Forward-Looking Statements
This
Annual Report on Form 10-K 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. Those 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 in the
section entitled “Risk Factors” set forth in this
Annual Report on Form 10-K for the fiscal year ended December 31,
2019, 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 by these forward-looking statements. These risks 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
operation;
●
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
Securities and Exchange Commission (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 Annual Report on Form 10-K 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.
Corporate History
We were
incorporated in New Jersey as Creative Beauty Supply, Inc.
(“Creative”) in August 1995. In March 2004, Creative
acquired Global Digital Solutions, Inc., a Delaware corporation.
The merger was treated as a recapitalization of Global Digital
Solutions, Inc., and Creative changed its name to Global Digital
Solutions, Inc. (“GDSI”). We are focused in the area of
cyber arms technology and complementary security and technology
solutions. On October 22, 2012, we entered into an Agreement of
Merger and Plan of Reorganization to acquire 70% of Airtronic USA,
Inc. (“Airtronic”), a then debtor in possession under
chapter 11 of the Bankruptcy Code once Airtronic successfully
reorganized and emerged from bankruptcy (the “Merger”).
During the period from October 2012 through November 2013, we were
actively involved in the day to day management of Airtronic pending
the completion of the Merger. The Merger did not occur and we
ceased involvement with Airtronic. In December 2012 we incorporated
GDSI Florida LLC (“GDSI FL”), a Florida limited
liability company. Except for the payment of administrative
expenses on behalf of the Company, GDSI FL has no business
operations. In January 2013, we incorporated Global Digital
Solutions, LLC, a Florida limited liability company. In November
2013, we incorporated GDSI Acquisition Corporation, a Delaware
corporation. On June 16, 2014, we acquired North American Custom
Specialty Vehicles, LLC, into GDSI Acquisition Corporation, and
changed the latter’s name to North American Custom Specialty
Vehicles, Inc. (“NACSV”). In July 2014, we announced
the formation of GDSI International (f/k/a Global Digital
Solutions, LLC) to spearhead our efforts overseas.
In
March of 2019, the Company acquired HarmAlarm (“HA”).
HA was formed in 2002 as a private Texas company to pursue Infrared
commercial applications in the aviation services area. HA has
developed a system known as Pilot Assisted Landing Systems (PALS).
The precision and robustness of PALS has generated a host of new
applications mainly through “landing trajectory”
optimization which provides additional safety margin against
weather related hazardous conditions, like wind shear, wake
turbulence, icing, as well as low ceilings and fog.
Business Overview
Global
Digital Solutions, Inc., is positioning itself as a leader in
providing comprehensive security and technology solutions. Since
May 1, 2012, we have been focusing on acquisitions of defense and
defense-related entities both in the United States and
abroad. On June 16, 2014, GDSI completed its acquisition of
North American Custom Specialty Vehicles (“NACSV”).
NACSV’s mobile emergency operations centers (MEOC) can be
tailored to the needs of Police, Fire, EMS, Military, Homeland
Security, National Guard, FBI, Air National Guard, Coast Guard,
Chemical/Petrochemical, Humanitarian Aid, NonGovernmental
Organizations, Drug Enforcement, Immigration & Customs, Bureau
of Alcohol, Tobacco, Firearms and Explosives, Water Management,
Wildlife Management, D.O.T. Engineering & Maintenance, Air
& Water Quality Management (EPA), Meteorological Seismic/Oil
& Gas Exploration, IS/Mapping Power Generation (Nuclear &
Conventional), Power Transmission, and Strategic Infrastructure
Security. The company has already built customized vehicles for
customers involved in one or more of the above categories, and we
see many opportunities to improve NACSV and its products and
services through the integration of additional software, hardware,
and firmware technologies.
We are
a holding company focused on the acquisition of companies in the
security and specialty vehicles and services marketplace segments.
We intend to pursue these identified segments in order to expand
the Company through strategic acquisitions and the controlled
internal growth of such acquisitions. Since the filing of our Form
10-K for the year ending 2016, as filed with the Securities &
Exchange Commission (“SEC”) on June 18, 2018, we have
been delinquent in filing of our financial reports with the SEC
pursuant to The Securities Exchange Act of 1934 (the
“Exchange Act”). Since that time, the focus of our
business has evolved, and the below discussion is intended to show
the chronology since that time to the date of the filing of this
report.
History of Business – December 31, 2016 to
Present
On May
13, 2016, as more fully discussed below, we appointed William
Delgado as our Chief Executive Officer (“CEO”) and
Chairman of our Board of Directors.-Mr. Delgado was serving at that
time as a director and our Executive Vice President in charge of
business development. He served as our President, Chief Executive
Officer, and Chief Financial Officer from August 2004 to August
2013. Mr. Delgado began his career with Pacific Telephone in the
Outside Plant Construction. He moved to the network engineering
group and concluded his career at Pacific Bell as the Chief Budget
Analyst for the Northern California region. Mr. Delgado founded All
Star Telecom in late 1991, specializing in OSP construction and
engineering and systems cabling. All Star Telecom was sold to
International Fiber Com in April of 1999. After leaving
International Fiber Com in 2002, Mr. Delgado became President/CEO
of Pacific Comtel in San Diego, California. After we acquired
Pacific Comtel in 2004, he became part of our management and held
the positions of Director, CEO, President, and CFO.
Events Since December 31, 2016:
The
following events have occurred since December 31,
2016:
Share Purchase and Sale Agreement for Acquisition of Grupo Rontan
Electro Metalurgica, S.A.
Effective October
13, 2015, the Company (as “Purchaser”) entered into the
SPSA dated October 8, 2015 with Joao Alberto Bolzan and Jose Carlos
Bolzan, both Brazilian residents (collectively, the
“Sellers”), and Grupo Rontan Electro Metalurgica, S.A.,
a limited liability company duly organized and existing under the
laws of Federative Republic of Brazil (“Rontan”)
(collectively, the “Parties”), pursuant to which the
Sellers agreed to sell 100% of the issued and outstanding shares of
Rontan to the Purchaser on the closing date (the “Rontan
Transaction”).
The
purchase price consisted of a cash amount, a stock amount and an
earn-out amount as follows: (i) Brazilian Real (“R”)
$100 million (approximately US$26 million) to be paid by the
Purchaser in equal monthly installments over a period of forty
eight (48) months following the closing date; (ii) an aggregate of
R$100 million (approximately US$26 million) in shares of the
Purchaser’s common stock, valued at US$1.00 per share; and
(iii) an earn-out payable within ten business days following
receipt by the Purchaser of Rontan’s audited financial
statements for the 12-months ended December 31, 2017, 2018 and
2019. The earn-out shall be equal to the product of (i)
Rontan’s earnings before interest, taxes, depreciation and
amortization (“EBITDA”) for the last 12 months, and
(ii) twenty percent and is contingent upon Rontan’s EBITDA
results for any earn-out period being at least 125% of
Rontan’s EBITDA for the 12-months ended December 31, 2015. It
is the intention of the parties that the stock amount will be used
by Rontan to repay institutional debt outstanding as of the closing
date.
Under
the terms of a finder’s fee Agreement dated April 14, 2014,
we have agreed to pay RLT Consulting, Inc., a related party, a fee
of 2% (two percent) of the transaction value, as defined in the
agreement, of Rontan upon closing. The fee is payable one half in
cash and one half in shares of our common stock. Specific
conditions to closing include, but are not limited to:
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 party’s 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.
The
Institutional Investor has committed to invest sufficient capital
to facilitate the transaction, subject to receipt of the Opinion,
among other conditions. Subject to satisfaction or waiver of the
conditions precedent provided for in the SPSA, the closing date of
the transaction shall take place within 10 business days from the
date of issuance of the Opinion. Rontan is engaged in the
manufacture and distribution of specialty vehicles and
acoustic/visual signaling equipment for the industrial and
automotive markets.
On
April 1, 2016, we believed that we had satisfied or otherwise
waived the conditions to closing (as disclosed under the SPSA, the
closing was subject to specific conditions, which were waivable by
us), and on April 1, 2016, we advised the Sellers of our intention
to close the SPSA and demanded delivery of the Rontan Securities.
The Sellers, however, notified us that they intend to terminate the
SPSA. We believe that the Sellers had no right to terminate the
SPSA and that notice of termination by the Sellers was not
permitted under the terms of the SPSA.
Change in Independent Accounting Firm
Effective July 13,
2017, our Board of Directors dismissed the auditing firm of PMB
Helin Donovan and subsequently engaged Turner Stone and Company,
Dallas, TX. We had no issues relating to the performance of the PMB
Helin Donovan audits or any disagreements with their accounting
practices and decisions.
Settlements of Certain Liabilities
On
August 30, 2017, we announced that we had reached tentative
agreements with three creditors for repayment of liabilities and/or
claims totaling approximately $491,574 as of August 15, 2017. This
settlement included amounts due under the factoring agreements
discussed above during the period from August 30, 2017, to December
31, 2018. We paid approximately $193,514 to settle these
liabilities and/or claims.
On
August 30, 2017, we finalized the settlement agreement reached
between the parties regarding the litigation between John Ramsay,
Carl Dekle, The Estate of Brian Dekle and us and NACSV,
collectively, which had been previously disclosed in our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2015. We
made a payment of $20,000 in connection with the
settlement.
Acquisition of HarmAlarm
In
March of 2019, the Company acquired HarmAlarm. HA was formed in
2002 as a private Texas company to pursue Infrared commercial
applications in the aviation services area. HA has developed a
system known as Pilot Assisted Landing Systems (PALS). The
precision and robustness of PALS has generated a host of new
applications mainly through “landing trajectory”
optimization which provides additional safety margin against
weather related hazardous conditions, like wind shear, wake
turbulence, icing, as well as low ceilings and fog.
Liquidity
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 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.
