NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
We were
incorporated in New Jersey as Creative Beauty Supply, Inc.
(“Creative”) in August 1995. In March 2004, Creative
acquired Global Digital Solutions, Inc., a Delaware corporation
("Global”). The merger was treated as a recapitalization of
Global, and Creative changed its name to Global Digital Solutions,
Inc.(“the Company”, “we”), Global provided
structured cabling design, installation and maintenance for leading
information technology companies, federal, state and local
government, major businesses, educational institutions, and
telecommunication companies. On May 1, 2012, we made the decision
to wind down our operations in the telecommunications area and to
refocus our efforts in the area of cyber arms technology and
complementary security and technology solutions. From August 2012
through November 2013 we were actively involved in managing
Airtronic USA, Inc., and effective as of September 16, 2014 we
acquired North American Custom Specialty Vehicles
(“NACSV”). In July 2014, we announced the formation of
GDSI International (f/k/a Global Digital Solutions, LLC) to
spearhead our efforts overseas.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The
accompanying financial statements have been prepared assuming we
will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the
normal course of business. We have sustained losses and experienced
negative cash flows from operations since inception, and for the
nine months ended September 30, 2016 we incurred a net loss of
$266,730 and used net cash of $2,944 to fund operating activities.
At September 30, 2016, we had no cash, an accumulated deficit of
$31,934,116, a working capital deficit of $1,121,787 and
stockholders’ deficit of $1,119,372. We have funded our
activities to date almost exclusively from equity and debt
financings.
Our
cash position is critically deficient, and payments essential to
our ability to operate are not being made in the ordinary course.
Failure to raise capital in the coming days to fund our operations
and failure to generate positive cash flow to fund such operations
in the future will have a material adverse effect on our financial
condition. These factors raise substantial doubt about our ability
to continue as a going concern.
We are
in default under the terms of our loan agreements, as more fully
discussed in Note 5. We need to raise additional funds immediately
and continue to raise funds until we begin to generate sufficient
cash from operations, and we may not be able to obtain the
necessary financing on acceptable terms, or at all.
We will
continue to require substantial funds to continue development of
our core business. Management’s plans in order to meet our
operating cash flow requirements include financing activities such
as private placements of common stock, and issuances of debt and
convertible debt instruments, and the establishment of strategic
relationships which we expect will lead to the generation of
additional revenue or acquisition opportunities.
While
we believe that we will be successful in obtaining the necessary
financing to fund our operations, there are no assurances that such
additional funding will be achieved or that we will succeed in our
future operations. On December 22, 2017, the Company entered into a
financing agreement with an accredited investor for $1.2 million
(Note 9).
Our
ability to achieve and maintain profitability and positive cash
flow is dependent upon our ability to successfully execute the
plans to pursue acquisitions, and raise the funds necessary to
complete such acquisitions. The outcome of these matters cannot be
predicted at this time. The consolidated financial statements do
not include any adjustments relating to the recoverability and
classification of recorded asset amounts or the amounts and
classification of liabilities that might be necessary should we be
unable to continue as a going concern.
Principles of Consolidation
The
accompanying consolidated financial statements include the accounts
of the Company and our wholly owned subsidiaries, NACSV, GDSI
Florida, LLC and Global Digital Solutions, LLC, dba GDSI
International. All intercompany accounts and transactions have been
eliminated in consolidation.
Basis of Presentation
The
accompanying unaudited financial information as of and for the
three and nine months ended September 30, 2016 and 2015 has been
prepared in accordance with accounting principles generally
accepted in the U.S. for interim financial information and with the
instructions to Quarterly Report on Form 10-Q and Article 10 of
Regulation S-X. In the opinion of management, such financial
information includes all adjustments (consisting only of normal
recurring adjustments, unless otherwise indicated) considered
necessary for a fair presentation of our financial position at such
date and the operating results and cash flows for such periods.
Operating results for the three and nine months ended September 30,
2016 are not necessarily indicative of the results that may be
expected for the entire year or for any other subsequent interim
period.
Certain
information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted
accounting principles have been omitted pursuant to the rules of
the U.S. Securities and Exchange Commission, or the SEC. These
unaudited financial statements and related notes should be read in
conjunction with our audited financial statements for the year
ended December 31, 2015 included in our Annual Report on Form
10-K filed with the SEC on May 31, 2018.
The
condensed consolidated balance sheet at December 31, 2015 has been
derived from the audited financial statements at that date, but
does not include all of the information and footnotes required by
generally accepted accounting principles in the U.S. for complete
financial statements.
Revenue Recognition
The
Company recognizes revenue when all of the following conditions are
satisfied: (1) there is persuasive evidence of an arrangement; (2)
the product or service has been provided to the customer; (3) the
amount to be paid by the customer is fixed or determinable; and (4)
the collection of such amount is probable. The Company
records revenue when it is realizable and earned upon shipment of
the finished products or when the service has been
provided
Fair Value of Financial Instruments
The
carrying value of cash, accounts receivable, other receivables,
accounts payable and accrued expenses approximate their fair values
based on the short-term maturity of these instruments. The carrying
amounts of debt were also estimated to approximate fair value. As
defined in ASC 820, "Fair Value Measurement," fair value is the
price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at
the measurement date (exit price). The Company utilizes market data
or assumptions that market participants would use in pricing the
asset or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated, or generally
unobservable. ASC 820 establishes a fair value hierarchy that
prioritizes the inputs 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 measurement)
and the lowest priority to unobservable inputs (level 3
measurement). This fair value measurement framework applies at both
initial and subsequent measurement.
The
three levels of the fair value hierarchy defined by ASC 820 are as
follows:
●
Level 1 –
Quoted prices in active markets for identical assets or
liabilities
●
Level 2
–Quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, or other inputs that
are observable, either directly or indirectly
●
Level 3 –
Significant unobservable inputs that cannot be corroborated by
market data.
Earnings (Loss) Per Share (“EPS”)
Basic
EPS is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding. Diluted EPS
includes the effect from potential issuance of common stock, such
as stock issuable pursuant to the exercise of stock options and
warrants and the assumed conversion of convertible
notes.
The
following table summarizes the securities that were excluded from
the diluted per share calculation because the effect of including
these potential shares was antidilutive even though the exercise
price could be less than the average market price of the common
shares:
|
|
|
|
|
|
|
|
Convertible notes
and accrued interest
|
139,707,296
|
766,666
|
Preferred
stock
|
861,613,714
|
-
|
Stock
options
|
14,116,668
|
5,840,000
|
Warrants
|
2,500,000
|
4,250,000
|
Vested but unissued
restricted stock awards
|
--
|
2,187,503
|
Restricted stock
units
|
-
|
-
|
Price
protection
|
-
|
1,854,838
|
Potentially
dilutive securities
|
1,017,937,678
|
14,899,007
|
|
|
|
|
|
|
|
|
Convertible notes
and accrued interest
|
139,707,293
|
766,666
|
Preferred
stock
|
861,613,714
|
-
|
Stock
options
|
14,116,668
|
5,840,000
|
Warrants
|
2,500,000
|
4,250,000
|
Vested but unissued
restricted stock awards
|
-
|
2,187,503
|
Restricted stock
units
|
-
|
-
|
Price
protection
|
-
|
1,854,838
|
Potentially
dilutive securities
|
1,017,937,678
|
14,899,007
|
Use of Estimates
The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, equity based transactions and disclosure of
contingent liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates.
