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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10

 

GENERAL FORM FOR REGISTRATION OF SECURITIES

Pursuant to Section 12(b) or (g) of the Securities Exchange Act of 1934

Global Digital Solutions, Inc.
(Exact name of registrant as specified in its charter)
New Jersey		22-3392051
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
777 South Flagler Drive, Suite 800 West, West Palm Beach, FL		33410
(Address of principal executive offices)		(Zip Code)

561-515-6000
(Registrant's Telephone Number, Including Area Code)
Copy to: Owen Naccarato Naccarato & Associates 1100 Quail Street, Suite 100 Newport Beach, CA 92660 Office: 949-851-9261 Fax: 949-851-9262
Securities to be registered pursuant to Section 12(b) of the Act:
Title of each class to be so registered			Name of each exchange on which Each class is to be registered
Securities to be registered pursuant to Section 12(g) of the Act:
Common
(Title of Class)
(Title of Class)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer o		Accelerated filer o
Non-accelerated filer o (Do not check if a smaller reporting company)		Smaller reporting company þ

FORM 10

 

GLOBAL DIGITAL SOLUTIONS, INC

 

TABLE OF CONTENTS

 

 

Item 1.

Business.

 

History

Effective as of March 23, 2004, Creative Beauty Supply, Inc., ("Creative"), a New Jersey corporation that was incorporated on August 23, 1995, acquired Global Digital Solutions, Inc., a Delaware corporation ("Global”). The merger was treated as a recapitalization of Global. Creative changed its name to Global Digital Solutions, Inc. (“We” or the “Company). We disposed of our pre-merger assets and liabilities and succeeded to the business of Global. Although Creative was the legal acquiror, Global became the accounting acquiror of the Company for financial statement purposes. On January 8, 2004, Global had acquired Pacific ComTel, Inc., a company that provided structured cabling design, installation and maintenance for leading information technology companies, federal, state and local government, major businesses, educational institutions, and telecommunication companies.

Our mission was to target the United States government contract marketplace for audio and video services. The U.S. government and commercial marketplaces have budgeted over the long term to upgrade existing telephony, computer, and outsourcing systems across the spectrum of communications, security, and services marketplace segments. Due to significant capital constraints, we wound down the majority of our operations in June of 2005, but continued to operate a small operations team in Northern California.

We changed our fiscal year end from June 30 to December 31, in June, 2009.

Acquisition and Disposition of Bronco Communications, LLC

On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC, (“Bronco”) a Nevada-California regional telecommunications subcontractor located in Folsom, CA in consideration for 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116, the fair market value of our common stock on the date the agreement was made. Our sole director and officer owns a 10% membership interest in Bronco. On October 15, 2012, we entered into an Amendment to the Purchase Agreement, we agreed to relinquish control of Bronco to its minority shareholders effective as of January 1, 2013 in consideration  for the assumption of Bronco’s liabilities. The foregoing description of the acquisition and disposition of Bronco does not purport to be complete and is qualified in its entirety by reference to the complete text of the (i) Purchase Agreement, which is filed as Exhibit 2.1 hereto, and (ii) the Amendment to Purchase Agreement, which is filed as Exhibit 2.2 hereto, each of which is incorporated herein by reference.

 

Formation of subsidiaries

In December 2012 we incorporated GDSI Florida LLC, and in January 2013 we incorporated Global Digital Solutions, LLC, both Florida limited liability companies.

Change in business direction

On May 1, 2012, with support from our major shareholders, we made the decision to wind down our operations in the telecommunications area and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. Upon completion of the acquisition of Airtronic, discussed below, and until we make further acquisitions, we intend to carry on the business of Airtronic as our sole line of business.

Acquisition of Airtronic USA, Inc.

On August 13, 2012, we entered into a Letter of Intent (“LOI”) to acquire 70% of Airtronic USA, Inc. (“Airtronic”), a debtor in possession under chapter 11 of the Bankruptcy Code in a case pending in the US Bankruptcy Court for the Northern District of Illinois, Eastern Division (the Bankruptcy Court”). Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines.

 

 

On October 22, 2012, we memorialized the terms of the LOI and entered into an Agreement of Merger and Plan of Reorganization (“Merger Agreement”) to acquire 70% of Airtronic (the “Merger”).  On or after the effective date that Airtronic’s bankruptcy case is discharged by the Bankruptcy Court we will merge Airtonic with and into a to be formed subsidiary that we will own 70% of. We may acquire the remaining 30% of Airtronic two years after the closing of the Merger based upon a 4 times EBITDA valuation of Airtronic as set forth in the Merger Agreement. We agreed to contribute to Airtronic, at the closing of the Merger, $2 million less any amounts then outstanding on the Bridge Loan discussed below. We also agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI, exercisable for a period of ten years.  On June 26, 2013 we agreed to enter into a First Amendment to Agreement of Merger and Plan of Reorganization (“Modification Agreement”), which was approved by the Bankruptcy Court on June 28, 2013. The Modification Agreement provides that, contemporaneously with the closing of the Merger, we will contribute a noninterest bearing note to Airtronic in lieu of the $2,000,000 cash contribution set forth in the Merger Agreement (the “Parent Note”).  The initial principal balance of the Parent Note shall be equal to $2,000,000 less the following amounts to be funded or previously funded by the Company:

1.	The outstanding balance of principal, accrued interest and other amounts then due and owing under the terms of Original Note, as defined below.

2.	The total amount of cash and the value of the Company’s shares of common stock that we shall make available for the settlement of any class of claim or claim pursuant to Airtronic’s approved Plan of Reorganization in its bankruptcy proceeding, as discussed below; and

3.	All other amounts funded or advanced by the Company to or for the benefit of Airtronic prior to the closing date of the Merger.

Contemporaneously with the closing of the Merger, the Original Note shall be cancelled; however, the New Note (defined below) shall remain in full force and effect in accordance with its terms, as shall all security agreements, loan agreements and related documents to the extent they secure, supplement, are incorporated in or relate to the New Note.

The foregoing description of the acquisition of Airtronic does not purport to be complete and is qualified in its entirety by reference to the complete text of the (i) Agreement of Merger and Plan of Reorganization, which is filed as Exhibit 2.3 hereto, and (ii) the First Amendment to Agreement of Merger and Plan of Reorganization, which is filed as Exhibit 2.4 hereto, each of which is incorporated herein by reference.

On October 22, 2012, we entered into a Debtor In Possession Note Purchase Agreement (“Bridge Loan”) with Airtronic. We agreed to lend Airtronic up to a maximum of $2,000,000, with an initial advance of $750,000 evidenced by an 8¼% Secured Promissory Note with an original principal amount of $750,000 made by Airtronic in favor of the Company (the “Original Note”), due and payable on the date the Bankruptcy Court has discharged the Airtronic bankruptcy case, and a security agreement (the “Security Agreement”) securing all of Airtronic’s assets. As of December 31, 2012 we had not advanced any funds to Airtronic under the Bridge Loan and Original Note.

In March 2013, the Company and Airtronic amended the Bridge Loan to provide for a maximum advance of up to $700,000 under the Bridge Loan and Original Note (the “First Amendment”).  On June 26, 2013, we agreed to a second modification of the Bridge Loan agreement with Airtronic, and agreed to loan Airtronic up to an additional $550,000 under the Bridge Loan.  On August 5, 2013, we entered into the Second Bridge Loan Modification and Ratification Agreement (the “Second Amendment”), a new 8¼% secured promissory note for $550,000 (the “New Note”), and a security agreement with the CEO of Airtronic, securing certain intellectual property for patent-pending applications and trademarks that were registered in her name (the “Kett Security Agreement”).

 

As of August 5, 2013, we had advanced Airtronic $683,640 under the Bridge Loan.

 

The foregoing description of the Bridge loan to Airtronic does not purport to be complete and is qualified in its entirety by reference to the complete text of (i) the Debtor In Possession Note Purchase Agreement, which is filed as Exhibit 10.1 hereto, (ii) the Original Note, which is filed as Exhibit 10.2 hereto, (iii) the Security Agreement, which is filed as Exhibit 10.3 hereto, (iv) the First Amendment, which is filed as Exhibit 10.4 hereto, (v) the Second Amendment, which is filed as Exhibit 10.5 hereto, the New Note, which is filed as Exhibit 10.6 hereto, and (vi) the Kett Security Agreement, which is filed as Exhibit 10.7 hereto, each of which is incorporated herein by reference.

 

 

On June 10, 2013, Airtronic, with our consent, filed a Plan of Reorganization with the Bankruptcy Court. The Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $0.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Amended Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $0.50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $0.50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.

Convertible Note Payable

On May 6, 2013, the Company and the Investor entered into an amendment (the “Amendment”) to the Promissory Note Purchase Agreement and the related Secured Promissory Note, Security Agreement and Warrant to:

(1)	Extend the Note’s maturity date to July 1, 2013;

(2)	Provide that on or before the maturity date, we may elect to convert the Note into 3,000,000 shares of our common stock at a conversion price of $.25; and

Private Placements

Between January 1, 2013 and June 30, 2013, we sold 3,268,000 shares of our common stock in private placements to accredited investors for gross proceeds of $926,100. The foregoing description of the private placements does not purport to be complete and is qualified in its entirety by reference to the complete text of the Form of Subscription Agreement, which is filed as Exhibit 10.13 hereto, and which is incorporated herein by reference.

