Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | May 31, 2018 | Jun. 30, 2015 | |
Document And Entity Information | |||
Entity Registrant Name | GLOBAL DIGITAL SOLUTIONS INC | ||
Entity Central Index Key | 1,011,662 | ||
Document Type | 10-K | ||
Document Period End Date | Dec. 31, 2015 | ||
Amendment Flag | false | ||
Current Fiscal Year End Date | --12-31 | ||
Is Entity a Well-known Seasoned Issuer? | No | ||
Is Entity a Voluntary Filer? | No | ||
Is Entity's Reporting Status Current? | No | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $ 3,538,651 | ||
Entity Common Stock, Shares Outstanding | 559,084,905 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,015 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Current Assets | ||
Cash and cash equivalents | $ 2,944 | $ 160,102 |
Accounts receivable, net | 4,261 | 2,400 |
Inventory | 0 | 57,877 |
Prepaid expenses | 99,111 | 81,499 |
Total current assets | 106,316 | 301,878 |
Property and equipment, net | 4,920 | 9,040 |
Intangible assets | 0 | 0 |
Deposits | 2,415 | 2,882 |
Total assets | 113,651 | 313,799 |
Current Liabilities | ||
Accounts payable | 357,197 | 281,726 |
Accrued expenses | 197,300 | 197,578 |
Convertible notes payable, net of discount of $18,219 | 90,772 | 0 |
Due to factor, net of discount of $16,160 | 91,106 | 0 |
Notes payable | 64,847 | 58,258 |
Convertible notes payable to related parties, net of discount | 0 | 40,707 |
Total current liabilities | 801,222 | 578,268 |
Derivative liability | 270,080 | 0 |
Contingent liability | 0 | 648,614 |
Total liabilities | 1,071,302 | 1,226,882 |
Commitments and Contingencies (Note 10) | ||
Shareholders' Deficiency | ||
Preferred stock, $0.001 par value, 35,000,000 shares authorized, none issued and outstanding | 0 | 0 |
Common stock, $0.001 par value, 450,000,000 and 175,000,000 shares authorized, 530,806,571 and 108,291,855 shares issued and outstanding, respectively | 530,807 | 108,293 |
Additional paid-in capital | 30,178,926 | 27,956,677 |
Accumulated deficit | (31,667,383) | (28,978,053) |
Total shareholders' deficiency | (957,650) | (913,083) |
Total liabilities and shareholders' deficiency | $ 113,652 | $ 313,799 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Statement of Financial Position [Abstract] | ||
Convertible notes payable discount | $ 18,219 | $ 18,219 |
Due to factor discount | $ 16,160 | $ 16,160 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 35,000,000 | 35,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 450,000,000 | 175,000,000 |
Common stock, shares issued | 530,806,571 | 108,291,855 |
Common stock, shares outstanding | 530,806,571 | 108,291,855 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Income Statement [Abstract] | ||
Revenue | $ 641,578 | $ 395,022 |
Cost of revenue | 581,746 | 662,307 |
Gross profit | 59,832 | (267,285) |
Operating expenses | ||
Selling, general and administrative expenses | 1,796,506 | 10,326,618 |
Operating loss before other income (expense) | (1,736,674) | (10,593,903) |
Other (income)/expense | ||
Change in fair value of derivatives | 450,717 | 0 |
Goodwill impairment loss | 0 | 1,156,192 |
Other income | (648,614) | 0 |
Gain on extinguishment of debt | 0 | (387,642) |
Loss on impairment of intangible assets | 0 | 596,471 |
Loss on disposal of fixed assets | 0 | 12,500 |
Finance costs | 397,859 | 0 |
Amortization of debt discount - convertible notes payable | 652,031 | 0 |
Amortization of debt discount - convertible notes payable, related parties | 28,656 | 0 |
Amortization of debt discount - factoring | 20,540 | 0 |
Interest income | 0 | (43,182) |
Interest expense - convertible notes payable, related parties | 51,468 | 19,585 |
Loss on writedown of inventory | 0 | 169,020 |
Total other income (expense) | 952,657 | 1,522,944 |
Loss from continuing operations before provision for income taxes | (2,689,331) | (12,116,847) |
Provision for income taxes | 0 | 0 |
Loss from continuing operations | (2,689,331) | (12,116,847) |
Loss from discontinued operations | 0 | (2,832) |
Net loss | $ (2,689,331) | $ (12,119,679) |
Loss per common share - basic: | ||
Loss from continuing operations | $ (0.01) | $ (.12) |
Loss from discontinued operations | 0 | 0 |
Net loss | $ (0.01) | $ (0.12) |
Weighted average shares outstanding: | ||
Basic | 208,438,345 | 101,755,501 |
CONSOLIDATED STATEMENTS OF SHAR
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ DEFICIENCY - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Preferred Stock | ||
Beginning balance | $ 0 | $ 0 |
Beginning balance, shares | 0 | 0 |
Ending balance | $ 0 | $ 0 |
Ending balance, shares | 0 | 0 |
Common Stock | ||
Beginning balance | $ 108,292 | $ 93,025 |
Beginning balance, shares | 108,291,855 | 93,024,117 |
Stock-based compensation expense | $ 2,563 | $ 8,937 |
Stock-based compensation expense, shares | 2,562,501 | 8,937,503 |
Common stock issued for acquisition of business | $ 3,280 | |
Common stock issued for acquisition of business, shares | 3,280,235 | |
Common stock and warrants issued for services | $ 588 | $ 1,250 |
Common stock and warrants issued for services, shares | 587,925 | 1,250,000 |
Common stock issued for services in connection with acquisitions | $ 1,800 | |
Common stock issued for services in connection with acquisitions, shares | 1,800,000 | |
Common Stock issued upon conversion of convertible notes payable | $ 419,364 | |
Common Stock issued upon conversion of convertible notes payable, shares | 419,364,290 | |
Ending balance | $ 530,807 | $ 108,292 |
Ending balance, shares | 530,806,571 | 108,291,855 |
Additional Paid-In Capital | ||
Beginning balance | $ 27,956,677 | $ 17,976,600 |
Stock-based compensation expense | 785,452 | 5,475,629 |
Common stock issued for acquisition of business | 1,078,665 | |
Common stock and warrants issued for services | 68,470 | 1,007,918 |
Common stock issued for services in connection with acquisitions | 662,200 | |
Common Stock issued upon conversion of convertible notes payable | 109,801 | |
Release of derivative liability upon conversion of notes | 1,248,746 | |
Stock subscription received | 125,000 | |
Beneficial conversion feature of convertible notes | 9,780 | 30,665 |
Ending balance | 30,178,926 | 27,956,677 |
Accumulated Deficit | ||
Beginning balance | (28,978,054) | (18,016,755) |
Net loss | (2,689,331) | (12,119,679) |
Ending balance | (31,667,385) | (28,978,054) |
Noncontrolling Interest | ||
Beginning balance | 0 | 0 |
Ending balance | 0 | 0 |
Beginning balance | (913,083) | 52,870 |
Stock-based compensation expense | 788,015 | 5,484,566 |
Common stock issued for acquisition of business | 0 | 1,081,945 |
Common stock and warrants issued for services | 69,058 | 1,009,168 |
Common stock issued for services in connection with acquisitions | 664,000 | |
Common Stock issued upon conversion of convertible notes payable | 529,165 | |
Release of derivative liability upon conversion of notes | 1,248,746 | |
Stock subscription received | 125,000 | |
Beneficial conversion feature of convertible notes | 9,780 | 30,665 |
Issued but not vested shares | 0 | |
Net loss | (2,689,331) | (12,119,679) |
Ending balance | $ (957,650) | $ (913,083) |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Operating Activities | ||
Net loss | $ (2,689,331) | $ (12,119,678) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation and amortization | 6,010 | 80,694 |
Gain on extinguishment of debt | 0 | (387,642) |
Loss on disposal of fixed assets | 0 | 12,500 |
Goodwill impairment loss | 0 | 1,156,192 |
Stock- based compensation expense | 788,015 | 7,024,287 |
Common stock and warrants issued in payment of services | 69,058 | 1,009,168 |
Non cash acquisition expense settled with shares | 0 | 664,000 |
Non-cash discount on price of shares issued | 0 | 65,572 |
Convertible debt discount amortization | 0 | 2,011 |
Change in fair value of derivative liability | 450,717 | 0 |
Non cash interest expense | 0 | 11,696 |
Beneficial conversion feature of debt and warrant | 9,780 | 0 |
Debt discount accretion | 1,099,086 | 0 |
Changes in operating assets and liabilities: | ||
Accounts receivable | (1,861) | 0 |
Inventory | 57,877 | 0 |
Costs in excess of billings | 0 | 570,787 |
Prepaid expenses | (17,613) | 66,561 |
Accounts payable | 75,471 | 151,193 |
Accrued expenses | 26,959 | 34,129 |
Other assets | 467 | 0 |
Billings in excess of costs | 0 | 13,631 |
Financed insurance policy | 6,589 | 0 |
Contingent consideration payable | (648,614) | 0 |
Net cash used in operating activities | (767,389) | (1,644,899) |
Investing Activities | ||
Repayment of Loans from Airtronic USA, Inc. | 0 | 1,465,874 |
Payment for NACSV, net of cash acquired | 0 | (276,329) |
Capital expenditures | (1,890) | 0 |
Deposits | 0 | (2,684) |
Net cash provided by (used in) investing activities | (1,890) | 1,186,861 |
Financing Activities | ||
Proceeds from the exercise of warrants | 0 | 125,000 |
Proceeds from notes payable | 0 | 162,242 |
Payments on notes payable | 0 | (376,939) |
Proceeds from convertible notes | 670,250 | 0 |
Payment on convertible notes | (59,331) | (150,000) |
Proceeds from factor | 109,000 | 0 |
Repayments to factor | (38,434) | 0 |
Non cash acquisition | 0 | 348,613 |
Payment on related party convertible notes | (69,363) | 0 |
Net cash provided by (used in) financing activities | 612,122 | 108,916 |
Net increase (decrease) in cash and cash equivalents | (157,158) | (349,122) |
Cash and cash equivalents at beginning of year | 160,102 | 509,224 |
Cash and cash equivalents at end of period | 2,944 | 160,102 |
Supplementary disclosure of cash flow information | ||
Cash paid during the year for: Interest | 13,048 | 5,878 |
Cash paid during the year for: Taxes | 0 | 0 |
Supplementary disclosure of non-cash investing and financing activities | ||
Purchase of NACSV with common shares | $ 0 | $ 1,081,945 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 12 Months Ended |
Dec. 31, 2015 | |
Description Of Business | |
DESCRIPTION OF BUSINESS | We were incorporated in New Jersey as Creative Beauty Supply, Inc. (“Creative”) in August 1995. In March 2004, Creative acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global, and Creative changed its name to Global Digital Solutions, Inc., Global provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies. On May 1, 2012, we made the decision to wind down our operations in the telecommunications area and to refocus our efforts in the area of cyber arms technology and complementary security and technology solutions. From August 2012 through November 2013 we were actively involved in managing Airtronic USA, Inc., and effective as of June 16, 2014 we acquired North American Custom Specialty Vehicles (“NACSV”). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas. 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”). 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. We have engaged the law firm of Boies Schiller Flexner LLP to represent us in this action. The case will be handled by William Isaacson of the firm’s Washington office and Carlos Sires of the firm’s Fort Lauderdale office. 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. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies | |
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 year ended December 31, 2015 we incurred a net loss of $2,689,331 and used net cash of $767,390 to fund operating activities. At December 31, 2015, we had cash and cash equivalents of $2,944, an accumulated deficit of $31,667,384, a working capital deficit of $694,906 and stockholders’ deficit of $957,651. We have funded our activities to date almost exclusively from equity and debt financings. Our cash position is critically deficient, and payments essential to our ability to operate are not being made in the ordinary course. Failure to raise capital in the coming days to fund our operations and failure to generate positive cash flow to fund such operations in the future will have a material adverse effect on our financial condition. These factors raise substantial doubt about our ability to continue as a going concern. We are in default under the terms of our loan agreements, as more fully discussed in Note 8. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all. We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, and the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities. While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. On February 2, 2018, we announced that we had secured $1.2 million in a non-convertible financing from a New York-based institution. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern as a result of our history of net losses. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue acquisitions, and raise the funds necessary to complete such acquisitions. The outcome of these matters cannot be predicted at this time. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. Principles of Consolidation The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, NACSV, GDSI Florida, LLC and Global Digital Solutions, LLC, dba GDSI International. All intercompany accounts and transactions have been eliminated in consolidation. Revenue Recognition In accordance with U.S. generally accepted accounting principles, the revenue under fixed-price contracts is accounted for on the percentage-of-completion method. This methodology recognizes revenue and earnings as work progresses on the contract and is based on an estimate of the revenue and earnings earned to date, less amounts recognized in prior periods. The Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim. Because of inherent uncertainties in estimating costs, it is possible that the estimates used will change within the near-term. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes and worker’s compensation insurance premiums. Operating expenses are charged to expense as incurred. Revenue for service and refurbishment work are recognized when the job is complete. Advertising All advertising costs are expensed as incurred. Provision for Income Taxes Income taxes are calculated based upon the asset and liability method of accounting. Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard to allow for recognition of such an asset. In addition, realization of an uncertain income tax position must be estimated as “more likely than not” (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements . Cash and Cash Equivalents We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. Accounts Receivable We record accounts receivable at the invoiced amount and we do not charge interest. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review the accounts receivable by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Allowance for doubtful accounts was $104,085 at December 31, 2014. We did not have an allowance for doubtful accounts at December 31, 2015, due to a significant decrease in accounts receivable. Prepaid expenses Prepaid expenses consist primarily of prepaid insurance totaling $99,111 and $81,499 at December 31, 2015 and 2014, respectively, which is amortized on a straight-line basis over the policy period. Fair Value of Financial Instruments The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurements and Disclosures," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: ● Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. ● Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. ● Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. Convertible Notes With Fixed Conversion Options We have entered into convertible notes with related parties that contain conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into shares of our common stock at a fixed price which represented a 30% discount to the price of our common stock at the time of issuance. We measure the fair value of the notes at the time of issuance, which is the result of the share price conversion discount, and record the discount (beneficial conversion feature) as a reduction of debt. We then accrete the discount as interest expense utilizing the effective interest rate method over the life of the debt. Derivative Financial Instruments During the year ended December 31, 2015, we issued convertible notes payable to third parties, which contain variable conversion options allowing the holders to convert the notes payable into shares of our common stock at discounts ranging from 39% to 40%. Each of these notes is more fully described in Note 7 . We account for these conversion options embedded in the convertible notes payable to third parties in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC’) 815, “Derivatives and Hedging” Embedded Derivatives Derivative Liabilities Derivatives and Hedging – Contracts in Entity’s own Equity Change in Fair Value – Derivatives Convertible Securities Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to December 31, 2014. 