UNITED STATES


SECURITIES AND EXCHANGE COMMISSION


Washington, D.C. 20549





FORM 10-K





(Mark
One)


☒
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934





For the
Fiscal Year Ended December 31,
2018





or





☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934





For the
transition period from __________________________ to
__________________________





Commission
file number 000-26361








GLOBAL DIGITAL SOLUTIONS, INC.


(Exact
name of registrant as specified in its charter)





New Jersey
22-3392051(State
or other jurisdiction of incorporation or
organization)
(I.R.S.
Employer Identification
No.)





777 South Flagler Drive, Suite 800 West Tower, West Palm Beach, FL
33401


(Address
of principal executive offices) (Zip Code)





(561) 515-6163


(Registrant’s
telephone number, including area code)





Securities
registered pursuant to Section 12(b) of the Act:





Title
of Each Class
Name of
each exchange on which registeredNone
N/A





Securities
registered pursuant to section 12(g) of the Act:





Shares of common stock with a par value of $0.001


(Title
of class)





Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes ☐ No
☒





Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or Section 15(d) of the Act. Yes ☐ No
☒





Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]





Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§ 232.405 of this chapter) during the
preceding 12 months (or for such shorter period that the registrant
was required to submit and post such files). Yes [ ] No
[X]





Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K (§ 229.405 of this chapter) is not
contained herein, and will not be contained, to the best of
registrant’s knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K
or any amendment to this Form 10-K. [ ]





Large
accelerated filer
☐
Accelerated
filer
☐Non-accelerated
filer
☐
Smaller
reporting company
☒(Do not
check if a smaller reporting company)
Emerging
Growth Company
☐





If an
emerging growth company, indicate by check mark if the registrant
has elected not to use the extended transition period for complying
with new or revised financial accounting standards provided
pursuant to Section 13(a) of the Exchange Act. ☐





Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes ☐ No
☒.





The
aggregate market value of the voting and non-voting common equity
held by non-affiliates computed by reference to the price at which
the common equity was last sold, or the average bid and asked price
of such common equity, as of the last business day of the
registrant’s most recently completed second fiscal quarter
was $895,040.





(APPLICABLE
ONLY TO CORPORATE REGISTRANTS)





The
number of shares outstanding of each of the registrant’s
classes of common stock, as of the latest practicable date, was
579,525,814 shares of common stock as of June 14,
2019.





DOCUMENTS INCORPORATED BY REFERENCE





None.














TABLE OF CONTENTS





PagePART IITEM 1.
BUSINESS
3ITEM
1A. RISK FACTORS
7ITEM
1B. UNRESOLVED STAFF COMMENTS
17ITEM 2.
PROPERTIES
18ITEM 3.
LEGAL PROCEEDINGS
18ITEM 4.
MINE SAFETY DISCLOSURES
21PART IIITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER
MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES
22ITEM 6.
SELECTED FINANCIAL DATA
23ITEM 7.
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
23ITEM
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK
30ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
30ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
30ITEM
9A. CONTROLS AND PROCEDURES
31ITEM
9B. OTHER INFORMATION
32PART IIIITEM
10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE
33ITEM
11. EXECUTIVE COMPENSATION
36ITEM
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
AND RELATED STOCKHOLDER MATTERS
40ITEM
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR
INDEPENDENCE
41ITEM
14. PRINCIPAL ACCOUNTING FEES AND SERVICES
41PART IVITEM
15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
42SIGNATURES
45





2





PART I





ITEM 1. BUSINESS





Forward-Looking Statements





This
Annual Report on Form 10-K includes a number of forward-looking
statements that reflect management's current views with respect to
future events and financial performance. Forward-looking statements
are projections in respect of future events or our future financial
performance. In some cases, you can identify forward-looking
statements by terminology such as “may,”
“should,” “expects,” “plans,”
“anticipates,” “believes,”
“estimates.” “predicts,”
“potential” or “continue” or the negative
of these terms or other comparable terminology. Those statements
include statements regarding the intent, belief or current
expectations of us and members of our management team, as well as
the assumptions on which such statements are based. Prospective
investors are cautioned that any such forward-looking statements
are not guarantees of future performance and involve risk and
uncertainties, and that actual results may differ materially from
those contemplated by such forward-looking statements. These
statements are only predictions and involve known and unknown
risks, uncertainties and other factors, including the risks in the
section entitled “Risk Factors” set forth in this
Annual Report on Form 10-K for the fiscal year ended December 31,
2018, any of which may cause our company’s or our
industry’s actual results, levels of activity, performance or
achievements to be materially different from any future results,
levels of activity, performance or achievements expressed or
implied by these forward-looking statements. These risks include,
by way of example and without limitation:





●
 our ability to
successfully commercialize and our products and services on a large
enough scale to generate profitable operation;





●
 our ability to
maintain and develop relationships with customers and
suppliers;





●
 our ability to
successfully integrate acquired businesses or new
brands;





●
 the impact of
competitive products and pricing;





●
 supply constraints
or difficulties;





●
 the retention and
availability of key personnel;





●
 general economic
and business conditions;





●
 substantial doubt
about our ability to continue as a going concern;





●
 our need to raise
additional funds in the future;





●
 our ability to
successfully recruit and retain qualified personnel in order to
continue our operations;





●
 our ability to
successfully implement our business plan;





●
 our ability to
successfully acquire, develop or commercialize new products and
equipment;





●
 intellectual
property claims brought by third parties; and





●
 the impact of any
industry regulation.





Although we believe
that the expectations reflected in the forward-looking statements
are reasonable, we cannot guarantee future results, levels of
activity, or performance. Except as required by applicable law,
including the securities laws of the United States, we do not
intend to update any of the forward-looking statements to conform
these statements to actual results.





Readers
are urged to carefully review and consider the various disclosures
made by us in this report and in our other reports filed with the
Securities and Exchange Commission (the “SEC”). We
undertake no obligation to update or revise forward-looking
statements to reflect changed assumptions, the occurrence of
unanticipated events or changes in the future operating results
over time except as required by law. We believe that our
assumptions are based upon reasonable data derived from and known
about our business and operations. No assurances are made that
actual results of operations or the results of our future
activities will not differ materially from our
assumptions.





As used
in this Annual Report on Form 10-K and unless otherwise indicated,
the terms “GDSI,” “Company,”
“we,” “us,” and “our” refer to
Global Digital Solutions, Inc. and our wholly owned subsidiaries
GDSI Florida, LLC, and North American Custom Specialty Vehicles,
Inc. Unless otherwise specified, all dollar amounts are expressed
in United States dollars.





3





Corporate History





We were
incorporated in New Jersey as Creative Beauty Supply, Inc.
(“Creative”) in August 1995. In March 2004, Creative
acquired Global Digital Solutions, Inc., a Delaware corporation.
The merger was treated as a recapitalization of Global Digital
Solutions, Inc., and Creative changed its name to Global Digital
Solutions, Inc. (“GDSI”). We are focused in the area of
cyber arms technology and complementary security and technology
solutions. On October 22, 2012, we entered into an Agreement of
Merger and Plan of Reorganization to acquire 70% of Airtronic USA,
Inc. (“Airtronic”), a then debtor in possession under
chapter 11 of the Bankruptcy Code once Airtronic successfully
reorganized and emerged from bankruptcy (the “Merger”).
During the period from October 2012 through November 2013, we were
actively involved in the day to day management of Airtronic pending
the completion of the Merger. The Merger did not occur and we
ceased involvement with Airtronic. In December 2012 we incorporated
GDSI Florida LLC (“GDSI FL”), a Florida limited
liability company. Except for the payment of administrative
expenses on behalf of the Company, GDSI FL has no business
operations. In January 2013, we incorporated Global Digital
Solutions, LLC, a Florida limited liability company. In November
2013, we incorporated GDSI Acquisition Corporation, a Delaware
corporation. On June 16, 2014, we acquired North American Custom
Specialty Vehicles, LLC, into GDSI Acquisition Corporation, and
changed the latter’s name to North American Custom Specialty
Vehicles, Inc. (“NACSV”). In July 2014, we announced
the formation of GDSI International (f/k/a Global Digital
Solutions, LLC) to spearhead our efforts overseas.





Business Overview





Global
Digital Solutions, Inc., is positioning itself as a leader in
providing comprehensive security and technology solutions. Since
May 1, 2012, we have been focusing on acquisitions of defense and
defense-related entities both in the United States and
abroad. On June 16, 2014, GDSI completed its acquisition of
North American Custom Specialty Vehicles (“NACSV”).
NACSV’s mobile emergency operations centers (MEOC) can be
tailored to the needs of Police, Fire, EMS, Military, Homeland
Security, National Guard, FBI, Air National Guard, Coast Guard,
Chemical/Petrochemical, Humanitarian Aid, Non Governmental
Organizations, Drug Enforcement, Immigration & Customs, Bureau
of Alcohol, Tobacco, Firearms and Explosives, Water Management,
Wildlife Management, D.O.T. Engineering & Maintenance, Air
& Water Quality Management (EPA), Meteorological Seismic/Oil
& Gas Exploration, IS/Mapping Power Generation (Nuclear &
Conventional), Power Transmission, and Strategic Infrastructure
Security. The company has already built customized vehicles for
customers involved in one or more of the above categories, and we
see many opportunities to improve NACSV and its products and
services through the integration of additional software, hardware,
and firmware technologies.





We are
a holding company focused on the acquisition of companies in the
security and specialty vehicles and services marketplace segments.
We intend to pursue these identified segments in order to expand
the Company through strategic acquisitions and the controlled
internal growth of such acquisitions. Since the filing of our Form
10-K for the year ending 2016, as filed with the Securities &
Exchange Commission (“SEC”) on June 18, 2018, we have
been delinquent in filing of our financial reports with the SEC
pursuant to The Securities Exchange Act of 1934 (the
“Exchange Act”). Since that time, the focus of our
business has evolved, and the below discussion is intended to show
the chronology since that time to the date of the filing of this
report.





History of Business – December 31, 2016 to
Present





On May
13, 2016, as more fully discussed below, we appointed William
Delgado as our Chief Executive Officer (“CEO”) and
Chairman of our Board of Directors.-Mr. Delgado was serving at that
time as a director and our Executive Vice President in charge of
business development. He served as our President, Chief Executive
Officer, and Chief Financial Officer from August 2004 to August
2013. Mr. Delgado began his career with Pacific Telephone in the
Outside Plant Construction. He moved to the network engineering
group and concluded his career at Pacific Bell as the Chief Budget
Analyst for the Northern California region. Mr. Delgado founded All
Star Telecom in late 1991, specializing in OSP construction and
engineering and systems cabling. All Star Telecom was sold to
International Fiber Com in April of 1999. After leaving
International Fiber Com in 2002, Mr. Delgado became President/CEO
of Pacific Comtel in San Diego, California. After we acquired
Pacific Comtel in 2004, he became part of our management and held
the positions of Director, CEO, President, and CFO.





4





Events Since December 31, 2016:





The
following events have occurred since December 31,
2016:





Share Purchase and Sale Agreement for Acquisition of Grupo Rontan
Electro Metalurgica, S.A.





Effective October
13, 2015, the Company (as “Purchaser”) entered into the
SPSA dated October 8, 2015 with Joao Alberto Bolzan and Jose Carlos
Bolzan, both Brazilian residents (collectively, the
“Sellers”), and Grupo Rontan Electro Metalurgica, S.A.,
a limited liability company duly organized and existing under the
laws of Federative Republic of Brazil (“Rontan”)
(collectively, the “Parties”), pursuant to which the
Sellers agreed to sell 100% of the issued and outstanding shares of
Rontan to the Purchaser on the closing date (the “Rontan
Transaction”).





The
purchase price consisted of a cash amount, a stock amount and an
earn-out amount as follows: (i) Brazilian Real (“R”)
$100 million (approximately US$26 million) to be paid by the
Purchaser in equal monthly installments over a period of forty
eight (48) months following the closing date; (ii) an aggregate of
R$100 million (approximately US$26 million) in shares of the
Purchaser’s common stock, valued at US$1.00 per share; and
(iii) an earn-out payable within ten business days following
receipt by the Purchaser of Rontan’s audited financial
statements for the 12-months ended December 31, 2017, 2018 and
2019. The earn-out shall be equal to the product of (i)
Rontan’s earnings before interest, taxes, depreciation and
amortization (“EBITDA”) for the last 12 months, and
(ii) twenty percent and is contingent upon Rontan’s EBITDA
results for any earn-out period being at least 125% of
Rontan’s EBITDA for the 12-months ended December 31, 2015. It
is the intention of the parties that the stock amount will be used
by Rontan to repay institutional debt outstanding as of the closing
date.





Under
the terms of a finder’s fee Agreement dated April 14, 2014,
we have agreed to pay RLT Consulting, Inc., a related party, a fee
of 2% (two percent) of the transaction value, as defined in the
agreement, of Rontan upon closing. The fee is payable one half in
cash and one half in shares of our common stock. Specific
conditions to closing include, but are not limited to:





a)
 Purchaser’s
receipt of written limited assurance of an unqualified opinion with
respect to Rontan’s audited financial statements for the
years ended December 31, 2013 and 2014 (the
“Opinion”);





b)
 The commitment of
sufficient investment by General American Capital Partners LLC (the
“Institutional Investor”), in the Purchaser following
receipt of the Opinion;





c)
 The accuracy of
each party’s representations and warranties contained in the
SPSA;





d)
 The continued
operation of Rontan’s business in the ordinary
course;





e)
 The maintenance of
all of Rontan’s bank credit lines in the maximum amount of
R$200 million (approximately US$52 million) under the same terms
and conditions originally agreed with any such financial
institutions, and the maintenance of all other types of funding
arrangements. As of the date of the SPSA, Rontan’s financial
institution debt consists of not more than R$200 million
(approximately US$52 million), trade debt of not more than R$50
million (approximately US$13 million), and other fiscal
contingencies of not more that R$95 million (approximately US$24.7
million);





f)
 Rontan shall enter
into employment or consulting service agreements with key employees
and advisors identified by the Purchaser, including Rontan’s
Chief Executive Officer; and





g)
 The Sellers
continued guarantee of Rontan’s bank debt for a period of 90
days following issuance of the Opinion..





The
Institutional Investor has committed to invest sufficient capital
to facilitate the transaction, subject to receipt of the Opinion,
among other conditions. Subject to satisfaction or waiver of the
conditions precedent provided for in the SPSA, the closing date of
the transaction shall take place within 10 business days from the
date of issuance of the Opinion. Rontan is engaged in the
manufacture and distribution of specialty vehicles and
acoustic/visual signaling equipment for the industrial and
automotive markets.





5





On
April 1, 2016, we believed that we had satisfied or otherwise
waived the conditions to closing (as disclosed under the SPSA, the
closing was subject to specific conditions, which were waivable by
us), and on April 1, 2016, we advised the Sellers of our intention
to close the SPSA and demanded delivery of the Rontan Securities.
The Sellers, however, notified us that they intend to terminate the
SPSA. We believe that the Sellers had no right to terminate the
SPSA and that notice of termination by the Sellers was not
permitted under the terms of the SPSA.





Change in Independent Accounting Firm





Effective July 13,
2017, our Board of Directors dismissed the auditing firm of PMB
Helin Donovan and subsequently engaged Turner Stone and Company,
Dallas, TX. We had no issues relating to the performance of the PMB
Helin Donovan audits or any disagreements with their accounting
practices and decisions.





Settlements of Certain Liabilities





On
August 30, 2017, we announced that we had reached tentative
agreements with three creditors for repayment of liabilities and/or
claims totaling approximately $491,574 as of August 15, 2017. This
settlement included amounts due under the factoring agreements
discussed above during the period from August 30, 2017, to December
31, 2017. We paid approximately $193,514 to settle these
liabilities and/or claims.





