UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K/A
(Amendment No. 1)
CURRENT REPORT
Pursuant to Section 13 or 15(d) of The
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
June 16, 2014
Global Digital Solutions, Inc.
(Exact name of registrant as specified in its
charter)
New Jersey |
|
000-26361 |
|
22-3392051 |
(State or other jurisdiction
of incorporation) |
|
(Commission
File Number) |
|
(IRS Employer
Identification No.) |
777 South Flagler Drive, Suite 800 West
West Palm Beach,
Florida 33401
(Address of
principal executive offices, including zip code)
Registrant’s
telephone number, including area code: (561) 515-6163
N/A
(Former name or former address, if changed since
last report)
Check the appropriate box below if the Form 8-K filing is
intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General
Instruction A.2. below):
£ Written
communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)
£
Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)
£
Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))
£
Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))
EXPLANATORY NOTE:
On June 19, 2014,
Global Digital Solutions, Inc. (the “Company”), filed a Current Report on Form 8-K
under Items 1.01, 2.01 and 3.02 (the “Initial Report”) to report the completion of its acquisition of North
American Custom Specialty Vehicles, LLC, an Alabama limited liability company (“NACSV”),
on June 16, 2014. In response to parts (a) and (b) of Item 9.01 of the Initial Report, the Company indicated that it would file
the required financial information by amendment, as permitted by Item 9.01(a)(4) and 9.01(b)(2) to Form 8-K. This Current Report
on Form 8-K/A amends Items 9.01(a) and 9.01(b) of the Initial Report to provide the required financial information.
Item 9.01. Financial Statements and Exhibits.
(a) Financial statements of businesses
acquired
The audited financial statements of NACSV as
of and for the years ended December 31, 2013 and 2012 and the notes related thereto are attached hereto as Exhibit 99.1 and are
incorporated herein by reference.
The unaudited financial statements of NACSV
as of March 31, 2014 and for the three months ended March 31, 2014 and 2013, and the notes related thereto are attached hereto
as Exhibit 99.2 and are incorporated herein by reference.
(b) Pro forma financial information
The unaudited pro forma condensed combined
balance sheet as of March 31, 2014 has been prepared to present the Company’s financial position as if the acquisition of
NACSV had occurred on March 31, 2014. The unaudited pro forma condensed combined statements of operations for the year ended December
31, 2013 and the three months ended March 31, 2014 have been prepared to present the Company’s results of operations
as if the acquisition of NACSV had occurred on January 1, 2013 and January 1, 2014, respectively. The unaudited condensed combined
pro forma financial information is attached hereto as Exhibit 99.3 and is incorporated herein by reference.
(c) Exhibits
Exhibit No. |
|
Description |
99.1 |
|
Audited financial statements of North American Custom Specialty Vehicles, LLC as of and for the years ended December 31, 2013 and 2012 |
99.2 |
|
Unaudited financial statements of North American Custom Specialty Vehicles, LLC as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 |
99.3 |
|
Unaudited pro forma condensed combined financial information |
SIGNATURE
Pursuant to the requirements of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
|
Global Digital Solutions, Inc. |
|
|
|
Date: August 18, 2014 |
By: |
/s/ David A. Loppert |
|
|
David A. Loppert |
|
|
Chief Financial Officer |
Exhibit
Index
Exhibit No. |
|
Description |
99.1 |
|
Audited financial statements of North American Custom Specialty Vehicles, LLC as of and for the years ended December 31, 2013 and 2012 |
99.2 |
|
Unaudited financial statements of North American Custom Specialty Vehicles, LLC as of March 31, 2014 and for the three months ended March 31, 2014 and 2013 |
99.3 |
|
Unaudited pro forma condensed combined financial information |
4
Exhibit 99.1
NORTH AMERICAN
CUSTOM SPECIALITY VEHICLES, LLC
Financial Statements
and
Supplementary Information
For the Years Ended
December 31, 2013 and 2012
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES,
LLC
Contents
|
Page |
|
|
Independent
Auditors’ Report |
2
– 3 |
|
|
Balance
Sheets |
5 |
|
|
Statements
of Income and Members’ Equity |
6 |
|
|
Statements
of Cash Flows |
7
– 8 |
|
|
Notes
to Financial Statements |
9
–13 |
|
|
Supplementary
Information |
14 |
|
|
Schedules
of Cost of Revenues Earned |
15 |
|
|
Schedules
of General and Administrative Expenses |
16 |
|
J. Kenny Crow, Jr., CPA |
John R. Shields, CPA |
Joseph M. Bailey, CPA |
Regina L. McKellar, CPA, CVA |
Edward G. McDermott, CPA |
A. Bruce Dudley, Jr., CPA |
Vivian V. Chateau, CPA |
|
|
|
|
INDEPENDENT AUDITORS’ REPORT
Mr. David Loppert
Global Digital Solutions, Inc.
West Palm Beach, Florida
We have audited the accompanying financial
statements of North American Custom Specialty Vehicles, LLC (an Alabama limited liability company), which comprise the balance
sheets as of December 31, 2013 and 2012, the related statements of income and members’ equity and cash flows for the years
then ended, and the related notes to the financial statements.
Management’s Responsibility for the
Financial Statements
Management is responsible for the preparation
and fair presentation of the financial statements in accordance with accounting principles generally accepted in the United States
of America: this includes the design, implementation, and maintenance of internal control relevant to the preparation and fair
presentation of the financial statements that are free from material misstatement, whether due to fraud or error.
Auditor’s Responsibility
Our responsibility is to express an opinion
on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted
in the United States of America. Those standards require us to plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free from material misstatement.
An audit involves performing procedures
to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the
auditor’s judgment, including the assessment of the risks of material misstatement of the financial statements, whether
due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the
entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are
appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s
internal control. Accordingly, we express no such opinion. An audit also includes evaluating the appropriateness of
accounting policies used and the reasonableness of significant accounting estimates made my management, as well as evaluating
the overall presentation of the financial statements.
Mobile Office |
Gulf Shores Office |
CSBcpa.com |
tel (251) 343.1012 │ fax (251) 343.1294 |
tel (251) 968.4337 │ fax (251) 968.8995 |
toll free (800) 347.8583 |
3742 professional Parkway |
121 Cove Avenue │ P.O. Box 2405 |
|
Mobile, AI. 36609 |
Gulf Shores, AL 36547 |
|
Member of American
Institute of Certified Public Accountants and Alabama Society of Certified Public Accountants.
|
|
Mr. David Loppert
Global Digital Solutions, Inc.