Changes to the Board of Directors and Executive Officers

Upon the closing of the merger/acquisition of Airtronic, Richard J. Sullivan, Jennifer Carroll, Arthur Noterman and Stuart Russo are expected to be appointed as directors of the Company. William J. Delgado, our sole director will continue to serve as a director.  In addition, upon the closing of the acquisition of Airtronic, Richard J. Sullivan, Jennifer Carroll, David A. Loppert, Mathew Kelley and Gary Grey are expected to be appointed as the officers of the Company.

Our board of directors presently consists of one person.  The number may be fixed from time to time by the board or our stockholders, and after the acquisition of Airtronic it is expected to consist of 5 persons. A vacancy on our board of directors may be filled by the vote of a majority of the directors holding office. All directors hold office for one-year terms until the election and qualification of their successors. Officers are appointed by the board of directors and serve at the discretion of the board.

 

 

Executive Offices

 

Our executive officers are located at 777 South Flagler Drive, Suite 800 West, West Palm Beach, FL 33410 and our telephone number is 561-515-6000.

Products, Services and Markets Served

We originally provided telecom and data engineering services to Fortune 500 companies, National Telco wireless and wireline service providers, and Federal, State, and Local governments including the Department of Defense. In May 2012 we made a decision to exit this line of business and refocus our efforts in the area of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. As discussed above, we have made an offer to acquire Airtronic and we expect to operate in the areas of business that Airtronic operates in upon the consummation of the Airtronic acquisition.

Airtronic, founded in 1990 and based in Elk Grove Village, Illinois, is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines.

 

Patents, Trademarks, and Licenses

We do not own any patents or trademarks and we have not entered into any license agreements.

Employees

As of July 31, 2013, we employed one full-time employee and two part-time employees.  We also use professionals on an as-needed basis. We have no collective bargaining agreements and believe our relations with our employees are good.

 

Item 1A.

Risk Factors.

 

There are numerous and varied risks, known and unknown, that may prevent us from achieving our goals.  If any of these risks actually occur, our business, financial condition or results of operation may be materially adversely affected.  In such case, the trading price of our common stock could decline and investors could lose all or part of their investment.

 

Risks Relating to Our Business

We have a limited operating history and past performance is no guarantee of future performance.

We generated net loss of $491,091 for the year ended December 31, 2012 and a net loss for the six-month period ended June 30, 2013 of $3,014,794.  At June 30, 2013 we had cash and cash equivalents of $609,431 and a working capital deficit was $174,238, which is insufficient to sustain our operations.  There can be no assurance that our business will be profitable in the future and that losses and negative cash flows from operations will not be incurred.  If these situations occur in the future, it could have a material adverse affect on our financial condition.

There is substantial doubt about our ability to continue as a going concern.

Our independent registered public accounting firm has issued an opinion on our December 31, 2012 financial statements that states that the financial statements were prepared assuming we will continue as a going concern.  As discussed in Note 1 to the financial statements, we had a net loss of $491,091 for the year ended December 31, 2012, and used net cash of $215,627 for operating activities. Additionally, at December 31, 2012, we had a stockholders’ deficit of $67,108, an accumulated deficit of $7,561,122 and a working capital deficit of $462,241.  These matters raise substantial doubt about our ability to continue as a going concern.  Our plan in regards to these matters is also described in Note 1 to our financial statements.  The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

 

 

Our future is dependent on our ability to meet our financing requirements, complete the acquisition of Airtronic and successfully implement new lines of business for Airtronic, and complete other, as yet, unidentified acquisitions. If we fail for any reason, we might not be able to continue as a going concern.

 

We will need additional financing to fully implement our business plan, and we cannot assure you that we will be successful in obtaining such financing or in continuing our operations.

We had focused our efforts on developing our business in the communications sector. We are now focusing our efforts on developing our business in the areas of small arms manufacturing, knowledge-based and culturally attuned social consulting and security-related solutions in unsettled areas. Airtronic is an electro-mechanical engineering design and manufacturing company that provides small arms and small arms spare parts to the U.S. Department of Defense, foreign militaries, and the law enforcement market. Airtronic’s products include grenade launchers, rocket propelled grenade launchers, grenade launcher guns, flex machine guns, grenade machine guns, rifles, and magazines and we will continue with this line of business upon the closing of the merger. We will need to raise additional capital to continue to develop and improve Airtronic’s product line, and to establish adequate marketing, sales, and customer support operations. There can be no assurance that additional public or private financing, including debt or equity financing, will be available as needed, or, if available, on terms favorable to us. Any additional equity financing may be dilutive to our stockholders and such additional equity securities may have rights, preferences or privileges that are senior to those of our existing common or preferred stock. Furthermore, debt financing, if available, will require payment of interest and may involve restrictive covenants that could impose limitations on our operating flexibility. Our failure to successfully obtain additional future funding may jeopardize our ability to continue our business and operations.

We depend upon our senior management and our business may be adversely affected if we cannot retain them.

Our success depends upon our ability to attract and retain experienced senior management with specialized industry and technical knowledge and/or industry relationships. We expect that upon the closing of the acquisition of Airtronic, our major shareholder, Richard J Sullivan, will be appointed CEO of the Company, that Jennifer Carroll will be appointed COO, and that David Loppert, CFO.  Mr. Sullivan and Mr. Loppert have significant experience as CEO and CFO, respectively, of public companies. Ms. Carroll was until recently the Lt. Governor of the State of Florida, has served in the military, and has significant managerial experience. We might not be able to find or replace qualified individuals to fill the slots of senior management that we anticipate if their services do not become available to us or are no longer available to us; accordingly the inability to fill, or the loss of critical members of our anticipated senior management team could have a material adverse effect on our ability to effectively pursue our business and acquisition strategy. We do not have key-man life insurance covering any of our employees at this time.

 

If we are unable to manage future growth, our business may be negatively affected.

We are continuing to pursue a strategy of rapid growth, and plan to expand significantly our capability and devote substantial resources to our marketing, sales, administrative, operational, financial and other systems and resources. Such expansion will place significant demands on our marketing, sales, administrative, operational, financial and management information systems, controls and procedures. Accordingly, our performance and profitability will depend on the ability of our officers and key employees to:

 

●	manage our business and our subsidiaries as a cohesive enterprise;

●	manage expansion through the timely implementation and maintenance of appropriate administrative, operational, financial and management information systems, controls and  procedures;

●	add internal capacity, facilities and third-party sourcing arrangements as and when needed;

●	maintain service quality controls; and

●	attract, train, retain, motivate and manage effectively our employees.

There can be no assurance that we will integrate and manage successfully new systems, controls and procedures for our business, or that our systems, controls, procedures, facilities and personnel, even if successfully integrated, will be adequate to support our projected future operations. Any failure to implement and maintain such systems, controls and procedures, add internal capacity, facilities and third-party sourcing arrangements or attract, train, retain, motivate and manage effectively our employees could have a material adverse effect on our business, financial condition and results of operations.  In addition, we may incur substantial expenses identifying, investigating and developing appropriate products and services in the small arms business markets, plus there can be no assurance that any expenditures incurred in identifying, investigating and developing such products and services will ever be recouped.

 

We will need additional capital to fund ongoing operations and to respond to business opportunities, challenges, acquisitions or unforeseen circumstances.  If such capital is not available to us, our business, operating results and financial condition may be harmed.

At June 30 2013, we had $609,431 of cash on hand and a working capital deficit of $174,238.  Our limited operating history makes it difficult to accurately forecast revenues and expenses, and in conjunction with other Risk Factors, raises substantial doubt about our ability to continue as a going concern.  Since January 1, 2013, we have closed on various private placements and received gross proceeds of $926,100.  We will continue to seek equity financing to provide funding for operations but the current market for equity financing is very weak.  If we are not successful in raising additional equity capital to generate sufficient cash flows to meet our obligations as they come due, we will have to reduce our overhead expenses by the reduction of headcount and other available measures.

 

We may require additional capital to expand our business or acquire complementary businesses although we have not identified any specific acquisition candidates.  However, additional funds may not be available when we need them, on terms that are acceptable to us, or at all.  For example, any debt financing secured by us in the future could involve restrictive covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and to pursue business opportunities, including potential acquisitions.  In addition, if we do not have funds available to make strategic acquisitions, we may not be able to expand our business.  The inability to raise additional capital could have an adverse effect on our business, operating results and financial condition.

 

We may face strong competition from larger, established companies.

We likely will face intense competition from other companies that provide the same or similar small arms manufacturing services, knowledge-based and culturally attuned social consulting and security-related solutions we expect to provide, virtually all of whom 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 Airtronic’s existing and future products or services obsolete.  In addition, we expect to face competition from new entrants into the arms business and knowledge-based and culturally attuned social consulting and security-related solutions businesses. 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.

