0001654954-18-007609.txt : 20180713 0001654954-18-007609.hdr.sgml : 20180713 20180712204635 ACCESSION NUMBER: 0001654954-18-007609 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 40 CONFORMED PERIOD OF REPORT: 20180331 FILED AS OF DATE: 20180713 DATE AS OF CHANGE: 20180712 FILER: COMPANY DATA: COMPANY CONFORMED NAME: GLOBAL DIGITAL SOLUTIONS INC CENTRAL INDEX KEY: 0001011662 STANDARD INDUSTRIAL CLASSIFICATION: PERFUMES, COSMETICS & OTHER TOILET PREPARATIONS [2844] IRS NUMBER: 223392051 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-26361 FILM NUMBER: 18951476 BUSINESS ADDRESS: STREET 1: 777 SOUTH FLAGLER DRIVE STREET 2: SUITE 800 WEST CITY: WEST PALM BEACH STATE: FL ZIP: 33401 BUSINESS PHONE: 561-515-6163 MAIL ADDRESS: STREET 1: 777 SOUTH FLAGLER DRIVE STREET 2: SUITE 800 WEST CITY: WEST PALM BEACH STATE: FL ZIP: 33401 FORMER COMPANY: FORMER CONFORMED NAME: CREATIVE BEAUTY SUPPLY INC DATE OF NAME CHANGE: 19960403 10-Q 1 gdsi_10q.htm QUARTERLY REPORT Blueprint
 

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
 
FORM 10-Q
 
☑            
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Quarterly Period Ended March 31, 2018
 
or
 
☐            
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the Transition Period from _________ to _________
 
Commission file number: 000-26361
 
GLOBAL DIGITAL SOLUTIONS, INC.
(Exact name of registrant as specified in its charter)
 
New Jersey
 
22-3392051
(State or other Jurisdiction of Incorporation or Organization)
 
(I.R.S. Employer Identification No.)
 
777 South Flagler Drive, Suite 800 West Tower, West Palm Beach, FL
 
33401
(Address of Principal Executive Offices)
 
(Zip Code)
 
(561) 515-6163
(Registrant’s telephone number, including area code)
 
N/A
(Former name, former address and former fiscal year, if changed since last report)
 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☑ No ☐
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☐ No ☑
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a small reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” a “smaller reporting company” and an “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
 
 
 
Large accelerated filer
Accelerated filer
 
 
 
 
Non-accelerated filer
☐ (Do not check if a smaller reporting company)
Smaller reporting company
 
 
 
 
 
 
Emerging Growth company
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act: ☐
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☑
 
As of July 12, 2018, there were 559,084,905 shares of the registrant’s common stock outstanding.

 
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
FORM 10-Q
FOR THE THREE MONTHS ENDED MARCH 31, 2018
 
TABLE OF CONTENTS
 
 
Page
 
 
PART I. FINANCIAL INFORMATION
 
 
 
 
ITEM 1.
Financial Statements
3
 
 
 
 
Condensed Consolidated Balance Sheets as of March 31, 2018 (unaudited) and December 31, 2017
3
 
 
 
 
Condensed Consolidated Statements of Operations for the Three Months Ended March 31, 2018 and 2017 (unaudited)
4
 
 
 
 
Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2018 and 2017 (unaudited)
5
 
 
 
 
Notes to Condensed Consolidated Financial Statements (unaudited)
6
 
 
 
ITEM 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations.
18
 
 
 
ITEM 3.
Quantitative and Qualitative Disclosures about Market Risk
25
 
 
 
ITEM 4.
Controls and Procedures
25
 
 
 
PART II. OTHER INFORMATION
 
 
 
 
ITEM 1.
Legal Proceedings
26
 
 
 
ITEM 1A.
Risk Factors
30
 
 
 
ITEM 2.
Unregistered Sales of Equity Securities and Use of Proceeds
30
 
 
 
ITEM 3.
Defaults Upon Senior Securities
30
 
 
 
ITEM 4.
Mine Safety Disclosures
30
 
 
 
ITEM 5.
Other Information
30
 
 
 
ITEM 6.
Exhibits
31
 
 
 
SIGNATURES
34
 
 
2
 
 
PART I – FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
 
 
 
March 31, 2018
 
 
December 31, 2017
 
 
 
(Unaudited)
 
 
 
 
Assets
 
 
 
 
 
 
Current Assets
 
 
 
 
 
 
Cash
 $3,000 
 $93,000 
Prepaid Expenses
  - 
  20,000 
Total current assets
  3,000 
  113,000 
 
    
    
Total assets
 $3,000 
 $113,000 
 
    
    
Liabilities and Stockholders' Deficit
    
    
Current Liabilities
    
    
Accounts payable
 $808,532 
 $656,758 
Accrued expenses
  639,743 
  528,651 
Convertible notes payable
  133,623 
  108,991 
Notes Payable
  1,288,000 
  1,288,000 
Due to factor
  57,266 
  77,265 
Due to officer
  103,681 
  71,920 
Financed insurance policy
  11,187 
  11,187 
Derivative liability
  197,908 
  382,948 
Total current liabilities
  3,239,940 
  3,125,720 
 
    
    
Total Liabilities
  3,239,940 
  3,125,720 
 
    
    
Commitments and Contingencies (Note 6)
    
    
 
    
    
Stockholders’ deficit
    
    
Preferred stock, $0.001 par value, 35,000,000 shares authorized, 1,000,000 issued and outstanding
 $1,000 
 $1,000 
Common stock, $0.001 par value, 650,000,000 shares authorized, 55,459,905 and 530,806,571 shares issued and outstanding, as of March 31, 2018 and December 31, 2017, respectively
  559,460 
  530,807 
Additional paid-in capital
  30,584,875 
  30,282,937 
Accumulated deficit
  (34,382,275)
  (33,827,464)
Total stockholders’ deficit
  (3,236,940)
  (3,012,720)
Total liabilities and stockholders' deficit
 $3,000 
 $113,000 
 
The accompanying footnotes are in integral part of these unaudited condensed consolidated financial statements.
 
 
3
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
 
 
 
For the Three Months Ended
 
 
 
March 31
 
 
 
2018
 
 
2017
 
 
 
 
 
 
 
 
Revenue
 $- 
 $- 
 
    
    
Cost of revenue
  - 
  - 
 
    
    
Gross profit
  - 
  - 
 
    
    
Operating expenses
    
    
Selling, general and administrative expenses
  684,452 
  173,781 
 
    
    
Operating loss before other (income) expense
  (684,452)
  (173,781)
 
    
    
Other (income) expense
    
    
Change in fair value of derivative liability
  (156,045)
  (407,298)
Interest expense
  26,404 
  5,454 
Total other (income) expense
  (129,641)
  (401,844)
 
    
    
Income(loss) from operations before provision for income taxes
  (554,811)
  228,063 
 
    
    
Provision for income taxes
  - 
  77,541 
 
    
    
Benefit of net operating loss
  - 
  (77,541)
 
    
    
Net income (loss)
 $(554,811)
 $228,063 
 
    
    
Loss per common share - basic
 $(0.00)
 $(0.00)
 
    
    
Weighted average common shares:
    
    
Basic
  539,302,868 
  530,806,571 
 
The accompanying footnotes are in integral part of these unaudited condensed consolidated financial statements.
 
 
4
 
 
GLOBAL DIGITAL SOLUTIONS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
 
 
For the Three Months Ended
 
 
 
March 31, 2018
 
 
March 31, 2017
 
 
 
 
 
 
 
 
Operating Activities
 
 
 
 
 
 
Net income (loss)
 $(554,811)
 $228,063 
 
Adjustments to reconcile net income (loss) to net cash used in operating activities:
 
    
Change in fair value of derivative liability
  (156,045)
  (407,298)
Stock based compensation
  289,500 
  -
 
Prepaid Expenses
  20,000 
  - 
-Accounts payable
  151,774 
  23,741 
Accrued expenses
  154,725 
  125,175 
Due to Officer
  31,761 
  30,319 
Net cash used in operating activities
  (63,096)
  - 
 
    
    
 
    
    
Financing Activities
    
    
Payments on convertible notes
  (19,000)
  - 
Payments to factor
  (20,000)
  - 
Proceeds from sale of common stock
  12,096 
  - 
Net cash used in financing activities
  (26,904)
  - 
 
    
    
Net decrease in cash and cash equivalents
  (90,000)
  - 
Cash and cash equivalents at beginning of year
  93,000 
  - 
 
    
    
Cash and cash equivalents at end of period
 $3,000 
 $- 
 
    
    
Supplementary disclosure of cash flow information
    
    
Cash paid during the year for:
    
    
Interest
 $- 
 $- 
Taxes
 $- 
 $- 
Supplementary disclosure of non-cash investing and financing activities
    
    
 
    
  - 
Reclassification of accrued interest with convertible notes payable upon settlement
  43,633 
  - 
Reduction of derivative liability upon payment
  28,995 
  - 
 
The accompanying footnotes are in integral part of these unaudited condensed consolidated financial statements.
 
 
5
 
   
GLOBAL DIGITAL SOLUTIONS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
 
NOTE 1 – DESCRIPTION OF BUSINESS
 
We were incorporated in New Jersey as Creative Beauty Supply, Inc. (“Creative”) in August 1995. In March 2004, Creative acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global, and Creative changed its name to Global Digital Solutions, Inc. (“the Company”, “we”), Global provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies. On May 1, 2012, we made the decision to wind down our operations in the telecommunications area and to refocus our efforts in 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 September 16, 2014 we acquired North American Custom Specialty Vehicles (“NACSV”). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas. The Company has been dormant since December 31, 2015.
 
NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
Going Concern
 
The accompanying financial statements have been prepared assuming we will continue as a going concern, which contemplates the realization of assets and the liquidation of liabilities in the normal course of business. We have sustained losses and experienced negative cash flows from operations since inception, and for the three months ended March 31, 2018 we incurred a net loss of $554,811. At March 31, 2018, we had $3,000 of cash, an accumulated deficit of $34,382,275, a working capital deficit of $3,236,940 and stockholders’ deficit of $3,236,940. We have funded our activities to date almost exclusively from equity and debt financings.
 
Our cash position is critically deficient, and payments essential to our ability to operate are not being made in the ordinary course. Failure to raise capital in the coming days to fund our operations and failure to generate positive cash flow to fund such operations in the future will have a material adverse effect on our financial condition. These factors raise substantial doubt about our ability to continue as a going concern.
 
We are in default under the terms of our loan agreements. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all.
 
We will continue to require substantial funds to continue development of our core business. Management’s plans in order to meet our operating cash flow requirements include financing activities such as private placements of common stock, and issuances of debt and convertible debt instruments, and the establishment of strategic relationships which we expect will lead to the generation of additional revenue or acquisition opportunities.
 
While we believe that we will be successful in obtaining the necessary financing to fund our operations, there are no assurances that such additional funding will be achieved or that we will succeed in our future operations. On December 22, 2017, the Company entered into a financing agreement with an accredited investor for $1.2 million, as further detailed in Note 5.
 
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.
 
 
6
 
 
Principles of Consolidation
 
The accompanying consolidated financial statements include the accounts of the Company and our wholly owned subsidiaries, NACSV, GDSI Florida, LLC and Global Digital Solutions, LLC, dba GDSI International. All intercompany accounts and transactions have been eliminated in consolidation.
 
Basis of Presentation
 
The accompanying unaudited financial information as of and for the three months ended March 31, 2018 and 2017 has been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.
 
Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC on June 29, 2018.
 
The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.
 
Fair Value of Financial Instruments
 
The carrying value of cash, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, "Fair Value Measurement," fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.
 
The three levels of the fair value hierarchy defined by ASC 820 are as follows:
 
            
Level 1 – Quoted prices in active markets for identical assets or liabilities
 
            
Level 2 –Quoted prices for similar assets or liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, or other inputs that are observable, either directly or indirectly.
 
 
7
 
 
            
Level 3 – Significant unobservable inputs that cannot be corroborated by market data.
 
Earnings (Loss) Per Share (“EPS”)
 
Basic EPS is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding. Diluted EPS includes the effect from potential issuance of common stock, such as stock issuable pursuant to the exercise of stock options and warrants and the assumed conversion of convertible notes.
 
The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:
 
 
 
Three Months Ended
 
 
 
March 31, 2018
 
 
March 31, 2017
 
 
 
 
 
 
 
 
Convertible notes and accrued interest
  33,715,247 
  141,939,271 
Preferred stock
  206,861,415 
  196,398,431 
Stock options
  13,650,002 
  13,650,002 
Warrants
  1,500,000 
  1,500,000 
Potentially dilutive securities
  255,726,664 
  353,487,704 
 
The convertible debentures were considered anti-dilutive as of March 31, 2017, in accordance with ASC 260-10-45-20, as under the “if converted” method the adjustment to the control number of net income resulted in a net loss.
 
Use of Estimates
 
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, equity-based transactions and disclosure of contingent liabilities at the date of the financial statements and revenues and expenses during the reporting period. Actual results could differ from those estimates.
 
The Company believes the following critical accounting policies affect its more significant judgments and estimates used in the preparation of the financial statements. Significant estimates include the derivative liability valuation, deferred tax asset and valuation allowance, and assumptions used in Black-Scholes-Merton, or BSM, or other valuation methods, such as expected volatility, risk-free interest rate, and expected dividend rate.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, or ASU 2014-09. ASU 2014-09 establishes the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The accounting standards update also requires significantly expanded quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 in the three months ended March 31, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.
 
 
8
 
 
In February 2016, the FASB issued ASU No. 2016-02, Leases, or ASU 2016-02. The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet. For public companies, ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company does not expect that the adoption of ASU 2016-02 will have a material impact on its financial statements.
 
NOTE 3 – ACCRUED EXPENSES
 
As of March 31, 2018, and December 31, 2017, accrued expenses consist of the following amounts:
 
 
 
March 31, 2018
 
 
December 31, 2017
 
Accrued compensation to executive officers and employees
 $403,336 
 $342,919 
Accrued professional fees and settlements
  193,675 
  125,771 
Accrued interest
  42,732 
  59,961 
 
 $639,743 
 $528,651 
 
NOTE 4 – FAIR VALUE MEASUREMENTS
 
The Company did not have any Level 1 or Level 2 assets and liabilities at March 31, 2018 and December 31, 2017. The Derivative liabilities are Level 3 fair value measurements.
 
The following is a summary of activity of Level 3 liabilities during the three months ended March 31, 2018 and 2017:
 
 
 
2018
 
 
2017
 
Derivative liability balance at beginning of period
 $382,948 
 $672,724 
Change in fair value
  (156,045)
  (407,298)
Reclassification to equity
  (28,995)
  - 
Balance at end of period
 $197,908 
 $(265,426)

At March 31, 2018, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate – 1.73%; term - .25 years; volatility – 185.50%; dividend rate – 0%.
 
At December 31, 2017, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate – 1.39%; term - .25 years; volatility – 246.62%; dividend rate – 0%.
 
 
9
 
 
NOTE 5 – NOTE PAYABLE
 
Convertible Notes Payable with Embedded Derivative Liabilities
 
On January 16, 2015 the Company entered into an 8% convertible note payable for $78,750 with LG Capital Funding, LLC (“LG Capital”), which matured on January 16, 2016. The note is convertible at a conversion price equal to a 40% discount to the lowest closing bid price for 20 prior trading days including the notice of conversion date. The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. Under the terms of the note the Company is required to maintain a minimum share reserve equal to four times the potential number of shares of their common stock issuable upon conversion, $38,829 of the note was converted as of December 31, 2015.
 