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. Earnings (Loss) Per Share (“EPS”) Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive: Year ended December 31, 2015 2014 Convertible notes and accrued interest 48,513,147 766,666 Stock options 16,100,000 5,840,000 Warrants 2,500,000 4,250,000 Vested but unissued restricted stock awards 375,000 2,187,503 Restricted stock units 1,000,000 - Price protection - 1,854,838 Potentially dilutive securities 68,488,147 14,899,007 Stock Based Compensation We adopted the fair value recognition provisions of ASC 718, "Compensation – Stock Compensation”. Under the fair value recognition provisions, we are required to measure 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 . 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 allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. Contingent consideration for business acquisitions Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to its estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria Property and Equipment Property and equipment is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts. A provision for depreciation of property and equipment is made on a basis considered adequate to amortize the related costs (net of salvage value) over their estimated useful lives using the straight-line method. Estimated useful lives are principally as follows: vehicles, 5 years; furniture and fixtures and office equipment, 5-10 years; leasehold improvements, term of lease or 15 years, whichever is less; machinery and equipment 5-10 years. Goodwill and Intangible Assets Goodwill represents the excess of purchase price over the fair value assigned to the net assets acquired in business combinations. Goodwill is allocated to reporting units as of the acquisition date for the purpose of goodwill impairment testing. Currently, we operate in only one reporting unit. Our goodwill arose from our acquisition of NACSV in June 2014, as more fully discussed in Note 2. Intangible assets deemed to have an indefinite life such as goodwill are not amortized, but instead are reviewed at least annually for impairment. Intangible assets with finite lives are amortized over their estimated useful lives. As of December 31, 2015 and 2014, other than goodwill in 2014, we had no intangible assets with indefinite lives. We tested our goodwill for impairment during the fourth quarter of 2014 as a part of our annual business planning cycle. Goodwill is also tested between testing dates if an impairment condition or event is determined to have occurred. As a result of our annual assessment in 2014, we determined that the implied value of our existing goodwill was nil and, therefore, we recorded a $1,156,192 goodwill impairment charge in the fourth quarter of 2014. In performing our assessment, we placed emphasis on the estimated future cash flows from NACSV’s operations, which had declined from our initial expectations in part due to recent changes in its senior management, changes in the customer base, and the reduction in the existing backlog of customer orders. We based our valuation on the income valuation approach using a discounted cash flow model. At December 31, 2014 and during the first quarter of 2015, we had one other intangible asset consisting of customer relationships, which arose from our acquisition of NACSV and was being amortized over its expected economic life of five years. The life was determined based upon the expected use of the asset, and other contractual provisions associated with the asset, the estimated average life of NACSV’s products, the stability of the industry, and other factors deemed appropriate. We continually evaluated whether events or circumstances occurred that indicated the remaining estimated useful life of our customer relationships asset may warrant revision or that the remaining balance of such asset may not be recoverable. We used an estimate of the related discounted cash flows over the remaining life of the asset in measuring whether the asset is recoverable. Based on our valuation during the first quarter of 2015, we determined that the value of the customer relationships was fully impaired, as more fully discussed in Note 4. See Note 4 for more information regarding goodwill and intangible assets. Deferred Financing Costs Costs incurred in connection with obtaining financing are deferred and classified as a discount to the related loan and amortized on a straight-line basis over the term of the related loan. The amortization of deferred financing costs is included in interest expense. The Company recognized $652,031 and $5,011 of expense related to the amortization of deferred financing costs during the years ended December 31, 2015 and 2014, respectively. Inventory Inventory at December 31, 2014 consists of the in-progress mobile command units and is stated at the lower of cost (first-in, first-out) or market. We did not have any inventory at December 31, 2015. We order inventory/components upon receipt of a signed purchase order from a customer. December 31, 2015 2014 Trailer Inventory $ - $ 187,881 Work-in-process - 57,877 Less: Reserve for inventory loss - (187,881 ) Total $ - $ 57,877 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. Professional 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. 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. Reclassifications Certain reclassifications have been made to conform the prior period data to the current presentations. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement . In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . In February 2016, the FASB issued ASU No. 2016-02, Leases . |
ACQUISITIONS
ACQUISITIONS | 12 Months Ended |
Dec. 31, 2015 | |
Acquisitions | |
ACQUISITIONS | North American Custom Specialty Vehicles (“NACSV”) On June 16, 2014, we acquired all of the outstanding membership interest of NACSV in a transaction accounted for using the purchase method of accounting (the “Acquisition”). NACSV specializes in building mobile emergency operations centers (“MEOC’s”) and specialty vehicles for emergency management, first responders, national security and law enforcement operations. As consideration for the consummation of the Acquisition, at the closing of the Acquisition, the Company paid $1,000,000 in cash to the selling members, and issued them 645,161 shares of the Company’s common stock valued at $200,000 (the “Stock Consideration”). In connection with the Acquisition, the Company is required to make a true-up payment of the excess of total assets over $1.2 million, valued at $816,373, payable in shares of the Company’s common stock (the “True-Up Payment”), and additional consideration as certain events or transactions occur in the future, up to a maximum of $2.4 million, payable in shares of the Company’s common stock or in cash at the seller’s option (the “Contingent Consideration”). Additionally, the Company issued 1.8 million shares of common stock for acquisition services rendered in conjunction with the Acquisition valued at $664,000. The Company recorded nonrecurring charges of $843,488 during the year ended December 31, 2014 related to the direct costs of the Acquisition, consisting of the $664,000 value of the shares of common stock issued for acquisition services and $179,488 of cash costs for legal, accounting fees and due diligence fees. The purchase price of the Acquisition totaled $2,713,079, comprised of $1,000,000 in cash, the Stock Consideration of $200,000, the True-Up Payment of $816,373, and the fair value of the Contingent Consideration of $696,706. The fair value of the Contingent Consideration was estimated based upon the present value of the expected future payouts. On October 17, 2014, we issued 2,635,074 shares of our common stock valued at $0.31 as settlement for the True-Up Payment. Under the purchase method of accounting, the purchase price of the Acquisition was allocated to NACSV’s net tangible and identifiable intangible assets and liabilities assumed based on their estimated fair values as of the date of the completion of the Acquisition, as follows: Cash and cash equivalents $ 135,425 Accounts receivable, net 370,481 Inventory 73,140 Prepaid Expenses 26,004 Costs in excess of billings 570,787 Property and equipment, net 68,157 Customer relationships 668,940 Goodwill 1,156,192 Total assets acquired 3,069,126 Accounts payable and accrued liabilities 37,811 Notes payable 304,605 Billings in excess of costs 13,631 Total liabilities assumed 356,047 Total purchase price $ 2,713,079 The fair values of certain assets and liabilities have been determined by management. No portion of the intangible assets, including goodwill, is expected to be deductible for tax purposes. The results of operations of NACSV are included in the Company’s consolidated statements of operations from the date of the acquisition of June 16, 2014, including approximately $205,700 of revenue and approximately $317,000 of net loss for the year ended December 31, 2014. The following unaudited supplemental pro forma information assumes that the Acquisition had occurred as of January 1, 2014: 2014 (Unaudited) Revenues $ 2,658,798 Net loss from continuing operations $ (11,255,057 ) Net loss per share from continuing operations $ (0.11 ) The unaudited pro forma financial information is not necessarily indicative of the results that would have occurred if the Acquisition had occurred on the dates indicated or that may result in the future. 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. 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, among other conditions. 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. 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. |
INVENTORY
INVENTORY | 12 Months Ended |
Dec. 31, 2015 | |
Inventory Abstract | |
INVENTORY | Inventory consists of the following: December 31, 2015 2014 Trailer Inventory $ - $ 187,881 Work-in-process - 57,877 Less: Reserve for inventory loss - (187,881 ) Total $ - $ 57,877 We had established a reserve for inventory loss for $187,881 of trailer inventory on hand at NACSV at December 31, 2014. Pursuant to the terms of the Equity Purchase Agreement between the Company and the NACSV sellers, all of the proceeds from the sale of this inventory were to be paid to the NACSV sellers and thus the Company’s net realizable value on this inventory, which was sold during the year ended December 31, 2015, was zero. The Company orders inventory/components when it receives a signed purchase order from its customer. |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS | 12 Months Ended |
Dec. 31, 2015 | |
Goodwill And Intangible Assets | |
GOODWILL AND INTANGIBLE ASSETS | Goodwill Goodwill arose in connection with our acquisition of NACSV in June 2014, which is more fully discussed in Note 2. We do not presently have any other intangible assets with indefinite lives. In testing our goodwill during the fourth quarter of 2014, we used an income valuation approach based on information currently available. The approach considered the likelihood of future cash flows that we expect our NACSV business to generate over the next ten years, along with a terminal value based on a long-term sustainable growth rate subsequent to 2015 of 1%, which were discounted using a 20% discount rate. Based on our analysis, the implied value of our goodwill was nil and, accordingly, we recorded a goodwill impairment charge of as of December 31, 2014 as follows: December 31, 2014 Beginning balance $ - Acquired goodwill (see Note 2) 1,156,192 Goodwill impairment loss (1,156,192 ) Ending balance $ - Intangible Asset At December 31, 2014, we had an intangible asset of $596,471, which was comprised of customer relationships. The customer relationships arose from the Acquisition, as more fully discussed in Note 2. Based on valuation for the year ending December 31, 2014, we determined that the remaining value of the customer relationships of $596,471 was impaired. Therefore, we recorded an intangible asset impairment loss of $596,471, which is included as a component of our selling, general and administrative expenses in the statement of operations for the year ended December 31, 2014. This was due in part to the lack of revenue from sales of NACSV’s products during the year ending December 31, 2104, as well as to our expectations regarding future estimated discounted cash flows attributable to such asset. We have filed legal proceedings against the sellers of NACSV as more fully discussed in Note 10. We believe that certain misrepresentations were made to us regarding the business prospects of NACSV. In addition to the legal issue discussed in Note 10, we intend to pursue additional legal remedies related to NACSV’s business prospects. |
ACCRUED EXPENSES
ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2015 | |
Accrued Expenses | |
ACCRUED EXPENSES | Accrued expenses consist of the following amounts: Year ended December 31, 2015 2014 Accrued compensation to executive officers and employees $ 151,565 $ 189,487 Accrued professional fees 45,735 6,220 Accrued expenses due to related parties - 1,871 Total accrued expenses $ 197,300 $ 197,578 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 12 Months Ended |
Dec. 31, 2015 | |
Fair Value Measurements | |
FAIR VALUE MEASUREMENTS | We had no Level 1 or Level 2 assets and liabilities at December 31, 2015 and December 31, 2014. The following table sets forth our Level 3 liabilities measured at fair value, whether recurring or non-recurring, at December 31, 2015 and December 31, 2014. Year ended December 31, 2015 2014 Liabilities: Recurring: Embedded derivative liabilities of convertible notes $ 270,080 $ - Recurring: Liability for stock options - - Recurring: Contingent Consideration $ 270,080 $ - The following is a summary of activity of Level 3 liabilities during the year ended December 31, 2015: Embedded Derivative Liabilities of Convertible Notes Contingent Consideration Balance at December 31, 2014 $ - $ 648,615 Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 1,068,109 - Change in fair value (798,029 ) (92,962 ) Reductions in EPA due to overvaluation of assets - (149,108 ) Increase in amount owed to Dekle per EPA Potter County Sale - (406,545 ) Recurring: Contingent Consideration $ 270,080 $ - Embedded Derivative Liabilities of Convertible Notes The initial fair value of the bifurcated embedded derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate – 0.08%; expected life -.49 years: volatility - 339%; dividend rate – 0%. At December 31, 2015, the fair value of the bifurcated embedded derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate – 0.16%; term - .25 years; volatility - 224%; dividend rate – 0%. Liability for Stock Options The stock options giving rise to the liability for stock options were granted on December 9, 2015. At December 9, 2015 and December 31, 2015, the fair value of the liability for stock options was estimated using the Black Scholes Merton (“BSM”) pricing model with the following weighted-average inputs: risk free interest rate – 1.6%; term - .5 years; volatility - 273%; dividend rate – 0%. Contingent Consideration ASC Topic 805 requires that contingent consideration be recognized at fair value on the acquisition date and be re-measured each reporting period with subsequent adjustments recognized in the consolidated statement of operations. We estimate the fair value of contingent consideration liabilities based on financial projections of the acquired companies and estimated probabilities of achievement and discount the liabilities to present value using a weighted-average cost of capital. Contingent consideration is valued using significant inputs that are not observable in the market which are defined as Level 3 inputs pursuant to fair value measurement accounting. We believe our estimates and assumptions are reasonable, however, there is significant judgment involved. At each reporting date, the contingent consideration obligation is revalued to its estimated fair value, and changes in fair value subsequent to the acquisitions are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to, and volatility in, our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria. As of December 31, 2015 and December 31, 2014, contingent consideration included in liabilities on the consolidated balance sheet totaled $0 and $648,614, respectively. After further developments, we have reserved $370,340 to increase amount owed to Dekle per the EPA Potter County Sale, We have filed legal proceedings against the sellers of NACSV as more fully discussed in Note 10. Carrying Value of Other Current Assets and Other Current Liabilities The Company’s management considers the carrying values of other current assets and other current liabilities to approximate fair values primarily due to their short-term nature. |
