Document and Entity Information
Document and Entity Information - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Jun. 15, 2018 | Jun. 30, 2016 | |
Document And Entity Information | |||
Entity Registrant Name | GLOBAL DIGITAL SOLUTIONS INC | ||
Entity Central Index Key | 1,011,662 | ||
Document Type | 10-K/A | ||
Document Period End Date | Dec. 31, 2016 | ||
Amendment Flag | true | ||
Amendment Description | This Amendment No.1 of the fiscal year 2016 Form 10K (this “Amendment”) for Global Digital Solutions Inc. is being submitted the incorporate errata to the financial statements that were incorrectly incorporated in the original filing. The Amendment speaks as of the filing date of the Form 10-K (the filing date”), does not reflect events that may have occurred subsequent to the filing date and does not modify or update in any way disclosures made in the Form 10-K filed as of June 18, 2018. | ||
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 Emerging Growth Company | false | ||
Entity Small Business | true | ||
Entity Shell Company | false | ||
Entity Public Float | $ 1,640,907 | ||
Entity Common Stock, Shares Outstanding | 559,084,905 | ||
Document Fiscal Period Focus | FY | ||
Document Fiscal Year Focus | 2,016 |
CONSOLIDATED BALANCE SHEETS
CONSOLIDATED BALANCE SHEETS - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Current Assets | ||
Cash | $ 0 | $ 2,944 |
Accounts receivable | 4,261 | 4,261 |
Prepaid expenses | 22,597 | 99,111 |
Total current assets | 26,858 | 106,316 |
Property and equipment, net of accumulated depreciation of $24,463 and $19,543 | 0 | 4,920 |
Deposits | 2,415 | 2,415 |
Total assets | 29,273 | 113,651 |
Current Liabilities | ||
Accounts payable | 550,106 | 357,198 |
Accrued expenses | 414,498 | 197,300 |
Convertible notes payable, net of disounts of $0 and $18,219, respectively | 108,991 | 90,772 |
Due to factor, net of discount of $0 and $16,160, respectively | 107,266 | 91,106 |
Due to Officer | 60,925 | 0 |
Financed insurance policy | 11,187 | 64,847 |
Derivative liability | 672,724 | 270,080 |
Total current liabilities | 1,925,697 | 1,071,303 |
Total liabilities | 1,925,697 | 1,071,303 |
Commitments and Contingencies (Note 10) | ||
Shareholders' Deficiency | ||
Preferred stock, $0.001 par value, 35,000,000 shares authorized, 1,000,000 and 0 shares issued and outstanding, respectively | 1,000 | 0 |
Common stock, $0.001 par value, 650,000,000 shares authorized, 530,806,571 shares issued and outstanding | 530,807 | 530,807 |
Additional paid-in capital | 30,282,937 | 30,178,926 |
Accumulated deficit | (32,711,168) | (31,667,385) |
Total stockholders’ deficit | (1,896,424) | (957,652) |
Total liabilities and stockholders' deficit | $ 29,273 | $ 113,651 |
CONSOLIDATED BALANCE SHEETS (Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Statement of Financial Position [Abstract] | ||
Accumulated depreciation | $ 24,463 | $ 19,543 |
Convertible notes payable discount | 0 | 18,219 |
Due to factor discount | $ 0 | $ 16,160 |
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 35,000,000 | 35,000,000 |
Preferred stock, shares issued | 1,000,000 | 0 |
Preferred stock, shares outstanding | 1,000,000 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, shares issued | 530,806,571 | 530,806,571 |
Common stock, shares outstanding | 530,806,571 | 530,806,571 |
CONSOLIDATED STATEMENTS OF OPER
CONSOLIDATED STATEMENTS OF OPERATIONS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Statement [Abstract] | ||
Revenue | $ 14,386 | $ 641,578 |
Cost of revenue | 0 | 581,746 |
Gross profit | 14,386 | 59,832 |
Operating expenses | ||
Selling, general and administrative expenses | 599,330 | 1,796,506 |
Operating loss before other (income) expense | (584,944) | (1,736,674) |
Other (income) expense | ||
Change in fair value of derivatives | 402,644 | 450,717 |
Change in fair value of contingent liabilities | 0 | (648,614) |
Finance costs | 0 | 397,859 |
Amortization of debt discount - convertible notes payable | 18,219 | 652,031 |
Amortization of debt discount - related party notes | 0 | 28,656 |
Amortization of debt discount - Factoring | 16,160 | 20,540 |
Interest income | 21,817 | 51,468 |
Total other (income) expense | 458,839 | 952,657 |
Loss from continuing operations before provision for income taxes | (1,043,783) | (2,689,331) |
Provision for income taxes | 0 | 0 |
Net loss | $ (1,043,783) | $ (2,689,331) |
Loss per common share - basic | $ 0 | $ (0.01) |
Weighted average common shares outstanding - basic | 530,806,571 | 208,438,345 |
CONSOLIDATED STATEMENTS OF STOC
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT - USD ($) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Deficit | Total |
Beginning balance at Dec. 31, 2014 | $ 0 | $ 108,292 | $ 27,956,677 | $ (28,978,054) | $ (913,086) |
Beginning balance, shares at Dec. 31, 2014 | 0 | 108,291,855 | |||
Stock-based compensation expense | $ 2,563 | 785,452 | 0 | 788,015 | |
Stock-based compensation expense, shares | 2,562,501 | ||||
Common stock issued for acquisition of business | 1,081,945 | ||||
Common stock and warrants issued for services | $ 588 | 68,470 | 69,058 | ||
Common stock and warrants issued for services, shares | 587,925 | ||||
Common Stock issued upon conversion of convertible notes payable | $ 419,364 | 1,358,547 | 1,777,911 | ||
Common Stock issued upon conversion of convertible notes payable, shares | 419,364,290 | ||||
Beneficial conversion feature of convertible notes | 9,780 | 9,780 | |||
Net loss | (2,689,331) | (2,689,331) | |||
Ending balance at Dec. 31, 2015 | $ 0 | $ 530,807 | 30,178,926 | (31,667,385) | (957,652) |
Ending balance, shares at Dec. 31, 2015 | 0 | 530,806,571 | |||
Preferred Stock issued for related party debt | $ 1,000 | $ 230,565 | $ 231,565 | ||
Preferred Stock issued for related party debt, shares | 1,000,000 | ||||
Options forfeited due to termination, resignation or board of directors resolution | (126,554) | (126,554) | |||
Common stock issued for acquisition of business | $ 0 | ||||
Net loss | (1,043,783) | (1,043,783) | |||
Ending balance at Dec. 31, 2016 | $ 1,000 | $ 530,807 | $ 30,282,937 | $ (32,711,168) | $ (1,896,424) |
Ending balance, shares at Dec. 31, 2016 | 1,000,000 | 530,806,571 |
CONSOLIDATED STATEMENTS OF CASH
CONSOLIDATED STATEMENTS OF CASH FLOWS - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Operating Activities | ||
Net loss | $ (1,043,783) | $ (2,689,331) |
Adjustments to reconcile net loss to net cash used in operating activities: | ||
Depreciation | 4,920 | 6,010 |
Stock- based compensation | (126,554) | 788,015 |
Common stock and warrants issued in payment of services | 0 | 69,058 |
Change in fair value of derivative liability | 402,644 | 450,717 |
Beneficial conversion feature of debt and warrant | 0 | 9,780 |
Amortization of debt discount | 34,379 | 1,099,086 |
Changes in operating assets and liabilities: | ||
Accounts receivable | 0 | (1,861) |
Inventory | 0 | 57,877 |
Prepaid expenses | 76,514 | (17,613) |
Accounts payable | 192,908 | 75,471 |
Accrued expenses | 448,763 | 26,959 |
Deposits | 0 | 467 |
Financed insurance policy | (53,660) | 6,589 |
Due to Officer | 60,925 | 0 |
Contingent consideration payable | 0 | (648,614) |
Net cash used in operating activities | (2,944) | (767,390) |
Investing Activities | ||
Capital expenditures | 0 | (1,890) |
Net cash used in investing activities | 0 | (1,890) |
Financing Activities | ||
Proceeds from convertible notes | 0 | 670,250 |
Payment on convertible notes | 0 | (59,331) |
Proceeds from factor | 0 | 109,000 |
Repayments to factor | 0 | (38,434) |
Payment on related party convertible notes | 0 | (69,363) |
Net cash provided by financing activities | 0 | 612,122 |
Net decrease in cash | (2,944) | (157,158) |
Cash and cash equivalents at beginning of year | 2,944 | 160,102 |
Cash and cash equivalents at end of period | 0 | 2,944 |
Supplementary disclosure of cash flow information | ||
Cash paid during the year for: Interest | 17,143 | 7,088 |
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 |
Preferred shares issued in exchange for debt with related party | $ 231,565 | $ 0 |
DESCRIPTION OF BUSINESS
DESCRIPTION OF BUSINESS | 12 Months Ended |
Dec. 31, 2016 | |
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. (“the Company”, “we”), Global provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies. On May 1, 2012, we made the decision to wind down our operations in the telecommunications area and to refocus our efforts in the area of cyber arms technology and complementary security and technology solutions. From August 2012 through November 2013 we were actively involved in managing Airtronic USA, Inc., and effective as of June 16, 2014 we acquired North American Custom Specialty Vehicles (“NACSV”). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas. |
SUMMARY OF SIGNIFICANT ACCOUNTI
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended |
Dec. 31, 2016 | |