The note was not paid by its maturity date, and was in default. On December 12, 2017, LG Capital Funding and the Company entered into a Convertible Note Redemption Agreement to pay back the balance of $68,110, which included the principal balance and accrued interest, per a set payment schedule to be paid in full by April 30, 2018. Until all redemption payments are fully made the creditor agreed not to effectuate any conversions. In the event the Company fails to make timely payments, the creditor shall be able to convert the balance of the note. The Company made the first required payment of $6,500 on January 2, 2018, with the remaining scheduled payments not made by their due dates. $61,610 is remaining outstanding as of March 31, 2018.
 
The Company entered into a Convertible note payable for up to $250,000 with JMJ Financial (“JMJ”) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015. The principal amount matured 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 lesser of $0.075 per share or 60% of the average of the trading price in the 25 trading days prior to conversion., The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. Under the terms of the note, the Company is required to maintain 26,650,000 shares of their common stock in reserve for conversions. $40,930 of the note was converted as of December 31, 2015.
 
The note was not paid by its maturity date, and was in default. On December 13, 2017, JMJ Financial and the Company entered into a Repayment Agreement to pay back a balance of $84,514, which included the principal balance and accrued interest, per a set payment schedule. If the Company fails to pay the scheduled payments by their due date the agreement is terminated. A total of $25,000 has been paid through the date of this filing, with the final two scheduled payments not made by their due date. $72,014 is remaining outstanding on the note as of March 31, 2018.
 
 
10
 
 
Revenue Based Factoring Agreements
 
During the year ended December 31, 2015, the Company entered into two revenue-based factoring agreements for which the Company did not make the required payments, and the factor agreements went into default. On December 21, 2017 the Company entered into a Settlement agreement with Power Up under which Power Up has agreed to accept the sum of $90,000 in full satisfaction of outstanding obligation (Note 6). The settlement is to be paid in three installments of $30,000. The settlement has been paid in full as of May 15, 2018. The expected gain on settlement will be recognized during the second quarter of 2018, when the debt has been extinguished.
 
Promissory Note Agreement
 
On August 31, 2017, Dragon Acquisitions, a related entity owned by William Delgado, and an individual lender entered into a Promissory Note agreement for $20,000 as well as $2,000 in interest to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the debt. As of March 31, 2018, the Company has accrued $1,000 of the interest.
 
Financing Agreement
 
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. Through March 31, 2018, $300,000 has been received.
 
Demand Promissory Note Agreements
 
On December 23, 2017 (the “effective date”), the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with Vox Business Trust, LLC (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018. The Company shall make mandatory prepayment in the following amounts and at the following times:
 
 
11
 
 
●            
$1,000 on the effective date.
●            
$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.
●            
$50,000 on the date on which discovery closes with respect to the lawsuit.
●            
$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.
 
On December 26, 2017, the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with RLT Consulting, Inc (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018 (as well as an additional 4,000,000 for further services). The Company shall make mandatory prepayment in the following amounts and at the following times:
 
●            
$1,000 on the effective date.
●            
$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.
●            
$50,000 on the date on which discovery closes with respect to the lawsuit.
●            
$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.
 
NOTE 6 – COMMITMENTS AND CONTINGENCIES
 
Legal Proceedings
 
We may be involved in legal proceedings in the ordinary course of our business, and our management cannot predict the ultimate outcome of these legal proceedings with certainty. The Company is plaintiff or defendant in the following actions:
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, the Company and NACSV removed the Dekle Action to federal court in the United States District Court in and for the Southern District of Alabama, case no. 1:15-CV-00069. The Company and NACSV subsequently moved to dismiss the complaint for (1) failing to state a cause of action, and (2) lack of personal jurisdiction. Alternatively, the Company and NACSV sought a transfer of the case to the United States District Court in and for Middle District of Florida.
 
In response to the Company’s and NACSV's motion to dismiss, Dekle and Ramsay filed an amended complaint on March 2, 2015 seeking specific performance and alleging breach of contract, violations of Security and Exchange Commission (“SEC”) Rule 10b-5, and violations of the Alabama Securities Act. The amended complaint also names the Company’s Chairman, President, and CEO, Richard J. Sullivan (“Sullivan”), as a defendant. On March 17, 2015, the Company, NACSV and Sullivan filed a motion to dismiss the amended complaint seeking dismissal for failure to state valid causes of action, for lack of personal jurisdiction, or alternatively to transfer the case to the United States District Court in and for the Middle District of Florida. Dekle and Ramsay responded on March 31, 2015, and the Company filed its response thereto on April 7, 2015.
 
12
 
 
On June 2, 2015, Dekle passed away.  On June 5, 2015, the Court denied the Company’s motion to transfer the case to Florida.   On June 10, 2015, the Company filed a motion to reconsider the Court’s denial of its motion to transfer the case to Florida. On September 30, 2105, the Court granted the Company’s Renewed Motion to Transfer Venue. The case was transferred to the Middle District of Florida, where it is currently pending.
 
On June 15, 2015, Ramsay filed a second amended complaint. On June 25, 2015, the Company filed a motion to dismiss the second amended complaint. The Company’s Motion to Dismiss was denied.
 
On July 27, 2017, the Company and Dekle and Ramsay came to a Settlement Agreement. The Company and the plaintiff came to the following agreements:
 
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 below 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.
v) 
The $20,000 settlement was paid in August 2017.
 
Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al.
 
On January 19, 2015, the Company and NACSV filed suit against Communications Laboratories, Inc., ComLabs Global, LLC, Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion and breach of contract in a dispute over the payment of a $300,000 account receivable that ComLabs owed to NACSV but sent payment directly to Brian Dekle. The case was filed in the Eighteenth Judicial Circuit in and for Brevard County Florida, case no. 05-2015-CA-012250. On February 18, 2015 (i) defendants Communications Laboratories, Inc., ComLabs Global, LLC and Roland Lussier and (ii) defendant Wallace Bailey filed their respective motions to dismiss seeking, among other things, dismissal for failure to state valid causes of action, lumping and failure to post a non-resident bond. On February 26, 2015, defendants Dekle and Ramsay filed their motion to dismiss, or stay action, based on already existing litigation between the parties. NACSV filed its required bond on March 2, 2015.
 
PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicle, Inc. et.al
 
On September 13, 2017 Power Up received a default judgment against the Company in the amount of $109,302.00. The Company negotiated a settlement agreement on December 21, 2017 with Power Up to pay $90,000 in three installments of $30,000. As of May 15, 2018, the company has paid the entire amount.
 
Securities and Exchange Commission v. Global Digital Solutions, Inc., Richard J. Sullivan and David A. Loppert United States District Court for the Southern District of Florida, Case No. 9:16-cv-81413-RLR
 
On August 11, 2016, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”) and David A. Loppert (“Loppert”) to enjoin GDSI; Sullivan, GDSI’s former Chairman and CEO; and Loppert, GDSI’s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.
 
 
13
 
 
On October 12, 2016, Defendant GDSI filed its First Answer to the Complaint. On November 9, 2016, Defendant Sullivan filed a Letter with the Court denying all allegations regarding the case. On December 15, 2016, the SEC filed a Motion for Judgment and Notice of Filing of Consent of Defendant Loppert to entry of Final Judgment by the SEC. On December 19, 2016, the Court entered an order granting the SEC’s Motion for Judgment as to Defendant Loppert. On December 21, 2016, the SEC filed a Notice of Settlement as entered into by it and Defendants GDSI and Sullivan. On December 23, 2016, the Court entered an Order staying the case and directing the Clerk of the Court to close the case for statistical purposes per the December 21, 2016 Notice of Settlement. On March 7, 2017, the SEC moved for a Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant GDSI to Entry of Judgment by the SEC. On March 13, 2017, the Judge signed the Judgment as to Defendant GDSI and it was entered on the Court’s docket. On April 6, 2017, the SEC moved for a final Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge signed the final Judgment as to Defendant Sullivan and it was entered on the Court’s docket. On December 21, 2017, the SEC moved for a final Judgment and Notice of Filing Consent of Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the Judge signed the Final Judgment as to Defendant GDSI and it was entered on the Court’s docket.
 
Adrian Lopez, Derivatively and on behalf of Global Digital Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F. Noterman, and Stephen L. Norris United States District Court for the District of New Jersey, Case No. 3:17-cv-03468-PGS-LHG
 
On September 19, 2016, Adrian Lopez, derivatively, and on behalf of Global Digital Solutions, Inc., filed an action in New Jersey Superior Court sitting Mercer County, General Equity Division. That action was administratively dismissed for failure to prosecute. Plaintiff Lopez, through his counsel, filed a motion to reinstate the matter on the general equity calendar on or about February 10, 2017. The Court granted the motion unopposed on or about April 16, 2017. On May 15, 2017, Defendant William Delgado (“Delgado”) filed a Notice of Removal of Case No. C-70-16 from the Mercer County Superior Court of New Jersey to the United States District Court for the District of New Jersey. On May 19, 2017, Defendant Delgado filed a First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017, Defendant David A. Loppert (“Loppert”) filed a Motion to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017, Plaintiff Adrian Lopez (“Lopez”) filed a First Motion to Remand the Action back to State Court. On June 29, 2017, Defendant Delgado filed a Memorandum of Law in Response and Reply to the Memorandum of Law in Support of Plaintiff’s Motion to Remand and in Response to Defendants’ Delgado’s and Loppert’s Motions to Dismiss. On January 1, 16, 2018, a Memorandum and Order granting Plaintiff’s Motion to Remand the case back to the Mercer County Superior Court of New Jersey was signed by the Judge and entered on the Docket. Defendants Delgado and Loppert’s Motions to Dismiss were denied as moot. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. The Court held a hearing on the motions to dismiss and consolidate. Jurisdictional discovery was ordered. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint.
 
Adrian Lopez v. Global Digital Solutions, Inc. and William J. Delgado Superior Court of New Jersey, Chancery Division, Mercer County, Equity Part, Docket No. MER-L-002126-17
 
On September 28, 2017, Plaintiff Adrian Lopez (“Lopez”) brought an action against Global Digital Solutions, Inc. (“GDSI”) and William J. Delgado (“Delgado”) to compel a meeting of the stockholders of Global Digital Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and New Jersey Revised Statute § 14A:5-2. On October 27, 2017, Defendants GDSI and Delgado filed a Motion to Stay the Proceeding. On November 24, 2017, Plaintiff filed an Objection to Defendants’ Motion to Stay the Proceeding. On January 19, 2018, Defendants’ Motion to Stay the Proceeding was denied. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint.
 
 
14
 
 
Jeff Hull, Individually and on Behalf of All Others Similarly Situated v. Global Digital Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J. Delgado, Arthur F. Noterman and Stephanie C. Sullivan United States District Court, District of New Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB
 
On August 24, 2016, Jeff Hull, Individually and on Behalf of All Others Similarly Situated (“Hull”) filed suit in the United States District Court for the District of New Jersey against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”), David A. Loppert (“Loppert”), William J. Delgado (“Delgado”), Arthur F. Noterman (“Noterman”) and Stephanie C. Sullivan (“Stephanie Sullivan”) seeking to recover compensable damages caused by Defendants’ alleged violations of federal securities laws and to pursue remedies under the Securities Exchange Act of 1934. On January 18, 2018, pursuant to the Court’s December 19, 2017 Order granting Plaintiff Hull leave to file an amended Complaint, Plaintiff Hull filed a Second Amended Complaint against Defendants. On February 8, 2018, Defendants GDSI and Delgado filed a Second Motion to Dismiss the Complaint. On February 8, 2018, Defendant Loppert filed a Motion for Extension of Time to File an Answer. On February 13, 2018, Defendant Loppert filed a Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 20, 2018, Plaintiff Michael Perry (“Perry”) filed a Brief in Opposition to Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint and to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 26, 2018, Defendants GDSI and Delgado filed a Reply Brief to Plaintiff Michael Perry’s Brief in Opposition to their Motion to Dismiss the Second Amended Complaint. On February 26, 2018, Defendant Loppert filed a Response in Support of Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief to Plaintiff Perry’s Brief in Opposition to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. To date, the Court has not issued a decision as to aforementioned Motions. Global Digital Solutions, Inc. and William J. Delgado intend to continue to vigorously defend against the claims asserted by Jeff Hull, Individually and on Behalf of All Others Similarly Situated.
 
In the Matter of Global Digital Solutions, Inc., Administrative Proceeding File No. 3-18325. Administrative Proceeding Before the Securities and Exchange Commission.
 
On December 26, 2017, the Securities and Exchange Commission instituted public administrative proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Respondent Global Digital Solutions, Inc. On January 8, 2018, Respondent Global Digital Solutions, Inc. (“GDSI”) filed its answer to the allegations contained in the Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12U) of the Exchange Act. A briefing schedule was entered into and on February 15, 2018, the Securities and Exchange Commission filed a motion for an order of summary disposition against Respondent GDSI on the grounds that there is no genuine issue with regard to any material fact, the Division was entitled as a matter of law to an order revoking each class of GDSI's securities registered pursuant to Section 12 of the Exchange Act. Respondent GDSI opposed the Securities and Exchange Commission’s motion on the grounds that there were material issues of fact. The Securities and Exchange Commission replied and a hearing was held on April 9, 2018. The Administrative Law Judge ordered supplemental evidence and briefing on the issues of material fact. On June 1, 2018, GDSI filed various Affidavits providing supplemental evidence and briefing on the issues of material fact. On June 21, 2018, the Securities and Exchange Commission issued an order immediately staying all administrative proceedings pending before its administrative law judges in light of the Supreme Court’s decision in Lucia v. SEC, No. 17-130 (U.S. June 21, 2018). Pending Admin. Proc., Securities Act of 1933 Release No. 10510, https://www.sec.gov/litigation/opinions/2018/33-10510.pdf. The stay will last until July 23, 2018, or further order of the Commission. Id.
 
Securities and Exchange Commission v. Global Digital Solutions, Inc., Richard J. Sullivan and David A. Loppert United States District Court for the Southern District of Florida, Case No. 9:16-cv-81413-RLR
 
On August 11, 2016, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”) and David A. Loppert (“Loppert”) to enjoin GDSI; Sullivan, GDSI’s former Chairman and CEO; and Loppert, GDSI’s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.
 
 
15
 
 
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) plus interest.
 
PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Docket No.: 50-2017-CA-011937-XXXX-MB
 
On October 31, 2017, PMB Helin Donovan, LLP filed an action for account stated in Palm Beach County. Global Digital Solutions, Inc. (“GDSI”) settled the matter for Forty Thousand Dollars ($40,000) of which the first payment of Ten Thousand Dollars ($10,000) has been paid.
 
Jennifer Carroll vs. Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc., in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No.: 50-2015-CC-012942-XXXX-MB
 
On October 27, 2017, Plaintiff Jennifer Carroll moved the court for a default judgment against Defendant Global Digital Solutions, Inc. (“GDSI”) and its subsidiary North American Custom Specialty Vehicles Inc. The amount of the judgement is Fifteen Thousand Dollars ($15,000) plus fees of Thirteen Thousand Three Hundred Fifty-Three Dollars ($13,353) and costs of Six Hundred Twenty-Four Dollars ($624).
 
Consulting agreements
 
The Company entered into two consulting agreements in May 2016, for services to be provided in connection towards the resolution of the Rontan lawsuit. The consulting agreements include a monthly retainer payment of $10,000 to each consultant. The agreement also includes consideration of 5,000,000 shares of restricted common stock of the Company, plus a 5% cash consideration of the Resolution Progress Funding, (defined as upon the retention of legal counsel and receipt of funding for the litigation), as of the Resolution Progress Funding date and 10,000,000 shares of restricted common stock of the Company and a 5% cash consideration of the Resolution Funding amount (defined as a settlement or judgement in favor 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 the financing agreement in Note 5.
 
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.
 
 
16
 
 
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 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.
 
