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. The Company has been dormant since
December 31, 2015.
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, 2017 we incurred a net loss of
$130,932. At September 30, 2017, we had no cash, an accumulated
deficit of $32,842,100, a working capital deficit of $2,029,771 and
stockholders’ deficit of $2,027,356. 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. 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,
as further detailed in Note 7.
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, 2017 and 2016 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,
2017 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, 2016 included in our Annual Report on Form 10-K
filed with the SEC on June 18, 2018.
The
condensed consolidated balance sheet at December 31, 2016 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
|
59,825,195
|
139,707,296
|
Preferred
stock
|
196,398,431
|
861,613,714
|
Stock
options
|
13,650,002
|
14,116,668
|
Warrants
|
1,500,000
|
2,500,000
|
Potentially
dilutive securities
|
271,373,628
|
1,017,937,678
|
|
|
|
|
|
|
|
|
Convertible notes
and accrued interest
|
59,825,195
|
139,707,293
|
Preferred
stock
|
196,398,431
|
861,613,714
|
Stock
options
|
13,650,002
|
14,116,668
|
Warrants
|
1,500,000
|
2,500,000
|
Potentially
dilutive securities
|
271,373,628
|
1,017,937,678
|
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 derivative liability valuation, 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.
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. As there have not been significant revenues since the year
ending December 31, 2015, the Company does not expect the adoption
to have a material impact and no transition method will be
necessary upon adoption.
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
|
$
266,668
|
$
91,086
|
Accrued
professional fees
|
370,190
|
185,771
|
Accrued settlement
payment
|
100,000
|
100,000
|
Accrued
interest
|
54,006
|
37,641
|
|
$
790,864
|
$
414,498
|
NOTE 4 – FAIR VALUE MEASUREMENTS
The
Company did not have any Level 1 or Level 2 assets and liabilities
at September 30, 2017 and December 31, 2016. 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, 2017 and 2016:
|
|
|
Derivative
liability balance at beginning of period
|
$
672,724
|
$
270,080
|
Change in fair
value
|
(424,449
)
|
(3,786
)
|
Balance at end of
period
|
$
248,275
|
$
266,294
|
At
September 30, 2017, the fair value of the derivative liabilities of
convertible notes was estimated using the following
weighted-average inputs: risk free interest rate – 1.06%;
term - .25 years; volatility – 269.86%; dividend rate –
0%.
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 – COMMITMENTS AND CONTINGENCIES
Legal Proceedings
We may
be involved in legal proceedings in the ordinary course of our
business. Although our management cannot predict the ultimate
outcome of these legal proceedings with certainty, it believes that
the ultimate resolution of our legal proceedings, including any
amounts we may be required to pay, will not have a material effect
on our consolidated financial statements.
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.
Global Digital Solutions, Inc. et. al. v. Communications
Laboratories, Inc., et. al.
On
January 19, 2015 the Company and NACSV filed suit against
Communications Laboratories, Inc.,
ComLabs
Global, LLC, Roland
Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion
and breach of contract in a dispute over the payment of a $300,000
account receivable that
ComLabs
owed to NACSV but sent
payment directly to Brian Dekle. The case was filed in the
Eighteenth Judicial Circuit in and for Brevard County Florida, case
no. 05-2015-CA-012250. On February 18, 2015 (i) defendants
Communications Laboratories, Inc.,
ComLabs
Global, LLC and Roland
Lussier and (ii) defendant Wallace Bailey filed their respective
motions to dismiss seeking, among other things, dismissal for
failure to state valid causes of action, lumping and failure to
post a non-resident bond. On February 26, 2015, defendants Dekle
and Ramsay filed their motion to dismiss, or stay action, based on
already existing litigation between the parties. NACSV filed its
required bond on March 2,
2015.
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, which is
included in accrued expenses in the accompanying consolidated
balance sheet.
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 beenpaid on May 16, 2018. The $40,000 is included
in accounts payable as of December 31, 2017.
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).
Share Purchase and Sale Agreement for Acquisition of Grupo Rontan
Electro Metalurgica, S.A.
Effective October
13, 2015, the Company (as “Purchaser”) entered into the
SPSA dated October 8, 2015 with Joao Alberto Bolzan and Jose Carlos
Bolzan, both Brazilian residents (collectively, the
“Sellers”) and Grupo Rontan Electro Metalurgica, S.A.,
a limited liability company duly organized and existing under the
laws of Federative Republic of Brazil (“Rontan”)
(collectively, the “Parties”), pursuant to which the
Sellers agreed to sell 100% of the issued and outstanding shares of
Rontan to the Purchaser on the closing date.
On
April 1, 2016, the Company believed that they had satisfied or
otherwise waived the conditions to closing (as disclosed under the
SPSA, the closing was subject to specific conditions to closing,
which were waivable by us,) and advised the Sellers of their
intention to close the SPSA and demanded delivery of the Rontan
Securities. The Sellers, however, notified the Company that they
intend to terminate the SPSA. The Company believe that the Sellers
had no right to terminate the SPSA and that notice of termination
by the Sellers was not permitted under the terms of the
SPSA.
On
January 31, 2018, the Company announced that they had initiated a
lawsuit for damages against Grupo Rontan Metalurgica, S. A,
(“Rontan”) and that company’s controlling
shareholders, Joao Alberto Bolzan and Jose Carlos Bolzan. The
action has been filed in the United States District Court for the
Southern District of Florida. The complaint alleges that Rontan is
wholly-owned by Joao Bolzan and Jose Bolzan. In the complaint, the
Company further alleges that Rontan and its shareholders improperly
terminated a Share Purchase and Sale Agreement (the
“SPA”) by which we were to acquire whole ownership of
Rontan.