The
Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the
preparation of the financial statements. Significant estimates
include the valuation of the derivative liability, deferred tax
asset and valuation allowance, and assumptions used in
Black-Scholes-Merton, or BSM, or other valuation methods, such as
expected volatility, risk-free interest rate, and expected dividend
rate.
Inventory
We did
not have inventory at September 30, 2016 or December 31, 2015. We
order inventory/components upon receipt of a signed purchase order
from a customer.
Recent Accounting Pronouncements
In May
2014, the FASB issued Accounting Standards Update
(“ASU”) No. 2014-09,
Revenue from Contracts with Customers: Topic
606,
or ASU 2014-09. ASU 2014-09 establishes the principles
for recognizing revenue and develops a common revenue standard for
U.S. GAAP. The standard outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition
guidance, including industry-specific guidance. In applying the new
revenue recognition model to contracts with customers, an entity:
(1) identifies the contract(s) with a customer; (2) identifies the
performance obligations in the contract(s); (3) determines the
transaction price; (4) allocates the transaction price to the
performance obligations in the contract(s); and (5) recognizes
revenue when (or as) the entity satisfies a performance obligation.
The accounting standards update applies to all contracts with
customers except those that are within the scope of other topics in
the FASB Accounting Standards Codification. The accounting
standards update also requires significantly expanded quantitative
and qualitative disclosures regarding the nature, amount, timing
and uncertainty of revenue and cash flows arising from contracts
with customers. This guidance is effective for fiscal years and
interim periods within those years beginning after December 15,
2017. The Company is currently evaluating the impact that the
implementation of ASU 2014-09 will have on the Company’s
financial statements.
In
August 2014, the FASB issued ASU No. 2014-15,
Disclosure of Uncertainties about an
Entity’s Ability to Continue as a Going Concern
, or
ASU 2014-15. ASU 2014-15 will explicitly require management to
assess an entity’s ability to continue as a going concern,
and to provide related footnote disclosure in certain
circumstances. The new standard will be effective for all entities
in the first annual period ending after December 15, 2016. Earlier
adoption is permitted. The Company is not early adopting ASU
2014-15. The Company is currently evaluating the impact that the
implementation of ASU 2014-15 will have on the Company’s
financial statements, and the actual impact will be dependent upon
the Company’s liquidity and the nature or significance of
future events or conditions that exist upon adopting the updated
standard.
In
April 2015, the FASB issued ASU No. 2015-05,
Customer’s Accounting for Fees Paid in a
Cloud Computing Arrangement
, or ASU 2015-05
.
ASU 2015-05 provides guidance to
entities about whether a cloud computing arrangement includes a
software license. Under ASU 2015-05, if a software cloud computing
arrangement contains a software license, entities should account
for the license element of the arrangement in a manner consistent
with the acquisition of other software licenses. If the arrangement
does not contain a software license, entities should account for
the arrangement as a service contract. ASU 2015-05 also removes the
requirement to analogize to ASC 840-10, to determine the asset
acquired in a software licensing arrangement. For public companies,
ASU 2015-05 is effective for annual periods, including interim
periods within those annual periods, beginning after December 15,
2015, and early adoption is permitted. The Company does not expect
that the adoption of ASU 2015-05 will have a material impact on its
financial statements.
In
November 2015, the FASB issued ASU No. 2015-17,
Balance Sheet Classification of Deferred
Taxes
, or ASU 2015-17
.
ASU 2015-17 provides guidance on
balance sheet classification of deferred taxes. The new guidance
requires that all deferred tax assets and liabilities, along with
any related valuation allowance, be classified as noncurrent on the
balance sheet. For public companies, ASU 2015-17 is effective for
annual periods, including interim periods within those annual
periods, beginning after December 15, 2016, and early adoption is
permitted. The Company does not expect that the adoption of ASU
2015-17 will have a material impact on its financial
statements.
In
February 2016, the FASB issued ASU No. 2016-02,
Leases
, or ASU 2016-02
.
The new guidance requires lessees to
recognize the assets and liabilities arising from leases on the
balance sheet. For public companies, ASU 2016-02 is effective for
annual periods, including interim periods within those annual
periods, beginning after December 15, 2018, and early adoption is
permitted. The Company does not expect that the adoption of ASU
2016-02 will have a material impact on its financial
statements.
NOTE 3 – ACCRUED EXPENSES
Accrued
expenses consist of the following amounts:
|
|
|
Accrued
compensation to executive officers and employees
|
$
37,079
|
$
151,565
|
Accrued
professional fees
|
19,500
|
45,735
|
Total accrued
expenses
|
$
56,579
|
$
197,300
|
NOTE 4 – FAIR VALUE MEASUREMENTS
The
Company did not have any Level 1 or Level 2 assets and liabilities
at September 30, 2016 and December 31, 2015. The Derivative
liabilities are Level 3 fair value measurements.
The
following is a summary of activity of Level 3 liabilities during
the nine months ended September 30, 2016:
Derivative
liability balance at December 31, 2015
|
$
270,080
|
Change in fair
value
|
(3,786
)
|
Balance at
September 30, 2016
|
$
266,294
|
At
September 30, 2016, the fair value of the derivative liabilities of
convertible notes was estimated using the BSM pricing model with
the following weighted-average inputs: risk free interest rate
– 0.29%; term - .25 years; volatility – 347.1%;
dividend rate – 0%.
NOTE 5 – NOTE PAYABLE
Convertible Notes Payable with Embedded Derivative Liabilities
(Conversion Options)
|
|
|
Convertible note
payable for $78,750 to LG Capital Funding, LLC (“LG
Capital”) dated January 16, 2015, due January 16, 2016, of
which $38,829 was repaid by conversion as of December 31, 2015,
bearing interest at the rate of 8% per annum. Note may be converted
by LG Capital into shares of our common stock at a conversion price
equal to a 40% discount of the lowest closing bid price for 20
prior trading days including the notice of conversion date.
(1)
(2)
|
$
39,921
|
$
39,921
|
|
|
|
Convertible note
payable for $250,000 to JMJ Financial (“JMJ”) of which
$82,500 was deemed funded on January 28, 2015 and $27,500 was
deemed funded on April 20, 2015, of which $40,930 was repaid by
conversion as of December 31, 2015. The note was issued with an
original issue discount of 10% of amounts funded. The principal
amount matures 24 months from the date of each funding, had a
one-time 12% interest charge as it was not repaid within 90 days of
the effective date, and is convertible at any time at the option of
JMJ into shares of our common stock at the lesser of $0.075 per
share or 60% of the average of the trade price in the 25 trading
days prior to conversion. JMJ has the option to finance additional
amounts up to the balance of the $250,000 during the term of the
note.
(1)
(2)
|
69,070
|
$
69,070
|
Total convertible
notes payable with embedded derivative liability
|
108,991
|
$
108,991
|
(1)
|
The
embedded derivative liability associated with the conversion option
of the note was bifurcated from the note and recorded at its fair
value on the date of issuance and at each reporting
date.
|
(2)
|
Note
was due on January 16, 2016. We have not yet repaid this note and
it is, therefore, in default. We have also not maintained the
required number of shares of our common stock in reserve for this
note as more fully discussed below.
|
Under
the terms of the two convertible promissory notes outstanding at
September 30, 2016, we are required to maintain a minimum number of
shares of our common stock in reserve for conversions. In the case
of the note with JMJ, the reserve amount is set at 26,650,000
shares of our common stock. However, under the terms of the note
with LG Capital we are required to maintain a minimum share reserve
equal to four times the potential number of shares of our common
stock issuable upon conversion, or 139,707,296 shares at September
30, 2016. As a result of declines in the fair value of our common
stock, we did not have sufficient authorized shares to maintain
this required four times share reserve at December 31, 2015.