Subsequent to December 31, 2015, on April 1, 2016, we believed that we had satisfied or otherwise waived the conditions to closing (as disclosed under the SPSA, the closing was subject to specific conditions to closing, which were waivable by us,) and advised the Sellers of our intention to close the SPSA and demanded delivery of the Rontan Securities. The Sellers, however, notified us that they intend to terminate the SPSA. We believe that the Sellers had no right to terminate the SPSA and that notice of termination by the Sellers was not permitted under the terms of the SPSA.
 
 
17
 
 
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.
 
NOTE 7 – RELATED PARTY TRANSACTIONS
 
Accounts Payable
 
At March 31, 2018 and December 31, 2017, included in accounts payable was compensation owed to related parties as seen below -
 
 
 
March 31, 2018  
 
 
December 31, 2017
 
Jerry Gomolski
 $25,000 
 $25,000 
Charter 804CS
  20,099 
  20,099 
Gary Gray
  12,000 
  12,000 
Total
 $57,099 
 $57,099 
 
Accrued Compensation
 
At March 31, 2018 and December 31, 2017, we had $370,000 and $310,000 payable to William J. Delgado and $29,169 and $20,835 to Jerry Gomolski, respectively.
 
 
18
 
 
NOTE 8 – STOCKHOLDERS’ DEFICIT
 
On February 9, 2018, the Company issued 333,334 of their common shares to a consultant, as consideration for $4,000 of consulting services.
 
On February 9, 2018, the Company sold 4,320,000 of their common shares to an unrelated party, at $0.0028 per share, for a total purchase price of $12,096.
 
On February 21, 2018, in connection with a $36,000 promissory note that was entered into on May 1, 2018 (Note 9) the Company issued 5,000,000 shares of their common stock. The common stock was valued at $57,500, based on the market price of $0.0115 of the common stock on the date of issuance, which was recognized as a financing cost in the accompanying condensed consolidated statement of operations.
 
On March 13, 2018, in connection with the two $485,000 demand notes (Note 5), the Company issued 14,000,000 shares of their common stock as consideration for consulting services. The common stock was valued at $168,000, based on the market price of $0.0120 of the common stock on the date of issuance.
 
On March 13, 2018, in connection with the $20,000 promissory note (Note 5), the Company issued 5,000,000 shares of their common stock. The common stock was valued at $60,000, based on the market price of $0.0120 of the common stock on the date of issuance which was recognized as a financing cost in the accompanying condensed consolidated statement of operations.
 
NOTE 9 – SUBSEQUENT EVENTS
 
We have completed an evaluation of all subsequent events after the balance sheet date of March 31, 2018 through the date this Quarterly Report on Form 10-Q was submitted to the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of March 31, 2018, 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 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.
 
 
19
 
 
ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
 
Note Regarding Forward-Looking Statements
 
This Quarterly Report on Form 10-Q includes a number of forward-looking statements that reflect management's current views with respect to future events and financial performance. Forward-looking statements are projections in respect of future events or our future financial performance. In some cases, you can identify forward-looking statements by terminology such as “may,” “should,” “expects,” “plans,” “anticipates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other comparable terminology. These statements include statements regarding the intent, belief or current expectations of us and members of our management team, as well as the assumptions on which such statements are based. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risk and uncertainties, and that actual results may differ materially from those contemplated by such forward-looking statements. These statements are only predictions and involve known and unknown risks, uncertainties and other factors, including the risks set forth in the section entitled “Risk Factors” in our Annual Report on Form 10-K for the fiscal year ended December 31, 2017, as filed with the U.S. Securities and Exchange Commission (the “SEC”) on June 29, 2018, any of which may cause our company’s or our industry’s actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied in our forward-looking statements. These risks and factors include, by way of example and without limitation:
 
 
our ability to successfully commercialize and our products and services on a large enough scale to generate profitable operations;
 
our ability to maintain and develop relationships with customers and suppliers;
 
our ability to successfully integrate acquired businesses or new brands;
 
the impact of competitive products and pricing;
 
supply constraints or difficulties;
 
the retention and availability of key personnel;
 
general economic and business conditions;
 
substantial doubt about our ability to continue as a going concern;
 
our need to raise additional funds in the future;
 
our ability to successfully recruit and retain qualified personnel in order to continue our operations;
 
our ability to successfully implement our business plan;
 
our ability to successfully acquire, develop or commercialize new products and equipment;
 
intellectual property claims brought by third parties; and
 
the impact of any industry regulation.
 
Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee future results, levels of activity, or performance. Except as required by applicable law, including the securities laws of the United States, we do not intend to update any of the forward-looking statements to conform these statements to actual results.
 
Readers are urged to carefully review and consider the various disclosures made by us in this report and in our other reports filed with the SEC. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes in the future operating results over time except as required by law. We believe that our assumptions are based upon reasonable data derived from and known about our business and operations. No assurances are made that actual results of operations or the results of our future activities will not differ materially from our assumptions.
 
As used in this Quarterly Report on Form 10-Q and unless otherwise indicated, the terms “GDSI,” “Company,” “we,” “us,” and “our” refer to Global Digital Solutions, Inc. and our wholly-owned subsidiaries GDSI Florida, LLC and North American Custom Specialty Vehicles, Inc. Unless otherwise specified, all dollar amounts are expressed in United States dollars.
 
 
20
 
 
Corporate History and Overview
 
We were incorporated in New Jersey as Creative Beauty Supply, Inc. (“Creative”) in August 1995. In March 2004, Creative acquired Global Digital Solutions, Inc., a Delaware corporation. The merger was treated as a recapitalization of Global Digital Solutions, Inc., and Creative changed its name to Global Digital Solutions, Inc. (“GDSI”). We are focused in the area of cyber arms technology and complementary security and technology solutions. On October 22, 2012, we entered into an Agreement of Merger and Plan of Reorganization to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a then debtor in possession under chapter 11 of the Bankruptcy Code once Airtronic successfully reorganized and emerged from bankruptcy (the “Merger”). During the period from October 2012 through November 2013, we were actively involved in the day to day management of Airtronic pending the completion of the Merger. The Merger did not occur and we ceased involvement with the Airtronic. In December 2012 we incorporated GDSI Florida LLC (“GDSI FL”), a Florida limited liability company. Except for the payment of administrative expenses on behalf of the Company, GDSI FL has no business operations. In January 2013 we incorporated Global Digital Solutions, LLC, a Florida limited liability company. In November 2013, we incorporated GDSI Acquisition Corporation, a Delaware corporation. On June 16, 2014, we acquired North American Custom Specialty Vehicles, LLC into GDSI Acquisition Corporation, and changed the latter’s name to North American Custom Specialty Vehicles, Inc. (“NACSV”). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas.
 
We are positioning ourselves as a leader in providing comprehensive security and technology solutions. Since May 1, 2012, we have been focusing on acquisitions of defense and defense-related entities both in the United States and abroad. On June 16, 2014 GDSI completed its acquisition of North American Custom Specialty Vehicles (“NACSV”). NACSV’s mobile emergency operations centers (MEOC) can be tailored to the needs of Police, Fire, EMS, Military, Homeland Security, National Guard, FBI, Air National Guard Coast Guard, Chemical/Petrochemical, Humanitarian Aid, Non-Governmental Organizations, Drug Enforcement, Immigration & Customs, Bureau of Alcohol, Tobacco, Firearms and Explosives, Water Management, Wildlife Management, D.O.T. Engineering & Maintenance, Air & Water Quality Management (EPA), Meteorological Seismic/Oil & Gas Exploration, IS/Mapping Power Generation (Nuclear & Conventional), Power Transmission and Strategic Infrastructure Security. The company has already built customized vehicles for customers involved in one or more of the above categories and we see many opportunities to improve NACSV and its products and services through the integration of additional software, hardware and firmware technologies.
 
Results of Operations
 
Comparison of the three months ended March 31, 2018 and March 31, 2017
 
A comparison of the Company’s operating results for the three months ended March 31, 2018 and March 31, 2017 are as follows:
 
For the three months ended March 31, 2018:
 
 
 
Global Digital Solutions, Inc
 
 
GDSI Florida, LLC
 
 
North American Custom Specialty Vehicles, Inc
 
 
Totals
 
Revenue
 $- 
 $- 
 $- 
 $- 
Cost of Sales
  - 
  - 
  - 
  - 
Gross Profit
  - 
  - 
  - 
  - 
Operating Expenses
  684,452 
  - 
  - 
  684,452 
Operating Loss
  (684,452)
  - 
  - 
  (684,452)
Other Income (Expenses)
  (129,641)
  - 
  - 
  (129,641)
Loss – Before Tax
 $(554,811)
 $- 
 $- 
 $(554,811)
 
 
21
 
 
For the three months ended March 31, 2017:
 
 
 
Global Digital Solutions, Inc
 
 
GDSI Florida, LLC
 
 
North American Custom Specialty Vehicles, Inc
 
 
Totals
 
Revenue
 $- 
 $- 
 $- 
 $- 
Cost of Sales
  - 
  - 
  - 
  - 
Gross Profit
  - 
  - 
  - 
  - 
Operating Expenses
  173,781 
  - 
  - 
  173,781 
Loss from operations
  (173,781)
  - 
  - 
  (173,781)
Other (Income) Expense
  (401,844)
  - 
  - 
  (401,844)
Loss – Before Tax
 $228,063 
 $- 
 $- 
 $228,063 
 
The variances between three months ending March 31, 2018 and 2017 were as follows:
 
 
 
Global Digital Solutions, Inc
 
 
GDSI Florida, LLC
 
 
North American Custom Specialty Vehicles, Inc
 
 
Totals
 
Revenue
 $- 
 $- 
 $- 
 $- 
Cost of Sales
  - 
  - 
  - 
  - 
Gross Profit
  - 
  - 
  - 
  - 
Operating Expenses
  510,671 
  - 
  - 
  510,671 
Loss from operations
  (510,671)
  - 
  - 
  (510,671)
Other (Income) Expense
  272,203 
  - 
  - 
  272,203 
Loss – Before Tax
 $(782,874)
 $- 
 $- 
 $(782,874)
 
Revenues and Gross Margins
 
There were no Revenues for either the three months ending March 31, 2018 or 2017.
 
There was no gross profit for either the three months ending March 31, 2018 or 2017.
 
Operating Loss
 
Loss from operations for the three months ended March 31, 2018 and 2017 was $684,452and $173,781, respectively. The increase in the operating expense for the 2018 period was the result of increased professional fees, for legal, accounting and consulting services, and approximately $44,000 in legal settlements.
 
Other (Income) Expense
 
Other (income) expense consists of the change in fair value of the derivative liability and interest expense. The change in fair value of the derivative liability represents an income effect, due to a decrease in the fair value of the derivative when remeasured at each period end. The income effect decreased from $407,298 in the three months ended March 31, 2017 to $156,045 in the three months ended March 31, 2018. The interest expense increased to $26,404 in the three months ended March 31, 2018 as compared to $5,454 in the same period in 2017, due to the increase in notes payable.
 
Liquidity, Financial Condition and Capital Resources
 
As of March 31, 2017, we had cash on hand of $3,000 and a working capital deficit of $3,236,940 as compared to no cash on hand and a working capital deficit of $1,670,776 as of March 31, 2017. The decrease in working capital is mainly due to the additional $1,288,000 in notes payable, and an increase of approximately $335,000 in accounts payable and accrued expenses.
 
Going Concern
 
The unaudited consolidated financial statements contained in this quarterly report on Form 10-Q have been prepared assuming that the Company will continue as a going concern. The Company has accumulated losses from inception through the period ended March 31, 2018 of approximately $34 million, as well as negative cash flows from operating activities. As of the balance sheet date, the Company did not have sufficient cash resources to meet its plans through December 31, 2018.
 
 
22
 
 
The consolidated financial statements do not include any adjustments that may be necessary should the Company be unable to continue as a going concern. The Company’s continuation as a going concern is dependent on its ability to obtain additional financing as may be required and ultimately to attain profitability. If the Company raises additional funds through the issuance of equity, the percentage ownership of current shareholders could be reduced, and such securities might have rights, preferences or privileges senior to the rights, preferences and privileges of the Company’s common stock. Additional financing may not be available upon acceptable terms, or at all. If adequate funds are not available or are not available on acceptable terms, the Company may not be able to take advantage of prospective business endeavors or opportunities, which could significantly and materially restrict its future plans for developing its business and achieving commercial revenues. If the Company is unable to obtain the necessary capital, the Company may have to cease operations.
 
Working Capital Deficiency

 
 
Periods Ended
 
 
 
March 31,
2018
 
 
December 31,
2017
 
Current Assets
 $3,000 
 $113,000 
Current Liabilities
  3,239,940 
  3,125,720 
Working capital
 $(3,236,940)
 $(3,012,720)
 
Current assets decreased from December 31, 2017 to March 31, 2018 due to payment of notes payable with available cash and the amortization of prepaid expenses. The increase in current liabilities is mainly due to an increase in accounts payable, accrued expenses, convertible notes payable and decreases in due to factor and derivative liability.
 
Cash Flows
 
 
 
Periods Ended
 
 
 
March 31, 2018
 
 
March 31, 2017
 
Net cash used in operating activities
 $(63,096)
 $(175,000)
Net cash used in investing activities
  - 
  - 
Net cash used in financing activities
  (26,904)
  268,000 
Increase (decrease) in cash
 $(90,000)
 $93,000 
 
Operating Activities
 
Net cash used by operating activities during the three months ended March 31, 2018 was $63,096. Cash used during the period was primarily due to a net loss of $554,811, a decrease in in the fair value of derivative liability of $156,045 (including the reduction due to payments made on the related convertible debentures), offset by increases in accounts payable of $151,774, accrued expenses or $154,725 and due to officer of $31,761.
 
Net cash used by operating activities was $0 for the three months ended March 31,2017, reflecting the net income of $228,063 offset by change in fair value of derivative liability, and an increase in accounts payable, accrued expenses and due to officer.
 
Investing Activities
 
There was no cash used for, or provided by, investing activities during the three months ended March 31, 2108 nor March 31, 2017.
 
Financing Activities
 
During the three months ended March 31, 2018, cash used in financing activities of $26,904 consisted of payments on convertible notes payable of $19,000 and payments to the factor of $20,000, offset by proceeds from sale of common stock of $12,096. There was no cash used for, or provided by, financing activities during the three months ended March 31, 2017.
 
Note Financing
 
On January 26, 2015, the Company agreed to a $250,000 principal (and a $25,000 original discount amount) Convertible Note with JMJ Financial (“JMJ”.) The Note matures on January 26, 2017, unless earlier converted pursuant to the terms of the Convertible Note. The Note bears interest at 0% if repaid in the first 90 days and then a one-time interest charge of 12% applied on the principal sum. The outstanding principal and interest under the Note, solely upon an Event of Default (as defined in the Note), is convertible at the option of the Holder of the Note into shares of the Company’s common stock as set forth in the Note. On December 13, 2017, the Company entered into a repayment agreement with JMJ Financial to repay the outstanding balance of $84,514. As of March 31, 2018, the Company has paid $12,500 of this balance. Another $12,500 was paid on May 17, 2018.
 
 
23
 
 
On January 16, 2015, the Company agreed to a $78,750 principal Convertible Redeemable Note with LG Capital Funding, LLC (“LG Capital”.) The Note matures on January 16, 2016 unless earlier converted pursuant to terms of the Convertible Note. The Note bears interest at 8% per annum. The outstanding principal and interest under the Note, solely upon an Event of Default (as defined in the Note), is convertible at the option of the Holder of the Note into shares of the Company’s common stock as set forth in the Note. On December 12, 2017, the Company entered into a redemption agreement with LG Capital Funding, LLC to repay the outstanding balance of $68,110. As of March 31, 2018, and through the date of this filing, the Company has paid $6,500 of this balance.
 