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, 2016 incurred a net loss of $783,783 and used net cash of $2,944 to fund operating activities. At December 31, 2016, the Company had no cash , an accumulated deficit of $32,451,168, a working capital deficit of $1,898,839 and stockholders’ deficit of $1,925,698. 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 6. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all. We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, and the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities. While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. On December 22, 2017, the Company entered into a financing agreement with an accredited investor for $1.2 million, as further detailed in Note 12. 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. Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the derivative liability valuation, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, or other valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. Revenue Recognition The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the customer; (3) the amount to be paid by the customer is fixed or determinable; and (4) the collection of such amount is probable. The Company records revenue when it is realizable and earned upon shipment of the finished products or when the service has been provided. Income Taxes Income taxes are accounted for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. Accounting guidance requires the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2016 and 2015. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. On December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 34% to 21% effective January 1, 2018. The Company will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s consolidated 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. As of December 31, 2016 and 2015, Management believed all amounts fully collectible. Prepaid expenses Prepaid expenses consist primarily of prepaid insurance, 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. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: ● Level 1 – Quoted prices in active markets for identical assets or liabilities ● Level 2 –Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly ● Level 3 – Significant unobservable inputs that cannot be corroborated by market data. Derivative Financial Instruments We account for 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”. Subtopic ASC 815-15, Embedded Derivatives generally requires companies to bifurcate conversion options embedded in the convertible notes from their host instruments and to account for them as free standing derivative financial instruments. Derivative liabilities are recognized in the consolidated balance sheet at fair value as Derivative Liabilities and based on the criteria specified in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s own Equity. The estimated fair value of the derivative liabilities is calculated using various assumptions and such estimates are revalued at each balance sheet date, with changes recorded to other income or expense as Change in fair value of derivative liability in the consolidated statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity, is evaluated at the instrument origination date and reviewed at the end of each event date (i.e. conversions, payments, etc.) and the measurement period end date for financial reporting, as applicable. Derivative instrument liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument would be required within twelve months of the balance sheet date. Convertible Securities Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities. We will evaluate our contracts based upon the earliest issuance date. In the event partial reclassification of contracts subject to ASC 815-40-25 is necessary, due to our inability to demonstrate we have sufficient shares authorized and unissued, shares will be allocated on the basis of issuance date, with the earliest issuance date receiving first allocation of shares. If a reclassification of an instrument were required, it would result in the instrument issued latest being reclassified first. 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, 2016 2015 Convertible notes and accrued interest 311,446,571 48,193,462 Stock options 13,116,668 15,100,000 Warrants 1,500,000 2,500,000 Vested but unissued restricted stock awards -- 375,000 Restricted stock units -- 1,000,000 Potentially dilutive securities 326,063,239 67,168,462 Stock Based Compensation In accordance with ASC 718, "Compensation – Stock Compensation” the Company measures the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award. The Company’s accounting policy for equity instruments issued to advisors, consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50 . 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. Deferred Financing Costs Costs incurred in connection with obtaining financing are deferred and classified as a discount to the related loan and amortized using the effective interest method over the term of the related loan. The Company recognized $16,160 and $20,540 of expense related to the amortization of deferred financing costs during the years ended December 31, 2016 and 2015, respectively. Inventory The Company orders inventory/components upon receipt of a signed purchase order from a customer. The Company did not have any inventory at December 31, 2016 or 2015. Previously, the Company utilized lower of cost (first-in, first-out) or market method. 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. Recent Accounting Pronouncements In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, 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, 2016 | |
Acquisitions | |
ACQUISITIONS | 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, as well as the ability to acquire 100% of the outstanding stock of Rontan at a price of $200 million BR, and the Company can acquire 100% of all real estate held by Rontan. Subject to satisfaction or waiver of the conditions precedent provided for in the SPSA, the closing date of the transaction shall take place within 10 business days from the date of issuance of the Opinion. Rontan is engaged in the manufacture and distribution of specialty vehicles and acoustic/visual signaling equipment for the industrial and automotive markets. 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. On April 25, 2018, the Note of Filing Proposed Summons was completed by the Company. On April 26, 2018, a summons was issued to Grupo Rontan Electro Metalurgica, S.A. Also, on May 15, 2018 the Company filed a motion for Issuance of Letters Rogatory. |
ACCRUED EXPENSES
ACCRUED EXPENSES | 12 Months Ended |
Dec. 31, 2016 | |
Accrued Expenses | |
ACCRUED EXPENSES | Accrued expenses consist of the following amounts for years ended December 31, 2016 and December 31, 2015: December 31, 2016 December 31, 2015 Accrued compensation to executive officers and employees $ 86,668 $ 151,565 Accrued Interest 21,817 17,143 Accrued professional fees 46,013 28,592 Total accrued expenses $ 154,498 $ 197,300 |
FAIR VALUE MEASUREMENTS
FAIR VALUE MEASUREMENTS | 12 Months Ended |
Dec. 31, 2016 | |
Fair Value Measurements | |
FAIR VALUE MEASUREMENTS | We had no Level 1 or Level 2 assets and liabilities at December 31, 2016 and December 31, 2015. The derivative liability is a Level 3 fair value measurement. The following is a summary of activity of Level 3 liabilities during the years ended December 31: 2016 2015 Balance at beginning of year $ 270,080 $ - Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 1,068,109 Change in fair value 402,644 (798,029 ) Balance at end of year $ 672,724 $ 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%. At December 31, 2016, the fair value of the bifurcated embedded derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate – 0.51%; term - .25 years; volatility – 287%; dividend rate – 0%. |
NOTES PAYABLE
NOTES PAYABLE | 12 Months Ended |
Dec. 31, 2016 | |
Notes 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, 2016 and 2015, respectively, two of these notes were outstanding as follows: December 31, 2016 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) (2) (3) $ 39,921 $ 39,921 Convertible note payable for $250,000 to JMJ Financial (“JMJ”) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015, of which $40,930 was repaid by conversion as of December 31, 2015. The note was issued with an original issue discount of 10% of amounts funded. The principal amount matures 24 months from the date of each funding, had a one-time 12% interest charge as it was not repaid within 90 days of the effective date, and is convertible at any time at the option of JMJ into shares of our common stock at the lesser of $0.075 per share or 60% of the average of the trade price in the 25 trading days prior to conversion. JMJ has the option to finance additional amounts up to the balance of the $250,000 during the term of the note. (1) (2) (4) $ 69,070 $ 69,070 Total convertible notes payable $ 108,991 $ 108,991 (1) The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. (2) Note was due on January 16, 2016. We have not yet repaid this note and it is, therefore, in default. We have also not maintained the required number of shares of our common stock in reserve for this note as more fully discussed below. (3) On December 12, 2017, LG Capital Funding, LLC and the Company entered into a Convertible Note Redemption Agreement to pay back the balance owed as further discussed below. (4) On December 13, 2017, JMJ Financial and the Company entered into a Repayment Agreement to pay back the balance owed as fully discussed below. Under the terms of the two convertible promissory notes outstanding at December 31, 2016 and 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 514,438,096 and 66,204,427 shares at December 31, 2016 and 2015, respectively. 