NOTE PAYABLE
NOTE PAYABLE | 12 Months Ended |
Dec. 31, 2015 | |
Note Payable | |
NOTE PAYABLE | Convertible Notes Payable with Embedded Derivative Liabilities (Conversion Options) During the year ended December 31, 2015, we entered into nine convertible notes payable with embedded derivative liabilities (conversion options) with an aggregate principal balance of $670,250. At December 31, 2015, two of these notes were outstanding as follows: December 31, 2015 Convertible note payable for $78,750 to LG Capital Funding, LLC (“LG Capital”) dated January 16, 2015, due January 16, 2016, of which $38,829 was repaid by conversion as of December 31, 2015, bearing interest at the rate of 8% per annum. Note may be converted by LG Capital into shares of our common stock at a conversion price equal to a 40% discount of the lowest closing bid price for 20 prior trading days including the notice of conversion date. (1) (3) $ 39,921 Convertible note payable for $250,000 to JMJ Financial (“JMJ”) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015, of which $40,930 was repaid by conversion as of December 31, 2015. The note was issued with an original issue discount of 10% of amounts funded. The principal amount matures 24 months from the date of each funding, had a one-time 12% interest charge as it was not repaid within 90 days of the effective date, and is convertible at any time at the option of JMJ into shares of our common stock at the lesser of $0.075 per share or 60% of the average of the trade price in the 25 trading days prior to conversion. JMJ has the option to finance additional amounts up to the balance of the $250,000 during the term of the note. (1) (2) $ 69,070 Total convertible notes payable with embedded derivative liability $ 108,991 (1) The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. (2) We have classified this note as current due to our expectation to convert the note on a current basis. (3) Note was due on January 16, 2016. We have not yet repaid this note and it is, therefore, in default. We have also not maintained the required number of shares of our common stock in reserve for this note as more fully discussed below. Under the terms of the two convertible promissory notes outstanding at December 31, 2015, we are required to maintain a minimum number of shares of our common stock in reserve for conversions. In the case of the note with JMJ, the reserve amount is set at 26,650,000 shares of our common stock. However, under the terms of the note with LG Capital we are required to maintain a minimum share reserve equal to four times the potential number of shares of our common stock issuable upon conversion, or 66,204,427 shares at December 31, 2015. As a result of declines in the fair value of our common stock, we did not have sufficient authorized shares to maintain this required four times share reserve at December 31, 2015. Accordingly, the note holder had the right to accelerate the payment due (approximately $43,033 of principal and interest was due at December 31, 2015). In addition, they have the right to require that additional shares and/or monies be paid in connection with this technical default. At December 31, 2015, we have not accrued any penalties or penalty interest associated with this note, nor have we been notified by the lender of a technical default. Because the conversion prices vary with changes in the value of our common stock, the number of shares into which the outstanding notes payable and accrued interest are convertible will continue to vary, which may result in additional technical defaults if the price of our common stock decreases. As soon as we are able, we intend to request shareholder approval to increase the number of authorized shares of our common stock in order to satisfy our obligations to maintain sufficient authorized share reserves under the terms of our convertible notes. In addition, the two outstanding convertible notes also contain certain representations, warranties, covenants and other events of default, including in the case of one of the notes maintaining our common stock listing on the OTCQB exchange. At inception the total estimated fair value of the embedded derivative liability associated with the conversion options of all nine such convertible notes payable issued during 2015 was $1,068,109 of which $798,029 was classified as a debt discount and amortized under the effective interest method during the year ended December 31, 2015, and $652,031 was immediately recognized as interest expense upon issuance, as it exceeded the principal balance of the related notes. During 2015, we recognized a gain on the change in the fair value of the derivative liability of $798,029. During 2015, we issued 419,364,293 shares of our common stock upon conversions of principal and accrued interest totaling $529,166. We also used $59,000 of proceeds from a revenue based factoring agreement to repay in cash two of the convertible notes payable. The factoring agreement is more fully discussed below. Revenue Based Factoring Agreements During the year ended December 31, 2015, we entered into two revenue based factoring agreements as follows: December 31, 2015 Factoring agreement with Power Up Lending Group, Ltd. (“Power Up”) dated October 1, 2015, purchase price was $59,000. Company agreed to transfer all NACSV future receipts, accounts, contract rights, etc. arising from accounts receivable or other third party payors at the specified percentage of 24% until such time as $76,700 is paid in full. A daily repayment amount of $457 is required to be made and is credited against the specified percentage due. As of December 31, 2015, we paid $21,458 of the daily specified repayments and we had not made $9,588 of payments that were due. At December 31, 2015, $12,748 of deferred interest expense related to this agreement is included in current assets. (1) (2) (3) $ 55,242 Factoring agreement with Power Up dated October 23, 2015, purchase price was $50,000. Company agreed to transfer all NACSV future receipts, accounts, contract rights, etc. arising from accounts receivable or other third party payors at the specified percentage of 24% until such time as $69,000 is paid in full. A daily repayment amount of $548 is required to be made and is credited against the specified percentage due. As of December 31, 2015, we paid $16,976 of the daily specified repayments and we had not made $10,952 of payments that were due. At December 31, 2015, $14,326 of deferred interest expense related to this agreement is included in current assets. (2) (3) $ 52,024 Total due to factor $ 107,266 (1) We used the purchase price proceeds to satisfy in full the obligations under two convertible notes payable with embedded derivative liabilities. (2) The agreement contains certain protections against default, including prohibiting NACSV from changing its arrangement with its bank in any way that is adverse to Power Up and NACSV interrupting the operation of its business, among others. Events of default include: (i) the violation of any term or covenant under the agreement, (ii) the failure of NACSV to pay its debts when due and (iii) the transfer or sale of all or substantially all of NACSV’s asset, amount others. (3) We are currently in default under the terms of the two factoring agreements as we have not made the specified daily repayment amounts aggregating $20,540 and $107,266 as of December 31, 2015 and April 9, 2016, respectively, among other items. At December 31, 2015, we have not accrued any penalties or interest that might be due as a result of the defaults. Notes Payable Notes payable at December 31, 2015 and 2014 consist of the following: Collateral Interest Monthly December 31, Type (if any) Rate Payments Maturity 2015 2014 Premium finance agreement None 5.10 % $ 10,507 June-2016 $ 61,809 $ — Premium finance agreement None 9.25 % $ 3,414 January -2016 $ 3,037 $ — Premium finance agreement None 5.00 % $ 9,862 Jun-15 $ — $ 58,258 Total notes payable $ 64,948 $ 58,258 Convertible Notes Payable to Related Parties Convertible notes payable to related parties at December 31, 2014 consist of the following (we did not have convertible notes payable to related parties at December 31, 2015): December 31, 2014 Convertible note payable to an entity controlled by our Chairman and CEO, bore interest at 8% per annum, due December 8, 2016. After June 6, 2015, at the option of the holder, principal plus accrued interest was convertible into shares of our common stock at $0.09 per share. The note was fully repaid in cash during 2015 $ 37,500 Convertible note payable to our former Chief Financial Officer (“CFO”), bore interest at 8% per annum, due December 8, 2016. After June 6, 2015, at the option of the holder, principal plus accrued interest was convertible into shares of our common stock at $0.09 per share. The note was fully repaid in cash during 2015. (1) 31,500 69,000 Add: Accrued interest 363 Less: Unamortized debt discount (28,656 ) Convertible notes payable to related parties $ 40,707 (1) We used the purchase price proceeds to satisfy in full the obligations under two convertible notes payable with embedded derivative liabilities. The 8% convertible notes payable to related parties was convertible into common stock at the rate of $0.09 per share. The Company determined that the conversion feature was considered a beneficial conversion feature and determined its value to be $30,667 as of December 8, 2014, which the Company recorded as a debt discount to the notes. As a result of the repayment of the notes in 2015, $22,170 of the unamortized debt discount was recorded as a loss on extinguishment of debt in the year ended December 31, 2015. |
DERIVATIVE LIABILITY
DERIVATIVE LIABILITY | 12 Months Ended |
Dec. 31, 2015 | |
Derivative Liability | |
DERIVATIVE LIABILITY | Derivative Liability- Debt The fair value of the described embedded derivative on all convertible debt was valued at $270,080 and $0 at December 31, 2015 and 2014, respectively, which was determined using the following assumptions: December 31, 2015 Dividend yield: 0 % Term .25 year Volatility 224 % Risk free rate: 0.16 % For the year ended December 31, 2017, the Company adjusted the recorded fair value of the derivative liability on debt to market resulting in non-cash, non-operating loss of $798,029. During the year ended December 31, 2017, the Company reclassed derivative liability of $1,248,746 to additional paid in capital on conversion of a convertible note. The following table provides a summary of changes in fair value of the Company’s Level 3 financial liabilities as of December 31, 2015 and 2014: Derivative Liability (convertible promissory notes) Balance, December 31, 2014 $ - Initial fair value at note issuances 670,250 Fair value of liability at note conversion 397,859 Mark-to-market at December 31, 2015 (798,029 ) Balance, December 31, 2015 $ 270,080 |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2015 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Legal Proceedings Dekle, et. al. v. Global Digital Solutions, Inc. et. al. Brian A. Dekle and John Ramsay filed suit against the Company and its wholly owned subsidiary, North American Custom Specialty Vehicles, Inc. (“NACSV”), in the Circuit Court of Baldwin Alabama, on January 14, 2015, case no. 05-CV-2015-9000050.00, relating to our acquisition of NACSV (the ''Dekle Action"). Prior to instituting the Dekle Action, in June 2014, the Company had entered into an equity purchase agreement with Dekle and Ramsay to purchase their membership interest in North American Custom Specialty Vehicles, LLC. The Dekle Action originally sought payment for $300,000 in post-closing consideration Dekle and Ramsay allege they are owed pursuant to the equity purchase agreement. On February 9, 2015, t In response to the Company’s and NACSV's motion to dismiss, Dekle and Ramsay filed an amended complaint on March 2, 2015 seeking specific performance and alleging breach of contract, violations of Security and Exchange Commission (“SEC”) Rule 10b-5, and violations of the Alabama Securities Act. The amended complaint also names the Company’s Chairman, President, and CEO, Richard J. Sullivan (“Sullivan”), as a defendant. On March 17, 2015, the Company, NACSV and Sullivan filed a motion to dismiss the amended complaint seeking dismissal for failure to state valid causes of action, for lack of personal jurisdiction, or alternatively to transfer the case to the United States District Court in and for the Middle District of Florida. Dekle and Ramsay responded on March 31, 2015, and the Company filed its response thereto on April 7, 2015. On June 2, 2015, Dekle passed away. On June 5, 2015, the Court denied the Company’s motion to transfer the case to Florida. On June 10, 2015, the Company filed a motion to reconsider the Court’s denial of its motion to transfer the case to Florida. On September 30, 2105, the Court granted the Company’s Renewed Motion to Transfer Venue. The case was transferred to the Middle District of Florida, where it is currently pending. On June 15, 2015, Ramsay filed a second amended complaint. On June 25, 2015, the Company filed a motion to dismiss the second amended complaint. The Company’s Motion to Dismiss was denied. On July 27, 2017, the Company and Dekle and Ramsay came to a Settlement Agreement. The Company and the plaintiff came to the following agreements: vi. Judgment is due to be entered against the Company in the amount of $300,000 if the sum of $20,000 as noted in iv is not paid. vii. The Company grants the plaintiffs vehicles and trailers in connection to this proceeding. viii. The Company will assist the plaintiffs in obtaining possession of the said vehicles. ix. The Company will pay the plaintiffs the sum of $20,000. The $20,000 settlement was paid in August 2017 Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al. On January 19, 2015 the Company and NACSV filed suit against Communications Laboratories, Inc., ComLabs Global, LLC, Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion and breach of contract in a dispute over the payment of a $300,000 account receivable that ComLabs owed to NACSV but sent payment directly to Brian Dekle. The case was filed in the Eighteenth Judicial Circuit in and for Brevard County Florida, case no. 05-2015-CA-012250. On February 18, 2015 (i) defendants Communications Laboratories, Inc., ComLabs Global, LLC and Roland Lussier and (ii) defendant Wallace Bailey filed their respective motions to dismiss seeking, among other things, dismissal for failure to state valid causes of action, lumping and failure to post a non-resident bond. On February 26, 2015, defendants Dekle and Ramsay filed their motion to dismiss, or stay action, based on already existing litigation between the parties. NACSV filed its required bond on March 2, 2015. PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicle, Inc. et.al On September 13, 2017 Power Up received a default judgment against the Company in the amount of $109,302.00. The Company negotiated a settlement agreement on December 21, 2017 with Power Up to pay $90,000 in three installments of $30,000. As of May 15, 2018 the company has paid the entire amount. Securities and Exchange Commission v. Global Digital Solutions, Inc., Richard J. Sullivan and David A. Loppert United States District Court for the Southern District of Florida, Case No. 9:16-cv-81413-RLR On August 11, 2016, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”) and