Business Strategy – As of the Date of This
Filing
As of the date of this filing, the company's main line of business
is the development of proprietary aviation technology involving its
May acquisition of Harm Alarm. It is also looking to develop an
automotive technology company currently in Brazil. The Company has
been in litigation concerning Rontan Metallurgica in Sao Paulo,
Brazil and has been awarded a default judgment regarding the
acquisition of the company. The company is currently awaiting final
damages in the case.
Target Markets, Sales and Marketing
Our
target market will be primarily in North America, with a
concentration in the USA and Canada. We expect that sales and
marketing will use the company’s existing strategies,
augmented by a sales force developed by the parent company in
conjunction with the acquired subsidiary.
Competition
The
Company is and will continue to be an insignificant participant in
the business of seeking mergers with, joint ventures with, and
acquisitions of other entities. A large number of established and
well-financed entities, including venture capital firms, private
equity firms, and family offices, are active in mergers and
acquisitions of companies that may be desirable target candidates
for the Company. Nearly all such entities have significantly
greater financial resources, technical expertise, and managerial
capabilities than the Company, and, consequently, the Company will
be at a competitive disadvantage in identifying possible business
opportunities and successfully completing a business combination.
Moreover, the Company will also compete in seeking merger or
acquisition candidates with numerous other small public
companies.
Research and Development
______We
have not incurred any research and development
expense.
Intellectual Property
_____We
currently do not have any intellectual property.
Government Approvals and Regulations
We do
not expect to encounter any significant governmental approval or
regulation issues, as we do not intend to monopolize any target
business areas. We do expect to be subject to the traditional
government regulation related to business licenses, foreign
corporation rules, etc.
Subsidiaries
___
We currently have three subsidiaries including GDSI Florida, LLC,
North American Custom Specialty Vehicles, Inc. and
HarmAlarm.
Employees
As
of December 31, 2019, we had 2 full-time employee, William Delgado
and Jerome Gomolski, and 0 part-time employees. We intend to hire
additional staff and to engage consultants in general
administration on an as-needed basis. We also intend to engage
experts in operations, finance, and general business to advise us
in various capacities. None of our employees are covered by a
collective bargaining agreement, and we believe our relationship
with our employees is good to excellent.
Our
future success depends, in part, on our ability to continue to
attract, retain, and motivate highly qualified technical,
marketing, and management personnel and, as of the end of the
period covered by this report and as of the date of filing, we
continue to rely on the services of independent contractors for
much of our sales/marketing. We believe technical, accounting, and
other functions are also critical to our continued and future
success.
You
should carefully consider the risks described below together with
all of the other information included in our public filings before
making an investment decision with regard to our securities. The
statements contained in or incorporated into this document that are
not historic facts are forward-looking statements that are subject
to risks and uncertainties. If any of the following events
described in these risk factors actually occurs, our business,
financial condition, or results of operations could be harmed. In
that case, the trading price of our common stock could decline, and
you may lose all or part of your investment. Moreover, additional
risks not currently known to us or that we currently deem less
significant may also impact our business, financial condition, or
results of operations, perhaps materially. For additional
information regarding risk factors, see Item 1 –
“Forward-Looking Statements.”
Risks Related to Our Company
There
is substantial doubt about our ability to continue as a going
concern.
We have
not generated any profit from combined operations since our
inception. We expect that our operating expenses will increase over
the next twelve months to continue our development activities.
Based on our average monthly expenses and current burn rate of
$20,032 per month, we estimate that our cash on hand will not be
able to support our operations through the balance of this calendar
year. This amount could increase if we encounter difficulties that
we cannot anticipate at this time or if we acquire other
businesses. On February 2, 2018, we announced that we had secured
$1.2 million in a non-convertible financing from a New York-based
institution. The agreement was amended on December 12, 2019 and the
Company received an additional $650,000 of funding from the same
New York-based institution. Should this amount not be sufficient to
support our continuing operations, we do not expect to be able to
raise any additional capital through debt financing from
traditional lending sources since we are not currently generating a
profit from operations. Therefore, we only expect to raise money
through equity financing via the sale of our common stock or
equity-linked securities such as convertible debt. If we cannot
raise the money that we need in order to continue to operate our
business beyond the period indicated above, we will be forced to
delay, scale back or eliminate some or all of our proposed
operations. If any of these were to occur, there is a substantial
risk that our business would fail. If we are unsuccessful in
raising additional financing, we may need to curtail, discontinue,
or cease operations.
We
have limited operating history with our operating subsidiary, and
as a result, we may experience losses and cannot assure you that we
will be profitable.
We have
a limited operating history with our single operating subsidiary,
NACSV, on which to evaluate our business. Our operations are
subject to all of the risks inherent in the establishment and
expansion of a business enterprise. Accordingly, the likelihood of
our success must be considered in the light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with the starting and expansion of a
business and the relatively competitive environment in which we
operate. Unanticipated delays, expenses, and other problems such as
setbacks in product development, product manufacturing, and market
acceptance are frequently encountered in establishing a business
such as ours. There can be no assurance that the Company will be
successful in addressing such risks, and any failure to do so could
have a material adverse effect on the Company's business, results
of operations, and financial condition.
Because
of our limited operating history with our operating subsidiary, we
have limited historical financial data on which to base planned
operating expenses. Accordingly, our expense levels, which are, to
a large extent, variable, will be based in part on our expectations
of future revenues. As a result of the variable nature of many of
our expenses, we may be unable to adjust spending in a timely
manner to compensate for any unexpected delays in the development
and marketing of our products or any subsequent revenue shortfall.
Any such delays or shortfalls will have an immediate adverse impact
on our business, operating results, and financial
condition.
We have
not achieved profitability on a quarterly or annual basis to date.
To the extent that net revenue does not grow at anticipated rates
or that increases in our operating expenses precede or are not
subsequently followed by commensurate increases in net revenue, or
that we are unable to adjust operating expense levels accordingly,
our business, results of operations, and financial condition will
be materially and adversely affected. There can be no assurance
that our operating losses will not increase in the future or that
we will ever achieve or sustain profitability.
No
Assurance of Sustainable Revenues.
There
can be no assurance that our subsidiaries will generate sufficient
and sustainable revenues to enable us to operate at profitable
levels or to generate positive cash flow. As a result of our
limited operating history and the nature of the markets in which we
compete, we may not be able to accurately predict our revenues. Any
failure by us to accurately make such predictions could have a
material adverse effect on our business, results of operations, and
financial condition. Further, our current and future expense levels
are based largely on our investment plans and estimates of future
revenues. We expect operating results to fluctuate significantly in
the future as a result of a variety of factors, many of which are
outside of our control. Factors that may adversely affect our
operating results include, among others, demand for our products
and services, the budgeting cycles of potential customers, lack of
enforcement of or changes in governmental regulations or laws, the
amount and timing of capital expenditures and other costs relating
to the expansion of our operations, the introduction of new or
enhanced products and services by us or our competitors, the timing
and number of new hires, changes in our pricing policy or those of
our competitors, the mix of our products, increases in the cost of
raw materials, technical difficulties with the products, incurrence
of costs relating to future acquisitions, general economic
conditions, and market acceptance of our products. As a strategic
response to changes in the competitive environment, we may, from
time to time, make certain decisions regarding pricing, service,
marketing or business combinations that could have a material
adverse effect on our business, results of operations, and
financial condition. Any seasonality is likely to cause quarterly
fluctuations in our operating results, and there can be no
assurance that such patterns will not have a material adverse
effect on our business, results of operations, and financial
condition. We may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall.
We
may need to raise additional funds in the future that may not be
available on acceptable terms or available at all.
We may
consider issuing additional debt or equity securities in the future
to fund our business plan, for potential investment acquisitions,
or general corporate purposes. If we issue equity or convertible
debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences, and privileges senior to
those of our existing stockholders. If we incur additional debt, it
may increase our leverage relative to our earnings or to our equity
capitalization, requiring us to pay additional interest expenses.
We may not be able to obtain financing on favorable terms, or at
all, in which case, we may not be able to develop or enhance our
products, execute our business plan, take advantage of future
opportunities, or respond to competitive pressures.
While
a major part of our business strategy is to pursue strategic
acquisitions, we may not be able to identify businesses for which
we can obtain necessary financing to acquire on acceptable terms,
face risks due to additional indebtedness, and our acquisition
strategy may incur significant costs or expose us to substantial
risks inherent in the acquired business’s
operations.
Our
strategy of pursuing strategic acquisitions may be negatively
impacted by several risks, including the following:
●
We may
not successfully identify companies that have complementary product
lines or technological competencies or that can diversify our
revenue or enhance our ability to implement our business
strategy;
●
We may
not successfully acquire companies if we fail to obtain financing,
if we fail to negotiate the acquisition on acceptable terms, or for
other related reasons.
●
We may
incur additional expenses due to acquisition due diligence,
including legal, accounting, consulting, and other professional
fees and disbursements. Such additional expenses may be material,
will likely not be reimbursed, and would increase the aggregate
cost of any acquisition.
●
Any
acquired business will expose us to the acquired company’s
liabilities and to risks inherent to its industry, and we may not
be able to ascertain or assess all of the significant
risks.
●
We may
require additional financing in connection with any future
acquisition, and such financing may adversely impact, or be
restricted by, our capital structure.
●
Achieving
the anticipated potential benefits of a strategic acquisition will
depend in part on the successful integration of the operations,
administrative infrastructures, and personnel of the acquired
company or companies in a timely and efficient manner. Some of the
challenges involved in such an integration include: (i)
demonstrating to the customers of the acquired company that the
consolidation will not result in adverse changes in quality,
customer service standards, or business focus; (ii) preserving
important relationships of the acquired company; (iii) coordinating
sales and marketing efforts to effectively communicate the expanded
capabilities of the combined company; and (iv) coordinating the
supply chains.
Any
future acquisitions could disrupt business.