Page Two |
We believe that the audit evidence we have
obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the financial statements referred
to above present fairly, in all material respects, the financial position of North American Custom Specialty Vehicles, Inc. as
December 31, 2013 and 2012, and the results of its operations and its cash flows for the years then ended in accordance with accounting
principles generally accepted in the United States of America.
Report on Supplementary Information
Our audit was conducted for the purpose of
forming an opinion on the financial statements as a whole. The schedules on pages 12 and 13 are presented for purposes of additional
analysis and are not a required part of the financial statements. Such information is the responsibility of management and was
derived from and relates directly to the underlying accounting and other records used to prepare the financial statements. The
information has been subjected to the auditing procedures applied in the audit of the financial statements and certain additional
procedures, including comparing and reconciling such information directly to the underlying accounting and other records used to
prepare the financial statements or to the financial statements themselves, and other additional procedures in accordance with
auditing standards generally accepted in the United States of America. In our opinion, the information is fairly stated in all
material respects in relation to the financial statements as a whole.
/s/ Crow Shields Bailey, PC
August 6, 2014
Mobile, Alabama
FINANCIAL STATEMENTS
NORTH AMERICAN CUSTOM
SPECIALTY VEHICLES, LLC
BALANCE SHEETS
| |
December 31 | |
| |
2013 | | |
2012 | |
Assets | |
| | | |
| | |
Current assets | |
| | | |
| | |
Cash | |
$ | 61,231 | | |
$ | 116,628 | |
Accounts receivable - trade | |
| 723,215 | | |
| 636,164 | |
Inventory | |
| 774,509 | | |
| 615,931 | |
Prepaid expenses | |
| 5,496 | | |
| 11,150 | |
Due from member | |
| 1,798 | | |
| - | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| - | | |
| 84,846 | |
Total current assets | |
| 1,566,249 | | |
| 1,464,719 | |
| |
| | | |
| | |
Property and equipment | |
| | | |
| | |
Furniture and fixtures | |
| 1,000 | | |
| 1,000 | |
Office equipment | |
| 18,334 | | |
| 1,000 | |
Machinery and equipment | |
| 2,879 | | |
| 1,500 | |
Leasehold improvements | |
| 25,000 | | |
| 25,000 | |
Vehicles | |
| 41,422 | | |
| 41,422 | |
| |
| 88,635 | | |
| 69,922 | |
Less accumulated depreciation | |
| 13,707 | | |
| 4,055 | |
Net property and equipment | |
| 74,928 | | |
| 65,867 | |
| |
| | | |
| | |
| |
$ | 1,641,177 | | |
$ | 1,530,586 | |
Liabilities and Members’ Equity | |
| | | |
| | |
Current liabilities | |
| | | |
| | |
Accounts payable | |
$ | 7,827 | | |
$ | 81,546 | |
Accrued expenses | |
| 5,140 | | |
| 5,642 | |
Note payable - member | |
| - | | |
| 200,000 | |
Due to member | |
| - | | |
| 20,916 | |
Due to related party | |
| - | | |
| 58,400 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 370,015 | | |
| 152,226 | |
Total current liabilities | |
| 382,982 | | |
| 518,730 | |
| |
| | | |
| | |
Members’ equity | |
| 1,258,195 | | |
| 1,011,856 | |
| |
| | | |
| | |
| |
$ | 1,641,177 | | |
$ | 1,530,586 | |
See
notes to financial statements
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
STATEMENTS OF INCOME AND MEMBERS’ EQUITY
| |
Years Ended December 31 | |
| |
2013 | | |
2012 | |
| |
| | | |
| | |
Contract revenues earned | |
$ | 5,172,955 | | |
$ | 4,623,966 | |
| |
| | | |
| | |
Cost of revenues earned | |
| 3,381,638 | | |
| 2,835,899 | |
| |
| | | |
| | |
Gross profit | |
| 1,791,317 | | |
| 1,788,067 | |
| |
| | | |
| | |
Expenses | |
| | | |
| | |
General and administrative | |
| 1,339,546 | | |
| 944,186 | |
Interest | |
| 11,713 | | |
| 24,567 | |
Depreciation | |
| 9,652 | | |
| 4,055 | |
Total expenses | |
| 1,360,911 | | |
| 972,808 | |
| |
| | | |
| | |
Income from operations | |
| 430,406 | | |
| 815,259 | |
| |
| | | |
| | |
Other income | |
| | | |
| | |
Interest | |
| 99 | | |
| 283 | |
Management fee | |
| 218,604 | | |
| - | |
Other | |
| 47,230 | | |
| 3,807 | |
Total other income | |
| 265,933 | | |
| 4,090 | |
| |
| | | |
| | |
Net income | |
| 696,339 | | |
| 819,349 | |
| |
| | | |
| | |
Members’ equity, beginning of year | |
| 1,011,856 | | |
| 192,507 | |
| |
| | | |
| | |
Distributions | |
| 450,000 | | |
| - | |
| |
| | | |
| | |
Members’ equity, end of year | |
$ | 1,258,195 | | |
$ | 1,011,856 | |
See
notes to financial statements
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
STATEMENTS OF CASH FLOWS
| |
Years Ended December 31 | |
| |
2013 | | |
2012 | |
Cash flows from operating activities: | |
| | | |
| | |
Net income | |
$ | 696,339 | | |
$ | 819,349 | |
Adjustments to reconcile net income to net cash provided by (used in) operating activities: | |
| | | |
| | |
Depreciation and amortization | |
| 9,652 | | |
| 4,055 | |
Changes in assets and liabilities (Increase) decrease in: | |
| | | |
| | |
Receivables | |
| (87,051 | ) | |
| (540,977 | ) |
Prepaid expenses | |
| 31,825 | | |
| 9,450 | |
Inventory | |
| (158,578 | ) | |
| (465,931 | ) |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
| 84,846 | | |
| 262,360 | |
Increase (decrease) in: | |
| | | |
| | |
Accounts payable | |
| (73,719 | ) | |
| (354,909 | ) |
Accrued expenses | |
| (502 | ) | |
| 5,642 | |
Due to (from) member | |
| (22,714 | ) | |
| (12,106 | ) |
Due to related party | |
| (58,400 | ) | |
| 29,500 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 217,789 | | |
| 152,226 | |
Net cash provided by (used in) operating activities | |
| 639,487 | | |
| (91,341 | ) |
| |
| | | |
| | |
Cash flows from investing activities: | |
| | | |
| | |
Purchase of property and equipment | |
| (18,713 | ) | |
| (8,000 | ) |
Net cash used in investing activities | |
| (18,713 | ) | |
| (8,000 | ) |
| |
| | | |
| | |
Cash flows from financing activities: | |
| | | |
| | |
Principal payments on short-term debt | |
| (26,171 | ) | |
| (20,600 | ) |
Proceeds of loans from member | |
| - | | |
| 1,741,088 | |
Repayment of loans from member | |
| (200,000 | ) | |
| (1,541,088 | ) |
Distributions | |
| (450,000 | ) | |
| - | |
Net cash provided by (used in) financing activities | |
| (676,171 | ) | |
| 179,400 | |
| |
| | | |
| | |
Net increase (decrease) in cash | |
| (55,397 | ) | |
| 80,059 | |
| |
| | | |
| | |
Cash - beginning of year | |
| 116,628 | | |
| 36,569 | |
| |
| | | |
| | |
Cash - end of year | |
$ | 61,231 | | |
$ | 116,628 | |
See
notes to financial statements
| |
Years Ended December 31 | |
| |
2013 | | |
2012 | |
Supplemental cash flow disclosures: | |
| | | |
| | |
Interest paid | |
$ | 11,713 | | |
$ | 28,148 | |
Schedule
of non-cash investing and financing transactions:
During
2013 and 2012, the Company financed the cost of certain insurance premiums with a note payable in the amount of $26,079 and $20,600,
respectively.