David A. Loppert (“Loppert”) to enjoin GDSI; Sullivan, GDSI’s former Chairman and CEO; and Loppert, GDSI’s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws. On October 12, 2016, Defendant GDSI filed its First Answer to the Complaint. On November 9, 2016, Defendant Sullivan filed a Letter with the Court denying all allegations regarding the case. On December 15, 2016, the SEC filed a Motion for Judgment and Notice of Filing of Consent of Defendant Loppert to entry of Final Judgment by the SEC. On December 19, 2016, the Court entered an order granting the SEC’s Motion for Judgment as to Defendant Loppert. On December 21, 2016, the SEC filed a Notice of Settlement as entered into by it and Defendants GDSI and Sullivan. On December 23, 2016, the Court entered an Order staying the case and directing the Clerk of the Court to close the case for statistical purposes per the December 21, 2016 Notice of Settlement. On March 7, 2017, the SEC moved for a Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant GDSI to Entry of Judgment by the SEC. On March 13, 2017, the Judge signed the Judgment as to Defendant GDSI and it was entered on the Court’s docket. On April 6, 2017, the SEC moved for a final Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge signed the final Judgment as to Defendant Sullivan and it was entered on the Court’s docket. On December 21, 2017, the SEC moved for a final Judgment and Notice of Filing Consent of Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the Judge signed the Final Judgment as to Defendant GDSI and it was entered on the Court’s docket. Adrian Lopez, Derivatively and on behalf of Global Digital Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F. Noterman, and Stephen L. Norris United States District Court for the District of New Jersey, Case No. 3:17-cv-03468-PGS-LHG On September 19, 2016, Adrian Lopez, derivatively, and on behalf of Global Digital Solutions, Inc., filed an action in New Jersey Superior Court sitting Mercer County, General Equity Division. That action was administratively dismissed for failure to prosecute. Plaintiff Lopez, through his counsel, filed a motion to reinstate the matter on the general equity calendar on or about February 10, 2017. The Court granted the motion unopposed on or about April 16, 2017. On May 15, 2017, Defendant William Delgado (“Delgado”) filed a Notice of Removal of Case No. C-70-16 from the Mercer County Superior Court of New Jersey to the United States District Court for the District of New Jersey. On May 19, 2017, Defendant Delgado filed a First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017, Defendant David A. Loppert (“Loppert”) filed a Motion to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017, Plaintiff Adrian Lopez (“Lopez”) filed a First Motion to Remand the Action back to State Court. On June 29, 2017, Defendant Delgado filed a Memorandum of Law in Response and Reply to the Memorandum of Law in Support of Plaintiff’s Motion to Remand and in Response to Defendants’ Delgado’s and Loppert’s Motions to Dismiss. On January 1, 16, 2018, a Memorandum and Order granting Plaintiff’s Motion to Remand the case back to the Mercer County Superior Court of New Jersey was signed by the Judge and entered on the Docket. Defendants Delgado and Loppert’s Motions to Dismiss were denied as moot. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. The Court held a hearing on the motions to dismiss and consolidate. Jurisdictional discovery was ordered. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint. 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. Jeff Hull, Individually and on Behalf of All Others Similarly Situated v. Global Digital Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J. Delgado, Arthur F. Noterman and Stephanie C. Sullivan United States District Court, District of New Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB On August 24, 2016, Jeff Hull, Individually and on Behalf of All Others Similarly Situated (“Hull”) filed suit in the United States District Court for the District of New Jersey against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”), David A. Loppert (“Loppert”), William J. Delgado (“Delgado”), Arthur F. Noterman (“Noterman”) and Stephanie C. Sullivan (“Stephanie Sullivan”) seeking to recover compensable damages caused by Defendants’ alleged violations of federal securities laws and to pursue remedies under the Securities Exchange Act of 1934. On January 18, 2018, pursuant to the Court’s December 19, 2017 Order granting Plaintiff Hull leave to file an amended Complaint, Plaintiff Hull filed a Second Amended Complaint against Defendants. On February 8, 2018, Defendants GDSI and Delgado filed a Second Motion to Dismiss the Complaint. On February 8, 2018, Defendant Loppert filed a Motion for Extension of Time to File an Answer. On February 13, 2018, Defendant Loppert filed a Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 20, 2018, Plaintiff Michael Perry (“Perry”) filed a Brief in Opposition to Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint and to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 26, 2018, Defendants GDSI and Delgado filed a Reply Brief to Plaintiff Michael Perry’s Brief in Opposition to their Motion to Dismiss the Second Amended Complaint. On February 26, 2018, Defendant Loppert filed a Response in Support of Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief to Plaintiff Perry’s Brief in Opposition to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. To date, the Court has not issued a decision as to aforementioned Motions. Global Digital Solutions, Inc. and William J. Delgado intend to continue to vigorously defend against the claims asserted by Jeff Hull, Individually and on Behalf of All Others Similarly Situated. In the Matter of Global Digital Solutions, Inc., Administrative Proceeding File No. 3-18325. Administrative Proceeding Before the Securities and Exchange Commission. On December 26, 2017, the Securities and Exchange Commission instituted public administrative proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Respondent Global Digital Solutions, Inc. On January 8, 2018, Respondent Global Digital Solutions, Inc. (“GDSI”) filed its answer to the allegations contained in the Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12U) of the Exchange Act. A briefing schedule was entered into and on February 15, 2018, the Securities and Exchange Commission filed a motion for an order of summary disposition against Respondent GDSI on the grounds that there is no genuine issue with regard to any material fact, the Division was entitled as a matter of law to an order revoking each class of GDSI's securities registered pursuant to Section 12 of the Exchange Act. Respondent GDSI opposed the Securities and Exchange Commission’s motion on the grounds that there were material issues of fact. The Securities and Exchange Commission replied and a hearing was held on April 9, 2018. The Administrative Law Judge ordered supplemental evidence and briefing on the issues of material fact. 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 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. 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) of which the first payment of Ten Thousand Dollars ($10,000.00) has been paid. Jennifer Carroll vs. Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc., in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No.: 50-2015-CC-012942-XXXX-MB On October 27, 2017, Plaintiff Jennifer Carroll moved the court for a default judgment against Defendant Global Digital Solutions, Inc. (“GDSI”) and its subsidiary North American Custom Specialty Vehicles Inc. The amount of the judgement is Fifteen Thousand Dollars ($15,000) 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). |
STOCKHOLDERS_ EQUITY
STOCKHOLDERS’ EQUITY | 12 Months Ended |
Dec. 31, 2015 | |
Shareholders' Deficiency | |
STOCKHOLDERS' EQUITY | Preferred Stock We are authorized to issue 35,000,000 shares of noncumulative, non-voting, nonconvertible preferred stock, $0.001 par value per share. At December 31, 2015 and 2014, no shares of preferred stock were outstanding. Common Stock We are authorized to issue 650,000,000 shares of common stock, $0.001 par value per share. At December 31, 2015 and 2014, 530,806,571 and 108,291,855 shares were issued, outstanding, or vested but unissued under stock compensation plans, respectively Common Stock Warrant We have issued warrants, which are fully vested and available for exercise, as follows: Class of Warrant Issued in connection with or for Number Outstanding Exercise Price Date of Issue Date Vest Date of Expiration A-2 Services 1,000,000 $ 0.15 May, 2013 May, 2014 May, 2018 A-3 Services 500,000 $ 0.50 June, 2013 June, 2014 June, 2018 A-4 Services 1,000,000 $ 1.00 October, 2013 October, 2013 October, 2016 We recognized compensation costs of $604,168 related to the amortization of the fair value of the warrants in the year ended December 31, 2014. At December 31, 2014 the fair value of warrants had been fully amortized. All warrants are exercisable at any time through the date of expiration. All agreements provides for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis. The following is a summary of outstanding and exercisable warrants at December 31, 2015: Outstanding Exercisable Range of Exercise Prices Weighted Average Number Outstanding at 12/31/15 Outstanding Remaining Contractual Life (in yrs.) Weighted Average Exercise Price Number Exercisable at 12/31/15 Weighted Average Exercise Price $ 0.15 1,000,000 2.3 $ 0.15 1,000,000 $ 0.15 $ 0.50 500,000 2.5 $ 0.50 500,000 $ 0.50 $ 1.00 1,000,000 .8 $ 1.00 1,000,000 $ 1.00 $ 0.56 2,500,000 1.90 $ 0.37 2,500,000 $ 0.56 The intrinsic value of warrants outstanding at December 31, 2015 was $0. Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the exercise price of the warrant multiplied by the number of warrants outstanding or exercisable. We determined the value of warrants issued using the following valuation amounts: Warrant Fair Value Dividend Yield Volatility Contractual Lives (Yrs.) Risk-Free Rate A-2 $ 300,000 0.00 % 593.00 % 5.0 0.84 % A-3 $ 250,000 0.00 % 598.12 % 5.0 1.20 % A-4 $ 800,000 0.00 % 647.97 % 3.0 0.64 % The expected life represents an estimate of the weighted average period of time that options are expected to remain outstanding given consideration to vesting schedules and the Company’s historical exercise patterns. Expected volatility is estimated based on the historical volatility of the Company’s common stock. The risk free interest rate is estimated based on the U.S. Federal Reserve’s historical data for the maturity of nominal treasury instruments that corresponds to the expected term of the option. The expected dividend yield is 0% based on the fact that we have never paid dividends and have no present intention to pay dividends 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 Stock-based compensation expense for the years ended December 31, 2015 and 2014 is comprised as follows: 2015 2014 Fair value expense of stock option grants $ 308,143 $ 3,527,620 Fair value expense of restricted stock unit grants 57,520 2,703,997 Fair value expense of restricted stock grants 419,789 844,012 $ 785,452 $ 7,075,629 Awards Issued Under Stock Incentive Plans Stock Option Activity At December 31, 2015, we have outstanding 16,100,000 stock options - 14,116,668 of which are fully-vested stock options that were granted to directors, officers and consultants and 1,983,332 of which are unvested stock options that were granted to directors, employees and consultants. The outstanding stock options are exercisable at prices ranging from $0.006 to $0.64 and expire between February 2024 and December 2025. Issuances of Stock Options Effective as of April 10, 2015, David A. Loppert retired as our CFO and as an officer of the Company and we appointed Jerome J. Gomolski as our CFO. In connection with his appointment as our CFO, on April 1, 2015, Mr. Gomolski was granted stock options to acquire 500,000 shares of our common stock pursuant to the Plan. The options have an exercise price of $0.10 per share, vest one-third on each of October, 1 2015, April 1, 2016 and October 1, 2016, expire on April 1, 2025 and had an aggregate grant date fair value of $50,000. On April 1, 2015, we granted stock options to acquire 300,000 shares of our common stock to each of two consultants. The options have an exercise price of $0.10 per share, vest one-third on each of October 1, 2015, April 1, 2016 and October 1, 2016 and expire on March 31, 2025. The options had an aggregate grant date fair value of $30,000 each. On April 20, 2015 we granted options to acquire 500,000 shares of our common stock exercisable at $0.14 per share to each of William J. Delgado, executive officer and director, and Arthur F. Noterman and Stephanie C. Sullivan, directors. The options vest one-third on each of October 1, 2015, April 1, 2016 and October 1, 2016, are exercisable through March 31, 2025, and had an aggregate grant date fair value of $70,000 each. On May 8, 2015, we granted stock options to acquire an aggregate of 300,000 shares of our common stock to four employees. The options have an exercise price of $0.08 per share, vested ratably over a three-year period, expire ten years from the date of grant and had an aggregate grant date fair value of $24,000. On November 30, 2015, we granted to each of our executive officers, Jerome J. Gomolski and Gary A. Gray, and to an employee options to acquire 1,000,000 shares of our common stock exercisable at $0.006 per share. The options vested on the date of grant and expire on November 30, 2025 and had an aggregate grant date fair value of $50,000 each. On December 9, 2015, we granted to Vox Equity Partners LLC options to acquire 4,000,000 shares of our common stock exercisable at $0.006 per share. The 4,000,000 options vested on the date of grant, expire on December 8, 2025 and had a grant date fair value of $24,000. Richard J. Sullivan is a co-founder of Vox Equity. On December 15, 2015, we granted to each of William J. Delgado, executive officer and director, and Arthur F. Noterman and Stephanie C. Sullivan, directors options to acquire 750,000 shares of our common stock exercisable at $0.008 per share. The options vested on the date of grant and expire on December 14, 2025. The options had an aggregate grant date fair value of $6,000 each. A summary of the stock option activity for our stock options plans for year ended December 31, 2015 is as follows: Number of Options Exercise Price per Share Average Remaining Term in Years Aggregate Intrinsic Value at Date of Grant Outstanding December 31, 2014 5,840,000 $ 0.61 9.6 - Options granted 12,150,000 0.03 9.7 - Options exercised - - Options forfeited (1,890,000 ) (0.53 ) - - Outstanding December 31, 2015 16,100,000 0.18 - - Exercisable at December 31 2015 14,116,668 $ 0.19 9.4 - We account for our stock-based compensation plans in accordance with ASC 718-10. Under the provisions of ASC 718-10, the fair value of each stock option is estimated on the date of grant using a BSM option-pricing formula, and amortizing that value to expense over the expected performance or service periods using the straight-line attribution method. The fair value of the stock options issued during the year ended December 31, 2015 was estimated using the BSM pricing model with the following weighted-average inputs: risk free interest rate of 1.5%; expected term of 5.08 years: volatility of 352.5% and dividend rate of 0%. The weighted average values of the assumptions used to value the options granted in the year ended December 31, 2014 were as follows: risk-free interest rates of 1.83%; expected term of 10 years; expected volatility of 684.6% and expected dividend yield of 0%. The expected life represents an estimate of the weighted average period of time that options are expected to remain outstanding given consideration to vesting schedules and the Company’s historical exercise patterns. Expected volatility is estimated based on the historical volatility of the Company’s common stock. The risk free interest rate is estimated based on the U.S. Federal Reserve’s historical data for the maturity of nominal treasury instruments that corresponds to the expected term of the option. The expected dividend yield is 0% based on the fact that we have never paid dividends and have no present intention to pay dividends. During the years ended December 31, 2015 and 2014, we recorded stock-based compensation cost related to the outstanding stock options of $308,143 and $3,527,620, respectively. At December 31, 2015, the unamortized value of the outstanding stock options was $91,847. The intrinsic value of options outstanding at December 31, 2015 was $0. Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the exercise price of the option multiplied by the number of options outstanding. During the year ended December 31, 2015, 390,000 stock options that had not yet vested were forfeited and 1,500,000 vested stock options granted to Mr. Loppert, our former CFO, were forfeited by their terms. Restricted Stock Units In August 2014 we granted Stephen L. Norris, then Chairman and CEO of our wholly owned subsidiary, GDSI International, 12 million restricted stock units (“RSU’s”) convertible into 12 million shares of the Company’s common stock, with a grant date fair market value of $3,600,000 as of July 1, 2014, the effective grant date. The grant was made under our 2014 Equity Incentive Plan. 4,000,000 RSU’s will vest in respect of each fiscal year of GDSI International from 2015 through 2017 if the company has achieved at least 90% of the total revenue 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 4,000,000 times the applicable percentage shown below; provided that, 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, A summary of RSU’s outstanding as of December 31, 2015 and changes during the year then ended is presented below: Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Nonvested at December 31, 2014 - - - Issued 13,000,000 $ 0.28 $ 0.00 Vested - - - Forfeited (12,000,000 ) (0.30 ) - Nonvested at December 31, 2015 1,000,000 $ (0.10 ) $ 0.00 We recorded stock-based compensation expense related to these RSU’s of $51,747 and $1,112,934 for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015, there was $35,317 of total unrecognized stock-based compensation expense related to 1 million unvested RSU’s that will be recognized on a straight-line basis over the performance periods of the award through December 2017. The aggregate intrinsic value of nonvested RSU’s was $0 at December 31, 2015. Restricted Stock Grants On March 7, 2015, we granted 1,000,000 restricted shares of our common stock to Gary A. Gray, our Executive Vice President. The restricted stock vested on May 30, 2015 and had a grant date fair value of $40,000. On March 7, 2015, we granted 500,000 restricted shares of our common stock to an employee. The restricted stock vested on May 30, 2015 and had a grant date fair value of $20,000. Awards Not Issued Under Stock Incentive Plans Restricted Stock Grants Awarded to Advisors In order to align our senior advisors with the interest of the stakeholders of the Company, the Board of Directors of the Company has granted the advisors restricted stock awards valued at $0.17 to $0.364 per share which vest over a period of 12 – 24 months, subject to remaining and advisor for a minimum of twelve months, and which are forfeited if the advisor is terminated or is no longer an advisor on the anniversary of the advisory award, as follows: December 31, 2015 Name Date of Grant Number of Shares Vest from Vest To Vested Unvested Forfeited Edwin J. Wang 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - 2/4/14 1,500,000 2/4/14 1/31/15 1,500,000 - - Jennifer S. Carroll 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - Mathew Kelley 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - Scott Brown (1) 9/9/13 1,500,000 9/1/13 8/31/14 - - 1,500,000 Richard J. Feldman 4/30/14 500,000 4/30/14 3/30/15 500,000 - - 500,000 4/30/15 3/30/16 375,000 125,000 Thomas W. Janes (2) 5/7/14 500,000 5/7/14 4/30/14 - - 500,000 Gary Gray 3/7/15 1,000,000 3/7/15 5/30/15 1,000,000 Ross Trevino 3/7/15 500,000 3/7/15 5/30/15 500,000 13,500,000 11,375,000 125,000 2,000,000 (1) Mr. Brown resigned from the advisory board in June 2014. Since he had not been an advisor for the minimum period, the shares had not vested, were forfeited, returned to treasury and cancelled. (2) Forfeited in September 2014 upon termination as an advisor. A summary of restricted stock grants outstanding as of December 31, 2014 and 2015, and the changes during the twelve months then ended is presented below: Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Nonvested at December 31, 2013 4,965,774 - 0.00 Granted 6,750,000 $ 0.33 Vested (8,653,274 ) Forfeited (2000,000 ) Nonvested at December 31, 2014 1,062,500 0.40 $ 0.00 Granted 1,500,000 $ 0.04 Vested (2,437,500 ) (0.17 ) Forfeited - - - Nonvested at December 31, 2015 125,000 $ 0.46 $ 0.00 We recorded stock-based compensation expense related to these restricted stock grants of $419,789 and $3,047,012 for the years ended December 31, 2015 and 2014, respectively. As of December 31, 2015 there was $57,497 of total unrecognized stock-based compensation expense related to a nonvested restricted stock grant that will be recognized through March 2016. The aggregate intrinsic value of the nonvested restricted stock grant was $0 at December 31, 2015. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2015 | |
Income Taxes | |
INCOME TAXES | Reconciliations between the statutory rate and the effective tax rate for the years ended December 31, 2015 and 2014 consist as follows: 2015 2014 Federal statutory tax rate (34.0 )% (34.0 )% State taxes, net of federal benefit (5.5 )% (3.6 )% Permanent differences (2.9 ) 4.3 % Valuation allowance 42.4 % 33.3 % Effective tax rate — — Significant components of the Company’s deferred tax assets as of December 31, 2015 and 2014 are summarized below. 2015 2014 Deferred tax assets: Net operating loss carryforwards $ 1,741,000 $ 709,000 Derivative liability 170,000 -- Accrued expenses and reserves -- 216,000 Stock based compensation 100,000 892,000 Transaction costs -- (12,000 ) Total deferred tax asset 2,011,000 3,805,000 Valuation allowance (2,011,000 ) (3,805,000 ) $ - $ - As of December 31, 2015, the Company had approximately $4,627,000 of federal net operating loss carry forwards. These carry forwards, 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 decreased by $1,346,000 in the year ended December 31, 2015. 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 January 1, 2015, there were had no unrecognized tax benefits, or any tax related interest or penalties. 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 yet filed their U.S. federal and certain state tax returns for 2015 and currently do not have any examinations ongoing. Tax returns for the years 2012 onwards are subject to federal, state or local examinations. |
ACQUISITION OF AIRTRONIC AND NO
ACQUISITION OF AIRTRONIC AND NOTE RECEIVABLE FROM AIRTRONIC | 12 Months Ended |
Dec. 31, 2015 | |
Acquisition Of Airtronic And Note Receivable From Airtronic | |
ACQUISITION OF AIRTRONIC AND NOTE RECEIVABLE FROM AIRTRONIC | On October 22, 2012, we entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a debtor in possession under chapter 11 of the Bankruptcy Code in a case pending in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division (the “Court”) once Airtronic successfully reorganized and emerged from bankruptcy (the “Merger”). During the period from October 2012 through November 2013, GDSI was actively involved in the day to day management of Airtronic pending the completion of the Merger. Contemporaneously, on October 22, 2012, we entered into a Debtor In Possession Note Purchase Agreement (“Bridge Loan”) with Airtronic. We agreed to lend Airtronic a maximum of $2,000,000, with an initial advance of $750,000 evidenced by an 8¼% Secured Promissory Note made by Airtronic in favor of the Company (the “Original Note”) and a Security Agreement pledging all of Airtronic’s assets. As of December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan and Original Note. In March 2013, the Company and Airtronic amended the Bridge Loan to provide for a maximum advance of up to $700,000 in accordance with draws submitted by Airtronic and approved by the Company in accordance with the budget set forth in the amendment. On August 5, 2013, we entered into the Second Bridge Loan Modification and Ratification Agreement, received a new 8¼% secured promissory note in principal amount of $550,000 (the “Second Note”), and entered into a Security Agreement with the CEO of Airtronic, which granted a security interest in certain intellectual property for patent-pending applications and trademarks that were registered in the CEO’s name. On October 10, 2013, we entered into the Third Bridge Loan Modification and Ratification Agreement, and received a new 8¼% secured promissory note for $200,000 (the “Third Note”). On October 2, 2013, Airtronic’s amended plan of reorganization (the “Plan”) was confirmed by the Court, but the Plan was never substantially consummated and was terminated. Under the terms of the Plan, Airtronic needed to close the Merger with the Company on or before December 2, 2013 which Airtronic refused to do, and, as a result, the Plan terminated and the reorganized Airtronic re-vested in the bankruptcy estate of Airtronic as a debtor-in-possession. On March 31, 2014, Airtronic filed a First Amended Modified Plan of Reorganization (“First Modified Plan”) which was confirmed on April 28, 2014. On May 14, 2014 Airtronic repaid the Original Note, the Second Note and the Third Note together with all accrued interest thereon in the total amount of $1,509,056. On August 12, 2014, we received $414,761 that we were awarded for legal fees and expenses incurred. |
DISCONTINUED OPERATIONS
DISCONTINUED OPERATIONS | 12 Months Ended |
Dec. 31, 2015 | |
Discontinued Operations | |
DISCONTINUED OPERATIONS | In January 2012, we acquired 51% of Bronco Communications LLC. We subsequently discontinued the operations of Bronco and disposed of its remaining assets in January 2013 although we were responsible for contract oversight, which was concluded in June 2014. In accordance with ASC Topic 205, Presentation of Financial Statements - Discontinued Operation, we have presented the loss from discontinued operations in the consolidated statement of operations, which loss consisted of general and administrative expenses of $2,832 for the year ended December 31, 2014. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2015 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Accounts Payable At December 31, 2015 and 2014, included in accounts payable were compensation owed to our senior management totaling $50,614 and $11,778, respectively. Convertible Notes Payable to Related Parties During the year ended December 31, 2014, we issued convertible notes payable to an affiliate of our Chairman and CEO, and to our then CFO. These notes, which were repaid in 2015, are further discussed in Note 7. See also Note 6 for accrued expenses due to related parties and Note 11 for a discussion of restricted stock and stock option grants during 2015. |
CUSTOMER CONCENTRATIONS
CUSTOMER CONCENTRATIONS | 12 Months Ended |
Dec. 31, 2015 | |
Customer Concentrations | |
CUSTOMER CONCENTRATIONS | The Company had revenue from two customers in the year ended December 31, 2015 and three customers in the year ended December 31, 2014 that were greater than 10% of total revenue: Year Ended December 31, 2015 Amount % of Total Revenue Customer 1 $ 350,000 58.3 Customer 2 $ 250,000 41.7 Year Ended December 31, 2014 Amount % of Total Revenue Customer 1 $ 161,994 61.3 Customer 2 $ 102,462 38.7 Accounts receivable at December 31, 2015 and 2014 were $4,261 and $302,400, respectively. The balance at December 31, 2014 was net of an allowance for doubtful account of $104,085. One customer accounted for 100.0% and 99.2% of the balances at December 31, 2015 and 2014, respectively. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2015 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | We have completed an evaluation of all subsequent events after the balance sheet date of December 31, 2015 through the date this Annual Report on Form 10-K is issued to ensure that this filing includes appropriate disclosure of events, both recognized in the financial statements as of December 31, 2015 and events which occurred subsequently but were not recognized in the financial statements. We have concluded that no subsequent events have occurred that require recognition or disclosure, except as disclosed within these financial statements and except as described below: On August 15, 2016, William J. Delgado, our current Chief Executive Officer, agreed to convert $231,565 of indebtedness owed to him by the Company into 1,000,000 shares of convertible preferred stock (the “Preferred Stock”). The Preferred Stock has voting rights as to one (1) preferred share to four hundred (400) shares of our common stock. The Preferred Stock is also convertible to common stock at any time after into 37% of the outstanding common stock of the Company at the time of the conversion. The conversion to common can only take place when there are an adequate number of shares that are available and is subject to normal stock adjustments (i.e. stock splits etc.) that are executed by the company in its normal course of business. On December 22, 2017, the Company entered into a financing agreement with an accredited investor for $1.2 million. Under the terms of the agreement, the Company is to receive milestone payments based on the progress of the Company’s lawsuit for damages against Grupo Rontan Metalurgica, S.A (the “Lawsuit”). Such milestone payments consist of (i) an initial purchase price payment of $300,000, which the Company received on December 22, 2017, (ii) $150,000 within 30 days of the Lawsuit surviving a motion to dismiss on the primary claims, (iii) $100,000 within 30 days of the close of all discovery in the Lawsuit and (iv) $650,000 within 30 days of the Lawsuit surviving a motion for summary judgment and challenges on the primary claims. As part of the agreement, the Company shall pay the investor an investment return of 100% of the litigation proceeds to recoup all money invested, plus 27.5% of the total litigation proceeds received by the Company. From February 9, 2018 to March 13, 2018, the Company issued 28,653,334 shares of common stock as follows: Date Issued Recipient Number of Shares Purpose of Issuance Value of Shares Amount Received February 9, 2018 Accredited Investor 4,320,000 Purchase Agreement $ 0.012 $ 12,096 February 9, 2018 Consultant 333,334 Services $ 0.012 N/A February 21, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 5,000,000 Purchase Agreement $ 0.004 $ 20,000 March 13, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 9,000,000 Services $ 0.012 N/A On May 15, 2018, the Company entered into an Investment Return Purchase Agreement with an accredited investor (the “Purchaser”) for proceeds of $200,000 (the “Investment Agreement”). Under the terms of the Investment Agreement, the Company agreed to pay the Purchaser a 10% return, or $20,000 (the “Investment Return”) within three (3) months from the date of the Investment Agreement. Such Investment Return shall be paid earlier if the Company secures funding totaling $500,000 within 90 days from the date of the Investment Agreement. In addition, the Company agreed to issue to the Purchaser 2,000,000 warrants to purchase common stock of the Company at an exercise price of $0.01 per share, exercisable for a period of three (3) years. On May 31, 2018, the Company entered into a $300,000 non-convertible note with an accredited investor with $150,000 original issue discount for net proceeds of $150,000. As part of the note agreement, the Company also agreed to issue the investor 5,000,000 warrants at an exercise price of $0.01. |
SUMMARY OF SIGNIFICANT ACCOUN24