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, 2016 and 2015. Accordingly, the note holder had the right to accelerate the payment due (approximately $21,817 and $43,033 of interest was due at December 31, 2016 and 2015, respectively). 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, 2016 and 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 $670,250 was classified as a debt discount and amortized under the effective interest method during the year ended December 31, 2015, and $397,859 was immediately recognized as financing costs 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 419,364,290 shares of our common stock upon conversions of principal and accrued interest totaling $529,165. The derivatives were revalued as of December 31, 2016, at $672,724, and a change in fair value of $402,644 recognized in the Statement of Operations for the year ended December 31, 2016 (see Note 5). During the year ended December 31, 2015, we 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. During the year ended December 31, 2017, we entered into a Convertible Note Redemption Agreement with LG Capital Funding, LLC. The Company shall wire redemption payment as follows: · $6,500 by December 29, 2017 · $6,500 by January 31, 2018 · $6,500 by February 28, 2018 · $25,000 by March 30, 2018 · The remaining balance by April 30, 2018. During the year ended December 31, 2017, we entered into a Repayment Agreement with JMJ Financial. The Company agreed to repay the balance as follows by wire: · $12,500 within five business days of the Issuer securing funding, provided that such payment shall be made on January 31, 2018. · $12,500 within 45 days after the first payment. · $12,500 within 45 days after the second payment. · $47,014 within 30 days after the third payment. Revenue Based Factoring Agreements During the year ended December 31, 2015, we entered into two revenue based factoring agreements as follows: December 31, 2016 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 have not made $9,588 of payments that were due through December 31, 2015. At December 31, 2016 and 2015, respectively, $0 and $8,112 of deferred financing costs related to this agreement is classified as a discount. (1) (2) (3) 55,242 $ 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 have not made $10,952 of payments that were due through December 31, 2015. At December 31, 2016 and 2015, respectively, $0 and $8,048 of deferred financing costs related to this agreement is classified as a discount. (2) (3) 52,024 $ 52,024 Total due to factor $ 107,266 $ 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, 2016. At December 31, 2015 and December 31, 2016, we have not accrued any penalties or interest that might be due as a result of the defaults. The default was settled on September 13, 2017, and judgement paid in full as of May 15, 2018. See Note 7. |
COMMITMENTS AND CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended |
Dec. 31, 2016 | |
Commitments And Contingencies | |
COMMITMENTS AND CONTINGENCIES | Legal Proceedings We may be involved in legal proceed legal proceed 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 plantiff came to the following agreements: i) Judgment is due to be entered against the Company in the amount of $300,000 if the sum of $20,000 as noted in iv is not paid. ii) The Company grants the plaintiffs vehicles and trailers in connection to this proceeding. iii) The Company will assist the plaintiffs in obtaining possession of the said vehicles. iv) The Company will pay the plaintiffs the sum of $20,000. The $20,000 settlement was paid in August 2017 PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicle, Inc. et.al On September 13, 2017 Power Up received a default judgment against the Company in the amount of $109,302.00. The Company negotiated a settlement agreement on December 21, 2017 with Power Up to pay $90,000 in three installments of $30,000. As of May 15, 2018 the company has paid the entire amount. Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al. On January 19, 2015 the Company and NACSV filed suit against Communications Laboratories, Inc., ComLabs Global, LLC, Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion and breach of contract in a dispute over the payment of a $300,000 account receivable that ComLabs owed to NACSV but sent payment directly to Brian Dekle. The case was filed in the Eighteenth Judicial Circuit in and for Brevard County Florida, case no. 05-2015-CA-012250. On February 18, 2015 (i) defendants Communications Laboratories, Inc., ComLabs Global, LLC and Roland Lussier and (ii) defendant Wallace Bailey filed their respective motions to dismiss seeking, among other things, dismissal for failure to state valid causes of action, lumping and failure to post a non-resident bond. On February 26, 2015, defendants Dekle and Ramsay filed their motion to dismiss, or stay action, based on already existing litigation between the parties. NACSV filed its required bond on March 2, 2015. Jeff Hull, Individually and on Behalf of All Others Similarly Situated v. Global Digital Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J. Delgado, Arthur F. Noterman and Stephanie C. Sullivan United States District Court, District of New Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB On August 24, 2016, Jeff Hull, Individually and on Behalf of All Others Similarly Situated (“Hull”) filed suit in the United States District Court for the District of New Jersey 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, which is included in sales, general and administrative expenses on the accompanying consolidated statement of operations.. 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 United States District Court for the District of New Jersey Mercer County Superior Court of New Jersey Adrian Lopez v. Global Digital Solutions, Inc. and William J. Delgado Superior Court of New Jersey, Chancery Division, Mercer County, Equity Part, Docket No. MER-L-002126-17 On September 28, 2017, Plaintiff Adrian Lopez (“Lopez”) brought an action against Global Digital Solutions, Inc. (“GDSI”) and William J. Delgado (“Delgado”) to compel a meeting of the stockholders of Global Digital Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and New Jersey Revised Statute § 14A:5-2. On October 27, 2017, Defendants GDSI and Delgado filed a Motion to Stay the Proceeding. On November 24, 2017, Plaintiff filed an Objection to Defendants’ Motion to Stay the Proceeding. On January 19, 2018, Defendants’ Motion to Stay the Proceeding was denied. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint. The Company believes the likelihood of an unfavorable outcome of the dispute is remote. In the Matter of GLOBAL DIGITAL SOLUTIONS, INC., ADMINISTRATIVE PROCEEDING File No. 3-18325. Administrative Proceeding Before the Securities and Exchange Commission. On December 26, 2017, the Securities and Exchange Commission instituted public administrative proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Respondent Global Digital Solutions, Inc. On January 8, 2018, Respondent Global Digital Solutions, Inc. (“GDSI”) filed its answer to the allegations contained in the Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12U) of the Exchange Act. A briefing schedule was entered into and on February 15, 2018, the Securities and Exchange Commission filed a motion for an order of summary disposition against Respondent GDSI on the grounds that there is no genuine issue with regard to any material fact, the Division was entitled as a matter of law to an order revoking each class of GDSI's securities registered pursuant to Section 12 of the Exchange Act. Respondent GDSI opposed the Securities and Exchange Commission’s motion on the grounds that there were material issues of fact. The Securities and Exchange Commission replied and a hearing was held on April 9, 2018. The Administrative Law Judge ordered supplemental evidence and briefing on the issues of material fact. The Company believes the likelihood of an unfavorable outcome of the dispute is reasonably possible, but is not able to reasonably estimate a range of potential loss, should the outcome be unfavorable PMB HELIN DONOVAN, LLP vs. GLOBAL DIGITAL SOLUTIONS, INC. IN THE CIRCUIT COURT FOR THE 15TH JUDICIAL CIRCUIT lN AND FOR PALM BEACH COUNTY, FLORIDA, Docket No.: 50-2017-CA-011937-XXXX-MB On October 31, 2017, PMB Helin Donovan, LLP filed an action for account stated in Palm Beach County. Global Digital Solutions, Inc. (“GDSI”) settled the matter for Forty Thousand Dollars ($40,000.00) of which the first payment of Ten Thousand Dollars ($10,000.00) has been paid. The $40,000 is included in accounts payable as of December 31, 2017. JENNIFER CARROLL, vs. GLOBAL