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 six months ended
June 30, 2017 while we had net income of $50,265 we did not provide
any net cash to fund operating activities. At June 30, 2017, we had
no cash, an accumulated deficit of $32,660,903, a working capital
deficit of $-1,848,574 and stockholders’ deficit of
$1,846,159. 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 six
months ended June 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 six months ended June 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
|
181,686,974
|
84,619,626
|
Preferred
Stock
|
196,398,431
|
-
|
Stock
options
|
13,650,002
|
13,650,002
|
Warrants
|
1,500,000
|
2,500,000
|
Potentially
dilutive securities
|
393,235,407
|
100,769,628
|
|
|
|
|
|
|
|
|
Convertible notes
and accrued interest
|
181,686,974
|
84,619,626
|
Preferred
Stock
|
196,398,431
|
-
|
Stock
options
|
13,650,002
|
13,650,002
|
Warrants
|
1,500,000
|
2,500,000
|
Potentially
dilutive securities
|
393,235,407
|
100,769,628
|
The convertible
debentures were considered anti-dilutive in accordance with ASC
260-10-45-20, as under the “if converted” method the
adjustment to the control number of net income resulted in a net
loss.
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
|
$
206,668
|
$
91,086
|
Accrued
professional fees
|
310,190
|
185,771
|
Accrued settlement
payment
|
100,000
|
100,000
|
Accrued
interest
|
48,549
|
37,641
|
Total accrued
expenses
|
$
665,407
|
$
414,498
|
NOTE
4 – FAIR VALUE MEASUREMENTS
The Company did not
have any Level 1 or Level 2 assets and liabilities at June 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 six months
ended June 30, 2017 and 2016:
|
|
|
Derivative
liability balance at beginning of period
|
$
672,724
|
$
270,080
|
Change in fair
value
|
(438,349
)
|
64,779
|
Derivative
liability balance at end of period
|
$
234,375
|
$
334,859
|
At June 30, 2017,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: risk
free interest rate – 1.03%; term - .25 years; volatility
– 293.76%; dividend rate – 0%.
At June 30, 2016,
the fair value of the derivative liabilities of convertible notes
was estimated using the following weighted-average inputs: risk
free interest rate – 0.20%; term - .25 years; volatility
– 284.6%; 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.
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.
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.
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.
Jennifer Carroll vs. Global Digital Solutions, Inc., North American
Custom Specialty Vehicles, Inc., in the Circuit Court for the
15
th
Judicial Circuit in 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).
PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the
Circuit Court for the 15
th
Judicial Circuit in
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 on May 16, 2018. The $40,000 is included
in accounts payable as of December 31, 2017.
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.
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 June 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 June 30, 2017
and December 31, 2016, we had $190,000 and $70,000 payable to
William J. Delgado and $16,668 and $16,668 to Jerry Gomolski,
respectively.
NOTE
7 – SUBSEQUENT EVENTS
We have completed an evaluation of all subsequent events after the
balance sheet date of June 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 June 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 June 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 June 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 thatsuch
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 June 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 August 31, 2017,
Dragon Acqusitions, a related entity owned by William Delgado, 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.
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 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.