On
February 5, 2018, United States District Court Southern District of
Florida filed a Pretrial Scheduling Order and Order Referring Case
to Mediation dated February 5, 2018 for the Company’s lawsuit
against Grupo Rontan Electro Metalurgica, S.A., et al. The Case No.
is 18-80106-Civ-Middlebrooks/Brannon. The court has issued a
schedule outlining various documents and responses that are to be
delivered by the parties as part of the discovery
plan.
On
April 25, 2018, the Note of Filing Proposed Summons was completed
by the Company. On April 26, 2018, a summons was issued to Grupo
Rontan Electro Metalurgica, S.A. Also, on May 15, 2018 the Company
filed a motion for Issuance of Letters Rogatory.
Consulting agreements
The
Company entered into two consulting agreements in May 2016, for
services to be provided in connection towards the resolution of the
Rontan lawsuit. The consulting agreements include a monthly
retainer payment of $10,000 to each consultant. The agreement also
includes consideration of 5,000,000 shares of restricted common
stock of the Company, plus a 5% cash consideration of the
Resolution Progress Funding, (defined as upon the retention of
legal counsel and receipt of funding for the litigation), as of the
Resolution Progress Funding date and 10,000,000 shares of
restricted common stock of the Company and a 5% cash consideration
of the Resolution Funding amount (defined as a settlement or
judgement in favour of the Company by Rotan), at the Resolution
Funding date. The Resolution Progress funding was met on December
22, 2017, as more fully discussed in Note 7.
NOTE 6 – RELATED PARTY TRANSACTIONS
Accounts Payable
At
September 30, 2017 and December 31, 2016, included in accounts
payable was compensation owed to related parties as seen below
-
|
|
|
RLT
Consulting
|
$
33,841
|
$
33,841
|
Jerry
Gomolski
|
25,000
|
25,000
|
Charter
804CS
|
20,099
|
20,099
|
Gary
Gray
|
12,000
|
12,000
|
Total
|
$
90,940
|
$
90,940
|
Accrued Compensation
At
September 30, 2017 and December 31, 2016, we had $250,000 and
$70,000 payable to William J. Delgado and $16,668 and $16,668 to
Jerry Gomolski, respectively.
Promissory Note
On
August 31, 2017, Dragon Acqusitions and an individual lender
entered into a Promissory Note agreement for $20,000 as well as
$2,000 in interest for a total of $22,000 due on August 31, 2018.
Dragon Acqusition assumed payment of a payable of the Company and
the Company took on the debt. As of December 31, 2017, the Company
has accrued $500 of the interest.
NOTE 7 – SUBSEQUENT EVENTS
We have completed an evaluation of all subsequent events after the
balance sheet date of September 30, 2017 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, 2017,
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:
As of
September 30, 2017, the Company was in default on its factoring
agreements, and on September 13, 2017 the factor received a default
judgment against the Company in the amount of $109,302. 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.
As of
September 30, 2017, the Company was in default on its convertible
notes payable. During the year ended December 31, 2017, the Company
entered into a Convertible Note Redemption Agreement with LG
Capital Funding, LLC, whereby the Company will make set payments as
set forth below, with the balance to be paid in full by April 30,
2018.
The
Company is to wire redemption payment as follows:
●
$6,500 by December
29, 2017 (paid on January 2, 2018)
●
$6,500 by January
31, 2018
●
$6,500 by February
28, 2018
●
$25,000 by March
30, 2018
●
The remaining
balance by April 30, 2018.
A total
of $6,500 has been paid through the date of this filing, with the
remaining scheduled payments not yet been made.
During
the year ended December 31, 2017, the Company entered into a
Repayment Agreement with JMJ Financial, whereby the Company will
make four payments as set forth in the agreement, beginning within
five business days of the Issuer securing funding, provided that
such payment shall be made on January 31, 2018, and to be paid in
full within 120 days of the first payment.
A total of $25,000 has been paid
through the date of this filing. The first payment of $12,500 was
made on February 14, 2018 and the second payment of $12,500 was
made on May 17, 2018. The next payment of $12,500 is due 45 days
after the second payment, and the last payment of $47,014, 30 days
after the third payment.
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 23, 2017, the Company entered into a $485,000 Demand
Promissory Note with Vox Business Trust, LLC (the
“Purchaser”.) The note was in settlement of the amounts
accrued under a consulting agreement (Note 5), consisting of
$200,000 owed for retainer payments through December 2017, as well
as $285,000 owed to the Purchaser when the Resolution Progress
Funding was met on December 22, 2017. 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.
The 5,000,000 shares were issued on March 13, 2018.
On
December 26, 2017, the Company entered into a $485,000 Demand
Promissory Note with RLT Consulting, Inc (the
“Purchaser”.) The note was in settlement of the amounts
accrued under a consulting agreement (Note 5), consisting of
$200,000 owed for retainer payments through December 2017, as well
as $285,000 owed to the Purchaser when the Resolution Progress
Funding was met on December 22, 2017. 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.
The 5,000,000 shares were issued on March 13, 2018 (as well as an
additional 4,000,000 for further services).
From
September 30, 2017 to March 13, 2018, the Company issued 28,653,334
shares of common stock as follows:
Date
Issued
|
Recipient
|
|
Purpose
of
Issuance
|
|
|
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
|
Services
|
$
0.012
|
$
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
August 31, 2017, the Company enterend into a $20,000 promissory
note plus 10% interest per anum with an individual which is due
August 31, 2018.
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.