UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
☑ ☒QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended September 30, 20202021
or
☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from _________ to _________
Commission file number: 000-26361
GLOBAL DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
| New Jersey | 22-3392051 | |
| (State or other Jurisdiction of Incorporation or Organization) | (I.R.S. Employer Identification No.) |
777 South Flagler Drive , Suite 800 West Tower West Palm Beach, FL | 33401 | |
| (Address of Principal Executive Offices) | (Zip Code) |
(561)515-6163
(Registrant’s telephone number, including area code)
N/A
(Former name, former address and former fiscal year, if changed since last report)
Securities registered pursuant to Section 12(b) of the Act:
| Title of | Name of which registered | |||
| None | N/A | N/A |
Securities registered pursuant to section 12(g) of the Act:
Shares of common stock with a par value of $0.001
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ ☒ No ☐
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ☑ ☒ No ☐
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or a small reportingan emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
| Large accelerated filer | ☐ | Accelerated filer | ☐ |
| Non-accelerated | ☐ | Smaller reporting company | ☒ |
| Emerging | ☐ |
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B)13(a) of the SecuritiesExchange Act: ☐
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑ ☒
As of November 20, 2020,18, 2021, there were 665,113,264 shares of the registrant’s common stock outstanding.
Forward Looking Statements
This Report includes statements that are, or may be deemed to be, “forward-looking statements,” as defined in the Private Securities Reform Act of 1995. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms “believes,” “estimates,” “anticipates,” “projects,” “expects,” “intends,” “may,” “will,” “seeks” or “should” or, in each case, their negative or other variations or comparable terminology, or in relation to discussions of strategy, plans, objectives, goals, future events or intentions. These forward-looking statements include matters that are not historical facts. They appear in a number of places throughout this Quarterly Report and include statements regarding Issuer’s current intentions, beliefs or expectations concerning, among other things, the Issuer’s future plans for the Project, results of operations, financial condition, prospects, growth, strategies and the markets in which the Issuer intends to operate.
By their nature, forward-looking statements involve risks and uncertainties because they relate to events and depend on circumstances that may or may not occur in the future. Forward-looking statements are not an assurance of future performance. The Issuer’s actual results of operations and financial condition may differ materially from those suggested by the forward-looking statements contained in this document. In addition, even if the Issuer’s future results of operations and financial condition are consistent with the forward-looking statements contained in this document, those results or developments may not be indicative of results or developments in subsequent periods. The information in this Private Placement Memorandum, including, but not limited to, the information under “Risk Factors,” identifies important factors that could cause such differences (including, but not limited to, a change in overall economic conditions in the United States, a change in the Issuer’s financial condition, changes in tax law or the interpretation thereof, interest rate fluctuations and other market conditions, and the effect of new
legislation or government directives).
Forward-looking statements include, but are not limited to, information concerning possible or assumed future results of the Issuer’s operations set forth under the section entitled “Business of the Issuer”. Such statements, estimates and projections reflect various assumptions by the Issuer concerning anticipated results and are subject to significant business, financing, economic and competitive uncertainties and contingencies, many of which are beyond the control of the Issuer and are based upon assumptions with respect to future business decisions that are subject to change. Accordingly, there can be no assurance that such statements, estimates and projections will be realized or that actual results will not vary considerably from those anticipated, expected or projected. The Issuer, its accountants, its legal advisers and its agents or affiliates do not make any representations as to the accuracy or completeness of such statements, estimates and projections, or that any forecasts will be achieved.
The Issuer is not obliged to, and does not intend to update or revise any forward-looking statements made in this Quarterly Report whether as a result of new information, future events or otherwise. All subsequent written forward-looking statements attributable to the Issuer, or persons acting on behalf of the Issuer, are expressly qualified in their entirety by the cautionary statements contained throughout this Private Placement Memorandum. As a result of these risks, prospective investors of the Convertible Bonds should not place undue reliance on these forward-looking statements. Neither the forward-looking statements nor the underlying assumptions have been verified or audited by any third party.
GLOBAL DIGITAL SOLUTIONS, INC.
FORM 10-Q
FOR THE THREE AND NINE MONTHS ENDED September 30, 2021 AND 2020
-1--2-
PART I – FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTSFinancial Statements
GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIESgloBal digital solutions, inc.
CONDENSED CONSOLIDATED BALANCE SHEETSConsolidated Balance Sheets
(Unaudited)
| September 30, 2021 | December 31, 2020 | |||||||
| (Unaudited) | ||||||||
| Assets | ||||||||
| Current Assets | ||||||||
| Cash | $ | 2,003 | $ | 264 | ||||
| Prepaid Expenses | 135,000 | — | ||||||
| Total current assets | 137,003 | 264 | ||||||
| Other Assets | ||||||||
| Prepaid expenses - related party | 520,000 | 520,000 | ||||||
| Due from related entity | 137,681 | 70,710 | ||||||
| Equipment, net of accumulated depreciation of $7,617 at September 30, 2021 and $5,078 at December 31, 2020 | 43,165 | 45,704 | ||||||
| Software Development Cost | 64,547 | 64,547 | ||||||
| Total other assets | 765,393 | 700,961 | ||||||
| Total assets | $ | 902,396 | $ | 701,225 | ||||
| Liabilities and Stockholders’ Deficit | ||||||||
| Current Liabilities | ||||||||
| Accounts payable | $ | 368,227 | $ | 486,593 | ||||
| Accrued expenses | 1,221,179 | 1,343,880 | ||||||
| Due to officer | — | 253,291 | ||||||
| Financed insurance policy | 11,187 | 11,187 | ||||||
| Derivative liability | 2,122,328 | 9,367,159 | ||||||
| Warrant liability | 1,504,000 | |||||||
| Convertible notes payable,net of discount $1,077,945 and $195,434 respectively | 3,686,802 | 1,429,450 | ||||||
| Notes Payable | 4,567,000 | 4,512,000 | ||||||
| Total current liabilities | 13,480,723 | 17,403,560 | ||||||
| Long term liabilities | ||||||||
| Notes payable, net of discount $1,077,945 and $195,434 respectively. | 103,125 | 103,125 | ||||||
| Total Liabilities | 13,583,848 | 17,506,685 | ||||||
| Commitments and Contingencies (Note 7) | ||||||||
| Stockholders’ deficit | ||||||||
| Preferred stock, $ par value, shares authorized, issued and outstanding at September 30, 2021 and December 31, 2020, respectively | $ | 1,000 | $ | 1,000 | ||||
| Common stock, $ par value, shares authorized , and shares issued and outstanding at September 30, 2021 and December 31, 2020, respectively | 701,863 | 668,338 | ||||||
| Additional paid-in capital | 35,954,217 | 34,086,086 | ||||||
| Shares payable | 180,000 | — | ||||||
| Accumulated deficit | (49,518,532 | ) | (51,560,884 | ) | ||||
| Total stockholders’ deficit | (12,681,452 | ) | (16,805,460 | ) | ||||
| Total liabilities and stockholders’ deficit | $ | 902,396 | $ | 701,225 | ||||
| September 30, 2020 | December 31, 2019 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash | $ | 96,384 | $ | 493,402 | ||||
| Prepaid expenses | — | 6,000 | ||||||
| Total current assets | 96,384 | 499,402 | ||||||
| Other Assets | ||||||||
| Equipment, net of accumulated depreciation of $0 at September 30, 2020 and $0 at December 31, 2019. | 50,782 | 26,282 | ||||||
| Software Development Cost | 102,823 | — | ||||||
| Prepaid expenses - related party | 520,000 | — | ||||||
| Receivable from Related Party | 106,225 | — | ||||||
| Total other assets | 779,830 | 26,282 | ||||||
| Total assets | $ | 876,214 | $ | 525,684 | ||||
| Liabilities and Stockholders' Deficit | ||||||||
| Current liabilities | ||||||||
| Accounts payable | 440,473 | 539,614 | ||||||
| Accrued expenses | 739,544 | 714,244 | ||||||
| Financed insurance policy | 11,187 | 11,187 | ||||||
| Notes payable, net of discount of $0 and $0 respectively | 4,555,125 | 3,683,000 | ||||||
| Convertible notes payable, net of discount of $654,584 and $218,484, respectively | 978,972 | 577,138 | ||||||
| Derivative liability | 2,421,525 | 1,158,008 | ||||||
| Total current liabilities | 9,146,826 | 6,683,191 | ||||||
| Stockholders' deficit | ||||||||
| Preferred stock, $0.001 par value, 35,000,000 shares authorized, 1,000,000 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 1,000 | 1,000 | ||||||
| Common stock, $0.001 par value, 2,000,000,000 shares authorized 667,588,264 and 643,121,923 shares issued and outstanding at September 30, 2020 and December 31, 2019, respectively | 667,588 | 643,122 | ||||||
| Additional paid-in capital | 33,418,400 | 32,152,715 | ||||||
| Accumulated deficit | (42,357,600 | ) | (38,954,344 | |||||
| Total stockholders' deficit | (8,270,612 | ) | (6,157,507 | |||||
| Total liabilities and stockholders' deficit | $ | 876,214 | $ | 525,684 | ||||
The accompanying footnotesnotes are inan integral part of these unaudited condensed consolidated financial statements.
-2--3-
GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIESgloBal digital solutions, inc.
CONDENSED CONSOLIDATEDConsolidated STATEMENTS OF OPERATIONS
(Unaudited)
| For the three months ended September 30 | For the nine months ended September 30 | |||||||||||||||
| 2020 | 2019 | 2020 | 2019 | |||||||||||||
| Revenues | $ | — | $ | — | $ | — | $ | — | ||||||||
| Cost of revenues | — | — | — | — | ||||||||||||
| Gross profit | — | — | — | — | ||||||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 264,581 | 587,394 | 799,958 | 1,031,750 | ||||||||||||
| Impairment Loss | — | 62,000 | — | 62,000 | ||||||||||||
| Total operating expenses | 264,581 | 649,394 | 799,958 | 1,093,750 | ||||||||||||
| Loss from operations | 264,581 | 649,394 | 799,958 | 1,093,750 | ||||||||||||
| Other (income) expense | ||||||||||||||||
| Change in fair value of derivative liability | (3,476,526 | ) | 7,800 | (236,206 | ) | (311,575 | ||||||||||
| Interest expense | 293,323 | 346,419 | 2,184,920, | 703,651 | ||||||||||||
| Amortization of Original issue discount | 225,542 | 68,162 | 654,584 | 290,406 | ||||||||||||
| Loss on settlement of Debt | — | — | — | 72,336 | ||||||||||||
| Total other (income) expense | (2,957,661 | ) | 422,381 | 2,603,298 | 754,818 | |||||||||||
| Net Income (Loss) | $ | 2,693,080 | $ | (1,071,775 | ) | $ | (3,403,256 | ) | $ | (1,848,568 | ) | |||||
| Net loss per common share, basic and diluted | $ | (0.00 | ) | $ | 0.00 | $ | (0.01 | ) | $ | 0.00 | ||||||
| Weighted average common shares outstanding, basic | 632,690,409 | 624,362,190 | 628,559,792 | 608,341,145 | ||||||||||||
| For the Three Months Ended | For the Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2021 | 2020 | 2021 | 2020 | |||||||||||||
| Revenue | $ | — | $ | $ | — | $ | — | |||||||||
| Operating expenses | ||||||||||||||||
| Selling, general and administrative expenses | 218,488 | 264,581 | 1,809,106 | 799,958 | ||||||||||||
| Operating loss before other (income) expense | 218,488 | 264,581 | 1,809,106 | 799,958 | ||||||||||||
| Other (income) expense | ||||||||||||||||
| Change in fair value of derivative liability | 1,340,802 | (3,476,526 | ) | (6,439,186 | ) | (236,206 | ) | |||||||||
| Change in fair value of warrant liability | (45,000 | ) | — | (894,000 | ) | — | ||||||||||
| Amortization of debt discount | 583,841 | 225,542 | 1,681,178 | 654,584 | ||||||||||||
| Interest expense | 380,126 | 303,554 | 1,812,550 | 2,184,920 | ||||||||||||
| Other income | — | — | (12,000 | ) | — | |||||||||||
| Total other (income) expense | 2,259,769 | (2,957,661 | ) | (3,851,458 | ) | 2,603,298 | ||||||||||
| Income/(loss) from operations before provision for income taxes | (2,478,256 | ) | 2,682,849 | 2,042,352 | (3,403,256 | ) | ||||||||||
| Provision for income taxes | — | — | — | |||||||||||||
| Net income/(loss) | $ | (2,478,256 | ) | $ | 2,682,849 | $ | 2,042,352 | $ | (3,403,256 | ) | ||||||
| Loss per common share - basic | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
| Loss per common share - diluted | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.00 | ) | $ | (0.01 | ) | ||||
| Weighted average common shares: | ||||||||||||||||
| Basic | 698,637,958 | 632,690,409 | 698,637,958 | 628,559,792 | ||||||||||||
| Diluted | 698,637,958 | 632,690,409 | 698,637,958 | 628,559,792 | ||||||||||||
The accompanying footnotesnotes are inan integral part of these unaudited condensed consolidated financial statements.
-3--4-
GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIESgloBal digital solutions, inc.
