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EXCEL - IDEA: XBRL DOCUMENT - Global Security Agency Inc. | Financial_Report.xls |
EX-32.2 - Global Security Agency Inc. | ex32-2.htm |
EX-32.1 - Global Security Agency Inc. | ex32-1.htm |
EX-31.1 - Global Security Agency Inc. | ex31-1.htm |
EX-31.2 - Global Security Agency Inc. | ex31-2.htm |
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2012
or
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______________________ to ______________________
Commission File Number: 000-53184
GLOBAL SECURITY AGENCY INC.
(Exact name of registrant as specified in its charter)
Nevada
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98-0516432
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(State or other jurisdiction of incorporation or organization)
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(I.R.S. Employer Identification No.)
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12818 Hwy # 105 West, Suite 2-G
Conroe, TX 77304
(Address of principal executive offices)
(818) 281-1618
(Registrant’s telephone number, including area code)
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 require to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o
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 (of for such shorter period that the registrant was required to submit and post such files). Yes þ No o
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer”, “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o Accelerated filer o Non-accelerated filer o Smaller reporting company þ
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No þ
As of November 14, 2012, there were 75,059,008 shares of common stock of the registrant outstanding.
TABLE OF CONTENTS
PART I – FINANCIAL INFORMATION
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Item 1.
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3
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Item 2.
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4
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Item 3.
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7
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Item 4.
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7
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PART II – OTHER INFORMATION
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Item 1.
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8
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Item 2.
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8
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Item 3.
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8
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Item 4.
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8
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Item 5.
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8
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Item 6.
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8
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PART I - FINANCIAL INFORMATION
Item 1. Unaudited Financial Statements
GLOBAL SECURITY AGENCY INC.
INTERIM FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED SEPTEMBER 30, 2012
(Unaudited)
Index
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F-1
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F-2
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F-3
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F-4
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Global Security Agency Inc.
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Balance Sheets
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(Unaudited)
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30-Sep-12
$
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31-Dec-11
$
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ASSETS
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Current Assets
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Cash
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85,413 | 27,242 | ||||||
Accounts receivable, net
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588,830 | 874,970 | ||||||
Prepaid expenses and deposits
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2,350 | 2,350 | ||||||
Total Current Assets
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676,593 | 904,562 | ||||||
Property and equipment, net
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18,159 | 27,243 | ||||||
Note receivable
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70,000 | 70,000 | ||||||
Total Assets
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764,752 | 1,001,805 | ||||||
LIABILITIES AND STOCKHOLDERS’ DEFICIT
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Current Liabilities
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Bank indebtedness
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9,379 | 9,017 | ||||||
Accounts payable
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218,496 | 230,777 | ||||||
Accounts payable - related parties
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57,500 | 66,126 | ||||||
Accrued liabilities
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65,123 | 50,683 | ||||||
Due to related party
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85,593 | 100,937 | ||||||
Convertible Note Payable, net of discount of $60,514 and $0
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62,486 | - | ||||||
Derivative Liabilities
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128,221 | - | ||||||
Total Current Liabilities
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626,798 | 457,540 | ||||||
Stockholders’ Equity (Deficit)
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Preferred Stock, 100,000,000 shares authorized, $0.00001 par value, none issued
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- | - | ||||||
Common stock, 100,000,000 shares authorized, $0.00001 par value
73,135,931 shares (December 31, 2011 – 66,221,645 shares) issued and outstanding |
731 | 662 | ||||||
Additional paid-in capital
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896,422 | 650,762 | ||||||
Accumulated deficit
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(759,199 | ) | (107,159 | ) | ||||
Total Stockholders’ Equity (Deficit)
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137,954 | 544,265 | ||||||
Total Liabilities and Stockholders’ Equity (Deficit)
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764,752 | 1,001,805 |
(The accompanying notes are an integral part of these unaudited financial statements)
Global Security Agency Inc.