Accordingly, the note holder had the right to accelerate the
payment due (approximately $43,033 of principal and interest was
due at December 31, 2015). In addition, they have the right to
require that additional shares and/or monies be paid in connection
with this technical default. At September 30, 2016, and December
31, 2015, we have not accrued any penalties or penalty interest
associated with this note, nor have we been notified by the lender
of a technical default. Because the conversion prices vary with
changes in the value of our common stock, the number of shares into
which the outstanding notes payable and accrued interest are
convertible will continue to vary, which may result in additional
technical defaults if the price of our common stock decreases. As
soon as we are able, we intend to request shareholder approval to
increase the number of authorized shares of our common stock in
order to satisfy our obligations to maintain sufficient authorized
share reserves under the terms of our convertible notes. In
addition, the two outstanding convertible notes also contain
certain representations, warranties, covenants and other events of
default, including in the case of one of the notes maintaining our
common stock listing on the OTCQB exchange.
Revenue Based Factoring Agreements
During
the year ended December 31, 2015, we entered into two revenue based
factoring agreements with balances as of September 30, 2016 and
December 31, 2015, as follows:
|
|
|
Factoring agreement
with Power Up Lending Group, Ltd. (“Power Up”) dated
October 1, 2015, purchase price was $59,000. Company agreed to
transfer all NACSV future receipts, accounts, contract rights, etc.
arising from accounts receivable or other third party payors at the
specified percentage of 24% until such time as $76,700 is paid in
full. A daily repayment amount of $457 is required to be made and
is credited against the specified percentage due. As of September
30, 2016 and December 31, 2015, we paid $21,458 of the daily
specified repayments and we had not made $9,588 of payments that
were due. At September 30, 2016, and December 31, 201, $12,748 of
deferred interest expense related to this agreement is included in
current assets.
(1) (2)
(3)
|
$
55,242
|
$
55,242
|
|
|
|
Factoring agreement
with Power Up dated October 23, 2015, purchase price was $50,000.
Company agreed to transfer all NACSV future receipts, accounts,
contract rights, etc. arising from accounts receivable or other
third party payors at the specified percentage of 24% until such
time as $69,000 is paid in full. A daily repayment amount of $548
is required to be made and is credited against the specified
percentage due. As of September 30, 2016 and December 31, 2015, we
paid $16,976 of the daily specified repayments and we had not made
$10,952 of payments that were due. At September 30, 2016 and
December 31, 2015, $14,326 of deferred interest expense related to
this agreement is included in current assets.
(2) (3)
|
$
52,024
|
$
52,024
|
Total due to
factor
|
$
107,266
|
$
107,266
|
(1)
|
We used
the purchase price proceeds to satisfy in full the obligations
under two convertible notes payable with embedded derivative
liabilities.
|
(2)
|
The
agreement contains certain protections against default, including
prohibiting NACSV from changing its arrangement with its bank in
any way that is adverse to Power Up and NACSV interrupting the
operation of its business, among others. Events of default include:
(i) the violation of any term or covenant under the agreement, (ii)
the failure of NACSV to pay its debts when due and (iii) the
transfer or sale of all or substantially all of NACSV’s
asset, amount others.
|
(3)
|
We are
currently in default under the terms of the two factoring
agreements as we have not made the specified daily repayment
amounts aggregating $20,540 and $107,266 as of December 31, 2015
and April 9, 2016, respectively, among other items. At September
30, 2016, we have not accrued any penalties or interest that might
be due as a result of the defaults.
|
Notes Payable
Notes
payable at March 31, 2016 and 2015 consist of the
following:
Type
|
|
|
|
|
|
|
Premium finance
agreement
|
None
|
5.10
%
|
$
10,507
|
June-2016
|
$
8,150
|
$
61,810
|
Premium finance
agreement
|
None
|
9.25
%
|
$
3,414
|
January-2016
|
$
3,037
|
$
3,037
|
Total notes
payable
|
|
|
|
|
$
11,187
|
$
64,847
|
NOTE 6 – COMMITMENTS AND CONTINGENCIES
We may
be involved in
legal
proceed
ings in the ordinary course of our business, and our
management cannot predict the ultimate outcome of these
legal proceed
ings
with certainty. The Company is plaintiff or defendant in the
following actions:
Dekle, et. al. v. Global Digital Solutions, Inc. et.
al.
Brian
A. Dekle and John Ramsay filed suit against the Company and its
wholly owned subsidiary, North American Custom Specialty Vehicles,
Inc. (“NACSV”), in the Circuit Court of Baldwin
Alabama, on January 14, 2015, case no. 05-CV-2015-9000050.00,
relating to our acquisition of NACSV (the ''Dekle Action"). Prior
to instituting the Dekle Action, in June 2014, the Company had
entered into an equity purchase agreement with Dekle and Ramsay to
purchase their membership interest in North American Custom
Specialty Vehicles, LLC. The Dekle Action originally sought payment
for $300,000 in post-closing consideration Dekle and Ramsay allege
they are owed pursuant to the equity purchase
agreement.
On February 9, 2015, t
he Company
and NACSV removed the Dekle Action to federal court in the United
States District Court in and for the Southern District of Alabama,
case no. 1:15-CV-00069. The Company and NACSV subsequently moved to
dismiss the complaint for (1) failing to state a cause of action,
and (2) lack of personal jurisdiction. Alternatively, the Company
and NACSV sought a transfer of the case to the United States
District Court in and for Middle District of Florida.
In
response to the Company’s and NACSV's motion to dismiss,
Dekle and Ramsay filed an amended complaint on March 2, 2015
seeking specific performance and alleging breach of contract,
violations of Security and Exchange Commission (“SEC”)
Rule 10b-5, and violations of the Alabama Securities Act. The
amended complaint also names the Company’s Chairman,
President, and CEO, Richard J. Sullivan (“Sullivan”),
as a defendant. On March 17, 2015, the Company, NACSV and Sullivan
filed a motion to dismiss the amended complaint seeking dismissal
for failure to state valid causes of action, for lack of personal
jurisdiction, or alternatively to transfer the case to the United
States District Court in and for the Middle District of Florida.
Dekle and Ramsay responded on March 31, 2015, and the Company filed
its response thereto on April 7, 2015.
On June
2, 2015, Dekle passed away. On June 5, 2015, the Court
denied the Company’s motion to transfer the case to
Florida. On June 10, 2015, the Company filed a motion
to reconsider the Court’s denial of its motion to transfer
the case to Florida. On September 30, 2105, the Court granted
the Company’s Renewed Motion to Transfer Venue. The case was
transferred to the Middle District of Florida, where it is
currently pending.
On June
15, 2015, Ramsay filed a second amended complaint. On June 25,
2015, the Company filed a motion to dismiss the second amended
complaint. The Company’s Motion to Dismiss was
denied.
On July
27, 2017, the Company and Dekle and Ramsay came to a Settlement
Agreement. The Company and the plantiff came to the following
agreements:
i.