CONDENSED CONSOLIDATED STATEMENTS STATEMENT of Changes in STOCKHOLDERS'CHANGES IN STOCKHOLDERS’ DEFICIT
(Unaudited)
| Preferred stock | Common stock | Additional paid in | Shares | Accumulated | Total stockholders’ | |||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Payable | deficit | deficit | |||||||||||||||||||||||||
| Preferred stock | Common stock | Additional paid in | Total stockholders’ | |||||||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Shares Payable | Accumulated deficit | deficit | |||||||||||||||||||||||||
| Balance December 31, 2020 | 1,000,000 | $ | 1,000 | 668,338,264 | $ | 668,338 | $ | 34,086,086 | $ | — | $ | (51,560,884 | ) | $ | (16,805,460 | ) | ||||||||||||||||
| Common stock issued for services to consultants | — | — | 5,000,000 | 5,000 | 279,500 | — | — | 284,500 | ||||||||||||||||||||||||
| Shares of common stock issued for conversion of debt | — | — | 5,368,493 | 5,368 | 48,317 | — | — | 53,686 | ||||||||||||||||||||||||
| Shares of common stock issued in relation to convertible debt | — | — | 5,850,000 | 5,850 | 232,375 | — | — | 238,225 | ||||||||||||||||||||||||
| Reclass of derivative liability upon settlement of convertible notes payable | — | — | 654,170 | — | — | 654,170 | ||||||||||||||||||||||||||
| Cashless exercise of warrants | — | 1,400,000 | 1,400 | (1,400 | ) | — | — | — | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 3,721,651 | 3,721,651 | ||||||||||||||||||||||||
| Balance March 31, 2021 | 1,000,000 | $ | 1,000 | 685,956,757 | $ | 685,957 | $ | 35,299,048 | $ | — | $ | (47,839,233 | ) | $ | (11,853,228 | ) | ||||||||||||||||
| Shares of common stock issued for conversion of debt | — | — | 8,000,000 | 8,000 | 107,200 | — | — | 115,200 | ||||||||||||||||||||||||
| Shares of common stock issued in relation to convertible debt | — | — | 4,000,000 | 4,000 | 180,000 | — | — | 184,000 | ||||||||||||||||||||||||
| Reclass of derivative liability upon settlement of convertible notes payable | — | — | 284,000 | — | — | 284,000 | ||||||||||||||||||||||||||
| Cashless exercise of warrants | — | 3,906,000 | 3,906 | (3,906 | ) | — | — | — | ||||||||||||||||||||||||
| Common stock issued for services to consultants | — | — | — | — | — | 180,000 | — | 180,000 | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 798,957 | 798,957 | ||||||||||||||||||||||||
| Balance June 30, 2021 | 1,000,000 | $ | 1,000 | 701,862,757 | $ | 701,863 | $ | 35,866,342 | $ | 180,000 | $ | (47,040,274 | ) | $ | (10,291,069 | ) | ||||||||||||||||
| Reclass of derivative liability upon settlement of convertible notes payable | — | — | — | — | 87,875 | — | — | 87,875 | ||||||||||||||||||||||||
| Net Loss | — | — | — | — | — | — | (2,478,256 | ) | (2,478,256 | ) | ||||||||||||||||||||||
| Balance September 30, 2021 | 1,000,000 | $ | 1,000 | 701,862,757 | $ | 701,864 | $ | 35,954,217 | $ | 180,000 | $ | (49,518,533 | ) | $ | (12,681,452 | ) | ||||||||||||||||
| Balance December 31, 2019 | 1,000,000 | $ | 1,000 | 643,121,923 | $ | 643,122 | $ | 32,152,715 | — | $ | (38,954,344 | ) | $ | (6,157,507 | ) | |||||||||||||||||
| Shares of common stock issued for conversion of debt | — | — | 2,000,000 | 2,000 | 6,800 | — | — | 8,800 | ||||||||||||||||||||||||
| Common stock shares issued for services | — | — | 281,955 | 282 | 4,792 | — | — | 5,074 | ||||||||||||||||||||||||
| Reclass of derivative liability upon settlement of convertible notes payable | — | — | — | — | 86,700 | — | — | 86,700 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (2,296,759 | ) | (2,296,759 | ) | ||||||||||||||||||||||
| Balance March 31, 2020 | 1,000,000 | $ | 1,000 | 645,403,878 | 645,404 | $ | 32,251,007 | — | (41,251,103 | ) | $ | (8,353,692 | ) | |||||||||||||||||||
| Shares of common stock issued for conversion of debt | — | — | 5,588,333 | 5,588 | 15,862 | — | — | 21,450 | ||||||||||||||||||||||||
| Reclass of derivative liability upon settlement of convertible notes payable | — | — | — | — | 994,771 | — | — | 994,771 | ||||||||||||||||||||||||
| Shares issued for exercise of warrants | — | — | 6,000,000 | 6,000 | 54,000 | — | — | 60,000 | ||||||||||||||||||||||||
| Convertible note forbearance agreement | — | — | 796,056 | 796 | 14,329 | — | — | 15,125 | ||||||||||||||||||||||||
| Net loss | — | — | — | — | — | — | (3,789,346 | ) | (3,789,346 | ) | ||||||||||||||||||||||
| Balance June 30, 2020 | 1,000,000 | $ | 1,000 | 657,788,267 | $ | 657,788 | $ | 33,329,969 | — | $ | (45,040,449 | ) | $ | (11,051,692 | ) | |||||||||||||||||
| Common stock shares issued for expenses | — | — | 3,300,000 | 3,300 | 6,930 | — | — | 10,230 | ||||||||||||||||||||||||
| Shares issued for conversion of Accounts Payable | — | — | 6,500,000 | 6,500 | 81,500 | — | — | 88,000 | ||||||||||||||||||||||||
| Reduction in derivative liability | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Common stock issued for services to consultants | — | — | — | — | — | — | — | — | ||||||||||||||||||||||||
| Net income | — | — | — | — | — | — | 2,682,849 | 2,682,849 | ||||||||||||||||||||||||
| Balance September 30, 2020 | 1,000,000 | $ | 1,000 | 667,588,264 | $ | 667,588 | $ | 33,418,400 | $ | — | $ | (42,357,600 | ) | $ | (8,270,612 | ) | ||||||||||||||||
| For the nine months ended September 30, 2020 | ||||||||||||||||||||||||||||
| Common Stock | Preferred Stock |
Paid-In | Accumulated | |||||||||||||||||||||||||
| Shares | Amount | Shares | Amount | Capital | Deficit | Total | ||||||||||||||||||||||
| Balances at December 31, 2019 | 643,121,923 | $ | 643,122 | 1,000,000 | $ | 1,000 | $ | 32,152,715 | $ | (38,954,344 | ) | $ | (6,157,507 | ) | ||||||||||||||
| Shares issued for exercise of warrants | 6,000,000 | 6,000 | 54,000 | 60,000 | ||||||||||||||||||||||||
| Shares Issued for conversion of debt | 7,588,333 | 7,588 | 22,662 | — | 30,250 | |||||||||||||||||||||||
| Shares issued for conversion of Accounts Payable | 6,500,000 | 6,500 | 81,500 | 88,000 | ||||||||||||||||||||||||
| Shares issued for services | 281,955 | 283 | 4,791 | — | 5,074 | |||||||||||||||||||||||
| Shares issued for expenses | 3,300,000 | 3,300 | 6,930 | 10,230 | ||||||||||||||||||||||||
| Reduction in derivative liability | — | — | 1,081,471 | — | 1,081,471 | |||||||||||||||||||||||
| Convertible Note Forbearance Agreement | 796,053 | 796 | 14,329 | 15,125 | ||||||||||||||||||||||||
| Net loss | — | — | — | (3,403,256 | ) | (3,403,256 | ) | |||||||||||||||||||||
| Balance September 30, 2020 | 667,588,264 | $ | 667,588 | 1,000,000 | $ | 1,000 | $ | 33,418,400 | $ | (42,357,600 | ) | $ | (8,270,612 | ) | ||||||||||||||
For the nine months ended September 30, 2019 | ||||||||||||||||||||||||||||
| Balance December 31, 2018 | 579,901,814 | $ | 579,901 | 1,000,000 | $ | 1,000 | $ | 30,785,442 | $ | (35,661,822 | ) | $ | (4,295,479 | ) | ||||||||||||||
| — | — | |||||||||||||||||||||||||||
| Common Shares sold for cash | 28,613,888 | 28,614 | 257,524 | 286,138 | ||||||||||||||||||||||||
| Common Stock shares issued for Services | 24,160,377 | 24,160 | 265,765 | 289,924 | ||||||||||||||||||||||||
| Common Shares issued for Acquisition | 5,000,000 | 5,000 | 57,000 | 62,000 | ||||||||||||||||||||||||
| Reduction in derivative liability | — | — | 459,400 | — | 459,400 | |||||||||||||||||||||||
| Net loss | — | — | — | (1,848,568 | (1,848,568 | ) | ||||||||||||||||||||||
| Balance, September 30, 2019 | 637,676,079 | $ | 637,675 | 1,000,000 | $ | 1,000 | $ | 31,825,130 | $ | 37,510,390 | $ | (5,046,585 | ) | |||||||||||||||
The accompanying footnotesnotes are inan integral part of these unaudited condensed consolidated financial statements.
-4--5-
GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIESgloBal digital solutions, inc.
CONDENSED CONSOLIDATEDConsolidated STATEMENTS OF CASH FLOWFLOWS
(Unaudited)
| For the nine months ending September 30, | ||||||||||||||||
| 2020 | 2019 | For the Nine Months Ended | ||||||||||||||
| Cash flows from operating activities: | $ | (3,403,256 | ) | $ | (1,848,568 | ) | ||||||||||
| Net loss | ||||||||||||||||
| Adjustments to reconcile net loss to net cash | ||||||||||||||||
| provided by (used in) operating activities: | ||||||||||||||||
| Amortization of debt discount | 654,584 | 290,406 | ||||||||||||||
| September 30, 2021 | September 30, 2020 | |||||||||||||||
| Operating Activities | ||||||||||||||||
| Net income/( loss) | $ | 2,042,352 | $ | (3,403,256 | ) | |||||||||||
| Adjustments to reconcile net loss to net cash used in operating activities: | ||||||||||||||||
| Shares issued for services | 464,500 | |||||||||||||||
| Stock-based compensation | 30,430 | 269,924 | — | 30,430 | ||||||||||||
| Change in fair value of derivative liability | (236,206 | ) | (311,575 | ) | (6,439,186 | ) | (236,206 | ) | ||||||||
| Impairment expense | — | 62,000 | ||||||||||||||
| Loss (Gain) on Settlement | — | 72,336 | ||||||||||||||
| Operating expenses settled through debt proceeds | 27,300 | — | ||||||||||||||
| Change in fair value of warrant liability | (894,000 | ) | ||||||||||||||
| Amortization of debt discount | 1,681,178 | 654,584 | ||||||||||||||
| Consulting fees added to note payable principal | 180,000 | |||||||||||||||
| Interest expense from derivative liability | 1,709,894 | 536,525 | 42,400 | 1,709,894 | ||||||||||||
| Interest expense from warrant liability | 891,000 | |||||||||||||||
| Interest expense for extension fees added to principal | 225,000 | |||||||||||||||
| Operating expenses setled through debt proceeds | — | 27,300 | ||||||||||||||
| Legal fees for note issuance | 33,751 | |||||||||||||||
| Depreciation | 2,539 | |||||||||||||||
| Changes in operating assets and liabilities: | ||||||||||||||||
| Prepaid expenses | (514,000 | ) | (6,000 | ) | (135,000 | ) | (514,000 | ) | ||||||||
| Accounts payable | (11,141 | ) | (103,415 | ) | (118,366 | ) | (11,141 | ) | ||||||||
| Accrued expenses | 210,550 | (211,353 | ) | 133,447 | 210,550 | |||||||||||
| Net cash used in operating activities | (1,531,845 | ) | (1,249,720 | ) | (1,890,386 | ) | (1,531,845 | ) | ||||||||
| Cash flows from investing activities: | ||||||||||||||||
| Investing Activities | ||||||||||||||||
| Purchase of Equipment | (24,500 | ) | (26,282 | ) | — | (24,500 | ) | |||||||||
| Software Development Cost | (102,823 | ) | — | — | (102,823 | ) | ||||||||||
| Due to Related Party | (106,225 | ) | — | (66,971 | ) | (106,225 | ) | |||||||||
| Net cash (used in) investing activities | (233,548 | ) | (26,282 | ) | (66,971 | ) | (233,548 | ) | ||||||||
| Cash flows from financing activities: | — | — | ||||||||||||||
| Financing Activities | ||||||||||||||||
| Proceeds from notes payable | 803,125 | 900,000 | — | 803,125 | ||||||||||||
| Payments of notes payable | — | (275,000 | ) | |||||||||||||
| Proceeds from convertible notes payable | 1,077,000 | 696,975 | ||||||||||||||
| Payments of convertible notes payable | (571,750 | ) | (289,586 | ) | ||||||||||||
| Proceeds from sale of common shares | 60,000 | 286138 | ||||||||||||||
| Payments on notes payable | (125,000 | ) | — | |||||||||||||
| Payments to related party | (53,000 | ) | ||||||||||||||
| Repayments of convertible notes | (494,352 | ) | (571,750 | ) | ||||||||||||
| Proceeds from convertible notes | 3,275,000 | 1,077,000 | ||||||||||||||
| Proceeds from issuance of common stock | — | 60,000 | ||||||||||||||
| Advances from officer | (643,552 | ) | ||||||||||||||
| Net cash provided by financing activities | 1,959,096 | 1,368,375 | ||||||||||||||
| 1,368,375 | 1,318,527 | |||||||||||||||
| Net cash provided by (used in) financing activities | ||||||||||||||||
| Net decrease in cash and cash equivalents | 1,739 | (397,018 | ) | |||||||||||||
| Cash and cash equivalents at beginning of period | 264 | 493,402 | ||||||||||||||
| Net (decrease) increase in cash and cash equivalents | (397,018 | ) | 42,525 | |||||||||||||
| Cash and cash equivalents at beginning of period | 493,402 | 8,100 | ||||||||||||||
| Cash and cash equivalents at end of period | $ | 96,384 | $ | 50,625 | $ | 2,003 | $ | 96,384 | ||||||||
| Supplementary disclosure of cash flow information | ||||||||||||||||
| Cash paid during the year for: | 28,812 | 28,812 | ||||||||||||||
| Interest | $ | — | $ | 28,812 | ||||||||||||
| Taxes | $ | — | $ | — | ||||||||||||
| Supplementary disclosure of non-cash investing and financing activities | ||||||||||||||||
| Convertible notes paid by officer | $ | 390,261 | $ | |||||||||||||
| Accrued expenses settled through notes payable | — | 180,000 | ||||||||||||||
| Debt discount from derivative on convertible notes payable | $ | 178,000 | $ | 923,500 | ||||||||||||
| Debt discount for issuance of shares of common stock with convertible note | $ | 422,225 | $ | |||||||||||||
| Debt discount for issuance of warrants with convertible note | $ | 1,507,000 | $ | |||||||||||||
| Discount on convertible notes payable | $ | 88,000 | $ | 51,775 | $ | 490,214 | $ | 30,250 | ||||||||
| Accrued expenses settled through notes payable | 180,000 | $ | — | |||||||||||||
| Convertible debt settled through issuance of common shares | 30,250 | $ | — | |||||||||||||
| Reduction in derivative liability from payments on convertible notes | 1,081,471 | $ | 459,400 | |||||||||||||
| Discount from derivative on convertible notes payable | 923,500 | $ | 213,475 | |||||||||||||
| Discount from warrants issued with convertible notes payable | $ | — | $ | 20,000 | ||||||||||||
| Shares issued for acquisition | $ | — | $ | 62,000 | ||||||||||||
| Conversion of Convertible notes payable | $ | 168,886 | $ | |||||||||||||
| Cashless exercise of warrants | $ | 5,306 | $ | |||||||||||||
| Settlement of derivative liability to APIC | $ | 1,026,045 | $ | |||||||||||||
| Convertible notes paid by affiliate | $ | 53,000 | $ | |||||||||||||
The accompanying footnotesnotes are inan integral part of these unaudited condensed consolidated financial statements.
-5--6-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
THREE AND NINE MONTHS ENDED SEPTEMBERSeptember 30, 20202021
(Unaudited)
NOTE 1 – DESCRIPTION OF BUSINESS
We wereThe Company was 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, wethe Company made the decision to wind down ourtheir 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 werethe Company was actively involved in managing Airtronic USA, Inc., and effective as of June 16, 2014 wethey acquired North American Custom Specialty Vehicles (“NACSV”). In July 2014, wethe Company announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead ourtheir 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.
In March of 2019, the Company acquired HarmAlarm (“HA”). HA was formed in 2002 as a private Texas company to pursue Infrared commercial applications in the aviation services area. HA is developing an updated version of the system known as Pilot Assisted Landing Systems (PALS). The precision and robustness of PALS has generatedis expected to generate a host of new applications mainly through “landing trajectory” optimization which provides additional safety margin against weather related hazardous conditions, like wind shear, wake turbulence, icing, as well as low ceilings and fog.
Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), assuming the Company will continue as a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has sustained losses and experienced negative cash flows from operations since inception, and for the nine-months ended September 30, 2021, while it had net income of approximately $2,042,351, which was mostly the result of the change in fair value of the derivative liability, the Company used net cash of approximately $1,900,000 to fund operating activities at September 30, 2021, had an accumulated deficit of approximately $49,518,532, and a working capital deficit of approximately $13,343,720 These factors raise substantial doubt about the Company’s ability to continue as a going concern, within one year from the issuance date of the financial statements. The Company has funded its activities to date almost exclusively from equity and debt financings.
The Company needs to raise additional funds immediately and continue to raise funds until they begin to generate sufficient cash from operations and may not be able to obtain the necessary financing on acceptable terms, or at all.
The Company will continue to require substantial funds to continue development of its core business. Management’s plans in order to meet the 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 management expects will lead to the generation of additional revenue or acquisition opportunities.
While Management believes that the Company will be successful in obtaining the necessary financing to fund operations, there are no assurances that such additional funding will be achieved or that they will succeed in future operations.
-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.
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Going Concern
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have sustained losses and experienced negative cash flows from operations since inception, and for the nine Months ended on September 30, 2020, incurred a net loss of $3,403,256 and used net cash of $1,531,845 to fund operating activities at September 30, 2020, we had cash of $96,384, an accumulated deficit of $42,357,600, a working capital deficit of $9,050,442 and stockholders’ deficit of $8,270,612. 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 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.
-6-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
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.
Basis of Presentation
The accompanying unaudited financial information as of and for the three and nine months ended September 30, 20202021 and 20192020 has been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three and nine months ended September 30, 20202021 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 Annual Report on Form 10-K that includes the audited financial statements for the year ended December 31, 2019. included in our Annual Report on Form 10-K2020 as filed with the SEC on April 29, 2020.19, 2021.
The condensed consolidated balance sheet at December 31, 20192020 has been derived from the audited financial statements at that date but does not include all the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
-7-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, NACSV, GDSI Florida, LLC, Global Digital Solutions, LLC and Aviation Services f/k/a HarmAlarm. All intercompany accounts and transactions have been eliminated in consolidation.
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.
Income Taxes
Income taxes are accounted for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period.
-8-
Accounting guidance requires the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded at September 30, 2020,2021, and December 31, 2019.2020. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense.
-8-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Cash and Cash Equivalents
We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. We maintain our cash in high-quality financial institutions. The balances, at times, may exceed federally insured limits. As of September 30, 2021, and December 31, 2020, the Company’s cash balance did not exceed FDIC coverage. As of September 30, 2021 and December 31, 2020, the Company did not have any cash equivalents.
Fair Value of Financial Instruments
The carrying value of cash, 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. 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. |
Derivative Financial Instruments
We account for conversion options embedded in convertible notes payable in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC’) 815, “Derivatives and Hedging”. Subtopic ASC 815-15, Embedded Derivatives generally requires companies to bifurcate conversion options embedded in the convertible notes from their host instruments and to account for them as free standingfree-standing derivative financial instruments. Derivative liabilities are recognized in the consolidated balance sheet at fair value as Derivative Liabilities and based on the criteria specified in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s own Equity. The estimated fair value of the derivative liabilities is calculated using various assumptions and such estimates are revalued at each balance sheet date, with changes recorded to other income or expense as Change in fair value of derivative liability in the condensed consolidated statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity, is evaluated at the instrument origination date and reviewed at the end of each event date (i.e. conversions, payments, etc.) and the measurement period end date for financial reporting, as applicable.
-9-
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
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.
Securities excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive:
| Nine Months Ended | Nine Months Ended | |||||||||||||||
| September 30, | September 30, | |||||||||||||||
| 2020 | 2019 | 2021 | 2020 | |||||||||||||
| Convertible notes and accrued interest | 274,444,313 | 55,661,577 | 107,858,931 | 274,444,313 | ||||||||||||
| Preferred Stock | 214,560,000 | 214,560,000 | 259,689,294 | 214,560,000 | ||||||||||||
| Stock options | 13,650,002 | 13,650,002 | 13,650,002 | 13,650,002 | ||||||||||||
| Warrants | 1,500,000 | 1,500,000 | 46,250,000 | 1,500,000 | ||||||||||||
| Potentially dilutive securities | 311,050,315 | 285,371,579 | 427,448,227 | 504,154,315 | ||||||||||||
Stock Based Compensation
In accordance with ASC 718, "Compensation“Compensation – Stock Compensation” the Company measures the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award.