During
2012, the Company purchased furniture, equipment, and leasehold improvements totaling $28,500 from a related entity by increasing
the amount due to that entity.
During
2012, a member transferred a vehicle to the Company for $33,422. The Company increased balance due to member by the same amount.
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
NOTES TO FINANCIAL
STATEMENTS
DECEMBER
31, 2013 AND 2012
Note
1 - Nature of operations
North
American Custom Specialty Vehicles, LLC was organized on October 27, 2011, under the laws of the State of Alabama. The Company
operates principally in the homeland security and public safety industries in the United States whereby the Company builds mobile
command units for military, law enforcement, emergency management, and private sector companies.
The
terms of the Organizational Agreement provide that Brian A. Dekle serves as the Manager and owns 75% of the membership interests
and that John Ramsay owns 25% of the membership interests. The Agreement also dictates that John Ramsay has no right to vote on
any matters and that the Company’s net profits or net losses shall be allocated to the members in proportion to their membership
interests. Generally, the liability of the members of the Company is limited to the members’ total capital contributions.
Note
2 - Summary of significant accounting policies
Revenue and cost recognition
Revenues
from fixed-price and modified fixed-price construction contracts are recognized using the percentage-of-completion method of revenue
recognition, measured by the percentage of cost incurred to date to the estimated total cost for each contract. This method is
used because management considers it to be the best available measure of progress on these contracts. Because of inherent uncertainties
in estimating costs, it is possible that the estimates used will change within the near-term.
Contract
costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes
and worker’s compensation insurance premiums. Operating expenses are charged to expense as incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions,
estimated profitability, and final contract settlements may result in revisions to costs and income and are recognized in the
period in which the revisions are determined.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted contracts”, represents revenues recognized
in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts”,
represents billings in excess of revenues recognized.
Cash
and cash equivalents
For
the purposes of the statement of cash flows, the Company considers all highly-liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2013 AND 2012
Allowance
for doubtful accounts
Accounts
receivable is stated at cost, net of any allowance for doubtful accounts. The Company maintains allowances for doubtful accounts
for estimated losses resulting from the failure of customers to meet their obligations. Based on management’s evaluation
of each customer, the Company considers all remaining accounts receivable to be fully collectible and, therefore, did not provide
for an allowance for doubtful accounts.
Inventory
Inventory
consists of the shells and components to be added to the mobile command units and is stated at the lower of cost (first-in, first-out)
or market.
Property
and equipment
Property
and equipment are carried at cost. Expenditures which materially increase values or extend useful lives are capitalized while
replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged against income
as incurred. The net gain or loss on items retired or otherwise disposed of is credited or charged to operations and the cost
and accumulated depreciation are removed from the accounts.
Depreciation
A
provision for depreciation of property and equipment is made on a basis considered adequate to amortize the related costs (net
of salvage value) over their estimated useful lives using the straight-line method. Estimated useful lives are principally as
follows: vehicles, 5 years; furniture and fixtures and office equipment, 5-10 years; leasehold improvements, 40 years; machinery
and equipment 5-10 years.
Income
taxes
North
American Custom Specialty Vehicles, LLC, with consent of the members, has elected to be taxed as an S Corporation. In general,
this election provides that income of the corporation passes through and is taxed directly to the members and not to the North
American Custom Specialty Vehicles, LLC. Therefore, no provision or liability for income taxes is presented in these financial
statements.
The
Company is no longer subject to U.S. Federal and State of Alabama income tax examinations by the tax authorities for years before
2010.
Advertising
All
advertising costs are expensed as incurred.
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2013 AND 2012
Shipping
and handling
Shipping
and handling costs are charged to the contract cost when incurred and are included in the costs of revenues earned.
Note
3 - Concentrations of credit risk
The
Company maintains deposit accounts in two financial institutions. Deposit accounts are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $250,000 per financial institution. At times, deposit accounts may be in excess of limits insured by
the FDIC. However, there were no uninsured amounts at December 31, 2013 and 2012.
Although
the Company’s construction contracts are made with various customers, revenues from contracts with two major customers totaled
$4,607,580 or approximately 91 percent of total revenues for the year ended December 31, 2013. Revenues from contracts with two
major customers totaled $4,334,348 or approximately 94 percent of total revenues for the year ended December 31, 2012. Total balances
due from these customers included in receivables as of December 31, 2013 and 2012 was $365,679 and $623,925, respectively.
At
December 31, 2013, one customer individually accounted for 49% of the Company’s outstanding trade receivables and another
customer, 51%. At December 31, 2012, one customer individually accounted for 98% of the Company’s outstanding trade receivables.
Note
4 - Contracts in progress
Contracts
in progress consisted of the following at December 31:
| |
| 2013 | | |
| 2012 | |
Costs incurred on uncompleted contracts | |
$ | 268,088 | | |
$ | 989,834 | |
Estimated earnings | |
| 194,580 | | |
| 514,833 | |
| |
| 462,668 | | |
| 1,504,667 | |
Less billings to date | |
| (832,683 | ) | |
| (1,572,047 | ) |
| |
$ | (370,015 | ) | |
$ | (67,380 | ) |
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
NOTES TO FINANCIAL
STATEMENTS (CONTINUED)
DECEMBER 31, 2013
AND 2012
Included
in the accompanying balance sheet under the following captions:
| |
| 2013 | | |
| 2012 | |
Costs and estimated earnings in excess of billings on uncompleted contracts | |
$ | - | | |
$ | 84,846 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| (370,015 | ) | |
| (152,226 | ) |
| |
$ | (370,015 | ) | |
$ | (67,380 | ) |
Note
5 – Inventory
Inventory
consisted of the following at December 31:
| |
| 2013 | | |
| 2012 | |
Materials inventory | |
$ | 49,367 | | |
$ | 3,927 | |
Truck and trailer inventory | |
| 725,142 | | |
| 612,004 | |
| |
$ | 774,509 | | |
$ | 615,931 | |
Note
6 - Operating leases
The
Company leases two buildings under a year-to-year operating lease. The lease was renewed on January 1, 2014 with future monthly
rental payments of $6,749.