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Statements of Operations
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(Unaudited)
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For the Three
Months Ended
30-Sep-12 |
For the Three
Months Ended
30-Sep-11 |
For the Nine
Months Ended
30-Sep-12 |
For the Nine
Months Ended
30-Sep-11 |
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Revenue
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Personal protection services
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- | 196,115 | 953 | 433,944 | ||||||||||||
Private investigation services
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307 | 188,952 | 23,511 | 877,917 | ||||||||||||
Total Revenue
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307 | 385,067 | 24,464 | 1,311,861 | ||||||||||||
Cost of Sales
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694 | 169,593 | 3,550 | 498,439 | ||||||||||||
General and administrative
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50,244 | 19,803 | 142,234 | 205,352 | ||||||||||||
Legal and accounting
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20,514 | 34,791 | 122,893 | 90,680 | ||||||||||||
Rent
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10,181 | 14,025 | 30,214 | 41,075 | ||||||||||||
Salaries
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17,550 | 41,160 | 46,050 | 164,414 | ||||||||||||
Salaries - officers
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- | 36,000 | - | 108,000 | ||||||||||||
Selling expenses
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16,986 | 19,681 | 40,474 | 61,489 | ||||||||||||
Loss on Settlement of Payables
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- | - | 184,000 | - | ||||||||||||
116,169 | 335,053 | 569,415 | 1,169,449 | |||||||||||||
Net Income (Loss) from Operations
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(115,862 | ) | 50,014 | (544,951 | ) | 142,412 | ||||||||||
Loss on Derivative
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(70,950 | ) | - | (70,950 | ) | - | ||||||||||
Federal Income Tax Recovery (Expense)
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169 | (40,523 | ) | 3,291 | (59,068 | ) | ||||||||||
Interest expense
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(33,768 | ) | (1,296 | ) | (39,430 | ) | (5,474 | ) | ||||||||
Net Income (Loss)
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(220,411 | ) | 8,195 | (652,040 | ) | 77,870 | ||||||||||
Net Income (Loss) Per Common Share – Basic and Diluted
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(0.00 | ) | (0.00 | ) | (0.01 | ) | 0.00 | |||||||||
Weighted Average Number of Common Shares Outstanding
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Basic
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71,853,680 | 61,721,645 | 69,523,642 | 61,721,645 | ||||||||||||
Diluted
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71,853,680 | 61,721,645 | 69,523,642 | 61,721,645 |
(The accompanying notes are an integral part of these unaudited financial statements)
Global Security Agency Inc. | ||||||||
Statements of Cash Flows | ||||||||
(Unaudited) | ||||||||
For the nine
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For the nine
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months ended
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months ended
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30-Sep-12
$
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30-Sep-11
$
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Operating Activities
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Net Income (loss)
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(652,040 | ) | 77,870 | |||||
Adjustments to reconcile net (income) loss to net cash used in operating activities:
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Depreciation and amortization
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38,570 | 12,808 | ||||||
Common stock issued for services
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12,000 | - | ||||||
Bad Debt Expense
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71,600 | - | ||||||
Loss on Derivative
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70,950 | - | ||||||
Loss on Settlement of Accounts Payable
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184,000 | - | ||||||
Changes in operating assets and liabilities:
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Accounts receivable and other receivables
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214,540 | (293,243 | ) | |||||
Prepaid expenses and deposits
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- | (1,500 | ) | |||||
Accounts payable
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(7,281 | ) | 243,736 | |||||
Accounts payable-Related Party
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(23,970 | ) | ||||||
Accrued liabilities
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14,440 | 80,503 | ||||||
Deferred revenue
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- | (31,348 | ) | |||||
Net Cash Provided By (Used in) Operating Activities
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(77,191 | ) | 88,826 | |||||
Investing Activities
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Purchase of property and equipment
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- | (4,359 | ) | |||||
Net Cash Used in Investing Activities
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- | (4,359 | ) | |||||
Financing Activities
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Proceeds from bank indebtedness
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362 | - | ||||||
Proceeds from loan payable - related party
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- | (70,000 | ) | |||||
Borrowings on debt
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135,000 | - | ||||||
Net Cash Provided by (Used in) Financing Activities
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135,362 | (70,000 | ) | |||||
Increase (Decrease) In Cash
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58,171 | 14,467 | ||||||
Cash - Beginning of Period
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27,242 | 2,485 | ||||||
Cash - End of Period
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85,413 | 16,952 | ||||||
Supplemental Disclosures:
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Interest paid
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4,651 | 10,087 | ||||||
Income tax paid
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- | - | ||||||
Non-cash investing and financing activities:
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Conversion of convertible note payable
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12,000 | - | ||||||
Debt discount from derivative liabilities
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90,000 | - | ||||||
Settlement of derivative liabilities from note conversion
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32,729 | - | ||||||
Issuance of shares to settle accounts payable
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5,000 | - |
(The accompanying notes are an integral part of these unaudited financial statements)
Global Security Agency, Inc.
