The accompanying notes
are an integral part of these consolidated financial statements.
The accompanying notes
are an integral part of these consolidated financial statements.
Notes to Consolidated Financial Statements
For the years ended December 31, 2018 and
2017
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.
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 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 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 December 31, 2018 and 2017, 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.
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 December 31, 2018
|
|
|
|
Carrying Value
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
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.
Changes in Level 3 assets measured at fair value
for the year ended December 31, 2018 were as follows:
|
Balance, December 31, 2017
|
|
$
|
—
|
|
|
Beneficial conversion derivative liability assumed in Merger
|
|
|
172,532
|
|
|
Change in fair value of derivative
|
|
|
(61,241
|
)
|
|
Balance, December 31, 2018
|
|
$
|
111,291
|
|
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 recorded in earnings as “Other income
(expense) - gain (loss) on change in derivative liabilities.” Please refer to Note 8 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.
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 $1,358,550 for the year ended December 31, 2018, and an accumulated
deficit of $1,514,379 and a working capital deficit of $1,331,908 at December 31, 2018. 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, 2018, 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 expects to recognize right of use assets and associated liabilities upon adoption.
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%.
|
As of December 31, 2018, notes payable had total
outstanding principal of $117,500 and accrued interest of $41,044. 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,
2018
|
|
(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 December 31, 2018, convertible notes
had total outstanding principal of $138,500 and accrued interest of $13,806. These liabilities have been incorporated into liabilities
from discontinued operations.
Derivative Liability
As of December 31, 2018, the derivative liabilities
were valued at $111,291, 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:
|
|
December 31,
2018
|
|
(1) dividend yield of
|
0%;
|
|
(2) expected volatility of
|
336%;
|
|
(3) risk-free interest rate of
|
2.18%;
|
|
(4) expected life of
|
0.33 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 December 31, 2018 and 2017, the available
barter credit balances were $22,760 and $30,289, respectively.
Note 5 – Bridge Loan
As of December 31, 2018, the Company received
advances totaling $671,000 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 December 31, 2018 the Company has received an additional
advances totaling $50,000 from the same parties.
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.
On September 5, 2018, our board of directors
and the holders of a majority in interest of our voting capital stock approved a 1-for-10 reverse split of our common shares (“Reverse
Split”). As a result of the Reverse Split, each shareholder of record as of September 5, 2018, received one (1) share of
common stock for each ten (10) shares of common stock they held prior to the Reverse Split, with fractions of a share rounded
up to the nearest whole share. The reverse split has been given retrospective treatment in the financial statements.
During the year ended December 31, 2018, pursuant
to the Merger Agreement with LJR, and in exchange for all 100 issued and outstanding shares of LJR, the company issued to Lou Resweber,
the sole shareholder of LJR, 1,000 shares of series D senior convertible preferred stock of the Company, and one share of series
C super-voting preferred stock of the Company. The Company also issued 467,811 shares of its common stock and 625,000 shares of
series A preferred stock of the Company, in connection with reverse merger.
As of December 31, 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
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.
● 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 December 31, 2018
|
|
|
Shares
|
|
Weighted
Average
Exercise
Price
|
|
Weighted
Average
Remaining
Term
|
|
Aggregate
Intrinsic Value
|
|
|
Outstanding, December 31, 2018
|
|
|
|
2,120,000
|
|
|
$
|
0.17
|
|
|
|
1.00
|
|
|
$
|
355,200
|
|
|
|
Exercisable, December 31, 2018
|
|
|
|
2,120,000
|
|
|
$
|
0.17
|
|
|
|
1.00
|
|
|
$
|
355,200
|
|
Note 7 - Income Taxes
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%.
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, 2018 and 2017 are summarized below.
|
|
|
2017
|
|
2018
|
|
Net operating loss carryforward
|
|
$
|
(51,994
|
)
|
|
$
|
(210,736
|
)
|
|
Other
|
|
|
—
|
|
|
|
—
|
|
|
Total deferred tax assets
|
|
|
(51,994
|
)
|
|
|
(210,736
|
)
|
|
Valuation allowance
|
|
|
51,994
|
|
|
|
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, 2018 and 2017, 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, 2018 and 2017 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, 2018 and 2017.
|
|
|
2017
|
|
2018
|
|
U.S federal statutory income tax
|
|
|
-34.00
|
%
|
|
|
-21.00
|
%
|
|
State tax, net of federal tax benefit
|
|
|
-5.80
|
%
|
|
|
-5.80
|
%
|
|
Stock based compensation
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
|
Change in valuation allowance
|
|
|
39.80
|
%
|
|
|
26.80
|
%
|
|
Effective tax rate
|
|
|
0.00
|
%
|
|
|
0.00
|
%
|
At December 31, 2018,
the Company has available net operating loss carryforwards for federal and state income tax purposes of approximately $1 million,
which, if not utilized earlier, expire through 2038.
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 8 – Commitments & Contingencies
Office Lease
Subsequent to December 31, 2017 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 year ended December 31, 2018 and 2017, the Company incurred $29,500 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.