If we
are successful in consummating acquisitions, those acquisitions
could subject us to a number of risks, including that:
●
the
purchase price we pay could significantly deplete our cash reserves
or result in dilution to our existing stockholders;
●
we may
find that the acquired company or assets do not improve our
customer offerings or market position as planned;
●
we may
have difficulty integrating the operations and personnel of the
acquired company;
●
key
personnel and customers of the acquired company may terminate their
relationships with the acquired company as a result of the
acquisition;
●
we may
experience additional financial and accounting challenges and
complexities in areas such as tax planning and financial
reporting;
●
we may
assume or be held liable for risks and liabilities as a result of
our acquisitions, some of which we may not discover during our due
diligence or adequately adjust for in our acquisition
arrangements;
●
we may
incur one-time write-offs or restructuring charges in connection
with the acquisition;
●
we may
acquire goodwill and other intangible assets that are subject to
amortization or impairment tests, which could result in future
charges to earnings; and
●
we may
not be able to realize the cost savings or other financial benefits
we anticipated.
These
factors could have a material adverse effect on our business,
financial condition, and operating results.
Our business is at risk if we lose key personnel or are unable to
attract and integrate additional skilled personnel.
The
success of our business depends, in large part, on the skill of our
personnel. Accordingly, it is critical that we maintain and
continue to build a highly experienced management team and
specialized workforce, including engineers, experts in project
management and business development, and sales professionals.
Competition for personnel, particularly those with expertise in the
specialty vehicle industry and, as we expect, in the industries of
any future acquisition targets, is high, and identifying candidates
with the appropriate qualifications can be difficult. We may not be
able to hire the necessary personnel to implement our business
strategy given our anticipated hiring needs, or we may need to
provide higher compensation or more training to our personnel than
we currently anticipate.
In the
event, we are unable to attract, hire and retain the requisite
personnel and subcontractors, we may experience delays in growing
our business plan in accordance with project schedules and budgets,
which may have an adverse effect on our financial results, harm our
reputation and cause us to curtail our pursuit of new initiatives.
Further, any increase in demand for personnel and specialty
subcontractors may result in higher costs, causing us to exceed the
budget on a project, which in turn may have an adverse effect on
our business, financial condition and operating results and harm
our relationships with our customers.
Our
future success is particularly dependent on the vision, skills,
experience and effort of our senior management team, including our
president and chief executive officer. If we were to lose the
services of our president and chief executive officer or any of our
key employees, our ability to effectively manage our operations and
implement our strategy could be harmed and our business may
suffer.
We may not be able to protect intellectual property that we hope to
acquire, which could adversely affect our business.
The
companies that we hope to acquire may rely on patent, trademark,
trade secret, and copyright protection to protect their technology.
We believe that technological leadership can be achieved through
additional factors such as the technological and creative skills of
our personnel, new product developments, frequent product
enhancements, name recognition, and reliable product maintenance.
Nevertheless, our ability to compete effectively depends in part on
our ability to develop and maintain proprietary aspects of our
technology, such as patents. We may not secure future patents; and
patents that we may secure may become invalid or may not provide
meaningful protection for our product innovations. In addition, the
laws of some foreign countries do not protect intellectual property
rights to the same extent as the United States. Furthermore, there
can be no assurance that competitors will not independently develop
similar products, "reverse engineer" our products, or, if patents
are issued to us, design around such patents. We also expect to
rely upon a combination of copyright, trademark, trade secret, and
other intellectual property laws to protect our proprietary rights
by entering into confidentiality agreements with our employees,
consultants, and vendors, and by controlling access to and
distribution of our technology, documentation and other proprietary
information. There can be no assurance, however, that the steps to
be taken by us will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide a
competitive advantage to us. Any such circumstance could have a
material adverse effect on our business, financial condition and
results of operations. While we are not currently engaged in any
intellectual property litigation or proceedings, there can be no
assurance that we will not become so involved in the future or that
our products do not infringe any intellectual property or other
proprietary right of any third party. Such litigation could result
in substantial costs, the diversion of resources and personnel, and
significant liabilities to third parties, any of which could have a
material adverse effect on our business.
We
may not be able to protect our trade names and domain
names.
We may
not be able to protect our trade names and domain names against all
infringers, which could decrease the value of our brand name and
proprietary rights. We currently hold the Internet domain names
"www.gdsi.co" and “www.nacsvehicles.com,” and we use
“GDSI” and “NACS Vehicles” as trade names.
Domain names generally are regulated by Internet regulatory bodies
are subject to change, and in some cases, may be superseded, in
some cases by laws, rules and regulations governing the
registration of trade names and trademarks with the United States
Patent and Trademark Office as well as ascertain other common law
rights. If the domain registrars are changed, if new ones are
created, or if we are deemed to be infringing upon another's trade
name or trademark, we may be unable to prevent third parties from
acquiring or using, as the case may be, our domain name, trade
names or trademarks, which could adversely affect our brand name
and other proprietary rights.
We
may be subject to liability claims for damages and other expenses
not covered by insurance that could reduce our earnings and cash
flows.
Our
business, profitability, and growth prospects could suffer if we
pay damages or defense costs in connection with a liability claim
that is outside the scope of any applicable insurance coverage. We
intend to maintain, but do not yet have, general and product
liability insurance. There is no assurance that we will be able to
obtain insurance in amounts, or for a price, that will permit us to
purchase desired amounts of insurance. Additionally, if our costs
of insurance and claims increase, then our earnings could decline.
Further, market rates for insurance premiums and deductibles have
been steadily increasing, which may prevent us from being
adequately insured. A product liability or negligence action in
excess of insurance coverage could harm our profitability and
liquidity.
Insurance and contractual protections may not always cover lost
revenue.
We
possess insurance and warranties from suppliers, and our
subcontractors make contractual obligations to meet certain
performance levels. We also attempt, where feasible, to pass risks
we cannot control to our customers. The proceeds of such insurance,
warranties, performance guarantees, and risk-sharing arrangements
may not be adequate to cover lost revenue, increased expenses, or
liquidated damages payments that may be required in the
future.
We
currently carry customary insurance for business liability. For our
work as a general contractor, we carry workers comp insurance for
our employees, and we have performance bonding insurance. Certain
losses of a catastrophic nature, such as from floods, tornadoes,
thunderstorms, and earthquakes, are uninsurable or not economically
insurable. Such “Acts of God,” work stoppages,
regulatory actions, or other causes, could interrupt operations and
adversely affect our business.
We
rely on outside consultants and employees.
We will
rely on the experience of outside consultants and employees. In the
event that one or more of these consultants or employees terminates
employment with the Company, or becomes unavailable, suitable
replacements will need to be retained, and there is no assurance
that such employees or consultants could be identified under
conditions favorable to us.
Our financial and operating performance is adversely affected by
the coronavirus pandemic.
The
recent outbreak of a strain of coronavirus (COVID-19) in the U.S.
has had an unfavorable impact on our business
operations. Mandatory closures of businesses imposed by
the federal, state and local governments to control the spread of
the virus is disrupting the operations of our management, business
and finance teams. In addition, the COVID-19 outbreak has adversely
affected the U.S. economy and financial markets, which may result
in a long-term economic downturn that could negatively affect
future performance. The extent to which COVID-19 will
impact our business and our consolidated financial results will
depend on future developments which are highly uncertain and cannot
be predicted at the time of the filing of this Form 10-K, but is
expected to result in a material adverse impact on our business,
results of operations and financial
condition.
Risks Related to NACSV’s Business
We
may face strong competition from larger, established
companies.
We
likely will face intense competition from other companies that
provide the same or similar custom specialty vehicle manufacturing
and other services that compete with acquired businesses, virtually
all of which can be expected to have longer operating histories,
greater name recognition, larger installed customer bases, and
significantly more financial resources, R&D facilities, and
manufacturing and marketing experience than we have. There can be
no assurance that developments by our potential competitors will
not render our existing and future products or services obsolete.
In addition, we expect to face competition from new entrants into
the custom specialty vehicle business. As the demand for products
and services grows and new markets are exploited, we expect that
competition will become more intense, as current and future
competitors begin to offer an increasing number of diversified
products and services. We may not have sufficient resources to
maintain our research and development, marketing, sales, and
customer support efforts on a competitive basis. Additionally, we
may not be able to make the technological advances necessary to
maintain a competitive advantage with respect to our products and
services. Increased competition could result in price reductions,
fewer product orders, obsolete technology, and reduced operating
margins, any of which could materially and adversely affect our
business, financial condition, and results of
operations.
If
we are unable to keep up with technological developments, our
business could be negatively affected.
The
markets for our products and services are expected to be
characterized by rapid technological change and be highly
competitive with respect to timely innovations. Accordingly, we
believe that our ability to succeed in the sale of our products and
services will depend significantly upon the technological quality
of our products and services relative to those of our competitors,
and upon our ability to continue to develop and introduce new and
enhanced products and services at competitive prices and in a
timely and cost-effective manner. In order to develop such new
products and services, we will depend upon close relationships with
existing customers and our ability to continue to develop and
introduce new and enhanced products and services at competitive
prices and in a timely and cost-effective manner. There can be no
assurance that we will be able to develop and market our products
and services successfully or respond effectively to the
technological changes or new product and service offerings of our
potential competitors. We may not be able to develop the required
technologies, products, and services on a cost-effective and timely
basis, and any inability to do so could have a material adverse
effect on our business, financial condition, and results of
operations.
We
operate in a highly competitive industry and competitors may
compete more effectively.