Notes to the Unaudited Financial Statements
1. Nature of Business
The Company was incorporated in Nevada on September 27, 2006 under the name Belvedere Resources Corporation. On January 15, 2010, the Company incorporated a wholly-owned subsidiary, Global Security Agency, Inc.(“we”, “our”, the “Company” or ““Global Security”). On January 25, 2010, the Company completed a merger with Global Security and assumed the subsidiary’s name by filing Articles of Merger with the Nevada Secretary of State. Global Security was incorporated entirely for the purpose of effecting the name change and the merger did not affect the Company’s Articles of Incorporation or corporate structure in any other way. The Company’s principal business is in the security solutions and risk management services industry.
2. Basis of Presentation
The accompanying unaudited interim financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States of America and the rules of the Securities and Exchange Commission, and should be read in conjunction with the Company’s audited 2011 annual financial statements and notes thereto. In the opinion of management, all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of financial position and the results of operations for the interim periods presented have been reflected herein. The results of operations for interim periods are not necessarily indicative of the results to be expected for the full year. Notes to the financial statements, which would substantially duplicate the disclosure required in the Company’s 2011 annual financial statements have been omitted.
3. Going Concern
The Company has incurred a net loss and negative operating cash flows during the nine months ended September 30, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's management is implementing plans to sustain the Company’s cash flow from operating activities and/or acquire additional capital funding. The financial statements do not include any adjustments that might be necessary if the Company is unable to continue as a going concern.
4. Convertible Loans Payable
In February 2012, the Company issued an unsecured convertible note in the principal amount of $45,000 bearing interest at 8% per annum and maturing November 30, 2012. In March 2012, the Company issued an unsecured convertible note which was funded in April 2012 in the principal amount of $45,000 bearing interest at 8% per annum and maturing December 26, 2012. In May 2012, the Company issued an unsecured convertible note in the principal amount of $30,000 bearing interest at 8% per annum and maturing February 11, 2013. The notes can be converted after the first 180 days at a price equal to 58% of the trading price of the Company’s shares on the OTC Bulletin Board on the conversion date.
The February and March notes became convertible during the three months ended September 30, 2012. On the date they became convertible, the conversion options were accounted for as liabilities under ASC 815 (see Note 5). The fair value of the conversion options exceeded the principal of the related notes resulting in a full discount of $90,000 for both notes. The discount will be amortized to interest expense over the remaining term of the note. During the nine months ended September 30, 2012, the Company amortized $29,486 of the discounts to interest expense.
The Company can prepay each of these notes as follows:
First 30 days - 115% of principal plus interest
31-60 days - 120% of principal plus interest
61-90 days - 125% of principal plus interest
91-120 days - 130% of principal plus interest
121-150 days - 135% of principal plus interest
151-180 days - 140% of principal plus interest
There is no right of prepayment after 180 days.
In June 2012, the Company issued an unsecured convertible note in the principal amount of $15,000 bearing interest at 8% per annum. The principal amount of the note is not repayable for 360 days after which the principal will remain payable until repaid in full except for any principal which is converted. The note can be converted in part or in whole after 360 days at $0.15 per share. Since the note could not be converted on September 30, 2012, the conversion option was not evaluated for liability classification or a beneficial conversion feature.
Conversion of Convertible Notes
On September 7, 2012, the Company issued 1,714,286 shares of common stock to one investor who elected to convert the outstanding principal amount of $12,000 due on its convertible promissory note date February 28, 2012 at a conversion price of $0.007 per share as provided in the note agreement.
5. Embedded Derivative Liabilities
The Company has issued convertible notes (see note 4) without enough authorized shares to settle. Due to the Company having insufficient authorized shares, the conversion options embedded in these notes have been accounted for in accordance with ASC 815-40, which requires that the Company bifurcate the embedded conversion option as liability at the grant date and to record changes in fair value relating to the conversion option liability in the statement of operations as of each subsequent balance sheet date.
February 2012 Convertible Note
At September 30, 2012, the Company determined a fair value of $44,193 of the embedded derivative of the note issued in February 2012. The fair value of the embedded derivative was determined using the Black Scholes Model with gains and losses from the change in fair value of derivative liabilities recognized on the consolidated statement of operations.