Total
rent expense under this lease for the years ended December 31, 2013 and 2012 was $80,984 and $67,487, respectively.
Note
7 - Related parties
During
2013, the Company was paid a management fee in the amount of $218,604 for maintenance and operation of an airplane owned by North
American Catastrophe Services, Inc., a company related through common ownership.
During
2012, a member made periodic advances to the LLC under a personal line of credit in the amount of $1,741,088. As of December 31,
2012, repayments of the loan had been made in the amount of $1,541,088. The outstanding balance of $200,000 at December 31, 2012
was paid during 2013 with interest, accrued at a rate of 5% per annum. For the years ending December 31, 2013 and 2012, the LLC
made interest payments to the member of $10,856 and $23,135, respectively.
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
NOTES
TO FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 2013 AND 2012
At
December 31, 2012, the Company had outstanding advances from a member totaling $20,916. These advances were paid in full during
2013.
On
February 1, 2012, the Company signed a bill of sale for purchase of furniture, equipment, and leasehold improvements of $28,500,
and inventory of $29,500 from North American Catastrophe Services, Inc. These amounts were paid in full during 2013.
Note
8 - Backlog
The
following schedule summarizes changes in backlog on construction contracts during the year ended December 31, 2013. Backlog represents
the amount of estimated revenues the Company expects to realize from uncompleted contracts in progress at year end and from signed
contractual agreements on work which has not yet begun.
Balance, December 31, 2012 | |
$ | 1,098,164 | |
New contracts and adjustments | |
| 4,977,793 | |
| |
| 6,075,957 | |
Less contract revenues earned | |
| 5,172,955 | |
Balance, December 31, 2013 | |
$ | 903,002 | |
During
2014, the Company has entered into new construction contracts totaling $1,138,346.
Note
9 - Contingencies
The
Company is involved in certain litigation in the ordinary course of business. Management does not anticipate these claims to have
a significant adverse impact on the Company’s financial position.
Note
10 - Subsequent events
On
June 16, 2014, the Company’s members executed an agreement to sell their membership interests. The sales agreement stipulates
that the final purchase price, to be remunerated to the sellers in cash and shares of stock issued by the purchaser, is dependent
upon numerous future financial events. Additionally, the selling members have agreed to certain covenants to protect the key assets
involved in the purchase. The Company will continue operations as a subsidiary entity of the purchaser.
Subsequent
events were evaluated through August 1, 2014, which is the date the financial statements were available to be issued.
SUPPLEMENTARY
INFORMATION
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
SCHEDULES OF COST
OF REVENUES EARNED
| |
Years Ended December 31 | |
| |
2013 | | |
2012 | |
| |
| | |
| |
Labor | |
$ | 439,095 | | |
$ | 385,536 | |
Material | |
| 2,622,535 | | |
| 2,249,964 | |
Contract labor | |
| 107,879 | | |
| 86,347 | |
Freight | |
| 35,659 | | |
| 27,982 | |
Payroll taxes | |
| 37,833 | | |
| 30,843 | |
Insurance | |
| 52,106 | | |
| 33,303 | |
Transport/delivery | |
| 86,531 | | |
| 21,924 | |
| |
$ | 3,381,638 | | |
$ | 2,835,899 | |
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
SCHEDULES OF GENERAL
AND ADMINISTRATIVE EXPENSES
| |
Years Ended December 31 | |
| |
2013 | | |
2012 | |
Advertising | |
$ | 149,884 | | |
$ | 52,267 | |
Automobile | |
| 3,962 | | |
| 4,306 | |
Bad debt | |
| 627 | | |
| - | |
Bonding | |
| - | | |
| 101 | |
Bank/finance charges | |
| 1,394 | | |
| 509 | |
Contributions | |
| 77,705 | | |
| 3,851 | |
Computer and internet | |
| 1,043 | | |
| 1,120 | |
Dues and subscriptions | |
| 590 | | |
| 722 | |
Expense reimbursement | |
| - | | |
| 3,246 | |
Insurance | |
| 50,397 | | |
| 46,572 | |
Legal and accounting | |
| 52,861 | | |
| 10,166 | |
Meals and entertainment | |
| 10,661 | | |
| 7,647 | |
Miscellaneous | |
| 6,796 | | |
| 9,972 | |
Officer salary | |
| 611,000 | | |
| 447,500 | |
Payroll taxes | |
| 19,351 | | |
| 24,539 | |
Postage and delivery | |
| 2,552 | | |
| 4,082 | |
Rent | |
| 80,984 | | |
| 67,487 | |
Repairs and maintenance | |
| 16,066 | | |
| 33,443 | |
Salaries | |
| 147,216 | | |
| 147,255 | |
Security | |
| 582 | | |
| 582 | |
Supplies | |
| 8,434 | | |
| 14,704 | |
Taxes and licenses | |
| 13,091 | | |
| 11,224 | |
Telephone | |
| 8,102 | | |
| 4,313 | |
Travel | |
| 60,826 | | |
| 36,094 | |
Uniforms | |
| 7,174 | | |
| 5,098 | |
Utilities | |
| 8,248 | | |
| 7,386 | |
| |
$ | 1,339,546 | | |
$ | 944,186 | |
-16-
Exhibit 99.2
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
FINANCIAL
STATEMENTS
MARCH
31, 2014
(unaudited)
|
Page |
|
|
Balance
Sheet as of March 31, 2014 |
1 |
|
|
Statements
of Income and Members’ Equity for the three months ended March 31, 2014 and 2013 |
2 |
|
|
Statements
of Cash Flows for the three months ended March 31, 2014 and 2013 |
3 |
|
|
Notes
to Financial Statements |
4
– 7 |
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
BALANCE
SHEET
MARCH
31, 2014
(unaudited)
Assets | |
| |
Current assets: | |
| |
Cash and cash equivalents | |
$ | 206,664 | |
Accounts receivable, net | |
| 369,539 | |
Inventory | |
| 835,246 | |
Prepaid expenses and other | |
| 12,132 | |
Costs end estimates in excess of billings on uncompleted contracts | |
| 121,115 | |
Total current assets | |
| 1,544,696 | |
Property and equipment, net | |
| 72,151 | |
Total assets | |
$ | 1,616,847 | |
| |
| | |
Liabilities and Members’ Equity | |
| | |
Current Liabilities: | |
| | |
Accounts payable | |
$ | 7,212 | |
Accrued expenses | |
| 14,766 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| 331,965 | |
Total current liabilities | |
| 353,943 | |
Members' equity | |
| 1,262,904 | |
Total liabilities and members’ equity | |
$ | 1,616,847 | |
See the
accompanying notes to financial statements.