Judgment is due to
be entered against the Company in the amount of $300,000 if the sum
of $20,000 as noted in iv is not paid.
ii.
The Company grants
the plaintiffs vehicles and trailers in connection to this
proceeding.
iii.
The Company will
assist the plaintiffs in obtaining possession of the said
vehicles.
iv.
The Company will
pay the plaintiffs the sum of $20,000.
The
$20,000 settlement was paid in August 2017
PowerUp Lending Group, LTD., v. North American Custom Specialty
Vehicle, Inc. et.al
On
September 13, 2017 Power Up received a default judgment against the
Company in the amount of $109,302.00. The Company negotiated a
settlement agreement on December 21, 2017 with Power Up to pay
$90,000 in three installments of $30,000. As of May 15, 2018 the
company has paid the entire amount.
Jeff Hull, Individually
and on Behalf of All Others Similarly Situated v. Global Digital
Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J.
Delgado, Arthur F. Noterman and Stephanie C. Sullivan
United
States District Court, District of New Jersey (Trenton), Case No.
3:16-cv-05153-FLW-TJB
On
August 24, 2016, Jeff Hull, Individually and on Behalf of All
Others Similarly Situated (“Hull”) filed suit in the
United States District Court for
the District of New Jersey
against Global Digital Solutions,
Inc. (“GDSI”), Richard J. Sullivan
(“Sullivan”), David A. Loppert (“Loppert”),
William J. Delgado (“Delgado”), Arthur F. Noterman
(“Noterman”) and Stephanie C. Sullivan
(“Stephanie Sullivan”) seeking to recover compensable
damages caused by Defendants’ alleged violations of federal
securities laws and to pursue remedies under the Securities
Exchange Act of 1934. On January 18, 2018, pursuant to the
Court’s December 19, 2017 Order granting Plaintiff Hull leave
to file an amended Complaint, Plaintiff Hull filed a Second Amended
Complaint against Defendants. On February 8, 2018, Defendants GDSI
and Delgado filed a Second Motion to Dismiss the Complaint. On
February 8, 2018, Defendant Loppert filed a Motion for Extension of
Time to File an Answer. On February 13, 2018, Defendant Loppert
filed a Motion to Dismiss the Second Amended Complaint for Lack of
(personal) Jurisdiction and for Failure to State a Claim. On
February 20, 2018, Plaintiff Michael Perry (“Perry”)
filed a Brief in Opposition to Defendants GDSI and Delgado’s
Second Motion to Dismiss the Complaint and to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
On February 26, 2018, Defendants GDSI and Delgado filed a Reply
Brief to Plaintiff Michael Perry’s Brief in Opposition to
their Motion to Dismiss the Second Amended Complaint. On February
26, 2018, Defendant Loppert filed a Response in Support of
Defendants GDSI and Delgado’s Second Motion to Dismiss the
Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief
to Plaintiff Perry’s Brief in Opposition to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
To date, the Court has not issued a decision as to aforementioned
Motions. Global Digital Solutions, Inc. and William J. Delgado
intend to continue to vigorously defend against the claims asserted
by Jeff Hull, Individually and on Behalf of All Others Similarly
Situated. The Company believes the likelihood of an unfavorable
outcome of the dispute is remote.
Securities and Exchange
Commission v. Global Digital Solutions, Inc., Richard J. Sullivan
and David A. Loppert
United States District Court for the
Southern District of Florida, Case No.
9:16-cv-81413-RLR
On
August 11, 2016, the Securities and Exchange Commission
(“SEC”) filed suit in the
United States District Court for the Southern
District of Florida
against Global Digital Solutions,
Inc. (“GDSI”), Richard J. Sullivan
(“Sullivan”) and David A. Loppert
(“Loppert”) to enjoin GDSI; Sullivan, GDSI’s
former Chairman and CEO; and Loppert, GDSI’s former CFO from
alleged further violations of the anti-fraud and reporting
provisions of the federal securities laws, and against Sullivan and
Loppert from alleged further violations of the certification
provisions of the federal securities laws.
On
October 12, 2016, Defendant GDSI filed its First Answer to the
Complaint. On November 9, 2016, Defendant Sullivan filed a Letter
with the Court denying all allegations regarding the case. On
December 15, 2016, the SEC filed a Motion for Judgment and Notice
of Filing of Consent of Defendant Loppert to entry of Final
Judgment by the SEC. On December 19, 2016, the Court entered an
order granting the SEC’s Motion for Judgment as to Defendant
Loppert. On December 21, 2016, the SEC filed a Notice of Settlement
as entered into by it and Defendants GDSI and Sullivan. On December
23, 2016, the Court entered an Order staying the case and directing
the Clerk of the Court to close the case for statistical purposes
per the December 21, 2016 Notice of Settlement. On March 7, 2017,
the SEC moved for a Judgment of Permanent Injunction and Other
Relief and Notice of Filing Consent of Defendant GDSI to Entry of
Judgment by the SEC. On March 13, 2017, the Judge signed the
Judgment as to Defendant GDSI and it was entered on the
Court’s docket. On April 6, 2017, the SEC moved for a final
Judgment of Permanent Injunction and Other Relief and Notice of
Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge
signed the final Judgment as to Defendant Sullivan and it was
entered on the Court’s docket. On December 21, 2017, the SEC
moved for a final Judgment and Notice of Filing Consent of
Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the
Judge signed the Final Judgment as to Defendant GDSI and it was
entered on the Court’s docket. The amount of the judgement is
One Hundred Thousand Dollars ($100,000.00) plus
interest.
Adrian Lopez, Derivatively
and on behalf of Global Digital Solutions, Inc. v. William J.
Delgado, Richard J. Sullivan, David A. Loppert, Jerome J. Gomolski,
Stephanie C. Sullivan, Arthur F. Noterman, and Stephen L.
Norris
United States District Court for the District of New
Jersey, Case No. 3:17-cv-03468-PGS-LHG
On
September 19, 2016, Adrian Lopez, derivatively, and on behalf of
Global Digital Solutions, Inc., filed an action in New Jersey
Superior Court sitting Mercer County, General Equity Division. That
action was administratively dismissed for failure to prosecute.
Plaintiff Lopez, through his counsel, filed a motion to reinstate
the matter on the general equity calendar on or about February 10,
2017. The Court granted the motion unopposed on or about April 16,
2017. On May 15, 2017, Defendant William Delgado
(“Delgado”) filed a Notice of Removal of Case No.
C-70-16 from the
Mercer County
Superior Court of New Jersey
to the
United States District Court for the District
of New Jersey
. On May 19, 2017, Defendant Delgado filed a
First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017,
Defendant David A. Loppert (“Loppert”) filed a Motion
to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017,
Plaintiff Adrian Lopez (“Lopez”) filed a First Motion
to Remand the Action back to State Court. On June 29, 2017,
Defendant Delgado filed a Memorandum of Law in Response and Reply
to the Memorandum of Law in Support of Plaintiff’s Motion to
Remand and in Response to Defendants’ Delgado’s and
Loppert’s Motions to Dismiss. On January 1, 16, 2018, a
Memorandum and Order granting Plaintiff’s Motion to Remand
the case back to the
Mercer County
Superior Court of New Jersey
was signed by the Judge and
entered on the Docket. Defendants Delgado and Loppert’s
Motions to Dismiss were denied as moot. On February 2, 2018,
Defendants filed a Motion to Dismiss the Complaint. On February 20,
2018, Plaintiff filed a Motion to Consolidate Cases. On March 21,
2018, Plaintiff filed an Opposition to Defendants’ Motion to
Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief
in Reply to Plaintiff’s Opposition to Defendants’
Motion to Dismiss the Complaint. The Court held a hearing on the
motions to dismiss and consolidate. Juriisidctional discovery was
ordered. As of this date, the Court has not issued a decision and
Order regarding Defendants’ Motion to Dismiss the
Complaint.The Company believes the likelihood of an unfavorable
outcome of the dispute is remote.