On August 26, 2012 the February convertible note became available for conversion. On that date, the company determined a fair value of $77,741 for the conversion option based upon the following: dividend yield of -0-%, volatility of 687.84%, risk free rate of 0.11% and an expected term of approximately 0.263 years. The Company recognized a non-cash loss of $32,471 related to the recognition of the derivative.
On September 7, 2012 the Company converted $12,000 of the February 2012 convertible note into 1,714,286 shares of common stock. On the conversion date, the company determined a fair value of $32,729 for the conversion option of the converted shares based upon the following: dividend yield of -0-%, volatility of 709.00%, risk free rate of 0.11% and an expected term of approximately 0.260 years.
For the period ended September 30, 2012, the Company recognized a reduction of embedded derivative in the amount of $548. This amount was recorded as a gain on derivative.
March 2012 Convertible Note
At September 30, 2012, the Company determined a fair value of $84,028 of the embedded derivative of the note issued in March 2012. The fair value of the embedded derivative was determined using the Black Scholes Model with gains and losses from the change in fair value of derivative liabilities recognized on the consolidated statement of operations.
On September 18, 2012 the March convertible note became available for conversion. On that date, the company determined a fair value of $84,495 for the conversion option based upon the following: dividend yield of -0-%, volatility of 671.61%, risk free rate of 0.10% and an expected term of approximately 0.271 years. The Company recognized a non-cash loss of $39,495 related to the recognition of the derivative.
For the period ended September 30, 2012, the Company recognized a reduction of embedded derivative in the amount of $468. This amount was recorded as a gain on derivative.
6. Fair Value Measurements
The Company measures fair value in accordance with a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure 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). The three levels of the fair value hierarchy are described below:
Level 1 Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities;
Level 2 Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; and
Level 3 Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
The Company’s conversion option liabilities are valued using pricing models and the Company generally uses similar models to value similar instruments. Where possible, the Company verifies the values produced by its pricing models to market prices. Valuation models require a variety of inputs, including contractual terms, market prices, measures of volatility and risk free rates and correlations of such inputs. These consolidated financial liabilities do not trade in liquid markets, and as such, model inputs cannot generally be verified and do involve significant management judgment. Such instruments are typically classified within Level 3 of the fair value hierarchy.
The following is a reconciliation of the derivative liabilities for which level 3 inputs were used in determining fair value:
Derivative Liabilities
1/1/2012 Beginning Balance | - | |||
8/26/2012 Initial recognition of debt derivative when February 2012 note payable became convertible | $ | 77,471 | ||
9/7/2012 Settlement of derivative liabilities from $12,000 note conversion | (32,729 | ) | ||
9/18/2012 Initial recognition of debt derivative when March 2012 note payable became convertible | 84,495 | |||
9/30/2012 Mark to market of debt derivatives | (1,016 | ) | ||
9/30/2012 Ending Balance | $ | 128,221 |
During the period ended September 30, 2012, the loss on embedded derivatives of in the statement of operations consisted of a gain on the change in fair value of $1,016 noted above and a loss of $71,966 which was the amount by which the embedded derivative liabilities exceeded the principal of the related notes payable on the date the notes were issued.
7. Related Party Transactions
As of September 30, 2012, the Company owed three officers a total of $143,093 for certain trade payables paid by them on behalf of the Company.
8. Common Stock
On March 17, 2012, the Company issued 200,000 shares with a fair value of $0.06 per share to DACC Associates, Inc. for services as part of a strategic alliance agreement entered in March 2012. The fair value of $12,000 was expensed during the nine months ended September 30, 2012.
On April 18, 2012, the Company issued 5,000,000 shares with a fair value of $0.0378 per share for settlement of $5,000 of accounts payable. The fair value of the shares exceeded the carrying value of the payable by $184,000 which was recognized as a loss on settlement of accounts payable and is included in general and administrative expenses for the nine months ended September 30, 2012.
9. Stock Options and Warrants
During 2010, 661,000 warrants were issued in conjunction with sales of common stock. All warrants issued are exercisable at $0.75 for the first year and $1.00 for the second year. A total of 461,000 warrants expired unexercised as of September 30, 2012. The aggregate intrinsic value of the remaining 200,000 warrants was $0 and the weighted average remaining life was 0.01 years as of September 30, 2012.