During the year ended December 31, 2015, the Company entered into two revenue-based factoring agreements for which the Company did not make the required payments, and the factor agreements went into default. On December 21, 2017 the Company entered into a Settlement agreement with Power Up under which Power Up has agreed to accept the sum of $90,000 in full satisfaction of outstanding obligation (Note 6). The settlement is to be paid in three installments of $30,000. The settlement has been paid in full as of May 15, 2018. The expected gain on settlement will be recognized during the second quarter of 2018, when the debt has been extinguished.
 
Promissory Note Agreement
 
On August 31, 2017, Dragon Acquisitions, a related entity owned by William Delgado, and an individual lender entered into a promissory note agreement for $20,000 as well as $2,000 in interest to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the debt. As of March 31, 2018, the Company has accrued $1,000 of the interest.
 
Financing Agreement
 
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. Through March 31, 2018, $300,000 has been received.
 
Demand Promissory Note Agreements
 
On December 23, 2017 (the “effective date”), the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with Vox Business Trust, LLC (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018. The Company shall make mandatory prepayment in the following amounts and at the following times:
 
● 
$1,000 on the effective date.
● 
$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.
● 
$50,000 on the date on which discovery closes with respect to the lawsuit.
● 
$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.
 
 
24
 
 
On December 26, 2017, the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with RLT Consulting, Inc. (the “Purchaser”.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018 (as well as an additional 4,000,000 for further services). The Company shall make mandatory prepayment in the following amounts and at the following times:
 
● 
$1,000 on the effective date.
● 
$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.
● 
$50,000 on the date on which discovery closes with respect to the lawsuit.
● 
$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.
 
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.
 
On June 4, 2018, the Company agreed to a $300,000 principal amount (and a $150,000 original issue discount amount) convertible note issued to GS Capital Partners.
 
Future Financing
 
We will require additional funds to implement our growth strategy for our business. In addition, while we have received capital from various private placements of equity and convertible debt that have enabled us to fund our operations, additional funds will be needed for further business development.
 
Off-Balance Sheet Arrangements
 
We have no off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to stockholders.
 
 
25
 
 
Effects of Inflation
 
We do not believe that inflation has had a material impact on our business, revenues or operating results during the periods presented.
 
Critical Accounting Policies and Estimates
 
Our significant accounting policies are more fully described in the notes to our financial statements included in our Annual Report on Form 10-K for the year ended December 31, 2017. We believe that the accounting policies below are critical for one to fully understand and evaluate our financial condition and results of operations.
 
Recent Accounting Standards
 
During the three months ended March 31, 2018 there were several new accounting pronouncements issued by the Financial Accounting Standards Board (“FASB”). Each of these pronouncements, as applicable, has been or will be adopted by the Company. Management does not believe the adoption of any of these accounting pronouncements has had or will have a material impact on the Company’s consolidated financial statements.
 
Recent Accounting Pronouncements
 
In May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, Revenue from Contracts with Customers: Topic 606, or ASU 2014-09. ASU 2014-09 establishes the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The accounting standards update also requires significantly expanded quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers. The Company adopted ASU 2014-09 in the three months ended March 31, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company’s financial position or results of operations, and no transition method was necessary upon adoption.
 
In February 2016, the FASB issued ASU No. 2016-02, Leases, or ASU 2016-02. The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet. For public companies, ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company does not expect that the adoption of ASU 2016-02 will have a material impact on its financial statements.
 
 
26
 
 
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
 
Not Applicable. As a smaller reporting company, we are not required to provide the information required by this Item.
 
ITEM 4. CONTROLS AND PROCEDURES
 
Evaluation of Disclosure Controls and Procedures
 
We carried out an evaluation, under the supervision and with the participation of our management, including our Chief Executive Officer (who is our Principal Executive Officer) and our Chief Financial Officer and Treasurer (who is our Principal Financial Officer and Principal Accounting Officer), of the effectiveness of the design of our disclosure controls and procedures (as defined by Exchange Act Rules 13a-15(e) or 15d-15(e)) as of March 31, 2018 pursuant to Exchange Act Rule 13a-15. Based upon that evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were not effective as of March 31, 2018 in ensuring that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms. This conclusion is based on findings that constituted material weaknesses. A material weakness is a deficiency, or a combination of control deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of the Company’s interim financial statements will not be prevented or detected on a timely basis.
 
In performing the above-referenced assessment, management identified the following deficiencies in the design or operation of our internal controls and procedures, which management considers to be material weaknesses:
 
(i)           Lack of Formal Policies and Procedures. We utilize a third party independent contractor for the preparation of our financial statements. Although the financial statements and footnotes are reviewed by our management, we do not have a formal policy to review significant accounting transactions and the accounting treatment of such transactions. The third party independent contractor is not involved in the day to day operations of the Company and may not be provided information from management on a timely basis to allow for adequate reporting/consideration of certain transactions.
 
 
27
 
 
(ii)           Audit Committee and Financial Expert. We do not have a formal audit committee with a financial expert, and thus we lack the board oversight role within the financial reporting process.
 
(iii)          Insufficient Resources. We have insufficient quantity of dedicated resources and experienced personnel involved in reviewing and designing internal controls. As a result, a material misstatement of the interim and annual financial statements could occur and not be prevented or detected on a timely basis.
 
(iv)           Entity Level Risk Assessment. We did not perform an entity level risk assessment to evaluate the implication of relevant risks on financial reporting, including the impact of potential fraud related risks and the risks related to non-routine transactions, if any, on internal control over financial reporting. Lack of an entity-level risk assessment constituted an internal control design deficiency which resulted in more than a remote likelihood that a material error would not have been prevented or detected, and constituted a material weakness.
 
Our management feels the weaknesses identified above have not had any material effect on our financial results. However, we are currently reviewing our disclosure controls and procedures related to these material weaknesses, and expect to implement changes in the near term, as resources permit, in order to address these material weaknesses. Our management will continue to monitor and evaluate the effectiveness of our internal controls and procedures and our internal controls over financial reporting on an ongoing basis, and is committed to taking further action and implementing additional enhancements or improvements, as necessary and as funds permit.
 
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate. All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.
 
Changes in Internal Control Over Financial Reporting
 
There were no changes in our internal control over financial reporting during the quarter ended March 31, 2018 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
PART II – OTHER INFORMATION
 
ITEM 1. LEGAL PROCEEDINGS
 
We may be involved in legal proceedings in the ordinary course of our business, and our management cannot predict the ultimate outcome of these legal proceedings with certainty. The Company is plaintiff or defendant in the following actions:
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.
 
 
28
 
 
On February 9, 2015, the Company and NACSV removed the Dekle Action to federal court in the United States District Court in and for the Southern District of Alabama, case no. 1:15-CV-00069. The Company and NACSV subsequently moved to dismiss the complaint for (1) failing to state a cause of action, and (2) lack of personal jurisdiction. Alternatively, the Company and NACSV sought a transfer of the case to the United States District Court in and for Middle District of Florida.
 
In response to the Company’s and NACSV's motion to dismiss, Dekle and Ramsay filed an amended complaint on March 2, 2015 seeking specific performance and alleging breach of contract, violations of Security and Exchange Commission (“SEC”) Rule 10b-5, and violations of the Alabama Securities Act. The amended complaint also names the Company’s Chairman, President, and CEO, Richard J. Sullivan (“Sullivan”), as a defendant. On March 17, 2015, the Company, NACSV and Sullivan filed a motion to dismiss the amended complaint seeking dismissal for failure to state valid causes of action, for lack of personal jurisdiction, or alternatively to transfer the case to the United States District Court in and for the Middle District of Florida. Dekle and Ramsay responded on March 31, 2015, and the Company filed its response thereto on April 7, 2015.
On June 2, 2015, Dekle passed away.  On June 5, 2015, the Court denied the Company’s motion to transfer the case to Florida.   On June 10, 2015, the Company filed a motion to reconsider the Court’s denial of its motion to transfer the case to Florida. On September 30, 2105, the Court granted the Company’s Renewed Motion to Transfer Venue. The case was transferred to the Middle District of Florida, where it is currently pending.
 
On June 15, 2015, Ramsay filed a second amended complaint. On June 25, 2015, the Company filed a motion to dismiss the second amended complaint. The Company’s Motion to Dismiss was denied.
 
On July 27, 2017, the Company and Dekle and Ramsay came to a Settlement Agreement. The Company and the plaintiff came to the following agreements:
 
vi) 
Judgment is due to be entered against the Company in the amount of $300,000 if the sum of $20,000 as noted in iv below is not paid.
vii) 
The Company grants the plaintiffs vehicles and trailers in connection to this proceeding.
viii) 
The Company will assist the plaintiffs in obtaining possession of the said vehicles.
ix) 
The Company will pay the plaintiffs the sum of $20,000.
x) 
The $20,000 settlement was paid in August 2017.
 
Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al.
 
On January 19, 2015 the Company and NACSV filed suit against Communications Laboratories, Inc., ComLabs Global, LLC, Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for conversion and breach of contract in a dispute over the payment of a $300,000 account receivable that ComLabs owed to NACSV but sent payment directly to Brian Dekle. The case was filed in the Eighteenth Judicial Circuit in and for Brevard County Florida, case no. 05-2015-CA-012250. On February 18, 2015 (i) defendants Communications Laboratories, Inc., ComLabs Global, LLC and Roland Lussier and (ii) defendant Wallace Bailey filed their respective motions to dismiss seeking, among other things, dismissal for failure to state valid causes of action, lumping and failure to post a non-resident bond. On February 26, 2015, defendants Dekle and Ramsay filed their motion to dismiss, or stay action, based on already existing litigation between the parties. NACSV filed its required bond on March 2, 2015.
 
PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicle, Inc. et.al
 
On September 13, 2017 Power Up received a default judgment against the Company in the amount of $109,302.00. The Company negotiated a settlement agreement on December 21, 2017 with Power Up to pay $90,000 in three installments of $30,000. As of May 15, 2018, the company has paid the entire amount.
 
Securities and Exchange Commission v. Global Digital Solutions, Inc., Richard J. Sullivan and David A. Loppert United States District Court for the Southern District of Florida, Case No. 9:16-cv-81413-RLR
 
On August 11, 2016, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”) and David A. Loppert (“Loppert”) to enjoin GDSI; Sullivan, GDSI’s former Chairman and CEO; and Loppert, GDSI’s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.
 
 
29
 
 
On October 12, 2016, Defendant GDSI filed its First Answer to the Complaint. On November 9, 2016, Defendant Sullivan filed a Letter with the Court denying all allegations regarding the case. On December 15, 2016, the SEC filed a Motion for Judgment and Notice of Filing of Consent of Defendant Loppert to entry of Final Judgment by the SEC. On December 19, 2016, the Court entered an order granting the SEC’s Motion for Judgment as to Defendant Loppert. On December 21, 2016, the SEC filed a Notice of Settlement as entered into by it and Defendants GDSI and Sullivan. On December 23, 2016, the Court entered an Order staying the case and directing the Clerk of the Court to close the case for statistical purposes per the December 21, 2016 Notice of Settlement. On March 7, 2017, the SEC moved for a Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant GDSI to Entry of Judgment by the SEC. On March 13, 2017, the Judge signed the Judgment as to Defendant GDSI and it was entered on the Court’s docket. On April 6, 2017, the SEC moved for a final Judgment of Permanent Injunction and Other Relief and Notice of Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge signed the final Judgment as to Defendant Sullivan and it was entered on the Court’s docket. On December 21, 2017, the SEC moved for a final Judgment and Notice of Filing Consent of Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the Judge signed the Final Judgment as to Defendant GDSI and it was entered on the Court’s docket.
 
Adrian Lopez, Derivatively and on behalf of Global Digital Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F. Noterman, and Stephen L. Norris United States District Court for the District of New Jersey, Case No. 3:17-cv-03468-PGS-LHG
 
On September 19, 2016, Adrian Lopez, derivatively, and on behalf of Global Digital Solutions, Inc., filed an action in New Jersey Superior Court sitting Mercer County, General Equity Division. That action was administratively dismissed for failure to prosecute. Plaintiff Lopez, through his counsel, filed a motion to reinstate the matter on the general equity calendar on or about February 10, 2017. The Court granted the motion unopposed on or about April 16, 2017. On May 15, 2017, Defendant William Delgado (“Delgado”) filed a Notice of Removal of Case No. C-70-16 from the Mercer County Superior Court of New Jersey to the United States District Court for the District of New Jersey. On May 19, 2017, Defendant Delgado filed a First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017, Defendant David A. Loppert (“Loppert”) filed a Motion to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017, Plaintiff Adrian Lopez (“Lopez”) filed a First Motion to Remand the Action back to State Court. On June 29, 2017, Defendant Delgado filed a Memorandum of Law in Response and Reply to the Memorandum of Law in Support of Plaintiff’s Motion to Remand and in Response to Defendants’ Delgado’s and Loppert’s Motions to Dismiss. On January 1, 16, 2018, a Memorandum and Order granting Plaintiff’s Motion to Remand the case back to the Mercer County Superior Court of New Jersey was signed by the Judge and entered on the Docket. Defendants Delgado and Loppert’s Motions to Dismiss were denied as moot. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. The Court held a hearing on the motions to dismiss and consolidate. Jurisdictional discovery was ordered. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint.
 
Adrian Lopez v. Global Digital Solutions, Inc. and William J. Delgado Superior Court of New Jersey, Chancery Division, Mercer County, Equity Part, Docket No. MER-L-002126-17
 
On September 28, 2017, Plaintiff Adrian Lopez (“Lopez”) brought an action against Global Digital Solutions, Inc. (“GDSI”) and William J. Delgado (“Delgado”) to compel a meeting of the stockholders of Global Digital Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and New Jersey Revised Statute § 14A:5-2. On October 27, 2017, Defendants GDSI and Delgado filed a Motion to Stay the Proceeding. On November 24, 2017, Plaintiff filed an Objection to Defendants’ Motion to Stay the Proceeding. On January 19, 2018, Defendants’ Motion to Stay the Proceeding was denied. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants’ Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff’s Opposition to Defendants’ Motion to Dismiss the Complaint. As of this date, the Court has not issued a decision and Order regarding Defendants’ Motion to Dismiss the Complaint.
 
 
30
 
 
Jeff Hull, Individually and on Behalf of All Others Similarly Situated v. Global Digital Solutions, Inc., Richard J. Sullivan, David A. Loppert, William J. Delgado, Arthur F. Noterman and Stephanie C. Sullivan United States District Court, District of New Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB
 
On August 24, 2016, Jeff Hull, Individually and on Behalf of All Others Similarly Situated (“Hull”) filed suit in the United States District Court for the District of New Jersey against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”), David A. Loppert (“Loppert”), William J. Delgado (“Delgado”), Arthur F. Noterman (“Noterman”) and Stephanie C. Sullivan (“Stephanie Sullivan”) seeking to recover compensable damages caused by Defendants’ alleged violations of federal securities laws and to pursue remedies under the Securities Exchange Act of 1934. On January 18, 2018, pursuant to the Court’s December 19, 2017 Order granting Plaintiff Hull leave to file an amended Complaint, Plaintiff Hull filed a Second Amended Complaint against Defendants. On February 8, 2018, Defendants GDSI and Delgado filed a Second Motion to Dismiss the Complaint. On February 8, 2018, Defendant Loppert filed a Motion for Extension of Time to File an Answer. On February 13, 2018, Defendant Loppert filed a Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 20, 2018, Plaintiff Michael Perry (“Perry”) filed a Brief in Opposition to Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint and to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 26, 2018, Defendants GDSI and Delgado filed a Reply Brief to Plaintiff Michael Perry’s Brief in Opposition to their Motion to Dismiss the Second Amended Complaint. On February 26, 2018, Defendant Loppert filed a Response in Support of Defendants GDSI and Delgado’s Second Motion to Dismiss the Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief to Plaintiff Perry’s Brief in Opposition to Defendant Loppert’s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. To date, the Court has not issued a decision as to aforementioned Motions. Global Digital Solutions, Inc. and William J. Delgado intend to continue to vigorously defend against the claims asserted by Jeff Hull, Individually and on Behalf of All Others Similarly Situated.
 
