhibit
31.1  * Rule 13a14(a)/15d-14(a) Certification of Chief Executive Officer
32 .1  * Section 1350 Certification of Chief Executive Officer
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).

 

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SIGNATURES

 

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: May 20, 2019By:/s/ Louis J. Resweber 
  Louis J. Resweber 
  President (Principal Executive Officer) 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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