10. Subsequent Events
On October 9, 2012 the Company issued 1,923,077 shares to of commons stock to one investor who elected to convert the outstanding principal amount of $10,000 due on its convertible promissory note date February 28, 2012 at a conversion price of $0.0052 per share as provided in the note agreement.
Item 2. Management’s Discussion And Analysis Of Financial Condition And Results Of Operations
As used in this quarterly report: (i) the terms "we", "us", "our", and the “Company" mean Global Security Agency Inc., and (ii) all dollar amounts in this quarterly report refer to U.S. dollars unless otherwise indicated.
Cautionary Statement Regarding Forward-Looking Information
This quarterly report, any supplement to this quarterly report, and any documents incorporated by reference in this quarterly report, include “forward-looking statements”. To the extent that the information presented in this quarterly report discusses financial projections, information or expectations about our business plans, results of operations, services or markets, or otherwise makes statements about future events, such statements are forward-looking. Such forward-looking statements can be identified by the use of words such as “intends”, “anticipates”, “believes”, “estimates”, “projects”, “forecasts”, “expects”, “plans” and “proposes”. Although we believe that the expectations reflected in these forward-looking statements are based on reasonable assumptions, there are a number of risks and uncertainties that could cause actual results to differ materially from such forward-looking statements. These include, among others, the risks and uncertainties outlined under the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” sections of this quarterly report, many of which are beyond our control.
These forward-looking statements include, but are not limited to, the following:
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statements contained in “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the notes to our financial statements, concerning our results of operations, financial condition and our ability to finance our business;
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statements concerning our operations; and
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statements throughout concerning our business and the markets for our common stock.
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Factors that could cause actual results to differ materially include, but are not limited to the following:
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our anticipated strategies for growth;
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our ability to manage our planned growth;
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our need for additional capital to expand our operations;
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our dependence on key personnel;
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our ability to compete effectively with competitors that have greater financial, marketing and other resources; and
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risks related to government regulations and approvals.
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The forward-looking statements made in this quarterly report relate only to events or information as of the date on which the statements are made in this quarterly report. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events. You should read this quarterly report and the documents that we reference in this quarterly report and have filed as exhibits to the quarterly report with the understanding that our actual future results may be materially different from what we expect. You should not rely upon forward-looking statements as predictions of future events.
Other sections of this quarterly report include additional factors which could adversely impact our business and financial performance. Moreover, we operate in an evolving environment. New risk factors and uncertainties emerge from time to time and it is not possible for our management to predict all risk factors and uncertainties. We cannot assess the impact of all factors on our business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained in any forward-looking statements. You should carefully review the reports and other documents we file from time to time with the SEC.
Our Business
We are security solutions and risk management services company. We offer a wide range of security and risk management services for individuals, corporations and other entities. Our services include assessments, training, crisis management, protection, support and intelligence. We also operate a training facility at which we train people in a number of security related areas.
We operate our business through a network of consultants. Our consultants are experts in the field of crisis management with significant government, military, foreign services and private industry experience, and are located around the world. Our consultants are experienced in all aspects of the services we provide.
We recently fulfilled our commitments under certain of our contracts resulting in a decrease in revenues during the three and nine months ended September 30, 2012. While we are currently negotiating a multi phase contract with an international government and also expect to enter into agreements to provide protection services to certain corporations, cruise lines and a yachting club, we have also shifted our focus to creating alliances with other companies that have in place or are negotiating significant security services related contracts and require our services. We believe these alliances will significantly increase our revenues going forward.
In that regard, in March 2012, we entered into a strategic alliance with DACC Associates, Inc. (“DACC”) pursuant to which we will become the primary contractor that DACC will recommend to its clientele. DACC’s staff has over 25 years of high-level experience in security administration worldwide. DACC’s history of success includes domestic and international work with numerous US government entities such as the United States Agency for International Development; the White House and Executive Office of the President; the Department of Homeland Security; the Department of Defense; the Department of Health and Human Services; and the Transportation Security Administration. In addition to direct support to US federal entities, all staff has worked extensively with non-US governments, United Nations entities, and private corporations. DACC Associates is a preferred supplier for security and materials to UN agencies worldwide with an extensive network.
We also provide training in, among other things, shooting, sniper shooting, hand-to-hand combat, knives, ambushes, tactical raids, medical trauma and defensive tactics.