In the Matter of Global Digital Solutions, Inc., Administrative Proceeding File No. 3-18325. Administrative Proceeding Before the Securities and Exchange Commission.
 
On December 26, 2017, the Securities and Exchange Commission instituted public administrative proceedings pursuant to Section 12(j) of the Securities Exchange Act of 1934 (“Exchange Act”) against the Respondent Global Digital Solutions, Inc. On January 8, 2018, Respondent Global Digital Solutions, Inc. (“GDSI”) filed its answer to the allegations contained in the Order Instituting Administrative Proceedings and Notice of Hearing Pursuant to Section 12U) of the Exchange Act. A briefing schedule was entered into and on February 15, 2018, the Securities and Exchange Commission filed a motion for an order of summary disposition against Respondent GDSI on the grounds that there is no genuine issue with regard to any material fact, the Division was entitled as a matter of law to an order revoking each class of GDSI's securities registered pursuant to Section 12 of the Exchange Act. Respondent GDSI opposed the Securities and Exchange Commission’s motion on the grounds that there were material issues of fact. The Securities and Exchange Commission replied and a hearing was held on April 9, 2018. The Administrative Law Judge ordered supplemental evidence and briefing on the issues of material fact. On June 1, 2018, GDSI filed various Affidavits providing supplemental evidence and briefing on the issues of material fact. On June 21, 2018, the Securities and Exchange Commission issued an order immediately staying all administrative proceedings pending before its administrative law judges in light of the Supreme Court’s decision in Lucia v. SEC, No. 17-130 (U.S. June 21, 2018). Pending Admin. Proc., Securities Act of 1933 Release No. 10510, https://www.sec.gov/litigation/opinions/2018/33-10510.pdf. The stay will last until July 23, 2018, or further order of the Commission. Id.
 
Securities and Exchange Commission v. Global Digital Solutions, Inc., Richard J. Sullivan and David A. Loppert United States District Court for the Southern District of Florida, Case No. 9:16-cv-81413-RLR
 
On August 11, 2016, the Securities and Exchange Commission (“SEC”) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (“GDSI”), Richard J. Sullivan (“Sullivan”) and David A. Loppert (“Loppert”) to enjoin GDSI; Sullivan, GDSI’s former Chairman and CEO; and Loppert, GDSI’s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.
 
 
31
 
 
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) plus interest.
 
PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Docket No.: 50-2017-CA-011937-XXXX-MB
 
On October 31, 2017, PMB Helin Donovan, LLP filed an action for account stated in Palm Beach County. Global Digital Solutions, Inc. (“GDSI”) settled the matter for Forty Thousand Dollars ($40,000) of which the first payment of Ten Thousand Dollars ($10,000) has been paid.
 
Jennifer Carroll vs. Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc., in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No.: 50-2015-CC-012942-XXXX-MB
 
On October 27, 2017, Plaintiff Jennifer Carroll moved the court for a default judgment against Defendant Global Digital Solutions, Inc. (“GDSI”) and its subsidiary North American Custom Specialty Vehicles Inc. The amount of the judgement is Fifteen Thousand Dollars ($15,000) plus fees of Thirteen Thousand Three Hundred Fifty-Three Dollars ($13,353) and costs of Six Hundred Twenty-Four Dollars ($624).
 
ITEM 1A. RISK FACTORS
 
As a smaller reporting company, we are not required to provide the information required by this Item. We note, however, that an investment in our common stock involves a number of very significant risks. Investors should carefully consider the risk factors included in the “Risk Factors” section of our Annual Report on Form 10-K for our fiscal year ended December 31, 2017, as filed with SEC on June 27, 2018, in addition to other information contained in such Annual Report and in this Quarterly Report on Form 10-Q, in evaluating the Company and our business before purchasing shares of our common stock. The Company’s business, operating results and financial condition could be adversely affected due to any of those risks.
 
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
 
None.
 
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
 
None.
 
ITEM 4. MINE SAFETY DISCLOSURES
 
Not Applicable.
 
ITEM 5. OTHER INFORMATION
 
None.
 
 
32
 
 
ITEM 6. EXHIBITS
 
 
Exhibit Number
Description
(2)
Plan of acquisition, reorganization, arrangement, liquidation or succession
Purchase Agreement with Bronco Communications, LLC dated January 1, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Amendment to Purchase Agreement with Bronco Communications, LLC dated October 15, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Agreement of Merger and Plan of Reorganization with Airtronic USA, Inc. dated October 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
First Amendment to Agreement of Merger and Plan of Reorganization with Airtronic, USA, Inc. dated August 5, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Equity Purchase Agreement with Brian A. Dekle, John Ramsey, GDSI Acquisition Corporation, Global Digital Solutions, Inc., and North American Custom Specialty Vehicle, LLC dated June 16, 2014 (incorporated by reference to our Current Report on Form 8-K filed on June 19, 2014)
Share Purchase and Sale Agreement with Global Digital Solutions, Inc., Grupo Rontan Electro Metalurgica, S.A., Joao Alberto Bolzan and Jose Carlos Bolzan dated October 8, 2015 (incorporated by reference to our Current Report on Form 8-K filed on October 19, 2015)
(3)
(i) Articles of Incorporation; and (ii) Bylaws
Certificate of Incorporation dated August 28, 1995 (incorporated by reference to our Form 10 filed on August 8, 2013)
Articles of Merger dated March 18, 2004 (incorporated by reference to our Form 10 filed on August 8, 2013)
Certificate of Amendment to the Certificate of Incorporation dated August 06, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Bylaws dated August 28, 1995 (incorporated by reference to our Form 10 filed on August 8, 2013)
Certificate of Amendment to Certificate of Incorporation dated July 7, 2014 (incorporated by reference to our Current Report on Form 8-K filed on July 30, 2014)
Certificate of Amendment to Certificate of Incorporation dated May 18, 2015 (incorporated by reference to our Current Report on Form 8-K filed on May 20, 2015)
(10)
Material Agreements
Debtor in Possession Note Purchase Agreement with Airtronic USA, Inc. dated October 22, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Secured Promissory Note with Airtronic USA, Inc. dated October 22, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Security Agreement with Airtronic USA, Inc. dated October 22, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Bridge Loan Modification and Ratification Agreement with Airtronic USA, Inc. dated March, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Second Bridge Loan Modification and Ratification Agreement with Airtronic USA, Inc. dated August 5, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Secured Promissory Note with Airtronic USA, Inc. dated August 5, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Intellectual Property Security Agreement with an individual dated August 5, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Promissory Note Purchase Agreement with Bay Acquisition, LLC dated December 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Secured Promissory Note with an individual dated December 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
 
 
33
 
 
Security Agreement with Bay Acquisition, LLC dated December, 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Warrant to Purchase Common Stock with an individual dated December 2012 (incorporated by reference to our Form 10 filed on August 8, 2013)
Amendment to Promissory Note Agreement with an individual dated May 6, 2013 (incorporated by reference to our Form 10 filed on August 8, 2013)
Subscription Agreement and Securities Purchase Agreement (incorporated by reference to our Form 10 filed on August 8, 2013)
Form of Indemnification Agreement (incorporated by reference to our Form 10 filed on August 8, 2013)
Secured Promissory Note with Airtronic USA, Inc. dated October 10, 2013 (incorporated by reference to our Annual Report on Form 10-K filed on March 28, 2014)
Third Bridge Loan Modification and Ratification Agreement with Airtronic USA, Inc. dated October 10, 2013 (incorporated by reference to our Annual Report on Form 10-K filed on March 28, 2014)
Investment Banking Agreement with Midtown Partners & Co, LLC dated October 16, 2013 (incorporated by reference to our Annual Report on Form 10-K filed on March 28, 2014)
10.18
Addendum to Investment Bank Agreement with Midtown Partners & Co, LLC dated October 16, 2013 (incorporated by reference to our registration statement on Form S-1 filed on August 5, 2014)
2014 Equity Incentive Plan dated May 19, 2014 (incorporated by reference to our registration statement on Form S-1 filed on August 5, 2014)
Online Virtual Office Agreement dated August 19, 2013 (incorporated by reference to our registration statement on Form S-1 filed on August 5, 2014)
Restricted Stock Unit Agreement with Stephen L. Norris dated August 25, 2014 (incorporated by reference to our Current Report on Form 8-K/A filed on August 25, 2014)
Securities Purchase Agreement with Charter 804CS Solutions, Inc dated December 8, 2014 (incorporated by reference to our Current Report on Form 8-K filed on December 12, 2014)
Convertible Redeemable Note with Charter 804CS Solutions, Inc dated December 8, 2014 (incorporated by reference to our Current Report on Form 8-K filed on December 12, 2014)
First Amendment to Convertible Redeemable Note with Charter 804CS Solutions, Inc dated February 4, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 9, 2015)
Securities Purchase Agreement with an individual dated December 8, 2014 (incorporated by reference to our Current Report on Form 8-K filed on December 12, 2014)
Convertible Redeemable Note with an individual dated December 8, 2014 (incorporated by reference to our Current Report on Form 8-K filed on December 12, 2014)
10.27
First Amendment to Convertible Redeemable Note dated February 4, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 4, 2014)
Securities Purchase Agreement with LG Capital Funding, LLC dated January 16, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 20, 2015)
10.29
Convertible Redeemable Note with LG Capital Funding, LLC dated January 16, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 20, 2015)
Convertible Note with JSJ Investments Inc. dated January 26, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 30, 2015)
Securities Purchase Agreement with Adar Bays, LLC dated January 26, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 30, 2015)
Convertible Redeemable Note with Adar Bays dated January 26, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 30, 2015)
Convertible Note with JMJ Financial dated January 26, 2015 (incorporated by reference to our Current Report on Form 8-K filed on January 30, 2015)
Convertible Note with Vista Capital Investments, LLC dated February 4, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 9, 2015)
Securities Purchase Agreement with KBM Worldwide, Inc dated February 17, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 24, 2015)
Convertible Promissory Note with KBM Worldwide, Inc dated February 17, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 24, 2015)
 
 
34
 
 
Securities Purchase Agreement with EMA Financial, LLC dated February 19, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 24, 2015)
Convertible Note with EMA Financial, LLC dated February 19, 2015 (incorporated by reference to our Current Report on Form 8-K filed on February 24, 2015)
Note Purchase Agreement with Tangiers Investment Group, LLC dated March 8, 2015 (incorporated by reference to our Current Report on Form 8-K filed on March 13, 2015)
Convertible Promissory Note with Tangiers Investment Group, LLC dated March 8, 2015 (incorporated by reference to our Current Report on Form 8-K filed on March 13, 2015)
Non-Exclusive Agreement with Carter, Terry & Company dated December 18, 2014 (incorporated by reference to our Annual Report on Form 10-K filed on March 30, 2015)
10.42
Securities Purchase Agreement with VIS Vires Group, Inc. dated April 3, 2015 (incorporated by reference to our Quarterly Report on Form 10-Q filed on May 14, 2015)
10.43
Convertible Promissory Note with VIS Vires Group, Inc. dated April 3, 2015 (incorporated by reference to our Quarterly Report on Form 10-Q filed on May 14, 2015)
Revenue Based Factoring Agreement with Power Up dated October 1, 2015 (incorporated by reference to our Current Report on Form 8-K filed on October 5, 2015)
Security Agreement and Guarantee with Power Up dated October 1, 2015 (incorporated by reference to our Current Report on Form 8-K filed on October 5, 2015)
Revenue Based Factoring Agreement with Power Up dated October 23, 2015 (incorporated by reference to our Current Report on Form 8-K filed on November 5, 2015)
Security Agreement and Guarantee with Power Up dated October 23, 2015 (incorporated by reference to our Current Report on Form 8-K filed on November 5, 2015)
Settlement Agreement with an individual dated July 27, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Settlement Agreement with Power Up Lending Group, Ltd. dated December 21, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Repayment Agreement with JMJ Financial dated December 13, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Convertible Note Redemption Agreement dated December 12, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Exchange/Conversion Agreement with an individual dated August 15, 2016 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Promissory Note with Dragon Acquisitions dated August 31, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Stock Purchase Agreement with Empire Relations Group, Inc. dated August 16, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Prepaid Forward Purchase Agreement with Boies Schiller Flexner LLP dated December 22, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
Demand Promissory Note with Vox Business Trust, LLC dated December 19, 2017 (incorporated by reference to our December 31, 2015 Annual Report on Form 10-K filed on May 31, 2018)
10.57
Demand Promissory Note with RLT Consulting, Inc. dated December 26, 2017 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 13, 2018)
10.58
Promissory Note with an individual dated May 1, 2018 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 13, 2018)
10.59
Investment Return Purchase Agreement with an individual dated May 15, 2018 (incorporated by reference to our Quarterly Report on Form 10-Q filed on June 13, 2018)
(31)
Rule 13a-14(a)/15d-14(a) Certifications
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Executive Officer
Section 302 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Financial Officer and Principal Accounting Officer
(32)
Section 1350 Certifications
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Chief Executive Officer
Section 906 Certification under the Sarbanes-Oxley Act of 2002 of the Principal Accounting Officer
(101)*
Interactive Data Files
101.INS
XBRL Instance Document
101.SCH
XBRL Taxonomy Extension Schema Document
101.CAL
XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF
XBRL Taxonomy Extension Definition Linkbase Document
101.LAB
XBRL Taxonomy Extension Label Linkbase Document
101.PRE
XBRL Taxonomy Extension Presentation Linkbase Document
 
*            
Filed herewith.
‡            
Employment Agreement.
 
 
35
 
 
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
 
GLOBAL DIGITAL SOLUTIONS, INC.
 
By: /s/ William Delgado                    
William Delgado
Chief Executive Officer
(Principal Executive Officer)
Date: July 12, 2018
 
 
By: /s/ Jerome J. Gomolski                 
Jerome J. Gomolski
Chief Financial Officer
(Principal Financial Officer and Principal Accounting Officer)
Date: July 12, 2018
 
 
36
EX-31.1 2 gdsi_ex311.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 Blueprint
 
Exhibit 31.1
 
GLOBAL DIGITAL SOLUTIONS, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, William Delgado, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Global Digital Solutions, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
By: /s/ William Delgado                       
William Delgado
Chief Executive Officer
(Principal Executive Officer)
Date: July 12, 2018
 
EX-31.2 3 gdsi_ex312.htm CERTIFICATION PURSUANT TO RULE 13A-14(A)/15D-14(A) CERTIFICATIONS SECTION 302 OF THE SARBANES-OXLY ACT OF 2002 Blueprint
 
Exhibit 31.2
 
GLOBAL DIGITAL SOLUTIONS, INC.
CERTIFICATION PURSUANT TO
SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
I, Jerome J. Gomolski, certify that:
 
1.
I have reviewed this quarterly report on Form 10-Q of Global Digital Solutions, Inc.;
 
 
2.
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
 
3.
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
 
4.
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a–15(e) and 15d–15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a–15(f) and 15d–15(f)) for the registrant and have:
 
 
(a)
designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
(b)
designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
(c)
evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
(d)
disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
 
 
5.
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
 
(a)
all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
(b)
any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
By: /s/ Jerome J. Gomolski                     
Jerome J. Gomolski
Principal Accounting Officer
Date: July 12, 2018
 
EX-32.1 4 gdsi_ex321.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Blueprint
 
Exhibit 32.1
 
GLOBAL DIGITAL SOLUTIONS, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with this Quarterly Report on Form 10-Q of Global Digital Solutions, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
 
1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
By: /s/ William Delgado                         
William Delgado
Chief Executive Officer
(Principal Executive Officer)
Date: July 12, 2018
 
EX-32.2 5 gdsi_ex322.htm CERTIFICATE PURSUANT TO SECTION 18 U.S.C. PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Blueprint
 
Exhibit 32.2
 
GLOBAL DIGITAL SOLUTIONS, INC.
CERTIFICATION PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
 
In connection with this Quarterly Report on Form 10-Q of Global Digital Solutions, Inc. (the “Company”) as filed with the Securities and Exchange Commission on the date hereof (the “Report”), the undersigned, in the capacity and on the date indicated below, hereby certifies pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that to his knowledge:
 
1.           The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
 
2.           The information contained in the Report fairly presents, in all material respects, the financial condition and results of operation of the Company.
 