If we are successful in acquiring Airtronic, the markets for our anticipated products and services are generally characterized by rapid technological change and are 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 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 Aitronic’s 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 our future customers will provide us with timely access to such information or that we will be able to develop and market our new products and services successfully or respond effectively to technological changes or new product and service offerings of our potential competitors in the arms business. 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 may not be able to protect intellectual property that we expect to acquire, which could adversely affect our business.

The companies that we expect to acquire rely on patent, trademark, trade secret and copyright protection to protect their technology. We believe that technological leadership will 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 become invalid and 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 do the laws of 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 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 taken by us will not be challenged, invalidated or circumvented, or that the rights granted there under 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 subject us to 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 name "www.gdso.co" and we use GDSI as a trade name. Domain names generally are regulated by Internet regulatory bodies and are subject to change and 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 and certain other common law rights. If the domain registrars are changed, new ones are created or we are deemed to be infringing upon another's trade name or trademark. In such event, we could 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.

The effects of the sequester may adversely impact our business, operating results or financial condition.

The sequester and its associated cutbacks in the military and support services has resulted in furloughs, further delaying processing and approval of foreign military orders that are approved by the department of defense. This, coupled with continuing changes in economic conditions, including declining consumer confidence, concerns about inflation or deflation, the threat of a continuing recession, increases in the rates of default and bankruptcy and extreme volatility in the credit and equity markets, may lead our customers to cease doing business with us or to reduce or delay that business or their payments to us, and our results of operations and financial condition could be adversely affected by these actions.  These challenging economic conditions also may result in:

 

●	increased competition for less spending;

●	pricing pressure that may adversely affect revenue;

●	difficulty forecasting, budgeting and planning due to limited visibility into the spending plans of current or prospective customers; or

●	customer financial difficulty and increased risk of doubtful accounts receivable.

We are unable to predict the duration and severity of the sequester and its adverse economic impact on conditions in the U.S. and other countries.

 

 

We expect a number of factors to cause our operating results to fluctuate on a quarterly and annual basis, which may make it difficult to predict our future performance.

Our revenues and operating results could vary significantly from quarter to quarter and year to year because of 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.  In addition to other risk factors discussed in this section, factors that may contribute to the variability of our quarterly and annual results include:

 

●	our ability to accurately forecast revenues and appropriately plan our expenses;

●	the impact of worldwide economic conditions, including the resulting effect on consumer spending;

●	our ability to maintain an adequate rate of growth;

●	our ability to effectively manage our growth;

●	our ability to attract new customers;

●	our ability to successfully enter new markets and manage our international expansion;

●	the effects of increased competition in our business;

●	our ability to keep pace with changes in technology and our competitors;

●	our ability to successfully manage any future acquisitions of businesses, solutions or technologies;

●	the success of our marketing efforts;

●	changes in consumer behavior and any related impact on the advertising industry;

●	interruptions in service and any related impact on our reputation;

●	the attraction and retention of qualified employees and key personnel;

●	our ability to protect our intellectual property;

●	costs associated with defending intellectual property infringement and other claims;

●	the effects of natural or man-made catastrophic events;

●	the effectiveness of our internal controls; and

●	changes in government regulation affecting our business.

As a result of these and other factors, the results of any prior quarterly or annual periods should not be relied upon as indications of our future operating performance, and any unfavorable changes in these or other factors could have a material adverse effect on our business, financial condition and results of operation.

Growth may place significant demands on our management and our infrastructure.

We have forecasted substantial growth in our business. This growth will place significant demands on our management and our operational and financial infrastructure.  As our operations grow in size, scope and complexity, we will need to improve and upgrade our systems and infrastructure to meet customer demand. The expansion of our systems and infrastructure will require us to commit substantial financial, operational and technical resources in advance of an increase in the volume of business, with no assurance that the volume of business will increase.  Continued growth could also strain our ability to maintain reliable service levels for our customers and meet their expected delivery schedules, develop and improve our operational, financial and management controls, enhance our reporting systems and procedures and recruit, train and retain highly skilled personnel.

 

Managing our growth will require significant expenditures and allocation of valuable management resources. If we fail to achieve the necessary level of efficiency in our organization as it grows, our business, operating results and financial condition would be harmed.

 

Future acquisitions could disrupt our business and harm our financial condition and operating results.

Our success will depend, in part, on our ability to expand our offerings and markets and grow our business in response to changing technologies, customer demands and competitive pressures.  In some circumstances, we may determine to do so through the acquisition of complementary businesses, solutions or technologies rather than through internal development.  The identification of suitable acquisition candidates can be difficult, time-consuming and costly, and we may not be able to successfully complete identified acquisitions.  Furthermore, even if we successfully complete an acquisition, we may not be able to successfully assimilate and integrate the business, technologies, solutions, personnel or operations of the company that we acquired, particularly if key personnel of an acquired company decide not to work for us.  In addition, we may issue equity securities to complete an acquisition, which would dilute our stockholders' ownership and could adversely affect the price of our common stock.  Acquisitions may also involve the entry into geographic or business markets in which we have little or no prior experience.  Consequently, we may not achieve the anticipated benefits of acquisitions which could harm our operating results.

 

 

Confidentiality agreements with employees and others may not adequately prevent disclosure of trade secrets and other proprietary information.

In order to protect our proprietary technology and processes, we will rely in part on confidentiality agreements with our employees, customers, potential customers, independent contractors and other advisors.  These agreements may not effectively prevent disclosure of confidential information and may not provide an adequate remedy in the event of unauthorized disclosure of confidential information.  In addition, others may independently discover trade secrets and proprietary information, and in such cases we could not assert any trade secret rights against such parties.  Costly and time-consuming litigation could be necessary to enforce and determine the scope of our proprietary rights, and failure to obtain or maintain trade secret protection could adversely affect our competitive business position.

 

We will incur increased costs as a result of being a public reporting company, which may adversely affect our operating results and financial condition.

As a public reporting company, we will incur significant accounting, legal and other expenses that we did not incur as a non-reporting public company.  We will incur costs associated with our public company reporting requirements.  We also anticipate that we will incur costs associated with corporate governance requirements, including requirements under the Sarbanes-Oxley Act of 2002, as well as rules implemented by the SEC.  We expect these rules and regulations to increase our legal and financial compliance costs and to make some activities more time-consuming and costly.  Furthermore, these laws and regulations could make it more difficult or more costly for us to obtain certain types of insurance, including director and officer liability insurance, and we may be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage.  The impact of these requirements could also make it more difficult for us to attract and retain qualified persons to serve on our board of directors, our board committees or as executive officers.  We cannot predict or estimate the amount or timing of additional costs we may incur to respond to these requirements.  We are currently evaluating the costs with respect to these rules, and we cannot predict or estimate the amount of additional costs we may incur or the timing of such costs.  New laws and regulations as well as changes to existing laws and regulations affecting public companies, including the provisions of the Sarbanes-Oxley Act of 2002 and rules adopted by the SEC would likely result in increased costs to us as we respond to their requirements.

 

If we fail to establish and maintain an effective system of internal control, we may not be able to report our financial results accurately or to prevent fraud.  Any inability to report and file our financial results accurately and timely could harm our reputation and adversely impact the trading price of our common stock.

Effective internal control is necessary for us to provide reliable financial reports and prevent fraud.  If we cannot provide reliable financial reports or prevent fraud, we may not be able to manage our business as effectively as we would if an effective control environment existed, and our business and reputation with investors may be harmed.  As a result, our small size and any current internal control deficiencies may adversely affect our financial condition, results of operation and access to capital.  We have not performed an in-depth analysis to determine if historical un-discovered failures of internal controls exist, and may in the future discover areas of our internal control that need improvement.

 

Risks Related to our Common and Preferred Stock

We may be unable to register for resale all of the shares of common stock sold in private placements, in which case purchasers in the private placements will need to rely on an exemption from the registration requirements in order to sell such shares.

In connection with our various private placements we are obligated to include all such common stock sold in our next “resale” registration statement with the SEC. Nevertheless, it is possible that the SEC may not permit us to register all of such shares of common stock for resale. In certain circumstances, the SEC may take the view that the private placements require us to register the resale of the securities as a primary offering. Investors should be aware of the existence of risks that interpretive positions taken with respect to Rule 415, or similar rules or regulations including those that may be adopted subsequent to the date of this registration statement on Form 10, that could impede the manner in which the common stock may be registered or our ability to register the common stock for resale at all or the trading in our securities. If we are unable to register some or all of the common stock, or if shares previously registered are not deemed to be freely tradeable, such shares would only be able to be sold pursuant to an exemption from registration under the Securities Act, such as Rule 144, that currently permits the resale of securities by holders who are not affiliated with the issuer following twelve months from the filing of this Form 10.

 

 

Our stock price may be volatile.

The market price of our common stock is likely to be highly volatile and could fluctuate widely in price in response to various factors, many of which are beyond our control, including the following:

 

●	changes in our industry;

●	competitive pricing pressures;

●	our ability to obtain working capital financing;

●	additions or departures of key personnel;

●	limited "public float”, in the hands of 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;

●	sales of our common stock (particularly following effectiveness of the resale registration statement filed in connection with the private placements);

●	our ability to execute our business plan;

●	operating results that fall below expectations;

●	loss of any strategic relationship;

●	regulatory developments;

●	economic and other external factors;

●	period-to-period fluctuations in our financial results; and

●	inability to develop or acquire new or needed technology.