On
August 30, 2017, we finalized the settlement agreement reached
between the parties regarding the litigation between John Ramsay,
Carl Dekle, The Estate of Brian Dekle and us and NACSV,
collectively, which had been previously disclosed in our Quarterly
Report on Form 10-Q for the quarter ended September 30, 2015. We
made a payment of $20,000 in connection with the
settlement.





Liquidity





Our
cash position is critically deficient, and payments essential to
our ability to operate are not being made in the ordinary course.
Failure to raise capital to fund our operations and failure to
generate positive cash flow to fund such operations in the future
will have a material adverse effect on our financial condition.
These factors raise substantial doubt about our ability to continue
as a going concern.





Business Strategy – As of the Date of This
Filing





As of
the date of this filing, our business continues to be through our
NACSV subsidiary and the production of mobile command centers. Our
future strategy is to expand into the infrastructure technology and
cybersecurity areas. We will look to acquire companies in these
respective areas, focusing on companies that have the ability to
utilize blockchain technology in their respective
operations.





Target Markets, Sales and Marketing





Our
target market will be primarily in North America, with a
concentration in the USA and Canada. We expect that sales and
marketing will use the company’s existing strategies,
augmented by a sales force developed by the parent company in
conjunction with the acquired subsidiary.





Competition





The
Company is and will continue to be an insignificant participant in
the business of seeking mergers with, joint ventures with, and
acquisitions of other entities. A large number of established and
well-financed entities, including venture capital firms, private
equity firms, and family offices, are active in mergers and
acquisitions of companies that may be desirable target candidates
for the Company. Nearly all such entities have significantly
greater financial resources, technical expertise, and managerial
capabilities than the Company, and, consequently, the Company will
be at a competitive disadvantage in identifying possible business
opportunities and successfully completing a business combination.
Moreover, the Company will also compete in seeking merger or
acquisition candidates with numerous other small public
companies.





6





Research and Development





______We
have not incurred any research and development
expense.





Intellectual Property





_____We
currently do not have any intellectual property.





Government Approvals and Regulations





We do
not expect to encounter any significant governmental approval or
regulation issues, as we do not intend to monopolize any target
business areas. We do expect to be subject to the traditional
government regulation related to business licenses, foreign
corporation rules, etc.





Subsidiaries





___
We currently have two subsidiaries including GDSI Florida, LLC, and
North American Custom Specialty Vehicles, Inc.





Employees





As
of December 31, 2018, we had 2 full-time employee, William Delgado
and Jerome Gomolski, and 0 part-time employees. We intend to hire
additional staff and to engage consultants in general
administration on an as-needed basis. We also intend to engage
experts in operations, finance, and general business to advise us
in various capacities. None of our employees are covered by a
collective bargaining agreement, and we believe our relationship
with our employees is good to excellent.





Our
future success depends, in part, on our ability to continue to
attract, retain, and motivate highly qualified technical,
marketing, and management personnel and, as of the end of the
period covered by this report and as of the date of filing, we
continue to rely on the services of independent contractors for
much of our sales/marketing. We believe technical, accounting, and
other functions are also critical to our continued and future
success.





ITEM 1A. RISK FACTORS





You
should carefully consider the risks described below together with
all of the other information included in our public filings before
making an investment decision with regard to our securities. The
statements contained in or incorporated into this document that are
not historic facts are forward-looking statements that are subject
to risks and uncertainties. If any of the following events
described in these risk factors actually occurs, our business,
financial condition, or results of operations could be harmed. In
that case, the trading price of our common stock could decline, and
you may lose all or part of your investment. Moreover, additional
risks not currently known to us or that we currently deem less
significant may also impact our business, financial condition, or
results of operations, perhaps materially. For additional
information regarding risk factors, see Item 1 –
“Forward-Looking Statements.”





Risks Related to Our Company





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





We have
not generated any profit from combined operations since our
inception. We expect that our operating expenses will increase over
the next twelve months to continue our development activities.
Based on our average monthly expenses and current burn rate of
$20,032 per month, we estimate that our cash on hand will not be
able to support our operations through the balance of this calendar
year. This amount could increase if we encounter difficulties that
we cannot anticipate at this time or if we acquire other
businesses. On February 2, 2018, we announced that we had secured
$1.2 million in a non-convertible financing from a New York-based
institution. Should this amount not be sufficient to support our
continuing operations, we do not expect to be able to raise any
additional capital through debt financing from traditional lending
sources since we are not currently generating a profit from
operations. Therefore, we only expect to raise money through equity
financing via the sale of our common stock or equity-linked
securities such as convertible debt. If we cannot raise the money
that we need in order to continue to operate our business beyond
the period indicated above, we will be forced to delay, scale back
or eliminate some or all of our proposed operations. If any of
these were to occur, there is a substantial risk that our business
would fail. If we are unsuccessful in raising additional financing,
we may need to curtail, discontinue, or cease
operations.





7





We
have limited operating history with our operating subsidiary, and
as a result, we may experience losses and cannot assure you that we
will be profitable.





We have
a limited operating history with our single operating subsidiary,
NACSV, on which to evaluate our business. Our operations are
subject to all of the risks inherent in the establishment and
expansion of a business enterprise. Accordingly, the likelihood of
our success must be considered in the light of the problems,
expenses, difficulties, complications, and delays frequently
encountered in connection with the starting and expansion of a
business and the relatively competitive environment in which we
operate. Unanticipated delays, expenses, and other problems such as
setbacks in product development, product manufacturing, and market
acceptance are frequently encountered in establishing a business
such as ours. There can be no assurance that the Company will be
successful in addressing such risks, and any failure to do so could
have a material adverse effect on the Company's business, results
of operations, and financial condition.





Because
of our limited operating history with our operating subsidiary, we
have limited historical financial data on which to base planned
operating expenses. Accordingly, our expense levels, which are, to
a large extent, variable, will be based in part on our expectations
of future revenues. As a result of the variable nature of many of
our expenses, we may be unable to adjust spending in a timely
manner to compensate for any unexpected delays in the development
and marketing of our products or any subsequent revenue shortfall.
Any such delays or shortfalls will have an immediate adverse impact
on our business, operating results, and financial
condition.





We have
not achieved profitability on a quarterly or annual basis to date.
To the extent that net revenue does not grow at anticipated rates
or that increases in our operating expenses precede or are not
subsequently followed by commensurate increases in net revenue, or
that we are unable to adjust operating expense levels accordingly,
our business, results of operations, and financial condition will
be materially and adversely affected. There can be no assurance
that our operating losses will not increase in the future or that
we will ever achieve or sustain profitability.





No
Assurance of Sustainable Revenues.





There
can be no assurance that our subsidiaries will generate sufficient
and sustainable revenues to enable us to operate at profitable
levels or to generate positive cash flow. As a result of our
limited operating history and the nature of the markets in which we
compete, we may not be able to accurately predict our revenues. Any
failure by us to accurately make such predictions could have a
material adverse effect on our business, results of operations, and
financial condition. Further, our current and future expense levels
are based largely on our investment plans and estimates of future
revenues. We expect operating results to fluctuate significantly in
the future as a result of a variety of factors, many of which are
outside of our control. Factors that may adversely affect our
operating results include, among others, demand for our products
and services, the budgeting cycles of potential customers, lack of
enforcement of or changes in governmental regulations or laws, the
amount and timing of capital expenditures and other costs relating
to the expansion of our operations, the introduction of new or
enhanced products and services by us or our competitors, the timing
and number of new hires, changes in our pricing policy or those of
our competitors, the mix of our products, increases in the cost of
raw materials, technical difficulties with the products, incurrence
of costs relating to future acquisitions, general economic
conditions, and market acceptance of our products. As a strategic
response to changes in the competitive environment, we may, from
time to time, make certain decisions regarding pricing, service,
marketing or business combinations that could have a material
adverse effect on our business, results of operations, and
financial condition. Any seasonality is likely to cause quarterly
fluctuations in our operating results, and there can be no
assurance that such patterns will not have a material adverse
effect on our business, results of operations, and financial
condition. We may be unable to adjust spending in a timely manner
to compensate for any unexpected revenue shortfall.





We
may need to raise additional funds in the future that may not be
available on acceptable terms or available at all.





We may
consider issuing additional debt or equity securities in the future
to fund our business plan, for potential investment acquisitions,
or general corporate purposes. If we issue equity or convertible
debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences, and privileges senior to
those of our existing stockholders. If we incur additional debt, it
may increase our leverage relative to our earnings or to our equity
capitalization, requiring us to pay additional interest expenses.
We may not be able to obtain financing on favorable terms, or at
all, in which case, we may not be able to develop or enhance our
products, execute our business plan, take advantage of future
opportunities, or respond to competitive pressures.





8





While
a major part of our business strategy is to pursue strategic
acquisitions, we may not be able to identify businesses for which
we can obtain necessary financing to acquire on acceptable terms,
face risks due to additional indebtedness, and our acquisition
strategy may incur significant costs or expose us to substantial
risks inherent in the acquired business’s
operations.





Our
strategy of pursuing strategic acquisitions may be negatively
impacted by several risks, including the following:





●
 We may not
successfully identify companies that have complementary product
lines or technological competencies or that can diversify our
revenue or enhance our ability to implement our business
strategy;





●
 We may not
successfully acquire companies if we fail to obtain financing, if
we fail to negotiate the acquisition on acceptable terms, or for
other related reasons.





●
 We may incur
additional expenses due to acquisition due diligence, including
legal, accounting, consulting, and other professional fees and
disbursements. Such additional expenses may be material, will
likely not be reimbursed, and would increase the aggregate cost of
any acquisition.





●
 Any acquired
business will expose us to the acquired company’s liabilities
and to risks inherent to its industry, and we may not be able to
ascertain or assess all of the significant risks.





●
 We may require
additional financing in connection with any future acquisition, and
such financing may adversely impact, or be restricted by, our
capital structure.





●
 Achieving the
anticipated potential benefits of a strategic acquisition will
depend in part on the successful integration of the operations,
administrative infrastructures, and personnel of the acquired
company or companies in a timely and efficient manner. Some of the
challenges involved in such an integration include: (i)
demonstrating to the customers of the acquired company that the
consolidation will not result in adverse changes in quality,
customer service standards, or business focus; (ii) preserving
important relationships of the acquired company; (iii) coordinating
sales and marketing efforts to effectively communicate the expanded
capabilities of the combined company; and (iv) coordinating the
supply chains.





Any
future acquisitions could disrupt business.





If we
are successful in consummating acquisitions, those acquisitions
could subject us to a number of risks, including that:





●
 the purchase price
we pay could significantly deplete our cash reserves or result in
dilution to our existing stockholders;





●
 we may find that
the acquired company or assets do not improve our customer
offerings or market position as planned;





●
 we may have
difficulty integrating the operations and personnel of the acquired
company;





●
 key personnel and
customers of the acquired company may terminate their relationships
with the acquired company as a result of the
acquisition;





●
 we may experience
additional financial and accounting challenges and complexities in
areas such as tax planning and financial reporting;





●
 we may assume or be
held liable for risks and liabilities as a result of our
acquisitions, some of which we may not discover during our due
diligence or adequately adjust for in our acquisition
arrangements;





●
 we may incur
one-time write-offs or restructuring charges in connection with the
acquisition;





●
 we may acquire
goodwill and other intangible assets that are subject to
amortization or impairment tests, which could result in future
charges to earnings; and





●
 we may not be able
to realize the cost savings or other financial benefits we
anticipated.





These
factors could have a material adverse effect on our business,
financial condition, and operating results.





9





Our business is at risk if we lose key personnel or are unable to
attract and integrate additional skilled personnel.





The
success of our business depends, in large part, on the skill of our
personnel. Accordingly, it is critical that we maintain and
continue to build a highly experienced management team and
specialized workforce, including engineers, experts in project
management and business development, and sales professionals.
Competition for personnel, particularly those with expertise in the
specialty vehicle industry and, as we expect, in the industries of
any future acquisition targets, is high, and identifying candidates
with the appropriate qualifications can be difficult. We may not be
able to hire the necessary personnel to implement our business
strategy given our anticipated hiring needs, or we may need to
provide higher compensation or more training to our personnel than
we currently anticipate.





In the
event, we are unable to attract, hire and retain the requisite
personnel and subcontractors, we may experience delays in growing
our business plan in accordance with project schedules and budgets,
which may have an adverse effect on our financial results, harm our
reputation and cause us to curtail our pursuit of new initiatives.
Further, any increase in demand for personnel and specialty
subcontractors may result in higher costs, causing us to exceed the
budget on a project, which in turn may have an adverse effect on
our business, financial condition and operating results and harm
our relationships with our customers.





Our
future success is particularly dependent on the vision, skills,
experience and effort of our senior management team, including our
president and chief executive officer. If we were to lose the
services of our president and chief executive officer or any of our
key employees, our ability to effectively manage our operations and
implement our strategy could be harmed and our business may
suffer.





We may not be able to protect intellectual property that we hope to
acquire, which could adversely affect our business.





The
companies that we hope to acquire may rely on patent, trademark,
trade secret, and copyright protection to protect their technology.
We believe that technological leadership can be achieved through
additional factors such as the technological and creative skills of
our personnel, new product developments, frequent product
enhancements, name recognition, and reliable product maintenance.
Nevertheless, our ability to compete effectively depends in part on
our ability to develop and maintain proprietary aspects of our
technology, such as patents. We may not secure future patents; and
patents that we may secure may become invalid or may not provide
meaningful protection for our product innovations. In addition, the
laws of some foreign countries do not protect intellectual property
rights to the same extent as the United States. Furthermore, there
can be no assurance that competitors will not independently develop
similar products, "reverse engineer" our products, or, if patents
are issued to us, design around such patents. We also expect to
rely upon a combination of copyright, trademark, trade secret, and
other intellectual property laws to protect our proprietary rights
by entering into confidentiality agreements with our employees,
consultants, and vendors, and by controlling access to and
distribution of our technology, documentation and other proprietary
information. There can be no assurance, however, that the steps to
be taken by us will not be challenged, invalidated, or
circumvented, or that the rights granted thereunder will provide a
competitive advantage to us. Any such circumstance could have a
material adverse effect on our business, financial condition and
results of operations. While we are not currently engaged in any
intellectual property litigation or proceedings, there can be no
assurance that we will not become so involved in the future or that
our products do not infringe any intellectual property or other
proprietary right of any third party. Such litigation could result
in substantial costs, the diversion of resources and personnel, and
significant liabilities to third parties, any of which could have a
material adverse effect on our business.





We
may not be able to protect our trade names and domain
names.





We may
not be able to protect our trade names and domain names against all
infringers, which could decrease the value of our brand name and
proprietary rights. We currently hold the Internet domain names
"www.gdsi.co" and “www.nacsvehicles.com,” and we use
“GDSI” and “NACS Vehicles” as trade names.
Domain names generally are regulated by Internet regulatory bodies
are subject to change, and in some cases, may be superseded, in
some cases by laws, rules and regulations governing the
registration of trade names and trademarks with the United States
Patent and Trademark Office as well as ascertain other common law
rights. If the domain registrars are changed, if new ones are
created, or if we are deemed to be infringing upon another's trade
name or trademark, we may be unable to prevent third parties from
acquiring or using, as the case may be, our domain name, trade
names or trademarks, which could adversely affect our brand name
and other proprietary rights.





10





We
may be subject to liability claims for damages and other expenses
not covered by insurance that could reduce our earnings and cash
flows.





Our
business, profitability, and growth prospects could suffer if we
pay damages or defense costs in connection with a liability claim
that is outside the scope of any applicable insurance coverage. We
intend to maintain, but do not yet have, general and product
liability insurance. There is no assurance that we will be able to
obtain insurance in amounts, or for a price, that will permit us to
purchase desired amounts of insurance. Additionally, if our costs
of insurance and claims increase, then our earnings could decline.
Further, market rates for insurance premiums and deductibles have
been steadily increasing, which may prevent us from being
adequately insured. A product liability or negligence action in
excess of insurance coverage could harm our profitability and
liquidity.