The Company’s accounting policy for equity instruments issued to advisors, consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the advisor, consultant or vendor is reached or (ii) the date at which the advisor, consultant or vendor’s performance is complete. In the case of equity instruments issued to advisors and consultants, the fair value of the equity instrument is recognized over the term of the advisor or consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable.
-10-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.”
Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free standingfree-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. accounting standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
-10-
ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Convertible Securities
Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities. We will evaluate our contracts based upon the earliest issuance date. In the event partial reclassification of contracts subject to ASC 815-40-25 is necessary, due to our inability to demonstrate we have sufficient shares authorized and unissued, shares will be allocated on the basis of issuance date, with the earliest issuance date receiving first allocation of shares. If a reclassification of an instrument were required, it would result in the instrument issued latest being reclassified first.
Recent Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
Management is evaluating theother new accounting pronouncements but doesn’t expect them to have material impact on our financial position or results of operations.
-11-
GLOBAL DIGITAL SOLUTIONS, INC.Subsequent Events
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBERThe Company evaluates events that have occurred after the balance sheet date of September 30, 20202021, through the date which the financial statements were issued. Based upon the review, other than described in Note 12 – Subsequent Events, the Company did not identify any recognized or non-recognized subsequent events that would have required adjustment or disclosure in the financial statements.
(Unaudited)
NOTE 3 – ACCRUED EXPENSES
As of September 30, 2021, and December 31, 2020, accrued expenses consist of the following amounts:
| September 30, 2020 | December 31, 2019 | |||||||
| Accrued compensation to executive officers and employee | $ | 159,800 | $ | 262,984 | ||||
| Accrued professional fees and settlements | 196,664 | 196,665 | ||||||
| Accrued interest | 383,081 | 254,595 | ||||||
| $ | 739,544 | $ | 714,244 | |||||
Schedule of Accrued Expenses
| September 30, 2021 | December 31, 2020 | |||||||
| Accrued compensation to executive officers and employee | $ | 145,834 | $ | 142,315 | ||||
| Accrued professional fees and settlements | 65,672 | 259,119 | ||||||
| Accrued interest | 1,009,673 | 942,446 | ||||||
| Total | $ | 1,221,179 | $ | 1,343,880 | ||||
-11-
NOTE 4 – FAIR VALUE MEASUREMENTS
We had no Level 1 or Level 2 assets and liabilities at September 30, 2020,2021, and December 31, 2019.2020. The Derivative liabilities are Level 3 fair value measurements.
The following is a summary of activity of Level 3 liabilities during the periods ended September 30, 2021 and December 31, 2020:
September 30, 2021 | December 31, 2020 | |||||||
| Derivative liability: | ||||||||
| Balance at beginning of period | $ | 9,367,159 | $ | 1,158,008 | ||||
| Additions | 220,401 | 2,802,754 | ||||||
| Settlements | (1,026,046 | ) | (1,743,734 | ) | ||||
| Change in fair value | (6,439,186 | ) | 7,132,131 | |||||
| Balance at end of period | $ | 2,122,328 | $ | 9,367,159 | ||||
September 30, 2021 | December 31, 2020 | |||||||
| Warrant liability: | ||||||||
| Balance at beginning of period | $ | — | $ | — | ||||
| Additions | 2,398,000 | — | ||||||
| Change in fair value | (894,000 | ) | — | |||||
| Balance at end of period | $ | 1,504,000 | $ | — | ||||
Embedded Derivative Liabilities of Convertible Notes
At September 30, 2019,2021, the fair value of the bifurcated embedded derivative liabilities of convertible notes was estimated using a bi-nomial option model with the following inputs: the price of the Company’s common stock of $0.03; a risk-free interest rate of , the expected volatility of the Company’s common stock of ; and the estimated remaining term, a dividend rate of At December 31, 2020, the fair value of the bifurcated embedded derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate 0.11%-; term - 6 months;– months volatility –129.43%;– dividend rate –
-12-
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 5 – NOTE PAYABLE
During August 2017, Dragon Acquisitions, 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 to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. The lender has extended the maturity date to December 31, 2021. Dragon Acquisitions assumed payment of a payable of the Company and the Company took on the note. The Company defaulted on the note at maturity in August 2018. The $20,000 note remained outstanding at September 30, 2021 and December 31, 2020 through the date of this report.
On December 22, 2017, the Company entered into a financing agreement with Parabellum, an accredited investor, for $1.2 million, which was then amended in 2020 and increased to $2,550,000. Under the terms of the agreement, the Company is to receive milestone payments based on the progress of the Company’s lawsuit (Note(see Note 6) 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. As of December 31, 2019 $1,850,000 was outstanding, as of September 30, ,2021 and December 31, 2020, and through the date of this report, the $2,550,000 note remains outstanding.
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During August 2017, Dragon Acquisitions, 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 to accrue through maturity on August 31, 2018 for a totalTable of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the note. The Company defaulted on the note at maturity in August 2018. The $20,000 note remained outstanding at September 30,2020, and through the date of this report.Contents
On December 23, 2017 (the “effective date”“Effective Date”), the Company entered into a $485,000, 7% interest rate, demand promissory note with Vox Business Trust, LLC (Vox)(“Vox”). The note was in settlement of the amounts accrued under a consulting agreement (Note(see Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to Vox when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, Vox may not demand payment prior to the date of the Resolution Funding Date.
The Company shall make mandatory prepayment in the following amounts and at the following times –
| ● | $1,000 on the |
| ● | $50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss. |
| ● | $50,000 on the date on which discovery closes with respect to the lawsuit. |
| ● | $100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims. |
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 5 – NOTE PAYABLE (CONTINUED)
Under the terms of the Vox note consulting agreement (Note(see Note 6), any unpaid consulting fees subsequent to December 2017 causes a default on the note with unpaid consulting fees to be added to the principal of the note. During the nine -monththree and nine-month period ended September 30, 2020,2021, consulting fees totaling $30,000 and $90,000 were added to the note principal and are included in the note balance of $776,500,$896,500, as of September 30, 2020,2021, and $686,500$806,500 as of December 31, 2019.2020. Through the date of this report, monthly consulting fees have not been repaid and continue to be added to the principal balance of the note. The note remains in default howeverdefault. However, Vox has voluntarily refrained from making demand prior to the Resolution Funding Date.resolution funding date.
On December 26, 2017 (the “effective date”“Effective Date”), the Company entered into a $485,000, 7% interest rate, demand promissory note with RLT Consulting, Inc. (RLT)(“RLT”), a related party. The note was in settlement of the amounts accrued under a consulting agreement (Note(see Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to RLT when the Resolution Progress Fundingresolution progress funding was met on December 22, 2017. As part of the agreement, RLT may not demand payment prior to the date of the Resolution Funding Date.resolution funding date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Dateresolution progress funding date and 10,000,000 shares within 90 days of the Resolution Funding Date.resolution funding date. The 5,000,000 shares were issued on March 13, 2018. The Company shall make mandatory prepayment in the following amounts and at the following times –
| ● | $1,000 on the |
| ● | $50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss. |
| ● | $50,000 on the date on which discovery closes with respect to the lawsuit. |
| ● | $100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims. |
Under the terms of the RLT note consulting agreement (Note(see Note 6), any unpaid consulting fees subsequent to December 2017 causes a default on the note with unpaid consulting fees to be added to the principal of the note. During the nine -monththree and nine-month period ended September 30, 2020,2021, consulting fees totaling $30,000 and $90,000, respectively, were added to the note principal and are included in the note balance of $769,500$889,500 as of September 30,202030, 2021 and $679,500$799,500 as of December 31, 2019.2020.
Through the date of this report, monthly consulting fees have not been repaid and continue to be added to the principal balance of the note. The note remains in default howeverdefault. However, RLT has voluntarily refrained from making demand prior to the Resolution Funding Date.resolution funding date. RLT was granted a first priority security interest in the Litigation Proceedslitigation proceeds and is pari passu to Parabellum and Vox. To that end, they share in the litigation in a priority position to proceed to repay the note.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 5 – NOTE PAYABLE (CONTINUED)
During April 2018, the Company entered into a two-month $36,000 note payable with $31,000 in proceeds paid directly to a third-party vendor for expenses. The note did not bear interest and included a $5,000 original issue discount. During June 2018, the Company defaulted on the note. The lender has extended the maturity date to December 31, 2021. The Company paid $25,000 in April 2021. As of December 31,2019, and31, 2020 an September 30, 2020,2021 and through the date of this report, the note remained outstanding.
During May 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 the $200,000 proceeds plus 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. The lender has extended the maturity date to December 31, 2021. 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. As of September 30, 2021 and December 31, 2020, and September 30,2020, and through the date of this report, the $200,000 principal and $20,000 Investment Return remained outstanding.
During June 2018, the Company entered in to a one-year $300,000 non-convertible note with an accredited investor with $150,000 original issue discount (“OID”) 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, exercisable for a period of three (3) years. The Company defaulted on the note at maturity in June 2019 and the note remained outstanding through the date of this report.2019. The note contains a default interest rate of 10% plus a 5% penalty of the outstanding balance of the note. The note holder has voluntarily refrained from making demand for repayment under the default provisions of the note, which would require the Company to pay the holder 130% of the outstanding principal and interest accrued at the default rate. AsThe remaining principal and accrued interest of As of September 30, 2020, and December 31, 2019, and through the date of this report, $100,000 principal remained outstanding.note was paid in full on March 10, 2021.
The June 2018 note bears a personal guarantee by William Delgado, the Chief Executive Officer of the Company. As further security for the note, Mr. Delgado has also pledged the 1,000,000 Convertible Preferred Shares of the Company that he owns, as well as 5,000,000 common shares of SHMP, another public company in which Mr. Delgado is a director and Chief Financial Officer.
On May 12, 2020, the Company obtained a Paycheck Protection Program (“PPP”) loan in the amount of $103,125 pursuant to the Coronavirus Aid, Relief, and Economic Security Act (the “CARES Act”). Interest on the loan is at the rate of 1% per year, and all loan payments are deferred until December 12, 2020, at which time the balance is payable in $5,805 monthly installments through May 12, 2022, if not forgiven in accordance with the CARES Act and the terms of the promissory note executed by the Company in connection with the loan. The promissory note contains events of default and other provisions customary for a loan of this type. As required, the Company used the PPP loan proceeds for payroll, healthcare benefits, and utilities. The program provided that the use of PPP Loan amount shall be limited to certain qualifying expenses and may be partially or wholly forgiven in accordance with the requirements set forth in the CARES Act.
Convertible Notes Payable
On June 7, 2021, the Company and BBVA USAGeneva Roth Remark Holdings, Inc., entered into a 1% SBA PPP,security purchase agreement (“SPA”) for an 8% promissory note in the aggregate principal of $251,625, with a maturity date of June 7, 2022. The note included a original issuance discount (“OID”) of $22,875, for a purchase price of $228,750. The interest was applied as a one time interest charge upon the issuance date, in the amount of $20,130, recognized in accrued interest. The month payments will include the outstanding principal and accrued interest, in 10 monthly payments of $27,175, with the first payment on July 30, 2021. Upon an event of default, as set forth in the agreement, the holder shall have the right to convert the outstanding balance of the note into shares of common stock of the Company, with a conversion rate based on 75% of the lowest trading price of the common stock for the 5 trading days prior to the conversion date. In addition, upon default, the interest increases to 22%, and any outstanding principal and accrued interest shall be increased by 150%. The Company is required at have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note, which was initially 29,494,505 shares. While the note is still outstanding the Company shall not, without written consent of the holder, issue any variable convertible instruments with a convertible price that varies with the market price of the Company’s common stock, nor shall the Company without the holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business.
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In connection with the note, the Company issued 2,096,875 warrants, exercisable each at $0.03, with a 3-year term. The warrants and the OID resulted in a debt discount of $105,875, which will be amortized using the effective interest method over the life of the note. The warrants were evaluated to be classified as a liability, as based on the various convertible notes outstanding with variable conversion rates it cannot be determined if there are sufficient authorized shares available during the contract period. The Company estimated the fair value of the warrant using the Black Scholes pricing model. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.03 at issuance date, a risk-free interest rate of 0.79% and expected volatility of the Company’s common stock of 143,5%, resulting in a fair value of $83,000. As of September 30, 2021, and through the date of this report, the principal balance of $197,274.00 is outstanding.
On March 25, 2021, the Company and GS Capital Partners LLC entered into a security purchase agreement for a Prime rate plus 8% Convertible Note in the aggregate principal of $2,285,714. The note shall be paid in one or more tranches. The maturity for each tranche shall be twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price shall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the lesser of (i) the fixed conversion price; (ii) or 70% of the lowest intraday price during the 21 days preceding the conversion request. On April 1, 2021, the Company received the first tranche of $1,000,000. Upon the receipt of the first tranche, the Company issued 20,000,000 warrants, exercisable at $0.10, with a 10-year term and contain full-ratchet anti-dilution protection provisions, with a fair value of $917,000. The Company also issued 4,000,000 shares of common stock as commitment shares to the noteholder, with a fair value of $184,000. On May 24, 2021, the Company received the second tranche from GS Capital Partners LLC, for $796,000’ less an OID of $99,500. On July 21, 2021 the Company received the balance of the second tranche for $346,857 less an OID of $48,357. As of September 30, 2021, and through the date of this report, the principal balance of the two tranches totaling $2,285,714 is outstanding.
On January 15, 2021, the Company and Power Up Lending Group entered into a securities purchase agreement for a 10% convertible note in the aggregate principal of $88,500 due on January 15, 2022. The conversion price is equal to the variable conversion price which is defined as 61% of the market price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the conversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note becomes convertible. On July 13, 2021, the Company paid off the note, plus accrued interest and redemption fees, for a total payment of $130,078.
On February 25, 2021, the Company and Leonite Capital LLC entered into a securities purchase agreement for a prime rate plus 8% convertible note in the aggregate principal of $2,285,714. The note shall be paid in one or more tranches. The maturity for each tranche shall be twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price shall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the lesser of (i) the fixed conversion price; (ii) or 70% of the lowest intraday price during the 21 days preceding the conversion request.
On March 1, 2021, the Company received the first tranche of $1,000,000. In connection with the first tranche, the Company issued 10,000,000 warrants, exercisable at $0.10, with a 10-year term and contain full-ratchet anti-dilution protection provisions, with a fair value of $507,000. The Company also issued 4,000,000 shares of common stock as commitment shares to the noteholder, with a fair value of $204,000. The warrants and the commitment shares resulted in a debt discount of $1,000,000, which will be amortized using the effective interest method over the life of the convertible note, and the excess of $101,000 recognized as interest expense at issuance. The warrants were evaluated to be classified as a liability, as based on the various convertible notes outstanding with variable conversion rates it cannot be determined if there are sufficient authorized shares available during the contract period. As of September 30, 2021, and through the date of this report, the principal balance totaling $1,142,875 is outstanding. The note is due on February 25, 2022.
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On April 7, 2020, the Company and Auctus Fund, LLC entered into a securities purchase agreement for a 12% convertible promissory in the aggregate principal of $197,000 due on February 7, 2021. The noteholder agreed to an extension of the maturity date to May 31, 2021 for a settlement amount of $344,548, including interest. The note is convertible into shares of the Company’s common stock. The conversion price shall equal the lessor of (i) Current Market Price, or (ii) Variable Market price as defined as Market Price less a 50% discount price. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. As of September 30, 2021, and through the date of this report, the principal and interest balance totaling $232,460 is outstanding. The Company has a verbal agreement with Auctus to extend the maturity of the note.
On May 20, 2020, the Company and GS Capital Partners, LLC entered into a 10% convertible note in the aggregate principal of $165,000 due on February 20, 2021. The note can be converted into shares of common stock of the Company at any time after the issue date, at a price of $0.01 per share. During the first three months ended June 30, 2021, the noteholder converted $50,000 of principal plus accrued interest into 5,368,493 shares of common stock. The remaining principal and accrued interest of the note was paid in full on March 10, 2021.
On June 29, 2020, the Company and Power Up Lending Group entered into a securities purchase agreement for a 10% Convertible Promissory Note in the aggregate principal of $103,125.$53,000 due on June 29, 2021. The note can be converted (180) days following the date of the note. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. On January 15, 2021 the Company, paid off the convertible note payable.
On August 5, 2020, the Company and Adar Alef, LLC entered into a security agreement for an 8% convertible note in the aggregate principal of $150,000 due August 5, 2021. The note is payable in convertible into shares of the Company’s common stock at any time after the 9th monthly paymentsanniversary of $5,805 beginning on December 12, 2020,the issuance date. The “Conversion Price” shall mean 55% multiplied by the Market Price (as defined herein), representing a discount rate of 45%. “Market Price” means the lowest traded price for the common stock during the twenty (20) trading day period ending on the latest complete trading day prior to the conversion date. The Company is required to maintain a common share reserve of 62,337,000 shares. On May 12, 2022.6, 2021, the convertible note and accrued interest, with a redemption fee for a total of $238,950, was paid off by the CEO of the Company.