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.

 

We have not paid dividends in the past and do not expect to pay dividends in the future.  Any return on investment may be limited to the value of our common stock.

We have never paid cash dividends on our common stock and do not anticipate doing so in the foreseeable future.  The payment of dividends on our common stock will depend on earnings, financial condition and other business and economic factors affecting us at such time as our board of directors may consider relevant.  If we do not pay dividends, our common stock may be less valuable because a return on your investment will only occur if our stock price appreciates.

 

There is currently a limited liquid trading market for our common stock and we cannot ensure that one will ever develop or be sustained.

To date there has been a nominal liquid trading market for our common stock.  We cannot predict how liquid the market for our common stock might become.  Our common stock is quoted for trading on the OTCQB Marketplace (“Pink OTC”) or pink sheets.  As soon as is practicable, we anticipate applying for listing of our common stock on either the American Stock Exchange, The Nasdaq Capital Market or other national securities exchange, assuming that we can satisfy the initial listing standards for such exchange.  We currently do not satisfy the initial listing standards, and cannot ensure that we will be able to satisfy such listing standards or that our common stock will be accepted for listing on any such exchange.  Should we fail to satisfy the initial listing standards of such exchanges, or our common stock is otherwise rejected for listing and remains listed on the Pink OTC or suspended from the Pink OTC, the trading price of our common stock could suffer and the trading market for our common stock may be less liquid and our common stock price may be subject to increased volatility.

 

Furthermore, for companies whose securities are traded in the OTC Bulletin Board, it is more difficult (1) to obtain accurate quotations, (2) to obtain coverage for significant news events because major wire services generally do not publish press releases about such companies, and (3) to obtain needed capital.

 

 

Our common stock may be deemed a "penny stock," which would make it more difficult for our investors to sell their shares.

Our common stock may be subject to the "penny stock" rules adopted under Section 15(g) of the Exchange Act.  The penny stock rules generally apply to companies whose common stock is not listed on The Nasdaq Stock Market or other national securities exchange and trades at less than $4.00 per share, other than companies that have had average revenue of at least $6,000,000 for the last three years or that have tangible net worth of at least $5,000,000 ($2,000,000 if the company has been operating for three or more years).  These rules require, among other things, that brokers who trade penny stock to persons other than "established customers" complete certain documentation, make suitability inquiries of investors and provide investors with certain information concerning trading in the security, including a risk disclosure document and quote information under certain circumstances.  Many brokers have decided not to trade penny stocks because of the requirements of the penny stock rules and, as a result, the number of broker-dealers willing to act as market makers in such securities is limited.  If we remain subject to the penny stock rules for any significant period, it could have an adverse effect on the market, if any, for our securities.  If our securities are subject to the penny stock rules, investors will find it more difficult to dispose of our securities.

 

Offers or availability for sale of a substantial number of shares of our common stock may cause the price of our common stock to decline.

If our stockholders sell substantial amounts of our common stock in the public market, including shares issued in our private placements upon the effectiveness of the registration statement we expect to file, or upon the expiration of any statutory holding period, under Rule 144, or issued upon the exercise of outstanding options or warrants, it could create a circumstance commonly referred to as an "overhang" and in anticipation of which the market price of our common stock could fall.  The existence of an overhang, whether or not sales have occurred or are occurring, also could make more difficult our ability to raise additional financing through the sale of equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. The shares of common stock sold in our private placements will be freely tradable upon the earlier of: (i) effectiveness of a registration statement covering such shares, or (ii) the date on which such shares may be sold without registration pursuant to Rule 144 (or other applicable exemption) under the Securities Act.

 

Investor Relations Activities, Nominal “Float” and Supply and Demand Factors May Affect the Price of our Stock.

We expect to utilize various techniques such as non-deal road shows and investor relations campaigns in order to create investor awareness for the Company.  These campaigns may include personal, video and telephone conferences with investors and prospective investors in which our business practices are described.  We have and we will continue to provide compensation to investor relations firms and pay for newsletters, websites, mailings and email campaigns that are produced by third-parties based upon publicly-available information concerning the Company.  We will not be responsible for the content of analyst reports and other writings and communications by investor relations firms not authored by the Company or from publicly available information.  We do not intend to review or approve the content of such analysts’ reports or other materials based upon analysts’ own research or methods.  Investor relations firms should generally disclose when they are compensated for their efforts, but whether such disclosure is made or complete is not under our control.  We have issued in the past 2,595,000 shares of restricted common stock, and such amounts may be increased in the future.  In addition, investors in the Company may be willing, from time to time, to encourage investor awareness through similar activities.  Investor awareness activities may also be suspended or discontinued which may impact the trading market our common stock.

The SEC and FINRA enforce various statutes and regulations intended to prevent manipulative or deceptive devices in connection with the purchase or sale of any security and carefully scrutinize trading patterns and company news and other communications for false or misleading information, particularly in cases where the hallmarks of “pump and dump” activities may exist, such as rapid share price increases or decreases.  The Company and its shareholders may be subjected to enhanced regulatory scrutiny due to the relatively small number of holders who own the registered shares of the Company’s common stock publicly available for resale, and the limited trading markets in which such shares may be offered or sold which have often been associated with improper activities concerning penny-stocks, such as the OTC Bulletin Board or the OTCQB Marketplace (Pink OTC) or pink sheets.  Until such time as the common stock sold in the private placements are registered and until such time as the restricted shares of the Company are registered or available for resale under Rule 144, there will continue to be a small percentage of shares held by a relatively small number of investors, many of whom acquired such shares in privately negotiated purchase and sale transactions, that will constitute the entire available trading market.  The Supreme Court has stated that manipulative action is a term of art connoting intentional or willful conduct designed to deceive or defraud investors by controlling or artificially affecting the price of securities.  Often times, manipulation is associated by regulators with forces that upset the supply and demand factors that would normally determine trading prices. The supply of Company common stock for sale has been and may continue to be limited for an indeterminate amount of time, which could result in higher bids, asks or sales prices than would otherwise exist.  Securities regulators have often cited thinly-traded markets, small numbers of holders, and awareness campaigns as components of their claims of price manipulation and other violations of law when combined with manipulative trading, such as wash sales, matched orders or other manipulative trading timed to coincide with false or touting press releases.  There can be no assurance that the Company’s or third-parties’ activities, or the small number of potential sellers or small percentage of stock in the “float,” or determinations by purchasers or holders as to when or under what circumstances or at what prices they may be willing to buy or sell stock will not artificially impact (or would be claimed by regulators to have affected) the normal supply and demand factors that determine the price of the stock.

 

We may apply the proceeds of private placements to uses that ultimately do not improve our operating results or increase the value of your investment.

We have used and intend to use the net proceeds from private placements for general working capital purposes. Our management has and will have broad discretion in how we use these proceeds. These proceeds could be applied in ways that do not ultimately improve our operating results or otherwise increase the value of the investment in shares of our common stock sold in the private placements.

 

Because our current and future directors and executive officers are among our largest stockholders, 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 and future directors and executive officers own or control a significant percentage of our common stock.  Additionally, the holdings of our directors and executive officers 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, including purchasers of our common stock in our private placements.  As a result, in addition to their board seats and offices, such persons will have significant influence over and control all corporate actions requiring stockholder approval, irrespective of how the Company's other stockholders, including purchasers in the private placements, may vote, including the following actions:

 

●	to elect or defeat the election of our directors;

●	to amend or prevent amendment of our Certificate of Incorporation or By-laws;

●	to effect or prevent a Transaction, sale of assets or other corporate transaction; and

●	to control 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.

 

Exercise of options or warrants may have a dilutive effect on our common stock.

If the price per share of our common stock at the time of exercise of any options, or any other convertible securities is in excess of the various exercise or conversion prices of such convertible securities, exercise or conversion of such convertible securities would have a dilutive effect on our common stock. As of June 30, 2013 we had outstanding warrants to acquire 4,500,000 shares of our common stock at exercise prices ranging from $.10 to $.50. In connection with the acquisition of Airtronic, we have agreed to grant approximately 4.9 million options to acquire shares of our common stock at $.04 per share, the fair market value of our common stock in August 2012 when the letter of intent to acquire Airtronic was signed. Further, any additional financing that we secure may require the granting of rights, preferences or privileges senior to those of our common stock and which result in additional dilution of the existing ownership interests of our common stockholders.

Our certificate of incorporation allows for our board to create new series of preferred stock without further 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 further stockholder approval. As a result, our board of directors could authorize the issuance of a series of preferred stock that would grant to holders the 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 the 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 2.

Financial Information.