Insurance and contractual protections may not always cover lost
revenue.





We
possess insurance and warranties from suppliers, and our
subcontractors make contractual obligations to meet certain
performance levels. We also attempt, where feasible, to pass risks
we cannot control to our customers. The proceeds of such insurance,
warranties, performance guarantees, and risk-sharing arrangements
may not be adequate to cover lost revenue, increased expenses, or
liquidated damages payments that may be required in the
future.





We
currently carry customary insurance for business liability. For our
work as a general contractor, we carry workers comp insurance for
our employees, and we have performance bonding insurance. Certain
losses of a catastrophic nature, such as from floods, tornadoes,
thunderstorms, and earthquakes, are uninsurable or not economically
insurable. Such “Acts of God,” work stoppages,
regulatory actions, or other causes, could interrupt operations and
adversely affect our business.





We
rely on outside consultants and employees.





We will
rely on the experience of outside consultants and employees. In the
event that one or more of these consultants or employees terminates
employment with the Company, or becomes unavailable, suitable
replacements will need to be retained, and there is no assurance
that such employees or consultants could be identified under
conditions favorable to us.





Risks Related to NACSV’s Business





We
may face strong competition from larger, established
companies.





We
likely will face intense competition from other companies that
provide the same or similar custom specialty vehicle manufacturing
and other services that compete with acquired businesses, virtually
all of which can be expected to have longer operating histories,
greater name recognition, larger installed customer bases, and
significantly more financial resources, R&D facilities, and
manufacturing and marketing experience than we have. There can be
no assurance that developments by our potential competitors will
not render our existing and future products or services obsolete.
In addition, we expect to face competition from new entrants into
the custom specialty vehicle business. As the demand for products
and services grows and new markets are exploited, we expect that
competition will become more intense, as current and future
competitors begin to offer an increasing number of diversified
products and services. We may not have sufficient resources to
maintain our research and development, marketing, sales, and
customer support efforts on a competitive basis. Additionally, we
may not be able to make the technological advances necessary to
maintain a competitive advantage with respect to our products and
services. Increased competition could result in price reductions,
fewer product orders, obsolete technology, and reduced operating
margins, any of which could materially and adversely affect our
business, financial condition, and results of
operations.





11





If
we are unable to keep up with technological developments, our
business could be negatively affected.





The
markets for our products and services are expected to be
characterized by rapid technological change and be highly
competitive with respect to timely innovations. Accordingly, we
believe that our ability to succeed in the sale of our products and
services will depend significantly upon the technological quality
of our products and services relative to those of our competitors,
and upon our ability to continue to develop and introduce new and
enhanced products and services at competitive prices and in a
timely and cost-effective manner. In order to develop such new
products and services, we will depend upon close relationships with
existing customers and our ability to continue to develop and
introduce new and enhanced products and services at competitive
prices and in a timely and cost-effective manner. There can be no
assurance that we will be able to develop and market our products
and services successfully or respond effectively to the
technological changes or new product and service offerings of our
potential competitors. We may not be able to develop the required
technologies, products, and services on a cost-effective and timely
basis, and any inability to do so could have a material adverse
effect on our business, financial condition, and results of
operations.





We
operate in a highly competitive industry and competitors may
compete more effectively.





The
industries in which we operate are highly competitive, with many
companies of varying size and business models, many of which have
their own proprietary technologies, competing for the same business
as we do. Many of our competitors have longer operating histories
and greater resources than us, and they could use their substantial
financial resources to develop a competing business model, develop
products or services that are more attractive to potential
customers than those we offer, or convince our potential customers
that they require financing arrangements that are impractical for
smaller companies to offer. Our competitors may also offer similar
products and services at prices below cost, devote significant
sales forces to competing with us, or attempt to recruit our key
personnel by increasing compensation, any of which could improve
their competitive positions. Any of these competitive factors could
make it more difficult for us to attract and retain customers,
cause us to lower our prices in order to compete or reduce our
market share and revenue, any of which could have a material
adverse effect on our financial condition and operating results. We
can provide no assurance that we will continue to compete
effectively against our current competitors or additional companies
that may enter our markets. We also expect to encounter competition
from customers who elect to develop solutions or perform services
internally rather than engaging an outside provider such as
us.





Operating
results may fluctuate and may fall below expectations in any fiscal
quarter.





Our
operating results are difficult to predict and are expected to
fluctuate from quarter to quarter due to a variety of factors, many
of which are outside of our control. As a result, comparing our
operating results on a period-to-period basis may not be
meaningful, and investors should not rely on our past results or on
predictions prepared by the Company to determine future
performance. If our revenue or operating results fall in any
period, the value of our common stock would likely
decline.





Risks Related to Our Financial Condition





Dependence
on financing and losses for the foreseeable future.





Our
independent registered public accounting firm has issued its audit
opinion on our consolidated financial statements appearing in this
Annual Report on Form 10-K, including an explanatory paragraph as
to substantial doubt with respect to our ability to continue as a
going concern. The accompanying consolidated financial statements
have been prepared in conformity with accounting principles
generally accepted in the United States of America, assuming we
will continue as a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal
course of business. For the fiscal year ended December 31, 2018,
our net loss was $1,834,358. As of December 31, 2018, we had an
accumulated deficit of $35,661,822 and a working capital deficit of
$4,295,479. These factors raise substantial doubt about our ability
to continue as a going concern which is dependent on our ability to
raise the required additional capital or debt financing to meet
short- and long-term operating requirements. We may also encounter
business endeavors that require significant cash commitments or
unanticipated problems or expenses that could result in a need for
additional cash. If we raise additional funds through the issuance
of equity or convertible debt securities, the percentage ownership
of our current shareholders could be reduced, and such securities
might have rights, preferences, or privileges senior to our common
stock. Additional financing may not be available upon acceptable
terms, or available at all. If adequate funds are not available on
acceptable terms, we may not be able to take advantage of
prospective business endeavors or opportunities, which could
significantly and materially restrict our operations. If we are
unable to obtain necessary capital, we may have to cease
operations. For additional information, see Item 7 –
Management’s Discussion and Analysis of Financial Condition
and Results of Operations – “Going
Concern.”





12





Dependence
on financing and losses for the foreseeable future.





As
of December 31, 2018, we had current liabilities of $4,303,579 and
current assets of $8,100. We had a working capital deficiency of
$4,295,479. Our ability to continue as a going concern is dependent
upon raising capital from financing transactions. To stay in
business, we will need to raise additional capital through public
or private sales of our securities or debt financing. In the past,
we have financed our operations by issuing secured and unsecured
convertible debt and equity securities in private placements, in
some cases with equity incentives for the investor in the form of
warrants to purchase our common stock, and we have borrowed from
related parties. We have sought, and will continue to seek, various
sources of financing. On February 2, 2018, we announced that we had
secured $1.2 million in a non-convertible financing from a New
York-based institution. There are no additional commitments from
anyone to provide us with financing. We can provide no assurance as
to whether our capital raising efforts will be successful or as to
when, or if, we will be profitable in the future. Even if the
Company achieves profitability, it may not be able to sustain such
profitability. If we are unable to obtain financing or achieve and
sustain profitability, we may have to suspend operations or sell
assets, making us unable to execute our business plan. Failure to
become and remain profitable may adversely affect the market price
of our common stock and our ability to raise capital and continue
operations.





Our
ability to generate positive cash flows is uncertain.





To
develop and expand our business, we will need to make significant
up-front investments in our manufacturing capacity and incur
research and development, sales and marketing, and general and
administrative expenses. In addition, our growth will require a
significant investment in working capital. Our business will
require significant amounts of working capital to meet our project
requirements and support our growth. We cannot provide any
assurance that we will be able to raise the capital necessary to
meet these requirements. If adequate funds are not available or are
not available on satisfactory terms, we may be required to
significantly curtail our operations and may not be able to fund
our current production requirements, let alone fund expansion, take
advantage of unanticipated acquisition opportunities, develop or
enhance our products, and respond to competitive pressures. Any
failure to obtain such additional financing could have a material
adverse effect on our business, results of operations, and
financial condition.





Because
we may never have net income from our operations, our business may
fail.





We have
no history of profitability from operations. There can be no
assurance that we will ever operate profitably. Our success is
significantly dependent on uncertain events, including successful
developing our products, establishing satisfactory manufacturing
arrangements and processes, and distributing and selling our
products. If we are unable to generate significant revenues from
sales of our products, we will not be able to earn profits or
continue operations. We can provide no assurance that we will
generate any revenues or ever achieve profitability. If we are
unsuccessful in addressing these risks, our business will fail, and
investors may lose all of their investment in our
Company.





We
need to raise additional funds, and such funds may not be available
on acceptable terms.





We may
consider issuing additional debt or equity securities in the future
to fund our business plan, for general corporate purposes or for
potential acquisitions or investments. If we issue equity or
convertible debt securities to raise additional funds, our existing
stockholders may experience dilution, and the new equity or debt
securities may have rights, preferences, and privileges senior to
those of our existing stockholders. If we incur additional debt, it
may increase our leverage relative to our earnings or to our equity
capitalization, requiring us to pay additional interest expenses.
We may not be able to obtain financing on favorable terms, in which
case, we may not be able to develop or enhance our products,
execute our business plan, take advantage of future opportunities,
or respond to competitive pressures.





Risks Related to Our Common Stock and Its Market Value





13





We
have limited capitalization and may require financing, which may
not be available.





We have
limited capitalization, which increases our vulnerability to
general adverse economic and industry conditions, limits our
flexibility in planning for and reacting to changes in our business
and industry, and may place us at a competitive disadvantage to
competitors with sufficient capitalization. If we are unable to
obtain sufficient financing on satisfactory terms and conditions,
we will be forced to curtail or abandon our plans or operations.
Our ability to obtain financing will depend upon a number of
factors, many of which are beyond our control.





A
limited public trading market exists for our common stock, which
makes it difficult for our stockholders to sell their common stock
on the public markets. Any trading in our shares may have a
significant effect on our stock prices.





Although our common
stock is listed for quotation on the OTC Marketplace, Pink Tier,
under the symbol “GDSI,” the trading activity of our
common stock is volatile and may not develop or be sustained. As a
result, any trading price of our common stock may not be an
accurate indicator of the valuation of our common stock. Any
trading in our shares could have a significant effect on our stock
price. If a more liquid public market for our common stock does not
develop, then investors may not be able to resell the shares of our
common stock that they have purchased and may lose all of their
investment. No assurance can be given that an active market will
develop or that a stockholder will ever be able to liquidate its
shares of common stock without considerable delay, if at all. Many
brokerage firms may not be willing to effect transactions in the
securities. Even if an investor finds a broker willing to affect a
transaction in our securities, the combination of brokerage
commissions, state transfer taxes, if any, and any other selling
costs may exceed the selling price. Furthermore, our stock price
may be impacted by factors that are unrelated or disproportionate
to our operating performance. These market fluctuations, as well as
general economic, political, and market conditions, such as
recessions, interest rates, and international currency
fluctuations, may adversely affect the market price and liquidity
of our common stock.





Our
stock price has undergone a great deal of volatility, including a
significant decrease over the past few years. The volatility may
mean that, at times, our stockholders may be unable to resell their
shares at or above the price at which they acquired
them.





From
January 1, 2018 through the date of this report, the price per
share of our common stock has ranged from a high of $0.015 to a low
of $0.0007. The price of our common stock has been, and may
continue to be, highly volatile and subject to wide fluctuations.
The market value of our common stock has declined in the past, due
in part to our operating performance and to conversions of dilutive
debt instruments that we have issued to fund operations. In the
future, broad market and industry factors may decrease the market
price of our common stock, regardless of our actual operating
performance. Recent declines in the market price of our common
stock have and could continue to affect our access to capital, and
may, if they continue, impact our ability to continue operations at
the current level. In addition, any continuation of the recent
declines in the price of our common stock may curtail investment
opportunities presented to us and negatively impact other aspects
of our business, including our ability to fund our operations. As a
result of any such declines, many stockholders have been or may
become unable to resell their shares at or above the price at which
they acquired them.





The
volatility of the market price of our common stock could fluctuate
widely in price in response to various factors, many of which are
beyond our control, including the following:





●
 our stock being
held by a small number of persons whose sales (or lack of sales)
could result in positive or negative pricing pressure on the market
price for our common stock;





●
 actual or
anticipated variations in our quarterly operating
results;





●
 changes in our
earnings estimates;





●
 our ability to
obtain adequate working capital financing;





●
 changes in market
valuations of similar companies;





●
 publication (or
lack of publication) of research reports about us;





●
 changes in
applicable laws or regulations, court rulings, enforcement, and
legal actions;





●
 loss of any
strategic relationships;





●
 additions or
departures of key management personnel;





14





●
 actions by our
stockholders (including transactions in our shares);





●
 speculation in the
press or investment community;





●
 increases in market
interest rates, which may increase our cost of
capital;





●
 changes in our
industry;





●
 competitive pricing
pressures;





●
 our ability to
execute our business plan; and





●
 economic and other
external factors.





In
addition, the securities markets have from time to time experienced
significant price and volume fluctuations that are unrelated to the
operating performance of particular companies. These market
fluctuations may also materially and adversely affect the market
price of our common stock.





Our
common stock may never be listed on a national exchange and is
subject to being removed from the OTC Pink
Marketplace.





Our
common stock is quoted for trading on the OTC Pink Marketplace
(“OTC Pink”). On December 26, 2017, the Securities and
Exchange Commission instituted public administrative proceedings
pursuant to Section 12(j) of the Securities Exchange Act of 1934
(“Exchange Act”) against the Respondent Global Digital
Solutions, Inc. On January 8, 2018, Respondent Global Digital
Solutions, Inc. (“GDSI”) filed its answer to the
allegations contained in the Order Instituting Administrative
Proceedings and Notice of Hearing Pursuant to Section 12U - of the
Exchange Act. A briefing schedule was entered into and on February
15, 2018, the Securities and Exchange Commission filed a motion for
an order of summary disposition against Respondent GDSI on the
grounds that there is no genuine issue with regard to any material
fact, and the Division was entitled as a matter of law to an order
revoking each class of GDSI's securities registered pursuant to
Section 12 of the Exchange Act. Respondent GDSI opposed the
Securities and Exchange Commission’s motion on the grounds
that there were material issues of fact. The Securities and
Exchange Commission replied, and a hearing was held on April 9,
2018. The Administrative Law Judge ordered supplemental evidence
and briefing on the issues of material fact. In the event that we
are able to file the required reports with the SEC to be current
under the Exchange Act of 1934 (the “Exchange Act”), we
still will be unable to list our stock on the OTCQB since the price
of our stock is below $0.01, and we do not meet the eligibility
standards for listing under the OTCQB per OTC Markets guidelines.
Should we continue to fail to satisfy the eligibility standards of
OTC Markets for the OTCQB, the trading price of our common stock
could continue to suffer and the trading market for our common
stock may be less liquid and our common stock price may be subject
to increased volatility.





Our
stock is categorized as a penny stock. Trading of our stock may be
restricted by the SEC’s penny stock regulations which may
limit a stockholder’s ability to buy and sell our
stock.