Adrian Lopez v. Global
Digital Solutions, Inc. and William J. Delgado
Superior
Court of New Jersey, Chancery Division, Mercer County, Equity Part,
Docket No. MER-L-002126-17
On
September 28, 2017, Plaintiff Adrian Lopez (“Lopez”)
brought an action against Global Digital Solutions, Inc.
(“GDSI”) and William J. Delgado (“Delgado”)
to compel a meeting of the stockholders of Global Digital
Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and
New Jersey Revised Statute § 14A:5-2. On October 27, 2017,
Defendants GDSI and Delgado filed a Motion to Stay the Proceeding.
On November 24, 2017, Plaintiff filed an Objection to
Defendants’ Motion to Stay the Proceeding.
On January 19, 2018,
Defendants’ Motion to Stay the Proceeding was denied. On
February 2, 2018, Defendants filed a Motion to Dismiss the
Complaint. On February 20, 2018, Plaintiff filed a Motion to
Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition
to Defendants’ Motion to Dismiss the Complaint. On March 23,
2018, Defendants filed a Brief in Reply to Plaintiff’s
Opposition to Defendants’ Motion to Dismiss the Complaint. As
of this date, the Court has not issued a decision and Order
regarding Defendants’ Motion to Dismiss the Complaint.The
Company believes the likelihood of an unfavorable outcome of the
dispute is remote.
In the Matter of GLOBAL
DIGITAL SOLUTIONS, INC., ADMINISTRATIVE PROCEEDING File No.
3-18325
. Administrative Proceeding Before the Securities and
Exchange Commission.
On
December 26, 2017, the Securities and Exchange Commission
instituted public administrative proceedings pursuant to Section
12(j) of the Securities Exchange Act of 1934 (“Exchange
Act”) against the Respondent Global Digital Solutions, Inc.
On January 8, 2018, Respondent Global Digital Solutions, Inc.
(“GDSI”) filed its answer to the allegations contained
in the Order Instituting Administrative Proceedings and Notice of
Hearing Pursuant to Section 12U) of the Exchange Act. A briefing
schedule was entered into and on February 15, 2018, the Securities
and Exchange Commission filed a motion for an order of summary
disposition against Respondent GDSI on the grounds that there is no
genuine issue with regard to any material fact, the Division was
entitled as a matter of law to an order revoking each class of
GDSI's securities registered pursuant to Section 12 of the Exchange
Act. Respondent GDSI opposed the Securities and Exchange
Commission’s motion on the grounds that there were material
issues of fact. The Securities and Exchange Commission replied and
a hearing was held on April 9, 2018. The Administrative Law Judge
ordered supplemental evidence and briefing on the issues of
material fact. The Company believes the likelihood of an
unfavorable outcome of the dispute is reasonably possible, but is
not able to reasonably estimate a range of potential loss, should
the outcome be unfavorable.
PMB HELIN DONOVAN, LLP vs.
GLOBAL DIGITAL SOLUTIONS, INC.
IN THE CIRCUIT COURT FOR THE
15TH JUDICIAL CIRCUIT lN AND FOR PALM BEACH COUNTY, FLORIDA, Docket
No.: 50-2017-CA-011937-XXXX-MB
On
October 31, 2017, PMB Helin Donovan, LLP filed an action for
account stated in Palm Beach County. Global Digital Solutions, Inc.
(“GDSI”) settled the matter for Forty Thousand Dollars
($40,000.00) of which the first payment of Ten Thousand Dollars
($10,000.00) has been paid.
JENNIFER CARROLL, vs.
GLOBAL DIGITAL SOLUTIONS, INC., NORTH AMERICAN CUSTOM SPECIALTY
VEHICLES, INC.
, IN THE CIRCUIT COURT FOR THE 15TH JUDICIAL
CIRCUIT lN AND FOR PALM BEACH COUNTY, FLORIDA, CASE NO.:
50-2015-CC-012942-XXXX-MB
On
October 27, 2017, Plaintiff Jennifer Carroll moved the court for a
default judgment against Defendant Global Digital Solutions, Inc.
(“GDSI”) and its subsidiary North American Custom
Specialty Vehicles Inc. The amount of the judgement is Fifteen
Thousand Dollars ($15,000.00) plus fees of Thirteen Thousand Three
Hundred Fifty Three Dollars Forty Four Cents ($13,353.44) and costs
of six hundred twenty four dollars thirty cents
($624.30).
NOTE 7 – STOCKHOLDERS’ EQUITY
Preferred Stock
We are
authorized to issue 35,000,000 shares of noncumulative, non-voting,
nonconvertible preferred stock, $0.001 par value per share. At
September 30, 2016 and 2015, 1,000,000 shares and 0 shares of
preferred stock were outstanding.
On August 15, 2016, William J. Delgado, our current Chief Executive
Officer, agreed to convert $231,565 of indebtedness owed to him by
the Company into 1,000,000 shares of convertible preferred stock
(the “Preferred Stock”). The Preferred Stock has voting
rights as to one (1) preferred share to four hundred (400) shares
of the common stock of the Company. The Preferred Stock is
convertible into common stock at any time after issuance into 37%
of the outstanding common stock of the Company at the time of the
conversion. The conversion to common can only take place when there
are an adequate number of shares that are available and is subject
to normal stock adjustments (i.e. stock splits etc.) that are
executed by the Company in its normal course of
business.
Common Stock
We are
authorized to issue 650,000,000 shares of common stock, $0.001 par
value per share. At September 30, 2016 and 2015, 530,806,571 and
530,806,571 shares were issued, outstanding, or vested but unissued
under stock compensation plans, respectively.
Common Stock Warrant
We have
issued warrants, which are fully vested and available for exercise,
as follows:
|
Issued in
connection with or for
|
|
|
|
|
|
A-2
|
Services
|
1,000,000
|
$
0.15
|
May,
2013
|
May,
2014
|
May,
2018
|
A-3
|
Services
|
500,000
|
$
0.50
|
June,
2013
|
June,
2014
|
June,
2018
|
A-4
|
Services
|
1,000,000
|
$
1.00
|
October,
2013
|
October,
2013
|
October,
2016
|
All
warrants are exercisable at any time through the date of
expiration. All agreements provides for the number of shares to be
adjusted in the event of a stock split, a reverse stock split, a
share exchange or other conversion or exchange event in which case
the number of warrants and the exercise price of the warrants shall
be adjusted on a proportional basis.
