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 June 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 had limited operations from the NACSV subsidiary from
December 31, 2015 until May 13, 2016. During the interim, the
Company was pursuing acquisition opportunities and responding to
the litigation with the Securities and Exchange Commission.
Subsequent to May 13, 2016, the Company has been seeking
acquisitions and additional financing.
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 three months
ended March 31, 2016 we incurred a net loss of $50,151 and used net
cash of $2,788 to fund operating activities. At March 31, 2016, we
had cash of $156, an accumulated deficit of $31,717,536, a working
capital deficit of $1,084,543 and stockholders’ deficit of
$1,082,128. 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 months
ended March 31, 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 months
ended March 31, 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, 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
Measurements and Disclosures," 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:
|
|
|
|
|
|
|
|
Convertible notes
and accrued interest
|
38,631,377
|
21,596,075
|
Stock
options
|
14,116,668
|
5,500,000
|
Warrants
|
2,500,000
|
4,250,000
|
Restricted stock
units
|
--
|
1,558,823
|
Price
protection
|
-
|
1,354,838
|
Potentially
dilutive securities
|
55,248,045
|
34,259,736
|
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
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.
Inventory
The Company orders
inventory/components upon receipt of a signed purchase order from a
customer. The Company did not have any inventory at March 31, 2016
or December 31, 2015.
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
As of March 31,
2016 and December 31, 2015, accrued expenses consist of the
following amounts:
|
|
|
Accrued
compensation to executive officers and employees
|
$
174,477
|
$
177,800
|
Accrued
professional fees
|
19,500
|
19,500
|
Accrued expenses
due to related parties
|
-
|
-
|
Total accrued
expenses
|
$
193,977
|
$
197,300
|
NOTE
4 – FAIR VALUE MEASUREMENTS
The Company did not
have any Level 1 or Level 2 assets and liabilities at March 31,
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 three months
ended March 31, 2016:
Derivative
liability balance at December 31, 2015
|
$
270,080
|
Change in fair
value
|
(58,185
)
|
Balance at March
31, 2016
|
$
211,895
|
At March 31, 2016,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: risk
free interest rate – 0.21%; term - .25 years; volatility
– 234.6%; dividend rate – 0%.
Carrying Value of Other Current Assets and Other Current
Liabilities
The Company’s
management considers the carrying values of other current assets
and other current liabilities to approximate fair values primarily
due to their short-term nature.
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 March 31, 2016
and December 31, 2015, 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 66,204,427 shares at March 31,
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 March 31, 2016.
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 March 31,2016, 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. 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 March 31, 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 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 March 31, 2016,
$12,748 of deferred interest expense related to this agreement is
included in current assets.
(1) (2)
(3)
|
$
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 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 March 31, 2016, $14,326 of deferred interest
expense related to this agreement is included in current assets.
(2)
(3)
|
$
52,024
|
Total due to
factor
|
$
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 March 31, 2016, and December
31, 2015, 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:
|
Collateral
|
|
|
|
|
|
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
Legal Proceedings
We may be involved
in legal proceedings in the ordinary course of our business, and
our management cannot predict the ultimate outcome of these legal
proceedings 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
March 31, 2016 and December 31, 2015, we had no shares of preferred
stock outstanding.
Common Stock
We are authorized
to issue 650,000,000 shares of common stock, $0.001 par value per
share. At March 31, 2016 and December 31, 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:
Class of
Warrant
|
|
Issued in
connection with or for
|
|
Number
Outstanding
|
|
Exercise
Price
|
|
Date of
Issue
|
|
Date
Vest
|
|
Date of
Expiration
|
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 March 31,
2016:
|
|
|
|
Weighted
Average Number Outstanding at 3/31/16
|
Outstanding
Remaining Contractual Life (in yrs.)