Our
stock is categorized as a “penny stock”, as that term
is defined in SEC Rule 3a51-1, which generally provides that a
“penny stock”, is any equity security that has a market
price (as defined) less than US$5.00 per share, subject to certain
exceptions. Our securities are covered by the penny stock rules,
including Rule 15g-9, which imposes additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and accredited investors. The penny stock
rules require a broker-dealer, prior to a transaction in a penny
stock not otherwise exempt from the rules, to deliver a
standardized risk disclosure document in a form prepared by the SEC
which provides information about penny stocks and the nature and
level of risks in the penny stock market. The broker-dealer also
must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction, and monthly account statements
showing the market value of each penny stock held in the
customer’s account. The bid and offer quotations, and the
broker-dealer and salesperson compensation information, must be
given to the customer orally or in writing prior to effecting the
transaction and must be given to the customer in writing before or
with the customer’s confirmation. In addition, the penny
stock rules require that prior to a transaction in a penny stock
not otherwise exempt from these rules, the broker-dealer must make
a special written determination that the penny stock is a suitable
investment for the purchaser and receive the purchaser’s
written agreement to the transaction. These disclosure requirements
may have the effect of reducing the level of trading activity in
the secondary market for the stock that is subject to these penny
stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities and reduce the
number of potential investors. We believe that the penny stock
rules discourage investor interest in and limit the marketability
of our common stock.





15





According to SEC
Release No. 34-29093, the market for “penny stocks” has
suffered in recent years from patterns of fraud and abuse. Such
patterns include: (1) control of the market for the security by one
or a few broker-dealers that are often related to the promoter or
issuer; (2) manipulation of prices through prearranged matching of
purchases and sales and through false and misleading press
releases; (3) boiler-room practices involving high-pressure sales
tactics and unrealistic price projections by inexperienced
salespersons; (4) excessive and undisclosed bid-ask differentials
and markups by selling broker-dealers; and (5) the wholesale
dumping of the same securities by promoters and broker-dealers
after prices have been manipulated to a desired level, along with
the resulting inevitable collapse of those prices and with
consequent investor losses. The occurrence of these patterns or
practices could increase the future volatility of our share
price.





FINRA
sales practice requirements may also limit a stockholder’s
ability to buy and sell our stock.





In
addition to the “penny stock” rules described above,
FINRA has adopted rules that require that in recommending an
investment to a customer, a broker-dealer must have reasonable
grounds for believing that the investment is suitable for that
customer. Prior to recommending speculative low-priced securities
to their noninstitutional customers, broker-dealers must make
reasonable efforts to obtain information about the customer’s
financial status, tax status, investment objectives, and other
information. Under interpretations of these rules, FINRA believes
that there is a high probability that speculative low-priced
securities will not be suitable for at least some customers. The
FINRA requirements make it more difficult for broker-dealers to
recommend that their customers buy our common stock, which may
limit your ability to buy and sell our stock and have an adverse
effect on the market for our shares.





To
date, we have not paid any cash dividends, and no cash dividends
will be paid in the foreseeable future.





We do
not anticipate paying cash dividends on our common stock in the
foreseeable future and we may not have sufficient funds legally
available to pay dividends. Even if the funds are legally available
for distribution, we may nevertheless decide not to pay any
dividends. We currently intend to retain all earnings for our
operations.





If
we fail to develop or maintain an effective system of internal
controls, we may not be able to accurately to report our financial
results or prevent financial fraud. As a result, current and
potential stockholders could lose confidence in our financial
reporting.





We are
subject to the risk that sometime in the future our independent
registered public accounting firm could communicate to the board of
directors that we have deficiencies in our internal control
structure that they consider to be “significant
deficiencies.” A “significant deficiency” is
defined as a deficiency, or a combination of deficiencies, in
internal controls over financial reporting such that there is more
than a remote likelihood that a material misstatement of the
entity’s financial statements will not be prevented or
detected by the entity’s internal controls.





Effective internal
controls are necessary for us to provide reliable financial reports
and effectively prevent fraud. If we cannot provide reliable
financial reports or prevent fraud, we could be subject to
regulatory action or other litigation and our operating results
could be harmed. We are required to document and test our internal
control procedures to satisfy the requirements of Section 404 of
the Sarbanes-Oxley Act of 2002 (the “Sarbanes-Oxley
Act,” or “SOX”), which requires our management to
annually assess the effectiveness of our internal control over
financial reporting.





We
currently are not an “accelerated filer” as defined in
Rule 12b-2 under the Securities Exchange Act of 1934, as amended.
Section 404 of the Sarbanes-Oxley Act of 2002 (“Section
404”) requires us to include an internal control report with
our Annual Report on Form 10-K. That report must include
management’s assessment of the effectiveness of our internal
control over financial reporting as of the end of the fiscal year.
This report must also include disclosure of any material weaknesses
in internal control over financial reporting that we have
identified. As of December 31, 2018, the management of the Company
assessed the effectiveness of the Company’s internal control
over financial reporting based on SEC guidance on conducting such
assessments and on the criteria for effective internal control over
financial reporting established in Internal Control and Integrated
Framework, issued by the Committee of Sponsoring Organizations of
the Treadway Commission (“COSO”). Management concluded,
during the year ended December 31, 2018, that the Company’s
internal controls and procedures were not effective to detect the
inappropriate application of U.S. GAAP rules. Management realized
there were deficiencies in the design or operation of the
Company’s internal control that adversely affected the
Company’s internal controls, which management considers to be
material weaknesses. A material weakness in the effectiveness of
our internal controls over financial reporting may increase the
chance of fraud and the loss of customers, reduce our ability to
obtain financing, and require additional expenditures to comply
with these requirements. Any of these consequences could have a
material adverse effect on our business, results of operations and
financial condition. For additional information, see Item 9A
– Controls and Procedures.





16





It may
be time-consuming, difficult, and costly for us to develop and
implement the internal controls and reporting procedures required
by the Sarbanes-Oxley Act. We may need to hire additional financial
reporting, internal controls, and other finance personnel in order
to develop and implement appropriate internal controls and
reporting procedures. If we are unable to comply with the internal
controls requirements of the Sarbanes-Oxley Act, then we may not be
able to obtain the independent accountant certifications required
by such act, which may preclude us from keeping our filings with
the SEC current.





If we
are unable to maintain the adequacy of our internal controls, as
those standards are modified, supplemented, or amended from time to
time, we may not be able to ensure that we may conclude on an
ongoing basis that we have effective internal control over
financial reporting in accordance with Section 404. Failure to
achieve and maintain an effective internal control environment
could cause us to face regulatory action and cause investors to
lose confidence in our reported financial information, either of
which could adversely affect the value of our common
stock.





Because
our current directors, executive officers, and one preferred
stockholder beneficially hold 47.5% of our common stock, they can
exert significant control over our business and affairs and have
actual or potential interests that may depart from those of
subscribers in our private placements.





Our
current directors, our executive officers, and 5% or more
stockholders beneficially own or control approximately 47.5% of our
issued and outstanding shares of common stock as of June 22, 2018.
Additionally, the holdings of our directors, and executive
officers, and preferred stockholders may increase in the future
upon vesting or other maturation of exercise rights under any of
the restricted stock grants, options, or warrants they may hold or
in the future be granted, or if they otherwise acquire additional
shares of our common stock. The interests of such persons may
differ from the interests of our other stockholders. As a result,
in addition to their board seats and offices, such persons,
irrespective of how the Company’s other stockholders vote,
may have significant influence over and may control corporate
actions requiring stockholder approval, including the following
actions:





●
 electing or
defeating the election our directors;





●
 to amending or
preventing the amendment of our Certificate of Incorporation or
By-laws;





●
 effecting or
preventing a transaction, sale of assets, or other corporate
transaction; and





●
 controlling the
outcome of any other matter submitted to our stockholders for
vote.





Such
persons' stock ownership may discourage a potential acquirer from
making a tender offer or otherwise attempting to obtain control of
the Company, which in turn could reduce our stock price or prevent
our stockholders from realizing a premium over our stock
price.





Our
certificate of incorporation allows our board to create new series
of preferred stock without approval by our stockholders, which
could adversely affect the rights of the holders of our common
stock.





Our
board of directors has the authority to fix and determine the
relative rights and preferences of preferred stock. Our board of
directors also has the authority to issue preferred stock without
stockholder approval. As a result, our board of directors could
authorize the issuance of a series of preferred stock granting
holders a preferred right to our assets upon liquidation, the right
to receive dividend payments before dividends are distributed to
the holders of common stock, and the right to redemption of the
shares, together with a premium prior to the redemption of our
common stock. In addition, our board of directors could authorize
the issuance of a series of preferred stock that has greater voting
power than our common stock or that is convertible into our common
stock, which could decrease the relative voting power of our common
stock or result in dilution to our existing
stockholders.





ITEM 1B. UNRESOLVED STAFF COMMENTS





Not
Applicable.





17





ITEM 2. PROPERTIES





Our
principal executive offices are located at 777 South Flagler Drive,
Suite 800 West Tower, West Palm Beach, FL 33401, and our telephone
number is (561) 515-6163. Our executive office is a virtual office
and is used for meetings, conferences, and telephone and message
support. On August 19, 2013, we entered into a lease agreement
located at such address for a total monthly rental of
$299.





We
own no other real property.





Our
registered agent is Direct Transfer, LLC, located at 500 Perimeter
Park Drive, Suite D, Morrisville, NC 27560.





ITEM 3. LEGAL PROCEEDINGS





We may
be involved in legal proceedings in the ordinary course of our
business, and our management cannot predict the ultimate outcome of
these legal proceedings with certainty. The Company is plaintiff or
defendant in the following actions:





Dekle, et. al. v. Global Digital Solutions, Inc. et.
al.





Brian
A. Dekle and John Ramsay filed suit against the Company and its
wholly owned subsidiary, North American Custom Specialty Vehicles,
Inc. (“NACSV”), in the Circuit Court of Baldwin
Alabama, on January 14, 2015, case no. 05-CV-2015-9000050.00,
relating to our acquisition of NACSV (the ''Dekle Action"). Prior
to instituting the Dekle Action, in June 2014, the Company had
entered into an equity purchase agreement with Dekle and Ramsay to
purchase their membership interest in North American Custom
Specialty Vehicles, LLC. The Dekle Action originally sought payment
for $300,000 in post-closing consideration Dekle and Ramsay allege
they are owed pursuant to the equity purchase
agreement.





On February 9, 2015, the Company
and NACSV removed the Dekle Action to federal court in the United
States District Court in and for the Southern District of Alabama,
case no. 1:15-CV-00069. The Company and NACSV subsequently moved to
dismiss the complaint for (1) failing to state a cause of action,
and (2) lack of personal jurisdiction. Alternatively, the Company
and NACSV sought a transfer of the case to the United States
District Court in and for Middle District of Florida.





In
response to the Company’s and NACSV's motion to dismiss,
Dekle and Ramsay filed an amended complaint on March 2, 2015
seeking specific performance and alleging breach of contract,
violations of Security and Exchange Commission (“SEC”)
Rule 10b-5, and violations of the Alabama Securities Act. The
amended complaint also names the Company’s Chairman,
President, and CEO, Richard J. Sullivan (“Sullivan”),
as a defendant. On March 17, 2015, the Company, NACSV and Sullivan
filed a motion to dismiss the amended complaint seeking dismissal
for failure to state valid causes of action, for lack of personal
jurisdiction, or alternatively to transfer the case to the United
States District Court in and for the Middle District of Florida.
Dekle and Ramsay responded on March 31, 2015, and the Company filed
its response thereto on April 7, 2015.





On June
2, 2015, Dekle passed away.  On June 5, 2015, the Court
denied the Company’s motion to transfer the case to
Florida.   On June 10, 2015, the Company filed a motion
to reconsider the Court’s denial of its motion to transfer
the case to Florida. On September 30, 2105, the Court granted
the Company’s Renewed Motion to Transfer Venue. The case was
transferred to the Middle District of Florida, where it is
currently pending.





On June
15, 2015, Ramsay filed a second amended complaint. On June 25,
2015, the Company filed a motion to dismiss the second amended
complaint. The Company’s Motion to Dismiss was
denied.





18





On July
27, 2017, the Company and Dekle and Ramsay came to a Settlement
Agreement. The Company and the plaintiff came to the following
agreements:





i.
 Judgment is due to
be entered against the Company in the amount of $300,000 if the sum
of $20,000 as noted in iv is not paid.





ii.
 The Company grants
the plaintiffs vehicles and trailers in connection to this
proceeding.





iii.
 The Company will
assist the plaintiffs in obtaining possession of the said
vehicles.





iv.
 The Company will
pay the plaintiffs the sum of $20,000. The $20,000 settlement was
paid in August 2017.





PowerUp Lending Group, LTD., v. North
American Custom Specialty Vehicle, Inc.
et.al





On
September 13, 2017 Power Up received a default judgment against the
Company in the amount of $109,302.00. The Company negotiated a
settlement agreement on December 21, 2017 with Power Up to pay
$90,000 in three installments of $30,000. As of May 15, 2018, the
company has paid the entire amount (Note 5).





Global Digital Solutions, Inc. et. al. v. Communications
Laboratories, Inc., et. al.





On
January 19, 2015 the Company and NACSV filed suit against
Communications Laboratories, Inc., ComLabs Global, LLC,
Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for
conversion and breach of contract in a dispute over the payment of
a $300,000 account receivable that ComLabs owed to NACSV
but sent payment directly to Brian Dekle. The case was filed in the
Eighteenth Judicial Circuit in and for Brevard County Florida, case
no. 05-2015-CA-012250. On February 18, 2015 (i) defendants
Communications Laboratories, Inc., ComLabs Global, LLC
and Roland Lussier and (ii) defendant Wallace Bailey filed their
respective motions to dismiss seeking, among other things,
dismissal for failure to state valid causes of action, lumping and
failure to post a non-resident bond. On February 26, 2015,
defendants Dekle and Ramsay filed their motion to dismiss, or stay
action, based on already existing litigation between the parties.
NACSV filed its required bond on March 2, 2015.





Jeff Hull, Individually and on Behalf of All Others Similarly
Situated v. Global Digital Solutions, Inc., Richard J. Sullivan,
David A. Loppert, William J. Delgado, Arthur F. Noterman and
Stephanie C. Sullivan United States District Court, District of New
Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB





On
August 24, 2016, Jeff Hull, Individually and on Behalf of All
Others Similarly Situated (“Hull”) filed suit in the
United States District Court for
the District of New Jersey against Global Digital Solutions,
Inc. (“GDSI”), Richard J. Sullivan
(“Sullivan”), David A. Loppert (“Loppert”),
William J. Delgado (“Delgado”), Arthur F. Noterman
(“Noterman”) and Stephanie C. Sullivan
(“Stephanie Sullivan”) seeking to recover compensable
damages caused by Defendants’ alleged violations of federal
securities laws and to pursue remedies under the Securities
Exchange Act of 1934. On January 18, 2018, pursuant to the
Court’s December 19, 2017 Order granting Plaintiff Hull leave
to file an amended Complaint, Plaintiff Hull filed a Second Amended
Complaint against Defendants. On February 8, 2018, Defendants GDSI
and Delgado filed a Second Motion to Dismiss the Complaint. On
February 8, 2018, Defendant Loppert filed a Motion for Extension of
Time to File an Answer. On February 13, 2018, Defendant Loppert
filed a Motion to Dismiss the Second Amended Complaint for Lack of
(personal) Jurisdiction and for Failure to State a Claim. On
February 20, 2018, Plaintiff Michael Perry (“Perry”)
filed a Brief in Opposition to Defendants GDSI and Delgado’s
Second Motion to Dismiss the Complaint and to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
On February 26, 2018, Defendants GDSI and Delgado filed a Reply
Brief to Plaintiff Michael Perry’s Brief in Opposition to
their Motion to Dismiss the Second Amended Complaint. On February
26, 2018, Defendant Loppert filed a Response in Support of
Defendants GDSI and Delgado’s Second Motion to Dismiss the
Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief
to Plaintiff Perry’s Brief in Opposition to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
To date, the Court has not issued a decision as to aforementioned
Motions. Global Digital Solutions, Inc. and William J. Delgado
intend to continue to vigorously defend against the claims asserted
by Jeff Hull, Individually and on Behalf of All Others Similarly
Situated. The Company believes the likelihood of an unfavorable
outcome of the dispute is remote.





