Mail Stop 0510
January 27, 2005
via U.S. mail and facsimile
Mr. William J. Delgado
CEO and CFO
Global Digital Solutions, Inc.
10370 Old Placerville Road, Suite 107
Sacramento, CA 95827
RE: Form 10-KSB for the fiscal year ended June 30, 2004
Form 10-QSB for the quarter ended September 30, 2004
File No. 2-6361
Dear Mr. Delgado:
We have reviewed these filings and have the following
comments.
If you disagree with a comment, we will consider your explanation
as
to why our comment is inapplicable or a revision is unnecessary.
Please be as detailed as necessary in your explanation. In some
of
our comments, we may ask you to provide us with supplemental
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
FORM 10-KSB FOR THE YEAR ENDED JUNE 30, 2004
General
1. Where a comment below requests additional disclosures or other
revisions to be made, please show us in your supplemental response
what the revisions will look like. With the exception of the
comments below that specifically request an amendment, all other
revisions may be included in your future filings.
Item 2 - Properties, page 13
2. Please disclose how you are accounting for the sub-leased
properties.
Item 3 - Legal Proceedings, pages 13-14
3. For each legal case described, please disclose the date the
proceedings began. See Item 103(a)(2) of Regulation S-B.
4. Please disclose the name of the court or agency in which the
Signal Engineering V. Pacific Comtel, Inc. proceeding is pending.
See Item 103(a)(1) of Regulation S-B.
Item 5 - Market for Corporation`s Common Equity and Related
Stockholder Matters, page 15
5. Please disclose your equity plan information in the format
required by Item 201(d) of Regulation S-B.
Item 6 - Management`s Discussion and Analysis
Overview, page 18
6. Regarding the sales drop from $3.7 million for the year ended
June
30, 2003 to $1.5 million for the year ended June 30, 2004, please
disclose what activity these sales are derived from.
Results of Operations, page 19
7. Please discuss the business reasons for the change between
periods
in the depreciation and amortization line item. In circumstances
where there is more than one business reason for the change,
attempt
to quantify the incremental impact of each individual business
reason
discussed on the overall change in the line item. Please show us
what your revised MD&A for the year ended June 30, 2004 as
compared
to the year ended June 30, 2003 will look like. See Item
303(a)(3)
of Regulation S-K and Financial Reporting Codification 501.04.
Liquidity and Capital Resources, page 19
8. Please disclose how you generated a cash flow surplus from
operating activities in light of your operating losses incurred
during the year.
9. Please disclose whether your projected expenditures of
equipment
of approximately $180,000 relates to the fiscal year ended June
30,
2004 or June 30, 2005.
Financial Statements
General
10. As noted on page 6, please disclose your agreement with
Dominick
& Dominick as a note to the financial statements. In addition,
please disclose how you are accounting for the associated
warrants.
11. As noted on page 7, please disclose your agreement with
Messrs.
Sullivan and Artigliere as a note to the financial statements. In
addition, please disclose how you will account for the financing
of
at least $2 million and the return of approximately 14,100,000
common
shares, assuming that the financing and return of shares happens.
Report of Independent Registered Certified Public Accountants,
page
F-3
12. The audit report states that the financial statements for the
year ended June 30, 2003 were audited by other auditors, whose
audit
report expressed an unqualified opinion. Please present the prior
year`s audit report in the form 10-KSB for the year-ended June 30,
2004.
Consolidated Balance Sheet, page F-4
13. Please classify the long-term portion of your capital lease
obligations as a non-current obligation under capital leases, as
opposed to your current classification of `Notes Payable - long
term.` See paragraph 13 of SFAS 13.
Note A - Summary of Accounting Policies
General
14. Please disclose the types of expenses that you include in the
cost of sales line item and the types of expenses that you include
in
the general and administrative expenses line item. Please also
disclose whether you include inbound freight charges, purchasing
and
receiving costs, inspection costs, warehousing costs, internal
transfer costs, and the other costs of your distribution network
in
the cost of sales line item. With the exception of warehousing
costs, if you currently exclude a portion of these costs from cost
of
sales, please disclose:
* in a footnote the line items that these excluded costs are
included
in and the amounts included in each line item for each period
presented, and
* in MD&A that your gross margins may not be comparable to those
of
other entities, since some entities include all of the costs
related
to their distribution network in cost of sales and others like you
exclude a portion of them from gross margin, including them
instead
in a line item, such as general and administrative expenses.
Note B - Business Combinations and Corporate Restructure, page F-
15
15. Please disclose how you accounted for any direct costs
resulting
from the purchase of Pacific Comtel, Inc.
16. Regarding the reverse acquisition between Global and Creative,
please disclose the amount of transaction costs incurred and how
you
accounted for these costs.
Note C - Property, Plant and Equipment, page F-18
17. Please disclose the range of useful lives for each category of
property, plant and equipment you have presented. See paragraph
13
of APB 22.
Note F - Agreement with Factor, page F-19
18. Please disclose the gain or loss recognized from the sale of
receivables, as well as the key assumptions used in measuring the
fair value of the net accounts receivable balance due from the
factor. See paragraphs 17(f)(2) and (3) of SFAS 140.
Note H - Related Party Transactions, page F-20
19. You disclose that you entered into employment agreements with
officers, and refer to Note P for further information. However,
the
information related to employment agreements is presented in Note
N -
Commitments and Contingencies. Please change the reference of
Note P
to Note N.