|
Weighted
Average Exercise Price
|
Number
Exercisable at 3/31/16
|
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 intrinsic value
of warrants outstanding at March 31, 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 three months ended March 31, 2016 and
2015 is comprised as follows:
|
|
|
Fair value expense
of stock option grants
|
$
(22,578
)
|
$
-
|
Fair value expense
of restricted stock unit grants
|
(51,747
)
|
12,936
|
Fair value expense
of restricted stock grants
|
-
|
208,280
|
|
$
(74,325
)
|
$
221,216
|
Awards
Issued Under Stock Incentive Plans
Stock Option Activity
At March 31, 2016,
we have outstanding 13,116,668 stock options, which are
fully-vested stock options that were granted to directors, officers
and consultants and 0 of which are unvested stock options that were
granted to directors, employees and consultants. At December 31,
2015, we had outstanding 15,100,000 stock options - 13,116,668 of
which are fully-vested stock options that were granted to
directors, officers and consultants and 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 the three
months ended March 31, 2016 and 2015 is as follows:
|
|
|
Average
Remaining
Term
in
Years
|
Aggregate
Intrinsic
Value at
Date
of
Grant
|
|
|
|
|
|
Outstanding
December 31, 2015
|
15,100,000
|
$
0.18
|
-
|
-
|
Options
granted
|
-
|
-
|
-
|
-
|
Options
exercised
|
-
|
|
|
-
|
|
|
|
|
|
Forfeited in
2016
|
(1,449,998
)
|
$
0.01
|
|
|
|
|
|
|
|
Outstanding March
31, 2016
|
13,350,002
|
0.03
|
-
|
-
|
Exercisable at
March 31, 2016
|
13,650,002
|
$
0.03
|
8.4
|
-
|
Unvested at March
31, 2016
|
-
|
-
|
|
|
During the three
ended March 31, 2016 and 2015, we recorded ($22,578) and $0 of
stock-based compensation cost related to the outstanding stock
options. At March 31, 2016, the unamortized value of the
outstanding stock options was $0. The intrinsic value of options
outstanding at March 31, 2016 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 three
months ended March 30, 2016, 983,332 stock options that had not yet
vested were forfeited.
Restricted
Stock Units
A summary of
RSU’s outstanding as of March 30, 2016 and changes during the
year then ended is presented below:
|
|
Weighted
Average Grant Date Fair Value
|
Aggregate
Intrinsic Value
|
|
|
|
|
Non-vested at
December 31, 2015
|
1,000,000
|
$
(0.10
)
|
-
|
Issued
|
-
|
-
|
-
|
Vested
|
-
|
-
|
-
|
Forfeited
|
(1,000,000
)
|
-
|
-
|
Non-vested at March
31, 2016
|
-
|
-
|
$
0.00
|
We recorded
stock-based compensation expense related to these RSU’s of
($51,747) and $12,936 for the three ended March 31, 2016 and 2015,
respectively.. The 1 million unvested RSU’s were forfeited
during the three months ended March 31, 2016. The aggregate
intrinsic value of non-vested RSU’s was $0 at March 31,
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
|
500,000
|
-
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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
|
|
|
5,000,000
|
-
|
-
|
A summary of
restricted stock grants outstanding as of March 31, 2016 , and the
changes during the three months then ended is presented
below:
|
|
Weighted
Average Grant Date Fair Value
|
Aggregate
Intrinsic Value
|
Non-vested at
December 31, 2015
|
125,000
|
$
0.46
|
$
0.00
|
Granted
|
-
|
$
0.04
|
|
Vested
|
-)
|
(0.17
)
|
|
Forfeited
|
125,000
|
-
|
-
|
Non-vested at March
31, 2016
|
-
|
$
0.46
|
$
0.00
|
We recorded
stock-based compensation expense related to these restricted stock
grants of $0 and $208,280 for the three months ended March 31, 2016
and 2015.