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
STATEMENTS
OF INCOME AND MEMBER'S EQUITY
(unaudited)
| |
Three Months Ended | |
| |
March 31, | |
| |
2014 | | |
2013 | |
Contract revenue earned | |
$ | 566,737 | | |
$ | 1,549,440 | |
Cost of revenue earned | |
| 364,687 | | |
| 806,111 | |
Gross profit | |
| 202,050 | | |
| 743,329 | |
Expenses: | |
| | | |
| | |
General and administrative | |
| 194,564 | | |
| 223,265 | |
Depreciation and amortization | |
| 2,777 | | |
| 2,341 | |
Total expenses | |
| 197,341 | | |
| 225,606 | |
Net income | |
| 4,709 | | |
| 517,723 | |
Member's equity, beginning of period | |
| 1,258,195 | | |
| 1,011,856 | |
Member's equity, end of period | |
$ | 1,262,904 | | |
$ | 1,529,579 | |
See the
accompanying notes to financial statements.
NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, LLC
STATEMENTS
OF CASH FLOWS
(unaudited)
| |
Three Months Ended | |
| |
March 31, | |
| |
2014 | | |
2013 | |
| |
| | |
| |
Operating Activities | |
| | |
| |
Net income | |
$ | 4,709 | | |
$ | 517,723 | |
Adjustments to reconcile net income to net cash provided by operating activities: | |
| | | |
| | |
Depreciation | |
| 2,777 | | |
| 2,341 | |
Changes in operating assets and liabilities: | |
| | | |
| | |
Accounts receivable, net | |
| 353,676 | | |
| (779,038 | ) |
Inventory | |
| (60,737 | ) | |
| (15,313 | ) |
Prepaid expenses and other | |
| (4,838 | ) | |
| - | |
Costs end estimates in excess of billings on uncompleted contracts | |
| (121,115 | ) | |
| (146,174 | ) |
Accounts payable | |
| (615 | ) | |
| (53,032 | ) |
Accrued expenses | |
| 9,626 | | |
| - | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| (38,050 | ) | |
| 533,681 | |
Net cash provided by operating activities | |
| 145,433 | | |
| 60,188 | |
| |
| | | |
| | |
Financing Activities | |
| | | |
| | |
Repayment of loans from member | |
| - | | |
| (50,000 | ) |
Net cash used for financing activities | |
| - | | |
| (50,000 | ) |
| |
| | | |
| | |
Net increase in cash and cash equivalents | |
| 145,433 | | |
| 10,188 | |
Cash and cash equivalents at beginning of year | |
| 61,231 | | |
| 116,628 | |
Cash and cash equivalents at end of period | |
$ | 206,664 | | |
$ | 126,816 | |
See
the accompanying notes to financial statements.
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES,
LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Note 1 - Nature of operations
North
American Custom Specialty Vehicles, LLC (the “Company” or “NACSV”) was organized on October 27, 2011,
under the laws of the State of Alabama. The Company operates principally in the homeland security and public safety industries
in the United States whereby the Company builds mobile command units for military, law enforcement, emergency management, and
private sector companies.
The
terms of the Organization Agreement provide that Brian A. Dekle serves as the Manager and owns 75% of the membership interests
and that John Ramsay owns 25% of the membership interests. The Agreement also dictates that John Ramsay has no right to vote on
any matters and that the Company’s net profits or net losses shall be allocated to the members in proportion to their membership
interests. Generally, the liability of the members of the Company is limited to the members’ total capital contributions.
Note
2 - Summary of significant accounting policies
Revenue
and cost recognition
Revenues
from fixed-price and modified fixed-price construction contracts are recognized using the percentage-of-completion method of revenue
recognition, measure by the percentage of cost incurred to date to estimated total cost for each contract. This method is used
because management considers it to be the best available measure of progress on these contracts. Because of inherent uncertainties
in estimating costs, it is possible that the estimates used will change within the near-term.
Contract
costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes
and worker’s compensation insurance premiums. Operating expenses are charged to expense as incurred. Provisions for estimated
losses on uncompleted contracts are made in the period in which such losses are determined. Changes in job performance, job conditions,
estimated profitability, and final contract settlements may result in revisions to costs and income and are recognized in the
period in which the revisions are determined.
The
asset, “Costs and estimated earnings in excess of billings on uncompleted contracts”, represents revenues recognized
in excess of amounts billed. The liability, “Billings in excess of costs and estimated earnings on uncompleted contracts”,
represents billings in excess of revenues recognized.
Cash
and cash equivalents
For
the purposes of the statement of cash flows, the Company considers all highly-liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Allowance
for doubtful accounts
Accounts
receivable is stated at cost, net of any allowance for doubtful accounts. The Company maintains allowances for doubtful accounts
for estimated losses resulting from the failure of customers to meet their obligations. Based on management’s evaluation
of each customer, the Company considers all remaining accounts receivable to be fully collectible and, therefore, did not provide
for an allowance for doubtful accounts.
Inventory
Inventory
consists of the shells and components to be added to the mobile command units and is stated at the lower of cost (first-in, first-out)
or market.
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES,
LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Property
and equipment
Property
and equipment are carried at cost. Expenditures which materially increase values or extend useful lives are capitalized while
replacements, maintenance and repairs which do not improve or extend the lives of the respective assets are charged against income
as incurred. The net gain or loss on items retired or otherwise disposed of is credited or charged to operations and the cost
and accumulated depreciation are removed from the accounts.
Depreciation
A
provision for depreciation of property and equipment is made on a basis considered adequate to amortize the related costs (net
of salvage value) over their estimated useful lives using the straight-line method. Estimated useful lives are principally as
follows: vehicles, 5 years; furniture and fixtures and office equipment, 5-10 years; leasehold improvements, 40 years; machinery
and equipment 5-10 years.
Income
taxes
The
Company, with the consent of its members, has elected to be taxed as an S Corporation. In general, this election provides that
income of the corporation passes through and is taxed directly to the members and not to the Company. Therefore, no provision
or liability for income taxes is presented in these financial statements.