The
industries in which we operate are highly competitive, with many
companies of varying size and business models, many of which have
their own proprietary technologies, competing for the same business
as we do. Many of our competitors have longer operating histories
and greater resources than us, and they could use their substantial
financial resources to develop a competing business model, develop
products or services that are more attractive to potential
customers than those we offer, or convince our potential customers
that they require financing arrangements that are impractical for
smaller companies to offer. Our competitors may also offer similar
products and services at prices below cost, devote significant
sales forces to competing with us, or attempt to recruit our key
personnel by increasing compensation, any of which could improve
their competitive positions. Any of these competitive factors could
make it more difficult for us to attract and retain customers,
cause us to lower our prices in order to compete or reduce our
market share and revenue, any of which could have a material
adverse effect on our financial condition and operating results. We
can provide no assurance that we will continue to compete
effectively against our current competitors or additional companies
that may enter our markets. We also expect to encounter competition
from customers who elect to develop solutions or perform services
internally rather than engaging an outside provider such as
us.
Operating
results may fluctuate and may fall below expectations in any fiscal
quarter.
Our
operating results are difficult to predict and are expected to
fluctuate from quarter to quarter due to a variety of factors, many
of which are outside of our control. As a result, comparing our
operating results on a period-to-period basis may not be
meaningful, and investors should not rely on our past results or on
predictions prepared by the Company to determine future
performance. If our revenue or operating results fall in any
period, the value of our common stock would likely
decline.
Risks Related to Our Financial Condition
Dependence
on financing and losses for the foreseeable future.
Our
independent registered public accounting firm has issued its audit
opinion on our consolidated financial statements appearing in this
Annual Report on Form 10-K, including an explanatory paragraph as
to substantial doubt with respect to our ability to continue as a
going concern. The accompanying consolidated financial statements
have been prepared in conformity with accounting principles
generally accepted in the United States of America, assuming we
will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. For the fiscal year ended December 31, 2019,
our net loss was $3,292,522 As of December 31, 2019, we had an
accumulated deficit of $38,954,344and a working capital deficit of
$6,183,788. These factors raise substantial doubt about our ability
to continue as a going concern which is dependent on our ability to
raise the required additional capital or debt financing to meet
short- and long-term operating requirements. We may also encounter
business endeavors that require significant cash commitments or
unanticipated problems or expenses that could result in a need for
additional cash. If we raise additional funds through the issuance
of equity or convertible debt securities, the percentage ownership
of our current shareholders could be reduced, and such securities
might have rights, preferences, or privileges senior to our common
stock. Additional financing may not be available upon acceptable
terms, or available at all. If adequate funds are not available on
acceptable terms, we may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict our operations. If we are
unable to obtain necessary capital, we may have to cease
operations. For additional information, see Item 7 –
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – “Going
Concern.”
Dependence
on financing and losses for the foreseeable future
As of December 31, 2019, we had current
liabilities of $6,683,190 and current assets of $499,402. We had a
working capital deficiency of $6,183,788 Our ability to continue as
a going concern is dependent upon raising capital from financing
transactions. To stay in business, we will need to raise additional
capital through public or private sales of our securities or debt
financing. In the past, we have financed our operations by issuing
secured and unsecured convertible debt and equity securities in
private placements, in some cases with equity incentives for the
investor in the form of warrants to purchase our common stock, and
we have borrowed from related parties. We have sought, and will
continue to seek, various sources of financing. On February 2,
2018, we announced that we had secured $1.2 million in a
non-convertible financing from a New York-based institution.
The agreement was amended on December 12, 2019 and the Company
received an additional $650,000 of funding from the same New
York-based institution. There are no
additional commitments from anyone to provide us with financing. We
can provide no assurance as to whether our capital raising efforts
will be successful or as to when, or if, we will be profitable in
the future. Even if the Company achieves profitability, it may not
be able to sustain such profitability. If we are unable to obtain
financing or achieve and sustain profitability, we may have to
suspend operations or sell assets, making us unable to execute our
business plan. Failure to become and remain profitable may
adversely affect the market price of our common stock and our
ability to raise capital and continue
operations.
Our
ability to generate positive cash flows is uncertain.
To
develop and expand our business, we will need to make significant
up-front investments in our manufacturing capacity and incur
research and development, sales and marketing, and general and
administrative expenses. In addition, our growth will require a
significant investment in working capital. Our business will
require significant amounts of working capital to meet our project
requirements and support our growth. We cannot provide any
assurance that we will be able to raise the capital necessary to
meet these requirements. If adequate funds are not available or are
not available on satisfactory terms, we may be required to
significantly curtail our operations and may not be able to fund
our current production requirements, let alone fund expansion, take
advantage of unanticipated acquisition opportunities, develop or
enhance our products, and respond to competitive pressures. Any
failure to obtain such additional financing could have a material
adverse effect on our business, results of operations, and
financial condition.
Because
we may never have net income from our operations, our business may
fail.
We have
no history of profitability from operations. There can be no
assurance that we will ever operate profitably. Our success is
significantly dependent on uncertain events, including successful
developing our products, establishing satisfactory manufacturing
arrangements and processes, and distributing and selling our
products. If we are unable to generate significant revenues from
sales of our products, we will not be able to earn profits or
continue operations. We can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are
unsuccessful in addressing these risks, our business will fail, and
investors may lose all of their investment in our
Company.
We
need to raise additional funds, and such funds may not be available
on acceptable terms.
We may
consider issuing additional debt or equity securities in the future
to fund our business plan, for general corporate purposes or for
potential acquisitions or investments. If we issue equity or
convertible debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences, and privileges senior to
those of our existing stockholders. If we incur additional debt, it
may increase our leverage relative to our earnings or to our equity
capitalization, requiring us to pay additional interest expenses.
We may not be able to obtain financing on favorable terms, in which
case, we may not be able to develop or enhance our products,
execute our business plan, take advantage of future opportunities,
or respond to competitive pressures.
Risks Related to Our Common Stock and Its Market Value
We
have limited capitalization and may require financing, which may
not be available.
We have
limited capitalization, which increases our vulnerability to
general adverse economic and industry conditions, limits our
flexibility in planning for and reacting to changes in our business
and industry, and may place us at a competitive disadvantage to
competitors with sufficient capitalization. If we are unable to
obtain sufficient financing on satisfactory terms and conditions,
we will be forced to curtail or abandon our plans or operations.
Our ability to obtain financing will depend upon a number of
factors, many of which are beyond our control.
A
limited public trading market exists for our common stock, which
makes it difficult for our stockholders to sell their common stock
on the public markets. Any trading in our shares may have a
significant effect on our stock prices.
Although our common
stock is listed for quotation on the OTC Marketplace, Pink Tier,
under the symbol “GDSI,” the trading activity of our
common stock is volatile and may not develop or be sustained. As a
result, any trading price of our common stock may not be an
accurate indicator of the valuation of our common stock. Any
trading in our shares could have a significant effect on our stock
price. If a more liquid public market for our common stock does not
develop, then investors may not be able to resell the shares of our
common stock that they have purchased and may lose all of their
investment. No assurance can be given that an active market will
develop or that a stockholder will ever be able to liquidate its
shares of common stock without considerable delay, if at all. Many
brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to affect a
transaction in our securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling
costs may exceed the selling price. Furthermore, our stock price
may be impacted by factors that are unrelated or disproportionate
to our operating performance. These market fluctuations, as well as
general economic, political, and market conditions, such as
recessions, interest rates, and international currency
fluctuations, may adversely affect the market price and liquidity
of our common stock.
Our
stock price has undergone a great deal of volatility, including a
significant decrease over the past few years. The volatility may
mean that, at times, our stockholders may be unable to resell their
shares at or above the price at which they acquired
them.
From
January 1, 2018 through the date of this report, the price per
share of our common stock has ranged from a high of $0.020 to a low
of $0.0055. The price of our common stock has been, and may
continue to be, highly volatile and subject to wide fluctuations.
The market value of our common stock has declined in the past, due
in part to our operating performance and to conversions of dilutive
debt instruments that we have issued to fund operations. In the
future, broad market and industry factors may decrease the market
price of our common stock, regardless of our actual operating
performance. Recent declines in the market price of our common
stock have and could continue to affect our access to capital, and
may, if they continue, impact our ability to continue operations at
the current level. In addition, any continuation of the recent
declines in the price of our common stock may curtail investment
opportunities presented to us and negatively impact other aspects
of our business, including our ability to fund our operations. As a
result of any such declines, many stockholders have been or may
become unable to resell their shares at or above the price at which
they acquired them.
The
volatility of the market price of our common stock could fluctuate
widely in price in response to various factors, many of which are
beyond our control, including the following:
●
our
stock being held by a small number of persons whose sales (or lack
of sales) could result in positive or negative pricing pressure on
the market price for our common stock;
●
actual
or anticipated variations in our quarterly operating
results;
●
changes
in our earnings estimates;
●
our
ability to obtain adequate working capital financing;
●
changes
in market valuations of similar companies;
●
publication
(or lack of publication) of research reports about us;
●
changes
in applicable laws or regulations, court rulings, enforcement, and
legal actions;
●
loss of
any strategic relationships;
●
additions
or departures of key management personnel;
●
actions
by our stockholders (including transactions in our
shares);
●
speculation
in the press or investment community;
●
increases
in market interest rates, which may increase our cost of
capital;
●
changes
in our industry;
●
competitive
pricing pressures;
●
our
ability to execute our business plan; and
●
economic
and other external factors.
In
addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market
fluctuations may also materially and adversely affect the market
price of our common stock.
Our
common stock may never be listed on a national exchange and is
subject to being removed from the OTC Pink
Marketplace.
Our
common stock is quoted for trading on the OTC Pink Marketplace
(“OTC Pink”). 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, and 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. In the event that we
are able to file the required reports with the SEC to be current
under the Exchange Act of 1934 (the “Exchange Act”), we
still will be unable to list our stock on the OTCQB since the price
of our stock is below $0.01, and we do not meet the eligibility
standards for listing under the OTCQB per OTC Markets guidelines.
Should we continue to fail to satisfy the eligibility standards of
OTC Markets for the OTCQB, the trading price of our common stock
could continue to suffer and the trading market for our common
stock may be less liquid and our common stock price may be subject
to increased volatility.