 

This registration statement on Form 10 and other written and oral statements made from time to time by us may contain so-called “forward-looking statements,” all of which are subject to risks and uncertainties. Forward-looking statements can be identified by the use of words such as “expects,” “plans,” “will,” “forecasts,” “projects,” “intends,” “estimates,” and other words of similar meaning. One can identify them by the fact that they do not relate strictly to historical or current facts. These statements are likely to address our growth strategy, financial results and product and development programs. One must carefully consider any such statement and should understand that many factors could cause actual results to differ from our forward looking statements. These factors may include inaccurate assumptions and a broad variety of other risks and uncertainties, including some that are known and some that are not. No forward looking statement can be guaranteed and actual future results may vary materially. We do not assume any obligation to update any forward-looking statement. As a result, investors should not place undue reliance on these forward-looking statements.

This discussion should be read in conjunction with the other sections of this registration statement on Form 10, including “Risk Factors,” “Description of Our Business” and the accompanying consolidated financial statements and related notes in Item 13 – "Financial Statements and Supplementary Data". As discussed in Note 1 to our annual consolidated financial statements, our ability to continue as a going concern is dependent upon our ability to meet our financing requirements, and the future success of our operations.  Our plans concerning these matters are also discussed in Note 1 to the financial statements. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

The various sections of this discussion contain a number of forward-looking statements, all of which are based on our current expectations and could be affected by the uncertainties and risk factors described throughout this Report as well as other matters over which we have no control. See “Forward-Looking Statements.” Our actual results may differ materially.
 

 

 

 

Compensation and benefits increased by $148,100, or 285.4%.  In 2011 our chief executive officer received $51,900 in salary, compared to $200,000 in 2012.

 

Investor relations and marketing expense increased by $59,503 or 275.2% and was primarily for services rendered paid in shares of our common stock.

 

Professional and filing fees declined $8,512 or 43.5% and were for OTC filings and legal fees.

 

Other income was $600 in 2102.  We had no other income in 2011.

 

Interest expense was $10,000 on 2012 compared to $0 in 2011.  Interest expense related to notes payable.

 

There is no income tax benefit for the losses for the years ended December 31, 2012 and 2011, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.

 

Loss from discontinued operations in 2012 was comprised as follows, and related to the operations of Bronco:

 

 

 

Three-month periods ended June 30 2013 and 2012

 

We had no revenue, or cost of revenue, from continuing operations in the three-month periods ended June 30, 2013 and 2012. S,G & A were $1,368,497 and $109,280 in three-month periods ended June 30, 2013 and 2012, respectively.  S,G &A was comprised of:

 

 

Compensation and benefits increased by $940,054, or 1,676.3%.  In the three-month period ended June 30, 2012 compensation and benefits comprised $56,080 of salary for our CEO.  In the three-month period ended June 30, 2013 compensation and benefits comprised $996,134 of stock-based compensation to our CEO, consultants and advisors.

 

Professional and filing fees increased by $154,477, or 6,439.2%.  In the three-month period ended June 30, 2012 they consisted primarily of legal fees and OTC filing fees. In the three-month period ended June 30, 2013 they consisted of:

 

●	Accounting and auditing fees of $16,000

●	Consulting fees of $73,173

●	Legal fees of $67,173; and

●	Transfer agent fees of $530

Loan and private placement fees were $121,610 in the three-month period ended June 30, 2013 and were paid to third parties in connection with our various private placements.  We had no such expense in the corresponding period in 2012.

 

Investor relations and marketing expense increased by $35,143, or 70.6%, and in both the three-month period ended June 30, 2013 and the three-month period ended June 30, 2012 were primarily for services rendered paid in shares of our common stock.

 

Interest income was $10,416 in the three-month period ended June 30, 2013 and is the interest accrued on the bridge loan we made to Airtronic. We had no such expense in the corresponding period in 2012.

 

Interest expense was $662,302 in the three-month period ended June 30, 2013 and is comprised as follows:

 

●	Interest on notes payable and convertible notes payable of $15,816; and

●	The beneficial conversion feature of convertible notes payable of $646,486

We had no such expense in the corresponding period in 2012.

There is no income tax benefit for the losses for the three-month periods ended June 30, 2013 and 2012, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.

 

Loss from discontinued operations in the three-month periods ended June 30, 2013 and 2012 was comprised as follows:

 

 

 

Our results of operations for the three-month periods ended June 30, 2013 and 2012 did not contain any unusual gains or losses from transactions not in our ordinary course of business.

 

Six-month periods ended June 30, 2013 and 2012

 

We had no revenue, or cost of revenue, from continuing operations in the six-month periods ended June 30, 2013 and 2012. S,G & A were $2,047,696 and $144,260 in six-month periods ended June 30, 2013 and 2012, respectively.  S,G &A was comprised of:

 

 

Compensation and benefits increased by $1,314,478, or 1,223.0%.  In the six-month period ended June 30, 2012 compensation and benefits comprised $107,480 of salary for our CEO.  In the six-month period ended June 30, 2013 compensation and benefits comprised $1,371,958 of stock-based compensation to our CEO, consultants and advisors, and salary of $50,000 for our CEO.

 

Professional and filing fees increased by $247,684, or 5,339.2%.  In the six-month period ended June 30, 2012 professional and filing fees comprised legal fees and OTC filing fees.  In the six-month period ended June 30, 2013 professional and filing fees consisted of:

 

●	Accounting and auditing fees of $30,500

●	Consulting fees of $117,173

●	Legal fees of $104,120; and

●	Transfer agent fees of $530

 

Loan and private placement fees were $196,610 in the six-month period ended June 30, 2013 and were paid to third parties in connection with our loan and various private placements as follows:

 

●	Loan fees of $125,000; and

●	Private placement fees of $96,610.

 

We had no such expense in the corresponding period in 2012.

 

Investor relations and marketing expense increased by $124,442, or 420.22%, and were primarily for services rendered paid in shares of our common stock. We had no such expense in the corresponding period in 2012.

 

Interest income was $12,321 in the six-month period ended June 30, 2013 and is the interest accrued on the bridge loan we made to Airtronic. We had no such expense in the corresponding period in 2012.

 

Interest expense was $708,198 in the six-month period ended June 30, 2013 and is comprised as follows:

 

●	Interest on notes payable and convertible notes payable of $31,712; and

●	The beneficial conversion feature of convertible notes payable of $676,486

 

We had no such expense in the corresponding period in 2012.

 

 

There is no income tax benefit for the losses for the six-month periods ended June 30, 2013 and 2012, since we determined that the realization of the net deferred tax asset is not more likely than not to be realized and we created a valuation allowance for the entire amount of such benefit.

 

Loss from discontinued operations in the six-month periods ended June 30, 2013 and 2012 was comprised as follows:

 

 

Our results of operations for the six-month periods ended June 30, 2013 and 2012 did not contain any unusual gains or losses from transactions not in our ordinary course of business.

 

Liquidity and Capital Resources

 

December 31, 2012

 

As of December 31, 2012, we had cash and cash equivalents totaling $385,141 and a working capital deficit of $428,267. For the year ended December 31, 2012 we incurred a net loss of $491,091, and at December 31, 2012, we had an accumulated deficit of $7,561,122 and a total stockholders’ deficit of $67,108. We expect to incur losses in fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.  

 

June 30, 2013

 

As of June 30, 2013, we had cash and cash equivalents totaling $609,431 and a working capital deficit of $174,238. For the six-month period ended June 30, 2013, we incurred a net loss of $3,014,794, and at June 30,2013, we had an accumulated deficit of $10,575,916 and a total stockholders’ deficit of $174,238. We expect to incur losses for the remainder of fiscal 2013. There is no guarantee that we will ultimately be able to generate sufficient revenue or reduce our costs in the anticipated time frame to achieve and maintain profitability and have sustainable cash flows.  

 

Other than the Bridge Loan to, and acquisition of, Airtronic, we do not have any material commitments for capital expenditures during the next twelve months.  Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.

 

Cash Flows

 

December 31, 2012 and 2011

 

Cash used in operating activities   

 

Net cash used in operating activities totaled $215,627 for the year ended December 31, 2012 compared to $18,736 for the year ended December 31, 2011. In the year ended December 31, 2012, cash was used to fund a net loss of $519,906, reduced by non-cash common stock based payments for rent and services of $66,500, amortization of warrant expense of $10,000, changes in operating assets and liabilities of $114,485 and cash provided by discontinued operations of $113,294.

 

In the year ended December 31, 2011, cash was used to fund a net loss of $94,805, reduced changes in operating assets and liabilities totaling $76,069.

 

Cash used in investing activities

 

We had no investing activities in either of the years ended December 31, 2012 or 2011.

 

 

Cash from financing activities

 

Net cash provided by financing activities totaled $600,100 for the year ended December 31, 2012 compared to $17,500 for the year ended December 31, 2011. In the year ended December 31, 2012, we received proceeds from short-term debt of $572,600 and proceeds from the sale of common stock of $150,000, reduced by repayments of short-term debt of $122,500.  In the year ended December 31, 2011, we received proceeds of $17,500 from short-term debt.

 

June 30, 2013 and 2012

 

Cash used in operating activities   

 

Net cash used in operating activities totaled $343,249 for the six-month period ended June 30, 2013 compared to $124,222 for the six-month period ended June 30, 2012. In the six-month period ended June 30, 2013, cash was used to fund a net loss of $3,014,794, reduced by non-cash stock-based compensation of $1,371,958, common stock based payments for services of $375,533, amortization of debt discount of $676,487, changes in operating assets and liabilities of $1,822 and cash provided by discontinued operations of $245,745.