By: /s/ Jerome J. Gomolski                         
Jerome J. Gomolski
Principal Accounting Officer
Date: July 12, 2018
 
EX-101.INS 6 gdsi-20180331.xml XBRL INSTANCE DOCUMENT 0001011662 2018-01-01 2018-03-31 0001011662 2018-03-31 0001011662 2017-12-31 0001011662 2017-01-01 2017-03-31 0001011662 2016-12-31 0001011662 us-gaap:ConvertibleNotesPayableMember 2018-01-01 2018-03-31 0001011662 us-gaap:ConvertibleNotesPayableMember 2017-01-01 2017-03-31 0001011662 us-gaap:StockOptionMember 2018-01-01 2018-03-31 0001011662 us-gaap:StockOptionMember 2017-01-01 2017-03-31 0001011662 us-gaap:WarrantMember 2018-01-01 2018-03-31 0001011662 us-gaap:WarrantMember 2017-01-01 2017-03-31 0001011662 us-gaap:FairValueInputsLevel3Member 2018-03-31 0001011662 us-gaap:FairValueInputsLevel3Member 2017-12-31 0001011662 2017-03-31 0001011662 us-gaap:FairValueInputsLevel3Member 2018-01-01 2018-03-31 0001011662 us-gaap:PreferredStockMember 2018-01-01 2018-03-31 0001011662 us-gaap:PreferredStockMember 2017-01-01 2017-03-31 0001011662 us-gaap:FairValueInputsLevel3Member 2017-01-01 2017-03-31 0001011662 us-gaap:FairValueInputsLevel3Member 2016-12-31 0001011662 us-gaap:FairValueInputsLevel3Member 2017-03-31 0001011662 GDSI:JerryGomolskiMember 2017-12-31 0001011662 GDSI:Charter804CSMember 2017-12-31 0001011662 GDSI:GaryGrayMember 2017-12-31 0001011662 GDSI:JerryGomolskiMember 2018-03-31 0001011662 GDSI:Charter804CSMember 2018-03-31 0001011662 GDSI:GaryGrayMember 2018-03-31 0001011662 2018-07-12 iso4217:USD xbrli:shares iso4217:USD xbrli:shares xbrli:pure GLOBAL DIGITAL SOLUTIONS INC 0001011662 10-Q 2018-03-31 false --12-31 No No No Smaller Reporting Company Q1 2018 0.001 0.001 35000000 35000000 0.001 0.001 650000000 650000000 3000 113000 3000 113000 0 20000 3000 93000 0 0 3239940 3125720 3239940 3125720 197908 382948 11187 11187 103681 71920 57266 77265 1288000 1288000 133623 108991 639743 528651 808532 656758 3000 113000 -3236940 -3012720 -34382275 -33827464 30584875 30282937 559460 530807 1000 1000 1000000 1000000 1000000 1000000 55459905 530806571 55459905 530806571 0 0 0 0 0 0 684452 173781 -684452 -173781 -129641 -401844 -26404 -5454 -156045 -407298 -554811 228063 -554811 228063 0 77541 0 77541 -0.00 -0.00 539302868 530806571 0 0 0 0 -90000 0 -26904 0 20000 0 19000 0 -554811 228063 156045 407298 -63096 0 31761 30319 154725 125175 151774 23741 <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We were incorporated in New Jersey as Creative Beauty Supply, Inc. (&#8220;Creative&#8221;) in August 1995. In March 2004, Creative acquired Global Digital Solutions, Inc., a Delaware corporation (&#34;Global&#8221;). The merger was treated as a recapitalization of Global, and Creative changed its name to Global Digital Solutions, Inc. (&#8220;the Company&#8221;, &#8220;we&#8221;), 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 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 September 16, 2014 we acquired North American Custom Specialty Vehicles (&#8220;NACSV&#8221;). In July 2014, we announced the formation of GDSI International (f/k/a Global Digital Solutions, LLC) to spearhead our efforts overseas. The Company has been dormant since December 31, 2015.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Going Concern</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 three months ended March 31, 2018 we incurred a net loss of $554,811. At March 31, 2018, we had $3,000 of cash, an accumulated deficit of $34,382,275, a working capital deficit of $3,236,940 and stockholders&#8217; deficit of $3,236,940. We have funded our activities to date almost exclusively from equity and debt financings.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We are in default under the terms of our loan agreements. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We will continue to require substantial funds to continue development of our core business. Management&#8217;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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 5.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>&#160;</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Principles of Consolidation</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Basis of Presentation</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The accompanying unaudited financial information as of and for the three months ended March 31, 2018 and 2017 has been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC on June 29, 2018.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Fair Value of Financial Instruments</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The carrying value of cash, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, &#34;Fair Value Measurement,&#34; fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The three levels of the fair value hierarchy defined by ASC 820 are as follows:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 1 &#8211; Quoted prices in active markets for identical assets or liabilities</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 2 &#8211;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.</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 3 &#8211; Significant unobservable inputs that cannot be corroborated by market data.</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Earnings (Loss) Per Share (&#8220;EPS&#8221;)</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="6" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>Three Months Ended</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 75%"><font style="font-size: 8pt">Convertible notes and accrued interest</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">33,715,247</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">141,939,271</font></td> <td style="width: 2%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Preferred stock</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">206,861,415</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">196,398,431</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Stock options</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Warrants</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Potentially dilutive securities</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">255,726,664</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">353,487,704</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 40pt">The convertible debentures were considered anti-dilutive as of March 31, 2017, in accordance with ASC 260-10-45-20, as under the &#8220;if converted&#8221; method the adjustment to the control number of net income resulted in a net loss.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Use of Estimates</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Recent Accounting Pronouncements</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In May 2014, the FASB issued Accounting Standards Update (&#8220;ASU&#8221;) No. 2014-09, <i>Revenue from Contracts with Customers: Topic 606,</i> or ASU 2014-09. ASU 2014-09 establishes the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The accounting standards update also requires significantly expanded quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.&#160;The Company adopted ASU 2014-09 in the three months ended March 31, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company&#8217;s financial position or results of operations, and no transition method was necessary upon adoption.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In February 2016, the FASB issued ASU No. 2016-02, <i>Leases</i>, or ASU 2016-02<i>.</i> The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet. For public companies, ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company does not expect that the adoption of ASU 2016-02 will have a material impact on its financial statements.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">As of March 31, 2018, and December 31, 2017, accrued expenses consist of the following amounts:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>December 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Accrued compensation to executive officers and employees</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">403,336</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">342,919</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Accrued professional fees and settlements</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">193,675</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">125,771</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Accrued interest</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">42,732</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">59,961</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 3pt">&#160;</td> <td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">639,743</font></td> <td style="padding-bottom: 3pt">&#160;</td> <td style="padding-bottom: 3pt">&#160;</td> <td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">528,651</font></td> <td style="padding-bottom: 3pt">&#160;</td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The Company did not have any Level 1 or Level 2 assets and liabilities at March 31, 2018 and December 31, 2017. The Derivative liabilities are Level 3 fair value measurements.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">The following is a summary of activity of Level 3 liabilities during the three months ended March 31, 2018 and 2017:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid"> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2018</b></p></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Derivative liability balance at beginning of period</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">382,948</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">672,724</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Change in fair value</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">(156,045</font></td> <td><font style="font-size: 8pt">)</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">(407,298</font></td> <td><font style="font-size: 8pt">)</font></td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Reclassification to equity</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(28,995</font></td> <td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">-</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Balance at end of period</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">197,908</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">265,426</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">At March 31, 2018, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate &#8211; 1.73%; term - .25 years; volatility &#8211; 185.50%; dividend rate &#8211; 0%.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">At December 31, 2017, the fair value of the derivative liabilities of convertible notes was estimated using the following weighted-average inputs: risk free interest rate &#8211; 1.39%; term - .25 years; volatility &#8211; 246.62%; dividend rate &#8211; 0%.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Legal Proceedings</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We may be involved in legal proceedings in the ordinary course of our business, and our management cannot predict the ultimate outcome of these legal proceedings with certainty. The Company is plaintiff or defendant in the following actions:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#8239;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Dekle, et. al. v. Global Digital Solutions, Inc. et. al.</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Brian A. Dekle and John Ramsay filed suit against the Company and its wholly owned subsidiary, North American Custom Specialty Vehicles, Inc. (&#8220;NACSV&#8221;), 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&#34;). 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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="background-color: white">On February 9, 2015, t</font>he Company and NACSV removed the Dekle Action to federal court in the United States District Court in and for the Southern District of Alabama, case no. 1:15-CV-00069. The Company and NACSV subsequently moved to dismiss the complaint for (1) failing to state a cause of action, and (2) lack of personal jurisdiction. Alternatively, the Company and NACSV sought a transfer of the case to the United States District Court in and for Middle District of Florida.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In response to the Company&#8217;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 (&#8220;SEC&#8221;) Rule 10b-5, and violations of the Alabama Securities Act. The amended complaint also names the Company&#8217;s Chairman, President, and CEO, Richard J. Sullivan (&#8220;Sullivan&#8221;), 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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On June 2, 2015, Dekle passed away.&#8239; On June 5, 2015, the Court denied the Company&#8217;s motion to transfer the case to Florida.&#8239; &#8239;On June 10, 2015, the Company filed a motion to reconsider the Court&#8217;s denial of its motion to transfer the case to Florida.&#8239;On September 30, 2105, the Court granted the Company&#8217;s Renewed Motion to Transfer Venue. The case was transferred to the Middle District of Florida, where it is currently pending.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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&#8217;s Motion to Dismiss was denied.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On July 27, 2017, the Company and Dekle and Ramsay came to a Settlement Agreement. The Company and the plaintiff came to the following agreements:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">i)&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">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 below is not paid.</font></td></tr> </table> <p style="font: 12pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">ii)&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">The Company grants the plaintiffs vehicles and trailers in connection to this proceeding.</font></td></tr> </table> <p style="font: 12pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">iii)&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">The Company will assist the plaintiffs in obtaining possession of the said vehicles.</font></td></tr> </table> <p style="font: 12pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">iv)&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">The Company will pay the plaintiffs the sum of $20,000.</font></td></tr> </table> <p style="font: 12pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">v)&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">The $20,000 settlement was paid in August 2017.</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Global Digital Solutions, Inc. et. al. v. Communications Laboratories, Inc., et. al.</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>PowerUp Lending Group, LTD., v. North American Custom Specialty Vehicle, Inc. et.al</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>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</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On August 11, 2016, the Securities and Exchange Commission (&#8220;SEC&#8221;) filed suit in the United States District Court for the Southern District of Florida against Global Digital Solutions, Inc. (&#8220;GDSI&#8221;), Richard J. Sullivan (&#8220;Sullivan&#8221;) and David A. Loppert (&#8220;Loppert&#8221;) to enjoin GDSI; Sullivan, GDSI&#8217;s former Chairman and CEO; and Loppert, GDSI&#8217;s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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&#8217;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&#8217;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&#8217;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&#8217;s docket.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>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</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 (&#8220;Delgado&#8221;) filed a Notice of Removal of Case No. C-70-16 from the Mercer County Superior Court of New Jersey to the United States District Court for the District of New Jersey. On May 19, 2017, Defendant Delgado filed a First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017, Defendant David A. Loppert (&#8220;Loppert&#8221;) filed a Motion to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017, Plaintiff Adrian Lopez (&#8220;Lopez&#8221;) filed a First Motion to Remand the Action back to State Court. On June 29, 2017, Defendant Delgado filed a Memorandum of Law in Response and Reply to the Memorandum of Law in Support of Plaintiff&#8217;s Motion to Remand and in Response to Defendants&#8217; Delgado&#8217;s and Loppert&#8217;s Motions to Dismiss. On January 1, 16, 2018, a Memorandum and Order granting Plaintiff&#8217;s Motion to Remand the case back to the Mercer County Superior Court of New Jersey was signed by the Judge and entered on the Docket. Defendants Delgado and Loppert&#8217;s Motions to Dismiss were denied as moot. On February 2, 2018, Defendants filed a Motion to Dismiss the Complaint. On February 20, 2018, Plaintiff filed a Motion to Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition to Defendants&#8217; Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff&#8217;s Opposition to Defendants&#8217; Motion to Dismiss the Complaint. The Court held a hearing on the motions to dismiss and consolidate. Jurisdictional discovery was ordered. As of this date, the Court has not issued a decision and Order regarding Defendants&#8217; Motion to Dismiss the Complaint.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>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</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On September 28, 2017, Plaintiff Adrian Lopez (&#8220;Lopez&#8221;) brought an action against Global Digital Solutions, Inc. (&#8220;GDSI&#8221;) and William J. Delgado (&#8220;Delgado&#8221;) to compel a meeting of the stockholders of Global Digital Solutions, Inc. pursuant to Section 2.02 of GDSI&#8217;s Bylaws and New Jersey Revised Statute &#167; 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&#8217; Motion to Stay the Proceeding. On January 19, 2018, Defendants&#8217; 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&#8217; Motion to Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief in Reply to Plaintiff&#8217;s Opposition to Defendants&#8217; Motion to Dismiss the Complaint. As of this date, the Court has not issued a decision and Order regarding Defendants&#8217; Motion to Dismiss the Complaint.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>&#160;</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>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</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On August 24, 2016, Jeff Hull, Individually and on Behalf of All Others Similarly Situated (&#8220;Hull&#8221;) filed suit in the United States District Court for the District of New Jersey against Global Digital Solutions, Inc. (&#8220;GDSI&#8221;), Richard J. Sullivan (&#8220;Sullivan&#8221;), David A. Loppert (&#8220;Loppert&#8221;), William J. Delgado (&#8220;Delgado&#8221;), Arthur F. Noterman (&#8220;Noterman&#8221;) and Stephanie C. Sullivan (&#8220;Stephanie Sullivan&#8221;) seeking to recover compensable damages caused by Defendants&#8217; alleged violations of federal securities laws and to pursue remedies under the Securities Exchange Act of 1934. On January 18, 2018, pursuant to the Court&#8217;s December 19, 2017 Order granting Plaintiff Hull leave to file an amended Complaint, Plaintiff Hull filed a Second Amended Complaint against Defendants. On February 8, 2018, Defendants GDSI and Delgado filed a Second Motion to Dismiss the Complaint. On February 8, 2018, Defendant Loppert filed a Motion for Extension of Time to File an Answer. On February 13, 2018, Defendant Loppert filed a Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 20, 2018, Plaintiff Michael Perry (&#8220;Perry&#8221;) filed a Brief in Opposition to Defendants GDSI and Delgado&#8217;s Second Motion to Dismiss the Complaint and to Defendant Loppert&#8217;s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. On February 26, 2018, Defendants GDSI and Delgado filed a Reply Brief to Plaintiff Michael Perry&#8217;s Brief in Opposition to their Motion to Dismiss the Second Amended Complaint. On February 26, 2018, Defendant Loppert filed a Response in Support of Defendants GDSI and Delgado&#8217;s Second Motion to Dismiss the Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief to Plaintiff Perry&#8217;s Brief in Opposition to Defendant Loppert&#8217;s Motion to Dismiss the Second Amended Complaint for Lack of (personal) Jurisdiction and for Failure to State a Claim. To date, the Court has not issued a decision as to aforementioned Motions. Global Digital Solutions, Inc. and William J. Delgado intend to continue to vigorously defend against the claims asserted by Jeff Hull, Individually and on Behalf of All Others Similarly Situated.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>In the Matter of Global Digital Solutions, Inc., Administrative Proceeding File No. 3-18325. Administrative Proceeding Before the Securities and Exchange Commission.