Our
stock is categorized as a penny stock. Trading of our stock may be
restricted by the SEC’s penny stock regulations which may
limit a stockholder’s ability to buy and sell our
stock.
Our
stock is categorized as a “penny stock”, as that term
is defined in SEC Rule 3a51-1, which generally provides that a
“penny stock”, is any equity security that has a market
price (as defined) less than US$5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules,
including Rule 15g-9, which imposes additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC
which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or
with the customer’s confirmation. In addition, the penny
stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make
a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in
the secondary market for the stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities and reduce the
number of potential investors. We believe that the penny stock
rules discourage investor interest in and limit the marketability
of our common stock.
According to SEC
Release No. 34-29093, the market for “penny stocks” has
suffered in recent years from patterns of fraud and abuse. Such
patterns include: (1) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or
issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and through false and misleading press
releases; (3) boiler-room practices involving high-pressure sales
tactics and unrealistic price projections by inexperienced
salespersons; (4) excessive and undisclosed bid-ask differentials
and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with
consequent investor losses. The occurrence of these patterns or
practices could increase the future volatility of our share
price.
FINRA
sales practice requirements may also limit a stockholder’s
ability to buy and sell our stock.
In
addition to the “penny stock” rules described above,
FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities
to their noninstitutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives, and other
information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low-priced
securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may
limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.
To
date, we have not paid any cash dividends, and no cash dividends
will be paid in the foreseeable future.
We do
not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally
available to pay dividends. Even if the funds are legally available
for distribution, we may nevertheless decide not to pay any
dividends. We currently intend to retain all earnings for our
operations.
If
we fail to develop or maintain an effective system of internal
controls, we may not be able to accurately to report our financial
results or prevent financial fraud. As a result, current and
potential stockholders could lose confidence in our financial
reporting.
We are
subject to the risk that sometime in the future our independent
registered public accounting firm could communicate to the board of
directors that we have deficiencies in our internal control
structure that they consider to be “significant
deficiencies.” A “significant deficiency” is
defined as a deficiency, or a combination of deficiencies, in
internal controls over financial reporting such that there is more
than a remote likelihood that a material misstatement of the
entity’s financial statements will not be prevented or
detected by the entity’s internal controls.
Effective internal
controls are necessary for us to provide reliable financial reports
and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, we could be subject to
regulatory action or other litigation and our operating results
could be harmed. We are required to document and test our internal
control procedures to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act,” or “SOX”), which requires our management to
annually assess the effectiveness of our internal control over
financial reporting.
We
currently are not an “accelerated filer” as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”) requires us to include an internal control report with
our Annual Report on Form 10-K. That report must include
management’s assessment of the effectiveness of our internal
control over financial reporting as of the end of the fiscal year.
This report must also include disclosure of any material weaknesses
in internal control over financial reporting that we have
identified. As of December 31, 2019, the management of the Company
assessed the effectiveness of the Company’s internal control
over financial reporting based on SEC guidance on conducting such
assessments and on the criteria for effective internal control over
financial reporting established in Internal Control and Integrated
Framework, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). Management concluded,
during the year ended December 31, 2019, that the Company’s
internal controls and procedures were not effective to detect the
inappropriate application of U.S. GAAP rules. Management realized
there were deficiencies in the design or operation of the
Company’s internal control that adversely affected the
Company’s internal controls, which management considers to be
material weaknesses. A material weakness in the effectiveness of
our internal controls over financial reporting may increase the
chance of fraud and the loss of customers, reduce our ability to
obtain financing, and require additional expenditures to comply
with these requirements. Any of these consequences could have a
material adverse effect on our business, results of operations and
financial condition. For additional information, see Item 9A
– Controls and Procedures.
It may
be time-consuming, difficult, and costly for us to develop and
implement the internal controls and reporting procedures required
by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls, and other finance personnel in order
to develop and implement appropriate internal controls and
reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be
able to obtain the independent accountant certifications required
by such act, which may preclude us from keeping our filings with
the SEC current.
If we
are unable to maintain the adequacy of our internal controls, as
those standards are modified, supplemented, or amended from time to
time, we may not be able to ensure that we may conclude on an
ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to
achieve and maintain an effective internal control environment
could cause us to face regulatory action and cause investors to
lose confidence in our reported financial information, either of
which could adversely affect the value of our common
stock.
Because
our current directors, executive officers, and one preferred
stockholder beneficially hold 47.5% of our common stock, they can
exert significant control over our business and affairs and have
actual or potential interests that may depart from those of
subscribers in our private placements.
Our
current directors, our executive officers, and 5% or more
stockholders beneficially own or control approximately 47.5% of our
issued and outstanding shares of common stock as of December 31,
2019. Additionally, the holdings of our directors, and executive
officers, and preferred stockholders may increase in the future
upon vesting or other maturation of exercise rights under any of
the restricted stock grants, options, or warrants they may hold or
in the future be granted, or if they otherwise acquire additional
shares of our common stock. The interests of such persons may
differ from the interests of our other stockholders. As a result,
in addition to their board seats and offices, such persons,
irrespective of how the Company’s other stockholders vote,
may have significant influence over and may control corporate
actions requiring stockholder approval, including the following
actions:
●
electing
or defeating the election our directors;
●
to
amending or preventing the amendment of our Certificate of
Incorporation or By-laws;
●
effecting
or preventing a transaction, sale of assets, or other corporate
transaction; and
●
controlling
the outcome of any other matter submitted to our stockholders for
vote.
Such
persons' stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of
the Company, which in turn could reduce our stock price or prevent
our stockholders from realizing a premium over our stock
price.
Our
certificate of incorporation allows our board to create new series
of preferred stock without approval by our stockholders, which
could adversely affect the rights of the holders of our common
stock.
Our
board of directors has the authority to fix and determine the
relative rights and preferences of preferred stock. Our board of
directors also has the authority to issue preferred stock without
stockholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock granting
holders a preferred right to our assets upon liquidation, the right
to receive dividend payments before dividends are distributed to
the holders of common stock, and the right to redemption of the
shares, together with a premium prior to the redemption of our
common stock. In addition, our board of directors could authorize
the issuance of a series of preferred stock that has greater voting
power than our common stock or that is convertible into our common
stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing
stockholders.
ITEM 1B. UNRESOLVED STAFF
COMMENTS
Not
Applicable.
Our
principal executive offices are located at 777 South Flagler Drive,
Suite 800 West Tower, West Palm Beach, FL 33401, and our telephone
number is (561) 515-6163. Our executive office is a virtual office
and is used for meetings, conferences, and telephone and message
support. On August 19, 2013, we entered into a lease agreement
located at such address for a total monthly rental of
$299.
We
own no other real property.
Our
registered agent is Direct Transfer, LLC, located at 500 Perimeter
Park Drive, Suite D, Morrisville, NC 27560.
ITEM 3. 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:
John Ramsey and Carl D. Dekle, as Personal Representative of the
Estate of Brian Dekle, Deceased v. Global Digital Solutions, Inc.;
North American Custom Specialty Vehicles, Inc.; and Richard J.
Sullivan – United States District Court, Middle District of
Florida, Case No.: 6:15-cv-01633-ACC-GJK
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.
On June
2, 2015, Dekle passed away. On June 5, 2015, the Court denied the
Company’s motion to transfer the case to Florida.
On June 10, 2015, the Company filed a motion to reconsider
the Court’s denial of its motion to transfer the case to
Florida.
On June
15, 2015, Ramsay filed a second amended complaint. On June 25,
2015, the Company filed a motion to dismiss the second amended
complaint. The Company’s Motion to Dismiss was
denied.
On
September 30, 2015, the Court granted the Company’s Renewed
Motion to Transfer Venue. The case was transferred to the Middle
District of Florida.
On
September 2, 2016, a Notice of Settlement was filed by Global
Digital Solutions, Inc., North American Custom Specialty Vehicles,
Inc., and Richard J. Sullivan.
On
September 8, 2016, an Order was entered dismissing the case without
prejudice and subject to the right of the parties to submit a
stipulated form of final order or judgment or to move to reopen the
action, upon good cause shown,
On July
27, 2017, the Company and Dekle and Ramsay entered into 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 is not paid.
ii.
The
Company grants the plaintiffs vehicles and trailers in connection
to this proceeding.
iii.
The
Company will assist the plaintiffs in obtaining possession of the
said vehicles.
iv.
The
Company will pay the plaintiffs the sum of $20,000. The $20,000
settlement was paid in August 2017.
PowerUp Lending Group, LTD., v. North
American Custom Specialty Vehicles, Inc. a Delaware
Corporation d/b/a NACS Vehicles, Inc. a Subsidiary of Global
Digital and Global Digital Solutions, Inc. and Jerome J. Gomolski
– United States District Court for the Eastern District of
New York – Case No.: 2:16-cv-01025-ADS-AYS
On
September 13, 2017 Power Up received a default judgment against the
Company in the amount of $109,302.00. The Company negotiated a
settlement agreement on December 21, 2017 with Power Up to pay
$90,000 in three installments of $30,000. As of May 15, 2018, the
company has paid the entire amount (Note 5).
On June
14, 2018, a Satisfaction of Judgment regarding the Default Judgment
was entered in favor of Power Up Lending Group, Ltd. against Global
Digital Solutions, Inc., Jerome J. Gomolski, and North American
Custom Specialty Vehicles, Inc.