DIGITAL SOLUTIONS, INC., NORTH AMERICAN CUSTOM SPECIALTY VEHICLES, INC., IN THE CIRCUIT COURT FOR THE 15TH JUDICIAL CIRCUIT lN AND FOR PALM BEACH COUNTY, FLORIDA, CASE NO.: 50-2015-CC-012942-XXXX-MB On October 27, 2017, Plaintiff Jennifer Carroll moved the court for a default judgment against Defendant Global Digital Solutions, Inc. (“GDSI”) and its subsidiary North American Custom Specialty Vehicles Inc. The amount of the judgement is Fifteen Thousand Dollars ($15,000.00) plus fees of Thirteen Thousand Three Hundred Fifty Three Dollars Forty Four Cents ($13,353.44) and costs of six hundred twenty four dollars thirty cents ($624.30). Consulting agreements The Company entered into two consulting agreements in May 2016, for services to be provided in connection towards the resolution of the Rontan lawsuit (Note 3). The consulting agreements includes a monthly retainer payment of $10,000 to each consultant. The agreement also includes consideration of 5,000,000 shares of restricted common stock of the Company, plus a 5% cash consideration of the Resolution Progress Funding, (defined as upon the retention of legal counsel and receipt of funding for the litigation), as of the Resolution Progress Funding date and 10,000,000 shares of restricted common stock of the Company and a 5% cash consideration of the Resolution Funding amount (defined as a settlement or judgement in favour of the Company by Rotan), at the Resolution Funding date. The Resolution Progress funding was met on December 22, 2017, as more fully discussed in Note 12. |
STOCKHOLDERS_ EQUITY
STOCKHOLDERS’ EQUITY | 12 Months Ended |
Dec. 31, 2016 | |
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, 2016 and 2015, 1,000,000 shares and 0 shares of preferred stock were outstanding, respectively. On August 15, 2016, William J. Delgado, our current Chief Executive Officer, agreed to convert $231,565 of indebtedness owed to him by the Company into 1,000,000 shares of convertible preferred stock (the “Preferred Stock”). The Preferred Stock has voting rights as to one (1) preferred share to four hundred (400) shares of the common stock of the Company. The Preferred Stock is convertible into common stock at any time after issuance into 37% of the outstanding common stock of the Company at the time of the conversion. The conversion to common can only take place when there are an adequate number of shares that are available and is subject to normal stock adjustments (i.e. stock splits etc.) that are executed by the Company in its normal course of business. Common Stock We are authorized to issue 650,000,000 shares of common stock, $0.001 par value per share. At both December 31, 2016 and 2015, 530,806,571 shares were issued, outstanding, or vested but unissued under stock compensation plans. Common Stock Warrant We have issued warrants, which are fully vested and available for exercise, as follows: Class of Warrant Issued in connection with or for Number Outstanding Exercise Price Date of Issue Date Vest Date of Expiration A-2 Services 1,000,000 $0.15 May, 2013 May, 2014 May, 2018 A-3 Services 500,000 $0.50 June, 2013 June, 2014 June, 2018 A-4 Services 1,000,000 $1.00 October, 2013 October, 2013 October, 2016 All warrants are exercisable at any time through the date of expiration. All agreements provides for the number of shares to be adjusted in the event of a stock split, a reverse stock split, a share exchange or other conversion or exchange event in which case the number of warrants and the exercise price of the warrants shall be adjusted on a proportional basis. The warrants expired unexercised on the dates of expiration, as shown above. The following is a summary of outstanding and exercisable warrants at December 31, 2016: Outstanding Exercisable Range of Exercise Prices Weighted Average Number Outstanding at 12/31/16 Weighted Average Outstanding Remaining Contractual Life (in yrs.) Weighted Average Exercise Price Number Exercisable at 12/31/16 Weighted Average Exercise Price $ 0.15 1,000,000 .92 $ 0.06 1,000,000 $ 0.06 $ 0.50 500,000 .52 $ 0.31 500,000 $ 0.31 $ 0.15 to 0.50 1,500,000 1.44 $ 0.37 1,500,000 $ 0.37 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 Weighted Average 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 1.3 $ 0.02 1,000,000 $ 0.02 $ 0.50 500,000 .69 $ 0.09 500,000 $ 0.09 $ 1.00 1,000,000 .15 $ 0.71 1,000,000 $ 0.71 $ 0.15 to 1.00 2,500,000 2.14 $ 0.82 2,500,000 $ 0.82 The intrinsic value of warrants outstanding at December 31, 2016 and 2015 was $0. Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the exercise price of the warrant multiplied by the number of warrants outstanding or exercisable. Stock Incentive Plans 2014 Global Digital Solutions Equity Incentive Plan On May 9, 2014 our shareholders approved the 2014 Global Digital Solutions Equity Incentive Plan (“Plan”) and reserved 20,000,000 shares of our common stock for issuance pursuant to awards thereunder, including options, stock appreciation right, restricted stock, restricted stock units, performance awards, dividend equivalents, or other stock-based awards. The Plan is intended as an incentive, to retain in the employ of the Company, our directors, officers, employees, consultants and advisors, and to attract new officers, employees, directors, consultants and advisors whose services are considered valuable, to encourage the sense of proprietorship and to stimulate the active interest of such persons in the development and financial success of the Company and its subsidiaries. In accordance with the ACS 718, Compensation – Stock Compensation Stock-based compensation expense for the years ended December 31, 2016 and 2015 is comprised as follows: 2016 2015 Stock based compensation expense $ 16,674 $ 788.015 Stock options forfeitures (91,481) - Restricted stock units forfeitures (51,747) - Total $ (126,554) $ 788,015 Awards Issued Under Stock Incentive Plans Stock Option Activity At December 31, 2016 we have outstanding 13,650,002 stock options which are fully-vested and at December 31, 2015, we have outstanding 15,100,000 stock options - 13,116,668 of which are fully-vested stock options that were granted to directors, officers and consultants and 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. During 2016 1,449,998 unvested stock options were either forfeited due to employees leaving the Company, or cancelled by the Board due to performance levels not being met. Any compensation amount previously recognized on the straight-line baiss relating to the unvested stock options were reversed in the period of cancellation or forfeiture. The remaining 533,334 options vested during the year ended December 31, 2016. Issuances of Stock Options Effective as of April 10, 2015, David A. Loppert retired as our CFO and as an officer of the Company and we appointed Jerome J. Gomolski as our CFO. In connection with his appointment as our CFO, on April 1, 2015, Mr. Gomolski was granted stock options to acquire 500,000 shares of our common stock pursuant to the Plan. The options have an exercise price of $0.10 per share, vest one-third on each of October, 1 2015, April 1, 2016 and October 1, 2016, expire on April 1, 2025 and had an aggregate grant date fair value of $50,000, which was recognized as compensation as the options vest. During 2016, the unvested stock options were cancelled, and no further stock compensation was recognized. On April 1, 2015, we granted stock options to acquire 300,000 shares of our common stock to each of two consultants. The options have an exercise price of $0.10 per share, vest one-third on each of October 1, 2015, April 1, 2016 and October 1, 2016 and expire on March 31, 2025. The options had an aggregate grant date fair value of $30,000 each, which was recognized as compensation as the options vest. During 2016, the unvested stock options were cancelled, and no further stock compensation was recognized. On April 20, 2015 we granted options to acquire 500,000 shares of our common stock exercisable at $0.14 per share to each of William J. Delgado, executive officer and director, and Arthur F. Noterman and Stephanie C. Sullivan, directors. The options vest one-third on each of October 1, 2015, April 1, 2016 and October 1, 2016, are exercisable through March 31, 2025, and had an aggregate grant date fair value of $70,000 each which was recognized as compensation as the options vest. During 2016, the unvested stock options were cancelled, and no further stock compensation was recognized. On May 8, 2015, we granted stock options to acquire an aggregate of 300,000 shares of our common stock to four employees. The options have an exercise price of $0.08 per share, vested ratably over a three-year period, expire ten years from the date of grant and had an aggregate grant date fair value of $24,000, which will be recognized as compensation as the options vest. During 2016, the unvested stock options were cancelled, and no further stock compensation was recognized. On November 30, 2015, we granted to each of our executive officers, Jerome J. Gomolski and Gary A. Gray, and to an employee options to acquire 1,000,000 shares of our common stock exercisable at $0.006 per share. The options