19





Securities and Exchange Commission v. Global Digital Solutions,
Inc., Richard J. Sullivan and David A. Loppert United States
District Court for the Southern District of Florida, Case No.
9:16-cv-81413-RLR





On
August 11, 2016, the Securities and Exchange Commission
(“SEC”) filed suit in the United States District Court for the Southern
District of Florida against Global Digital Solutions, Inc.
(“GDSI”), Richard J. Sullivan (“Sullivan”)
and David A. Loppert (“Loppert”) to enjoin GDSI;
Sullivan, GDSI’s former Chairman and CEO; and Loppert,
GDSI’s former CFO from alleged further violations of the
anti-fraud and reporting provisions of the federal securities laws,
and against Sullivan and Loppert from alleged further violations of
the certification provisions of the federal securities
laws.





On
October 12, 2016, Defendant GDSI filed its First Answer to the
Complaint. On November 9, 2016, Defendant Sullivan filed a Letter
with the Court denying all allegations regarding the case. On
December 15, 2016, the SEC filed a Motion for Judgment and Notice
of Filing of Consent of Defendant Loppert to entry of Final
Judgment by the SEC. On December 19, 2016, the Court entered an
order granting the SEC’s Motion for Judgment as to Defendant
Loppert. On December 21, 2016, the SEC filed a Notice of Settlement
as entered into by it and Defendants GDSI and Sullivan. On December
23, 2016, the Court entered an Order staying the case and directing
the Clerk of the Court to close the case for statistical purposes
per the December 21, 2016 Notice of Settlement. On March 7, 2017,
the SEC moved for a Judgment of Permanent Injunction and Other
Relief and Notice of Filing Consent of Defendant GDSI to Entry of
Judgment by the SEC. On March 13, 2017, the Judge signed the
Judgment as to Defendant GDSI and it was entered on the
Court’s docket. On April 6, 2017, the SEC moved for a final
Judgment of Permanent Injunction and Other Relief and Notice of
Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge
signed the final Judgment as to Defendant Sullivan and it was
entered on the Court’s docket. On December 21, 2017, the SEC
moved for a final Judgment and Notice of Filing Consent of
Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the
Judge signed the Final Judgment as to Defendant GDSI and it was
entered on the Court’s docket. The amount of the judgement is
One Hundred Thousand Dollars ($100,000.00) plus interest, which is
included in accrued expenses in the accompanying consolidated
balance sheet.





Adrian Lopez, Derivatively and on behalf of Global Digital
Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David
A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F.
Noterman, and Stephen L. Norris United States District Court for
the District of New Jersey, Case No.
3:17-cv-03468-PGS-LHG





On
September 19, 2016, Adrian Lopez, derivatively, and on behalf of
Global Digital Solutions, Inc., filed an action in New Jersey
Superior Court sitting Mercer County, General Equity Division. That
action was administratively dismissed for failure to prosecute.
Plaintiff Lopez, through his counsel, filed a motion to reinstate
the matter on the general equity calendar on or about February 10,
2017. The Court granted the motion unopposed on or about April 16,
2017. On May 15, 2017, Defendant William Delgado
(“Delgado”) filed a Notice of Removal of Case No.
C-70-16 from the Mercer County
Superior Court of New Jersey to the United States District Court for the District
of New Jersey. On May 19, 2017, Defendant Delgado filed a
First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017,
Defendant David A. Loppert (“Loppert”) filed a Motion
to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017,
Plaintiff Adrian Lopez (“Lopez”) filed a First Motion
to Remand the Action back to State Court. On June 29, 2017,
Defendant Delgado filed a Memorandum of Law in Response and Reply
to the Memorandum of Law in Support of Plaintiff’s Motion to
Remand and in Response to Defendants’ Delgado’s and
Loppert’s Motions to Dismiss. On January 1, 16, 2018, a
Memorandum and Order granting Plaintiff’s Motion to Remand
the case back to the Mercer County
Superior Court of New Jersey was signed by the Judge and
entered on the Docket. Defendants Delgado and Loppert’s
Motions to Dismiss were denied as moot. On February 2, 2018,
Defendants filed a Motion to Dismiss the Complaint. On February 20,
2018, Plaintiff filed a Motion to Consolidate Cases. On March 21,
2018, Plaintiff filed an Opposition to Defendants’ Motion to
Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief
in Reply to Plaintiff’s Opposition to Defendants’
Motion to Dismiss the Complaint. The Court held a hearing on the
motions to dismiss and consolidate. Jurisdictional discovery was
ordered. As of this date, the Court has not issued a decision and
Order regarding Defendants’ Motion to Dismiss the Complaint.
The Company believes the likelihood of an unfavorable outcome of
the dispute is remote.





20





Adrian Lopez v. Global Digital Solutions, Inc. and William J.
Delgado Superior Court of New Jersey, Chancery Division, Mercer
County, Equity Part, Docket No. MER-L-002126-17





On
September 28, 2017, Plaintiff Adrian Lopez (“Lopez”)
brought an action against Global Digital Solutions, Inc.
(“GDSI”) and William J. Delgado (“Delgado”)
to compel a meeting of the stockholders of Global Digital
Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and
New Jersey Revised Statute § 14A:5-2. On October 27, 2017,
Defendants GDSI and Delgado filed a Motion to Stay the Proceeding.
On November 24, 2017, Plaintiff filed an Objection to
Defendants’ Motion to Stay the Proceeding.On January 19, 2018,
Defendants’ Motion to Stay the Proceeding was denied. On
February 2, 2018, Defendants filed a Motion to Dismiss the
Complaint. On February 20, 2018, Plaintiff filed a Motion to
Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition
to Defendants’ Motion to Dismiss the Complaint. On March 23,
2018, Defendants filed a Brief in Reply to Plaintiff’s
Opposition to Defendants’ Motion to Dismiss the Complaint. As
of this date, the Court has not issued a decision and Order
regarding Defendants’ Motion to Dismiss the Complaint. The
Company believes the likelihood of an unfavorable outcome of the
dispute is remote.





PMB HELIN DONOVAN, LLP vs. GLOBAL DIGITAL SOLUTIONS, INC. IN THE
CIRCUIT COURT FOR THE 15TH JUDICIAL CIRCUIT lN AND FOR PALM BEACH
COUNTY, FLORIDA, Docket No.: 50-2017-CA-011937-XXXX-MB





On
October 31, 2017, PMB Helin Donovan, LLP filed an action for
account stated in Palm Beach County. Global Digital Solutions, Inc.
(“GDSI”), settled the matter for Forty Thousand Dollars
($40,000.00), of which the first payment of Ten Thousand Dollars
($10,000.00) was paid on May 16, 2018. The $40,000 is included in
accounts payable as of December 31, 2017.





JENNIFER CARROLL, vs. GLOBAL DIGITAL SOLUTIONS, INC., NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, INC., IN THE CIRCUIT COURT
FOR THE 15TH JUDICIAL CIRCUIT lN AND FOR PALM BEACH COUNTY,
FLORIDA, CASE NO.: 50-2015-CC-012942-XXXX-MB





On
October 27, 2017, Plaintiff Jennifer Carroll moved the court for a
default judgment against Defendant Global Digital Solutions, Inc.
(“GDSI”), and its subsidiary North American Custom
Specialty Vehicles Inc. The amount of the judgement is Fifteen
Thousand Dollars ($15,000.00) plus fees of Thirteen Thousand Three
Hundred Fifty-Three Dollars Forty-Four Cents ($13,353.44) and costs
of six hundred twenty-four dollars thirty cents
($624.30).





ITEM 4. MINE SAFETY DISCLOSURES





Not
applicable.





21





PART II





ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES





Market Information





Our
common stock is quoted on the OTC Markets, Pink No Information
Tier, under the symbol “GDSI.” Set forth below are the
range of high and low bid quotations for the period indicated as
reported by the OTC Markets Group (www.otcmarkets.com). The market
quotations reflect interdealer prices, without retail markup,
markdown, or commissions, and may not represent actual
transactions.





Quarter
Ended
High
LowMarch 31,
2019
$0.0162
$0.01450December 31,
2018
$0.0046
$0.0046September 30,
2018
$0.0080
$0.0065June 30,
2018
0.0110
0.0096March 31,
2018
$0.0114
$0.0090December 31,
2017
$0.0150
$0.0040September 30,
2017
$0.0090
$0.0010June 30,
2017
$0.0030
$0.0010March 31,
2017
$0.0040
$0.0010





Transfer Agent





Our
transfer agent is Direct Transfer LLC, and is located at 500
Perimeter Park, Suite D, Morrisville, NC 27560. Their telephone
number is (919) 481-4000, and their website is www.issuerdirect.com.





Holders of Common Stock





As of
December 31, 2018, there were 197 shareholders of record of our
common stock. As of such date, 579,900,814 shares were issued and
outstanding.





Dividends





We have
never declared or paid any cash dividends on our common stock. We
currently intend to retain future earnings, if any, to increase our
working capital and do not anticipate paying any cash dividends in
the foreseeable future.





Stock-Based Compensation





For
information on securities authorized for issuance under our equity
compensation plans, see “Item 11. Executive
Compensation” below.





Recent Sales of Unregistered Securities





There
were no sales of unregistered securities during the year ended
December 31, 2018.





Issuer Purchases of Equity Securities





We did
not repurchase any shares of our common stock during the year ended
December 31, 2018.





22





ITEM 6. SELECTED FINANCIAL DATA





Not
applicable.





ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS





Use of Generally Accepted Accounting Principles
(“GAAP”) Financial Measures





We use
United States GAAP financial measures in the section of this report
captioned “Management’s Discussion and Analysis or Plan
of Operation” (MD&A), unless otherwise noted. All of the
GAAP financial measures used by us in this report relate to the
inclusion of financial information. This discussion and analysis
should be read in conjunction with our financial statements and the
notes thereto included elsewhere in this annual report. All
references to dollar amounts in this section are in United States
dollars, unless expressly stated otherwise. Please see Item 1A
[Missing Graphic Reference] “Risk Factors” for a list
of our risk factors.





23





Results of Operations





Comparison of the Fiscal Years Ended December 31, 2018 and December
31, 2017





A
comparison of the Company’s operating results for the fiscal
years ended December 31, 2018 and December 31, 2017 are as
follows:





For the
year ended December 31, 2018:





Global Digital
Solutions, Inc
GDSI Florida,
LLC
North American
Custom Specialty Vehicles, Inc
TotalsRevenueCost of
Sales
$-
$-
$-
$-Gross
Profit
-
-
-
-Operating
Expenses
1,378,126
(19,500)
(81,102)
1,277,524Operating Income
(Loss)
(1,378,126)
19,500
81,102
(1,277,524)Other Income
(Expenses)
(574,099)
-
17,265
(556,834)Income (Loss)
– Before Tax
$(1,952,225)
$19,500
$98,367
$(1,834,358)





For the
year ended December 31, 2017:





Global Digital
Solutions, Inc
GDSI Florida,
LLC
North American
Custom Specialty Vehicles, Inc
TotalsRevenueCost of
Sales
$-
$-
$-
$-Gross
Profit
-
-
-
-Operating
Expenses
1,334,479
22,795
6,478
1,363,752Operating Income
(Loss)
(1,334,479)
(22,795)
(6,478)
(1,363,752)Other Income
(Expenses)
247,456
-
-
247,456Loss –
Before Tax
(1,087,023)
(22,795)
(6,478)
(1,116,296)





The
variances between fiscal years ending December 31, 2018 and 2017
were as follows:


Global Digital
Solutions, Inc
GDSI Florida,
LLC
North American
Custom Specialty Vehicles, Inc
TotalsRevenueCost of
Sales
$-
$-
$-
$-Gross
Profit
-
-
-
-Operating
Expenses
43,647
(42,295)
(87,580)
(86,228)Operating Income
(Loss)
(43,647)
42,295
87,580
86,228Other Income
(Expenses)
(821,555)
-
17,265
804,290Income (Loss)
– Before Tax
$(865,202)
$42,295
$104,845
$(718,062)





24





Operating Loss





Loss
from operations for the years ended December 31, 2018 and 2017 was
$1,834,358 and $1,116,296, respectively. The increase in operating
loss is primarily due to additional expenses incurred for interest
expense and finance costs.





Liquidity, Financial Condition and Capital Resources





As
of December 31, 2018, we had cash of $8,100 on hand and a working
capital deficiency of $4,295,479 as compared to cash on hand of
$113,000 and a working capital deficiency of $3,012,720 as of
December 31, 2017.


The
decrease in working capital is mainly due to the overall reduction
in our business activities and lack of outside
funding.





Note Financing





On
January 26, 2015, the Company agreed to a $250,000 principal (and a
$25,000 original discount amount) Convertible Note with JMJ
Financial (“JMJ”). The Note matures on January 26,
2017, unless earlier converted pursuant to the terms of the
Convertible Note. The Note bears interest at 0% if repaid in the
first 90 days and then a one-time interest charge of 12% applied on
the principal sum. The outstanding principal and interest under the
Note is convertible, solely upon an Event of Default (as defined in
the Note), at the option of the Holder of the Note into shares of
the Company’s common stock as set forth in the
Note.





During
the year ended December 31, 2017, in settlement of the default, we
entered into a Repayment Agreement with JMJ Financial. The Company
agreed to repay the balance as follows by wire:





●
 $12,500
within five business days of the Issuer securing funding, provided
that such payment shall be made on January 31, 2018.





●
 $12,500
within 45 days after the first payment.





●
 $12,500
within 45 days after the second payment.





●
 $47,014
within 30 days after the third payment.





A
total of $25,000 has been paid through the date of this filing. The
first payment of $12,500 was made on February 14, 2018, and the
second payment of $12,500 was made on May 17, 2018. No payments
have been made since then.





On
January 16, 2015, the Company agreed to a $78,750 principal
Convertible Redeemable Note with LG Capital Funding, LLC (“LG
Capital”). The Note matures on January 16, 2016, unless
earlier converted pursuant to the terms of the Convertible Note.
The Note bears interest at 8% per annum. The outstanding principal
and interest under the Note is convertible, solely upon an Event of
Default (as defined in the Note), at the option of the Holder of
the Note into shares of the Company’s common stock as set
forth in the Note. On December 12, 2017, the Company entered into a
redemption agreement with LG Capital Funding, LLC, to repay the
outstanding balance of $68,110.





During
the year ended December 31, 2017, in settlement of the default, we
entered into a Convertible Note Redemption Agreement with LG
Capital Funding, LLC. The Company is to wire redemption payment as
follows:





●
 $6,500
by December 29, 2017 (paid on January 2, 2018)





●
 $6,500
by January 31, 2018





●
 $6,500
by February 28, 2018





●
 $25,000
by March 30, 2018





●
 The
remaining balance by April 30, 2018





25





A
total of $6,500 has been paid at the date of this filing, with the
remaining scheduled payments not yet made.





On
December 22, 2017, the Company entered into a financing agreement
with an accredited investor for $1.2 million. Under the terms of
the agreement, the Company is to receive milestone payments based
on the progress of the Company’s lawsuit for damages against
Grupo Rontan Metalurgica, S.A (the “Lawsuit”). Such
milestone payments consist of (i) an initial purchase price payment
of $300,000, which the Company received on December 22, 2017 (ii)
$150,000 within 30 days of the Lawsuit surviving a motion to
dismiss on the primary claims; (iii) $100,000 within 30 days of the
close of all discovery in the Lawsuit; and (iv) $650,000 within 30
days of the Lawsuit surviving a motion for summary judgment and
challenges on the primary claims. As part of the agreement, the
Company shall pay the investor an investment return of 100% of the
litigation proceeds to recoup all money invested, plus 27.5% of the
total litigation proceeds received by the Company. As of December
31, 2018, $300,000 has been received.