Global Digital Solutions, Inc. et. al. v. Communications
Laboratories, Inc., et. al., Eighteenth Judicial Circuit in and for
Brevard County, Case No.: 05-2015-CA-012250
On
January 19, 2015 the Company and NACSV filed suit against
Communications Laboratories, Inc., ComLabs Global, LLC,
Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for
conversion and breach of contract in a dispute over the payment of
a $300,000 account receivable that ComLabs owed to NACSV
but sent payment directly to Brian Dekle. The case was filed in the
Eighteenth Judicial Circuit in and for Brevard County Florida, case
no. 05-2015-CA-012250. On February 18, 2015 (i) defendants
Communications Laboratories, Inc., ComLabs Global, LLC
and Roland Lussier and (ii) defendant Wallace Bailey filed their
respective motions to dismiss seeking, among other things,
dismissal for failure to state valid causes of action, lumping and
failure to post a non-resident bond. On February 26, 2015,
defendants Dekle and Ramsay filed their motion to dismiss, or stay
action, based on already existing litigation between the parties.
NACSV filed its required bond on March 2, 2015.
Jeff Hull, Individually and on Behalf of All Others Similarly
Situated v. Global Digital Solutions, Inc., Richard J. Sullivan,
David A. Loppert, William J. Delgado, Arthur F. Noterman and
Stephanie C. Sullivan United States District Court, District of New
Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB
On
August 24, 2016, Jeff Hull, Individually and on Behalf of All
Others Similarly Situated (“Hull”) filed suit in the
United States District Court for
the District of New Jersey against Global Digital Solutions,
Inc. (“GDSI”), Richard J. Sullivan
(“Sullivan”), David A. Loppert (“Loppert”),
William J. Delgado (“Delgado”), Arthur F. Noterman
(“Noterman”) and Stephanie C. Sullivan
(“Stephanie Sullivan”) seeking to recover compensable
damages caused by Defendants’ alleged violations of federal
securities laws and to pursue remedies under the Securities
Exchange Act of 1934. On January 18, 2018, pursuant to the
Court’s December 19, 2017 Order granting Plaintiff Hull leave
to file an amended Complaint, Plaintiff Hull filed a Second Amended
Complaint against Defendants. On February 8, 2018, Defendants GDSI
and Delgado filed a Second Motion to Dismiss the Complaint. On
February 8, 2018, Defendant Loppert filed a Motion for Extension of
Time to File an Answer. On February 13, 2018, Defendant Loppert
filed a Motion to Dismiss the Second Amended Complaint for Lack of
(personal) Jurisdiction and for Failure to State a Claim. On
February 20, 2018, Plaintiff Michael Perry (“Perry”)
filed a Brief in Opposition to Defendants GDSI and Delgado’s
Second Motion to Dismiss the Complaint and to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
On February 26, 2018, Defendants GDSI and Delgado filed a Reply
Brief to Plaintiff Michael Perry’s Brief in Opposition to
their Motion to Dismiss the Second Amended Complaint. On February
26, 2018, Defendant Loppert filed a Response in Support of
Defendants GDSI and Delgado’s Second Motion to Dismiss the
Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief
to Plaintiff Perry’s Brief in Opposition to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
On September 14, 2018, an Order was entered denying the Defendants
GDSI and Loppert’s Motions to Dismiss. On September 28, 2018,
both Defendants filed Answers to the Amended Complaint. On February
13, 2019, an Order was entered referring the case to mediation. The
parties were to submit a status report by April 15, 2019. On June
12, 2019, Plaintiff Perry filed a Motion for Entry of an Order
Preliminarily Approving Class Action Settlement and Establishing
Notice Procedures. On July 15, 2019, an Order was entered granting
Plaintiff Perry’s Motion for Entry of Preliminary Approval of
a Class Action Settlement. On October 9, 2019, Plaintiff Perry
filed a Motion for Entry of an Order Granting Final Approval of a
Class Action Settlement and a Motion for Attorney Fees,
Reimbursement of Expenses, and Awards to Lead Plaintiff and Lopez.
On November 6, 2019, an Order was entered granting Plaintiff
Perry’s Motion for Attorney Fees. On November 6, 2019, and
Order and Final Judgment was entered granting Plaintiff
Perry’s Motion for Settlement. This settlement amount was
paid for by the Director’s and Officer’s insurance.
Attorney’s fees were included in the settlement amount. No
amount is accrued or paid from the Company.
Securities and Exchange Commission v. Global Digital Solutions,
Inc., Richard J. Sullivan and David A. Loppert United States
District Court for the Southern District of Florida, Case No.
9:16-cv-81413-RLR
On
August 11, 2016, the Securities and Exchange Commission
(“SEC”) filed suit in the United States District Court for the Southern
District of Florida against Global Digital Solutions, Inc.
(“GDSI”), Richard J. Sullivan (“Sullivan”)
and David A. Loppert (“Loppert”) to enjoin GDSI;
Sullivan, GDSI’s former Chairman and CEO; and Loppert,
GDSI’s former CFO from alleged further violations of the
anti-fraud and reporting provisions of the federal securities laws,
and against Sullivan and Loppert from alleged further violations of
the certification provisions of the federal securities
laws.
On
October 12, 2016, Defendant GDSI filed its First Answer to the
Complaint. On November 9, 2016, Defendant Sullivan filed a Letter
with the Court denying all allegations regarding the case. On
December 15, 2016, the SEC filed a Motion for Judgment and Notice
of Filing of Consent of Defendant Loppert to entry of Final
Judgment by the SEC. On December 19, 2016, the Court entered an
order granting the SEC’s Motion for Judgment as to Defendant
Loppert. On December 21, 2016, the SEC filed a Notice of Settlement
as entered into by it and Defendants GDSI and Sullivan. On December
23, 2016, the Court entered an Order staying the case and directing
the Clerk of the Court to close the case for statistical purposes
per the December 21, 2016 Notice of Settlement. On March 7, 2017,
the SEC moved for a Judgment of Permanent Injunction and Other
Relief and Notice of Filing Consent of Defendant GDSI to Entry of
Judgment by the SEC. On March 13, 2017, the Judge signed the
Judgment as to Defendant GDSI and it was entered on the
Court’s docket. On April 6, 2017, the SEC moved for a final
Judgment of Permanent Injunction and Other Relief and Notice of
Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge
signed the final Judgment as to Defendant Sullivan and it was
entered on the Court’s docket. On December 21, 2017, the SEC
moved for a final Judgment and Notice of Filing Consent of
Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the
Judge signed the Final Judgment as to Defendant GDSI and it was
entered on the Court’s docket. The amount of the judgement is
One Hundred Thousand Dollars ($100,000.00) plus interest, which is
included in accrued expenses in the accompanying consolidated
balance sheet.
Adrian Lopez, Derivatively and on behalf of Global Digital
Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David
A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F.
Noterman, and Stephen L. Norris United States District Court for
the District of New Jersey, Case No.
3:17-cv-03468-PGS-LHG
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.
The Company believes the likelihood of an unfavorable outcome of
the dispute is remote. On October 12, 2018, the Court granted
Defendants’ Motion to Dismiss for Lack of Personal
Jurisdiction. On October 15, 2018, an Order was entered denying
without prejudice Plaintiff’s Motion to
Consolidate.
Adrian Lopez v. Global Digital Solutions, Inc. and William J.
Delgado Superior Court of New Jersey, Chancery Division, Mercer
County, Equity Part, Docket No. MER-L-002126-17
On
September 28, 2017, Plaintiff Adrian Lopez (“Lopez”)
brought an action against Global Digital Solutions, Inc.
(“GDSI”) and William J. Delgado (“Delgado”)
to compel a meeting of the stockholders of Global Digital
Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and
New Jersey Revised Statute § 14A:5-2. On October 27, 2017,
Defendants GDSI and Delgado filed a Motion to Stay the Proceeding.
On November 24, 2017, Plaintiff filed an Objection to
Defendants’ Motion to Stay the Proceeding. On January 19, 2018,
Defendants’ Motion to Stay the Proceeding was denied. On
February 2, 2018, Defendants filed a Motion to Dismiss the
Complaint. On February 20, 2018, Plaintiff filed a Motion to
Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition
to Defendants’ Motion to Dismiss the Complaint. On March 23,
2018, Defendants filed a Brief in Reply to Plaintiff’s
Opposition to Defendants’ Motion to Dismiss the Complaint. As
of this date, the Court has not issued a decision and Order
regarding Defendants’ Motion to Dismiss the Complaint. The
Company believes the likelihood of an unfavorable outcome of the
dispute is remote.
PMB Helin Donovan, LLP vs. Global Digital Solutions, Inc. in the
Circuit Court for the 15TH Judicial Circuit in and for Palm Beach
County, Florida, Docket No.: 50-2017-CA-011937-XXXX-MB
On
October 31, 2017, PMB Helin Donovan, LLP filed an action for
account stated in Palm Beach County. Global Digital Solutions, Inc.
(“GDSI”), settled the matter for Forty Thousand Dollars
($40,000.00), of which the first payment of Ten Thousand Dollars
($10,000.00) was paid on May 16, 2018. The $40,000 is included in
accounts payable as of December 31, 2017.
Jennifer Carroll, vs. Global Digital Solutions, Inc., North
American Custom Specialty Vehicles, Inc., in the Circuit Court
for the 15th Judicial Circuit in and for Palm Beach County,
Florida, Case N0.: 50-2015-CC-012942-XXXX-MB
On
October 27, 2017, Plaintiff Jennifer Carroll moved the court for a
default judgment against Defendant Global Digital Solutions, Inc.
(“GDSI”), and its subsidiary North American Custom
Specialty Vehicles Inc. The amount of the judgement is Fifteen
Thousand Dollars ($15,000.00) plus fees of Thirteen Thousand Three
Hundred Fifty-Three Dollars Forty-Four Cents ($13,353.44) and costs
of six hundred twenty-four dollars thirty cents
($624.30).
ITEM 4. MINE SAFETY
DISCLOSURES
Not
applicable.
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE
Set
forth below are the directors and executive officers of the Company
as of December 31, 2018. Except as set forth below, there are no
other persons who have been nominated or chosen to become
directors, nor are there any other persons who have been chosen to
become executive officers. Other than as set forth below, there are
no arrangements or understandings between any of the directors,
officers and other persons pursuant to which such person was
selected as a director or an officer.