vested on the date of grant and expire on November 30, 2025 and had an aggregate grant date fair value of $50,000 each. On December 9, 2015, we granted to Vox Equity Partners LLC options to acquire 4,000,000 shares of our common stock exercisable at $0.006 per share. The 4,000,000 options vested on the date of grant, expire on December 8, 2025 and had a grant date fair value of $24,000. On December 15, 2015, we granted to each of William J. Delgado, executive officer and director, and Arthur F. Noterman and Stephanie C. Sullivan, directors options to acquire 750,000 shares of our common stock exercisable at $0.008 per share. The options vested on the date of grant and expire on December 14, 2025. The options had an aggregate grant date fair value of $6,000 each. A summary of the stock option activity for our stock options plans for years ended December 31, 2016 and 2015 is as follows: Number of Options Weighted Average Exercise Price per Share Weighted Average Remaining Term in Years Aggregate Intrinsic Value at Date of Grant Outstanding December 31, 2014 4,840,000 $ 0.63 9.2 - Options granted 12,150,000 0.11 9.8 - Options exercised - - Options forfeited (1,890,000 ) (0.62 ) (9.1 ) - Outstanding December 31, 2015 15,100,000 0.55 9.5 - Exercisable at December 31 2015 13,116,668 $ 0.60 9.5 - Options granted - - Options exercised - - Options forfeited (1,449,998 ) (0.12 ) 9.3 - Outstanding December 31, 2016 13,650,002 0.60 8.5 - Exercisable at December 31 2016 13,650,002 $ 0.60 8.5 - 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 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, 2016 and 2015, we recorded stock-based compensation cost related to the outstanding stock options of $16,674 expense and ($91,481) fofeitures and and $308,143, respectively. At December 31, 2016 and 2015, respectively, the unamortized value of the outstanding stock options was $0 and $91,847. The intrinsic value of options outstanding at December 31, 2016 and 2015 was $0. Aggregate intrinsic value represents the value of the Company’s closing stock price on the last trading day of the fiscal period in excess of the exercise price of the 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, 2016 and 2015 and changes during the year then ended is presented below: Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested at January 1, 2015 13,000,000 $ 0.30 - Issued - $ - $ 0.00 Vested - - - Forfeited (12,000,000 ) (0.30 ) - Non-vested at December 31, 2015 1,000,000 $ (0.10 ) $ 0.00 Issued - $ - $ 0.00 Vested - - - Forfeited (1,000,000 ) $ (0.10 ) - Non-vested at December 31, 2016 - $ - $ 0.00 We recorded stock-based compensation expense related to these RSU’s of ($51,747) fofeitures and $51,749 for the years ended December 31, 2016 and 2015, respectively The aggregate intrinsic value of non-vested RSU’s was $0 at December 31, 2016 and 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 an advisor for a minimum of twelve months, and which are forfeited if the advisor is terminated or is no longer an advisor on the anniversary of the advisory award, as follows: December 31, 2016 Name Date of Grant Number of Shares Vest from Vest To Vested Unvested Forfeited 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 - - 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- 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 5,000,000 4,875,000 - 125,000 A summary of restricted stock grants outstanding as of December 31, 2015 and 2016, and the changes during the year then ended is presented below: Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested at January 1, 2015 1,062,500 0.45 $ 0.00 Granted 1,625,000 $ 0.04 Vested (2,562,500 ) (0.44 ) Forfeited - - - Non-vested at December 31, 2015 125,000 $ 0.46 $ 0.00 Granted - $ - Vested - ) - ) Forfeited (125,000 ) (.46 ) - Non-vested at December 31, 2016 - $ - $ 0.00 We recorded stock-based compensation expense related to these restricted stock grants of $0 and $428,129 for the years ended December 31, 2016 and 2015, respectively. The aggregate intrinsic value of the non-vested restricted stock grant was $0 at December 31, 2016 and 2015. |
INCOME TAXES
INCOME TAXES | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes | |
INCOME TAXES | Reconciliations between the statutory rate and the effective tax rate for the years ended December 31, 2016 and 2015 consist as follows: 2016 2015 Federal statutory tax rate (34.0 )% (34.0 )% Permanent differences 16.0 % 6.0 % Valuation allowance 18.0 % 28.0 % Effective tax rate — — Significant components of the Company’s deferred tax assets as of December 31, 2016 and 2015 are summarized below. 2016 2015 Deferred tax assets: Net operating loss carryforwards $ 3,784,000 $ 3,559,000 Accrued expenses 42,000 42,000 Stock based compensation 4,709,000 4,752,000 Amortization and depreciation 31,000 29,000 Impairment of intangible assets 393,000 393,000 Total deferred tax asset 8,958,000 8775,000 Valuation allowance (8,958,000 ) (8,775,000 ) $ - $ - As of December 31, 2016, the Company had approximately $10,363,000 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 increased by $183,000 in the year ended December 31, 2016. 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. |
RELATED PARTY TRANSACTIONS
RELATED PARTY TRANSACTIONS | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions [Abstract] | |
RELATED PARTY TRANSACTIONS | Accounts Payable At December 31, 2016 and 2015, included in accounts payable was compensation owed to related parties as seen below - 2016 2015 RLT Consulting $ 33,841 $ 13,841 Jerry Gomolski 25,000 8,333 Charter 804CS 20,099 20,099 Gary Gray 12,000 4,000 Total $ 90,940 $ 46,273 Accrued Compensation At December 31, 2016, we had $70,000 payable to William J. Delgado and $16,668 to Jerry Gomolski. At December 31, 2015, there was $151,565 accrued expenses payable to William Delgado. During the year ended December 31, 2016, as more fully disclosed Note 8, $231,565 of accrued compensation for William B. Delgado was converted to preferred shares. |
CUSTOMER CONCENTRATIONS
CUSTOMER CONCENTRATIONS | 12 Months Ended |
Dec. 31, 2016 | |
Customer Concentrations | |
CUSTOMER CONCENTRATIONS | The Company had revenue from two customers in the year ended December 31, 2015 that was 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 One customer accounted for 100.0% of the Accounts receivable at December 31, 2015 balance. |
SUBSEQUENT EVENTS
SUBSEQUENT EVENTS | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events [Abstract] | |
SUBSEQUENT EVENTS | We have completed an evaluation of all subsequent events after the balance sheet date of December 31, 2016 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, 2016 and events which occurred subsequently but were not recognized in the financial statements. We have concluded that no subsequent events have occurred that require recognition or disclosure, except as disclosed within these financial statements and except as described below: On December 22, 2017, the Company entered into a financing agreement with an accredited investor for $1.2 million. Under the terms of the agreement, the Company is to receive milestone payments based on the progress of the Company’s lawsuit for damages against Grupo Rontan Metalurgica, S.A (the “Lawsuit”). Such milestone payments consist of (i) an initial purchase price payment of $300,000, which the Company received on December 22, 2017, (ii) $150,000 within 30 days of the Lawsuit surviving a motion to dismiss on the primary claims, (iii) $100,000 within 30 days of the close of all discovery in the Lawsuit and (iv) $650,000 within 30 days of the Lawsuit surviving a motion for summary judgment and challenges on the primary claims. As part of the agreement, the Company shall pay the investor an investment return of 100% of the litigation proceeds to recoup all money invested, plus 27.5% of the total litigation proceeds received by the Company. On December 23, 2017, the Company entered into a $485,000 Demand Promissory Note with Vox Business Trust, LLC (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 7), consisting of $200,000 owed for retaianer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018. On December 26, 2017, the Company entered into a $485,000 Demand Promissory Note with RLT Consulting, Inc (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 7), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018 (as well as an additional 4,000,000 for further services). From 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 Services $ 0.012 $ 20,000 March 13, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 9,000,000 Services $ 0.012 N/A On May 1, 2018 the Company entered into a $36,000 promissory note with an individual with $5,000 original issue discount for net proceeds of $31,000. On May 15, 2018, the Company entered into an Investment Return Purchase Agreement with an accredited investor (the “Purchaser”) for proceeds of $200,000 (the “Investment Agreement”). Under the terms of the Investment Agreement, the Company agreed to pay the Purchaser a 10% return, or $20,000 (the “Investment Return”) within three (3) months from the date of the Investment Agreement. Such Investment Return shall be paid earlier if the Company secures funding totaling $500,000 within 90 days from the date of the Investment Agreement. In addition, the Company agreed to issue to the Purchaser 2,000,000 warrants to purchase common stock of the Company at an exercise price of $0.01 per share, exercisable for a period of three (3) years. On June 1, 2018, the Company entered into a $300,000 non-convertible note with an accredited investor with $150,000 original issue discount for net proceeds of $150,000. As part of the note agreement, the Company also agreed to issue the investor 5,000,000 warrants at an exercise price of $0.01. |