For other obligations, please seeOn August 17, 2020, the Form 10KCompany and Harbor Gates Capital, LLC entered into a securities agreement for a 10% Convertible Note in the aggregate principal of $165,000 due August 17, 2021. The note carries original issue discount or $15,000. The note can be converted (180) days following the issuance date of the note. The conversion price is equal to the Variable Conversion price which is defined as 60% of the Market Price for the yearlowest two trading dates during a fifteen-day trading period ending December 31, 2019,filedon the latest complete trading date prior to the Conversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. The Note and accrued interest totaling $272,250.00 paid by the Company on May 28,2021
On August 25, 2020, the Company and Power Up Lending Group entered into a securities purchase agreement for a 10% Convertible Note in the aggregate principal of $103,000 due on August 25, 2021. The note can be converted (180) days following the date of the note. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. On February 25, 2021, the Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $151,000, based on weighted probabilities of assumptions. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.06 at issuance date; a risk-free interest rate of 0.06% and expected volatility of the Company’s common stock, of 162.43%, and the various estimated reset exercise prices weighted by probability. This plus the fair value of the warrants resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $48,000 was immediately expensed as interest expense. On February 24, 2021 the convertible note and accrued interest, with a redemption fee for a total of $151,311, was paid off by the Securities and Exchange Commission on April 29, 2020.
CEO of the Company.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30,On October 6, 2020,
(Unaudited)
NOTE 5 – NOTE PAYABLE (CONTINUED)
the Company and Power Up Lending Group entered into a securities purchase agreement for a 10% Convertible Note Payablein the aggregate principal of $75,000 due on August 25, 2021. The note can be converted (180) days following the date of the note. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. On March 6, 2021, the Company estimated the fair value of the conversion feature derivative embedded in the debenture at issuance at $81,198, based on weighted probabilities of assumptions. The key valuation assumptions used consist, in part, of the price of the Company’s common stock of $0.04 at issuance date; a risk-free interest rate of 0.07% and expected volatility of the Company’s common stock, of 171.53%, and the various estimated reset exercise prices weighted by probability. This resulted in the calculated fair value of the debt discount being greater than the face amount of the debt, and the excess amount of $6,198 was immediately expensed as interest expense. On April 9, 2021, the convertible note and accrued interest, with a redemption fee, for a total of $110,120, was paid off by the Company on April 9, 2021.
On May 10, 2019, the Company and GHS Investments LLC entered into a securities agreement for a 10% Convertible Note in the aggregate principal of $335,000 due on February 10, 2020. The note carries original issue discount or $35,000. The note is convertible into shares of common stock of the Company. The “Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein), representing a discount rate of 40%. “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Company is required to maintain a common share reserve of not less than three times the number of shares that is actually issuable upon full conversion of the note. The purchaser will also receive warrants to purchase 5,000,000 shares of GDSI common stock at $.01/share. Warrants will have a three-year term to exercise. The Convertible Note is personally guaranteed by William Delgado, CEO. The conversion feature meets the definition of a derivative and therefore requires bifurcation and was accounted for as a derivative liability on the date the note became convertible. As of September 30, 2021, and December 31, 2020, and through the date of this report, the principal balance totaling $833,760 including approximately an additional $225,000 added to principal for an open-ended extension of the due date of the note, is outstanding. In relation to the extension, the Company is required to issue 1,000,000 warrants each month, and pay $25,000 per month. As of September 30, 2021 the Company has issued 21,000,000 warrants, with a fair value of $891,000 at issuance, with are classified in warrant liability.
During January 2015, the Company entered into a one-year $78,750 convertible note payable with LG Capital Funding (LG). The note bears interest at 8% per annum and is convertible at any time at the option of LG 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. 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. The note requires the Company to reserve four times the potential number of shares of common stock issuable upon conversion, or 54,926,55218,866,092 shares and 157,874,360 shares at September 30, 2020,2021, and December 31, 2019,2020, respectively. The Company defaulted on the note in January 2016. Additionally, as a result of declines in the fair value of the Company’s common stock, from time to time the Company did not have sufficient authorized shares to maintain this required four times share reserve. Accordingly, the note holder had the right to accelerate the repayment of the note and unpaid interest. In addition, LG has the right to require that additional shares and/or monies be paid in connection with the defaults. During December 2017, in settlement of default, the Company and LG entered into a Convertible Note Redemption Agreement under which the Company was to repay $68,110, $39,921 in unpaid principal outstanding at December 31, 2017, and $28,189 in accrued interest, in five payments through April 2018. Through April 2018, the Company repaid $6,500 of principal under the Convertible Note Redemption Agreement. The Company defaulted on the Convertible Note Redemption Agreement in April 2018 and the $28,189 in accrued interest was converted to principal. As of September 30, 2020,2021, and December 31, 2019,2020, and through the date of this report, the principal balance totaling $48,610 is outstanding and remains in default.
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During January 2015, the Company entered into a two-year convertible note payable for up to $250,000 with JMJ Financial (JMJ), of which $110,000 was funded between January and April 2015. The note was issued with an original issue discount of 10% of amounts funded, had a one-time 12% interest charge as it was not repaid within 90 days of the funding 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 trading price in the 25 trading days prior to conversion. 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. The note requires the Company to reserve 26,650,000 shares of common stock. JMJ had the option to finance additional amounts up to the balance of the $250,000 during the term of the note. The Company defaulted on the note during January 2017. During December 2017, in settlement of default, the Company and JMJ entered into a Repayment Agreement under which the Company was to repay $84,514, $69,070 in unpaid principal outstanding at December 31, 2017, and $15,444 in accrued interest, in four payments through May 2018. Through May 2018, the Company repaid $25,000 of principal under the Repayment Agreement. The Company defaulted on the Repayment Agreement in May 2018 and the $15,444 in accrued interest was converted to principal. As of September 30, 2020,2021, and December 31, 2019,2020, and through the date of this report, the principal balance totaling $59,514 is outstanding and remains in default.
On April 7, 2020, the Company and Actus Fund, LLC entered into a security purchase agreement for a 12% Convertible promissory in the aggregate principal of $197,000 due on February 7, 2021. The note is convertible into shares of The Company’s common stock. The conversion price shall equal the lessor of (i) Current Market Price, or (ii) Variable Market price as defined as Market Price less a 50% discount price. As of September 30, 2020, and through the date of this report, the principal balance totaling $197,000 is outstanding.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 5 – NOTE PAYABLE (CONTINUED)
On May 20, 2020, the Company and GS Capital Partners, LLC entered into a 10% Convertible Note in the aggregate principal of $165,000 due on February 20, 2021. The note can be converted into shares of common stock of the Company. at any time after the issue date, at a price of $0.01 per share. As of September 30, 2020, and through the date of this report, the principal balance totaling $165,000 is outstanding.
On April 3, 2020, the Company and First Fire Global Opportunity Fund LLC, entered into a security purchase agreement for a 8% Senior Convertible Promissory Note in the aggregate principal of $100,000 due on April 3, 2021. The note is convertible into shares of common stock of the Company. The note can be converted at any time after the issue date. The conversion price shall be equal to the lower of the Fixed Conversion of $0.01per share or the Alternative Conversion Price which is defined as 60% of the Market Price for the lowest trading date during a twenty-day trading period ending on the latest complete trading date prior to the Conversion date. The outstanding principal balance and interest were paid off on October 29, 2020.
On April 15, 2020, the Company and Platinum Point Capital entered into a security purchase agreement for a 10% Convertible Note in the aggregate principal of $$82,500 due on April 15, 2021. The note is convertible into shares of common stock of the Company. The note can be converted at any time after the issue date. The conversion price is equal to the Variable Conversion price which is defined as 60% of the Market Price for the lowest trading date during twenty-day trading period ending on the latest complete trading date prior to the Conversion date. The outstanding principal balance and interest were paid off on October 19, 2020.
On August 25, 2020, the Company and Power Up Lending Group entered into a security purchase agreement for a 10% Convertible Note in the aggregate principal of $103,000 due on August 25, 2021. The note is convertible into shares of common stock of the Company. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. As of September 30, 2020, the issuance date of these financial statements, the note remains outstanding.
On April 6, 2020, the Company and Power Up Lending Group entered into a security purchase agreement for a 10% Convertible Promissory Note in the aggregate principal of $53,000 due on April 6, 2021. The note is convertible into shares of common stock of the Company. The note can be converted (180) days following the date of the note. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. As of September 30, 2020, and through the date of this report, the principal balance totaling $53,000 is outstanding.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 5 – NOTE PAYABLE (CONTINUED)
On June 29, 2020, the Company and Power Up Lending Group entered into a security purchase agreement for a 10% Convertible Promissory Note in the aggregate principal of $53,000 due on June 29, 2021. The note is convertible into shares of common stock of the Company. The note can be converted (180) days following the date of the note. The conversion price is equal to the Variable Conversion price which is defined as 61% of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. As of September 30, 2020, and through the date of this report, the principal balance totaling $53,000 is outstanding.
On May 10, 2019, the Company and GHS Investments LLC entered into a security agreement for a 10% Convertible Note in the aggregate principal of $335,000 due on February 10, 2020. The note carries original issue discount or $35,000. The note is convertible into shares of common stock of the Company. The “Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein), representing a discount rate of 40%. “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Company is required to maintain a common share reserve of not less than three times the number of shares that is actually issuable upon full conversion of the note. The purchaser will also receive warrants to purchase 5,000,000 shares of GDSI common stock at $.01/share. Warrants will have a three-year term to exercise. The Convertible Note is personally guaranteed by William Delgado, CEO. As of September 30, 2020, and December 31,2019, and through the date of this report, the principal balance totaling $304,748.00 is outstanding.
On August 5, 2020, the Company and ADAR, ALEF, LLC entered into a security agreement for a 8% Convertible Note in the aggregate principal of $150,000 due August 5, 2021. The note is convertible into shares of the Company’s common stock at any time after the 9th monthly anniversary of the issuance date. The “Conversion Price” shall mean 55% multiplied by the Market Price (as defined herein), representing a discount rate of 40%. “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Company is required to maintain a common share reserve of 62,337,000 shares. As of September 30, 2020, and through the date of this report, the principal balance totaling $150,000 is outstanding.
On August 17, 2020, the Company and Harbor Gates Capital, LLC entered into a security agreement for a 10% Convertible Note in the aggregate principal of $165,000 due August 17, 2021. The note carries original issue discount or $15,000The note is convertible into shares of the Company’s common stock at any time to convert in whole or in part the outstanding Principal amount. The “Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein), representing a discount rate of 40%. “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. As of September 30, 2020, and through the date of this report, the principal balance totaling $165,000 is outstanding.
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GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
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:
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 for alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert for alleged further violations of the certification provisions of the federal securities laws.
On October 12, 2016, Defendant GDSI filed its First Answer to the Complaint. On November 9, 2016, Defendant Sullivan filed a Letter with the Court denying all allegations regarding the case. On December 15, 2016, the SEC filed a Motion for Judgment and Notice of Filing of Consent of Defendant Loppert to entry of Final Judgment by the SEC. On December 19, 2016, the Court entered an order granting the SEC’s Motion for Judgment as to Defendant Loppert. On December 21, 2016, the SEC filed a Notice of Settlement as entered into by it and Defendants GDSI and Sullivan. On December 23, 2016, the Court entered an Order staying the case and directing the Clerk of the Court to close the case for statistical purposes per the December 21, 2016 Notice of Settlement. On March 7, 2017, the SEC moved for a Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant GDSI to Entry of Judgment by the SEC. On March 13, 2017, the Judge signed the Judgment as to Defendant GDSI and it was entered on the Court’s docket. On April 6, 2017, the SEC moved for a final Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge signed the final Judgment as to Defendant Sullivan and it was entered on the Court’s docket. On December 21, 2017, the SEC moved for a final Judgment and Notice of Filing Consent of Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the Judge signed the Final Judgment as to Defendant GDSI and it was entered on the Court’s docket. The amount of the judgement is One Hundred Thousand Dollars ($100,000.00) plus interest, which is included in accrued expenses in the accompanying consolidated balance sheet.
Adrian Lopez, Derivatively and on behalf of Global Digital Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F. Noterman, and Stephen L. Norris, United States District Court for the District of New Jersey, Case No. 3:17-cv-03468-PGS-LHG
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
On September 19, 2016, Adrian Lopez, derivatively, and on behalf of Global Digital Solutions, Inc., filed an action in New Jersey Superior Court sitting in 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 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. Jurisdictional discovery was ordered. On October 12, 2018, the Court granted Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction On October 15, 2018, an Order was entered denying without prejudice Plaintiff’s Motion to Consolidate.
On July 1, 2020, The Company’s counsel filed its opposition to the previously mentioned motions. On October 29, 2020, the court issued its rulings on the aforementioned motions. The court denied defendants motion to set aside the default judgement and granted the motion for hearing on damages with limitations, scheduling said hearing for November 17, 2020. On November 11, 2020, the defendants filed a motion for continuance. On November 12, 2020, the company’s counsel filed it’s opposition to said motion. On November 16, 2020, the court granted the motion with limitations, scheduling hearing for December 2, 2020.
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.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Consulting agreements
The Company entered into two consulting agreements (See(see Note 5) in May 2016, for services to be provided in connection towards the resolution of the Rontan lawsuit (below). The consulting agreements includes a monthly retainer payment of$10,000of $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 favor of the Company by Rotan),at the Resolution Funding date. The Resolution Progress funding was met on December 22, 2017.
On March 1, 2019, the Company entered into a consulting agreement with the former owner of HarmAlarm. The agreement commenced on March 1, 2019 and shall continue for a period of thirty-six (36) months. The agreement may only be terminated by either incapacitation or death of consultant or for cause with ten (10) days written notice. During the term of the agreement consultant will be paid at a rate of $5,000 per month.
On March 1, 2019, the Company entered into a consulting agreement with a former key employee of HarmAlarm. The agreement commenced on March 1, 2019 and shall continue for a period of thirty-six (36) months. The agreement may only be terminated by either incapacitation or death of consultant or for cause with ten (10) days written notice. During the term of the agreement consultant will be paid an hourly rate of $50.00 per hour.
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.
The purchase price shall consist of a cash amount, a stock amount and an earn-out amount as follows: (i) Brazilian Real (“R”) $100 million (approximately US$26 million) to be paid by the Purchaser in equal monthly installments over a period of forty eight (48) months following the closing date; (ii) an aggregate of R$100 million (approximately US$26 million) in shares of the Purchaser’s common stock, valued at US$1.00 per share; and (iii) an earn-out payable within ten business days following receipt by the Purchaser of Rontan’s audited financial statements for the 12-months endedDecember31, December 31, 2017, 2018 and 2019. The earn-out shall be equal to the product of (i) Rontan’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the last 12 months, and (ii) twenty percent and is contingent upon Rontan’s EBITDA results for any earn-out period being at least 125% of Rontan’s EBITDA for the 12-months ended December 31, 2015. It is the intention of the parties that the stock amount will be used by Rontan to repay institutional debt outstanding as of the closing date.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Under the terms of a Finders Fees Agreement dated April 14, 2014, we have agreed to pay RLT Consulting Inc., a related party, a fee of 2% (two percent) of the Transaction Value, as defined in the agreement, of Rontan upon closing. The fee is payable one-half in cash and one-half in shares of our common stock.
Specific conditions to closing consist of:
| a) | Purchaser’s receipt of written limited assurance of an unqualified opinion with respect to Rontan’s audited financial statements for the years ended December 31 2013 and 2014 (the “Opinion”); |
| b) | The commitment of sufficient investment by General American Capital Partners LLC (the “Institutional Investor”), in the Purchaser following receipt of the Opinion; |
| c) | The accuracy of each Parties’ representations and warranties contained in the SPSA; |
| d) | The continued operation of Rontan’s business in the ordinary course; |
| e) | The maintenance of all of Rontan’s bank credit lines in the maximum amount of R$200 million (approximately US$52 million) under the same terms and conditions originally agreed with any such financial institutions, and the maintenance of all other types of funding arrangements. As of the date of the SPSA, Rontan’s financial institution debt consists of not more than R$200 million (approximately US$52 million), trade debt of not more than R$50 million (approximately US$13 million) and other fiscal contingencies of not more that R$95 million (approximately US$24.7 million); |
| f) | Rontan shall enter into employment or consulting service agreements with key employees and advisors identified by the Purchaser, including Rontan’s Chief Executive Officer; and |
| g) | The Sellers continued guarantee of Rontan’s bank debt for a period of 90 days following issuance of the Opinion, among other items. |
The Institutional Investor has committed to invest sufficient capital to facilitate the transaction, subject to receipt of the Opinion, as well as the ability to acquire 100% of the outstanding stock of Rontan at a price of $200 million BR, and the Company can acquire 100% of all real estate held by Rontan.
Subject to satisfaction or waiver of the conditions precedent provided for in the SPSA, the closing date of the transaction shall take place within 10 business days from the date of issuance of the Opinion.