In 2013, we plan to establish the Global Services Academy, a learning institution designed to service and train agents, contractors and other individuals in a wide range of safety security practices, including Advanced Police/Law Enforcement, Private Investigations, Armed Details, Personal Executive Protection, Human Resource requirements, Safety Specialist, Fire and Chemical Hazards, Computer Forensics and other security related practices and protocols, as well as specialized training to obtain a unique designation as a “Safety Security Specialist” certified in occupational safety, health and other related safety and operational concerns of the Occupational Safety and Health Administration.
Our plan of operations over the next 12 months is to develop our business domestically and internationally, establish our academy and build advanced training facilities. We anticipate we will require approximately $5 million to pursue our plans over the next 12 months. We plan to obtain the necessary funds from cash flow from operations, and equity or debt financings, if necessary. However, there can be no assurance that we will be able to obtain any required additional financing. If we are not able to obtain any required financing, we may be required to scale back our expansion plans or eliminate them altogether.
See our Annual Report on Form 10-K for the year ended December 31, 2011 filed with the SEC for more information.
Results of Operations
The following discussion and analysis of our results of operations and financial condition for the three and nine months ended September 30, 2012 should be read in conjunction with our interim financial statements and related notes included in this quarterly report, as well as our most recent annual report on Form 10-K for the year ended December 31, 2011 filed with the SEC.
Three Months Ended September 30, 2012 Compared to Three Months Ended September 30, 2011
Revenues
Revenues from personal protection and private investigation services decreased to $307 in the three months ended September 30, 2012 from $385,067 in the three months ended September 30, 2011, due to reduced operations as described above.
Expenses
For the three months ended September 30, 2012, total operating expenses decreased to $116,169 from $335,053 for the same period in the prior year, primarily due to the decrease in operations. Our cost of sales in the three months ended September 30, 2012 was $694, compared to $169,593 for the same period in the prior year, and related primarily to consultants engaged to provide our services. General and administrative expenses related to our operations increased to $50,244 in the current period from $19,803 in the prior year, primarily due to an increase in bad debt expenses and consulting fees. Legal and accounting expenses decreased to $20,514 in the three months ended September 30, 2012 from $34,791 in the prior period, primarily due to decreased activity during the current period. Salaries paid to employees and to our officers decreased to $17,550 and $0, respectively, in the current period from $41,160 and $36,000, respectively, in the prior period, primarily due to a reduction in the number of our employees. Our selling expenses decreased to $16,986 in the current period from $19,681 in the prior period due to decreased promotional activities.
We generated an operating loss of $115,862 in the three months ended September 30, 2012, compared to operating income of $50,014 in the prior year. We incurred a loss on embedded derivatives related to our convertibles notes of $70,950 in the current period (see Note 5).
Net Income
For the three months ended September 30, 2012, our net loss was $220,411, compared to net income of $8,195 for the three months ended September 30, 2011.
Nine Months Ended September 30, 2012 Compared to Nine Months Ended September 30, 2011
Revenues
Revenues from personal protection and private investigation services decreased to $24,464 in the nine months ended September 30, 2012 from $1,311,861 in the nine months ended September 30, 2011, due to reduced operations as described above.
Expenses
For the nine months ended September 30, 2012, total operating expenses decreased to $569,415 from $1,169,449 in the prior period, due to reduced operations. Our cost of sales in the nine months ended September 30, 2012 was $3,550, compared to $498,439 in the prior period, and related primarily to consultants engaged to provide our services. General and administrative expenses related to our operations increased to $142,234 in the current period from $205,352 in the prior period, primarily due to a non-cash loss on settlement of accounts payable in the current period. Legal and accounting expenses increased to $122,893 in the nine months ended September 30, 2012 from $90,680 in the prior period, primarily due to increased costs related to our filing obligations with the SEC. Salaries paid to employees and to our officers decreased to $46,050 and $0, respectively, in the current period from $164,414 and $108,000, respectively, in the prior period, primarily due to a reduction in the number of our employees. Our selling expenses decreased to $40,474 in the current period from $61,489 in the prior period due to reduced promotional activities.
We generated an operating loss of $544,951 in the nine months ended September 30, 2012, compared to operating income of $142,412 in the prior period. We incurred a loss on embedded derivatives related to our convertibles notes of $70,950 in the current period (see Note 5).