 

In the six-month period ended June 30, 2012, cash was used to fund a net loss of $335,251, reduced by non-cash common stock based payments for services of $15,000, changes in operating assets and liabilities totaling $72,987 and cash provided by discontinued operations of $123,042.

 

Cash used in investing activities

 

Net cash used in investing activities for the six-month period ended June 30, 2013 totaled $695,561 and were for advances to Airtronic under the bridge loan.  We had no investing activities in the six-month period ended June 30, 2012.

 

Cash from financing activities

 

Net cash provided by financing activities totaled $1,263,500 for the six-month period ended June 30, 2013 compared to $125,000 for the six-month period ended June 30, 2012. In the six-month period ended June 30, 2013, we received proceeds from the sale of common stock of $926,100 and proceeds from short-term debt of $374,900, reduced by repayments of short-term debt of $37,500.  In the six-month period ended June 30, 2012, we received proceeds of $75,000 from the sale of common stock and proceeds of $85,000 from short-term debt, reduced by repayments of short-term debt of $35,000.

 

Financial condition

 

December 31, 2012

 

As of December 31, 2012, we had a working capital deficit of $428,267, an accumulated deficit of $7,561,122 and a total stockholders’ deficit of $67,108, compared to working capital deficit of $2,020,482, an accumulated deficit of $7,100,022 and a total stockholders’ deficit of $2,202,482 at December 31, 2011.

 

At December 31, 2012 our registered independent public accounting firm expressed substantial doubt as to our ability to continue as a going concern because we have incurred substantial losses and negative cash flows from operations. We expect to fund operations by continuing to raise capital through the sale of common stock and the proceeds from debt.

 

June 30, 2013

 

As of June 30, 2013, we had a working capital deficit of $174,238, an accumulated deficit of $10,575,916 and a total stockholders’ deficit of $174,238.

 

We do not have a line of credit facility and have relied on short-term borrowings and the sale of common stock to provide cash to finance our operations.  We believe that we will need to raise additional capital in 2013 to sustain our operations.  We plan to seek additional equity and debt financing to provide funding for operations.

 

Other than the Bridge Loan to, and acquisition of, Airtronic, we do not have any material commitments for capital expenditures during the next twelve months.  Any required expenditure will be completed through internally generated funding or from proceeds from the sale of common or preferred stock, or borrowings.

 

 

Off-Balance Sheet Arrangements

 

We have not engaged in any off-balance sheet arrangements, including the use of structured finance, special purpose entities or variable interest entities.

 

Tabular Disclosure of Contractual Obligations

 

As a small reporting company, we are not required to provide this information and have elected not to provide it.

 

Critical Accounting Policies

 

Management is responsible for the integrity of the financial information presented herein.  Our financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America.  Where necessary, they reflect estimates based on management's judgment.  When selecting or evaluating accounting alternatives, management focuses on those that produce from among the available alternatives information most useful for decision-making.  We believe that the critical accounting policies discussed below involve additional management judgment due to the sensitivity of the methods, assumptions and estimates necessary in determining the related asset, liability, revenue and expense amounts.

 

Revenue Recognition

 

We follow the revenue recognition guidance in the Revenue Recognition Topic of the Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC” or “Codification”). We recognize product revenue at the time product is shipped and title has transferred, provided that a purchase order has been received or a contract has been executed, there are no uncertainties regarding customer acceptance, the sales price is fixed and determinable and collectability is deemed probable. If uncertainties regarding customer acceptance exist, revenue is recognized when such uncertainties are resolved. There are no significant post-contract support obligations at the time of revenue recognition. Our accounting policy regarding vendor and post contract support obligations is based on the terms of the customers’ contracts and is billable upon occurrence of the post-sale support. Costs of products sold and services provided are recorded as the related revenue is recognized. Revenue is recognized at the time services or goods are provided. It is our policy to record contract losses in their entirety in the period in which such losses are foreseeable.

 

Fair Value Measurements

 

The carrying amounts of our financial instruments, including cash and cash equivalents, notes receivable, accounts payable, and short-term debt approximate fair value due to their relatively short maturities.

 

Income Taxes

 

We recognize income taxes under the liability method. We recognize deferred income taxes for differences between the financial reporting and tax bases of assets and liabilities at enacted statutory tax rates in effect for the years in which differences are expected to reverse. We recognize the effect on deferred taxes of a change in tax rates in income in the period that includes the enactment date. We record a valuation allowance to reduce deferred tax assets to the amount that is believed more likely than not to be realized.  We recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such positions are then measured to determine the actual amount of benefit to recognize in our financial statements.

 

Stock Based Compensation

 

We adopted the fair value recognition provisions of ASC 718, "Compensation – Stock Compensation”.  Under the fair value recognition provisions, we are required to measure the cost of employee services received in exchange for share-based compensation measured at the grant date fair value of the award.

 

Impact of Recently Issued Accounting Standards

 

From time to time, the FASB or other standards setting bodies will issue new accounting pronouncements. Updates to the Codification are communicated through issuance of an Accounting Standards Update (“ASU”).

In July 2012, the FASB issued ASU No. 2012-02, Testing Indefinite-Lived Intangible Assets for Impairment. Under this standard, entities testing long-lived intangible assets for impairment now have an option of performing a qualitative assessment to determine whether further impairment testing is necessary. If an entity determines, on the basis of qualitative factors, that the fair value of the indefinite-lived intangible asset is more-likely-than-not less than the carrying amount, the existing quantitative impairment test is required. Otherwise, no further impairment testing is required. For Global, this ASU is effective beginning January 1, 2013, with early adoption permitted under certain conditions. The adoption of this standard is not expected to have a material impact on the Company’s consolidated results of operations or financial condition.

 

 

In June 2011, the FASB issued guidance that requires entities to report components of comprehensive income in either a continuous statement of comprehensive income or two separate but consecutive statements. The guidance removes the option to present the components of other comprehensive income (“OCI”) as part of the statement of equity. This guidance is effective for our fiscal year 2012, and must be applied retrospectively for all periods presented in the consolidated financial statements. The new guidance does not apply to entities that have no items of OCI in any period presented. We do not anticipate that this new guidance will have a material impact on its consolidated financial statements.

Quantitative and Qualitative Disclosures About Market Risk

 

Not required.

 

Item 3.

Properties.

 

Item 4.

Security Ownership of Certain Beneficial Owners and Management

 

The following tables set forth certain information as of July 29, 2013 regarding the beneficial ownership of our common stock by (i) each person or entity who, to our knowledge, owns more than 5% of our common stock; (ii) our executive officers named in the Summary Compensation Table below; (iii) each director; and (iv) all of our executive officers and directors as a group. Unless otherwise indicated in the footnotes to the following table, each person named in the table has sole voting and investment power and that person’s address is c/o Global Digital Solutions, Inc., 9477 Greenback Lane, Suite 524A, Folsom, CA 95630.

Name and Address of Beneficial Owner		Number of shares of common stock Beneficially Owned				Percent of Class (%)
Officers and Directors:
William J. Delgado (1)			4,455,029				5.2	%
8593 Jaytee Way
Fair Oaks, CA 95628
5% or Greater Shareholders:
Richard J. Sullivan (2)			25,460,000				29.5	%
777 S. Flagler Drive, Suit 800 W
West Palm Beach, FL 33401
David A. Loppert			8,000,000				9.3	%
777 S. Flagler Drive, Suit 800 W
West Palm Beach, FL 33401
Gabriel De Los Reyes			6,000,000				6.9	%
17795 SW 158th Street
Miami, FL 33187
Bronco Communications, LLC (3)			4,289,029				5.0	%
9477 Greenback Lane
Folsom, CA 95630

_________
(1) - Includes (a) 4,289,029 shares owned by Bronco Communications, LLC, an entity in which Mr. Delgado owns 10% and (b) 100,000 shares owned by Mr. Delgado's minor daughter.
(2) - Includes (a) 3,000,000 shares owned by Bay Acquisition Corp., an entity controlled by Mr. Sullivan, and (b) 500,000 shares owned by Mr. Sullivan's minor son.
(3) - William J. Delgado owns 10% of this entity.

 

 

Item 5.

Directors and Executive Officers.

 

William J. Delgado , (age 54), is our sole director, President, Chief Executive Officer and Chief Financial Officer. Mr. Delgado has over 33 years of telecommunications 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 (OSP).  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 and remains President, CEO and CFO of the Company.

 

Employment Agreements and Compensation Arrangements

 

We have not entered into any employment agreements or other compensation arrangements with Mr. Delgado.

 

 

Options Granted to Named Executives

 

No awards were granted in 2012 or 2011.

 

Outstanding Equity Awards at Fiscal Year-End

 

No equity awards were outstanding at December 31, 2012 or 2011.

 

Director Compensation

 

We do not have a compensation arrangement in place for members of our Board of Directors 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 be comprised of equity awards and cash for reimbursement of expenses only.