Rontan is engaged in the manufacture and distribution of specialty vehicles and acoustic/visual signaling equipment for the industrial and automotive markets.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 6 – COMMITMENTS AND CONTINGENCIES (CONTINUED)
Subsequent to December 31, 2015, on April 1, 2016, we believed that we 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 our intention to close the SPSA and demanded delivery of the Rontan Securities. The Sellers, however, notified us that they intend to terminate the SPSA. We 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, we announced that we 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, we further allege 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.
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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.
On or about January 31, 2019, Defendants filed a Motion to Dismiss for Failure to State a Claim for failure to fulfill conditions precedent in the consummation of the contract in question. Defendants filed a Motion to Dismiss challenging jurisdiction, venue, and forum nonconvenes. On or about May 21, 2019, the Court denied their motions to dismiss for lack of personal jurisdiction, improper venue and forum nonconvenes. The court granted their Motion to Dismiss for Failure to State a Claim for failure to fulfill conditions precedent in the consummation of the contract in question but, granted leave to amend. On or about June 7, 2019, counsel filed an amended complaint. On or about June 21, 2019, defendants answered the amended complaint. The litigation moved from the pleading stage to discovery. The Company and Rontan/Bolzans entered into court order mediation on November 7, 2019. (i) Motion to set aside Default Judgement (ii) Motion for hearing on damages. On February 3, 2020, the U.S. District Court awarded the Company Specific Performance (Acquisition of the Plant in Tauti, Brazil) and incidental damages of approximately $192,000,000. On August 16, 2021, the court awarded the Company an additional $2,086,233 in legal fees and costs. The defendants have filed an intent to appeal the awards, but as of this date have not submitted any filings or briefs.
Burr Foreman, the company’s counsel on the previously dismissed case regarding NACSV, has filed a lawsuit for fees in the past due amount of $113,503. The Company has not been served with the lawsuit but intends to answer the complaint when served.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
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 as of September 30, 2020 and December 31, 2019, 1,000,000 shares of preferred stock were outstanding.
On August 15, 2016, William J. Delgado, our current Chief Executive Officer, agreed to convert $231,565 of indebtedness owed to him by the Company into 1,000,000 shares of convertible preferred stock (the “Preferred Stock”). The Preferred Stock has voting rights as to one (1) preferred share to four hundred (400) shares of the common stock of the Company. The Preferred Stock is convertible into common stock at any time after issuance into 37% of the outstanding common stock of the Company at the time of the conversion. The conversion to common can only take place when there are an adequate number of shares that are available and is subject to normal stock adjustments (i.e. stock splits etc.) that are executed by the Company in its normal course of business.
Common Stock
We are authorized to issue 2,000,000,000 shares of common stock, $0.001 par value per share.as of September 30, 2020, and December 31, 2019, 667,788,264 shares and 643,121,923 shares were issued, outstanding, or vested but unissued under stock compensation plans, respectively.
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.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 7 – STOCKHOLDERS’ EQUITY (CONTINUED)
Awards Issued Under Stock Incentive Plans
Stock Option Activity
As of September 30, 2020,2021, and December 31, 2019,2020, we have outstanding stock options - all of which are fully vested stock options that were granted to directors, officers 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, for an average exercise price per share of $0.60 and an average remaining term of 5.2 as of SeptemberJune 30, 2020.2021.
During the nine-monththree and six-month period ended September 30, 2020,2021, and the year ended December 31, 20192020, we did not recognize any stock-based compensation cost related to the outstanding stock options. The intrinsic value of options outstanding as of September 30, 2020,September30, 2021, and December 31, 20192020 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.
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Restricted Stock Units
On October 10, 2014, we granted an employee 1 million RSU’s convertible into 1 million shares of the Company’s common stock, with a grant date fair market value of $100,000. The grant was made under our 2014 Equity Incentive Plan. 333,333 RSU’s will vest in respect of each calendar year (commencing January 1 and ending December 31) of the Company from 2015 through 2017 if the Company has achieved at least 90% of the total revenue and EBITDA midpoint targets set forth in the agreement. If less than 90% of the target is achieved in respect of any such fiscal year, then the number of RSU’s vesting for that fiscal year shall be 333,333 times the applicable percentage set forth in the agreement; provided that, if the companyCompany shall exceed 100% of the revenue and EBITDA midpoint +-target for the 2018 or 2017 calendar year, and shall have failed to reach 90% of the target for a prior calendar year, the excess over 100% shall be applied to reduce the deficiency in the prior year(s), and an additional number of RSU’s shall vest to reflect the increased revenue for such prior calendar year. Any such excess shall be applied first to reduce any deficiency for the 2015 calendar year and then for the 2016 calendar year. The vesting of the RSU’s shall be effective upon the issuance of the audited financial statements of the Company for the applicable calendar year and shall be based upon the total revenue and EBITDA of the acquired companies as reflected in such financial statements.
The aggregate intrinsic value of the restricted stock grant was $0 as of September 30, 2020,2021, and December 31, 2019.2020.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 8 – INCOME TAXES
As of September 30, 2020, the Company had $15,813,611 of federal net operating loss carry forwards. The Net Operating loss carry forward, if not used, will begin to expire in 2028. Current or future ownership changes, including issuances of common stock under the terms of the Company’s convertible notes payable that were entered into during 2015 and the closing of the Rontan Transaction may severely limit the future realization of these net operating losses.
The Company provides for a valuation allowance when it is more likely than not that they will not realize a portion of the deferred tax assets. The Company has established a valuation allowance against their net deferred tax asset due to the uncertainty that enough taxable income will be generated in those taxing jurisdictions to utilize the assets. Therefore, they have not reflected any benefit of such deferred tax assets in the accompanying financial statements. The Company’s net deferred tax asset and valuation allowance increased by approximately $ 626,553 for the quarter ended September 30, 2020, related to the current period activity.
The Company has reviewed all income tax positions taken or that are expected to be taken for all open years and determined that their income tax positions are appropriately stated and supported for all open years. The Company is subject to U.S. federal income tax examinations by tax authorities for years after 2011 due to unexpired net operating loss carryforwards originating in and subsequent to that year. The Company may be subject to income tax examinations for the various taxing authorities which vary by jurisdiction.
The Company’s policy is to record interest and penalties associated with unrecognized tax benefits as additional income taxes in the consolidated statements of operations. As of September 30, 2020.operations..
The Company files income tax returns in the U.S. federal jurisdiction and the various states in which they operate. The former members of NACSV are required to file separate federal and state tax returns for NACSV for the periods prior to our acquisition of NACSV. The Company files consolidated tax returns for subsequent periods. The Company has not filed their U.S. federal and certain state tax returns since 2014 and currently do not have any examinations ongoing. Tax returns for the years 2012 onwards are subject to federal, state or local examinations.
NOTE 9 – RELATED PARTY TRANSACTIONS
Due to Officer
The Due to Officer is due on demand, does not bear or accrue interest and is unsecured. On February 24, 2021, the CEO, William J. Delgado, paid off a convertible note, plus accrued interest and redemption fees (see Note 5), for a total payment of $151,211. On May 12, 2021, he paid off a convertible note plus accrued interest and redemption fees, for a total payment of $238,950,
The balance owing to the Officer in the amount of $643,553, was paid off during the three months ended September 30, 2021. The amount owing for Due to officer was $253,291, as of December 31, 2020.
During the three months ended June 30, 2021, the Company paid the CEO a bonus compensation of approximately $820,000, which is recognized in Selling, general and administrative expenses in the accompanying Consolidated Statement of Operations. The amount owing for Due to officer was $0, as of September 30, 2021.
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS
Due from Related Party
During the year ended December 31, 2020, the Company advanced Eco-Growth Strategies, Inc., a related entity, $70,710 to officerscover administrative costs. During the three and six month period ended June 30, 2021, Eco-Growth Strategies, Inc. repaid the advance from December 31, 2020 and the additional $270,000 that the Company advanced. During the three month period ended September 30th, 2021 the Company advanced an additional $ $137,681 for administrative costs
.Accrued Compensation
As of September 30, 2020,2021, and December 31, 2019,2020, we had $84,466$60,000 and $192,646$64,481 payable to William J. Delgado and $75,334$85,834 and $70,334$77,834 payable to Jerome Gomolski, respectively. Accrued compensation is included in Accrued expenses.
| William | Jerome | |||||||||||||
| Total | Delgado | Gomolski | ||||||||||||
| Balance December 31, 2019 | $ | 262,980 | $ | 192,646 | $ | 70,334 | ||||||||
| 2020 Salary | 225,000 | 180,000 | 45,000 | |||||||||||
| Payments | (328,180 | ) | (288,180 | (40,000 | ||||||||||
| Balance September 30, 2020 | $ | 159,800 | $ | 84,466 | $ | 75,334 | ||||||||
Schedule of Accured Compensation
| Total | William Delgado | Jerome Gomolski | ||||||||||
| Balance December 31, 2020 | $ | 142,315 | $ | 64,481 | $ | 77,834 | ||||||
| Salary nine months ended September 30, 2021 | 1,032,258 | 999,258 | 33,000 | |||||||||
| Promissory notes paid by William Delgado | 390,261 | 390,261 | — | |||||||||
| Payments | (1,419,000 | ) | (1,394,000 | ) | (25,000 | ) | ||||||
| Balance September 30, 2021 | $ | 145,834 | $ | 60,000 | $ | 85,834 | ||||||
RLT Consulting
As of September 30, 2020,2021, and December 31, 2019,2020, the companyCompany had a note payable to RLT consultingConsulting and a consulting agreement see (Note(see Note 5). RLT Consulting is owned by Ross Trevino, a Vice President of GDSI Inc.the Company.
Accounts Payable
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| RLT Consulting | $ | 21,591 | $ | 21,591 | ||||
| Jerry Gomolski | 25,000 | 25,000 | ||||||
| Charter 804CS | 20,099 | 20,099 | ||||||
| Gary Gray | 12,000 | 12,000 | ||||||
| Compensation owed to related parties | $ | 78,690 | $ | 78,690 | ||||
Accounts Payable
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| RLT Consulting | $ | 21,591 | $ | 21,591 | ||||
| Jerry Gomolski | 25,000 | 25,000 | ||||||
| Charter 804CS | 20,099 | 20,099 | ||||||
| Gary Gray | 12,000 | 12,000 | ||||||
| $ | 78,690 | $ | 78,690 | |||||
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GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
NINE MONTHS ENDED SEPTEMBER 30, 2020
(Unaudited)
NOTE 9 – RELATED PARTY TRANSACTIONS (CONTINUED)
During August 2017, Dragon Acquisitions, a relatedan entity owned by William Delgado, a related party, and an individual lender entered into a Promissory Note agreement for $20,000 as well as $2,000 in interest to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the note. The Company defaulted on the note at maturity in August 2018. The lender has extended the maturity date to December 31, 2021. The $22,000 note remained outstanding as of December 31, 2020 and September 30,202030, 2021 and through the date of this report.
The June 2018 note bears a personal guarantee by William Delgado, the Chief Executive Officer of the Company. As further security for the note, Mr. Delgado has also pledged the 1,000,000 Convertible Preferred Shares of the Company that he owns, as well as 5,000,000 common shares of SHMP, another public company in which Mr. Delgado is a director and Chief Financial Officer.
During the third quarter ending September 30, 2020 Dragon Acquisitions, advanced $40,977 for operating expenses of Aviation Services.
Prepaid expense related party
Prepaid expense represents the cost of an airplane purchased by Thethe Company and transferred to Valley Air Express, a related entity, in exchange for flight hours. The prepaid expense of $520,00$520,000 will be amortized over the flight hours used in the software development of the Pilot Assisted Landing System. See Note 1.
NOTE 10 – SUBSEQUENT EVENTS
On October 19, and21, 2021 the Company entered into an agreement with GHS Investments LLC. Pursuant to the agreement the Company issued shares on October 29, 2020 ECO-Growth Strategies, Inc., a related party, paid off21, 2021 in satisfaction of the Convertible Note Payable to Platinum Point Capital LLC. and the Convertible Note Payable to FirstFire Global Opportunities Fund LLC, see Notes Payable.Promissory note dated May 10, 2019 with a balance of $8,333,760 at September 31, 2021.
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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Note Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management'smanagement’s current views with respect to future events and financial performance.Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements.These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2020, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on April 29, 202019, 2021, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
| ● | our ability to successfully commercialize and our products and services on a large enough scale to generate profitable |
| ● | our ability to maintain and develop relationships with customers and suppliers; |
| ● | our ability to successfully integrate acquired businesses or new brands; |
| ● | the impact of competitive products and pricing; |
| ● | supply constraints or difficulties; |
| ● | the retention and availability of key personnel; |
| ● | general economic and business conditions; |
| ● | substantial doubt about our ability to continue as a going concern; |
| ● | our need to raise additional funds in the future; |
| ● | our ability to successfully recruit and retain qualified personnel in order to continue our operations; |
| ● |
| intellectual property claims brought by third parties; and |
| business interruptions resulting from geo-political actions, including war, and terrorism or disease outbreaks (such as COVID-19). |
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Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events, or changes in the future operating results over time, except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
As used in this Quarterly Report on Form 10-Q and, unless otherwise indicated, the terms “GDSI,” “Company,” “we,” “us,” and “our” refer to Global Digital Solutions, Inc. and our wholly-ownedwholly owned subsidiaries GDSI Florida, LLC, HarmAlarm and North American Custom Specialty Vehicles, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
Corporate History and Overview
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. The merger was treated as a recapitalization of Global Digital Solutions, Inc., and Creative changed its name to Global Digital Solutions, Inc. (“GDSI”). We are focused in the area of cyber arms technology and complementary security and technology solutions. On October 22, 2012, we entered into an Agreement of Merger and Plan of Reorganization to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a then debtor in possession under chapter 11 of the Bankruptcy Code once Airtronic successfully reorganized and emerged from bankruptcy (the “Merger”). During the period from October 2012 through November 2013, we were actively involved in the day to day management of Airtronic pending the completion of the Merger. The Merger did not occur and we ceased involvement with Airtronic. In December 2012 we incorporated GDSI Florida LLC (“GDSI FL”), a Florida limited liability company. Except for the payment of administrative expenses on behalf of the Company, GDSI FL has no business operations. In January 2013, we incorporated Global Digital Solutions, LLC, a Florida limited liability company. In November 2013, we incorporated GDSI Acquisition Corporation, a Delaware corporation. On June 16, 2014, we acquired North American Custom Specialty Vehicles, LLC, into GDSI Acquisition Corporation, and changed the latter’s name to North American Custom Specialty Vehicles, Inc. (“NACSV”). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas.
In March of 2019, the Companywe acquired HarmAlarm (“HA”). HA was formed in 2002 as a private Texas company to pursue Infrared commercial applications in the aviation services area. HA has developed a system known as Pilot Assisted Landing Systems (PALS). TheWe believe the precision and robustness of PALS has generated a host of new applications mainly through “landing trajectory” optimization which provides additional safety margin against weather related hazardous conditions, like wind shear, wake turbulence, icing, as well as low ceilings and fog.
Business Overview
We are engaged in the development of proprietary aviation technology. We are also looking to develop an automotive technology company currently in Brazil. We have been in litigation concerning Rontan Metallurgica in Sao Paulo, Brazil and have been awarded a default judgment regarding the acquisition of the company. We are currently awaiting final damages in the case.
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Business Overview
Global Digital Solutions, Inc., is positioning itself as a leader in providing comprehensive security and technology solutions. Since May 1, 2012, we have been focusing on acquisitions of defense and defense-related entities both in the United States and abroad. On June 16, 2014, GDSI completed its acquisition of North American Custom Specialty Vehicles (“NACSV”). NACSV’s mobile emergency operations centers (MEOC) can be tailored to the needs of Police, Fire, EMS, Military, Homeland Security, National Guard, FBI, Air National Guard, Coast Guard, Chemical/Petrochemical, Humanitarian Aid, Non-Governmental Organizations, Drug Enforcement, Immigration & Customs, Bureau of Alcohol, Tobacco, Firearms and Explosives, Water Management, Wildlife Management, D.O.T. Engineering & Maintenance, Air & Water Quality Management (EPA), Meteorological Seismic/Oil & Gas Exploration, IS/Mapping Power Generation (Nuclear & Conventional), Power Transmission, and Strategic Infrastructure Security. The company has already built customized vehicles for customers involved in one or more of the above categories, and we see many opportunities to improve NACSV and its products and services through the integration of additional software, hardware, and firmware technologies.
We are a holding company focused on the acquisition of companies in the security and specialty vehicles and services marketplace segments. We intend to pursue these identified segments in order to expand the Company through strategic acquisitions and the controlled internal growth of such acquisitions. Since the filing of our Form 10-K for the year ending 2016, as filed with the Securities & Exchange Commission (“SEC”) on June 18, 2018, we have been delinquent in filing of our financial reports with the SEC pursuant to The Securities Exchange Act of 1934 (the “Exchange Act”). Since that time, the focus of our business has evolved, and the below discussion is intended to show the chronology since that time to the date of the filing of this report.