SUMMARY OF SIGNIFICANT ACCOUN_2
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended |
Dec. 31, 2016 | |
Summary Of Significant Accounting Policies Policies Abstract | |
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, 2016 incurred a net loss of $783,783 and used net cash of $2,944 to fund operating activities. At December 31, 2016, the Company had no cash , an accumulated deficit of $32,451,168, a working capital deficit of $1,898,839 and stockholders’ deficit of $1,925,698. 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 6. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all. We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, and the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities. While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. On December 22, 2017, the Company entered into a financing agreement with an accredited investor for $1.2 million, as further detailed in Note 12. 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. |
Use of Estimates | The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates. The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the derivative liability valuation, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, or other valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate. |
Revenue Recognition | The Company recognizes revenue when all of the following conditions are satisfied: (1) there is persuasive evidence of an arrangement; (2) the product or service has been provided to the customer; (3) the amount to be paid by the customer is fixed or determinable; and (4) the collection of such amount is probable. The Company records revenue when it is realizable and earned upon shipment of the finished products or when the service has been provided. |
Income Taxes | Income taxes are accounted for based upon an asset and liability approach. Accordingly, deferred tax assets and liabilities arise from the difference between the tax basis of an asset or liability and its reported amount in the financial statements. Deferred tax amounts are determined using the tax rates expected to be in effect when the taxes will actually be paid or refunds received, as provided under currently enacted tax law. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Income tax expense or benefit is the tax payable or refundable, respectively, for the period plus or minus the change in deferred tax assets and liabilities during the period. Accounting guidance requires the recognition of a financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The Company believes its income tax filing positions and deductions will be sustained upon examination and accordingly, no reserves, or related accruals for interest and penalties have been recorded at December 31, 2016 and 2015. The Company recognizes interest and penalties on unrecognized tax benefits as well as interest received from favorable tax settlements within income tax expense. On December 22, 2017, the President of the United States signed and enacted into law H.R. 1 (the “Tax Reform Law”). The Tax Reform Law, effective for tax years beginning on or after January 1, 2018, except for certain provisions, resulted in significant changes to existing United States tax law, including various provisions that are expected to impact the Company. The Tax Reform Law reduces the federal corporate tax rate from 34% to 21% effective January 1, 2018. The Company will continue to analyze the provisions of the Tax Reform Law to assess the impact on the Company’s consolidated 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. As of December 31, 2016 and 2015, Management believed all amounts fully collectible. |
Prepaid Expenses | Prepaid expenses consist primarily of prepaid insurance, 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. The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement. The three levels of the fair value hierarchy defined by ASC 820 are as follows: ● Level 1 – Quoted prices in active markets for identical assets or liabilities ● Level 2 –Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly ● Level 3 – Significant unobservable inputs that cannot be corroborated by market data. |
Derivative Financial Instruments | We account for 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”. Subtopic ASC 815-15, Embedded Derivatives generally requires companies to bifurcate conversion options embedded in the convertible notes from their host instruments and to account for them as free standing derivative financial instruments. Derivative liabilities are recognized in the consolidated balance sheet at fair value as Derivative Liabilities and based on the criteria specified in FASB ASC 815-40, Derivatives and Hedging – Contracts in Entity’s own Equity. The estimated fair value of the derivative liabilities is calculated using various assumptions and such estimates are revalued at each balance sheet date, with changes recorded to other income or expense as Change in fair value of derivative liability in the consolidated statement of operations. The classification of derivative instruments, including whether such instruments should be recorded as liabilities or equity, is evaluated at the instrument origination date and reviewed at the end of each event date (i.e. conversions, payments, etc.) and the measurement period end date for financial reporting, as applicable. Derivative instrument liabilities are classified on the balance sheet as current or non-current based on whether or not net-cash settlement of the derivative instrument would be required within twelve months of the balance sheet date. |
Convertible Securities | Based upon ASC 815-15, we have adopted a sequencing approach regarding the application of ASC 815-40 to convertible securities. We will evaluate our contracts based upon the earliest issuance date. In the event partial reclassification of contracts subject to ASC 815-40-25 is necessary, due to our inability to demonstrate we have sufficient shares authorized and unissued, shares will be allocated on the basis of issuance date, with the earliest issuance date receiving first allocation of shares. If a reclassification of an instrument were required, it would result in the instrument issued latest being reclassified first. |
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, 2016 2015 Convertible notes and accrued interest 311,446,571 48,193,462 Stock options 13,116,668 15,100,000 Warrants 1,500,000 2,500,000 Vested but unissued restricted stock awards -- 375,000 Restricted stock units -- 1,000,000 Potentially dilutive securities 326,063,239 67,168,462 |
Stock Based Compensation | In accordance with ASC 718, "Compensation – Stock Compensation” the Company measures the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award. The Company’s accounting policy for equity instruments issued to advisors, consultants and vendors in exchange for goods and services follows the provisions of FASB ASC 505-50 . |
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. |
Deferred Financing Costs | Costs incurred in connection with obtaining financing are deferred and classified as a discount to the related loan and amortized using the effective interest method over the term of the related loan. The Company recognized $16,160 and $20,540 of expense related to the amortization of deferred financing costs during the years ended December 31, 2016 and 2015, respectively. |
Inventory | The Company orders inventory/components upon receipt of a signed purchase order from a customer. The Company did not have any inventory at December 31, 2016 or 2015. Previously, the Company utilized lower of cost (first-in, first-out) or market method. |
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. |
Recent Accounting Pronouncements | In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, 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 ACCOUN_3
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Summary Of Significant Accounting Policies Tables Abstract | |
Securities excluded from the diluted per share calculation | Year ended December 31, 2016 2015 Convertible notes and accrued interest 311,446,571 48,193,462 Stock options 13,116,668 15,100,000 Warrants 1,500,000 2,500,000 Vested but unissued restricted stock awards -- 375,000 Restricted stock units -- 1,000,000 Potentially dilutive securities 326,063,239 67,168,462 |
ACCRUED EXPENSES (Tables)
ACCRUED EXPENSES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Accrued Expenses Tables Abstract | |