The
Company is no longer subject to U.S. Federal and State of Alabama income tax examinations by the tax authorities for years before
2011.
Advertising
All
advertising costs are expensed as incurred.
Shipping
and handling
Shipping
and handling costs are charged to the contract cost when incurred and are included in the costs of revenues earned.
Note
3 - Concentrations of credit risk
The
Company maintains deposit accounts in two financial institutions. Deposit accounts are insured by the Federal Deposit Insurance
Corporation (FDIC) up to $250,000 per financial institution. At times, deposit accounts may be in excess of limits insured by
the FDIC. There were no uninsured amounts at March 31, 2104.
The
credit risk for trade accounts receivable is concentrated because the balance due from the one of the Company’s largest
customers comprises substantially the entire carrying amount. However, customer accounts typically are collected within a short
period of time, and, based on its assessment of current conditions, management believes realization of losses on amounts outstanding
as of March 31, 2014 will be immaterial. At March 31, 2014, one customer individually accounted for 96% of the Company’s
outstanding trade receivables. As of March 31, 2014, revenue recognized from one customer accounted for 89% of total revenue at
March 31, 2014.
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES,
LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Note
4 - Contracts in progress
Contracts
in progress consisted of the following at March 31, 2014:
Costs incurred on uncompleted contracts | |
$ | 572,166 | |
Estimated earnings | |
| 439,451 | |
| |
| 1,011,617 | |
Less billings to date | |
| (1,222,467 | ) |
| |
$ | (210,850 | ) |
| |
| | |
Included in the accompanying balance sheet under the following captions: | |
| | |
Costs and estimates in excess of | |
| | |
billings on uncompleted contracts | |
$ | 121,115 | |
Billings in excess of costs and estimated | |
| | |
earnings on uncompleted contracts | |
| (331,965 | ) |
| |
$ | (210,850 | ) |
Note
5 - Inventory
Inventory
consists of the following at March 31, 2014:
Materials inventory | |
$ | 65,767 | |
Truck and trailer inventory | |
| 769,479 | |
| |
$ | 835,246 | |
Note
6 - Operating leases
On
January 1, 2013 and again on January 1, 2014, the Company renewed a lease agreement for two buildings under a year-to-year operating
lease with monthly rent payments totaling $6,749. Total rent expense under this agreement for the three-month periods ended March
31, 2014 and 2013 was $20,247 in both periods.
Note 7
- Backlog
The
following schedule summarizes changes in backlog on construction contracts during the period ended March 31, 2014. Backlog represents
the amount of estimated revenues the Company expects to realize from uncompleted contracts in progress at March 31, 2014 and from
signed contractual agreements on work which has not yet begun.
Balance, December 31, 2013 | |
$ | 903,002 | |
New contacts and adjustment | |
| 1,140,630 | |
| |
| 2,043,632 | |
Less contract revenue earned | |
| (551,927 | ) |
Balance, March 31, 2014 | |
$ | 1,491,705 | |
The
Company has not entered into any new construction contracts since March 31, 2014.
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES,
LLC
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2014
(unaudited)
Note 8 - Subsequent events
On
June 16, 2014, the Company’s members executed an agreement to sell their membership interests. The sales agreement stipulates
that the final purchase price, to be remunerated to the sellers in cash and shares of stock issued by the purchaser, is dependent
upon numerous future financial events. Additionally, the selling members have agreed to certain covenants to protect the key assets
involved in the purchase. The Company will continue operations as a subsidiary of the purchaser.
Subsequent
events were evaluated through August 13, 2014, which is the date the financial statements were available to be issued.
7
Exhibit 99.3
GLOBAL DIGITAL SOLUTIONS, INC.
Unaudited Pro Forma Condensed Combined Financial
Information
Basis of Pro Forma Presentation
On June 16, 2014 Global Digital Solutions,
Inc. a New Jersey Corporation (the “Company”) acquired all of the outstanding membership interests of North American
Custom Specialty Vehicles LLC, an Alabama limited liability company (“NACSV”) (the “Acquisition”). Effective
with the closing of the transaction, NACSV became a wholly-owned subsidiary of the Company.
Under the purchase method of accounting the
total estimated purchase price as described in Note 2 to this unaudited pro forma condensed combined financial information was
allocated to the net tangible and intangible assets of NACSV acquired in connection with the Acquisition based on their estimated
fair values. The estimated fair values of certain assets and liabilities have been determined by management and are subject to
change upon the finalization of the purchase accounting.
The historical consolidated financial information
has been adjusted in the unaudited pro forma condensed combined financial information to give effect to pro forma events that are
directly attributable to the acquisition, factually supportable, and, with respect to the statements of operations, expected to
have a continuing impact on the combined results.
The unaudited pro forma
condensed combined financial information does not purport to be indicative of the financial position or results of operations
of the Company that would have been reported had the Acquisition been completed as of the dates or for such periods
presented, nor is it intended to project the Company’s future financial position or results of operations. The
unaudited pro forma condensed combined financial information and the accompanying notes should be read together with the
Company’s audited consolidated financial statements and accompanying notes for the year ended December 31, 2013,
Management’s Discussion and Analysis included in the Company’s Annual Report on Form 10-K for the year ended
December 31, 2013, and NACSV’s audited financial statements and accompanying notes for the year ended December 31, 2013
included in Exhibit 99.1 of this Current Report.
The unaudited pro forma condensed combined
financial information as of and for the three months ended March 31, 2014 has been prepared from the Company’s unaudited
condensed consolidated financial statements as of and for the three months ended March 31, 2014 and from the unaudited financial
statements of NACSV as of and for the three months ended March 31, 2014.
The unaudited pro forma condensed
combined balance sheet as of March 31, 2014 has been prepared to present the Company’s financial position as if the
Acquisition had occurred on March 31, 2014. The unaudited pro forma condensed combined statements of operations for the year
ended December 31, 2013 and for the three months ended March 31, 2014 have been prepared to present the Company’s
results of operations as if the Acquisition had occurred on January 1, 2013 and January 1, 2014, respectively.
The pro forma adjustments are based on preliminary
estimates, available information and certain assumptions, which may be revised as additional information becomes available. The
unaudited pro forma condensed combined financial information does not reflect any adjustments for nonrecurring items or anticipated
synergies resulting from the Acquisition.
GLOBAL DIGITAL SOLUTIONS, INC.