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies 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 year ended December 31, 2015 we incurred a net loss of $2,689,331 and used net cash of $767,390 to fund operating activities. At December 31, 2015, we had cash and cash equivalents of $2,944, an accumulated deficit of $31,667,384, a working capital deficit of $694,906 and stockholders’ deficit of $957,651. We have funded our activities to date almost exclusively from equity and debt financings. Our cash position is critically deficient, and payments essential to our ability to operate are not being made in the ordinary course. Failure to raise capital in the coming days to fund our operations and failure to generate positive cash flow to fund such operations in the future will have a material adverse effect on our financial condition. These factors raise substantial doubt about our ability to continue as a going concern. We are in default under the terms of our loan agreements, as more fully discussed in Note 8. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all. We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, and the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities. While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. On February 2, 2018, we announced that we had secured $1.2 million in a non-convertible financing from a New York-based institution. Our independent registered public accounting firm has expressed substantial doubt about our ability to continue as a going concern as a result of our history of net losses. Our ability to achieve and maintain profitability and positive cash flow is dependent upon our ability to successfully execute the plans to pursue acquisitions, and raise the funds necessary to complete such acquisitions. The outcome of these matters cannot be predicted at this time. The consolidated financial statements do not include any adjustments relating to the recoverability and classification of recorded asset amounts or the amounts and classification of liabilities that might be necessary should we be unable to continue as a going concern. |
Principles of Consolidation | The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, NACSV, GDSI Florida, LLC and Global Digital Solutions, LLC, dba GDSI International. All intercompany accounts and transactions have been eliminated in consolidation. |
Revenue Recognition | In accordance with U.S. generally accepted accounting principles, the revenue under fixed-price contracts is accounted for on the percentage-of-completion method. This methodology recognizes revenue and earnings as work progresses on the contract and is based on an estimate of the revenue and earnings earned to date, less amounts recognized in prior periods. The Company bases its estimate of the degree of completion of the contract by reviewing the relationship of costs incurred to date to the expected total costs that will be incurred on the project. Estimated contract earnings are reviewed and revised periodically as the work progresses, and the cumulative effect of any change in estimate is recognized in the period in which the change is identified. Estimated losses are charged against earnings in the period such losses are identified. The Company recognizes revenue arising from contract claims either as income or as an offset against a potential loss only when the amount of the claim can be estimated reliably and realization is probable and there is a legal basis of the claim. Because of inherent uncertainties in estimating costs, it is possible that the estimates used will change within the near-term. Contract costs include all direct material and labor costs and those indirect costs related to contract performance, such as payroll taxes and worker’s compensation insurance premiums. Operating expenses are charged to expense as incurred. Revenue for service and refurbishment work are recognized when the job is complete. |
Advertising | All advertising costs are expensed as incurred. |
Provision for Income Taxes | Income taxes are calculated based upon the asset and liability method of accounting. Deferred income taxes are recorded to reflect the tax consequences in future years of differences between the tax basis of assets and liabilities and their financial reporting amounts at each year-end. A valuation allowance is recorded against deferred tax assets if management does not believe the Company has met the “more likely than not” standard to allow for recognition of such an asset. In addition, realization of an uncertain income tax position must be estimated as “more likely than not” (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in the financial statements . |
Cash and Cash Equivalents | We consider all highly liquid investments with original maturities of three months or less to be cash equivalents. |
Accounts Receivable | We record accounts receivable at the invoiced amount and we do not charge interest. We maintain an allowance for doubtful accounts to reserve for potentially uncollectible receivables. We review the accounts receivable by customers which are past due to identify specific customers with known disputes or collectability issues. In determining the amount of the reserve, we make judgments about the creditworthiness of significant customers based on ongoing credit evaluations. Allowance for doubtful accounts was $104,085 at December 31, 2014. We did not have an allowance for doubtful accounts at December 31, 2015, due to a significant decrease in accounts receivable. |
Prepaid Expenses | Prepaid expenses consist primarily of prepaid insurance totaling $99,111 and $81,499 at December 31, 2015 and 2014, respectively, which is amortized on a straight-line basis over the policy period. |
Fair Value of Financial Instruments | The carrying value of cash, accounts receivable, other receivables, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurements and Disclosures," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: ● Level 1 – Quoted prices are available in active markets for identical assets or liabilities as of the reporting date. Active markets are those in which transactions for the asset or liability occur in sufficient frequency and volume to provide pricing information on an ongoing basis. Level 1 primarily consists of financial instruments such as exchange-traded derivatives, marketable securities and listed equities. ● Level 2 – Pricing inputs are other than quoted prices in active markets included in Level 1, which are either directly or indirectly observable as of the reported date. Level 2 includes those financial instruments that are valued using models or other valuation methodologies. These models are primarily industry-standard models that consider various assumptions, including quoted forward prices for commodities, time value, volatility factors and current market and contractual prices for the underlying instruments, as well as other relevant economic measures. Substantially all of these assumptions are observable in the marketplace throughout the full term of the instrument, can be derived from observable data or are supported by observable levels at which transactions are executed in the marketplace. Instruments in this category generally include non-exchange-traded derivatives such as commodity swaps, interest rate swaps, options and collars. ● Level 3 – Pricing inputs include significant inputs that are generally less observable from objective sources. These inputs may be used with internally developed methodologies that result in management’s best estimate of fair value. |
Convertible Notes with Fixed Conversion Options | We have entered into convertible notes with related parties that contain conversion options, whereby the outstanding principal and accrued interest may be converted, by the holder, into shares of our common stock at a fixed price which represented a 30% discount to the price of our common stock at the time of issuance. We measure the fair value of the notes at the time of issuance, which is the result of the share price conversion discount, and record the discount (beneficial conversion feature) as a reduction of debt. We then accrete the discount as interest expense utilizing the effective interest rate method over the life of the debt. |
Derivative Financial Instruments | During the year ended December 31, 2015, we issued convertible notes payable to third parties, which contain variable conversion options allowing the holders to convert the notes payable into shares of our common stock at discounts ranging from 39% to 40%. Each of these notes is more fully described in Note 7 . We account for these conversion options embedded in the convertible notes payable to third parties in accordance with the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC’) 815, “Derivatives and Hedging” Embedded Derivatives Derivative Liabilities Derivatives and Hedging – Contracts in Entity’s own Equity Change in Fair Value – Derivatives |
Convertible Securities | Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities issued subsequent to December 31, 2014. 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. |
Earnings (Loss) Per Share ("EPS") | Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes. The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive: Year ended December 31, 2015 2014 Convertible notes and accrued interest 48,513,147 766,666 Stock options 16,100,000 5,840,000 Warrants 2,500,000 4,250,000 Vested but unissued restricted stock awards 375,000 2,187,503 Restricted stock units 1,000,000 - Price protection - 1,854,838 Potentially dilutive securities 68,488,147 14,899,007 |
Stock Based Compensation | We adopted the fair value recognition provisions of ASC 718, "Compensation – Stock Compensation”. Under the fair value recognition provisions, we are required to measure 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 . |
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 allowance for doubtful accounts, the useful life of plant and equipment and intangible assets, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. |
Contingent Consideration for Business Acquisitions | Acquisitions may include contingent consideration payments based on future financial measures of an acquired company. Contingent consideration is required to be recognized at fair value as of the acquisition date. We estimate the fair value of these liabilities based on financial projections of the acquired companies and estimated probabilities of achievement. At each reporting date, the contingent consideration obligation is revalued to its estimated fair value and changes in fair value subsequent to the acquisition are reflected in income or expense in the consolidated statements of operations, and could cause a material impact to our operating results. Changes in the fair value of contingent consideration obligations may result from changes in discount periods and rates, changes in the timing and amount of revenue and/or earnings estimates and changes in probability assumptions with respect to the likelihood of achieving the various earn-out criteria |
Property and Equipment | Property and equipment is recorded at cost. Depreciation is computed using straight-line and accelerated methods over the estimated useful lives of the related assets. Expenditures that enhance the useful lives of the assets are capitalized and depreciated. Maintenance and repairs are expensed as incurred. When properties are retired or otherwise disposed of, related costs and related accumulated depreciation are removed from the accounts. A provision for depreciation of property and equipment is made on a basis considered adequate to amortize the related costs (net of salvage value) over their estimated useful lives using the straight-line method. Estimated useful lives are principally as follows: vehicles, 5 years; furniture and fixtures and office equipment, 5-10 years; leasehold improvements, term of lease or 15 years, whichever is less; machinery and equipment 5-10 years. |
Goodwill and Intangible Assets | Goodwill represents the excess of purchase price over the fair value assigned to the net assets acquired in business combinations. Goodwill is allocated to reporting units as of the acquisition date for the purpose of goodwill impairment testing. Currently, we operate in only one reporting unit. Our goodwill arose from our acquisition of NACSV in June 2014, as more fully discussed in Note 2. Intangible assets deemed to have an indefinite life such as goodwill are not amortized, but instead are reviewed at least annually for impairment. Intangible assets with finite lives are amortized over their estimated useful lives. As of December 31, 2015 and 2014, other than goodwill in 2014, we had no intangible assets with indefinite lives. We tested our goodwill for impairment during the fourth quarter of 2014 as a part of our annual business planning cycle. Goodwill is also tested between testing dates if an impairment condition or event is determined to have occurred. As a result of our annual assessment in 2014, we determined that the implied value of our existing goodwill was nil and, therefore, we recorded a $1,156,192 goodwill impairment charge in the fourth quarter of 2014. In performing our assessment, we placed emphasis on the estimated future cash flows from NACSV’s operations, which had declined from our initial expectations in part due to recent changes in its senior management, changes in the customer base, and the reduction in the existing backlog of customer orders. We based our valuation on the income valuation approach using a discounted cash flow model. At December 31, 2014 and during the first quarter of 2015, we had one other intangible asset consisting of customer relationships, which arose from our acquisition of NACSV and was being amortized over its expected economic life of five years. The life was determined based upon the expected use of the asset, and other contractual provisions associated with the asset, the estimated average life of NACSV’s products, the stability of the industry, and other factors deemed appropriate. We continually evaluated whether events or circumstances occurred that indicated the remaining estimated useful life of our customer relationships asset may warrant revision or that the remaining balance of such asset may not be recoverable. We used an estimate of the related discounted cash flows over the remaining life of the asset in measuring whether the asset is recoverable. Based on our valuation during the first quarter of 2015, we determined that the value of the customer relationships was fully impaired, as more fully discussed in Note 4. See Note 4 for more information regarding goodwill and intangible assets. |
Deferred Financing Costs | Costs incurred in connection with obtaining financing are deferred and classified as a discount to the related loan and amortized on a straight-line basis over the term of the related loan. The amortization of deferred financing costs is included in interest expense. The Company recognized $652,031 and $5,011 of expense related to the amortization of deferred financing costs during the years ended December 31, 2015 and 2014, respectively. |
Inventory | Inventory at December 31, 2014 consists of the in-progress mobile command units and is stated at the lower of cost (first-in, first-out) or market. We did not have any inventory at December 31, 2015. We order inventory/components upon receipt of a signed purchase order from a customer. December 31, 2015 2014 Trailer Inventory $ - $ 187,881 Work-in-process - 57,877 Less: Reserve for inventory loss - (187,881 ) Total $ - $ 57,877 |
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. Professional 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. 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. |
Reclassifications | Certain reclassifications have been made to conform the prior period data to the current presentations. |
Recent Accounting Pronouncements | In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, In August 2014, the FASB issued ASU No. 2014-15, Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going Concern In April 2015, the FASB issued ASU No. 2015-03, Simplifying the Presentation of Debt Issuance Costs In April 2015, the FASB issued ASU No. 2015-05, Customer’s Accounting for Fees Paid in a Cloud Computing Arrangement . In November 2015, the FASB issued ASU No. 2015-17, Balance Sheet Classification of Deferred Taxes . In February 2016, the FASB issued ASU No. 2016-02, Leases . |
SUMMARY OF SIGNIFICANT ACCOUN25
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Summary Of Significant Accounting Policies Tables | |
Securities excluded from the diluted per share calculation | Year ended December 31, 2015 2014 Convertible notes and accrued interest 48,513,147 766,666 Stock options 16,100,000 5,840,000 Warrants 2,500,000 4,250,000 Vested but unissued restricted stock awards 375,000 2,187,503 Restricted stock units 1,000,000 - Price protection - 1,854,838 Potentially dilutive securities 68,488,147 14,899,007 |