History of Business – D, 2016 to Present
On May 13, 2016, as more fully discussed below, we appointed William Delgado as our Chief Executive Officer (“CEO”) and Chairman of our Board of Directors.-Mr. Delgado was serving at that time as a director and our Executive Vice President in charge of business development. He served as our President, Chief Executive Officer, and Chief Financial Officer from August 2004 to August 2013. Mr. Delgado began his career with Pacific Telephone in the Outside Plant Construction. He moved to the network engineering group and concluded his career at Pacific Bell as the Chief Budget Analyst for the Northern California region. Mr. Delgado founded All Star Telecom in late 1991, specializing in OSP construction and engineering and systems cabling. All Star Telecom was sold to International Fiber Com in April of 1999. After leaving International Fiber Com in 2002, Mr. Delgado became President/CEO of Pacific Comtel in San Diego, California. After we acquired Pacific Comtel in 2004, he became part of our management and held the positions of Director, CEO, President, and CFO.
The following events have occurred since December 31, 2016:
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 (the “Rontan Transaction”).
The purchase price consisted of a cash amount, a stock amount and an earn-out amount as follows: (i) Brazilian Real (“R”) $100 million (approximately US$26 million) to be paid by the Purchaser in equal monthly installments over a period of forty eight (48) months following the closing date; (ii) an aggregate of R$100 million (approximately US$26 million) in shares of the Purchaser’s common stock, valued at US$1.00 per share; and (iii) an earn-out payable within ten business days following receipt by the Purchaser of Rontan’s audited financial statements for the 12-months ended December 31, 2017, 2018 and 2019. The earn-out shall be equal to the product of (i) Rontan’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the last 12 months, and (ii) twenty percent and is contingent upon Rontan’s EBITDA results for any earn-out period being at least 125% of Rontan’s EBITDA for the 12-months ended December 31, 2015. It is the intention of the parties that the stock amount will be used by Rontan to repay institutional debt outstanding as of the closing date.
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Under the terms of a finder’s fee Agreement dated April 14, 2014, we have agreed to pay RLT Consulting, Inc., a related party, a fee of 2% (two percent) of the transaction value, as defined in the agreement, of Rontan upon closing. The fee is payable one half in cash and one half in shares of our common stock. Specific conditions to closing include, but are not limited to:
The Institutional Investor has committed to invest sufficient capital to facilitate the transaction, subject to receipt of the Opinion, among other conditions. Subject to satisfaction or waiver of the condition precedent provided for in the SPSA, the closing date of the transaction shall take place within 10 business days from the date of issuance of the Opinion. Rontan is engaged in the manufacture and distribution of specialty vehicles and acoustic/visual signaling equipment for the industrial and automotive markets.
On April 1, 2016, we believed that we had satisfied or otherwise waived the conditions to closing (as disclosed under the SPSA, the closing was subject to specific conditions, which were waivable by us), and on April 1, 2016, we advised the Sellers of our intention to close the SPSA and demanded delivery of the Rontan Securities. The Sellers, however, notified us that they intend to terminate the SPSA. We 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.
Acquisition of HarmAlarm
In March of 2019, the Company acquired HarmAlarm. HA was formed in 2002 as a private Texas company to pursue Infrared commercial applications in the aviation services area. HA has developed a system known as Pilot Assisted Landing Systems (PALS). The precision and robustness of PALS has generated a host of new applications mainly through “landing trajectory” optimization which provides additional safety margin against weather related hazardous conditions, like wind shear, wake turbulence, icing, as well as low ceilings and fog.
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Results of Operations
Comparison of the Three Months Ended September 30, 2021 to the Three Months Ended September 30, 2020
Revenues
There was no revenue for the three months ending September 30, 2021 or September 30, 2020.
Our operating expenses for the three months ended September30, 2021 are summarized as follows in comparison to the three months ended September 30, 2020:
| For The Three Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | $ | 69,000 | $ | 72,105 | ||||
| Rent | — | 5,526 | ||||||
| Professional fees | 36,549 | 41,766 | ||||||
| Consulting services | 73,620 | 68,995 | ||||||
| Other general and administrative | 39,319 | 76,189 | ||||||
| Total Operating Expenses | $ | 218,488 | $ | 264,581 | ||||
Operating expenses for the three months ended September 30, 2021 decreased by $ 46,000 $ or 18%, as compared with the same period in 2020. The decrease is due primarily to reduction in legal fees of $62,000.
The professional fees, are for services provided by an attorney and accounting and auditing services. The decrease is due primarily to reduction in legal fees of $62,000.
Comparison of the Nine Months Ended September 30, 2020 and2021 to the Nine Months Ended September 30, 20192020
RevenueRevenues
There werewas no revenuesrevenue for the nine-nine months ending September 30, 2020,2021 or September 30, 20192020.
Expenses
Our Operating Expenses for the nine-months ended September 30, 2020 are summarized as follows, in comparison to ouroperating expenses for the nine months ended September 30, 2019:2021 are summarized as follows in comparison to the nine months ended September 30, 2020:
| Nine months ended September 30, | ||||||||
| 2020 | 2019 | |||||||
| Salaries and related expenses | $ | 225,000 | $ | 217,500 | ||||
| Rent | 8,422 | 8,470 | ||||||
| Professional fees | 150,480 | 218,754 | ||||||
| Consulting Services | 293,351 | 520,981 | ||||||
| Other G & A | 122,705 | 66,045 | ||||||
| Impairment Loss | — | 62,000 | ||||||
| Total | $ | 799.958 | $ | 1,093,750 | ||||
| For The Nine Months Ended | ||||||||
| September 30, | ||||||||
| 2021 | 2020 | |||||||
| Salaries and related expenses | $ | 1,033,000 | $ | 225,000152,89 | ||||
| Rent | — | 8,4222,896 | ||||||
| Professional fees | 108,486 | 150,480 | ||||||
| Consulting services | 612,110 | 293,351 | ||||||
| Other general and administrative | 55,350 | 122,705 | ||||||
| Total Operating Expenses | $ | 1,809,106 | $ | 799,958 | ||||
Operating expenses for the nine months ended September 30, 2020, were $799,958 representing an approximately 27% decrease2021 increased by $1,009,148, or 126%, as compared to operating expenses of $1,093,750 forwith the same period in 2019.2020. The overall change in operating expenses is mainly due to to the bonus paid to the CEO of approximately $820,000, as well as the increase in consulting services during the nine months ended September 30, 2021.
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Liquidity, Financial Condition and Capital Resources
As of September 30, 2020,2021, we had cash on hand of $96,384approximately $2,003 and a working capital deficitdeficiency of $9,050,442approximately $13,343,720 as compared to cash on hand of $493,402approximately $300 and a working capital deficit $6,183,789deficiency of approximately $17,403,000 as of December 31,2019. 31, 2020. The decrease in working capital deficiency for the nine months ended September 30, 2021 is mainly due to the decrease in the derivative liability, resulting from the change in fair value of the derivatives, offset by the recognition of the warrant liability, discussed in further detail below, in current liabilities.
Working Capital Deficiency
Our working capital deficiency as of September 30, 2021, in comparison to our working capital deficiency as of December 31, 2020, can be summarized as follows:
| September 30, | December 31, | |||||||
| 2021 | 2020 | |||||||
| Current assets | $ | 137,003 | $ | 264 | ||||
| Current liabilities | 13,480,723 | 17,403,560 | ||||||
| Working capital deficiency | $ | (13,343,720 | ) | $ | (17,403,296 | ) | ||
The increase in working capital deficit of $2,866,653current assets is mainly due primarily to the increase of approximately $135,000 in Derivative liability of $1,263,517, an increase in Notes Payable of $872,125,and increase in convertible note payable of 401,834 and decrease in cash of $397,018.
Going Concern
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have sustained losses and experienced negative cash flows from operations since inception, and for the Nine (9) Months ended on September 30, 2020, incurred a net loss of $3,403,256 and used net cash of $to fund operating activities. As of September 30, 2020, we had cash of $96,384 an accumulated deficit of $42,357,600 a working capital deficit of $,9,050,442 and stockholders’ deficit of $8,270,612. We have funded our activities to date almost exclusively from equity and debt financings.
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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 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.
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.
Working Capital Deficiency
| Periods Ended | ||||||||
| September 30, | December 31, | |||||||
| 2020 | 2019 | |||||||
| Current Assets | $ | 96,384 | $ | 499,402 | ||||
| Current Liabilities | (9,146,827 | ) | (6,683,191 | ) | ||||
| Working Capital | $ | (9,050,442 | ) | $ | (6,183,789 | ) | ||
prepaid expenses., The decrease in current assetsliabilities is primarily due to the decrease in the derivative liability, resulting from December 3, 2019,the change in fair value of the derivatives of approximately $7,200,000 less the approximately $1,026,000 reclassed to equity upon pay off of the related convertible notes, offset by the recognition of the $2,398,000 in warrant liability for new warrants issued in connection with a new convertible debenture in the first and second quarter of 2021, and approximately $900,000 resulting from the change in fair value of the warrants.
Cash Flows
During the nine months ended September 30, 2021 and 2020, is due to a decrease inour sources and uses of cash were as follows:
| Nine Months Ended September 30, | ||||||||
| 2021 | 2020 | |||||||
| Net cash used in operating activities | $ | (1,890,386 | ) | $ | (1,531,845 | ) | ||
| Net cash used in investing activities | (66,971 | ) | (233,548 | ) | ||||
| Net cash provided by financing activities | 1,959,096 | 1,368,375 | ||||||
| Increase (decrease) in cash | $ | 1,739 | $ | (397,018 | ) | |||
Operating Activities
Net cash used in operating activities.activities was approximately $1,890,000 for the nine months ended September 30, 2021, primarily due to the net income of approximately $2,042,000 which was partially offset by non-cash expenses of approximately $6,400,000 related to an decrease in the fair value of derivative liabilities and $894,000 for the change in fair value of the warrant liability, amortization of debt discount, interest expense, and the change in fair value of the warrant liability recognized this period. There was additionally actual cash used by changes in the levels of operating assets and liabilities, primarily as a result of decreases in accrued interest and amount due to officer.
Cash Flows
| Periods Ended | ||||||||
| September 30, | September 30, | |||||||
| 2020 | 2019 | |||||||
| Net cash used in operating activities | (1,531,845 | ) | $ | (1,249,720 | ) | |||
| Net cash used in investing activities | (233,548 | ) | (26,282 | ) | ||||
| Net cash provided by (used in) financing activities | 1,368,375 | 1,318,527 | ||||||
| Decrease in cash | $ | 397,018 | $ | 44,544 | ||||
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Operating Activities
Net cash used byin operating activities was $1,531,845$(1,531,845) for the nine months ended September 30, 2020, reflecting theprimarily due to net loss of $3,403,256. Net$(3,403,256), which was partially offset by non-cash expenses of approximately $(236,206) related to change in fair value of derivative liabilities, the amortization of debt discount of $654,584, and interest expense, and $(314,591) cash used byin the levels of operating activities was $1,249,72021 forassets and liabilities.
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Investing Activities
During the nine months ended September 30, 2019, reflecting the2021 and 2020, net loss of $1,071,775.
Investing Activities
Netcash used in investing activities was approximately $67,000 for advances to related party in 2021 and $233,548 in 2020 for cash used for Investingsoftware development costs.
Financing Activities
Net cash provided by financing activities for the nine months ended September 30, 2020,2021 was approximately $1,959,000, which was due to $3,275,000 of proceeds from debt financings, offset by approximately $1,316,000 of repayments of notes payable and September 30, 2019, was $233,548convertible notes and $26,282 respectively.advances from partner
Financing Activities
During the nine months ended September 30, 2020, cash provided by financing activities of $1,368,375 consisted of proceeds from convertible notes payable of $1,077,000 proceeds from Notes payable of $803,125 offset by payment on convertible notes payable of $571,750.$(571,750), proceeds of $803,125 from notes payable, proceeds from exercise of warrants of $60,000.
Recent Financing Arrangements and Developments During the Period
On December 19, 2018, The Company and Adar Alef, LLC entered into a security purchase agreement for four 8% Convertible Notes in the aggregate principal of $105,000 with all four notes being in the amount of $26, 500 each. The notes shall contain a 5% OID such that the purchase price shall be $25,000. The notes are convertible into shares of common stock of The Company. Note 1 was issued on December 19, 2018 and paid off on June 24, 2019. Notes 1 and 2 in the amount of $25,250 were issued on August1 and August 19 respectively. The note was paid off on April 2,2020.
On March 7, 2019,January 15, 2021, the Company and Power Up Lending Group entered into a securitysecurities purchase agreement for a 10% Convertible Noteconvertible note in the aggregate principal of $58,000$88,500 due on March 7, 2020. The note is convertible into shares of common stock of the Company.January 15, 2022. The conversion price is equal to the Variable Conversionvariable conversion price which is defined as 61% of the Market Pricemarket price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversionconversion date. The conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the date the note wasbecomes convertible. On July 13, 2021, the Company paid off on September 10, 2019.the note, plus accrued interest and redemption fees, for a total payment of $130,078.
On August 15, 2019,February 25, 2021, the Company and Power Up Lending GroupLeonite Capital LLC entered into a securitysecurities purchase agreement for a 10% Convertible Noteprime rate plus 8% convertible note in the aggregate principal of $53,000 due on August 15, 2020.$2,285,714. The note is convertibleshall be paid in one or more tranches. The maturity for each tranche shall be the twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price isshall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the Variable Conversion price which is defined as 61%lesser of (i) the fixed conversion price; (ii) or 70% of the Market Price forlowest intraday price during the lowest two trading dates during21 days preceding the conversion request. On March 1, 2021, the Company received the first tranche of $1,000,000. In connection with the note, the Company issued 20,000,000 warrants, exercisable at $0.10, with a fifteen-day trading period ending10-year term and contain full-ratchet anti-dilution protection provisions, with a fair value of $1,015,000. The Company also issued 4,000,000 shares of common stock as commitment shares to the noteholder, with a fair value of $204,000. The warrants and the commitment shares resulted in a debt discount of $1,000,000, which will be amortized using the effective interest method over the life of the convertible note, and the excess of $101,000 recognized as interest expense at issuance. The warrants were evaluated to be classified as a liability, as based on the latest complete trading date prior tovarious convertible notes outstanding with variable conversion rates it cannot be determined if there are sufficient authorized shares available during the Conversion date.contract period. As ofSeptember 30, 2021, and through the issuance date of these financial statements,this report, the note remainsprincipal balance totaling $1,142,875 is outstanding.
On September 24, 2019,March 25, 2021, the Company and Power Up Lending GroupGS Capital Partners LLC entered into a securitysecurities purchase agreement for a 10% Convertible Noteprime rate plus 8% convertible note in the aggregate principal of $58,000 due on September 24, 2020.$2,285,714. The note is convertibleshall be paid in one or more tranches. The maturity for each tranche shall be the twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price isshall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the Variable Conversion price which is defined as 61%lesser of (i) the fixed conversion price; (ii) or 70% of the Market Price forlowest intraday price during the lowest two trading dates during a fifteen-day trading period ending on21 days preceding the lconversion request. On April 6, 2020,1, 2021, the Company received the first tranche of $1,000,000. In connection with the note, the Company will issue 20,000,000 warrants, exercisable at $0.10, with a 10-year term and Power Up Lending Group entered intocontain full-ratchet anti-dilution protection provisions, with a security purchase agreement for a 10% Convertible Promissory Note in the aggregate principalfair value of $58,000 due on April 6, 2021.$917,000. The note is convertible intoCompany also will issue 4,000,000 shares of common stock of the Company. The note can be converted (180) days following the date of the note. The conversion price is equalas commitment shares to the Variable Conversion price which is defined as 61%noteholder, with a fair value of the Market Price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversion date. As of June 30, 2020, and through the date of this report, the principal balance totaling $58,000 is outstanding.
$184,000.
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On May 10, 2019,Going Concern
The accompanying financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”), assuming the Company will continue as a going concern, which contemplates the realization of assets and GHS Investments LLC entered into a security agreement for a 10% Convertible Notesatisfaction of liabilities in the aggregate principalnormal course of $335,000 due on February 10, 2020.business. The note carries original issue discount or $35,000. The note is convertible into sharesCompany has sustained losses and experienced negative cash flows from operations since inception, and for the nine months ended September 30, 2021, while it had net income of common stockapproximately $2,042,000, which was mostly the result of the Company. The “Conversion Price” shall mean 60% multiplied by the Market Price (as defined herein), representing a discount rate of 40%. “Market Price” means the lowest Traded Price for the Common Stock during the twenty (20) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date. The Company is required to maintain a common share reserve of not less than three times the number of shares that is actually issuable upon full conversionchange in fair value of the note. The purchaser will also receive warrantsderivative liability, the Company used net cash of approximately $1,890,000 to purchase 5,000,000 sharesfund operating activities at September 30, 2021, had an accumulated deficit of GDSI common stock at $.01/share. Warrants will haveapproximately $49,518,000, and a three-year termworking capital deficit of approximately $13,344,000. These factors raise substantial doubt about the Company’s ability to exercise. The Convertible Note is personally guaranteed by William Delgado, CEO. As of the issuance date of these financial statements, the note remains outstanding.