 

Directors' and Officers' Liability Insurance

 

We are in the process of obtaining directors' and officers' liability insurance insuring our directors and officers against liability for acts or omissions in their capacities as directors or officers, subject to certain exclusions.  Such insurance also insures us against losses which we may incur in indemnifying our officers and directors.  In addition, we have entered into indemnification agreements with key officers, directors and consultants, and such persons shall also have indemnification rights under applicable laws, and our Certificate of Incorporation and Bylaws. The form of Indemnification Agreement is attached hereto as Exhibit 10.14.

 

Board Independence

 

Our sole director is not an “independent director,” as that term is defined by listing standards of the national exchanges and SEC rules, including the rules relating to the independence standards of an audit committee and the non-employee director definition of Rule 16b-3 promulgated under the Exchange Act.

 

Board Committees

 

We intend to appoint such persons to the board of directors and committees of the board of directors as are expected to be required to meet the corporate governance requirements imposed by a national securities exchange, although we are not required to comply with such requirements until we elect to seek listing on a national securities exchange. We intend to appoint directors in the future so that a majority of our directors will be independent directors, of which at least one director will qualify as an “audit committee financial expert,” within the meaning of Item 407(d)(5) of Regulation S-K, as promulgated by the SEC. We have not appointed an audit committee, compensation committee, or nominating committee although we expect to do so in the near future.

 

Code of Ethics

 

Our board of directors has approved, and we have adopted, a Code of Ethics that applies to all of our directors, officers, employees, consultants and agents. We will provide a copy of the Code of Ethics free of charge upon request to any person submitting a written request to our chief executive officer.

 

Item 7.

Certain Relationships and Related Transactions, and Director Independence.

 

Since the beginning of our fiscal year 2011, there has not been, and there is not currently proposed any transaction or series of similar transactions in which the amount involved exceeded or will exceed the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years and in which any related person, including any director, executive officer, holder of more than 5% of our capital stock during such period, or entities affiliated with them, had a material interest, other than as described in the transactions set forth below.

 

On January 1, 2012, we acquired a 51% stake in Bronco Communications, LLC, (“Bronco”) a Nevada-California regional telecommunications subcontractor located in Folsom, CA in consideration for 4,289,029 shares of our restricted common stock valued at $0.035 per share, or $150,116, the fair market value of our common stock on the date the agreement was made. Our sole director and officer owns a 10% membership interest in Bronco. On October 15, 2012, we entered into an Amendment to Purchase Agreement, and we agreed to relinquish control of Bronco to its minority shareholders effective as of January 1, 2013.

 

In December 2012 we entered into an agreement with an investor to lend us $750,000. As part of that agreement, Bay Acquisition LLC, an entity controlled by Richard J. Sullivan, a beneficial owner of more than 5% of our common stock, agreed to pledge certain collateral as additional security for the loan.  In consideration for this pledge of collateral, we agreed to issue to Bay Acquisition LLC 3,000,000 shares of our restricted common stock valued at $360,000.

 

In January 2013, we granted Richard J. Sullivan and David A. Loppert, beneficial owners of more than 5% of our common stock, restricted stock grants of 3,000,000 and 5,000,000 shares of common stock, respectively.  In June 2013, we granted Richard J. Sullivan, David A. Loppert and William J. Delgado, our CEO, restricted stock grants of 10,000,000, 3,000,000 and 1,000,000 shares of common stock, respectively. The grants vest in January 2014.

 

Item 8.

Legal Proceedings.

 

We are not involved in any pending legal proceeding or litigations and, as far as we are aware, no governmental authority is contemplating any proceeding to which we are a party or to which any of our properties is subject, which would reasonably be likely to have a material adverse effect on the Company.

 

Item 9.

Market Price of and Dividends on the Registrant’s Common Equity and Related Stockholder Matters.

 

Our common stock is quoted on the OTCQB Marketplace (“Pink OTC”) or pink sheets under the symbol “GDSI”. As of July 29, 2013, there were approximately 196 holders of record of our common stock. The transfer agent for our common stock is Issuer Direct Corporation.

 

 

 

Dividend Policy

 

We have not previously paid any cash dividends on our common stock and do not anticipate or contemplate paying dividends on our common stock in the foreseeable future.  We currently intend to use all our available funds to develop our business.  We can give no assurances that we will ever have excess funds available to pay dividends.

 

Securities authorized for issuance under Equity Compensation Plans

 

We do not have any equity compensation plans and we have not authorized any securities to be issued under an approved plan.  On the closing of the acquisition of Airtronic, we have agreed to issue to the employees of Airtronic options to acquire 4,960,852 shares of our common stock an exercise price of $0.04, the fair market value of our common stock on the date we entered into the LOI, exercisable for a period of ten years.

 

Trading Information

 

Our common stock is currently approved for quotation on the OTCQB Marketplace (“Pink OTC”) or pink sheets maintained by the Financial Industry Regulatory Authority, Inc. (FINRA) under the symbol GDSI.

 

Item 10.

Recent Sales of Unregistered Securities.

 

On December 7, 2011, we accepted subscriptions for a total of 2,975,000 shares of our common stock in a private placement from one investor. We received gross proceeds of $5,950. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On January 1, 2012 we issued 4,289,029 shares of our common stock valued at $.035 per shares, or $150,116, to acquire 51% of Bronco Communications LLC.  The securities issued to Bronco were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On March 28, 2012, we accepted subscriptions for a total of 3,300,000 shares of our common stock in a private placement from one investor. We received gross proceeds of $6,600. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

 

Between May 18, 2012 and May 21, 2012, we accepted subscriptions for a total of 500,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $50,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On May 30, 2012, we issued 250,000 shares of our common stock to a consultant for services rendered valued at $15,000.  The shares of common stock were issued to the consultant without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On May 30, 2012, we issued 6,043,801 shares of our common stock to a lender in full satisfaction of a note payable of $314,278.  The shares of common stock were issued to the lender without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On September 12, 2012, we issued an aggregate of 2,202,900 shares of our common stock to six lenders in full satisfaction of notes payable totaling $1,101,450.  The shares of common stock were issued to the lenders without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On October 1, 2012, we accepted subscriptions for a total of 416,667 shares of our common stock in a private placement from one investor. We received gross proceeds of $25,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On October 15, 2012, we issued 750,000 shares of our common stock to two consultants for services rendered valued at $38,000.  The shares of common stock were issued to the consultants without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On October 15, 2012, we accepted subscriptions for a total of 750,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $75,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

In December 2012, we issued a warrant to purchase 3,000,000 shares of our common stock at an exercise price of $.15 per share to an investor in connection with a loan we received from the investor. In May 2013, we amended the warrant’s exercise price to $.10. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.

 

On December 31, 2012, we issued 150,000 shares of our common stock in lieu of paying rent of $13,500. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On December 31, 2012, we issued 500,000 shares of our common stock upon the conversion of 1,000 shares of our preferred stock. The shares of common stock were issued to the stockholder without registration in reliance upon the exemption provided by Section 3(a)(9) of the Securities Act of 1933, as amended, for securities exchanged by the Company and existing security holders where no commission or other remuneration is paid or given directly or indirectly by the Company for soliciting such exchange.

 

 

On January 1, 2103 we issued 1,000,666 shares of our common stock to six individuals for services and rent valued at $99,700. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On April 10, 2013, we issued 8,000,000 shares of our common stock to two individuals upon the issuance of restricted stock grants that vest in January 2014, in consideration for their par value. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On April 10, 2013, we issued 3,000,000 shares of our common stock to an entity controlled by Richard Sullivan, our major shareholder, in consideration for collateral the entity pledged to a lender for a loan to the Company. The shares were recorded at par value. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On April 10, 2013, we accepted subscriptions for a total of 250,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $25,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On April 10, 2013, we issued 500,000 shares of our common stock to a consultant for investor relations services rendered valued at $50,000.  The shares of common stock were issued to the consultant without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On May 6, 2013, we issued a warrant to purchase 1,000,000 shares of our common stock at an exercise price of $.15 per share to a consultant in connection with a loan modification. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.

 

On May 21, 2013, we accepted subscriptions for a total of 200,000 shares of our common stock in a private placement from 2 investors. We received gross proceeds of $50,000. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

On June 1, 2013, we agreed to issue 15,000,000 shares of our common stock to five individuals upon the issuance of restricted stock grants that vest in January 2014, in consideration for their par value. The shares of common stock will be issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

Between May 22, 2013 and June 6, 2013, we accepted subscriptions for a total of 2,150,000 shares of our common stock in a private placement from 15 investors. We received gross proceeds of $537,500. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

 

On June 25, 2103 we issued 310,000 shares of our common stock to two consultants for investor relations services valued at $155,000. The shares of common stock were issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.

 

On June 25, 2013, we issued a warrant to purchase 500,000 shares of our common stock at an exercise price of $.50 per share to a consultant for investor relations services. The warrant was issued without registration in reliance upon the exemption provided by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder. The warrant agreement contained representations from the holder of the warrant to support the Company's reasonable belief that the holder acquired the warrant for his own account and not with a view to distribution in violation of the Securities Act, and that the holder is an "accredited investor" as defined in Regulation D.