Name
|
Position Held
with Company
|
Age
|
Date First
Elected or
Appointed
|
William
J. Delgado
|
Chief
Executive Officer, Chairman of the Board
|
60
|
May 13,
2016
|
Jerome
J. Gomolski
|
Chief
Financial Officer
|
72
|
April
10, 2015
|
Gary A.
Gray
|
Vice
President, Chief Technology Officer
|
67
|
August
12, 2013
|
Our
Board of Directors believes that all members of the Board and all
executive officers encompass a range of talent, skill, and
experience sufficient to provide sound and prudent guidance with
respect to our operations and interests. The information below with
respect to our sole officer and director includes his experience,
qualifications, attributes, and skills necessary for him to serve
as a director and/or executive officer.
Biographies
William J. Delgado – Director & Executive Vice
President
Mr.
Delgado has served as our President, Chief Executive Officer and
Chief Financial Officer from August 2004 to August 2013. Effective
August 12, 2013, Mr. Delgado assumed the position of Executive Vice
President, and is responsible, along with Mr. Sullivan, for
business development. Mr. Delgado has over 33 years of management
experience including strategic planning, feasibility studies,
economic analysis, design engineering, network planning,
construction and maintenance. He began his career with Pacific
Telephone in the Outside Plant Construction. He moved to the
network engineering group and concluded his career at Pacific Bell
as the Chief Budget Analyst for the Northern California region. Mr.
Delgado founded All Star Telecom in late 1991, specializing in OSP
construction and engineering and systems cabling. All Star Telecom
was sold to International FiberCom in April of 1999. After leaving
International FiberCom in 2002, Mr. Delgado became President/CEO of
Pacific Comtel in San Diego, California. After the Company acquired
Pacific Comtel in 2004, Mr. Delgado became Director, President, CEO
and CFO of the Company. Management believes that Mr.
Delgado’s many years of business experience uniquely
qualifies him for his positions with the Company.
On May
13, 2016, Mr. Delgado assumed the role of Chief Executive Officer
and Chairman of the Board of Directors and currently serves in that
position.
Jerome J. Gomolski – Chief Financial Officer
Mr.
Gomolski became the Chief Financial Officer of our subsidiary,
NACSV, on January 1, 2015 and was appointed the Company’s
Chief Financial Officer on April 10, 2015. Mr. Gomolski has
specialized in auditing,
corporate and individual income tax, and forensic accounting for
over 30 years. Mr. Gomolski began his financial career in the
corporate accounting department of International Harvester in
Chicago. After graduating from DePaul University in Chicago with a
BSC in Accounting he passed the Illinois CPA exam and began working
for several large accounting firms. Several years later, he
returned to International Harvester as Manager of Financial
Planning and Analysis. In 1982, Jerry was offered an opportunity to
relocate to South Florida and return to public accounting. There he
brought his experience and talent to work with two large accounting
firms. His increasing responsibility led to a partnership. He
continues to maintain his own practice. Mr. Gomolski currently
serves as the Chief Financial Officer for a Private Equity
Fund.
Family Relationships
There
are no other family relationships between and among any of our
directors or executive
Involvement in Certain Legal Proceedings
No
director, executive officer, significant employee or control person
of the Company has been involved in any legal proceeding listed in
Item 401(f) of Regulation S-K in the past 10 years.
Committees of the Board
Our
Board of Directors held no formal meeting in the year-ended
December 31, 2018 Otherwise, all proceedings of the Board of
Directors were conducted by resolutions consented to in writing by
the sole director and filed with the minutes of the
Company.
Board Nominations and Appointments
In
considering whether to nominate any particular candidate for
election to the Board of Directors, we will use various criteria to
evaluate each candidate, including an evaluation of each
candidate’s integrity, business acumen, knowledge of our
business and industry, experience, diligence, conflicts of interest
and the ability to act in the interests of our stockholders. The
Board of Directors plans to evaluate biographical information and
interview selected candidates in the next fiscal year and plans to
consider whether a potential nominee would satisfy the listing
standards for “independence” of The Nasdaq Stock Market
and the SEC’s definition of “audit committee financial
expert.” The Board of Directors does not plan to assign
specific weights to particular criteria and no particular criterion
will be a prerequisite for each prospective nominee.
We do
not have a formal policy with regards to the consideration of
director candidates recommended by our stockholders, however,
stockholder recommendations relating to director nominees may be
submitted in accordance with the procedures set forth below under
the heading “Communicating with the Board of
Directors”.
Communicating with the Board of Directors
Stockholders who
wish to send communications to the Board of Directors may do so by
writing to 777 South Flagler Drive, Suite 800 West Tower, West Palm
Beach, FL 33401. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a “Stockholder-Board
Communication.” All such letters must identify the author as
a stockholder and must include the stockholder’s full name,
address and a valid telephone number. The name of any specific
intended recipient should be noted in the communication. We will
forward any such correspondence to the intended recipients;
however, prior to forwarding any such correspondence, and we will
review such correspondence, and in our discretion, may not forward
communications that relate to ordinary business affairs,
communications that are primarily commercial in nature, personal
grievances or communications that relate to an improper or
irrelevant topic or are otherwise inappropriate for the Board of
Director’s consideration.
Communicating with the Board of Directors
Special Litigation Committee of the Board of Directors
Certain
current and former directors and officers of the Company are
parties to certain derivative litigations. The claims asserted in
these litigations are assets of the Company. The Board of Directors
of the Company (the “Board”) has determined that it is
in the best interests of the Company and its shareholders to form a
Special Litigation Committee of the Board (“Special
Litigation Committee”) to investigate and evaluate the claims
and allegations asserted in the Litigations and to make a
determination as to how the Company should proceed with respect to
the Litigations and the asserted claims and
allegations.
The
Board has determined that it is advisable and in the best interests
of the Company and its shareholders that a Special Litigation
Committee shall investigate the claims and allegations in the
litigations and evaluate whether the Company should pursue any of
the claims asserted in the litigations, as well as prepare such
reports, arrive at such decisions, and take such other actions in
connection with the litigations, as the Special Litigation
Committee in its discretion deems appropriate and in the best
interests of the Company and its stockholders, in accordance with
New Jersey law.
The
Board of Directors will appoint independent and disinterested
directors to serve on the Special Litigation Committee, or, in the
alternative, appoint a special counsel to report to the board on
his investigation.
Compensation of Directors
We have
no standard arrangement to compensate directors for their services
in their capacity as directors. Directors are not paid for meetings
attended. However, we intend to review and consider future
proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us,
when incurred.
Compensation Committee Interlocks and Insider
Participation
No
interlocking relationship exists between our Board of Directors and
the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the
past.
Code of Ethics
As part
of our system of corporate governance, our Board of Directors has
adopted a Code of Business Conduct and Ethics (the
“Code”) for directors and executive officers of the
Company. This Code is intended to focus each director and executive
officer on areas of ethical risk, provide guidance to directors and
executive officer to help them recognize and deal with ethical
issues, provide mechanisms to report unethical conduct, and help
foster a culture of honesty and accountability. Each director and
executive officer must comply with the letter and spirit of this
Code. We have also adopted a Code of Ethics for Financial
Executives applicable to our Chief Executive Officer and senior
financial officers to promote honest and ethical conduct; full,
fair, accurate, timely and understandable disclosure; and
compliance with applicable laws, rules and regulations. We intend
to disclose any changes in or waivers from our Code of Business
Conduct and Ethics and our Code of Ethics for Financial Executives
by filing a Form 8-K or by posting such information on our
website.
Compliance with Section 16(a) of the Securities Exchange Act of
1934
Section
16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange
Commission and to provide us with copies of those
filings.
Based
solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, we believe
that during the year ended December 31, 2019, none of our greater
than 10% percent beneficial owners failed to comply on a timely
basis with all applicable filing requirements under Section 16(a)
of the Exchange Act.
ITEM 11. EXECUTIVE
COMPENSATION
General Philosophy
Our
Board of Directors is responsible for establishing and
administering the Company’s executive and director
compensation.
Executive Compensation
The
following summary compensation table indicates the cash and
non-cash compensation earned from the Company during the years
ended December 31, 2019 and 2018 for our named executive
officers.
Summary Compensation Table
Name and
Principal Position
|
Year
|
|
|
|
|
Nonequity
Incentive Plan Compensation
|
Change in PensionValue
and
Non-Qualified
Deferred
Compensation
Earnings
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jerome
J. Gomolski (1)
|
2019
|
60,000
|
-
|
-
|
-
|
-
|
-
|
-
|
60,000
|
|
|
|
|
|
|
|
|
|
Jerome
J. Gomolski
|
2018
|
50,000
|
-
|
-
|
-
|
-
|
-
|
-
|
50,000
|
|
|
|
|
|
|
|
|
|
Wiliam
J.Delgado (2)
|
2019
|
240,000
|
-
|
-
|
-
|
-
|
-
|
-
|
240,000
|
|
|
|
|
|
|
|
|
|
Wiliam
J.Delgado
|
2018
|
240,000
|
-
|
-
|
-
|
-
|
-
|
-
|
240,000
|
(1)
Mr.
Gomolski joined the company as Chief Financial Officer of our
subsidiary, NACSV, on January 5, 2015. He was appointed the
Company’s Chief Financial Officer effective April 10,
2015.
(2)
Mr.
Delgado was appointed Chief Executive Officer and Chairman of the
Board on May 13, 2016. He was appointed Executive Vice President on
August 12, 2013. Prior thereto he served as our CEO, President and
Chief Financial Officer.
(3)
The
amounts in these columns represent the fair value of the award as
of the grant date as computed in accordance with ASC 718. These
amounts represent restricted stock awards and stock options granted
to the named executive officers, and do not reflect the actual
amounts that may be realized by those officers.