</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 (&#8220;Exchange Act&#8221;) against the Respondent Global Digital Solutions, Inc. On January 8, 2018, Respondent Global Digital Solutions, Inc. (&#8220;GDSI&#8221;) 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&#8217;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. On June 1, 2018, GDSI filed various Affidavits providing supplemental evidence and briefing on the issues of material fact. On June 21, 2018, the Securities and Exchange Commission issued an order immediately staying all administrative proceedings pending before its administrative law judges in light of the Supreme Court&#8217;s decision in <i>Lucia v. SEC</i>, No. 17-130 (U.S. June 21, 2018). <i>Pending Admin. Proc.</i>, Securities Act of 1933 Release No. 10510, https://www.sec.gov/litigation/opinions/2018/33-10510.pdf. The stay will last until July 23, 2018, or further order of the Commission. <i>Id.</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>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</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On August 11, 2016, the Securities and Exchange Commission (&#8220;SEC&#8221;) filed suit in the <i>United States District Court for the Southern District of Florida</i> against Global Digital Solutions, Inc. (&#8220;GDSI&#8221;), Richard J. Sullivan (&#8220;Sullivan&#8221;) and David A. Loppert (&#8220;Loppert&#8221;) to enjoin GDSI; Sullivan, GDSI&#8217;s former Chairman and CEO; and Loppert, GDSI&#8217;s former CFO from alleged further violations of the anti-fraud and reporting provisions of the federal securities laws, and against Sullivan and Loppert from alleged further violations of the certification provisions of the federal securities laws.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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&#8217;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&#8217;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&#8217;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&#8217;s docket. The amount of the judgement is One Hundred Thousand Dollars ($100,000) plus interest.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Docket No.: 50-2017-CA-011937-XXXX-MB</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On October 31, 2017, PMB Helin Donovan, LLP filed an action for account stated in Palm Beach County. Global Digital Solutions, Inc. (&#8220;GDSI&#8221;) settled the matter for Forty Thousand Dollars ($40,000) of which the first payment of Ten Thousand Dollars ($10,000) has been paid.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Jennifer Carroll vs. Global Digital Solutions, Inc., North American Custom Specialty Vehicles, Inc., in the Circuit Court for the 15th Judicial Circuit in and for Palm Beach County, Florida, Case No.: 50-2015-CC-012942-XXXX-MB</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On October 27, 2017, Plaintiff Jennifer Carroll moved the court for a default judgment against Defendant Global Digital Solutions, Inc. (&#8220;GDSI&#8221;) and its subsidiary North American Custom Specialty Vehicles Inc. The amount of the judgement is Fifteen Thousand Dollars ($15,000) plus fees of Thirteen Thousand Three Hundred Fifty-Three Dollars ($13,353) and costs of Six Hundred Twenty-Four Dollars ($624).</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Consulting agreements</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company entered into two consulting agreements in May 2016, for services to be provided in connection towards the resolution of the Rontan lawsuit. The consulting agreements include a monthly retainer payment of $10,000 to each consultant. The agreement also includes consideration of 5,000,000 shares of restricted common stock of the Company, plus a 5% cash consideration of the Resolution Progress Funding, (defined as upon the retention of legal counsel and receipt of funding for the litigation), as of the Resolution Progress Funding date and 10,000,000 shares of restricted common stock of the Company and a 5% cash consideration of the Resolution Funding amount (defined as a settlement or judgement in favor 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 the financing agreement in Note 5.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Share Purchase and Sale Agreement for Acquisition of Grupo Rontan Electro Metalurgica, S.A.</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><b>&#160;</b></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Effective October 13, 2015, the Company (as &#8220;Purchaser&#8221;) entered into the SPSA dated October 8, 2015 with Joao Alberto Bolzan and Jose Carlos Bolzan, both Brazilian residents (collectively, the &#8220;Sellers&#8221;) and Grupo Rontan Electro Metalurgica, S.A., a limited liability company duly organized and existing under the laws of Federative Republic of Brazil (&#8220;Rontan&#8221;) (collectively, the &#8220;Parties&#8221;), pursuant to which the Sellers agreed to sell 100% of the issued and outstanding shares of Rontan to the Purchaser on the closing date.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The purchase price shall consist of a cash amount, a stock amount and an earn-out amount as follows: (i) Brazilian Real (&#8220;R&#8221;) $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&#8217;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&#8217;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&#8217;s earnings before interest, taxes, depreciation and amortization (&#8220;EBITDA&#8221;) for the last 12 months, and (ii) twenty percent and is contingent upon Rontan&#8217;s EBITDA results for any earn-out period being at least 125% of Rontan&#8217;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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Under the terms of a Finders Fees Agreement dated April 14, 2014, we have agreed to pay RLT Consulting Inc., 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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Specific conditions to closing consist of:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.25in">&#160;</p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">a)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">Purchaser&#8217;s receipt of written limited assurance of an unqualified opinion with respect to Rontan&#8217;s audited financial statements for the years ended December 31, 2013 and 2014 (the &#8220;Opinion&#8221;);</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">b)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">The commitment of sufficient investment by General American Capital Partners LLC (the &#8220;Institutional Investor&#8221;), in the Purchaser following receipt of the Opinion;</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">c)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">The accuracy of each Parties&#8217; representations and warranties contained in the SPSA;</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">d)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">The continued operation of Rontan&#8217;s business in the ordinary course;</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">e)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">The maintenance of all of Rontan&#8217;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&#8217;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);</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">f)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">Rontan shall enter into employment or consulting service agreements with key employees and advisors identified by the Purchaser, including Rontan&#8217;s Chief Executive Officer; and</font></p> <p style="font: 10pt Times New Roman, Times, Serif; margin: 0 0 0 0.5in; text-align: justify; text-indent: 0in"><font style="font-size: 8pt">g)</font><font style="font: 7pt Times New Roman, Times, Serif">&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160; </font><font style="font-size: 8pt">The Sellers continued guarantee of Rontan&#8217;s bank debt for a period of 90 days following issuance of the Opinion, among other items.</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Rontan is engaged in the manufacture and distribution of specialty vehicles and acoustic/visual signaling equipment for the industrial and automotive markets.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Subsequent to December 31, 2015, on April 1, 2016, we believed that we had satisfied or otherwise waived the conditions to closing (as disclosed under the SPSA, the closing was subject to specific conditions to closing, which were waivable by us,) and advised the Sellers of our intention to close the SPSA and demanded delivery of the Rontan Securities. The Sellers, however, notified us that they intend to terminate the SPSA. We believe that the Sellers had no right to terminate the SPSA and that notice of termination by the Sellers was not permitted under the terms of the SPSA.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On January 31, 2018, we announced that we initiated a lawsuit for damages against Grupo Rontan Metalurgica, S. A, (&#8220;Rontan&#8221;) and that company&#8217;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 &#8220;SPA&#8221;) by which we were to acquire whole ownership of Rontan.</p> <p style="font: 8pt/normal Tahoma, Helvetica, Sans-Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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&#8217;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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0"><i>Accounts Payable</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">At March 31, 2018 and December 31, 2017, included in accounts payable was compensation owed to related parties as seen below -</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>December 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Jerry Gomolski</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="text-align: right; width: 9%"><font style="font-size: 8pt">25,000</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="text-align: right; width: 9%"><font style="font-size: 8pt">25,000</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Charter 804CS</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">20,099</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">20,099</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Gary Gray</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">12,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">12,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Total</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">57,099</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">57,099</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>&#160;</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Accrued Compensation</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">At March 31, 2018 and December 31, 2017, we had $370,000 and $310,000 payable to William J. Delgado and $29,169 and $20,835 to Jerry Gomolski, respectively.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Promissory Note</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On August 31, 2017, Dragon Acquisitions and an individual lender entered into a Promissory Note agreement for $20,000 as well as $2,000 in interest for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the debt. As of March 31, 2018, the Company has accrued $1,000 of the interest.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On February 9, 2018, the Company issued 333,334 of their common shares to a consultant, as consideration for $4,000 of consulting services.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On February 9, 2018, the Company sold 4,320,000 of their common shares to an unrelated party, at $0.0028 per share, for a total purchase price of $12,096.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On February 21, 2018, in connection with a $36,000 promissory note that was entered into on May 1, 2018 (Note 9) the Company issued 5,000,000 shares of their common stock. The common stock was valued at $57,500, based on the market price of $0.0115 of the common stock on the date of issuance, which was recognized as a financing cost in the accompanying condensed consolidated statement of operations.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On March 13, 2018, in connection with the two $485,000 demand notes (Note 5), the Company issued 14,000,000 shares of their common stock as consideration for consulting services. The common stock was valued at $168,000, based on the market price of $0.0120 of the common stock on the date of issuance.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On March 13, 2018, in connection with the $20,000 promissory note (Note 5), the Company issued 5,000,000 shares of their common stock. The common stock was valued at $60,000, based on the market price of $0.0120 of the common stock on the date of issuance which was recognized as a financing cost in the accompanying condensed consolidated statement of operations.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in"><font style="background-color: white">We have completed an evaluation of all subsequent events after the balance sheet date of March 31, 2018 through the date this Quarterly Report on Form 10-Q was submitted to the SEC, to ensure that this filing includes appropriate disclosure of events both recognized in the financial statements as of March 31, 2018, 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:</font></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On May 15, 2018, the Company entered into an Investment Return Purchase Agreement with an accredited investor (the &#8220;Purchaser&#8221;) for proceeds of $200,000 (the &#8220;Investment Agreement&#8221;). Under the terms of the Investment Agreement, the Company agreed to pay the Purchaser a 10% return, or $20,000 (the &#8220;Investment Return&#8221;) 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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 three months ended March 31, 2018 we incurred a net loss of $554,811. At March 31, 2018, we had $3,000 of cash, an accumulated deficit of $34,382,275, a working capital deficit of $3,236,940 and stockholders&#8217; deficit of $3,236,940. We have funded our activities to date almost exclusively from equity and debt financings.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We are in default under the terms of our loan agreements. We need to raise additional funds immediately and continue to raise funds until we begin to generate sufficient cash from operations, and we may not be able to obtain the necessary financing on acceptable terms, or at all.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">We will continue to require substantial funds to continue development of our core business. Management&#8217;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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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 5.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>&#160;</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The accompanying unaudited financial information as of and for the three months ended March 31, 2018 and 2017 has been prepared in accordance with accounting principles generally accepted in the U.S. for interim financial information and with the instructions to Quarterly Report on Form 10-Q and Article 10 of Regulation S-X. In the opinion of management, such financial information includes all adjustments (consisting only of normal recurring adjustments, unless otherwise indicated) considered necessary for a fair presentation of our financial position at such date and the operating results and cash flows for such periods. Operating results for the three months ended March 31, 2018 are not necessarily indicative of the results that may be expected for the entire year or for any other subsequent interim period.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">Certain information and footnote disclosures normally included in financial statements prepared in accordance with generally accepted accounting principles have been omitted pursuant to the rules of the U.S. Securities and Exchange Commission, or the SEC. These unaudited financial statements and related notes should be read in conjunction with our audited financial statements for the year ended December 31, 2017 included in our Annual Report on Form 10-K filed with the SEC on June 29, 2018.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The condensed consolidated balance sheet at December 31, 2017 has been derived from the audited financial statements at that date but does not include all of the information and footnotes required by generally accepted accounting principles in the U.S. for complete financial statements.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The carrying value of cash, accounts payable and accrued expenses approximate their fair values based on the short-term maturity of these instruments. The carrying amounts of debt were also estimated to approximate fair value. As defined in ASC 820, &#34;Fair Value Measurement,&#34; fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date (exit price). The Company utilizes market data or assumptions that market participants would use in pricing the asset or liability, including assumptions about risk and the risks inherent in the inputs to the valuation technique. These inputs can be readily observable, market corroborated, or generally unobservable. ASC 820 establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (level 1 measurement) and the lowest priority to unobservable inputs (level 3 measurement). This fair value measurement framework applies at both initial and subsequent measurement.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The three levels of the fair value hierarchy defined by ASC 820 are as follows:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 1 &#8211; Quoted prices in active markets for identical assets or liabilities</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 2 &#8211;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.</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 48px; font: 12pt Times New Roman, Times, Serif"><font style="font-size: 8pt">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding: 0.75pt; font: 12pt Times New Roman, Times, Serif; text-align: justify"><font style="font-size: 8pt">Level 3 &#8211; Significant unobservable inputs that cannot be corroborated by market data.</font></td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In May 2014, the FASB issued Accounting Standards Update (&#8220;ASU&#8221;) No. 2014-09, <i>Revenue from Contracts with Customers: Topic 606,</i> or ASU 2014-09. ASU 2014-09 establishes the principles for recognizing revenue and develops a common revenue standard for U.S. GAAP. The standard outlines a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. In applying the new revenue recognition model to contracts with customers, an entity: (1) identifies the contract(s) with a customer; (2) identifies the performance obligations in the contract(s); (3) determines the transaction price; (4) allocates the transaction price to the performance obligations in the contract(s); and (5) recognizes revenue when (or as) the entity satisfies a performance obligation. The accounting standards update applies to all contracts with customers except those that are within the scope of other topics in the FASB Accounting Standards Codification. The accounting standards update also requires significantly expanded quantitative and qualitative disclosures regarding the nature, amount, timing and uncertainty of revenue and cash flows arising from contracts with customers.&#160;The Company adopted ASU 2014-09 in the three months ended March 31, 2018, and as there have not been any significant revenues to date, the adoption did not have a material impact on the Company&#8217;s financial position or results of operations, and no transition method was necessary upon adoption.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">In February 2016, the FASB issued ASU No. 2016-02, <i>Leases</i>, or ASU 2016-02<i>.</i> The new guidance requires lessees to recognize the assets and liabilities arising from leases on the balance sheet. For public companies, ASU 2016-02 is effective for annual periods, including interim periods within those annual periods, beginning after December 15, 2018, and early adoption is permitted. The Company does not expect that the adoption of ASU 2016-02 will have a material impact on its financial statements.