The
following is a summary of outstanding and exercisable warrants at
September 30, 2016:
|
|
|
|
Weighted
Average Number Outstanding at 9/30/16
|
Outstanding
Remaining Contractual Life (in yrs.)
|
Weighted
Average Exercise Price
|
Number
Exercisable at 9/30/16
|
Weighted
Average Exercise Price
|
$
0.15
|
1,000,000
|
1.3
|
$
0.15
|
1,000,000
|
$
0.15
|
$
0.50
|
500,000
|
1.5
|
$
0.50
|
500,000
|
$
0.50
|
$
0.15 to 0.50
|
1,500,000
|
1.40
|
$
0.63
|
1,500,000
|
$
0.63
|
The
following is a summary of outstanding and exercisable warrants at
December 31, 2015:
|
|
|
|
Weighted
Average Number Outstanding at 12/31/15
|
Outstanding
Remaining Contractual Life (in yrs.)
|
Weighted
Average Exercise Price
|
Number
Exercisable at 12/31/15
|
Weighted
Average Exercise Price
|
$
0.15
|
1,000,000
|
2.3
|
$
0.15
|
1,000,000
|
$
0.15
|
$
0.50
|
500,000
|
2.5
|
$
0.50
|
500,000
|
$
0.50
|
$
1.00
|
1,000,000
|
.8
|
$
1.00
|
1,000,000
|
$
1.00
|
$
0.56
|
2,500,000
|
1.90
|
$
0.37
|
2,500,000
|
$
0.56
|
The
intrinsic value of warrants outstanding at September 30, 2016 and
2015 was $0. Aggregate intrinsic value represents the value of the
Company’s closing stock price on the last trading day of the
fiscal period in excess of the exercise price of the warrant
multiplied by the number of warrants outstanding or
exercisable.
Stock Incentive Plans
2014 Global Digital Solutions Equity Incentive Plan
On May
9, 2014 our shareholders approved the 2014 Global Digital Solutions
Equity Incentive Plan (“Plan”) and reserved 20,000,000
shares of our common stock for issuance pursuant to awards
thereunder, including options, stock appreciation right, restricted
stock, restricted stock units, performance awards, dividend
equivalents, or other stock-based awards. The Plan is intended as
an incentive, to retain in the employ of the Company, our
directors, officers, employees, consultants and advisors, and to
attract new officers, employees, directors, consultants and
advisors whose services are considered valuable, to encourage the
sense of proprietorship and to stimulate the active interest of
such persons in the development and financial success of the
Company and its subsidiaries.
In
accordance with the ACS 718,
Compensation – Stock
Compensation
, awards granted are valued at fair value at the
grant date. The Company recognizes compensation expense on a pro
rata straight-line basis over the requisite service period for
stock-based compensation awards with both graded and cliff vesting
terms. The Company recognizes the cumulative effect of a change in
the number of awards expected to vest in compensation expense in
the period of change. The Company has not capitalized any portion
of its stock-based compensation.
Stock-based
compensation expense for the periods ended September 30, 2016 and
2015 is comprised as follows:
|
|
|
|
|
|
|
|
Fair value expense
of stock option grants
|
$
-
|
101,445
|
$
(74,807
)
|
201,667
|
Fair value expense
of restricted stock unit grants
|
-
|
-
|
(51,747
)
|
-
|
Fair value expense
of restricted stock grants
|
-
|
-
|
-
|
208,280
|
|
$
-
|
101,445
|
$
(126,554
)
|
409,947
|
Awards Issued Under Stock Incentive Plans
Stock Option Activity
At
September 30, 2016 we have outstanding 13,650,002 stock options
which are fully-vested and at December 31, 2015, we have
outstanding 15,100,000 stock options - 14,116,668 of which are
fully-vested stock options that were granted to directors, officers
and consultants and 1,983,332 of which are unvested stock options
that were granted to directors, employees and consultants. The
outstanding stock options are exercisable at prices ranging from
$0.006 to $0.64 and expire between February 2024 and December
2025.
During 2016 the
983,332 unvested stock options were either forfeited due to
employees leaving the Company, or cancelled by the Board due to
performance levels not being met.
Issuances of Stock Options
Effective as of
April 10, 2015, David A. Loppert retired as our CFO and as an
officer of the Company and we appointed Jerome J. Gomolski as our
CFO. In connection with his appointment as our CFO, on April 1,
2015, Mr. Gomolski was granted stock options to acquire 500,000
shares of our common stock pursuant to the Plan. The options have
an exercise price of $0.10 per share, vest one-third on each of
October, 1 2015, April 1, 2016 and October 1, 2016, expire on April
1, 2025 and had an aggregate grant date fair value of $50,000,
which will be recognized as compensation as the options vest.
During 2016, the unvested stock options were cancelled, and no
further stock compensation was recognized.
On
April 1, 2015, we granted stock options to acquire 300,000 shares
of our common stock to each of two consultants. The options have an
exercise price of $0.10 per share, vest one-third on each of
October 1, 2015, April 1, 2016 and October 1, 2016 and expire on
March 31, 2025. The options had an aggregate grant date fair value
of $30,000 each, which will be recognized as compensation as the
options vest. During 2016, the unvested stock options were
cancelled, and no further stock compensation was
recognized.
On
April 20, 2015 we granted options to acquire 500,000 shares of our
common stock exercisable at $0.14 per share to each of William J.
Delgado, executive officer and director, and Arthur F. Noterman and
Stephanie C. Sullivan, directors. The options vest one-third on
each of October 1, 2015, April 1, 2016 and October 1, 2016, are
exercisable through March 31, 2025, and had an aggregate grant date
fair value of $70,000 each which will be recognized as compensation
as the options vest. During 2016, the unvested stock options were
cancelled, and no further stock compensation was
recognized.
On May
8, 2015, we granted stock options to acquire an aggregate of
300,000 shares of our common stock to four employees. The options
have an exercise price of $0.08 per share, vested ratably over a
three-year period, expire ten years from the date of grant and had
an aggregate grant date fair value of $24,000 which will be
recognized as compensation as the options vest. During 2016, the
unvested stock options were cancelled, and no further stock
compensation was recognized.
.
On
November 30, 2015, we granted to each of our executive officers,
Jerome J. Gomolski and Gary A. Gray, and to an employee options to
acquire 1,000,000 shares of our common stock exercisable at $0.006
per share. The options vested on the date of grant and expire on
November 30, 2025 and had an aggregate grant date fair value of
$50,000 each.
On
December 9, 2015, we granted to Vox Equity Partners LLC options to
acquire 4,000,000 shares of our common stock exercisable at $0.006
per share. The 4,000,000 options vested on the date of grant,
expire on December 8, 2025 and had a grant date fair value of
$24,000.
On December
15, 2015, we granted to each of William J. Delgado, executive
officer and director, and Arthur F. Noterman and Stephanie C.
Sullivan, directors options to acquire 750,000 shares of our common
stock exercisable at $0.008 per share. The options vested on the
date of grant and expire on December 14, 2025. The options had an
aggregate grant date fair value of $6,000 each.