Inventory | December 31, 2015 2014 Trailer Inventory $ - $ 187,881 Work-in-process - 57,877 Less: Reserve for inventory loss - (187,881 ) Total $ - $ 57,877 |
ACQUISITIONS (Tables)
ACQUISITIONS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Acquisitions Tables | |
Purchase price allocation | Cash and cash equivalents $ 135,425 Accounts receivable, net 370,481 Inventory 73,140 Prepaid Expenses 26,004 Costs in excess of billings 570,787 Property and equipment, net 68,157 Customer relationships 668,940 Goodwill 1,156,192 Total assets acquired 3,069,126 Accounts payable and accrued liabilities 37,811 Notes payable 304,605 Billings in excess of costs 13,631 Total liabilities assumed 356,047 Total purchase price $ 2,713,079 |
Pro forma information | 2014 (Unaudited) Revenues $ 2,658,798 Net loss from continuing operations $ (11,255,057 ) Net loss per share from continuing operations $ (0.11 ) |
INVENTORY (Tables)
INVENTORY (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Inventory Tables | |
Inventory | December 31, 2015 2014 Trailer Inventory $ - $ 187,881 Work-in-process - 57,877 Less: Reserve for inventory loss - (187,881 ) Total $ - $ 57,877 |
GOODWILL AND INTANGIBLE ASSETS
GOODWILL AND INTANGIBLE ASSETS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Goodwill And Intangible Assets Tables | |
Goodwill | December 31, 2014 Beginning balance $ - Acquired goodwill (see Note 2) 1,156,192 Goodwill impairment loss (1,156,192 ) Ending balance $ - |
ACCRUED EXPENSES (Tables)
ACCRUED EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Accrued Expenses Tables | |
Accrued expenses | Year ended December 31, 2015 2014 Accrued compensation to executive officers and employees $ 151,565 $ 189,487 Accrued professional fees 45,735 6,220 Accrued expenses due to related parties - 1,871 Total accrued expenses $ 197,300 $ 197,578 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Fair Value Measurements Tables | |
Liabilities measured at fair value | Year ended December 31, 2015 2014 Liabilities: Recurring: Embedded derivative liabilities of convertible notes $ 270,080 $ - Recurring: Liability for stock options - - Recurring: Contingent Consideration $ 270,080 $ - |
Activity of Level 3 liabilities | Embedded Derivative Liabilities of Convertible Notes Contingent Consideration Balance at December 31, 2014 $ - $ 648,615 Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 1,068,109 - Change in fair value (798,029 ) (92,962 ) Reductions in EPA due to overvaluation of assets - (149,108 ) Increase in amount owed to Dekle per EPA Potter County Sale - (406,545 ) Recurring: Contingent Consideration $ 270,080 $ - |
NOTE PAYABLE (Tables)
NOTE PAYABLE (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Note Payable Tables | |
Convertible notes payable | December 31, 2015 Convertible note payable for $78,750 to LG Capital Funding, LLC (“LG Capital”) dated January 16, 2015, due January 16, 2016, of which $38,829 was repaid by conversion as of December 31, 2015, bearing interest at the rate of 8% per annum. Note may be converted by LG Capital into shares of our common stock at a conversion price equal to a 40% discount of the lowest closing bid price for 20 prior trading days including the notice of conversion date. (1) (3) $ 39,921 Convertible note payable for $250,000 to JMJ Financial (“JMJ”) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015, of which $40,930 was repaid by conversion as of December 31, 2015. The note was issued with an original issue discount of 10% of amounts funded. The principal amount matures 24 months from the date of each funding, had a one-time 12% interest charge as it was not repaid within 90 days of the effective date, and is convertible at any time at the option of JMJ into shares of our common stock at the lesser of $0.075 per share or 60% of the average of the trade price in the 25 trading days prior to conversion. JMJ has the option to finance additional amounts up to the balance of the $250,000 during the term of the note. (1) (2) $ 69,070 Total convertible notes payable with embedded derivative liability $ 108,991 (1) The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. (2) We have classified this note as current due to our expectation to convert the note on a current basis. (3) Note was due on January 16, 2016. We have not yet repaid this note and it is, therefore, in default. We have also not maintained the required number of shares of our common stock in reserve for this note as more fully discussed below. |
Due to factor | December 31, 2015 Factoring agreement with Power Up Lending Group, Ltd. (“Power Up”) dated October 1, 2015, purchase price was $59,000. Company agreed to transfer all NACSV future receipts, accounts, contract rights, etc. arising from accounts receivable or other third party payors at the specified percentage of 24% until such time as $76,700 is paid in full. A daily repayment amount of $457 is required to be made and is credited against the specified percentage due. As of December 31, 2015, we paid $21,458 of the daily specified repayments and we had not made $9,588 of payments that were due. At December 31, 2015, $12,748 of deferred interest expense related to this agreement is included in current assets. (1) (2) (3) $ 55,242 Factoring agreement with Power Up dated October 23, 2015, purchase price was $50,000. Company agreed to transfer all NACSV future receipts, accounts, contract rights, etc. arising from accounts receivable or other third party payors at the specified percentage of 24% until such time as $69,000 is paid in full. A daily repayment amount of $548 is required to be made and is credited against the specified percentage due. As of December 31, 2015, we paid $16,976 of the daily specified repayments and we had not made $10,952 of payments that were due. At December 31, 2015, $14,326 of deferred interest expense related to this agreement is included in current assets. (2) (3) $ 52,024 Total due to factor $ 107,266 (1) We used the purchase price proceeds to satisfy in full the obligations under two convertible notes payable with embedded derivative liabilities. (2) The agreement contains certain protections against default, including prohibiting NACSV from changing its arrangement with its bank in any way that is adverse to Power Up and NACSV interrupting the operation of its business, among others. Events of default include: (i) the violation of any term or covenant under the agreement, (ii) the failure of NACSV to pay its debts when due and (iii) the transfer or sale of all or substantially all of NACSV’s asset, amount others. (3) We are currently in default under the terms of the two factoring agreements as we have not made the specified daily repayment amounts aggregating $20,540 and $107,266 as of December 31, 2015 and April 9, 2016, respectively, among other items. At December 31, 2015, we have not accrued any penalties or interest that might be due as a result of the defaults. |
Notes payable | Collateral Interest Monthly December 31, Type (if any) Rate Payments Maturity 2015 2014 Premium finance agreement None 5.10 % $ 10,507 June-2016 $ 61,809 $ — Premium finance agreement None 9.25 % $ 3,414 January -2016 $ 3,037 $ — Premium finance agreement None 5.00 % $ 9,862 Jun-15 $ — $ 58,258 Total notes payable $ 64,948 $ 58,258 |
Convertible notes payable to related parties | December 31, 2014 Convertible note payable to an entity controlled by our Chairman and CEO, bore interest at 8% per annum, due December 8, 2016. After June 6, 2015, at the option of the holder, principal plus accrued interest was convertible into shares of our common stock at $0.09 per share. The note was fully repaid in cash during 2015 $ 37,500 Convertible note payable to our former Chief Financial Officer (“CFO”), bore interest at 8% per annum, due December 8, 2016. After June 6, 2015, at the option of the holder, principal plus accrued interest was convertible into shares of our common stock at $0.09 per share. The note was fully repaid in cash during 2015. (1) 31,500 69,000 Add: Accrued interest 363 Less: Unamortized debt discount (28,656 ) Convertible notes payable to related parties $ 40,707 (1) We used the purchase price proceeds to satisfy in full the obligations under two convertible notes payable with embedded derivative liabilities. |
DERIVATIVE LIABILITY (Tables)
DERIVATIVE LIABILITY (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Derivative Liability Tables | |
Assumptions | December 31, 2015 Dividend yield: 0 % Term .25 year Volatility 224 % Risk free rate: 0.16 % |
Changes in fair value of derivative liabilities | Derivative Liability (convertible promissory notes) Balance, December 31, 2014 $ - Initial fair value at note issuances 670,250 Fair value of liability at note conversion 397,859 Mark-to-market at December 31, 2015 (798,029 ) Balance, December 31, 2015 $ 270,080 |
STOCKHOLDERS_ EQUITY (Tables)
STOCKHOLDERS’ EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Stockholders' Equity Note [Abstract] | |
Issuance of warrants | Class of Warrant Issued in connection with or for Number Outstanding Exercise Price Date of Issue Date Vest Date of Expiration A-2 Services 1,000,000 $ 0.15 May, 2013 May, 2014 May, 2018 A-3 Services 500,000 $ 0.50 June, 2013 June, 2014 June, 2018 A-4 Services 1,000,000 $ 1.00 October, 2013 October, 2013 October, 2016 |
Outstanding and exercisable warrants | Outstanding Exercisable Range of Exercise Prices Weighted Average Number Outstanding at 12/31/15 Outstanding Remaining Contractual Life (in yrs.) Weighted Average Exercise Price Number Exercisable at 12/31/15 Weighted Average Exercise Price $ 0.15 1,000,000 2.3 $ 0.15 1,000,000 $ 0.15 $ 0.50 500,000 2.5 $ 0.50 500,000 $ 0.50 $ 1.00 1,000,000 .8 $ 1.00 1,000,000 $ 1.00 $ 0.56 2,500,000 1.90 $ 0.37 2,500,000 $ 0.56 |
Valuation of warrants | Warrant Fair Value Dividend Yield Volatility Contractual Lives (Yrs.) Risk-Free Rate A-2 $ 300,000 0.00 % 593.00 % 5.0 0.84 % A-3 $ 250,000 0.00 % 598.12 % 5.0 1.20 % A-4 $ 800,000 0.00 % 647.97 % 3.0 0.64 % |
Stock-based compensation expense | 2015 2014 Fair value expense of stock option grants $ 308,143 $ 3,527,620 Fair value expense of restricted stock unit grants 57,520 2,703,997 Fair value expense of restricted stock grants 419,789 844,012 $ 785,452 $ 7,075,629 |
Stock option activity | Number of Options Exercise Price per Share Average Remaining Term in Years Aggregate Intrinsic Value at Date of Grant Outstanding December 31, 2014 5,840,000 $ 0.61 9.6 - Options granted 12,150,000 0.03 9.7 - Options exercised - - Options forfeited (1,890,000 ) (0.53 ) - - Outstanding December 31, 2015 16,100,000 0.18 - - Exercisable at December 31 2015 14,116,668 $ 0.19 9.4 - |
Unvested restricted stock units | Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Nonvested at December 31, 2014 - - - Issued 13,000,000 $ 0.28 $ 0.00 Vested - - - Forfeited (12,000,000 ) (0.30 ) - Nonvested at December 31, 2015 1,000,000 $ (0.10 ) $ 0.00 |
Restricted stock grants awarded to advisors | December 31, 2015 Name Date of Grant Number of Shares Vest from Vest To Vested Unvested Forfeited Edwin J. Wang 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - 2/4/14 1,500,000 2/4/14 1/31/15 1,500,000 - - Jennifer S. Carroll 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - Mathew Kelley 4/17/13 1,250,000 4/30/13 3/31/14 1,250,000 - - 4/17/13 1,250,000 2/28/14 1/31/15 1,250,000 - - Scott Brown (1) 9/9/13 1,500,000 9/1/13 8/31/14 - - 1,500,000 Richard J. Feldman 4/30/14 500,000 4/30/14 3/30/15 500,000 - - 500,000 4/30/15 3/30/16 375,000 125,000 Thomas W. Janes (2) 5/7/14 500,000 5/7/14 4/30/14 - - 500,000 Gary Gray 3/7/15 1,000,000 3/7/15 5/30/15 1,000,000 Ross Trevino 3/7/15 500,000 3/7/15 5/30/15 500,000 13,500,000 11,375,000 125,000 2,000,000 (1) Mr. Brown resigned from the advisory board in June 2014. Since he had not been an advisor for the minimum period, the shares had not vested, were forfeited, returned to treasury and cancelled. (2) Forfeited in September 2014 upon termination as an advisor. |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Income Taxes Tables | |
Effective tax rate reconciliation | 2015 2014 Federal statutory tax rate (34.0 )% (34.0 )% State taxes, net of federal benefit (5.5 )% (3.6 )% Permanent differences (2.9 ) 4.3 % Valuation allowance 42.4 % 33.3 % Effective tax rate — — |
Deferred tax assets | 2015 2014 Deferred tax assets: Net operating loss carryforwards $ 1,741,000 $ 709,000 Derivative liability 170,000 -- Accrued expenses and reserves -- 216,000 Stock based compensation 100,000 892,000 Transaction costs -- (12,000 ) Total deferred tax asset 2,011,000 3,805,000 Valuation allowance (2,011,000 ) (3,805,000 ) $ - $ - |
CUSTOMER CONCENTRATIONS (Tables
CUSTOMER CONCENTRATIONS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Customer Concentrations Tables | |
Major customers | Year Ended December 31, 2015 Amount % of Total Revenue Customer 1 $ 350,000 58.3 Customer 2 $ 250,000 41.7 Year Ended December 31, 2014 Amount % of Total Revenue Customer 1 $ 161,994 61.3 Customer 2 $ 102,462 38.7 |
SUBSEQUENT EVENTS (Tables)
SUBSEQUENT EVENTS (Tables) | 12 Months Ended |
Dec. 31, 2015 | |
Subsequent Events Tables | |
Issuance of common stock | Date Issued Recipient Number of Shares Purpose of Issuance Value of Shares Amount Received February 9, 2018 Accredited Investor 4,320,000 Purchase Agreement $ 0.012 $ 12,096 February 9, 2018 Consultant 333,334 Services $ 0.012 N/A February 21, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 5,000,000 Purchase Agreement $ 0.004 $ 20,000 March 13, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 9,000,000 Services $ 0.012 N/A |
SUMMARY OF SIGNIFICANT ACCOUN37
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Potentially dilutive securities | 68,488,147 | 14,899,007 |
Convertible Notes and Accrued Interest | ||
Potentially dilutive securities | 48,513,147 | 766,666 |
Stock Options | ||
Potentially dilutive securities | 16,100,000 | 5,840,000 |
Warrants | ||
Potentially dilutive securities | 2,500,000 | 4,250,000 |
Vested but Unissued Restricted Stock Awards | ||
Potentially dilutive securities | 375,000 | 2,187,503 |
Restricted Stock Units | ||
Potentially dilutive securities | 1,000,000 | 0 |
Price Protection | ||
Potentially dilutive securities | 0 | 1,854,838 |
SUMMARY OF SIGNIFICANT ACCOUN38
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 1) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Summary Of Significant Accounting Policies Details 1 | ||
Trailer inventory | $ 0 | $ 187,881 |
Work in process | 0 | 57,877 |
Less: Reserve for inventory loss | 0 | (187,881) |
Total | $ 0 | $ 57,877 |
SUMMARY OF SIGNIFICANT ACCOUN39
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2015 | Dec. 31, 2014 | Dec. 31, 2013 | |
Summary Of Significant Accounting Policies Details Narrative | |||
Net loss | $ (2,689,331) | $ (12,119,678) | |
Net cash used in operating activities | (767,389) | (1,644,899) | |
Cash and cash equivalents | 2,944 | 160,102 | $ 509,224 |
Accumulated deficit | (31,667,383) | (28,978,053) | |
Working capital deficit | (694,906) | ||
Shareholders' deficiency | (957,650) | (913,083) | $ 52,870 |
Prepaid expenses | 99,111 | 81,499 | |
Amortization of deferred financing costs | $ 652,031 | $ 5,011 |
ACQUISITIONS (Details)
ACQUISITIONS (Details) | Dec. 31, 2014USD ($) |
Assets Acquired: | |
Cash and cash equivalents | $ 135,425 |
Accounts receivable, net | 370,481 |
Inventory | 73,140 |
Prepaid expenses | 26,004 |
Costs in excess of billings | 570,787 |
Property and equipment, net | 68,157 |
Customer relationships | 668,940 |
Goodwill | 1,156,192 |
Total assets | 3,069,126 |
Liabilities assumed: | |
Accounts payable and accrued liabilities | 37,811 |
Notes payable | 304,605 |
Billings in excess of costs | 13,631 |
Total current liabilities | 356,047 |
Total purchase price | $ 2,713,079 |
ACQUISITIONS (Details 1)
ACQUISITIONS (Details 1) | 12 Months Ended |
Dec. 31, 2014USD ($)$ / shares | |
Acquisitions Details 1 | |
Revenues | $ 2,658,798 |
Net loss from continuing operations | $ (11,255,057) |
Net loss per share from continuing operations | $ / shares | $ (.11) |
INVENTORY (Details)
INVENTORY (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Summary Of Significant Accounting Policies Details 1 | ||