Pro Forma Condensed Combined Balance Sheet
As of March 31, 2014
(Unaudited)
| |
GLOBAL DIGITAL SOLUTIONS, INC. HISTORICAL | | |
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, LLC HISTORICAL | | |
PRO FORMA ADJUSTMENTS | | |
PRO FORMA COMBINED | |
| |
| | |
| | |
| | |
| |
Assets | |
| | |
| | |
| | |
| |
Current assets: | |
| | |
| | |
| | |
| |
Cash and cash equivalents | |
$ | 271,776 | | |
$ | 206,664 | | |
| $ 469,876 | (a) | |
$ | 948,316 | |
Accounts receivable, net | |
| - | | |
| 369,539 | | |
| - | | |
| 369,539 | |
Inventory | |
| - | | |
| 835,246 | | |
| - | | |
| 835,246 | |
Notes receivable | |
| 1,494,876 | | |
| - | | |
| (1,494,876 | )(a) | |
| - | |
Prepaid expenses and other | |
| 73,055 | | |
| 12,132 | | |
| - | | |
| 85,187 | |
Costs end estimates in excess of billings on uncompleted contracts | |
| - | | |
| 121,115 | | |
| - | | |
| 121,115 | |
Total current assets | |
| 1,839,707 | | |
| 1,544,696 | | |
| (1,025,000 | ) | |
| 2,359,403 | |
Property and equipment, net | |
| - | | |
| 72,151 | | |
| - | | |
| 72,151 | |
Goodwill | |
| - | | |
| - | | |
| 975,848 | (b) | |
| 975,848 | |
Intangibles | |
| - | | |
| - | | |
| 1,732,914 | (c) | |
| 1,732,914 | |
Other assets | |
| 198 | | |
| - | | |
| - | | |
| 198 | |
Total assets | |
$ | 1,839,905 | | |
$ | 1,616,847 | | |
$ | 1,683,762 | | |
$ | 5,140,514 | |
| |
| | | |
| | | |
| | | |
| | |
Liabilities and Stockholders’ Equity | |
| | | |
| | | |
| | | |
| | |
Current Liabilities: | |
| | | |
| | | |
| | | |
| | |
Accounts payable | |
$ | 29,643 | | |
$ | 7,212 | | |
| $ 111,241 | (d) | |
$ | 148,096 | |
Accrued expenses | |
| 193,586 | | |
| 14,766 | | |
| - | | |
| 208,352 | |
Convertible notes payable | |
| 535,559 | | |
| - | | |
| - | | |
| 535,559 | |
Notes payable | |
| 25,000 | | |
| - | | |
| - | | |
| 25,000 | |
Billings in excess of costs and estimated earnings on uncompleted contracts | |
| - | | |
| 331,965 | | |
| - | | |
| 331,965 | |
Total current liabilities | |
| 783,788 | | |
| 353,943 | | |
| 111,241 | | |
| 1,248,972 | |
Long-term liabilities | |
| - | | |
| - | | |
| 1,955,293 | (e) | |
| 1,955,293 | |
Total liabilities | |
| 783,788 | | |
| 353,943 | | |
| 2,066,534 | | |
| 3,204,265 | |
| |
| | | |
| | | |
| | | |
| | |
Stockholders’ equity (deficit): | |
| | | |
| | | |
| | | |
| | |
Preferred stock | |
| - | | |
| - | | |
| - | | |
| - | |
Common stock | |
| 101,025 | | |
| - | | |
| 5,078 | (f) | |
| 106,103 | |
Additional paid – in capital | |
| 20,649,396 | | |
| - | | |
| 1,675,295 | (g) | |
| 22,324,691 | |
Accumulated deficit | |
| (19,694,304 | ) | |
| - | | |
| (800,241 | )(h) | |
| (20,494,545 | ) |
Members' equity | |
| - | | |
| 1,262,904 | | |
| (1,262,904 | )(i) | |
| - | |
Total stockholders’ equity (deficit) | |
| 1,056,117 | | |
| 1,262,904 | | |
| (382,772 | ) | |
| 1,936,249 | |
Total liabilities and stockholders’ equity | |
$ | 1,839,905 | | |
$ | 1,616,847 | | |
$ | 1,683,762 | | |
$ | 5,140,514 | |
The accompanying notes are an integral part
of this pro forma financial information.
GLOBAL DIGITAL SOLUTIONS, INC.
Pro Forma Condensed Combined Statement of
Operations
For The Three Months Ended March 31,
2014
(Unaudited)
| |
GLOBAL DIGITAL SOLUTIONS, INC. HISTORICAL | | |
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, LLC HISTORICAL | | |
PRO FORMA ADJUSTMENTS | | |
PRO FORMA COMBINED | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | - | | |
$ | 566,737 | | |
$ | - | | |
$ | 566,737 | |
Cost of sales | |
| - | | |
| 364,687 | | |
| - | | |
| 364,687 | |
Gross profit | |
| - | | |
| 202,050 | | |
| - | | |
| 202,050 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 2,858,681 | | |
| 194,564 | | |
| 800,241 | (h) | |
| 3,853,486 | |
Depreciation and amortization | |
| - | | |
| 2,777 | | |
| 86,646 | (j) | |
| 89,423 | |
Other (income)/expense | |
| - | | |
| | | |
| | | |
| | |
Interest income | |
| (29,002 | ) | |
| - | | |
| - | | |
| (29,002 | ) |
Interest expense | |
| 6,250 | | |
| - | | |
| - | | |
| 6,250 | |
Total costs and expenses | |
| 2,835,929 | | |
| 197,341 | | |
| 886,887 | | |
| 3,920,157 | |
Income (loss) from operations before provision for income taxes | |
| (2,835,929 | ) | |
| 4,709 | | |
| (886,887 | ) | |
| (3,718,107 | ) |
Provision for income taxes | |
| - | | |
| - | | |
| | | |
| - | |
Net income (loss) | |
$ | (2,835,929 | ) | |
$ | 4,709 | | |
$ | (886,887 | ) | |
$ | (3,718,107 | ) |
Loss per common share - basic and diluted: | |
$ | (0.03 | ) | |
| | | |
| | | |
$ | (0.04 | ) |
Shares used in computing net loss per share - basic and diluted | |
| 98,551,895 | | |
| | | |
| 5,078,622 | (k) | |
| 103,630,517 | |
The accompanying notes are an integral part
of this pro forma financial information.
GLOBAL DIGITAL SOLUTIONS, INC.