On
December 23, 2017, the Company entered into a $485,000 Demand
Promissory Note with Vox Business Trust, LLC (the
“Purchaser”). The note was in settlement of the amounts
accrued under a consulting agreement (Note 7), including $200,000
owed for retainer payments through December 2017 and $285,000 owed
to the Purchaser when the Resolution Progress Funding was met on
December 22, 2017. As part of the agreement, the Purchaser may not
demand payment prior to the date of the Resolution Funding Date.
The Company also agreed to grant 5,000,000 shares within 90 days of
the Resolution Progress Funding Date and 10,000,000 shares within
90 days of the Resolution Funding Date. The 5,000,000 shares were
issued on March 13, 2018.





On December 26, 2017, the Company entered into a
$485,000 Demand Promissory Note with RLT Consulting, Inc (the
“Purchaser”). The note was in settlement of the amounts
accrued under a consulting agreement (Note 7),
including$200,000
owed for retainer payments through December 2017, and $285,000 owed
to the Purchaser when the Resolution Progress Funding was met on
December 22, 2017. As part of the agreement, the Purchaser may not
demand payment prior to the date of the Resolution Funding Date.
The Company also agreed to grant 5,000,000 shares within 90 days of
the Resolution Progress Funding Date and 10,000,000 shares within
90 days of the Resolution Funding Date. The 5,000,000 shares were
issued on March 13, 2018 (along with an additional 4,000,000 for
further services).





Investment Return Purchase Agreements





On
April 3, 2018, the Company entered into an Investment Return
Purchase Agreement with an accredited investor (the
“Purchaser”) for proceeds of $50,000 (the
“Investment Agreement”). Under the terms of the
Investment Agreement, the Company agreed to pay the Purchaser the
$50,000 proceeds plus a 50% return, or $25,000 (the
“Investment Return”) within seven (7) months from the
date of the Investment Agreement. The Investment Return is being
recognized as interest expense over the seven months. In addition,
the Company agreed to issue to the Purchaser 1,000,000 warrants to
purchase common stock of the Company at an exercise price of $0.01
per share, exercisable for a period of five (5) years. The warrants
were valued using the Black Scholes Merton model, resulting in a
fair value of $9,000. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.009
at issuance date; a risk-free interest rate of 2.60% and expected
volatility of the Company’s common stock, of 234.58%. Due to
the short-term nature of the Investment Agreement and the
insignificant amount, the warrant fair value was immediately
expensed as a financing cost. As of the date of the issuance of
these financial statements, the Investment Return has not been paid
to the Purchaser, and $75,000 is outstanding.





On May
15, 2018, the Company entered into an Investment Return Purchase
Agreement with an accredited investor (the “Purchaser”)
for proceeds of $200,000 (the “Investment Agreement”).
Under the terms of the Investment Agreement, the Company agreed to
pay the Purchaser the $200,000 proceeds plus a 10% return, or
$20,000 (the “Investment Return”) within three (3)
months from the date of the Investment Agreement. The Investment
Return is being recognized as interest expense over the three
months. Such Investment Return shall be paid earlier if the Company
secures funding totaling $500,000 within 90 days from the date of
the Investment Agreement. In addition, the Company agreed to issue
to the Purchaser 2,000,000 warrants to purchase common stock of the
Company at an exercise price of $0.01 per share, exercisable for a
period of three (3) years. The warrants were valued using
the Black Scholes Merton model, resulting in a fair value of
$13,000. The key valuation assumptions used consist, in part, of
the price of the Company’s common stock of $0.007 at issuance
date; a risk-free interest rate of 2.75% and expected volatility of
the Company’s common stock, of 274.39%, Due to the short term
nature of the Investment Agreement, the warrant fair value was
immediately expensed as a financing cost. As of September 30, 2018,
the Investment Return has not been paid to the Purchaser, and
$220,000 is outstanding.





26





Notes Payable





On
February 15, 2017, The Company entered into a $15,000 6% promissory
note with an individual. The note is due on February 15, 2018. Upon
default, the interest rate increases to 18% until the principal is
fully repaid. We are currently in default under terms of the
note.





On May
1, 2018, the Company entered into a $36,000 promissory note with an
individual with $5,000 original issue discount for net proceeds of
$31,000.





On June
1, 2018, the Company entered into a $300,000 non-convertible note
with an accredited investor with $150,000 original issue discount
(“OID”) for net proceeds of $150,000. As part of the
note agreement, the Company also agreed to issue the investor
5,000,000 warrants at an exercise price of $0.01, exercisable for a
period of three (3) years. The warrants were valued using the Black
Scholes Merton model, resulting in a relative fair value after
allocation of $28,378. The key valuation assumptions used consist,
in part, of the price of the Company’s common stock of $0.007
at issuance date; a risk-free interest rate of 2.62% and expected
volatility of the Company’s common stock, of 275.26%, The
relative fair value of the warrants as well as the OID have been
classified as a debt discount to be amortized over the life of the
note using the effective interest method. Amortization expense for
the year ended December 31, 2018 was $104,054.





The
note bears a personal guarantee by William Delgado, the Chief
Executive Officer of the Company. As further security for the note,
Mr. Delgado has also pledged the 1,000,000 Convertible Preferred
Shares of the Company that he owns, as well as 5,000,000 common
shares of another public company in which Mr. Delgado is a director
and Chief Financial Officer.





Securities Purchase Agreement/Convertible Notes





On
December 19, 2018, The Company and Adar Alef, LLC entered into a
security purchase agreement for four 8% Convertible Notes in the
aggregate principal of $105,000 with all four notes being in the
amount of $26, 500 each. The notes shall contain a 5% OID such that
the purchase price shall be $25,000. The notes are convertible into
shares of common stock of The Company. Note 1 was issued on
December 19, 2019. The remaining notes may be issued in
2019.





Convertible Promissory Note





On
November 2, 2018, The Company entered into a convertible promissory
note arrangement with Actus Fund, LLC in the principal amount of
$90,000. The principal amount of the note with interest at 12% is
due on July 2, 2019. The note is convertible into shares of The
Company’s common stock. The conversion price shall equal the
lessor of (i) Current Market price or (ii) Variable Market price as
defined as Market Price less a 50% discount price.





Going Concern





The
audited consolidated financial statements contained in this annual
report on Form 10-K have been prepared on the assumption that the
Company will continue as a going concern. The Company has
accumulated losses from inception through the period ended December
31, 2018, of $35,661,822 as well as negative cash flows from
operating activities. Furthermore, as of the date of this filing,
the Company does not have sufficient cash resources to achieve its
goals through December 31, 2019.





The
consolidated financial statements do not include any adjustments
that may be necessary should the Company be unable to continue as a
going concern. The Company’s continuation as a going concern
is dependent on its ability to obtain any additional financing
required and ultimately to attain profitability. If the Company
raises additional funds through the issuance of equity, the
percentage ownership of current shareholders could be reduced, and
such securities might have rights, preferences, or privileges
senior to the rights, preferences, and privileges of the
Company’s common stock. Additional financing may not be
available upon acceptable terms. If adequate funds are not
available on acceptable terms, the Company may not be able to take
advantage of prospective business endeavors or opportunities, which
could significantly and materially restrict its future plans for
developing its business and achieving commercial revenues. If the
Company is unable to obtain necessary capital, the Company may have
to cease operations.





27





Working Capital Deficiency





December 31,2018
2017Current
Assets
$8,100
$113,000Current
Liabilities
4,303,579
3,125,720Working
capital
$(4,29,479)
$(3,012,720)





The
decrease in current assets from 2017 to 2018 is due to an decrease
in cash from funding sources. The increase in current liabilities
is mainly due to increases in Accounts Payable and Notes Payable
during the year ended December 31, 2018.





Cash Flows





December 31,2018
2017Net
cash used in operating activities
$(440,396)
$(175,000)Net
cash used in investing activities
-
-Net
cash provided by financing activities
355,496
268,000Increase
(decrease) in cash
$(84,900)
$93,000





Operating Activities





Net
cash used in operating activities was
$ 440,396 for the year ended December 31, 2018. Cash used during
the year ended December 31, 2018 was primarily due to the net loss
of $1,834,358





Net
cash used in operating activities was $175,000 for the year ended
December 31, 2017. Cash used during the year ended December 31,
2017 was primarily due to the net loss of $1,116,296.





Investing Activities





For the
year ended December 31, 2018, there was no cash used for investing
activities.





For the
year ended December 31, 2017, there was no cash used for investing
activities.





Financing Activities





For
the years ended December 31, 2018, and 2017 net cash provided by
financing activities was $355,496 and $268,000 respectively.. Cash
provided by financing activities was due to the proceeds from notes
payable.





28





Future Financing





We will
require additional funds to implement our growth strategy for our
business. In addition, while we have received capital from various
private placements of equity and convertible debt that have enabled
us to fund our operations, additional funds will be needed for
further business development.





Off-Balance Sheet Arrangements





We have
no off-balance sheet arrangements that have or are reasonably
likely to have a current or future effect on our financial
condition, changes in financial condition, revenues or expenses,
results of operations, liquidity, capital expenditures, or capital
resources that are material to stockholders.





Effects of Inflation





We do
not believe that inflation has had a material impact on our
business, revenues, or operating results during the periods
presented.





Critical Accounting Policies and Estimates





Our
significant accounting policies are more fully described in the
notes to our financial statements included in this Annual Report on
Form 10-K for the year ended December 31, 2018. We believe that the
accounting policies below are critical for one to fully understand
and evaluate our financial condition and results of
operations.





Recent Accounting Standards





During
the year ended December 31, 2018, there were several new accounting
pronouncements issued by the Financial Accounting Standards Board
(“FASB”). Each of these pronouncements, as applicable,
has been or will be adopted by the Company. Management does not
believe the adoption of any of these accounting pronouncements has
had or will have a material impact on the Company’s
consolidated financial statements.





Recently Announced Accounting Pronouncements





In May
2014, the FASB issued Accounting Standards Update ("ASU") No.
2014-09, Revenue from Contracts
with Customers: Topic 606, or ASU 2014-09. ASU 2014-09
establishes the principles for recognizing revenue and develops
a common revenue standard for U.S.
GAAP. The standard outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition
guidance, including industry-specific guidance. In applying the new
revenue recognition model to contracts with customers, an
entity: (1) identifies the contract(s) with a customer; (2)
identifies the performance obligations in the contract(s); (3)
determines the transaction price; (4) allocates the transaction
price to the performance obligations in the contract(s); and (5)
recognizes revenue when (or as) the entity satisfies a performance
obligation. The accounting standards
update applies to all contracts with customers except those that
are within the scope of other topics in the FASB Accounting
Standards Codification. The accounting standards update also
requires significantly expanded quantitative and qualitative
disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with
customers. The Company adopted Topic 606 as of January 1, 2018,
using the modified retrospective
transition method. Under the modified retrospective method, the
Company would recognize the cumulative effect of initially applying
the standard as an adjustment to opening retained earnings at the
date of initial application; however, we did not have any material
adjustment as of the date of the adoption and adoption had no
impact on the Company's consolidated balance sheet, results of
operations, equity or cash flows as of the adoption date.
The comparative periods have not been restated.
 
 In
February 2016, the FASB issued ASU No. 2016-02, Leases: Topic 842.
This standard requires all leases
that have a term of over 12 months to be recognized on the balance
sheet with the liability for lease payments and the
corresponding right-of-use asset initially measured at the present
value of amounts expected to be paid over the term. Recognition of
the costs of these leases on the income statement will be dependent
upon their classification as either an operating or a financing
lease. Costs of an operating lease will continue to be recognized
as a single operating expense on a straight-line basis over the
lease term. Costs for a financing lease will be disaggregated and
recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019 and will be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. The Company has evaluated the timing of
adoption and the potential impact of this standard on our financial
position, but we do not expect it to have a material impact on our
financial position or results of operations.


29





ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK





Not
Applicable.





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





The
information called for by Item 8 is included following the "Index
to Financial Statements" on page F-1 contained in this annual
report on Form 10-K.





ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None.





30





ITEM 9A. CONTROLS AND PROCEDURES





Evaluation of Disclosure Controls and Procedures





We
carried out an evaluation, under the supervision and with the
participation of our management, including our sole executive
officer, William Delgado, who is our Chief Executive Officer
(Principal Executive Officer), of the effectiveness of the design
of our disclosure controls and procedures (as defined by Exchange
Act Rules 13a-15(e) or 15d-15(e)) as of December 31, 2018 pursuant
to Exchange Act Rule 13a-15. Based upon that evaluation, our
Principal Executive and Financial Officer concluded that our
disclosure controls and procedures were not effective as of
December 31, 2017 in ensuring that information required to be
disclosed by us in reports that we file or submit under the
Exchange Act is recorded, processed, summarized, and reported
within the time periods specified in the SEC’s rules and
forms. This conclusion is based on findings that constituted
material weaknesses. A material weakness is a deficiency, or a
combination of control deficiencies, in internal control over
financial reporting such that there is a reasonable possibility
that a material misstatement of the Company’s interim
financial statements will not be prevented or detected on a timely
basis.





Management’s Report on Internal Control Over Financial
Reporting





Our
management is responsible for establishing and maintaining adequate
internal control over financial reporting as defined in Rules
13a-15(f) and 15d-15(f) under the Exchange Act. Under the
supervision and with the participation of our management, which
currently consists of William Delgado serving as our Chief
Executive Officer, we conducted an evaluation of the effectiveness
of our internal control over financial reporting based on criteria
established in the framework in Internal Control – Integrated
Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission (“COSO” -
2013) and SEC guidance on conducting such assessments. Our
management concluded, as of December 31, 2018, that our internal
control over financial reporting was not effective. Management
realized there were deficiencies in the design or operation of the
Company’s internal control that adversely affected the
Company’s internal controls which management considers to be
material weaknesses.





In
performing the above-referenced assessment, management had
concluded that as of December 31, 2018, there were deficiencies in
the design or operation of our internal control that adversely
affected our internal controls, which management considers to be
material weaknesses, including those described below:





(i)Lack
of Formal Policies and Procedures. We use a third-party
independent contractor for the preparation of our financial
statements. Although the financial statements and footnotes are
reviewed by our management, we do not have a formal policy to
review significant accounting transactions and the accounting
treatment of such transactions. The third-party independent
contractor is not involved in the day to day operations of the
Company and may not be provided information from management on a
timely basis to allow for adequate reporting/consideration of
certain transactions.





(ii)Audit Committee and Financial Expert.
We do not have a formal audit committee with a financial expert,
and thus we lack the board oversight role within the financial
reporting process.





(iii)Insufficient Resources. We have
insufficient quantity of dedicated resources and experienced
personnel involved in reviewing and designing internal controls. As
a result, a material misstatement of the interim and annual
financial statements could occur and not be prevented or detected
on a timely basis.





(iv)Entity-Level Risk Assessment. We did
not perform an entity level risk assessment to evaluate the
implication of relevant risks on financial reporting, including the
impact of potential fraud related risks and the risks related to
non-routine transactions, if any, on internal control over
financial reporting. Lack of an entity-level risk assessment
constituted an internal control design deficiency which resulted in
more than a remote likelihood that a material error would not have
been prevented or detected and constituted a material
weakness.





31





Our
management feels the weaknesses identified above have not had any
material effect on our financial results. However, we are currently
reviewing our disclosure controls and procedures related to these
material weaknesses and expect to implement changes in the near
term as resources permit, including identifying specific areas
within our governance, accounting and financial reporting processes
to add adequate resources to potentially mitigate these material
weaknesses.





Our
management will continue to monitor and evaluate the effectiveness
of our internal controls and procedures and our internal controls
over financial reporting on an ongoing basis and is committed to
taking further action and implementing additional enhancements or
improvements, as necessary and as funds allow.





Because
of its inherent limitations, internal control over financial
reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or
procedures may deteriorate. All internal control systems, no matter
how well designed, have inherent limitations. Therefore, even those
systems determined to be effective can provide only reasonable
assurance with respect to financial statement preparation and
presentation.