Accrued expenses | December 31, 2016 December 31, 2015 Accrued compensation to executive officers and employees $ 86,668 $ 151,565 Accrued Interest 21,817 17,143 Accrued professional fees 46,013 28,592 Total accrued expenses $ 154,498 $ 197,300 |
FAIR VALUE MEASUREMENTS (Tables
FAIR VALUE MEASUREMENTS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Fair Value Measurements Tables Abstract | |
Activity of Level 3 liabilities | 2016 2015 Balance at beginning of year $ 270,080 $ - Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 1,068,109 Change in fair value 402,644 (798,029 ) Balance at end of year $ 672,724 $ 270,080 |
NOTE PAYABLE (Tables)
NOTE PAYABLE (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Note Payable | |
Convertible notes payable | December 31, 2016 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) (2) (3) $ 39,921 $ 39,921 Convertible note payable for $250,000 to JMJ Financial (“JMJ”) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015, of which $40,930 was repaid by conversion as of December 31, 2015. The note was issued with an original issue discount of 10% of amounts funded. The principal amount matures 24 months from the date of each funding, had a one-time 12% interest charge as it was not repaid within 90 days of the effective date, and is convertible at any time at the option of JMJ into shares of our common stock at the lesser of $0.075 per share or 60% of the average of the trade price in the 25 trading days prior to conversion. JMJ has the option to finance additional amounts up to the balance of the $250,000 during the term of the note. (1) (2) (4) $ 69,070 $ 69,070 Total convertible notes payable $ 108,991 $ 108,991 |
Due to factor | December 31, 2016 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 have not made $9,588 of payments that were due through December 31, 2015. At December 31, 2016 and 2015, respectively, $0 and $8,112 of deferred financing costs related to this agreement is classified as a discount. (1) (2) (3) 55,242 $ 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 have not made $10,952 of payments that were due through December 31, 2015. At December 31, 2016 and 2015, respectively, $0 and $8,048 of deferred financing costs related to this agreement is classified as a discount. (2) (3) 52,024 $ 52,024 Total due to factor $ 107,266 $ 107,266 |
STOCKHOLDERS_ EQUITY (Tables)
STOCKHOLDERS’ EQUITY (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
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 | The following is a summary of outstanding and exercisable warrants at December 31, 2016: Outstanding Exercisable Range of Exercise Prices Weighted Average Number Outstanding at 12/31/16 Weighted Average Outstanding Remaining Contractual Life (in yrs.) Weighted Average Exercise Price Number Exercisable at 12/31/16 Weighted Average Exercise Price $ 0.15 1,000,000 .92 $ 0.06 1,000,000 $ 0.06 $ 0.50 500,000 .52 $ 0.31 500,000 $ 0.31 $ 0.15 to 0.50 1,500,000 1.44 $ 0.37 1,500,000 $ 0.37 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 Weighted Average 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 1.3 $ 0.02 1,000,000 $ 0.02 $ 0.50 500,000 .69 $ 0.09 500,000 $ 0.09 $ 1.00 1,000,000 .15 $ 0.71 1,000,000 $ 0.71 $ 0.15 to 1.00 2,500,000 2.14 $ 0.82 2,500,000 $ 0.82 |
Stock-based compensation expense | 2016 2015 Stock based compensation expense $ 16,674 $ 788.015 Stock options forfeitures (91,481) - Restricted stock units forfeitures (51,747) - Total $ (126,554) $ 788,015 |
Stock option activity | Number of Options Weighted Average Exercise Price per Share Weighted Average Remaining Term in Years Aggregate Intrinsic Value at Date of Grant Outstanding December 31, 2014 4,840,000 $ 0.63 9.2 - Options granted 12,150,000 0.11 9.8 - Options exercised - - Options forfeited (1,890,000 ) (0.62 ) (9.1 ) - Outstanding December 31, 2015 15,100,000 0.55 9.5 - Exercisable at December 31 2015 13,116,668 $ 0.60 9.5 - Options granted - - Options exercised - - Options forfeited (1,449,998 ) (0.12 ) 9.3 - Outstanding December 31, 2016 13,650,002 0.60 8.5 - Exercisable at December 31 2016 13,650,002 $ 0.60 8.5 - |
Unvested restricted stock units | Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested at January 1, 2015 13,000,000 $ 0.30 - Issued - $ - $ 0.00 Vested - - - Forfeited (12,000,000 ) (0.30 ) - Non-vested at December 31, 2015 1,000,000 $ (0.10 ) $ 0.00 Issued - $ - $ 0.00 Vested - - - Forfeited (1,000,000 ) $ (0.10 ) - Non-vested at December 31, 2016 - $ - $ 0.00 |
Restricted stock grants awarded to advisors | December 31, 2016 Name Date of Grant Number of Shares Vest from Vest To Vested Unvested Forfeited 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 - - 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- 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 5,000,000 4,875,000 - 125,000 |
Summary of restricted stock grants | Number Weighted Average Grant Date Fair Value Aggregate Intrinsic Value Non-vested at January 1, 2015 1,062,500 0.45 $ 0.00 Granted 1,625,000 $ 0.04 Vested (2,562,500 ) (0.44 ) Forfeited - - - Non-vested at December 31, 2015 125,000 $ 0.46 $ 0.00 Granted - $ - Vested - ) - ) Forfeited (125,000 ) (.46 ) - Non-vested at December 31, 2016 - $ - $ 0.00 |
INCOME TAXES (Tables)
INCOME TAXES (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Income Taxes Tables Abstract | |
Effective tax rate reconciliation | 2016 2015 Federal statutory tax rate (34.0 )% (34.0 )% Permanent differences 16.0 % 6.0 % Valuation allowance 18.0 % 28.0 % Effective tax rate — — |
Deferred tax assets | 2016 2015 Deferred tax assets: Net operating loss carryforwards $ 3,784,000 $ 3,559,000 Accrued expenses 42,000 42,000 Stock based compensation 4,709,000 4,752,000 Amortization and depreciation 31,000 29,000 Impairment of intangible assets 393,000 393,000 Total deferred tax asset 8,958,000 8775,000 Valuation allowance (8,958,000 ) (8,775,000 ) $ - $ - |
RELATED PARTY TRANSACTIONS (Tab
RELATED PARTY TRANSACTIONS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Related Party Transactions | |
Accounts Payable | 2016 2015 RLT Consulting $ 33,841 $ 13,841 Jerry Gomolski 25,000 8,333 Charter 804CS 20,099 20,099 Gary Gray 12,000 4,000 Total $ 90,940 $ 46,273 |
CUSTOMER CONCENTRATIONS (Tables
CUSTOMER CONCENTRATIONS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Customer Concentrations Tables Abstract | |
Major customers | Year Ended December 31, 2015 Amount % of Total Revenue Customer 1 $ 350,000 58.3 Customer 2 $ 250,000 41.7 |
SUBSEQUENT EVENTS (Tables)
SUBSEQUENT EVENTS (Tables) | 12 Months Ended |
Dec. 31, 2016 | |
Subsequent Events | |
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 Services $ 0.012 $ 20,000 March 13, 2018 Consultant 5,000,000 Services $ 0.012 N/A March 13, 2018 Consultant 9,000,000 Services $ 0.012 N/A |
SUMMARY OF SIGNIFICANT ACCOUN_4
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) - shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Potentially dilutive securities | 326,063,239 | 67,168,462 |
Convertible Notes and Accrued Interest | ||
Potentially dilutive securities | 311,446,571 | 48,193,462 |
Stock Options | ||
Potentially dilutive securities | 13,116,668 | 15,100,000 |
Warrants | ||
Potentially dilutive securities | 1,500,000 | 2,500,000 |
Vested but Unissued Restricted Stock Awards | ||
Potentially dilutive securities | 0 | 375,000 |
Restricted Stock Units | ||
Potentially dilutive securities | 0 | 1,000,000 |
SUMMARY OF SIGNIFICANT ACCOUN_5
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) - USD ($) | 12 Months Ended | ||
Dec. 31, 2016 | Dec. 31, 2015 | Dec. 31, 2014 | |
Summary Of Significant Accounting Policies Details Narrative Abstract | |||
Net loss | $ (1,043,783) | $ (2,689,331) | |
Net cash used in operating activities | (2,944) | (767,390) | |
Cash and cash equivalents | 0 | 2,944 | $ 160,102 |
Accumulated deficit | (32,711,168) | (31,667,385) | |
Working capital deficit | (1,638,839) | ||
Shareholders' deficiency | (1,896,424) | (957,652) | $ (913,086) |
Prepaid expenses | $ 22,597 | $ 99,111 |
ACCRUED EXPENSES (Details)
ACCRUED EXPENSES (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Accrued Expenses Details Abstract | ||
Accrued compensation to executive officers and employees | $ 86,668 | $ 151,565 |
Accrued Interest | 21,817 | 17,143 |
Accrued professional fees | 46,013 | 28,592 |
Total accrued expenses | $ 154,498 | $ 197,300 |
FAIR VALUE MEASUREMENTS (Detail
FAIR VALUE MEASUREMENTS (Details) - Level 3 - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Beginning balance | $ 270,080 | $ 0 |
Initial fair value of embedded derivative liabilities of convertible notes payable issued during 2015 | 1,068,109 | |
Change in fair value | 402,644 | (798,029) |
Ending balance | $ 672,724 | $ 270,080 |
NOTE PAYABLE (Details)
NOTE PAYABLE (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Convertible notes payable with embedded derivative liability | $ 108,991 | $ 108,991 |
Convertible Note 1 | ||
Convertible notes payable with embedded derivative liability | 39,921 | 39,921 |
Convertible Note 2 | ||
Convertible notes payable with embedded derivative liability | $ 69,070 | $ 69,070 |
NOTE PAYABLE (Details 1)
NOTE PAYABLE (Details 1) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Due to factor | $ 107,266 | $ 107,266 |