Key Employee Employment Agreements
We have
an employment agreement with Chief Executive Officer, William
Delgado.
In
March 2019, the Company extended two consulting agreements with
officers of HarmAlarm, Gary Ball and Robert Schneider.
Options Granted to Named Executives
On
April 1, 2015, we granted Jerome J. Gomolski stock options to
acquire 500,000 shares of our common stock at an exercise price of
$0.10 per share. The options vest one-third on each of October 1,
2015, April 1, 2016 and October 1, 2016 and expire on April 1,
2025.
On
April 20, 2015, we granted William J. Delgado stock options to
acquire 500,000 shares of our common stock at an exercise price of
$0.14 per share. The option vest one-third on each of October 1,
2015, April 1, 2016 and October 1, 2016 and expire on March 31,
2025.
On
November 30, 2015, we granted to each of Jerome J. Gomolski and
Gary A. Gray stock options to acquire 1,000,000 shares of our
common stock at an exercise price of $0.006 per share. The options
vested on the date of grant and expire on November 30,
2025.
On
December 15, 2015, we granted William J. Delgado stock options to
acquire 750,000 shares of our common stock at an exercise price of
$0.008 per share. The options vested on the date of grant and
expire on December 14, 2025.
In
March 2019, we granted Robert Schneider 3,300,000 shares of common
stock in connection with his consulting agreement.
On
September 16, 2019, the Company issued 5,000,000, shares of its
common stock with a fair value of $62,000 in exchange for the
assets of HarmAlarm.
Outstanding Equity Awards at Fiscal Year End
The
following table provides information as of December 31, 2019 and
December 31, 2018 regarding unexercised stock options and
restricted stock awards granted to each of our named executive
officers:
|
Number of
Securities Underlying
Unexercised Options
Exercisable
(#)
|
Number of
Securities Underlying Unexercised Options
Unexercisable
(#)
|
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned
Options
(#)
|
Option Exercise
Price
($)
|
|
Number of Shares or
Units
of Stock that have
not Vested
(#)
|
Market Value of Shares or Units of Stock that have not
Vested
(#)
|
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights that
have not Vested
(#)
|
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights that Have not Vested
($)
|
Jerome
J. Gomolski
|
500,000
|
-
|
-
|
0.10
|
4/1/2025
|
-
|
-
|
-
|
-
|
Jerome
J. Gomolski
|
1,000,000
|
-
|
-
|
0.006
|
11/30/2025
|
-
|
-
|
-
|
-
|
William
J. Delgado
|
500,000
|
-
|
-
|
0.14
|
3/31/2025
|
-
|
-
|
-
|
-
|
William
J. Delgado
|
750,000
|
-
|
-
|
0.008
|
12/14/2025
|
-
|
-
|
-
|
-
|
Equity Compensation Plan Information and Issuances
Our
current policy is that all full-time key employees are considered
annually for the possible grant of stock options, depending upon
qualifying performance criteria. The criteria for the awards are
experience, uniqueness of contribution to our business and the
level of performance shown during the year. Stock options are
intended to enhance the ability of the Company and its Affiliates
to attract and retain exceptionally qualified individuals upon
whom, in large measure, the sustained progress, growth and
profitability of the Company depend.
2019 Option Exercises and Stock Vested
There
were no stock options that vested in 2019.
Pension Benefits
None of
our named executive officers is covered by a pension plan or other
similar benefit plan that provides for payments or other benefits
at, following, or in connection with retirement.
Nonqualified Deferred Compensation
None of
our named executive officers is covered by a defined contribution
or other plan that provides for the deferral of compensation on a
basis that is not tax-qualified.
2014 Equity Incentive Plan
On May
9, 2014 our shareholders approved the 2014 Global Digital Solutions
Equity Incentive Plan (“Plan”) and reserved 20,000,000
shares of our common stock for issuance pursuant to awards
thereunder, including options, stock appreciation right, restricted
stock, restricted stock units, performance awards, dividend
equivalents, or other stock-based awards. The Plan is intended as
an incentive, to retain in the employ of the Company, our
directors, officers, employees, consultants and advisors, and to
attract new officers, employees, directors, consultants and
advisors whose services are considered valuable, to encourage the
sense of proprietorship and to stimulate the active interest of
such persons in the development and financial success of the
Company and its subsidiaries. Under the Plan, we are authorized to
issue incentive stock options intended to qualify under Section 422
of the Internal Revenue Code of 1986, as amended, non-qualified
stock options, stock appreciation rights, performance shares,
restricted stock and long-term incentive awards. The Plan is
administered by the Board of Directors.
In
accordance with the ACS 718, Compensation – Stock
Compensation, awards granted are valued at fair value at the
grant date. The Company recognizes compensation expense on a pro
rata straight-line basis over the requisite service period for
stock-based compensation awards with both graded and cliff vesting
terms. The Company recognizes the cumulative effect of a change in
the number of awards expected to vest in compensation expense in
the period of change. The Company has not capitalized any portion
of its stock-based compensation.
Director Compensation
We do
not have a compensation arrangement in place for members of our
Board and we have not finalized any plan to compensate directors in
the future for their services as directors. We anticipate that we
will develop a compensation plan for our independent directors in
order to attract qualified persons and to retain them. We expect
that the compensation arrangements will generally be comprised of
equity awards and cash for reimbursement of expenses only; however,
exceptions may be made if circumstances warrant.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN
BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS.
Except
as otherwise stated, the table below sets forth information
concerning the beneficial ownership of Common Stock as of December
31, 2019 for: (1) each director currently serving on our Board of
Directors; (2) each of our named executive officers; (3) our
directors and executive officers as a group; and (4) each person
known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock. As of December 31, 2019 there
were 643,121,926 shares of Common Stock outstanding. Except as
otherwise noted, each stockholder has sole voting and investment
power with respect to the shares beneficially owned.
Title of
Class
|
|
Name and Address
of
Beneficial Owner
(4)
|
|
Amount and
Nature of
Beneficial
Ownership
|
|
Percent
of
Class(1)
|
Common
Stock
|
|
William
J. Delgado (2)
|
|
6,358,032
|
|
1.0
|
Common
Stock
|
|
Jerome
J. Gomolski (3)
|
|
5,000,000
|
|
0.8%
|
Common
Stock
|
|
Gary
Gray
|
|
4,000,000
|
|
0.6%
|
Common
Stock
|
|
Ross L.
Trevino
|
|
9,500,000
|
|
1.5%
|
|
|
Total Beneficial Holders as a Group
|
|
24,858,032
|
|
3.9%
|
|
Applicable
percentages are based on 643,121,923 shares outstanding as of
December 31, 2019 and includes issued and outstanding shares of
common stock as well as vested but unissued restricted shares.
Beneficial ownership is determined under the rules of the SEC and
generally includes voting or investment power with respect to
securities. A person is deemed to be the beneficial owner of
securities that can be acquired by such person within 60 days
whether upon the exercise of options or otherwise. Shares of Common
Stock subject to options and warrants currently exercisable, or
exercisable within 60 days after the date of this report, are
deemed outstanding for computing the percentage of the person
holding such securities but are not deemed outstanding for
computing the percentage of any other person. Unless otherwise
indicated in the footnotes to this table, the Company believes that
each of the shareholders named in the table has sole voting
power.
|
|
Includes
(a) 3,221,032 shares owned by Bronco Communications, LLC, an entity
which Mr. Delgado controls and (b) 3,137,000 shares owned by Mr.
Delgado's daughters.
|
|
Mr.
Gomolski has 1,500,000 stock options of which all have
vested.
|
|
The
address of record is c/o Global Digital Solutions, Inc., 777 South
Flagler Drive, Suite 800 West Tower, West Palm Beach, FL
33401
|
Changes in Control.
There
are currently no arrangements which may result in a change of
control of our company.
Non-Cumulative Voting
The
holders of our shares of common stock do not have cumulative voting
rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of Directors, can elect
all of the Directors to be elected, if they so choose. In such
event, the holders of the remaining shares will not be able to
elect any of our Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND
RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Transactions with Related Persons
As of
December 31, 2019 the Company had transactions with a related
party: annual consultation fee of $120,000,Note payable of $679,500
and finders fee payable on closing of Rontan purchase
agreement.
Named Executive Officers and Current Directors
For
information regarding compensation for our named executive officers
and current directors, see “Executive
Compensation.”
Director Independence
Our
board of directors consists of one director, William J. Delgado.
Our securities are quoted on the OTC Markets Group, Pink No
Information Tier, which does not have any director independence
requirements. We evaluate independence by the standards for
director independence established by applicable laws, rules, and
listing standards including, without limitation, the standards for
independent directors established by The New York Stock Exchange,
Inc., the NASDAQ National Market, and the Securities and Exchange
Commission.
Subject
to some exceptions, these standards generally provide that a
director will not be independent if (a) the director is, or in the
past three years has been, an employee of ours; (b) a member of the
director’s immediate family is, or in the past three years
has been, an executive officer of ours; (c) the director or a
member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than
for service as a director (or for a family member, as a
non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years
has been, employed in a professional capacity by our independent
public accountants, or has worked for such firm in any capacity on
our audit; (e) the director or a member of the director’s
immediate family is, or in the past three years has been, employed
as an executive officer of a company where one of our executive
officers serves on the compensation committee; or (f) the director
or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives
payments from, us in an amount which, in any twelve-month period
during the past three years, exceeds the greater of $1,000,000 or
two percent of that other company’s consolidated gross
revenues. Based on these standards, we have determined that our
director is not an independent director.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND
SERVICES
Audit Fees
The
aggregate audit fees billed by our independent accounting firm,
Turner, Stone & Company, LLP (“TSC”), for the years
ended December 31, 2019 and 2018 $ 117,000 and 50,000,
respectively.
Other Fees
There
were no other services provided by TSC during the years ended
December 31, 2019 and 2018.