Changes in Internal Control Over Financial Reporting





There
were no changes in our internal control over financial reporting
during the year ended December 31, 2018 that have materially
affected or are reasonably likely to materially affect our internal
control over financial reporting. We believe that a control system,
no matter how well designed and operated, cannot provide absolute
assurance that the objectives of the control system are met, and no
evaluation of controls can provide absolute assurance that all
control issues and instances of fraud, if any, within any company
have been detected.





ITEM 9B. OTHER INFORMATION





The
information required by this section is disclosed in Part II, Item
5.





32





PART III





ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE





Set
forth below are the directors and executive officers of the Company
as of December 31, 2018. Except as set forth below, there are no
other persons who have been nominated or chosen to become
directors, nor are there any other persons who have been chosen to
become executive officers. Other than as set forth below, there are
no arrangements or understandings between any of the directors,
officers and other persons pursuant to which such person was
selected as a director or an officer.





Name
Position Held
with Company
Age
Date First
Elected or
AppointedWilliam
J. Delgado
Chief
Executive Officer, Chairman of the Board
58
May 13,
2016Jerome
J. Gomolski
Chief
Financial Officer
70
April
10, 2015Gary A.
Gray
Vice
President, Chief Technology Officer
65
August
12, 2013





Our
Board of Directors believes that all members of the Board and all
executive officers encompass a range of talent, skill, and
experience sufficient to provide sound and prudent guidance with
respect to our operations and interests. The information below with
respect to our sole officer and director includes his experience,
qualifications, attributes, and skills necessary for him to serve
as a director and/or executive officer.





33





Biographies





William J. Delgado – Director & Executive Vice
President





Mr.
Delgado has served as our President, Chief Executive Officer and
Chief Financial Officer from August 2004 to August 2013. Effective
August 12, 2013, Mr. Delgado assumed the position of Executive Vice
President, and is responsible, along with Mr. Sullivan, for
business development. Mr. Delgado has over 33 years of management
experience including strategic planning, feasibility studies,
economic analysis, design engineering, network planning,
construction and maintenance. He began his career with Pacific
Telephone in the Outside Plant Construction. He moved to the
network engineering group and concluded his career at Pacific Bell
as the Chief Budget Analyst for the Northern California region. Mr.
Delgado founded All Star Telecom in late 1991, specializing in OSP
construction and engineering and systems cabling. All Star Telecom
was sold to International FiberCom in April of 1999. After leaving
International FiberCom in 2002, Mr. Delgado became President/CEO of
Pacific Comtel in San Diego, California. After the Company acquired
Pacific Comtel in 2004, Mr. Delgado became Director, President, CEO
and CFO of the Company. Management believes that Mr.
Delgado’s many years of business experience uniquely
qualifies him for his positions with the Company.





On May
13, 2016, Mr. Delgado assumed the role of Chief Executive Officer
and Chairman of the Board of Directors and currently serves in that
position.





Jerome J. Gomolski – Chief Financial Officer





Mr.
Gomolski became the Chief Financial Officer of our subsidiary,
NACSV, on January 1, 2015 and was appointed the Company’s
Chief Financial Officer on April 10, 2015. Mr. Gomolski has
specialized in auditing,
corporate and individual income tax, and, forensic accounting for
over 30 years. Mr. Gomolski began his financial career in the
corporate accounting department of International Harvester in
Chicago. After graduating from DePaul University in Chicago with a
BSC in Accounting he passed the Illinois CPA exam and began working
for several large accounting firms. Several years later, he
returned to International Harvester as Manager of Financial
Planning and Analysis. In 1982, Jerry was offered an opportunity to
relocate to South Florida and return to public accounting. There he
brought his experience and talent to work with two large accounting
firms. His increasing responsibility led to a partnership. He
continues to maintain his own practice. Mr. Gomolski currently
serves as the Chief Financial Officer for a Private Equity
Fund.





Family Relationships





There
are no other family relationships between and among any of our
directors or executive





Involvement in Certain Legal Proceedings





No
director, executive officer, significant employee or control person
of the Company has been involved in any legal proceeding listed in
Item 401(f) of Regulation S-K in the past 10 years.





Committees of the Board





Our
Board of Directors held no formal meeting in the year-ended
December 31, 2018 Otherwise, all proceedings of the Board of
Directors were conducted by resolutions consented to in writing by
the sole director and filed with the minutes of the
Company.





Board Nominations and Appointments





In
considering whether to nominate any particular candidate for
election to the Board of Directors, we will use various criteria to
evaluate each candidate, including an evaluation of each
candidate’s integrity, business acumen, knowledge of our
business and industry, experience, diligence, conflicts of interest
and the ability to act in the interests of our stockholders. The
Board of Directors plans to evaluate biographical information and
interview selected candidates in the next fiscal year and plans to
consider whether a potential nominee would satisfy the listing
standards for “independence” of The Nasdaq Stock Market
and the SEC’s definition of “audit committee financial
expert.” The Board of Directors does not plan to assign
specific weights to particular criteria and no particular criterion
will be a prerequisite for each prospective nominee.





34





We do
not have a formal policy with regards to the consideration of
director candidates recommended by our stockholders, however,
stockholder recommendations relating to director nominees may be
submitted in accordance with the procedures set forth below under
the heading “Communicating with the Board of
Directors”.





Communicating with the Board of Directors





Stockholders who
wish to send communications to the Board of Directors may do so by
writing to 777 South Flagler Drive, Suite 800 West Tower, West Palm
Beach, FL 33401. The mailing envelope must contain a clear notation
indicating that the enclosed letter is a “Stockholder-Board
Communication.” All such letters must identify the author as
a stockholder and must include the stockholder’s full name,
address and a valid telephone number. The name of any specific
intended recipient should be noted in the communication. We will
forward any such correspondence to the intended recipients;
however, prior to forwarding any such correspondence, and we will
review such correspondence, and in our discretion, may not forward
communications that relate to ordinary business affairs,
communications that are primarily commercial in nature, personal
grievances or communications that relate to an improper or
irrelevant topic or are otherwise inappropriate for the Board of
Director’s consideration.





Compensation of Directors





We have
no standard arrangement to compensate directors for their services
in their capacity as directors. Directors are not paid for meetings
attended. However, we intend to review and consider future
proposals regarding board compensation. All travel and lodging
expenses associated with corporate matters are reimbursed by us,
when incurred.





Compensation Committee Interlocks and Insider
Participation





No
interlocking relationship exists between our Board of Directors and
the board of directors or compensation committee of any other
company, nor has any interlocking relationship existed in the
past.





Code of Ethics





As part
of our system of corporate governance, our Board of Directors has
adopted a Code of Business Conduct and Ethics (the
“Code”) for directors and executive officers of the
Company. This Code is intended to focus each director and executive
officer on areas of ethical risk, provide guidance to directors and
executive officer to help them recognize and deal with ethical
issues, provide mechanisms to report unethical conduct, and help
foster a culture of honesty and accountability. Each director and
executive officer must comply with the letter and spirit of this
Code. We have also adopted a Code of Ethics for Financial
Executives applicable to our Chief Executive Officer and senior
financial officers to promote honest and ethical conduct; full,
fair, accurate, timely and understandable disclosure; and
compliance with applicable laws, rules and regulations. We intend
to disclose any changes in or waivers from our Code of Business
Conduct and Ethics and our Code of Ethics for Financial Executives
by filing a Form 8-K or by posting such information on our
website.





Compliance with Section 16(a) of the Securities Exchange Act of
1934





Section
16(a) of the Securities Exchange Act requires our executive
officers and directors, and persons who own more than 10% of our
common stock, to file reports regarding ownership of, and
transactions in, our securities with the Securities and Exchange
Commission and to provide us with copies of those
filings.





Based
solely on our review of the copies of such forms received by us, or
written representations from certain reporting persons, we believe
that during the year ended December 31, 2018, none of our greater
than 10% percent beneficial owners failed to comply on a timely
basis with all applicable filing requirements under Section 16(a)
of the Exchange Act.





35





ITEM 11. EXECUTIVE COMPENSATION





General Philosophy





Our
Board of Directors is responsible for establishing and
administering the Company’s executive and director
compensation.





Executive Compensation





The
following summary compensation table indicates the cash and
non-cash compensation earned from the Company during the years
ended December 31, 2018 and 2017 for our named executive
officers.





36





Summary Compensation Table





Name and Principal Position
Year
Salary
($)
Bonus
($)
Stock Awards (3)
($)
Option Awards (3)
($)
Nonequity Incentive Plan Compensa-tion
($)
Change in Pension Value and Non- Qualified Deferred Compensation Earnings
($)
All Other Compensa- tion (3)
($)
Total
($)Jerome J.
Gomolski
2018
50,000
-
-
-
-
-
-
50,000Chief Financial Officer (1)
2017
4,167
-
-

-
-
-
4,167William J.
Delgado,
2018
240,00
-
-
-
-
-
-
240,000Director, Former President, Chief Executive Officer & Chief
Financial Officer, currently Chief Executive Officer
(2)
2017
240,000
-
-

-
-
-
240,





(1)
 Mr. Gomolski joined
the company as Chief Financial Officer of our subsidiary, NACSV, on
January 5, 2015. He was appointed the Company’s Chief
Financial Officer effective April 10, 2015.





(2)
 Mr. Delgado was
appointed Chief Executive Officer and Chairman of the Board on May
13, 2016. He was appointed Executive Vice President on August 12,
2013. Prior thereto he served as our CEO, President and Chief
Financial Officer.





(3)
 The amounts in
these columns represent the fair value of the award as of the grant
date as computed in accordance with ASC 718. These amounts
represent restricted stock awards and stock options granted to the
named executive officers, and do not reflect the actual amounts
that may be realized by those officers.





Key Employee Employment Agreements





We have
one employment agreement with Chief Executive Officer, William
Delgado.





Options Granted to Named Executives





On
April 1, 2015, we granted Jerome J. Gomolski stock options to
acquire 500,000 shares of our common stock at an exercise price of
$0.10 per share. The options vest one-third on each of October 1,
2015, April 1, 2016 and October 1, 2016 and expire on April 1,
2025.





On
April 20, 2015, we granted William J. Delgado stock options to
acquire 500,000 shares of our common stock at an exercise price of
$0.14 per share. The option vest one-third on each of October 1,
2015, April 1, 2016 and October 1, 2016 and expire on March 31,
2025.





On
November 30, 2015, we granted to each of Jerome J. Gomolski and
Gary A. Gray stock options to acquire 1,000,000 shares of our
common stock at an exercise price of $0.006 per share. The options
vested on the date of grant and expire on November 30,
2025.





37





On
December 15, 2015, we granted William J. Delgado stock options to
acquire 750,000 shares of our common stock at an exercise price of
$0.008 per share. The options vested on the date of grant and
expire on December 14, 2025.





Outstanding Equity Awards at Fiscal Year End





The
following table provides information as of December 31, 2018 and
December 31, 2017 regarding unexercised stock options and
restricted stock awards granted to each of our named executive
officers:





Number of
Securities Underlying
Unexercised
Options Exercisable
(#)
Number of
Securities Underlying Unexercised Options
Unexercisable
(#)
Equity Incentive
Plan Awards: Number of Securities Underlying Unexercised Unearned
Options
(#)
Option Exercise
Price
($)
Option
Expiration Date
Number of Shares
or Units
of Stock that
have not Vested
(#)
Market Value of
Shares or Units of
Stock that have not Vested
(#)
Equity Incentive
Plan Awards: Number of Unearned Shares, Units or Other Rights that
have not Vested
(#)
Equity Incentive
Plan Awards: Market or Payout Value of Unearned Shares, Units or
Other Rights that Have not Vested
($)Jerome
J. Gomolski
500,000
-
-
0.10
4/1/2025
-
-
-
-Jerome
J. Gomolski
1,000,000
-
-
0.006
11/30/2025
-
-
-
-William
J. Delgado
500,000
-
-
0.14
3/31/2025
-
-
-
-William
J. Delgado
750,000
-
-
0.008
12/14/2025
-
-
-
-





Equity Compensation Plan Information and Issuances





Our
current policy is that all full-time key employees are considered
annually for the possible grant of stock options, depending upon
qualifying performance criteria. The criteria for the awards are
experience, uniqueness of contribution to our business and the
level of performance shown during the year. Stock options are
intended to enhance the ability of the Company and its Affiliates
to attract and retain exceptionally qualified individuals upon
whom, in large measure, the sustained progress, growth and
profitability of the Company depend.





2018 Option Exercises and Stock Vested





There
were no stock options that vested in 2018.





38





Pension Benefits





None of
our named executive officers is covered by a pension plan or other
similar benefit plan that provides for payments or other benefits
at, following, or in connection with retirement.





Nonqualified Deferred Compensation





None of
our named executive officers is covered by a defined contribution
or other plan that provides for the deferral of compensation on a
basis that is not tax-qualified.





2014 Equity Incentive Plan





On May
9, 2014 our shareholders approved the 2014 Global Digital Solutions
Equity Incentive Plan (“Plan”) and reserved 20,000,000
shares of our common stock for issuance pursuant to awards
thereunder, including options, stock appreciation right, restricted
stock, restricted stock units, performance awards, dividend
equivalents, or other stock-based awards. The Plan is intended as
an incentive, to retain in the employ of the Company, our
directors, officers, employees, consultants and advisors, and to
attract new officers, employees, directors, consultants and
advisors whose services are considered valuable, to encourage the
sense of proprietorship and to stimulate the active interest of
such persons in the development and financial success of the
Company and its subsidiaries. Under the Plan, we are authorized to
issue incentive stock options intended to qualify under Section 422
of the Internal Revenue Code of 1986, as amended, non-qualified
stock options, stock appreciation rights, performance shares,
restricted stock and long-term incentive awards. The Plan is
administered by the Board of Directors.





In
accordance with the ACS 718, Compensation – Stock
Compensation, awards granted are valued at fair value at the
grant date. The Company recognizes compensation expense on a pro
rata straight-line basis over the requisite service period for
stock-based compensation awards with both graded and cliff vesting
terms. The Company recognizes the cumulative effect of a change in
the number of awards expected to vest in compensation expense in
the period of change. The Company has not capitalized any portion
of its stock-based compensation.





Director Compensation





We do
not have a compensation arrangement in place for members of our
Board and we have not finalized any plan to compensate directors in
the future for their services as directors. We anticipate that we
will develop a compensation plan for our independent directors in
order to attract qualified persons and to retain them. We expect
that the compensation arrangements will generally be comprised of
equity awards and cash for reimbursement of expenses only; however,
exceptions may be made if circumstances warrant.





39





ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS.





Except
as otherwise stated, the table below sets forth information
concerning the beneficial ownership of Common Stock as of June 22,
2018 for: (1) each director currently serving on our Board of
Directors; (2) each of our named executive officers; (3) our
directors and executive officers as a group; and (4) each person
known to the Company to beneficially own more than 5% of the
outstanding shares of Common Stock. As of June 22, 2018, there were
559,084,905 shares of Common Stock outstanding. Except as otherwise
noted, each stockholder has sole voting and investment power with
respect to the shares beneficially owned.





Title of Class

Name and Address of
Beneficial Owner (4)

Amount and Nature of
Beneficial Ownership

Percent of
Class(1)Common
Stock

William
J. Delgado (2)

3,322,032
Direct

0.5%Common
Stock

Jerome
A. Gomolski (3)

-

-Common
Stock

Ross L.
Trevino

9,500,000
Direct

1.7%Total Beneficial Holders as a Group

43,062,032
Direct

7.6%





(1)
Applicable
percentages are based on 559,084,905 shares outstanding as of June
22, 2018 and includes issued and outstanding shares of common stock
as well as vested but unissued restricted shares. Beneficial
ownership is determined under the rules of the SEC and generally
includes voting or investment power with respect to securities. A
person is deemed to be the beneficial owner of securities that can
be acquired by such person within 60 days whether upon the exercise
of options or otherwise. Shares of Common Stock subject to options
and warrants currently exercisable, or exercisable within 60 days
after the date of this report, are deemed outstanding for computing
the percentage of the person holding such securities but are not
deemed outstanding for computing the percentage of any other
person. Unless otherwise indicated in the footnotes to this table,
the Company believes that each of the shareholders named in the
table has sole voting power.