Convertible Promissory Note
On August 9, 2019, The Company entered intocontinue as a convertible promissory note arrangement with Actus Fund, LLC in the principal amount of $142,750. The principal amount of the note with interest at 12% is due on May 19, 2020. The note is convertible into shares of The Company’s common stock. The conversion price shall equal the lessor of (i) Current Market price or (ii) Variable Market price as defined as Market Price less a 50% discount price. As ofgoing concern, within one year from the issuance date of the financial statements the note remains outstanding.
On January 21, 2019, the Company entered into a Convertible Promissory Note with Crown Bridge Partners, LLC., in the principal amount of $75,000. The note carries original issue discount of $7,500 The Principal amount with interest at 12% will be due in twelve months from the advance. The Principal amount will be advanced in Tranches of $25,000 each. The note is convertible into shares of The Company’s common stock. The conversion price shall equal the lessor of (i) Current Market price or (ii) Variable Market price as defined as Market Price less a 45% discount price. In addition, the Company agreed to issue to Crown Bridge Partners 3,750,000 warrants to purchase common stock of the Company at an exercise price of $0.01 per share, exercisable for a period of five (5) years. The note converted to common shared of the company in April 2020.
On October 16, 2019, the Company entered into a 10% Convertible Promissory Note with Tangiers Global LLC. in the principal amount of $137,500 due on October 16, 2020. The note is convertible into shares of the Company’s common stock. The conversion price shall equal 60% of the lowest trading price of the Company’s common stock during the 20 consecutive trading days prior to the date on which the holder elects to convert part of all of the note. The note was paid off on May 20, 2020.
Factoring Agreements
During the year ended, 2015, the Company entered into two revenue-based factoring agreements for which the Company did not make the required payments, and the factor agreements went into default. On December 21, 2017, the Company entered into a Settlement agreement with Power Up under which Power Up has agreed to accept the sum of $90,000 in full satisfaction of outstanding obligation. The settlement is to be paid in three installments of $30,000. The settlement has been paid in full as of May 15, 2018, with a gain on settlement of $17,266 recognized when the debt was extinguished.
Promissory Note Agreement
On August 31, 2017, Dragon Acquisitions, 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 to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the debt.
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Financing Agreement
On December 22, 2017, the Company entered into a financing agreement with Parabellum, an accredited investor, for $1.2 million, amended in 2019 and increased to $1,850,000. Under the terms of the agreement, the Company is to receive milestone payments based on the progress of the Company’s lawsuit (Note 6) 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. $300,000 was received by the Company in December 2017. The $300,000 note remains outstanding and in good standing as of December 31 and 2018, and through the date of this report.
Demand Promissory Note Agreements
On December 23, 2017 (the “effective date”), the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with Vox Business Trust, LLC (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement, 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.statements. The Company also agreedhas funded its activities to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Datedate almost exclusively from equity and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018. The Company shall make mandatory prepayment in the following amounts and at the following times:debt financings.
On December 26, 2017, the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with RLT Consulting, Inc. (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), 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). The Company shall make mandatory prepayment in the following amounts and at the following times:
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During April 2018, the Company entered into a two-month $36,000 note payable with $31,000 in proceeds paid directly to a third-party vendor for expenses. The note did not bear interest and included a $5,000 original issue discount. During June 2018, the Company defaulted on the note. As of September 30, 2020 and through the date of this report, the] note remained outstanding.
Investment Return Purchase Agreements
On April 3, 2018, the Company entered into an Investment Return Purchase Agreement with an accredited investor (the “Purchaser”) for proceeds of $50,000 (the “Investment Agreement”). Under the terms of the Investment Agreement, the Company agreed to pay the Purchaser the $50,000 proceeds plus a 25% return, or $25,000 (the “Investment Return”) within seven (7) months from the date of the Investment Agreement. The Investment Return is being recognized as interest expense over the seven months. In addition, the Company agreed to issue to the Purchaser 1,000,000 warrants to purchase common stock of the Company at an exercise price of $0.01 per share, exercisable for a period of five (5) years.
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.
Notes Payable
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 June 4, 2018, the Company agreed to a $300,000 principal amount (and a $150,000 original issue discount amount) convertible note issued to GS Capital Partners. 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, exercisable for a period of three (3) years.
Future Financing
We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements of equity and convertible debt that have enabled us to fund our operations, these funds have been largely used to develop our processes, although additional funds are needed for other corporate operational and working capital purposes. Subsequent to period end we have received funding of $1,000,000 from the first tranche of a convertible note entered into in March 2021. However, not including funds needed for capital expenditures or to pay down existing debt and trade payables, we anticipate that we will need to raise an additional $2,500,000 to cover all of our operational expenses over the next 12 months, not including any capital expenditures needed as part of any commercial scale-up of our equipment. These funds may be raised through equity financing, debt financing, or other sources, which may result in further dilution in the equity ownership of our shares. There can be no assurance that additional financing will be available to us when needed or, if available, that such financing can be obtained on commercially reasonable terms. If we are not able to obtain the additional necessary financing on a timely basis, or if we are unable to generate significant revenues from operations, we will not be able to meet our other obligations as they become due, and we will be forced to scale down or perhaps even cease our operations.
Effects of Inflation
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
Significant Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our unaudited condensed consolidated financial statements included herein for further business development.the quarter ended September 30, 2021 and in the notes to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 19, 2021.
Fair Value Measurement
The fair value measurement guidance clarifies that fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in the valuation of an asset or liability. It establishes a fair value hierarchy that prioritizes the inputs to valuation techniques 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 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under the fair value measurement guidance are described below:
Level 1 - Unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities;
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Level 2 - Quoted prices in markets that are not active, or inputs that are observable, either directly or indirectly, for substantially the full term of the asset or liability; or
Level 3 - Prices or valuation techniques that require inputs that are both significant to the fair value measurement and unobservable (supported by little or no market activity).
Use of Estimates
The preparation of unaudited condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent liabilities at dates of the unaudited condensed consolidated financial statements and the reported amounts of revenue and expenses during the periods. Our significant estimates and assumptions include the recoverability and useful lives of long-lived assets, the fair value of our common stock, stock-based compensation, warrants issued in connection with notes payable, derivative liabilities and the valuation allowance related to our deferred tax assets. Certain of our estimates, including the carrying amount of the intangible assets, could be affected by external conditions, including those unique to us and general economic conditions. It is reasonably possible that these external factors could have an effect on our estimates and could cause actual results to differ from those estimates.
Derivative Financial Instruments
We account for conversion options embedded in convertible notes payable in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC’) 815, “Derivatives and Hedging”. Subtopic ASC 815-15, Embedded Derivatives generally requires companies to bifurcate conversion options embedded in the convertible notes from their host instruments and to account for them as free-standing derivative financial instruments. Derivative liabilities are recognized in the consolidated balance sheet at fair value as Derivative Liabilities and based on the criteria specified in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s own Equity. The estimated fair value of the derivative liabilities is calculated using various assumptions and such estimates are revalued at each balance sheet date, with changes recorded to other income or expense as Change in fair value of derivative liability in the condensed consolidated statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity, is evaluated at the instrument origination date and reviewed at the end of each event date (i.e. conversions, payments, etc.) and the measurement period end date for financial reporting, as applicable.
Convertible Instruments
The Company evaluates and accounts for conversion options embedded in its convertible instruments in accordance with accounting standards for “Accounting for Derivative Instruments and Hedging Activities.”
Accounting standards generally provides three criteria that, if met, require companies to bifurcate conversion options from their host instruments and account for them as free-standing derivative financial instruments. These three criteria include circumstances in which (a) the economic characteristics and risks of the embedded derivative instrument are not clearly and closely related to the economic characteristics and risks of the host contract, (b) the hybrid instrument that embodies both the embedded derivative instrument and the host contract is not re-measured at fair value under otherwise applicable generally accepted accounting principles with changes in fair value reported in earnings as they occur, and (c) a separate instrument with the same terms as the embedded derivative instrument would be considered a derivative instrument. accounting standards also provide an exception to this rule when the host instrument is deemed to be conventional as defined under professional standards as “The Meaning of Conventional Convertible Debt Instrument.”
The Company accounts for convertible instruments (when it has determined that the embedded conversion options should not be bifurcated from their host instruments) in accordance with professional standards when “Accounting for Convertible Securities with Beneficial Conversion Features,” as those professional standards pertain to “Certain Convertible Instruments.” Accordingly, the Company records, when necessary, discounts to convertible notes for the intrinsic value of conversion options embedded in debt instruments based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note. Original issue discounts (“OID”) under these arrangements are amortized over the term of the related debt to their earliest date of redemption. The Company also records when necessary deemed dividends for the intrinsic value of conversion options embedded in preferred shares based upon the differences between the fair value of the underlying common stock at the commitment date of the note transaction and the effective conversion price embedded in the note.
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ASC 815-40 provides that, among other things, generally, if an event is not within the entity’s control could or require net cash settlement, then the contract shall be classified as an asset or a liability.
Income Taxes
Income taxes are accounted for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period.
Accounting guidance requires the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded at June 30, 2021, and December 31, 2020. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense.
Stock-based Compensation
In accordance with ASC 718, “Compensation – Stock Compensation” the Company measures the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award.
The Company’s accounting policy for equity instruments issued to advisors, consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50. The measurement date for the fair value of the equity instruments issued is determined at the earlier of (i) the date at which a commitment for performance by the advisor, consultant or vendor is reached or (ii) the date at which the advisor, consultant or vendor’s performance is complete. In the case of equity instruments issued to advisors and consultants, the fair value of the equity instrument is recognized over the term of the advisor or consulting agreement. Stock-based compensation related to non-employees is accounted for based on the fair value of the related stock or options or the fair value of the services, whichever is more readily determinable.
New and Recently Adopted Accounting Pronouncements
In August 2020, the FASB issued ASU 2020-06, Debt - Debt with Conversion and Other Options (Subtopic 470- 20) and Derivatives and Hedging - Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity (“ASU 2020-06”), which simplifies the accounting for certain financial instruments with characteristics of liabilities and equity. This ASU (1) simplifies the accounting for convertible debt instruments and convertible preferred stock by removing the existing guidance in ASC 470-20, Debt: Debt with Conversion and Other Options, that requires entities to account for beneficial conversion features and cash conversion features in equity, separately from the host convertible debt or preferred stock; (2) revises the scope exception from derivative accounting in ASC 815-40 for freestanding financial instruments and embedded features that are both indexed to the issuer’s own stock and classified in stockholders’ equity, by removing certain criteria required for equity classification; and (3) revises the guidance in ASC 260, Earnings Per Share, to require entities to calculate diluted earnings per share (EPS) for convertible instruments by using the if-converted method. In addition, entities must presume share settlement for purposes of calculating diluted EPS when an instrument may be settled in cash or shares. For SEC filers, excluding smaller reporting companies, ASU 2020-06 is effective for fiscal years beginning after December 15, 2021 including interim periods within those fiscal years. Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020. For all other entities, ASU 2020-06 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Entities should adopt the guidance as of the beginning of the fiscal year of adoption and cannot adopt the guidance in an interim reporting period. The Company is currently evaluating the impact that ASU 2020-06 may have on its consolidated financial statements and related disclosures.
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Management is evaluating other new accounting pronouncements but doesn’t expect them to have material impact on our financial position or results of operations.
Off-Balance Sheet Arrangements
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
Effects of InflationItem 3. Quantitative and Qualitative Disclosures about Market Risk
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
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Critical Accounting Policies and Estimates
Our significant accounting policies are more fully described in the notes to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2019. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
Recent Accounting Pronouncements
During the year ended December 31 and the nine-month period ending September 30, 2020 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
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. The Company adopted Topic 606 as of January 1, 2018, using the modified retrospective transition method. Under the modified retrospective method, the Company would recognize the cumulative effect of initially applying the standard as an adjustment to opening retained earnings at the date of initial application; however, we did not have any material adjustment as of the date of the adoption and adoption had no impact on the Company's consolidated balance sheet, results of operations, equity or cash flows as of the adoption date.
In February 2016, the FASB issued ASU No. 2016-02, Leases: Topic 842. This standard requires all leases that have a term of over 12 months to be recognized on the balance sheet with the liability for lease payments and the corresponding right-of-use asset initially measured at the present value of amounts expected to be paid over the term. Recognition of the costs of these leases on the income statement will be dependent upon their classification as either an operating or a financing lease. Costs of an operating lease will continue to be recognized as a single operating expense on a straight-line basis over the lease term. Costs for a financing lease will be disaggregated and recognized as both an operating expense (for the amortization of the right-of-use asset) and interest expense (for interest on the lease liability). This standard was effective for our interim and annual periods beginning January 1, 2019 and was applied on a modified retrospective basis to leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements. The Company has evaluated the timing of adoption and the potential impact of this standard on our financial position, and determined it did not have a material impact on our financial position or results of operations.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
ITEMItem 4. CONTROLS AND PROCEDURESControls and Procedures
Evaluation of Disclosure Controls and Procedures
We carried out an evaluation,maintain disclosure controls and procedures (as that term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our principal executive officer and principal financial officer, as appropriate, to allow timely decisions regarding required disclosures. In designing disclosure controls and procedures, our management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible disclosure controls and procedures. The design of any disclosure controls and procedures also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions. Any controls and procedures, no matter how well designed and operated, can provide only reasonable, not absolute, assurance of achieving the desired control objectives.
Under the supervision and with the participation of our management, including our soleprincipal executive officer, William Delgado, who is also our Chief Executive Officer (Principal Executive Officer), of the effectiveness of the designprincipal financial officer, we are required to perform an evaluation of our disclosure controls and procedures, (asas such term is defined byin Rule 13a-15(e) under the Exchange Act, Rules 13a-15(e) or 15d-15(e)) as of SeptemberJune 30, 2020 pursuant to Exchange Act Rule 13a-15. Based upon that2021. Management has not completed such evaluation our Principal Executive and, Financial Officeras such, has concluded that our disclosure controls and procedures were not effective as of September 30, 2019 in ensuringto provide reasonable assurance that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms. This conclusionforms, and is based on findings that constituted material weaknesses. Aaccumulated and communicated to our management, including our principal executive officer, who is also our principal financial officer, as appropriate to allow timely decisions regarding required disclosures. As a result of the material weakness is a deficiency, or a combination of control deficiencies, in internal controlcontrols over financial reporting suchdescribed below, we concluded that there is a reasonable possibility that a material misstatementour disclosure controls and procedures as of the Company’s interim financial statements willSeptember 30, 2021 were not be prevented or detected on a timely basis.effective.
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Management’s Annual Report on Internal Control Over Financial Reporting
Our management isManagement and the Company’s consolidated subsidiaries are responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act. Under the supervision and with the participation of our management, which currently consists of William Delgado serving as our Chief Executive Officer, we conducted an evaluation of the effectiveness of ourreporting. The Company’s internal control over financial reporting based on criteria established inis a process designed under the framework in Internal Control – Integrated Framework issuedsupervision of its principal executive and principal financial officer and effected by the CommitteeCompany’s Board of Sponsoring OrganizationsDirectors, management and other personnel, to provide reasonable assurance regarding the reliability of the Treadway Commission (“COSO” - 2013) and SEC guidance on conducting such assessments. Our management concluded, as of December 31, 2019, that our internal control over financial reporting was not effective. Management realized there were deficiencies in the design or operation of the Company’s internal control that adversely affected the Company’s internal controls which management considers to be material weaknesses.
In performing the above-referenced assessment, management had concluded that as of December 31, 2020 there were deficiencies in the design or operation of our internal control that adversely affected our internal controls, which management considers to be material weaknesses, including those described below:
(i) Lack of Formal Policies and Procedures. We use a third-party independent contractor for the preparation of our financial statements. Although theits unaudited condensed consolidated financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third-party independent contractor is not involvedfor external reporting purposes in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.accordance with GAAP.
(ii) Audit Committee and Financial Expert. We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.
(iii) Insufficient Resources. We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
(iv) Entity-Level Risk Assessment. We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected and constituted a material weakness.
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Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses and expect to implement changes in the near term as resources permit, including identifying specific areas within our governance, accounting and financial reporting processes to add adequate resources to potentially mitigate these material weaknesses.
Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds allow.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. ProjectionsIn addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions or that the degree of compliance with the policies or procedures may deteriorate. All
Material Weaknesses in Internal Control over Financial Reporting
Management assessed the effectiveness of the Company’s internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systemsover financial reporting as of September 30, 2021 based on the framework established in Internal Control—Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on this assessment, management has determined that the Company’s internal control over financial reporting as of June 30, 2021 was not effective.
A material weakness, as defined in the standards established by the Sarbanes-Oxley, is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim unaudited condensed consolidated financial statements will not be prevented or detected on a timely basis.
The ineffectiveness of the Company’s internal control over financial reporting was due to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.the following material weaknesses:
| ● | Inadequate segregation of duties due to limited personnel consistent with control objectives; |
| ● | Absence of functioning audit committee; |
| ● | Adherence to formal policies and procedures post-bankruptcy; and |
| ● | Lack of risk assessment procedures on internal controls to detect financial reporting risks on a timely manner. |
Changes in Internal Control Over Financial Reporting
There wereOther than described above there have been no changes in our internal control over financial reporting that occurred during theour first quarter ended ending September 30, 2020of 2021 that have materially affected, or that are reasonably likely to materially affect, our internal control over financial reporting. We believe that a control system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the control system are met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within any company have been detected.