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>December 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Accrued compensation to executive officers and employees</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">403,336</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">342,919</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Accrued professional fees and settlements</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">193,675</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">125,771</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Accrued interest</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">42,732</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">59,961</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 3pt">&#160;</td> <td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">639,743</font></td> <td style="padding-bottom: 3pt">&#160;</td> <td style="padding-bottom: 3pt">&#160;</td> <td style="border-bottom: black 1pt double"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt double; text-align: right"><font style="font-size: 8pt">528,651</font></td> <td style="padding-bottom: 3pt">&#160;</td></tr> </table> 255726664 353487704 33715247 141939271 13650002 13650002 1500000 1500000 206861415 196398431 -3236940 403336 342919 193675 125771 42732 59961 639743 528651 197908 382948 672724 265426 -156045 -407298 -28995 0 -57099 -57099 -25000 -20099 -12000 -25000 -20099 -12000 289500 0 -20000 0 12096 0 43633 0 28995 0 559084905 <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The following table summarizes the securities that were excluded from the diluted per share calculation because the effect of including these potential shares was antidilutive even though the exercise price could be less than the average market price of the common shares:</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="6" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>Three Months Ended</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 75%"><font style="font-size: 8pt">Convertible notes and accrued interest</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">33,715,247</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">141,939,271</font></td> <td style="width: 2%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Preferred stock</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">206,861,415</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">196,398,431</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Stock options</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Warrants</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Potentially dilutive securities</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">255,726,664</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">353,487,704</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 40pt">The convertible debentures were considered anti-dilutive as of March 31, 2017, in accordance with ASC 260-10-45-20, as under the &#8220;if converted&#8221; method the adjustment to the control number of net income resulted in a net loss.</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="6" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>Three Months Ended</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td> <td>&#160;</td> <td colspan="2" style="text-align: center">&#160;</td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 75%"><font style="font-size: 8pt">Convertible notes and accrued interest</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">33,715,247</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">141,939,271</font></td> <td style="width: 2%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Preferred stock</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">206,861,415</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">196,398,431</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Stock options</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">13,650,002</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Warrants</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">1,500,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Potentially dilutive securities</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">255,726,664</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">353,487,704</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid"> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: center"><b>2018</b></p></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Derivative liability balance at beginning of period</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">382,948</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%"><font style="font-size: 8pt">$</font></td> <td style="width: 9%; text-align: right"><font style="font-size: 8pt">672,724</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Change in fair value</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">(156,045</font></td> <td><font style="font-size: 8pt">)</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">(407,298</font></td> <td><font style="font-size: 8pt">)</font></td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Reclassification to equity</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">(28,995</font></td> <td style="padding-bottom: 1.5pt"><font style="font-size: 8pt">)</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">-</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Balance at end of period</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">197,908</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">265,426</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Convertible Notes Payable with Embedded Derivative Liabilities</i></p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On January 16, 2015 the Company entered into an 8% convertible note payable for $78,750 with LG Capital Funding, LLC (&#8220;LG Capital&#8221;), which matured on January 16, 2016. The note is convertible at a conversion price equal to a 40% discount to the lowest closing bid price for 20 prior trading days including the notice of conversion date. The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. Under the terms of the note the Company is required to maintain a minimum share reserve equal to four times the potential number of shares of their common stock issuable upon conversion, $38,829 of the note was converted as of December 31, 2015.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The note was not paid by its maturity date, and was in default. On December 12, 2017, LG Capital Funding and the Company entered into a Convertible Note Redemption Agreement to pay back the balance of $68,110, which included the principal balance and accrued interest, per a set payment schedule to be paid in full by April 30, 2018. Until all redemption payments are fully made the creditor agreed not to effectuate any conversions. In the event the Company fails to make timely payments, the creditor shall be able to convert the balance of the note. The Company made the first required payment of $6,500 on January 2, 2018, with the remaining scheduled payments not made by their due dates. $61,610 is remaining outstanding as of March 31, 2018.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The Company entered into a Convertible note payable for up to $250,000 with JMJ Financial (&#8220;JMJ&#8221;) of which $82,500 was deemed funded on January 28, 2015 and $27,500 was deemed funded on April 20, 2015. The principal amount matured 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 lesser of $0.075 per share or 60% of the average of the trading price in the 25 trading days prior to conversion., The embedded derivative liability associated with the conversion option of the note was bifurcated from the note and recorded at its fair value on the date of issuance and at each reporting date. Under the terms of the note, the Company is required to maintain 26,650,000 shares of their common stock in reserve for conversions. $40,930 of the note was converted as of December 31, 2015.</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; background-color: white">&#160;</p> <p style="font: 8pt Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">The note was not paid by its maturity date, and was in default. On December 13, 2017, JMJ Financial and the Company entered into a Repayment Agreement to pay back a balance of $84,514, which included the principal balance and accrued interest, per a set payment schedule. If the Company fails to pay the scheduled payments by their due date the agreement is terminated. A total of $25,000 has been paid through the date of this filing, with the final two scheduled payments not made by their due date. $72,014 is remaining outstanding on the note as of March 31, 2018.</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>&#160;</i></p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Revenue Based Factoring Agreements</i></p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">During the year ended December 31, 2015, the Company entered into two revenue-based factoring agreements for which the Company did not make the required payments, and the factor agreements went into default. On December 21, 2017 the Company entered into a Settlement agreement with Power Up under which Power Up has agreed to accept the sum of $90,000 in full satisfaction of outstanding obligation (Note 6). The settlement is to be paid in three installments of $30,000. The settlement has been paid in full as of May 15, 2018. The expected gain on settlement will be recognized during the second quarter of 2018, when the debt has been extinguished.</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"><i>Promissory Note Agreement</i></p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-indent: 0.5in">On August 31, 2017, Dragon Acquisitions, a related entity owned by William Delgado, and an individual lender entered into a Promissory Note agreement for $20,000 as well as $2,000 in interest to accrue through maturity on August 31, 2018 for a total of $22,000 due on August 31, 2018. Dragon Acquisition assumed payment of a payable of the Company and the Company took on the debt. As of March 31, 2018, the Company has accrued $1,000 of the interest.</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0"><i>Financing Agreement</i></p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">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&#8217;s lawsuit for damages against Grupo Rontan Metalurgica, S.A (the &#8220;Lawsuit&#8221;). 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. Through March 31, 2018, $300,000 has been received.</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify"><i>Demand Promissory Note Agreements</i></p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On December 23, 2017 (the &#8220;effective date&#8221;), the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with Vox Business Trust, LLC (the &#8220;Purchaser&#8221;.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018. The Company shall make mandatory prepayment in the following amounts and at the following times:</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$1,000 on the effective date.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$50,000 on the date on which discovery closes with respect to the lawsuit.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify; text-indent: 0.5in">On December 26, 2017, the Company entered into a $485,000, 7% interest rate, Demand Promissory Note with RLT Consulting, Inc (the &#8220;Purchaser&#8221;.) The note was in settlement of the amounts accrued under a consulting agreement (Note 6), consisting of $200,000 owed for retainer payments through December 2017, as well as $285,000 owed to the Purchaser when the Resolution Progress Funding was met on December 22, 2017. As part of the agreement, the Purchaser may not demand payment prior to the date of the Resolution Funding Date. The Company also agreed to grant 5,000,000 shares within 90 days of the Resolution Progress Funding Date and 10,000,000 shares within 90 days of the Resolution Funding Date. The 5,000,000 shares were issued on March 13, 2018 (as well as an additional 4,000,000 for further services). The Company shall make mandatory prepayment in the following amounts and at the following times:</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$1,000 on the effective date.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$50,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion to dismiss.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$50,000 on the date on which discovery closes with respect to the lawsuit.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellpadding="0" style="width: 100%"> <tr> <td style="vertical-align: top; width: 96px; padding-left: 0.5in; font: 11pt/107% Calibri, Helvetica, Sans-Serif"><font style="font: 8pt Times New Roman, Times, Serif">&#9679;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;&#160;</font></td> <td style="padding-top: 0.75pt; padding-right: 0.75pt; padding-left: 0.75pt; font: 11pt/107% Calibri, Helvetica, Sans-Serif; text-align: justify"><font style="font: 8pt Times New Roman, Times, Serif">$100,000 on the date on which the judge presiding over the lawsuit issues a ruling or decision in which the lawsuit survives a motion for summary judgement on the claims.</font></td></tr> </table> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0; text-align: justify">&#160;</p> <p style="font: 8pt/normal Times New Roman, Times, Serif; margin: 0">&#160;</p> <table cellspacing="0" cellpadding="0" style="font: 12pt Times New Roman, Times, Serif; width: 100%"> <tr style="vertical-align: bottom"> <td>&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>March 31, 2018</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td colspan="2" style="border-bottom: black 1pt solid; text-align: center"><font style="font-size: 8pt"><b>December 31, 2017</b></font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td style="width: 76%"><font style="font-size: 8pt">Jerry Gomolski</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="text-align: right; width: 9%"><font style="font-size: 8pt">25,000</font></td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="width: 1%">&#160;</td> <td style="text-align: right; width: 9%"><font style="font-size: 8pt">25,000</font></td> <td style="width: 1%">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Charter 804CS</font></td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">20,099</font></td> <td>&#160;</td> <td>&#160;</td> <td>&#160;</td> <td style="text-align: right"><font style="font-size: 8pt">20,099</font></td> <td>&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Gary Gray</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">12,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid">&#160;</td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">12,000</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> <tr style="vertical-align: bottom"> <td><font style="font-size: 8pt">Total</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">57,099</font></td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="padding-bottom: 1.5pt">&#160;</td> <td style="border-bottom: black 1pt solid"><font style="font-size: 8pt">$</font></td> <td style="border-bottom: black 1pt solid; text-align: right"><font style="font-size: 8pt">57,099</font></td> <td style="padding-bottom: 1.5pt">&#160;</td></tr> </table> EX-101.SCH 7 gdsi-20180331.xsd XBRL TAXONOMY EXTENSION SCHEMA 00000001 - Document - Document and Entity Information link:presentationLink link:calculationLink link:definitionLink 00000002 - Statement - CONSOLIDATED BALANCE SHEETS link:presentationLink link:calculationLink link:definitionLink 00000003 - Statement - CONSOLIDATED BALANCE SHEETS (Parenthetical) link:presentationLink link:calculationLink link:definitionLink 00000004 - Statement - CONSOLIDATED STATEMENTS OF OPERATIONS link:presentationLink link:calculationLink link:definitionLink 00000005 - Statement - CONSOLIDATED STATEMENTS OF CASH FLOWS link:presentationLink link:calculationLink link:definitionLink 00000006 - Disclosure - DESCRIPTION OF BUSINESS link:presentationLink link:calculationLink link:definitionLink 00000007 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES link:presentationLink link:calculationLink link:definitionLink 00000008 - Disclosure - ACCRUED EXPENSES link:presentationLink link:calculationLink link:definitionLink 00000009 - Disclosure - FAIR VALUE MEASUREMENTS link:presentationLink link:calculationLink link:definitionLink 00000010 - Disclosure - NOTE PAYABLE link:presentationLink link:calculationLink link:definitionLink 00000011 - Disclosure - COMMITMENTS AND CONTINGENCIES link:presentationLink link:calculationLink link:definitionLink 00000012 - Disclosure - RELATED PARTY TRANSACTIONS link:presentationLink link:calculationLink link:definitionLink 00000013 - Disclosure - STOCKHOLDERS’ DEFICIT link:presentationLink link:calculationLink link:definitionLink 00000014 - Disclosure - SUBSEQUENT EVENTS link:presentationLink link:calculationLink link:definitionLink 00000015 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) link:presentationLink link:calculationLink link:definitionLink 00000016 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) link:presentationLink link:calculationLink link:definitionLink 00000017 - Disclosure - ACCRUED EXPENSES (Tables) link:presentationLink link:calculationLink link:definitionLink 00000018 - Disclosure - FAIR VALUE MEASUREMENTS (Tables) link:presentationLink link:calculationLink link:definitionLink 00000019 - Disclosure - RELATED PARTY TRANSACTIONS (Tables) link:presentationLink link:calculationLink link:definitionLink 00000020 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) link:presentationLink link:calculationLink link:definitionLink 00000021 - Disclosure - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details Narrative) link:presentationLink link:calculationLink link:definitionLink 00000022 - Disclosure - ACCRUED EXPENSES (Details) link:presentationLink link:calculationLink link:definitionLink 00000023 - Disclosure - FAIR VALUE MEASUREMENTS (Details) link:presentationLink link:calculationLink link:definitionLink 00000024 - Disclosure - RELATED PARTY TRANSACTIONS (Details) link:presentationLink link:calculationLink link:definitionLink EX-101.CAL 8 gdsi-20180331_cal.xml XBRL TAXONOMY EXTENSION CALCULATION LINKBASE EX-101.DEF 9 gdsi-20180331_def.xml XBRL TAXONOMY EXTENSION DEFINITION LINKBASE EX-101.LAB 10 gdsi-20180331_lab.xml XBRL TAXONOMY EXTENSION LABEL LINKBASE Antidilutive Securities [Axis] Convertible Notes and Accrued Interest Stock Options Warrants Fair Value Hierarchy and NAV [Axis] Level 3 Preferred Stock Related Party [Axis] Jerry Gomolski Charter 804CS Gary Gray Document And Entity Information Entity Registrant Name Entity Central Index Key Document Type Document Period End Date Amendment Flag Current Fiscal Year End Date Is Entity a Well-known Seasoned Issuer? Is Entity a Voluntary Filer? Is Entity's Reporting Status Current? Entity Filer Category Entity Common Stock, Shares Outstanding Document Fiscal Period Focus Document Fiscal Year Focus Statement of Financial Position [Abstract] Assets Current Assets Cash Prepaid expenses Total current assets Total assets Liabilities and Stockholders' Deficit Current Liabilities Accounts payable Accrued expenses Convertible notes payable Notes payable Due to factor Due to officer Financed insurance policy Derivative liability Total current liabilities Total liabilities Commitments and Contingencies (Note 6) Stockholders’ deficit Preferred stock, $0.001 par value, 35,000,000 shares authorized, 1,000,000 issued and outstanding Common stock, $0.001 par value, 650,000,000 shares authorized, 55,459,905 and 530,806,571 shares issued and outstanding, as of March 31, 2018 and December 31, 2017, respectively Additional paid-in capital Accumulated deficit Total stockholders’ deficit Total liabilities and stockholders' deficit Preferred stock, par value Preferred stock, shares authorized Preferred stock, shares issued Preferred stock, shares outstanding Common stock, par value Common stock, shares authorized Common stock, shares issued Common stock, shares outstanding Income Statement [Abstract] Revenue Cost of revenue Gross profit Operating expenses Selling, general and administrative expenses Operating loss before other (income) expense Other (income) expense Change in fair value of derivative liability Interest expense Total other (income) expense Income (loss) from operations before provision for income taxes Provision for income taxes Benefit of net operating loss Net income (loss) Loss per common share - basic Weighted average common shares - basic Statement of Cash Flows [Abstract] Operating Activities Net income (loss) Adjustments to reconcile net income (loss) to net cash used in operating activities: Change in fair value of derivative liability Stock- based compensation Changes in operating assets and liabilities: Prepaid expenses Accounts payable Accrued expenses Due to officer Net cash used in operating activities Investing Activities Net cash provided by (used in) investing activities Financing Activities Payments on convertible notes Payments to factor Proceeds from sale of common stock Net cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of year Cash and cash equivalents at end of period Supplementary disclosure of cash flow information Cash paid during the year for: Interest Cash paid during the year for: Taxes Supplementary disclosure of non-cash investing and financing activities Reclassification of accrued interest with convertible notes payable upon settlement Reduction of derivative liability upon payment Description Of Business DESCRIPTION OF BUSINESS Summary Of Significant Accounting Policies SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Accrued Expenses ACCRUED EXPENSES Fair Value Measurements FAIR VALUE MEASUREMENTS Note Payable NOTE PAYABLE Commitments And Contingencies COMMITMENTS AND CONTINGENCIES Related Party Transactions [Abstract] RELATED PARTY TRANSACTIONS Stockholders' Equity Attributable to Parent [Abstract] STOCKHOLDERS’ DEFICIT Subsequent Events [Abstract] SUBSEQUENT EVENTS Summary Of Significant Accounting Policies Policies Going Concern Principles of Consolidation Basis of Presentation Fair Value of Financial Instruments Earnings (Loss) Per Share ("EPS") Use of Estimates Recent Accounting Pronouncements Summary Of Significant Accounting Policies Tables Securities excluded from the diluted per share calculation Accrued Expenses Tables Accrued expenses Fair Value Measurements Tables Activity of Level 3 liabilities Related Party Transactions Tables Compensation owed to related parties Statement [Table] Statement [Line Items]