Pro Forma Condensed Combined Statement of
Operations
For The Year Ended December 31, 2013
(Unaudited)
| |
GLOBAL DIGITAL SOLUTIONS, INC. HISTORICAL | | |
NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, LLC HISTORICAL | | |
PRO FORMA ADJUSTMENTS | | |
PRO FORMA COMBINED | |
| |
| | |
| | |
| | |
| |
Revenue | |
$ | - | | |
$ | 5,172,955 | | |
$ | - | | |
$ | 5,172,955 | |
Cost of sales | |
| - | | |
| 3,381,638 | | |
| - | | |
| 3,381,638 | |
Gross profit | |
| - | | |
| 1,791,317 | | |
| - | | |
| 1,791,317 | |
Operating expenses: | |
| | | |
| | | |
| | | |
| | |
General and administrative | |
| 8,384,247 | | |
| 1,339,546 | | |
| 800,241 | (h) | |
| 10,524,034 | |
Depreciation and amortization | |
| - | | |
| 9,652 | | |
| 346,583 | (j) | |
| 356,235 | |
Gain on extinguishment of debt | |
| (31,712 | ) | |
| | | |
| | | |
| (31,712 | ) |
Other (income) expense | |
| | | |
| | | |
| | | |
| - | |
Management fees | |
| - | | |
| (218,604 | ) | |
| - | | |
| (218,604 | ) |
Other | |
| - | | |
| (47,230 | ) | |
| - | | |
| (47,230 | ) |
Interest income | |
| (59,701 | ) | |
| (99 | ) | |
| - | | |
| (59,800 | ) |
Interest expense | |
| 733,198 | | |
| 11,713 | | |
| - | | |
| 744,911 | |
Total costs and expenses | |
| 9,026,032 | | |
| 1,094,978 | | |
| 1,146,824 | | |
| 11,267,834 | |
Net income (loss) before provision for income taxes | |
| (9,026,032 | ) | |
| 696,339 | | |
| (1,146,824 | ) | |
| (9,476,517 | ) |
Provision for income taxes | |
| - | | |
| - | | |
| - | | |
| - | |
Income (loss) from continuing operations | |
| (9,026,032 | ) | |
| 696,339 | | |
| (1,146,824 | ) | |
| (9,476,517 | ) |
Loss from discontinued operations | |
| (271,221 | ) | |
| | | |
| | | |
| (271,221 | ) |
Net Income (loss) | |
$ | (9,297,253 | ) | |
$ | 696,339 | | |
$ | (1,146,824 | ) | |
$ | (9,747,738 | ) |
Loss per common share - basic and diluted: | |
| | | |
| | | |
| | | |
| | |
Loss from continuing operations | |
$ | (0.12 | ) | |
| | | |
| | | |
$ | (0.12 | ) |
Loss from discontinued operations | |
$ | (0.00 | ) | |
| | | |
| | | |
$ | (0.00 | ) |
Net loss | |
$ | (0.12 | ) | |
| | | |
| | | |
$ | (0.12 | ) |
Shares used in computing net loss per share - basic and diluted | |
| 74,484,164 | | |
| | | |
| 5,078,622 | (k) | |
| 79,562,786 | |
The accompanying notes are an integral part
of this pro forma financial information.
GLOBAL DIGITAL SOLUTIONS, INC.
Notes to Pro Forma Condensed Combined Financial
Information
(Unaudited)
Note 1. Acquisition of NACSV
On June 16, 2014, the Company acquired all
of the outstanding membership interests of NACSV in a transaction accounted for using the purchase method of accounting.
As consideration for the consummation of
the Acquisition, at the closing of the Acquisition, the Company paid $1,000,000 in cash to the selling members, and issued
them shares of the Company’s common stock valued at $200,000 (the “Stock Consideration”). In connection
with the Acquisition, the Company is required to make a true-up payment of the excess of total assets over $1.2 million,
estimated at $816,373 payable in shares of the Company’s common stock (the “True-Up Payment”), and
additional consideration as certain events or transactions occur in the future, up to a maximum of $2.4 million, payable in
shares of the Company’s common stock or in cash at the seller’s option (the “Contingent
Consideration”).
The estimated purchase price of the Acquisition
totaled $3,971,666, comprised of $1,000,000 in cash, the Stock Consideration of $200,000, the True-Up Payment of $816,373, and
the fair value of the Contingent Consideration estimated at approximately $1,955,293. The fair value of the Contingent Consideration
was estimated based upon the present value of the expected future payouts of the Contingent Consideration and is subject to change
upon the finalization of the purchase accounting.
Under the purchase method of accounting, the
estimated purchase price of the Acquisition was allocated to NACSV’s net tangible and identifiable intangible assets and
liabilities assumed based on their estimated fair values as of the date of the completion of the Acquisition, as described in the
introduction to this unaudited pro forma condensed combined financial information, as follows:
Assets Acquired: | |
| |
Cash and cash equivalents | |
$ | 206,664 | |
Accounts receivable, net | |
| 369,539 | |
Inventory | |
| 835,246 | |
Prepaid expenses and other | |
| 12,132 | |
Costs in excess of billings | |
| 121,115 | |
Property and equipment, net | |
| 71,899 | |
Customer relationships | |
| 1,733,076 | |
Goodwill | |
| 975,938 | |
| |
| 4,325,609 | |
Liabilities assumed: | |
| | |
Accounts payable | |
| 7,212 | |
Accrued expenses | |
| 14,766 | |
Billings in excess of costs | |
| 331,965 | |
| |
| 353,943 | |
Total estimated purchase price | |
$ | 3,971,666 | |
Note 2. Pro Forma Adjustments
The pro forma adjustments included in the unaudited
pro forma condensed combined financial information are as follows:
| (a) | To (i) reflect that the notes receivable have been repaid, (ii) record the $1 million cash consideration
transferred at closing of the Acquisition and (iii) record a $25,000 due diligence fee paid. |
| (b) | To reflect the preliminary estimate of goodwill to be recorded in connection with the Acquisition. |
| (c) | To reflect the preliminary estimate of the fair value of amortizable intangible assets acquired,
consisting of customer lists. |
| (d) | To record the professional fees payable in connection with the Acquisition. |
| (e) | To record a liability for the estimated fair value of the Contingent Consideration. |
| (f) | To record the par value of (i) the 645,161 issued to the sellers for the Stock Consideration, (ii)
the estimated 2,633,461 shares to be issued to the sellers for the True-Up Payment, and (iii) the 1.8 million shares issued for
acquisition services. |
| (g) | To record the additional paid in capital related to the shares issued or to be issued. |
| (h) | To expense the direct costs of the acquisition of (i) professional fees of $111,241, (ii) due diligence
fees of $25,0000 and (ii) acquisition services of $664,000. |
| (i) | To reverse the historic members’ equity of NACSV. |
| (j) | To record amortization of customer lists over an estimated 5-year useful life. |
| (k) | Represents (i) the 645,161 shares issued to the sellers for the Stock Consideration, (ii) the estimated
2,633,461 shares to be issued to the sellers for the True-Up Payment, and (iii) the 1.8 million shares issued for acquisition services. |
6
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