Net Income
For the nine months ended September 30, 2012, our net loss was $652,040, compared to net income of $77,870 for the nine months ended September 30, 2011.
Liquidity and Capital Resources
As of September 30, 2012, we had cash of $85,413, total assets of $764,752, total liabilities of $626,798, working capital of $49,795 and an accumulated deficit of $759,199.
For the nine months ended September 30, 2012, operating activities used cash of $77,191, compared to providing cash of $88,826 in the prior period. A decrease in accounts receivable and other receivables provided cash of $214,540 in the current period, compared to an increase in the same using cash of $293,243 in the prior period. A decrease in accounts payable used cash of $7,281 in the current period, compared to an increase in the same providing cash $243,736 in the prior period. An increase in accrued liabilities provided cash of $14,400 in the current period, compared to $80,503 in the prior period.
For the nine months ended September 30, 2012, there were no investing activities. For the nine months ended September 30, 2011, investing activities used cash of $4,359 for the purchase of property and equipment.
During the nine months ended September 30, 2012, financing activities provided cash of $135,362 primarily due to borrowings.. During the nine months ended September 30, 2011, financing activities used cash of $70,000 in connection with the repayment of debt.
Our plan of operations over the next 12 months is to develop our business domestically and internationally, establish our academy and build advanced training facilities. We anticipate we will require approximately $5 million to pursue our plans over the next 12 months. We plan to obtain the necessary funds from cash flow from operations, and equity or debt financings, if necessary. However, there can be no assurance that we will be able to obtain any required additional financing. If we are not able to obtain any required financing, we may be required to scale back our expansion plans or eliminate them altogether.
The Company has incurred a net loss and negative operating cash flows during the nine months ended September 30, 2012. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company's management is implementing plans to sustain the Company’s cash flow from operating activities and/or acquire additional capital funding.
Off-Balance Sheet Arrangements
We have no significant off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that are material to stockholders.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 4. Controls and Procedures
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as defined in Rule 13a-15(e) and Rule 15d-15(e) promulgated under the Securities Exchange Act of 1934 (the "Exchange Act"), that are designed to ensure that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
As of the end of the period covered by this report, our management, with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures. Based upon this evaluation, our Chief Executive Officer and our Chief Financial Officer concluded that our disclosure controls and procedures were not effective to ensure that information we are required to disclose 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 rules and forms due to the following deficiencies:
1.
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Management override of existing controls is possible given our small size and lack of personnel.
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2.
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We do not have a system in place to review and monitor internal control over financial reporting. We maintain an insufficient complement of personnel to carry out ongoing monitoring responsibilities and ensure effective internal control over financial reporting.
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In light of the existence of these control deficiencies, our management concluded that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis by our internal controls.
Management is currently evaluating remediation plans for the above control deficiencies. Management plans to enhance our risk assessment, internal control design and documentation and implement other procedures in the internal control function.
Changes in Internal Control
Other than as described above, during the three months ended September 30, 2012, there were no changes in our internal control over financial reporting (as defined in Rule 13a-15(e) and Rule 15d-15(e) under the Exchange Act) that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
PART II – OTHER INFORMATION
Item 1. Legal Proceedings
We are not a party to any material pending legal proceedings and are not aware of any legal proceedings that have been threatened against us. None of our directors, officers, affiliates, any owner of record or beneficially of more than 5% of our voting securities, or any associate of any such director, officer, affiliate or securityholder are (i) a party adverse to us in any legal proceedings, or (ii) have a material interest adverse to us in any legal proceedings.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities
None.
Item 4. (Removed and Reserved)
Item 5. Other Information
None.
Item 6. Exhibits
Exhibit
Number
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Exhibit Description
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31.1
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31.2
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32.1
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32.2
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101.INS
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XBRL Instance Document
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101.SCH
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XBRL Taxonomy Extension Schema Document
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101.CAL
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XBRL Taxonomy Extension Calculation Linkbase Document
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101.DEF
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XBRL Taxonomy Extension Definition Linkbase Document
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101.LAB
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XBRL Taxonomy Extension Label Linkbase Document
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101.PRE
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XBRL Taxonomy Extension Presentation Linkbase Document
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SIGNATURES
Pursuant to the requirements of the Exchange Act, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: November 14, 2012
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GLOBAL SECURITY AGENCY INC.
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By: /s/ Larry E. Lunger
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Larry E. Lunger
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Chief Executive Officer
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