Agreement 1 | ||
Due to factor | 55,242 | 55,242 |
Agreement 2 | ||
Due to factor | $ 52,024 | $ 52,024 |
STOCKHOLDERS_ EQUITY (Details)
STOCKHOLDERS’ EQUITY (Details) - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number outstanding | 1,500,000 | 2,500,000 |
Exercise price | $ 0.37 | $ 0.82 |
A2 | ||
Issued in connection with or for | Services | |
Number outstanding | 1,000,000 | |
Exercise price | $ 0.15 | |
Date of issue | May, 2013 | |
Date vest | May, 2014 | |
Date of expiration | May, 2018 | |
A3 | ||
Issued in connection with or for | Services | |
Number outstanding | 500,000 | |
Exercise price | $ 0.50 | |
Date of issue | June, 2013 | |
Date vest | June, 2014 | |
Date of expiration | June, 2018 | |
A4 | ||
Issued in connection with or for | Services | |
Number outstanding | 1,000,000 | |
Exercise price | $ 1 | |
Date of issue | October, 2013 | |
Date vest | October, 2013 | |
Date of expiration | October, 2016 |
STOCKHOLDERS_ EQUITY (Details 1
STOCKHOLDERS’ EQUITY (Details 1) - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Weighted average number outstanding | 1,500,000 | 2,500,000 |
Weighted average outstanding remaining contractual life | 1 year 5 months 8 days | 2 years 1 month 20 days |
Weighted average exercise price | $ 0.37 | $ 0.82 |
Number exercisable | 1,500,000 | 2,500,000 |
Weighted average exercise price | $ 0.37 | $ 0.82 |
$ 0.15 | ||
Weighted average number outstanding | 1,000,000 | 1,000,000 |
Weighted average outstanding remaining contractual life | 11 months 1 day | 1 year 3 months 18 days |
Weighted average exercise price | $ 0.06 | $ 0.02 |
Number exercisable | 1,000,000 | 1,000,000 |
Weighted average exercise price | $ 0.06 | $ 0.02 |
$ 0.50 | ||
Weighted average number outstanding | 500,000 | 500,000 |
Weighted average outstanding remaining contractual life | 6 months 7 days | 8 months 8 days |
Weighted average exercise price | $ 0.31 | $ 0.09 |
Number exercisable | 500,000 | 500,000 |
Weighted average exercise price | $ 0.31 | $ 0.09 |
$ 1 | ||
Weighted average number outstanding | 1,000,000 | |
Weighted average outstanding remaining contractual life | 1 month 24 days | |
Weighted average exercise price | $ 0.71 | |
Number exercisable | 1,000,000 | |
Weighted average exercise price | $ 0.71 |
STOCKHOLDERS_ EQUITY (Details 2
STOCKHOLDERS’ EQUITY (Details 2) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Stockholders Equity | ||
Stock based compensation expense | $ 38,161 | $ 788,015 |
Stock options forfeitures | (112,968) | 0 |
Restricted stock units forfeitures | (51,747) | 0 |
Total | $ (74,808) | $ 788,015 |
STOCKHOLDERS_ EQUITY (Details 3
STOCKHOLDERS’ EQUITY (Details 3) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number of Options | ||
Outstanding at beginning of period | 15,100,000 | 4,840,000 |
Options granted | 0 | 12,150,000 |
Options exercised | 0 | 0 |
Options forfeited | (1,449,998) | (1,890,000) |
Outstanding at end of period | 13,650,002 | 15,100,000 |
Exercisable | 13,650,002 | 13,116,668 |
Weighted Average Exercise Price Per Share | ||
Outstanding at beginning of period | $ 0.55 | $ 0.63 |
Options granted | 0.11 | |
Options forfeited | (0.12) | (0.62) |
Outstanding at end of period | 0.6 | 0.55 |
Exercisable | $ 0.6 | $ 0.6 |
Weighted Average Remaining Contractual Term | ||
Outstanding at beginning of period | 9 years 6 months | 9 years 2 months 12 days |
Options granted | 9 years 9 months 18 days | |
Options forfeited | 9 years 3 months 18 days | 9 years 1 month 6 days |
Exercisable | 8 years 6 months | 9 years 6 months |
Aggregate Intrinsic Value | ||
Outstanding | $ 0 | $ 0 |
Exercisable | $ 0 | $ 0 |
STOCKHOLDERS_ EQUITY (Details 4
STOCKHOLDERS’ EQUITY (Details 4) - Restricted Stock Units (RSUs) [Member] - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Nonvested at beginning of period | 1,000,000 | 13,000,000 |
Issued | 0 | 0 |
Vested | 0 | 0 |
Forfeited | (1,000,000) | (12,000,000) |
Nonvested at end of period | 0 | 1,000,000 |
Weighted average grant date fair value, nonvested, beginning | $ 0.10 | $ 0.30 |
Weighted average grant date fair value, issued | .00 | |
Weighted average grant date fair value, vested | 0 | |
Weighted average grant date fair value, forfeited | (0.10) | (0.30) |
Weighted average grant date fair value, nonvested, ending | 0 | (0.10) |
Aggregate intrinsic value, nonvested, beginning | 0 | |
Aggregate intrinsic value, issued | 0 | |
Aggregate intrinsic value, nonvested, ending | $ 0 | $ 0 |
STOCKHOLDERS_ EQUITY (Details 5
STOCKHOLDERS’ EQUITY (Details 5) | 12 Months Ended |
Dec. 31, 2016shares | |
Number of Shares | 5,000,000 |
Vested | 4,875,000 |
Unvested | 0 |
Forfeited | 125,000 |
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 |
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 | |
Date of Grant | Apr. 30, 2014 |
Number of Shares | 500,000 |
Vest from | Apr. 30, 2015 |
Vest To | Mar. 30, 2016 |
Vested | 375,000 |
Unvested | 0 |
Forfeited | 125,000 |
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 |
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 |
STOCKHOLDERS_ EQUITY (Details 6
STOCKHOLDERS’ EQUITY (Details 6) - Restricted Stock Grants - $ / shares | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Nonvested at beginning of period | 125,000 | 1,062,500 |
Granted | 0 | 1,625,000 |
Vested | 0 | (2,562,500) |
Forfeited | (125,000) | 0 |
Nonvested at end of period | 0 | 125,000 |
Weighted average grant date fair value, nonvested, beginning | $ 0.46 | $ .45 |
Weighted average grant date fair value, granted | 0 | 0.04 |
Weighted average grant date fair value, vested | 0 | (.44) |
Weighted average grant date fair value, forfeited | (0.46) | (.00) |
Weighted average grant date fair value, nonvested, ending | 0 | 0.46 |
Aggregate intrinsic value, nonvested, beginning | .00 | .00 |
Aggregate intrinsic value, forfeited | .00 | .00 |
Aggregate intrinsic value, nonvested, ending | $ .00 | $ .00 |
STOCKHOLDERS_ EQUITY (Details N
STOCKHOLDERS’ EQUITY (Details Narrative) - $ / shares | Dec. 31, 2016 | Dec. 31, 2015 |
Stockholders Equity Details Narrative Abstract | ||
Preferred stock, par value | $ 0.001 | $ 0.001 |
Preferred stock, shares authorized | 35,000,000 | 35,000,000 |
Preferred stock, shares issued | 1,000,000 | 0 |
Preferred stock, shares outstanding | 1,000,000 | 0 |
Common stock, par value | $ 0.001 | $ 0.001 |
Common stock, shares authorized | 650,000,000 | 650,000,000 |
Common stock, shares issued | 530,806,571 | 530,806,571 |
Common stock, shares outstanding | 530,806,571 | 530,806,571 |
INCOME TAXES (Details)
INCOME TAXES (Details) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Income Taxes Details Abstract | ||
Federal statutory tax rate | (34.00%) | (34.00%) |
Permanent differences | 16.00% | 6.00% |
Valuation allowance | 18.00% | 28.00% |
Effective tax rate | 0.00% | 0.00% |
INCOME TAXES (Details 1)
INCOME TAXES (Details 1) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Deferred tax assets: | ||
Net operating loss carryforwards | $ 3,784,000 | $ 3,559,000 |
Accrued expenses | 42,000 | 42,000 |
Stock based compensation | 4,709,000 | 4,752,000 |
Amortization and depreciation | 31,000 | 29,000 |
Impairment of intangible assets | 393,000 | 393,000 |
Total deferred tax asset | 8,958,000 | 8,775,000 |
Valuation allowance | (8,958,000) | (8,775,000) |
Deferred tax assets | $ 0 | $ 0 |
INCOME TAXES (Details Narrative
INCOME TAXES (Details Narrative) | Dec. 31, 2016USD ($) |
Income Taxes Details Narrative Abstract | |
Federal net operating loss carry forwards | $ 5,119,000 |
RELATED PARTY TRANSACTIONS (Det
RELATED PARTY TRANSACTIONS (Details) - USD ($) | Dec. 31, 2016 | Dec. 31, 2015 |
Compensation owed to our senior management | $ 90,940 | $ 46,273 |
RLT Consulting | ||
Compensation owed to our senior management | 33,841 | 13,841 |
Jerry Gomolski | ||
Compensation owed to our senior management | 25,000 | 8,333 |
Charter 804CS | ||
Compensation owed to our senior management | 20,099 | 20,099 |
Gary Gray | ||
Compensation owed to our senior management | $ 12,000 | $ 4,000 |
CUSTOMER CONCENTRATIONS (Detail
CUSTOMER CONCENTRATIONS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Revenue | $ 14,386 | $ 641,578 |
Customer 1 | ||
Revenue | 350,000 | |
Percent of total revenue | 58.30% | |
Customer 2 | ||
Revenue | $ 250,000 | |
Percent of total revenue | 41.70% |
SUBSEQUENT EVENTS (Details)
SUBSEQUENT EVENTS (Details) - USD ($) | 12 Months Ended | |
Dec. 31, 2016 | Dec. 31, 2015 | |
Number of shares | 530,806,571 | 530,806,571 |
Amount received | $ 530,807 | $ 530,807 |
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 | |
Issuance 3 | ||
Date issued | Feb. 21, 2018 | |
Recipient | Consultant | |
Number of shares | 5,000,000 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 | |
Issuance 4 | ||
Date issued | Mar. 13, 2018 | |
Recipient | Consultant | |
Number of shares | 5,000,000 | |
Purpose of issuance | Service | |
Value of shares | $ 0.012 | |
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 | |
Issuance 6 | ||
Date issued | Mar. 13, 2018 | |
Recipient | Consultant | |
Number of shares | 9,000,000 | |
Purpose of issuance | Services | |
Value of shares | $ 0.012 |