A
summary of the stock option activity for our stock options plans
for years ended September 30, 2016 and the nine months then ended
is as follows:
|
|
|
Average
Remaining
Term
in
Years
|
Aggregate
Intrinsic
Value at
Date
of
Grant
|
|
|
|
|
|
Outstanding
December 31, 2015
|
15,100,000
|
$
0.18
|
8.4
|
-
|
Options
granted
|
-
|
-
|
-
|
-
|
Options
exercised
|
-
|
|
|
-
|
|
|
|
|
|
Forfeited in
2016
|
(1,449,998
)
|
$
0.01
|
|
|
|
|
|
|
|
Outstanding
September 30, 2016
|
13,650,002
|
0.03
|
-
|
-
|
Exercisable at
September 30 2016
|
13,650,002
|
$
0.03
|
8.4
|
-
|
Unvested at
September 30, 2016
|
-
|
-
|
|
|
During
the three and nine months ended September 30, 2016 and 2015, we
recorded stock-based compensation cost related to the outstanding
stock options of $0 and $101,445 and ($74,807) and 201,667,
respectively. At September 30, 2016 and 2015, respectively, the
unamortized value of the outstanding stock options was $0 and
$91,847. The intrinsic value of options outstanding at September
30, 2016 and 2015 was $0. Aggregate intrinsic value represents the
value of the Company’s closing stock price on the last
trading day of the fiscal period in excess of the exercise price of
the option multiplied by the number of options
outstanding.
During
the nine months ended September 30, 2016, 983,332 stock options
that had not yet vested were forfeited.
Restricted Stock Units
A
summary of RSU’s outstanding as of September 30, 2016 and
changes during the nine months then ended is presented
below:
|
|
Weighted
Average Grant Date Fair Value
|
Aggregate
Intrinsic Value
|
|
|
|
|
Nonvested at
December 31, 2015
|
1,000,000
|
$
(0.10
)
|
-
|
Issued
|
--
|
-
|
-
|
Vested
|
-
|
-
|
-
|
Forfeited
|
(1,000,000
)
|
-
|
-
|
Nonvested at
September 30, 2016
|
--
|
-
|
$
0.00
|
We
recorded stock-based compensation expense related to these
RSU’s of $0 and ($51,747) and $0 and $0 for the three and
nine months ended September 30, 2016 and 2015, respectively. As of
September 30, 2016 and 2015, respectively, there was $0 and $35,317
of total unrecognized stock-based compensation expense related to 1
million unvested RSU’s that will be recognized on a
straight-line basis over the performance periods of the award
through December 2017. The 1 million unvested RSU’s were
forfeited during the nine months ended September 30, 2016. The
aggregate intrinsic value of nonvested RSU’s was $0 at
September 30, 2016.
Restricted Stock Grants
On
March 7, 2015, we granted 1,000,000 restricted shares of our common
stock to Gary A. Gray, our Executive Vice President. The restricted
stock vested on May 30, 2015 and had a grant date fair value of
$40,000.
On
March 7, 2015, we granted 500,000 restricted shares of our common
stock to an employee. The restricted stock vested on May 30, 2015
and had a grant date fair value of $20,000.
Awards Not Issued Under Stock Incentive Plans
Restricted Stock Grants Awarded to Advisors
In
order to align our senior advisors with the interest of the
stakeholders of the Company, the Board of Directors of the Company
has granted the advisors restricted stock awards valued at $0.17 to
$0.364 per share which vest over a period of 12 – 24 months,
subject to remaining an advisor for a minimum of twelve months, and
which are forfeited if the advisor is terminated or is no longer an
advisor on the anniversary of the advisory award, as
follows:
|
|
|
|
|
|
Name
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,250,000
|
4/30/13
|
3/31/14
|
1,250,000
|
-
|
-
|
|
|
1,250,000
|
2/28/14
|
1/31/15
|
1,250,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
500,000
|
4/30/14
|
3/30/15
|
500,000
|
-
|
-
|
|
|
500,000
|
4/30/15
|
3/30/16
|
375,000
|
-
|
125,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,000,000
|
3/7/15
|
5/30/15
|
1,000,000
|
|
|
|
|
|
|
|
|
|
|
|
|
500,000
|
3/7/15
|
5/30/15
|
500,000
|
|
|
|
|
5,000,000
|
|
|
4,875,000
|
-
|
125,000
|
A
summary of restricted stock grants outstanding as of September 30,
2016 and December 31, 2015, and the changes during the year then
ended is presented below:
|
|
Weighted
Average Grant Date Fair Value
|
Aggregate
Intrinsic Value
|
Nonvested at
December 31, 2015
|
125,000
|
0.40
|
$
0.00
|
Granted
|
-
|
$
-
|
|
Vested
|
-)
|
-
|
|
Forfeited
|
(125,000
)
|
(0.40
)
|
-
|
Nonvested at
September 30, 2016
|
-
|
$
-
|
$
0.00
|
We
recorded stock-based compensation expense related to these
restricted stock grants of $0 and $208,280 for the nine months
ended June 30, 2016 and 2015, respectively.
NOTE 8 – RESTATEMENT
The financial statements for the comparative periods in fiscal 2015
have been restated from those previously filed in the Quarterly
Reports with the SEC, due to several errors discovered in the
quarterly amounts during the December 31, 2015 audit of our
financial statements. These changes included adjustments to a
write down of inventory and accounts receivable, changes in the
timing of recognition of some items, and certain
reclassifications.
The restated changes for the consolidated balance sheets for
September 30, 2015 is presented below:
|
|
|
|
|
|
|
|
Assets
|
|
|
|
Current Assets
|
|
|
|
Cash
|
$
115,662
|
$
-
|
$
115,662
|
Accounts
receivable
|
306,439
|
(299,999
)
|
6,440
|
Inventory
|
-
|
19,471
|
19,471
|
Debt
isuannces fees, net
|
940
|
(940
)
|
-
|
Prepaid
expenses
|
147,174
|
(18,332
)
|
128,842
|
Total
current assets
|
570,215
|
(299,800
)
|
270,415
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
6,359
|
-
|
6,359
|
Deposits
|
2,415
|
18,332
|
20,747
|
Total assets
|
$
578,989
|
$
(281,468
)
|
$
297,521
|
|
|
|
|
Liabilities and Stockholders' Equity
|
|
|
|
Current Liabilities
|
|
|
|
Accounts
payable
|
$
141,598
|
$
74
|
$
141,672
|
Accrued
expenses
|
171,107
|
(42
)
|
171,065
|
Accrued
Interest
|
76,473
|
-
|
76,473
|
Contingent
liability
|
555,653
|
-
|
555,653
|
Convertible
notes payable, net of discounts
|
312,071
|
(898
)
|
311,173
|
Notes
Payable
|
101,363
|
-
|
101,363
|
Total current liabilities
|
1,358,265
|
(866
)
|
1,357,399
|
|
|
|
|
Derivative
liability
|
600,327
|
161,149
|
761,476
|
|
|
|
|
Total Liabilities
|
1,958,592
|
160,283
|
2,118,875
|
|
|
|
|
Commitments and Contingencies (Note 6)
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
Preferred
stock
|
$
-
|
$
-
|
$
-
|
Common
stock
|
286,852
|
2,190
|
289,042
|
Additional
paid-in capital
|
29,844,051
|
(599,845
)
|
29,244,206
|
Accumulated
deficit
|
(31,510,506
)
|
155,904
|
(31,354,602
)
|
Total stockholders’ deficit
|
(1,379,603
)
|
(441,751
)
|
(1,821,354
)
|
Total liabilities and stockholders' deficit
|
$
578,989
|
$
(281,468
)
|
$
297,521
|
The
restated changes for the statement of operations for the three
months ended September 30, 2015 is presented below:
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
254,587
|
-
|
254,587
|
|
|
|
|
Cost of revenue
|
278,676
|
(201,926
)
|
76,750
|
|
|
|
|
Gross profit
|
(24,089
)
|
201,926
|
177,837
|
|
|
|
|
Operating expenses
|
|
|
|
Selling,
general and administrative expenses
|
526,369
|
(102,709
)
|
423,660
|
|
|
|
|
Operating
loss before other income(expense)
|
(550,458
)
|
304,635
|
(245,823
)
|
|
|
|
|
Other (income)/expense
|
|
|
|
Change
in fair market value of derivatives
|
(230,099
)
|
406,617
|
176,518
|
Loss
on conversions of notes payable and accrued interest
|
406,617
|
(406,617
)
|
-
|
Other
Income
|
(600
)
|
-
|
(600
)
|
Loan
Fees
|
-
|
28,693
|
28,693
|
Loss
on extinguishment of debt
|
-
|
-
|
-
|
Finance
Costs
|
-
|
163,735
|
163,735
|
Amortization
of debt discount - Convertible Notes Payable
|
-
|
-
|
-
|
Amortization
of debt discount - Factoring
|
-
|
-
|
-
|
Interest
expense
|
208,636
|
(163,735
)
|
44,901
|
|
384,554
|
28,693
|
413,247
|
|
|
|
|
Loss before provision for income taxes
|
(935,012
)
|
275,942
|
(659,070
)
|
|
|
|
|
Provision for income taxes
|
-
|
-
|
-
|
|
|
|
|
Net loss
|
$
(935,012
)
|
$
275,942
|
$
(659,070
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic and diluted
|
$
(0.01
)
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
Basic and diluted
|
140,365,540
|
146,486,707
|
286,852,247
|
The
restated changes for the statement of operations for the nine
months ended September 30, 2015 is presented below:
|
For the Nine Months Ended
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
633,810
|
-
|
$
633,810
|
|
|
|
|
Cost of revenue
|
535,517
|
(319,575
)
|
215,942
|
|
|
|
|
Gross profit
|
98,293
|
319,575
|
417,868
|
|
|
|
|
Operating expenses
|
|
|
|
Selling,
general and administrative expenses
|
2,445,294
|
(831,124
)
|
1,614,170
|
|
|
|
|
Operating
loss before other income(expense)
|
(2,347,001
)
|
1,150,699
|
(1,196,302
)
|
|
|
|
|
Other (income)/expense
|
|
|
|
Change
in fair market value of derivatives
|
(686,980
)
|
406,617
|
(280,363
)
|
Loss
on conversions of notes payable and accrued interest
|
406,617
|
(406,617
)
|
-
|
(Gain)loss
on extinguishment of debt
|
22,170
|
(22,170
)
|
-
|
Reduction
of contingent consideration for purchase price
|
(280,461
)
|
280,461
|
-
|
Ot-her
Income
|
(190,840
)
|
(184,359
)
|
(375,199
)
|
Loan
Fees
|
-
|
142,538
|
142,538
|
Loss
on extinguishment of debt
|
-
|
22,170
|
22,170
|
Finance
Costs
|
-
|
1,294,793
|
1,294,793
|
Interest
expense
|
1,377,436
|
(1,249,144
)
|
128,292
|
|
647,942
|
284,289
|
932,231
|
|
|
|
|
Loss before provision for income taxes
|
(2,994,943
)
|
866,410
|
(2,128,533
)
|
|
|
|
|
Provision for income taxes
|
-
|
-
|
-
|
|
|
|
|
Net loss
|
$
(2,994,943
)
|
$
866,410
|
$
(2,128,533
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss per common share - basic
|
$
(0.03
)
|
$
(0.01
)
|
$
(0.01
)
|
|
|
|
|
Weighted average common shares outstanding
|
|
|
|
Basic
|
119,425,067
|
167,427,180
|
286,852,247
|
NOTE 9 – SUBSEQUENT EVENTS
We have completed an evaluation of all subsequent events after the
balance sheet date of September 30, 2016 through the date this
Quarterly Report on Form 10-Q was submitted to the SEC, to ensure
that this filing includes appropriate disclosure of events both
recognized in the financial statements as of September 30, 2016,
and events which occurred subsequently but were not recognized in
the financial statements. We have concluded that no subsequent
events have occurred that require recognition or disclosure, except
as disclosed within these financial statements and except as
described below:
On
December 22, 2017, the Company entered into a financing agreement
with an accredited investor for $1.2 million. Under the terms of
the agreement, the Company is to receive milestone payments based
on the progress of the Company’s lawsuit for damages against
Grupo Rontan Metalurgica, S.A (the “Lawsuit”). Such
milestone payments consist of (i) an initial purchase price payment
of $300,000, which the Company received on December 22, 2017, (ii)
$150,000 within 30 days of the Lawsuit surviving a motion to
dismiss on the primary claims, (iii) $100,000 within 30 days of the
close of all discovery in the Lawsuit and (iv) $650,000 within 30
days of the Lawsuit surviving a motion for summary judgment and
challenges on the primary claims. As part of the agreement, the
Company shall pay the investor an investment return of 100% of the
litigation proceeds to recoup all money invested, plus 27.5% of the
total litigation proceeds received by the Company.
On December 26,
2017, the Company entered into a $485,000 Demand Promissory Note
with RLT Consulting, Inc (the “Purchaser”.) As part of
the agreement, the Purchaser may not demand payment prior to the
date of the Resolution Funding Date. The Company also agreed to
grant 5,000,000 shares within 90 days of the Resolution Progress
Funding Date and 10,000,000 shares within 90 days of the Resolution
Funding Date.
From
February 9, 2018 to March 13, 2018, the Company issued 28,653,334
shares of common stock as follows:
Date
Issued
|
|
|
|
|
|
February 9,
2018
|
Accredited
Investor
|
4,320,000
|
Purchase
Agreement
|
$
0.012
|
$
12,096
|
February 9,
2018
|
Consultant
|
333,334
|
Services
|
$
0.012
|
N/A
|
February 21,
2018
|
Consultant
|
5,000,000
|
Services
|
$
0.012
|
N/A
|
March 13,
2018
|
Consultant
|
5,000,000
|
Purchase
Agreement
|
$
0.004
|
$
20,000
|
March 13,
2018
|
Consultant
|
5,000,000
|
Services
|
$
0.012
|
N/A
|
March 13,
2018
|
Consultant
|
9,000,000
|
Services
|
$
0.012
|
N/A
|
On May 1, 2018 the
Company entered into a $36,000 promissory note with an individual
with $5,000 original issue discount for net proceeds of
$31,000.
On May
15, 2018, the Company entered into an Investment Return Purchase
Agreement with an accredited investor (the “Purchaser”)
for proceeds of $200,000 (the “Investment Agreement”).
Under the terms of the Investment Agreement, the Company agreed to
pay the Purchaser a 10% return, or $20,000 (the “Investment
Return”) within three (3) months from the date of the
Investment Agreement. Such Investment Return shall be paid earlier
if the Company secures funding totaling $500,000 within 90 days
from the date of the Investment Agreement. In addition, the Company
agreed to issue to the Purchaser 2,000,000 warrants to purchase
common stock of the Company at an exercise price of $0.01 per
share, exercisable for a period of three (3) years.
On June
1, 2018, the Company entered into a $300,000 non-convertible note
with an accredited investor with $150,000 original issue discount
for net proceeds of $150,000. As part of the note agreement, the
Company also agreed to issue the investor 5,000,000 warrants at an
exercise price of $0.01.