 

Between June 18, 2013 and June 30, 2013, we accepted subscriptions for a total of 668,000 shares of our common stock in a private placement from 12 investors. We received gross proceeds of $313,600. The private placement was made solely to “accredited investors,” as that term is defined in Regulation D under the Securities Act. The securities sold in the private placement were not registered under the Securities Act, or the securities laws of any state, and were offered and sold in reliance on the exemption from registration afforded by Section 4(2) of the Securities Act of 1933, as amended, as a transaction by the Company not involving any public offering, and Rule 506 promulgated thereunder.  

 

Shares to be issued in connection with the acquisition of Airtronic and Price Protection

 

Airtronic’s Plan provides, among other things, that Airtronic’s secured and unsecured creditors may elect to take shares of our common stock, valued at $.50 per share, saleable after twelve months with “Price Protection”.  Price Protection shall mean that if a holder of our common stock issued pursuant to the Plan sells its shares in whole or in part in an arm’s-length transaction for a fair market value less than $ .50 per share after twelve months from the effective date of the Plan, but before twenty-four months from the effective date of the Plan, then the shareholder shall be provided with an amount of new shares of our common stock equal to the result of the following formula: (x) the sales price the shareholder would have received if its shares of our common stock had sold for $ .50 per share minus   the actual sales price received by the shareholder for our common stock; divided by (y) the actual price per share received by the shareholder.

 

Item 11.

Description of the Registrant’s Securities to be Registered.

 

Authorized Capital Stock

 

We are authorized to issue 185,000,000 shares of capital stock, of which 175,000,000 are shares of common stock, par value $.001 per share (the “Common Stock”), and 10,000,000 shares of preferred stock, par value $.001 per share (the “Preferred Stock”).

As of June 30, 2013, we have issued and outstanding securities on a fully diluted basis:

 

●	83,342,117 shares of common stock

●	no shares of preferred stock;

●	no stock options;

●	4,500,000 warrants to acquire shares of our common stock; and

●	7,500,000 unissued and unvested restricted stock grants.

 

The holders of the common stock are entitled to one vote per share. In addition, the holders of our common stock will be entitled to receive ratably such dividends, if any, as may be declared by our Board of Directors out of legally available funds; however, the current policy of our Board of Directors is to retain earnings, if any, for operations and growth. Upon liquidation, dissolution or winding-up, the holders of the common stock will be entitled to share ratably in all assets that are legally available for distribution. The holders of the common stock will have no preemptive, subscription, redemption or conversion rights. The rights, preferences and privileges of holders of the common stock will be subject to, and may be adversely affected by, the rights of the holders of any series of preferred stock, which may be designated solely by action of our Board of Directors and issued in the future.

 

 

Preferred Stock

 

Our Board of Directors will be authorized, subject to any limitations prescribed by law, without further vote or action by our stockholders, to issue from time to time shares of preferred stock in one or more series. Each series of preferred stock will have such number of shares, designations, preferences, voting powers, qualifications and special or relative rights or privileges as shall be determined by our Board of Directors, which may include, among others, distinct classes or series, dividend rights, voting rights, liquidation preferences, redemption rights, conversion rights and preemptive rights.

Registration Rights

 

We have agreed to include all shares of common stock sold in private placements, including any warrants issued in connection therewith, or for fees, as well as certain share that have been issued as consideration for services, in our next filed "resale" registration statement with the Securities and Exchange Commission.

 

Item 12.

Indemnification of Directors and Officers.

 

Indemnification of Directors and Officers.

 

New Jersey Statutes (“NJS”) Section 14A:3-5 provide us with the power to indemnify any of our directors and officers. The director or officer must have conducted himself/herself in good faith and reasonably believe that his/her conduct was in, or not opposed to, our best interests. In a criminal action, the director, officer, employee or agent must not have had reasonable cause to believe his/her conduct was unlawful.  Advances for expenses may be made by agreement if the director or officer affirms in writing that he/she believes he/she has met the standards and will personally repay the expenses if it is determined such officer or director did not meet the standards.

 

Our Bylaws include an indemnification provision under which we have the power to indemnify our directors, officers, former directors and officers, or any person who serves or served at our request for our benefit as a director or officer of another corporation or our representative in a partnership, joint venture, trust, or other enterprise (including heirs and personal representatives) against all expenses, liability, and loss actually and reasonably incurred, including an amount paid to settle an action or satisfy a judgment to which the director or officer is made a party by reason of being or having been a director, officer, or representative of ours or any of our subsidiaries before the Merger.

 

We also have a director and officer indemnification agreement with our sole director and officer that provides, among other things, for the indemnification to the fullest extent permitted or required by New Jersey law, provided that such indemnitee shall not be entitled to indemnification in connection with any “claim” (as such term is defined in the agreement) initiated by the indemnitee against us or our directors or officers unless we join or consent to the initiation of such claim, or the purchase and sale of securities by the indemnitee in violation of Section 16(b) of the Exchange Act.

 

 

Any repeal or modification of these provisions approved by our stockholders shall be prospective only, and shall not adversely affect any limitation on the liability of any of our directors or officers existing as of the time of such repeal or modification.

 

We are also permitted to apply for insurance on behalf of any director, officer, employee or other agent for liability arising out of his actions, whether or not the NJS would permit indemnification.

 

Insofar as indemnification for liabilities arising under the Securities Act may be permitted for our directors, officers and controlling persons pursuant to the foregoing provisions, or otherwise, we have been advised that in the opinion of the SEC such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable.

 

Limitation of Liability of Directors

 

Our Articles of Incorporation provide a limitation of liability such that no director or officer shall be personally liable to us or any of our stockholders for damages for breach of fiduciary duty as a director or officer, involving any act or omission of any such director or officer, provided there was no intentional misconduct, fraud or a knowing violation of the law, or payment of dividends in violation of NJS Section 14A:6-14.

 

 

 

Item 14.

Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.

 

None.

 

 

 

 

SIGNATURES

 

Pursuant to the requirements of the Section 12 of the Securities Exchange Act of 1934, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized.

 

	GLOBAL DIGITAL SOLUTIONS, INC.
Dated: August 9, 2013	By:	/s/ William J. Delgado
		William J. Delgado
		Chief Executive Officer
		(Principal Executive Officer)

 

 

INDEX TO FINANCIAL STATEMENTS

(i) For the Years Ended December 31, 2012 and 2011	Page
Report of PMB Helin Donovan  LLP, Independent Registered Public Accounting Firm	F-1
Consolidated Balance Sheets as of December 31, 2012 and 2011	F-2
Consolidated Statements of Operations for the years ended December 31, 2012 and 2011	F-3
Consolidated Statements of Stockholders’ Equity (Deficit) for the years ended December 31, 2012 and 2011	F-4
Consolidated Statements of Cash Flows for the years ended December 31, 2012 and 2011	F-5
Notes to Consolidated Financial Statements	F-6-17
(ii) For the Three and Six-Month Periods Ended June 30, 2013 and 2012
Condensed Consolidated Balance Sheets as of June 30, 2013 and December 31, 2012	F-18
Condensed Consolidated Statements of Operations for the Three and Six-Month Periods Ended June 30, 2013 and 2012	F-19
Condensed Consolidated Statements of Stockholders’ Equity (Deficit) for the Six-Month Period Ended June 30, 2013	F-20
Condensed Consolidated Statements of Cash Flows for the Six-Month Periods Ended June 30, 2013 and 2012	F-21
Notes to Condensed Consolidated Financial Statements	F-22-29

 

 

GLOBAL DIGITAL SOLUTIONS, INC.

CONSOLIDATED BALANCE SHEETS

 

		December 31,
		2012				2011
Assets
Current Assets
Cash and cash equivalents		$	385,141			$	668
Total current assets			385,141				668
Property and equipment, net			-				-
Assets of discontinued operations			395,133				-
Total assets		$	780,274			$	668
Liabilities and Stockholders' Equity (Deficit)
Current Liabilities
Accounts payable and accrued expenses		$	191,499			$	77,013
Convertible notes payable			504,309				1,926,637
Notes payable			117,600				17,500
Total Current Liabilities			813,408				2,021,150
Liabilities of discontinued operations			33,974				-
Total Liabilities			847,382				2,021,150
Commitments and Contingencies (Note 7)
Stockholders’ equity (deficit)
Preferred stock, $0.001 par value, 10,000,000 shares authorized, 0 and 1,000,000 shares issued and outstanding			-				1,000
Common stock, $0.001 par value, 100,000,000 shares authorized,
52,513,451 and 33,111,054 shares issued and outstanding			52,264				33,111
Additional paid-in capital			7,326,336				5,045,429
Accumulated deficit			(7,561,122	)			(7,100,022	)
Total Global Digital Solutions, Inc. stockholders' equity (deficit)			(182,522	)			(2,020,482	)
Noncontrolling interest			115,414				-
Total stockholders’ equity (deficit)			(67,108	)			(2,020,482	)
Total liabilities and stockholders' equity (deficit)		$	780,274			$	668