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 reclassifications. The
restated changes for the balance sheet for March 31, 2015 is
presented below:
|
|
|
|
Assets
|
|
|
|
Current Assets
|
|
|
|
Cash
and cash equivalents
|
$
155,860
|
$
(915
)
|
$
154,945
|
Accounts
receivable
|
300,000
|
(300,000
)
|
-
|
Inventory
|
226,897
|
(223,585
)
|
3,312
|
Debt
issue fees, net
|
80,153
|
(80,153
)
|
-
|
Prepaid
expenses
|
103,334
|
(20,232
)
|
83,102
|
Total
current assets
|
866,244
|
(624,885
)
|
241,359
|
|
|
|
|
Property
and equipment, net of accumulated depreciation
|
6,915
|
(0
)
|
6,915
|
Deposits
|
2,882
|
20,232
|
23,114
|
Total assets
|
$
876,041
|
$
(604,653
)
|
$
271,388
|
|
|
|
|
Liabilities and Stockholders' Deficit
|
|
|
|
Current Liabilities
|
|
|
|
Accounts
payable
|
$
263,049
|
$
15,216
|
$
278,265
|
Accrued
expenses
|
185,003
|
0
|
185,003
|
Accrued
interest
|
7,756
|
-
|
7,756
|
Contingent
liability
|
|
368,153
|
368,153
|
Convertible
notes payable, net of discounts
|
167,439
|
(80,153
)
|
87,286
|
Convertible
notes payableto related parties, net of discount
|
24,067
|
-
|
24,067
|
Due
to factor, net of discount of $0 and $16,160,
respectively
|
|
-
|
-
|
Notes
Payable
|
55,711
|
0
|
55,711
|
Derivative
liability
|
2,104,934
|
(2,104,934
)
|
-
|
Total current liabilities
|
2,807,959
|
(1,801,718
)
|
1,006,241
|
|
|
|
|
Derivative
liability
|
|
2,266,083
|
2,266,083
|
Contingent
consideration
|
368,154
|
(368,154
)
|
-
|
Deferred Purchase
Price
|
|
-
|
-
|
|
|
|
|
Total Liabilities
|
3,176,113
|
96,211
|
3,272,324
|
|
|
|
|
Commitments and Contingencies (Note 6)
|
|
|
|
|
|
|
|
Stockholders’ deficit
|
|
|
|
Preferred stock, $0.001 par value, 35,000,000 shares authorized,
none issued and outstanding $
|
|
$
-
|
$
-
|
Common
stock, $0.001 par value, 650,000,000 and 650,000,000 shares
authorized, 530,806,571 and 530,806,571 shares issued and
outstanding
|
109,809
|
2,188
|
111,997
|
Additional
paid-in capital
|
28,837,588
|
(599,844
)
|
28,237,744
|
Accumulated
deficit
|
(31,247,469
)
|
(103,208
)
|
(31,350,677
)
|
Total stockholders’ deficit
|
(2,300,072
)
|
(700,864
)
|
(3,000,936
)
|
Total liabilities and stockholders' deficit
|
$
876,041
|
$
(604,653
)
|
$
271,388
|
The restated changes for the statement of operations for March 31,
2015 is presented below:
|
For the Three Months Ended
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
$
-
|
$
3,313
|
$
3,313
|
|
|
|
|
Cost of revenue
|
-
|
59,556
|
59,556
|
|
|
|
|
Gross loss
|
-
|
(56,243
)
|
(56,243
)
|
|
|
|
|
Operating expenses
|
|
|
|
Selling,
general and administrative expenses
|
1,285,497
|
(689,737
)
|
595,760
|
|
|
|
|
Operating
loss before other income(expense)
|
(1,285,497
)
|
633,494
|
(652,003
)
|
|
|
|
|
Other (income)/expense
|
|
|
|
Change
in fair market value of derivatives
|
1,118,287
|
-
|
1,118,287
|
Interest
income
|
586,413
|
(586,413
)
|
-
|
Loss
on extinguishment of debt
|
22,170
|
(22,170
)
|
-
|
Reduction
of contingent consideration for purchase price
|
(280,461
)
|
280,461
|
-
|
Other
Income
|
|
(162,159
)
|
(162,159
)
|
Finance
Costs
|
|
576,280
|
576,280
|
Amortization
of debt discount - Convertible Notes Payable
|
|
52,825
|
52,825
|
Interest
expense
|
|
55,782
|
55,782
|
Total other (income)/expense
|
1,446,409
|
194,606
|
1,641,015
|
|
|
|
|
Loss before provision for income taxes
|
(2,731,906
)
|
438,888
|
(2,293,018
)
|
|
|
|
|
Provision for income taxes
|
-
|
-
|
-
|
|
|
|
|
Net loss
|
$
(2,731,906
)
|
$
438,888
|
$
(2,293,018
)
|
|
|
|
|
|
|
|
|
Loss per common share - basic
|
$
(0.03
)
|
$
0.09
|
$
(0.02
)
|
|
|
|
|
Weighted average shares outstanding:
|
|
|
|
Basic
|
106,417,019
|
4,725,262
|
111,142,281
|
NOTE
9 – SUBSEQUENT EVENTS
We have completed an evaluation of all subsequent events after the
balance sheet date of March 31, 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 March 31, 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 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 our common stock. The Preferred Stock is also convertible to
common stock at any time 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.
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.
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.