Trailer inventory | $ 0 | $ 187,881 |
Work in process | 0 | 57,877 |
Less: Reserve for inventory loss | 0 | (187,881) |
Total | $ 0 | $ 57,877 |
GOODWILL AND INTANGIBLE ASSET43
GOODWILL AND INTANGIBLE ASSETS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Goodwill And Intangible Assets Details | ||
Beginning balance | $ 0 | $ 0 |
Acquired goodwill | 1,156,192 | |
Goodwill impairment loss | $ 0 | 1,156,192 |
Ending balance | $ 0 |
GOODWILL AND INTANGIBLE ASSET44
GOODWILL AND INTANGIBLE ASSETS (Details Narrative) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Goodwill And Intangible Assets Details Narrative | ||
Customer relationships | $ 596,471 | |
Impairment of intangible asset | $ 0 | $ (596,471) |
ACCRUED EXPENSES (Details)
ACCRUED EXPENSES (Details) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Accrued Expenses Details | ||
Accrued compensation to executive officers and employees | $ 151,565 | $ 189,487 |
Accrued professional fees | 45,735 | 6,220 |
Accrued expenses due to related parties | 0 | 1,871 |
Total accrued expenses | $ 197,300 | $ 197,578 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - Level 3 - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Recurring: Embedded derivative liabilities of convertible notes | $ 270,080 | $ 0 |
Recurring: Liability for stock options | 0 | 0 |
Recurring: Contingent Consideration | $ 270,080 | $ 0 |
FAIR VALUE MEASUREMENTS (Deta47
FAIR VALUE MEASUREMENTS (Details 1) - Level 3 | 12 Months Ended |
Dec. 31, 2015USD ($) | |
Embedded Derivative Liabilities of Convertible Notes | |
Beginning balance | $ 0 |
Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 | 1,068,109 |
Change in fair value | (798,029) |
Reductions in EPA due to overvaluation of assets | 0 |
Increase in amount owed to Dekle per EPA Potter County Sale | 0 |
Ending balance | 270,080 |
Contingent Consideration | |
Beginning balance | 648,615 |
Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 | 0 |
Change in fair value | (92,962) |
Reductions in EPA due to overvaluation of assets | (149,108) |
Increase in amount owed to Dekle per EPA Potter County Sale | (406,545) |
Ending balance | $ 0 |
NOTE PAYABLE (Details)
NOTE PAYABLE (Details) | Dec. 31, 2015USD ($) |
Convertible notes payable with embedded derivative liability | $ 108,991 |
Convertible Note 1 | |
Convertible notes payable with embedded derivative liability | 39,921 |
Convertible Note 2 | |
Convertible notes payable with embedded derivative liability | $ 69,070 |
NOTE PAYABLE (Details 1)
NOTE PAYABLE (Details 1) | Dec. 31, 2015USD ($) |
Due to factor | $ 107,266 |
Agreement 1 | |
Due to factor | 55,242 |
Agreement 2 | |
Due to factor | $ 52,024 |
NOTE PAYABLE (Details 2)
NOTE PAYABLE (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Notes payable | $ 64,948 | $ 58,258 |
Note Payable 1 | ||
Collateral | None | |
Interest rate | 5.10% | |
Monthly payments | $ 10,507 | |
Maturity | Jun. 1, 2016 | |
Notes payable | $ 61,809 | 0 |
Note Payable 2 | ||
Collateral | None | |
Interest rate | 9.25% | |
Monthly payments | $ 3,414 | |
Maturity | Jan. 1, 2016 | |
Notes payable | $ 3,037 | 0 |
Note Payable 3 | ||
Collateral | None | |
Interest rate | 5.00% | |
Monthly payments | $ 9,862 | |
Maturity | Jun. 1, 2016 | |
Notes payable | $ 0 | $ 58,258 |
NOTE PAYABLE (Details 3)
NOTE PAYABLE (Details 3) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Convertible notes payable to related parties | $ 69,000 | |
Add: accrued interest | 363 | |
Less: unamortized debt discount | (28,656) | |
Convertible notes payable to related parties | $ 0 | 40,707 |
Convertible Note 1 | ||
Convertible notes payable to related parties | 37,500 | |
Convertible Note 2 | ||
Convertible notes payable to related parties | $ 31,500 |
DERIVATIVE LIABILITY (Details)
DERIVATIVE LIABILITY (Details) | 12 Months Ended |
Dec. 31, 2015 | |
Derivative Liability Details | |
Dividend yield | 0.00% |
Term | 3 months |
Volatility | 224.00% |
Risk free rate | 0.16% |
DERIVATIVE LIABILITY (Details 1
DERIVATIVE LIABILITY (Details 1) | 12 Months Ended |
Dec. 31, 2015USD ($) | |
Derivative Liability Details 1 | |
Beginning balance | $ 0 |
Initial fair value at note issuances | 670,250 |
Fair value of liability at note conversion | 397,859 |
Mark-to-market at December 31, 2015 | (798,029) |
Ending balance | $ 270,080 |
STOCKHOLDERS_ EQUITY (Details)
STOCKHOLDERS’ EQUITY (Details) | 12 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Number outstanding | shares | 2,500,000 |
Exercise price | $ / shares | $ .37 |
A2 | |
Issued in connection with or for | Services |
Number outstanding | shares | 1,000,000 |
Exercise price | $ / shares | $ .15 |
Date of issue | May 2,013 |
Date vest | May 2,013 |
Date of expiration | May 2,018 |
A3 | |
Issued in connection with or for | Services |
Number outstanding | shares | 500,000 |
Exercise price | $ / shares | $ .50 |
Date of issue | June 2,014 |
Date vest | June 2,014 |
Date of expiration | June 2,018 |
A4 | |
Issued in connection with or for | Services |
Number outstanding | shares | 1,000,000 |
Exercise price | $ / shares | $ 1 |
Date of issue | October 2,013 |
Date vest | October 2,013 |
Date of expiration | October 2,016 |
STOCKHOLDERS_ EQUITY (Details 1
STOCKHOLDERS’ EQUITY (Details 1) | 12 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Weighted average number outstanding | shares | 2,500,000 |
Outstanding remaining contractual life | 1 year 10 months 24 days |
Weighted average exercise price | $ / shares | $ .37 |
Number exercisable | shares | 2,500,000 |
Weighted average exercise price | $ / shares | $ .56 |
$ 0.15 | |
Weighted average number outstanding | shares | 1,000,000 |
Outstanding remaining contractual life | 2 years 3 months 18 days |
Weighted average exercise price | $ / shares | $ .15 |
Number exercisable | shares | 1,000,000 |
Weighted average exercise price | $ / shares | $ .15 |
$ 0.50 | |
Weighted average number outstanding | shares | 500,000 |
Outstanding remaining contractual life | 2 years 6 months |
Weighted average exercise price | $ / shares | $ .50 |
Number exercisable | shares | 500,000 |
Weighted average exercise price | $ / shares | $ .50 |
$ 1 | |
Weighted average number outstanding | shares | 100,000 |
Outstanding remaining contractual life | 9 months 18 days |
Weighted average exercise price | $ / shares | $ 1 |
Number exercisable | shares | 1,000,000 |
Weighted average exercise price | $ / shares | $ 1 |
STOCKHOLDERS_ EQUITY (Details 2
STOCKHOLDERS’ EQUITY (Details 2) | 12 Months Ended |
Dec. 31, 2015USD ($) | |
Dividend yield | 0.00% |
Volatility | 224.00% |
Contractual Lives (Yrs.) | 3 months |
Risk-Free Rate | 0.16% |
A2 | |
Fair value | $ 300,000 |
Dividend yield | 0.00% |
Volatility | 593.00% |
Contractual Lives (Yrs.) | 5 years |
Risk-Free Rate | 0.84% |
A3 | |
Fair value | $ 250,000 |
Dividend yield | 0.00% |
Volatility | 598.12% |
Contractual Lives (Yrs.) | 5 years |
Risk-Free Rate | 1.20% |
A4 | |
Fair value | $ 800,000 |
Dividend yield | 0.00% |
Volatility | 647.97% |
Contractual Lives (Yrs.) | 3 years |
Risk-Free Rate | 0.64% |
STOCKHOLDERS_ EQUITY (Details 3
STOCKHOLDERS’ EQUITY (Details 3) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Stockholders Equity Details 3 | ||
Fair value expense of stock option grants | $ 308,143 | $ 3,527,620 |
Fair value expense of restricted stock unit grants | 57,520 | 2,703,997 |
Fair value expense of restricted stock grants | 419,789 | 844,012 |
Stock-based compensation expense | $ 785,452 | $ 7,075,629 |
STOCKHOLDERS_ EQUITY (Details 4
STOCKHOLDERS’ EQUITY (Details 4) | 12 Months Ended |
Dec. 31, 2015USD ($)$ / sharesshares | |
Number of Options | |
Outstanding at beginning of period | 5,840,000 |
Options granted | 12,150,000 |
Options exercised | 0 |
Options forfeited | (1,890,000) |
Outstanding at end of period | 16,100,000 |
Exercisable | 14,116,668 |
Weighted Average Exercise Price Per Share | |
Outstanding at beginning of period | $ / shares | $ .61 |
Options granted | $ / shares | .03 |
Options exercised | $ / shares | (0.53) |
Options forfeited | $ / shares | .18 |
Outstanding at end of period | $ / shares | $ .19 |
Weighted Average Remaining Contractual Term | |
Outstanding at beginning of period | 9 years 7 months 6 days |
Options granted | 9 years 8 months 12 days |
Exercisable | 9 years 4 months 24 days |
Aggregate Intrinsic Value | |
Outstanding | $ | $ 0 |
Exercisable | $ | $ 0 |
STOCKHOLDERS_ EQUITY (Details 5
STOCKHOLDERS’ EQUITY (Details 5) - Restricted Stock Units (RSUs) [Member] | 12 Months Ended |
Dec. 31, 2015$ / sharesshares | |
Nonvested at beginning of period | shares | 0 |
Issued | shares | 13,000,000 |
Vested | shares | 0 |
Forfeited | shares | (12,000,000) |
Nonvested at end of period | shares | 1,000,000 |
Weighted average grant date fair value, nonvested, beginning | $ .00 |
Weighted average grant date fair value, issued | .28 |
Weighted average grant date fair value, vested | .00 |
Weighted average grant date fair value, forfeited | (0.30) |
Weighted average grant date fair value, nonvested, ending | (0.10) |
Aggregate intrinsic value, nonvested, beginning | .00 |
Aggregate intrinsic value, issued | .00 |
Aggregate intrinsic value, vested | .00 |
Aggregate intrinsic value, forfeited | .00 |
Aggregate intrinsic value, nonvested, ending | $ .00 |
STOCKHOLDERS_ EQUITY (Details 6
STOCKHOLDERS’ EQUITY (Details 6) | 12 Months Ended |
Dec. 31, 2015shares | |
Number of Shares | 13,500,000 |
Vested | 11,375,000 |
Unvested | 125,000 |
Forfeited | 2,000,000 |
Edwin J. Wang | Grant 1 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Apr. 30, 2013 |
Vest To | Mar. 31, 2014 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Edwin J. Wang | Grant 2 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Feb. 28, 2014 |
Vest To | Jan. 31, 2015 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Edwin J. Wang | Grant 3 | |
Date of Grant | Feb. 4, 2014 |
Number of Shares | 1,500,000 |
Vest from | Feb. 4, 2014 |
Vest To | Jan. 31, 2015 |
Vested | 1,500,000 |
Unvested | 0 |
Forfeited | 0 |
Jennifer S. Carroll | Grant 1 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Apr. 30, 2013 |
Vest To | Mar. 31, 2014 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Jennifer S. Carroll | Grant 2 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Feb. 28, 2014 |
Vest To | Jan. 31, 2015 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Mathew Kelley | Grant 1 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Apr. 30, 2013 |
Vest To | Mar. 31, 2014 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Mathew Kelley | Grant 2 | |
Date of Grant | Apr. 17, 2013 |
Number of Shares | 1,250,000 |
Vest from | Feb. 28, 2014 |
Vest To | Jan. 31, 2015 |
Vested | 1,250,000 |
Unvested | 0 |
Forfeited | 0 |
Scott Brown | Grant 1 | |
Date of Grant | Sep. 9, 2013 |
Number of Shares | 1,500,000 |
Vest from | Sep. 1, 2013 |
Vest To | Aug. 31, 2014 |
Vested | 0 |
Unvested | 0 |
Forfeited | 1,500,000 |
Richard J. Feldman | Grant 1 | |
Date of Grant | Apr. 30, 2014 |
Number of Shares | 500,000 |
Vest from | Apr. 30, 2014 |
Vest To | Mar. 30, 2015 |
Vested | 500,000 |
Unvested | 0 |
Forfeited | 0 |
Richard J. Feldman | Grant 2 | |
Number of Shares | 500,000 |
Vest from | Apr. 30, 2015 |
Vest To | Mar. 30, 2016 |
Vested | 375,000 |
Unvested | 125,000 |
Forfeited | 0 |
Thomas W. Janes | Grant 1 | |
Date of Grant | May 7, 2014 |
Number of Shares | 500,000 |
Vest from | May 7, 2014 |
Vest To | Apr. 30, 2014 |
Vested | 0 |
Unvested | 0 |
Forfeited | 500,000 |
Gary Gray | Grant 1 | |
Date of Grant | Mar. 7, 2015 |
Number of Shares | 1,000,000 |
Vest from | Mar. 7, 2015 |
Vest To | May 30, 2015 |
Vested | 1,000,000 |
Unvested | 0 |
Forfeited | 0 |
Ross Trevino | Grant 1 | |
Date of Grant | Mar. 7, 2015 |
Number of Shares | 500,000 |
Vest from | Mar. 7, 2015 |
Vest To | May 30, 2015 |
Vested | 500,000 |
Unvested | 0 |
Forfeited | 0 |
STOCKHOLDERS_ EQUITY (Details 7
STOCKHOLDERS’ EQUITY (Details 7) - Restricted Stock Grants - $ / shares | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Nonvested at beginning of period | 1,062,500 | 4,965,774 |
Granted | 1,500,000 | 6,750,000 |
Vested | (2,437,500) | (8,653,274) |
Forfeited | 0 | (2,000,000) |
Nonvested at end of period | 125,000 | 1,062,500 |
Weighted average grant date fair value, nonvested, beginning | $ .40 | $ .00 |
Weighted average grant date fair value, granted | .04 | .33 |
Weighted average grant date fair value, vested | (0.17) | (.00) |
Weighted average grant date fair value, forfeited | .00 | .00 |
Weighted average grant date fair value, nonvested, ending | .46 | .40 |
Aggregate intrinsic value, nonvested, beginning | 0 | .00 |
Aggregate intrinsic value, granted | 0 | 0 |
Aggregate intrinsic value, vested | 0 | 0 |
Aggregate intrinsic value, forfeited | 0 | 0 |
Aggregate intrinsic value, nonvested, ending | $ 0 | $ 0 |
STOCKHOLDERS_ EQUITY (Details N
STOCKHOLDERS’ EQUITY (Details Narrative) - $ / shares | Dec. 31, 2015 | Dec. 31, 2014 |
Stockholders Equity Details Narrative | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 35,000,000 | 35,000,000 |
Preferred stock, shares issued | 0 | 0 |
Preferred stock, shares outstanding | 0 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 450,000,000 | 175,000,000 |
Common stock, shares issued | 530,806,571 | 108,291,855 |
Common stock, shares outstanding | 530,806,571 | 108,291,855 |
INCOME TAXES (Details)
INCOME TAXES (Details) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Income Taxes Details | ||
Federal statutory tax rate | (34.00%) | (34.00%) |
State taxes, net of federal benefit | (5.50%) | (3.60%) |
Permanent differences | (2.90%) | 4.30% |
Valuation allowance | 42.40% | 33.30% |
Effective tax rate | 0.00% | 0.00% |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 1,741,000 | $ 709,000 |
Derivative liability | 170,000 | 0 |
Accrued expenses and reserves | 0 | 216,000 |
Stock based compensation | 100,000 | 892,000 |
Transaction costs | 0 | (12,000) |
Total deferred tax asset | 2,011,000 | 3,805,000 |
Valuation allowance | (2,011,000) | (3,805,000) |
Deferred tax assets | $ 0 | $ 0 |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) | Dec. 31, 2015USD ($) |
Income Taxes Details Narrative | |
Federal net operating loss carry forwards | $ 4,627,000 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details Narrative) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Related Party Transactions Details Narrative | ||
Compensation owed to our senior management | $ 50,614 | $ 11,778 |
CUSTOMER CONCENTRATIONS (Detail
CUSTOMER CONCENTRATIONS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Revenue | $ 641,578 | $ 395,022 |
Customer 1 | ||
Revenue | $ 350,000 | $ 161,994 |
Percent of total revenue | 58.30% | 61.30% |
Customer 2 | ||
Revenue | $ 250,000 | $ 102,462 |
Percent of total revenue | 41.70% | 38.70% |
CUSTOMER CONCENTRATIONS (Deta68
CUSTOMER CONCENTRATIONS (Details Narrative) - USD ($) | Dec. 31, 2015 | Dec. 31, 2014 |
Customer Concentrations Details Narrative | ||
Accounts receivable | $ 4,261 | $ 302,400 |
Allowance for doubtful accounts | $ 104,085 |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2015 | Dec. 31, 2014 | |
Number of shares | 530,806,571 | 108,291,855 |
Amount received | $ 530,807 | $ 108,293 |
Issuance 1 | ||
Date issued | Feb. 9, 2018 | |
Recipient | Accredited Investor | |
Number of shares | 4,320,000 | |
Purpose of issuance | Purchase Agreement | |
Value of shares | $ 0.012 | |
Amount received | $ 12,096 | |
Issuance 2 | ||
Date issued | Feb. 9, 2018 | |
Recipient | Consultant | |
Number of shares | 333,334 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 | |
Amount received | ||
Issuance 3 | ||
Date issued | Feb. 21, 2018 | |
Recipient | Consultant | |
Number of shares | 5,000,000 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 | |
Amount received | ||
Issuance 4 | ||
Date issued | Mar. 13, 2018 | |
Recipient | Consultant | |
Number of shares | 5,000,000 | |
Purpose of issuance | Purchase Agreement | |
Value of shares | $ 0.004 | |
Amount received | $ 20,000 | |
Issuance 5 | ||
Date issued | Mar. 13, 2018 | |
Recipient | Consultant | |
Number of shares | 5,000,000 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 | |
Amount received | ||
Issuance 6 | ||
Date issued | Mar. 13, 2018 | |
Recipient | Consultant | |
Number of shares | 9,000,000 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 | |
Amount received |