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PART II – OTHER INFORMATION
ITEMItem 1. LEGAL PROCEEDINGSLegal Proceedings
We may beare currently not involved in legal proceedingsany litigation that we believe could have a material adverse effect on our financial condition or results of operations. There is no action, suit, proceeding, inquiry or investigation before or by any court, public board, government agency, self-regulatory organization or body pending or, to the knowledge of the executive officers of our Company or any of our subsidiaries, threatened against or affecting our company, our common stock, any of our subsidiaries or of our companies or our subsidiaries’ officers or directors in their capacities as such, in which an adverse decision could have a material adverse effect.
ITEM 1A. RISK FACTORS
An investment in the ordinary courseCompany’s common stock involves a number of very significant risks. You should carefully consider the risk factors included in the “Risk Factors” section of our business,Annual Report on Form 10-K for the year ended December 31, 2020, as filed with the SEC on April 19, 2021, in addition to other information contained in our reports and our management cannot predict the ultimate outcome of these legal proceedings with certainty. The Company is plaintiff or defendant in the following actions:
John Ramsey and Carl D. Dekle, as Personal Representative of the Estate of Brian Dekle, Deceased v. Global Digital Solutions, Inc.; North American Custom Specialty Vehicles, Inc.; and Richard J. Sullivan, United States District Court, Middle District of Florida, Case No.: 6:15-cv-01633-ACC-GJK
On January 14, 2015, Brian A. Dekle and John Ramsay filed suit againstthis quarterly report in evaluating the Company and its wholly owned subsidiary, North American Custom Specialty Vehicles, Inc. (“NACSV”), in the Circuit Court of Baldwin, Alabama, 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, the 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 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 September 30, 2105, the Court granted the Company’s Renewed Motion to Transfer Venue. The case was transferred to the Middle District of Florida.
On September 2, 2016, a Notice of Settlement was filed by Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc., and Richard J. Sullivan.
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On September 8, 2016, an Order was entered dismissing the case without prejudice and subject to the right of the parties to submit a stipulated form of final order or judgment or to move to reopen the action, upon good cause shown.
On July 27, 2017, the Company and Dekle and Ramsay entered into a Settlement Agreement. The Company and the plaintiff came to the following agreements:
PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicles, Inc. a Delaware Corporation d/b/a NACS Vehicles, Inc. a Subsidiary of Global Digital and Global Digital Solutions, Inc. and Jerome J. Gomolski, United States District Court for the Eastern District of New York, Case No.: 2:16-cv-01025-ADS-AYS
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 (Note 5).
On June 14, 2018, a Satisfaction of Judgment regarding the Default Judgment was entered in favor of Power Up Lending Group, Ltd. against Global Digital Solutions, Inc., Jerome J. Gomolski, and North American Custom Specialty Vehicles, Inc.
Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al., Eighteenth Judicial Circuit in and for Brevard County, Case No.: 05-2015-CA-012250
On January 19, 2015, the Company and NACSV filed suit against Communications Laboratories, Inc., ComLabs Global, LLC, Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion and breach of contract in a dispute over the payment of a $300,000 account receivable that ComLabs owed to NACSV but sent payment directly to Brian Dekle. The case was filed in the Eighteenth Judicial Circuit in and for Brevard County Florida, case no. 05-2015-CA-012250. On February 18, 2015 (i) defendants Communications Laboratories, Inc., ComLabs Global, LLC and Roland Lussier and (ii) defendant Wallace Bailey filed their respective motions to dismiss seeking, among other things, dismissal for failure to state valid causes of action, lumping and failure to post a non-resident bond. On February 26, 2015, defendants Dekle and Ramsay filed their motion to dismiss, or stay action, based on already existing litigation between the parties. NACSV filed its required bond on March 2, 2015.
Jeff Hull, Individually and on Behalf of All Others Similarly Situated v. Global Digital Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J. Delgado, Arthur F. Noterman and Stephanie C. Sullivan, United States District Court, District of New Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB
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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. On September 14, 2018, an Order was entered denying the Defendants GDSI and Loppert’s Motions to Dismiss. On September 28, 2018, both Defendants filed Answers to the Amended Complaint. On February 13, 2019, an Order was entered referring the case to mediation. The parties were to submit a status report by April 15, 2019. On June 12, 2019, Plaintiff Perry filed a Motion for Entry of an Order Preliminarily Approving Class Action Settlement and Establishing Notice Procedures. On July 15, 2019, an Order was entered granting Plaintiff Perry’s Motion for Entry of Preliminary Approval of a Class Action Settlement. On October 9, 2019, Plaintiff Perry filed a Motion for Entry of an Order Granting Final Approval of a Class Action Settlement and a Motion for Attorney Fees, Reimbursement of Expenses, and Awards to Lead Plaintiff and Lopez. On November 6, 2019, an Order was entered granting Plaintiff Perry’s Motion for Attorney Fees. On November 6, 2019, an Order and Final Judgment was entered granting Plaintiff Perry’s Motion for Settlement. This settlement amount was paid for by the Director’s and Officer’s insurance. Attorney’s fees were included in the settlement amount. No amount is accrued or paid from the Company.
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 for alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert for 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.
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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 in 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 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. Jurisdictional discovery was ordered. On October 12, 2018, the Court granted Defendants’ Motion to Dismiss for Lack of Personal Jurisdiction. On October 15, 2018, an Order was entered denying without prejudice Plaintiff’s Motion to Consolidate.
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.
PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the Circuit Court for the 15TH 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) was paid on May 16, 2018. The $40,000 is included in accounts payable as of December 31, 2019.
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Jennifer Carroll, vs. Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc. in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Case N0.: 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).
Consulting agreements
The Company entered into two consulting agreements (See Note 5) in May 2016, for services to be provided in connection towards the resolution of the Rontan lawsuit (below). The consulting agreements includes 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
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 favor of the Company by Rotan),at the Resolution Funding date. The Resolution Progress funding was met on December 22, 2017.
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.
The purchase price shall consist of a cash amount, a stock amount and an earn-out amount as follows: (i) Brazilian Real (“R”) $100 million (approximately US$26 million) to be paid by the Purchaser in equal monthly installments over a period of forty eight (48) months following the closing date; (ii) an aggregate of R$100 million (approximately US$26 million) in shares of the Purchaser’s common stock, valued at US$1.00 per share; and (iii) an earn-out payable within ten business days following receipt by the Purchaser of Rontan’s audited financial statements for the 12-months ended December 31, 2017, 2018 and 2019. The earn-out shall be equal to the product of (i) Rontan’s earnings before interest, taxes, depreciation and amortization (“EBITDA”) for the last 12 months, and (ii) twenty percent and is contingent upon Rontan’s EBITDA results for any earn-out period being at least 125% of Rontan’s EBITDA for the 12-months ended December 31, 2015. It is the intention of the parties that the stock amount will be used by Rontan to repay institutional debt outstanding as of the closing date.
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Under the terms of a Finders Fees Agreement dated April 14, 2014, we have agreed to pay RLT Consulting Inc., a related party, a fee of 2% (two percent) of the Transaction Value, as defined in the agreement, of Rontan upon closing. The fee is payable one-half in cash and one-half inpurchasing shares of our common stock.
Specific conditions Except as set forth below, there have been no material changes to closing consist of:
The Institutional Investor has committed to invest sufficient capital to facilitate the transaction, subject to receipt of the Opinion, as well as the ability to acquire 100% of the outstanding stock of Rontan at a price of $200 million BR, and the Company can acquire 100% of all real estate held by Rontan.
Subject to satisfaction or waiver of the condition precedent provided for in the SPSA, the closing date of the transaction shall take place within 10 business days from the date of issuance of the Opinion.
Rontan is engaged in the manufacture and distribution of specialty vehicles and acoustic/visual signaling equipmentour Annual Report on Form 10-K for the industrial and automotive markets.
Subsequent toyear ended December 31, 2015, on April 1, 2016, we believed that we had satisfied or otherwise waived the conditions2020. The Company’s business, operating results and financial condition could be adversely affected due to closing (as disclosed under the SPSA, the closing was subject to specific conditions to closing, which were waivable by us,) and advised the Sellersany of our intention to close the SPSA and demanded deliverythose risks.
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On January 31, 2018, we announced that we 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, we further allege 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.
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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.
On or about January 31, 2019, Defendants filed a Motion to Dismiss for Failure to State a Claim for failure to fulfill conditions precedent in the consummation of the contract in question. Defendants filed a Motion to Dismiss challenging jurisdiction, venue, and forum nonconvenes. On or about May 21, 2019, the Court denied their motions to dismiss for lack of personal jurisdiction, improper venue and forum nonconvenes. The court granted their Motion to Dismiss for Failure to State a Claim for failure to fulfill conditions precedent in the consummation of the contract in question but, granted leave to amend. On or about June 7, 2019, counsel filed an amended complaint. On or about June 21, 2019, defendants answered the amended complaint. The litigation moved from the pleading stage to discovery. The Company and Rontan/Bolzans entered into court order mediation on November 7, 2019. Although there was some movement by each side, the sides still remain apart. Trial is scheduled for December 9, 2019.
On June 12, 2020, The new Rontan/Bolzan counsel filed two motions (i) Motion to set aside Default Judgement (ii) Motion for hearing on damages. On July 1, 2020, The Company’s counsel filed it’s opposition to the previously mentioned motions. On October 29, 2020, the court issued it’s rulings on the aforementioned motions. The court denied defendants motion to set aside the default judgement and granted the motion for hearing on damages with limitations, scheduling said hearing for November 17, 2020. On November 11, 2020, the defendants filed a motion for continuance. On November 12, 2020, the company’s counsel filed it’s opposition to said motion. On November 16, 2020, the court granted the motion with limitations, scheduling hearing for December 2, 2020.
As a smaller reporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our common stock involves a number of significant risks. Investors should carefully consider the risk factors included in the "Risk Factors" section of our Annual Report on Form 10-K for our fiscal year ended December 31, 2019, as filed with SEC on April 29, 2020, in addition to other information contained in such Annual Report and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock. The Company's business, operating results and financial condition could be adversely affected due to any of those risks.
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ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
The following disclosures set forth certain information with respect to all securities sold by the Company during the three months ended June 30, 2021 without registration under the Securities Act:
Convertible Notes Payable
On January 24, 2020,June 7, 2021, the Company and Geneva Roth Remark Holdings, Inc., entered into a security purchase agreement (“SPA”) for an 8% promissory note in the aggregate principal of $251,625, with a maturity date of June 7, 2022. The note included a original issuance discount (“OID”) of $22,875, for a purchase price of $228,750. The interest was applied as a one time interest charge upon the issuance date, in the amount of $20,130, recognized in accrued interest. The monthly payments will include the outstanding principal and accrued interest, in 10 monthly payments of $27,175, with the first payment on July 30, 2021. Upon an event of default, as set forth in the agreement, the holder shall have the right to convert the outstanding balance of the note into shares of common stock of the Company, with a conversion rate based on 75% of the lowest trading price of the common stock for the 5 trading days prior to the conversion date. In addition, upon default, the interest increases to 22%, and any outstanding principal and accrued interest shall be increased by 150%. The Company is required at have authorized and reserved four times the number of shares that is actually issuable upon full conversion of the note, which was initially 29,494,505 shares. While the note is still outstanding the Company shall not, without written consent of the holder, issue any variable convertible instruments with a convertible price that varies with the market price of the Company’s common stock, nor shall the Company without the holder’s written consent, sell, lease or otherwise dispose of any significant portion of its assets outside the ordinary course of business. In connection with the note, the Company issued 281,955 common shares to2,096,875 warrants, exercisable each at $003, with a consultant pursuant to the consulting agreement3-year term.
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On January 31, 2020, the Company issued 2,000,000 common shares to Crown Bridge in accordance with the note payable conversion feature. Crown Bridge converted $8,050 of principal 750.00 of fees.The remaining principal balance of the First Tranche was converted on April 14, 2020
On February 7, 2020,March 25, 2021, the Company and Power Up Lending GroupGS Capital Partners LLC entered into a security purchase agreement for a 10%Prime rate plus 8% Convertible Note in the aggregate principal of $103,000 due on February 7,2021.$2,285,714. The note is convertibleshall be paid in one or more tranches. The maturity for each tranche shall be twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price shall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the lesser of (i) the fixed conversion price; (ii) or 70% of the lowest intraday price during the 21 days preceding the conversion request. On April 1, 2021, the Company received the first tranche of $1,000,000. Upon the receipt of the first tranche, the Company issued 20,000,000 warrants, exercisable at $0.10, with a 10-year term and contain full-ratchet anti-dilution protection provisions, with a fair value of $917,000. The Company also issued 4,000,000 shares of common stock as commitment shares to the noteholder, with a fair value of $184,000. On May 24, 2021, the Company received the second tranche from GS Capital Partners LLC, for $796,000’ less an OID of $99,500. On May 24, 2021 the Company received the balance of the second tranche for $346,857 less an OID of $48,357
On January 15, 2021, the Company and Power Up Lending Group entered into a securities purchase agreement for a 10% convertible note in the aggregate principal of $88,500 due on January 15, 2022. The conversion price is equal to the Variable Conversionvariable conversion price which is defined as 61% of the Market Pricemarket price for the lowest two trading dates during a fifteen-day trading period ending on the latest complete trading date prior to the Conversionconversion date. AsThe conversion feature meets the definition of a derivative and therefore requires bifurcation and will be accounted for as a derivative liability on the issuance date of these financial statements, the note remains outstanding.becomes convertible. On July 13, 2021, the Company paid off the note, plus accrued interest and redemption fees, for a total payment of $130,078.
On April 15, 2020,February 25, 2021, the Company and Platinum PointLeonite Capital LLC entered into a securitysecurities purchase agreement for a 10% Convertible Noteprime rate plus 8% convertible note in the aggregate principal of $82,500 due on April 15,2021.$2,285,714. The note is convertibleshall be paid in one or more tranches. The maturity for each tranche shall be twelve-month period from advance date. The holder has the right at any time to convert all or any part of the outstanding principal into shares of common stock of the Company. The conversion price isshall be a fixed conversion price of $0.06, which upon a default event, shall be equal to the Variable Conversion price which is defined as 60%lesser of (i) the fixed conversion price; (ii) or 70% of the Market Price forlowest intraday price during the lowest twenty trading dates period ending on21 days preceding the latest complete trading date prior toconversion request.
On March 1, 2021, the Conversion date. AsCompany received the first tranche of the issuance date of these financial statements,$1,000,000. In connection with the note, remains outstanding.
On April 17, 2020, the Company issued 796,05320,000,000 warrants, exercisable at $0.10, with a 10-year term and contain full-ratchet anti-dilution protection provisions, with a fair value of $507,000. The Company also issued 4,000,000 shares of common stock as commitment shares to Tangiers Global for the Forbearance Agreement dated April 16,2020 tonoteholder, with a fair value of $204,000. The warrants and the $137,500 Convertible Promissory Note dated October 16, 2019. This agreement extendedcommitment shares resulted in a debt discount of $1,000,000, which will be amortized using the conversion featureeffective interest method over the life of the convertible note, and the excess of $101,000 recognized as interest expense at issuance. The warrants were evaluated to be classified as a liability, as based on the various convertible notes outstanding with variable conversion rates it cannot be determined if there are sufficient authorized shares available during the contract period. As of September 30, 2021, and through the date of this report, the principal balance totaling $1,142,875 is outstanding.
The above transactions did not involve any underwriters, underwriting discounts or commissions, or any public offering. The Company relied upon the exemption from April 16, 2020 until May 16, 2020.the registration requirements of the Securities Act of 1933, as amended (the “Act”) by virtue of Section 4(a)(2) thereof and/or Regulation D promulgated by the SEC under the Act.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
None.
ITEM 4. MINE SAFETY DISCLOSURES
Not Applicable.
None.
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| XBRL Instance Document | ||||
| 101.SCH | XBRL Taxonomy Extension Schema Document | |||
| 101.CAL | XBRL Taxonomy Extension Calculation Linkbase Document | |||
| 101.DEF | XBRL Taxonomy Extension Definition Linkbase Document | |||
| 101.LAB | XBRL Taxonomy Extension Label Linkbase Document | |||
| 101.PRE | XBRL Taxonomy Extension Presentation Linkbase Document |
| * | Filed herewith. |
| In accordance with SEC Release 33-8238, Exhibit 32.1 is being furnished and not filed. |
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SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
GLOBAL DIGITAL SOLUTIONS, INC.
By: /s/ William Delgado
William Delgado
Chief Executive Officer
(Principal Executive Officer)
Date: November 23, 2020
By: /s/ Jerome J. Gomolski
Jerome J. Gomolski
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: November 23, 2020
| By: | /s/ William J. Delgado | |
| William J. Delgado | ||
| Chief Executive Officer | ||
| Date: November 22, 2021 | ||
| By: | /s/ Jerome J. Gomolski | |
| Jerome J. Gomolski | ||
| Chief Financial Officer | ||
| Date: November 22, 2021 | ||
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