Note K - Stock Warrants, page F-20
20. You disclose that you granted 370,000 warrants to Pacific
Comtel
(page 6), 100,000 warrants to Dominick & Dominick (page 6), and
2,470,000 warrants in the Creative/Global merger (page F-17) for a
total of 2,940,000 warrants granted. However, your disclosure in
this note states that 2,570,000 warrants were granted. Please
explain and revise your disclosure, if necessary. Please tell us
who
the recipients were, and the related amounts issued, of the
2,570,000
stock warrants granted during the fiscal year ended June 30, 2004.
Note N - Commitments and Contingencies, page F-23
21. Please disclose the year in which your non-cancelable
operating
leases expire.
22. Please disclose how you account for (a) step rent provisions
and
escalation clauses and (b) capital improvement funding and other
lease concessions, which may be present in your leases. Paragraph
5.n. of SFAS 13, as amended by SFAS 29, discusses how lease
payments
that depend on an existing index or rate, such as the consumer
price
index or the prime interest rate, should also be included in your
minimum lease payments. If, as we assume, they are taken into
account in computing your minimum lease payments and the minimum
lease payments are recognized on a straight-line basis over the
minimum lease term, the note should so state. If our assumption
is
incorrect, please tell us how your accounting complies with SFAS
13
and FTB 88-1.
Note O - Losses Per Common Share, page F-23
23. Please disclose how you are treating the restricted shares you
have issued in computing both your basic and diluted losses per
share. See paragraphs 10 and 13 of SFAS 128.
24. Please disclose the number of antidilutive shares by each type
of
security. See paragraph 40(c) of SFAS 128.
Item 9 - Directors and Executive Officers of the Corporation, page
25
25. Please disclose whether you have adopted a code of ethics. If
you have not adopted a code of ethics, please disclose why you
have
not done so. See Item 406 of Regulation S-B.
26. You state that the Board of Directors is acting as the Audit
Committee. Please disclose if you have designated a person as a
financial expert. See Item 401(e) of Regulation S-B.
Item 10 - Executive Compensation, page 27
27. Please disclose why compensation for years 2002 and 2003 is
not
applicable. See Item 402 of Regulation S-B.
28. Help us to understand how William Delgado`s 2004 salary of
$36,156 is accurate, given the disclosure of the employment
agreement
at an annual salary of $200,000.
Item 14 - Principal Accountant Fees and Services, page 29
29. Please clarify how the aggregate audit fees and expenses for
2004
were zero.
30. Please disclose, under the caption Audit-Related Fees, the
aggregate fees billed in each of the last two fiscal years for
assurance and related services that are reasonably related to the
performance of the audit or review of your financial statements.
Also, please describe the nature of the services comprising the
fees
disclosed under this category.
Certifications
31. Disclosure controls and procedures are now defined in Exchange
Act Rules 13a-15(e) and 15d-15(e). See SEC Release 33-8238, which
became effective August 14, 2003. Please file an amendment to
your
Form 10-KSB to include certifications that conform to the format
provided in Item 601(b)(31) of Regulation S-B and refer to the
appropriate locations for the definitions. In doing so, please
refile the Form 10-KSB in its entirety.
FORM 10-QSB FOR THE PERIOD ENDED SEPTEMBER 30, 2004
General
32. Please address the above comments in your interim filings as
well.
Note C - Capital Stock
33. Please disclose how you accounted for the 1,225,714 shares of
common stock, as well as 1,225,714 common stock warrants, pursuant
to
your Convertible Note agreement. Please also include the related
computations.
Management`s Discussion and Analysis
Costs and Expenses, and Interest Expense
34. You disclosed, under `Costs and Expenses,` that a lack of
capital
caused interest rates to increase from the three-month period
ended
September 30, 2003 to the three-month period ended September 30,
2004. However, under `Interest Expense,` you disclosed that the
decrease in interest expense was a result of lower average
interest
rates during the three-month period ended September 30, 2004 as
compared to the three-month period ended September 30, 2003.
Please
clarify the apparent inconsistency between these two explanations.
Please revise your disclosures accordingly.
* * * *
Please respond to these comments within 10 business days, or
tell us when you will provide us with a response. Please provide
us
with a supplemental response letter that keys your responses to
our
comments and provides any requested supplemental information.
Detailed letters greatly facilitate our review. Please file your
supplemental response on EDGAR as a correspondence file. Please
understand that we may have additional comments after reviewing
your
responses to our comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings reviewed by the staff to
be
certain that they have provided all information investors require
for
an informed decision. Since the company and its management are in
possession of all facts relating to a company`s disclosure, they
are
responsible for the accuracy and adequacy of the disclosures they
have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that:
* the company is responsible for the adequacy and accuracy of the
disclosure in their filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filing; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filing or in
response to our comments on your filing.
If you have any questions regarding these comments, please
direct them to Jeffrey Gordon, Staff Accountant, at (202) 824-5685
or, in his absence, to the undersigned at (202) 942-1774.
Sincerely,
Rufus Decker
Accounting Branch Chief
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Mr. William J. Delgado
January 27, 2005
Page 1 of 7
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549-0510
DIVISION OF
CORPORATION FINANCE