(2)
Includes
(a) 3,221,032 shares owned by Bronco Communications, LLC, an entity
which Mr. Delgado controls and (b) 101,000 shares owned by Mr.
Delgado's minor daughter.





(3)
Mr.
Gomolski has 1,500,000 stock options of which all have
vested.





(4)
The
address of record is c/o Global Digital Solutions, Inc., 777 South
Flagler Drive, Suite 800 West Tower, West Palm Beach, FL
33401





Changes in Control.





There
are currently no arrangements which may result in a change of
control of our company.





Non-Cumulative Voting





The
holders of our shares of common stock do not have cumulative voting
rights, which means that the holders of more than 50% of such
outstanding shares, voting for the election of Directors, can elect
all of the Directors to be elected, if they so choose. In such
event, the holders of the remaining shares will not be able to
elect any of our Directors.





40





ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE





Transactions with Related Persons











Named Executive Officers and Current Directors





For
information regarding compensation for our named executive officers
and current directors, see “Executive
Compensation.”





Director Independence





Our
board of directors consists of one director, William J. Delgado.
Our securities are quoted on the OTC Markets Group, Pink No
Information Tier, which does not have any director independence
requirements. We evaluate independence by the standards for
director independence established by applicable laws, rules, and
listing standards including, without limitation, the standards for
independent directors established by The New York Stock Exchange,
Inc., the NASDAQ National Market, and the Securities and Exchange
Commission.





Subject
to some exceptions, these standards generally provide that a
director will not be independent if (a) the director is, or in the
past three years has been, an employee of ours; (b) a member of the
director’s immediate family is, or in the past three years
has been, an executive officer of ours; (c) the director or a
member of the director’s immediate family has received more
than $120,000 per year in direct compensation from us other than
for service as a director (or for a family member, as a
non-executive employee); (d) the director or a member of the
director’s immediate family is, or in the past three years
has been, employed in a professional capacity by our independent
public accountants, or has worked for such firm in any capacity on
our audit; (e) the director or a member of the director’s
immediate family is, or in the past three years has been, employed
as an executive officer of a company where one of our executive
officers serves on the compensation committee; or (f) the director
or a member of the director’s immediate family is an
executive officer of a company that makes payments to, or receives
payments from, us in an amount which, in any twelve-month period
during the past three years, exceeds the greater of $1,000,000 or
two percent of that other company’s consolidated gross
revenues. Based on these standards, we have determined that our
director is not an independent director.





ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES





Audit Fees





The
aggregate audit fees billed by our independent accounting firm,
Turner, Stone & Company, LLP (“TSC”), for the years
ended December 31, 2018 and 2017 $ 50,000 and $17,000,
respectively.





Other Fees





There
were no other services provided by TSC during the years ended
December 31, 2018 and 2017





41





PART IV





ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES





Exhibit Number
Description(2)
Plan
of acquisition, reorganization, arrangement, liquidation or
succession2.1
Purchase Agreement
with Bronco Communications, LLC dated January 1, 2012 (incorporated
by reference to our Form 10 filed on August 8, 2013)2.2
Amendment to
Purchase Agreement with Bronco Communications, LLC dated October
15, 2012 (incorporated by reference to our Form 10 filed on August
8, 2013)2.3
Agreement of Merger
and Plan of Reorganization with Airtronic USA, Inc dated October
2012 (incorporated by reference to our Form 10 filed on August 8,
2013)2.4
First Amendment to
Agreement of Merger and Plan of Reorganization with Airtronic, USA,
Inc dated August 5, 2013 (incorporated by reference to our Form 10
filed on August 8, 2013)2.5
Equity Purchase
Agreement with Brian A. Dekle, John Ramsey, GDSI Acquisition
Corporation, Global Digital Solutions, Inc., and North American
Custom Specialty Vehicle, LLC dated June 16, 2014 (incorporated by
reference to our Current Report on Form 8-K filed on June 19,
2014)2.6
Share Purchase and
Sale Agreement with Global Digital Solutions, Inc., Grupo Rontan
Electro Metalurgica, S.A., Joao Alberto Bolzan and Jose Carlos
Bolzan dated October 8, 2015 (incorporated by reference to our
Current Report on Form 8-K filed on October 19, 2015)(3)
(i)
Articles of Incorporation; and (ii) Bylaws3.1
Certificate of
Incorporation dated August 28, 1995 (incorporated by reference to
our Form 10 filed on August 8, 2013)3.2
Articles of Merger
dated March 18, 2004 (incorporated by reference to our Form 10
filed on August 8, 2013)3.3
Certificate of
Amendment to the Certificate of Incorporation dated August 06, 2013
(incorporated by reference to our Form 10 filed on August 8,
2013)3.4
Bylaws dated August
28, 1995 (incorporated by reference to our Form 10 filed on August
8, 2013)3.5
Certificate of
Amendment to Certificate of Incorporation dated July 7, 2014
(incorporated by reference to our Current Report on Form 8-K filed
on July 30, 2014)3.6
Certificate of
Amendment to Certificate of Incorporation dated May 18, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on May 20, 2015)(10)
Material
Agreements10.1
Debtor in
Possession Note Purchase Agreement with Airtronic USA, Inc. dated
October 22, 2012 (incorporated by reference to our Form 10 filed on
August 8, 2013)10.2
Secured Promissory
Note with Airtronic USA, Inc. dated October 22, 2012 (incorporated
by reference to our Form 10 filed on August 8, 2013)10.3
Security Agreement
with Airtronic USA, Inc. dated October 22, 2012 (incorporated by
reference to our Form 10 filed on August 8, 2013)10.4
Bridge Loan
Modification and Ratification Agreement with Airtronic USA, Inc.
dated March 2013 (incorporated by reference to our Form 10 filed on
August 8, 2013)10.5
Second Bridge Loan
Modification and Ratification Agreement with Airtronic USA, Inc.
dated August 5, 2013 (incorporated by reference to our Form 10
filed on August 8, 2013)10.6
Secured Promissory
Note with Airtronic USA, Inc. dated August 5, 2013 (incorporated by
reference to our Form 10 filed on August 8, 2013)10.7
Intellectual
Property Security Agreement with an individual dated August 5, 2013
(incorporated by reference to our Form 10 filed on August 8,
2013)10.8
Promissory Note
Purchase Agreement with Bay Acquisition, LLC dated December 2012
(incorporated by reference to our Form 10 filed on August 8,
2013)10.9
Secured Promissory
Note with an individual dated December 2012 (incorporated by
reference to our Form 10 filed on August 8, 2013)





42





10.10
Security Agreement
with Bay Acquisition, LLC dated December 2012 (incorporated by
reference to our Form 10 filed on August 8, 2013)10.11
Warrant to Purchase
Common Stock with an individual dated December 2012 (incorporated
by reference to our Form 10 filed on August 8, 2013)10.12
Amendment to
Promissory Note Agreement with an individual dated May 6, 2013
(incorporated by reference to our Form 10 filed on August 8,
2013)10.13
Subscription
Agreement and Securities Purchase Agreement (incorporated by
reference to our Form 10 filed on August 8, 2013)10.14
Form of
Indemnification Agreement (incorporated by reference to our Form 10
filed on August 8, 2013)10.15
Secured Promissory
Note with Airtronic USA, Inc. dated October 10, 2013 (incorporated
by reference to our Annual Report on Form 10-K filed on March 28,
2014)10.16
Third Bridge Loan
Modification and Ratification Agreement with Airtronic USA, Inc.
dated October 10, 2013 (incorporated by reference to our Annual
Report on Form 10-K filed on March 28, 2014)10.17
Investment Banking
Agreement with Midtown Partners & Co, LLC dated October 16,
2013 (incorporated by reference to our Annual Report on Form 10-K
filed on March 28, 2014)10.18
Addendum to
Investment Bank Agreement with Midtown Partners & Co, LLC dated
October 16, 2013 (incorporated by reference to our registration
statement on Form S-1 filed on August 5, 2014)10.19
2014 Equity
Incentive Plan dated May 19, 2014 (incorporated by reference to our
registration statement on Form S-1 filed on August 5,
2014)10.20
Online Virtual
Office Agreement dated August 19, 2013 (incorporated by reference
to our registration statement on Form S-1 filed on August 5,
2014)10.21
Restricted Stock
Unit Agreement with Stephen L. Norris dated August 25, 2014
(incorporated by reference to our Current Report on Form 8-K/A
filed on August 25, 2014)10.22
Securities Purchase
Agreement with Charter 804CS Solutions, Inc dated December 8, 2014
(incorporated by reference to our Current Report on Form 8-K filed
on December 12, 2014)10.23
Convertible
Redeemable Note with Charter 804CS Solutions, Inc dated December 8,
2014 (incorporated by reference to our Current Report on Form 8-K
filed on December 12, 2014)10.24
First Amendment to
Convertible Redeemable Note with Charter 804CS Solutions, Inc dated
February 4, 2015 (incorporated by reference to our Current Report
on Form 8-K filed on February 9, 2015)10.25
Securities Purchase
Agreement with an individual dated December 8, 2014 (incorporated
by reference to our Current Report on Form 8-K filed on December
12, 2014)10.26
Convertible
Redeemable Note with an individual dated December 8, 2014
(incorporated by reference to our Current Report on Form 8-K filed
on December 12, 2014)10.27
First Amendment to
Convertible Redeemable Note dated February 4, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on February 4,
2014)10.28
Securities Purchase
Agreement with LG Capital Funding, LLC dated January 16, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on January 20, 2015)10.29
Convertible
Redeemable Note with LG Capital Funding, LLC dated January 16, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on January 20, 2015)10.30
Convertible Note
with JSJ Investments Inc. dated January 26, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on January 30,
2015)10.31
Securities Purchase
Agreement with Adar Bays, LLC dated January 26, 2015 (incorporated
by reference to our Current Report on Form 8-K filed on January 30,
2015)10.32
Convertible
Redeemable Note with Adar Bays dated January 26, 2015 (incorporated
by reference to our Current Report on Form 8-K filed on January 30,
2015)10.33
Convertible Note
with JMJ Financial dated January 26, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on January 30,
2015)10.34
Convertible Note
with Vista Capital Investments, LLC dated February 4, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on February 9, 2015)10.35
Securities Purchase
Agreement with KBM Worldwide, Inc dated February 17, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on February 24, 2015)10.36
Convertible
Promissory Note with KBM Worldwide, Inc dated February 17, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on February 24, 2015)





43





10.37
Securities Purchase
Agreement with EMA Financial, LLC dated February 19, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on February 24, 2015)10.38
Convertible Note
with EMA Financial, LLC dated February 19, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on February 24,
2015)10.39
Note Purchase
Agreement with Tangiers Investment Group, LLC dated March 8, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on March 13, 2015)10.40
Convertible
Promissory Note with Tangiers Investment Group, LLC dated March 8,
2015 (incorporated by reference to our Current Report on Form 8-K
filed on March 13, 2015)10.41
Non-Exclusive
Agreement with Carter, Terry & Company dated December 18, 2014
(incorporated by reference to our Annual Report on Form 10-K filed
on March 30, 2015)10.42
Securities Purchase
Agreement with VIS Vires Group, Inc. dated April 3, 2015
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on May 14, 2015)10.43
Convertible
Promissory Note with VIS Vires Group, Inc. dated April 3, 2015
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on May 14, 2015)10.44
Revenue Based
Factoring Agreement with Power Up dated October 1, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on October 5, 2015)10.45
Security Agreement
and Guarantee with Power Up dated October 1, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on October 5,
2015)10.46
Revenue Based
Factoring Agreement with Power Up dated October 23, 2015
(incorporated by reference to our Current Report on Form 8-K filed
on November 5, 2015)10.47
Security Agreement
and Guarantee with Power Up dated October 23, 2015 (incorporated by
reference to our Current Report on Form 8-K filed on November 5,
2015)10.48
Settlement
Agreement with an individual dated July 27, 2017 (incorporated by
reference to our December 31, 2015 Annual Report on Form 10-K filed
on May 31, 2018)10.49
Settlement
Agreement with Power Up Lending Group, Ltd. dated December 21, 2017
(incorporated by reference to our December 31, 2015 Annual Report
on Form 10-K filed on May 31, 2018)10.50
Repayment Agreement
with JMJ Financial dated December 13, 2017 (incorporated by
reference to our December 31, 2015 Annual Report on Form 10-K filed
on May 31, 2018)10.51
Convertible Note
Redemption Agreement dated December 12, 2017 (incorporated by
reference to our December 31, 2015 Annual Report on Form 10-K filed
on May 31, 2018)10.52
Exchange/Conversion
Agreement with an individual dated August 15, 2016 (incorporated by
reference to our December 31, 2015 Annual Report on Form 10-K filed
on May 31, 2018)10.53
Promissory Note
with Dragon Acquisitions dated August 31, 2017 (incorporated by
reference to our December 31, 2015 Annual Report on Form 10-K filed
on May 31, 2018)10.54
Stock Purchase
Agreement with Empire Relations Group, Inc. dated August 16, 2017
(incorporated by reference to our December 31, 2015 Annual Report
on Form 10-K filed on May 31, 2018)10.55
Prepaid Forward
Purchase Agreement with Boies Schiller Flexner LLP dated December
22, 2017 (incorporated by reference to our December 31, 2015 Annual
Report on Form 10-K filed on May 31, 2018)10.56
Demand Promissory
Note with Vox Business Trust, LLC dated December 19, 2017
(incorporated by reference to our December 31, 2015 Annual Report
on Form 10-K filed on May 31, 2018)10.57
Demand
Promissory Note with RLT Consulting, Inc. dated December 26, 2017
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on June 13, 2018)10.58
Promissory
Note with an individual dated May 1, 2018 (incorporated by
reference to our Quarterly Report on Form 10-Q filed on June 13,
2018)10.59
Investment
Return Purchase Agreement with an individual dated May 15, 2018
(incorporated by reference to our Quarterly Report on Form 10-Q
filed on June 13, 2018)(31)
Rule
13a-14(a)/15d-14(a) Certifications31.1*
Section 302
Certification under the Sarbanes-Oxley Act of 2002 of the Principal
Executive Officer31.2*
Section 302
Certification under the Sarbanes-Oxley Act of 2002 of the Principal
Financial Officer and Principal Accounting Officer(32)
Section
1350 Certifications32.1*
Section 906
Certification under the Sarbanes-Oxley Act of 2002 of the Chief
Executive Officer32.2*
Section 906
Certification under the Sarbanes-Oxley Act of 2002 of the Principal
Accounting Officer(101)*
Interactive
Data Files101.INS
XBRL
Instance Document101.SCH
XBRL Taxonomy
Extension Schema Document101.CAL
XBRL Taxonomy
Extension Calculation Linkbase Document101.DEF
XBRL Taxonomy
Extension Definition Linkbase Document101.LAB
XBRL Taxonomy
Extension Label Linkbase Document101.PRE
XBRL Taxonomy
Extension Presentation Linkbase Document





*
Filed herewith.**
Furnished herewith. Pursuant to Rule 406T of Regulation S-T, the
Interactive Data Files on Exhibit 101 hereto are deemed not filed
or part of any registration statement or prospectus for purposes of
Sections 11 or 12 of the Securities Act of 1933, are deemed not
filed for purposes of Section 18 of the Securities and Exchange Act
of 1934, and otherwise are not subject to liability under those
sections.





44





SIGNATURES





Pursuant to the
requirements of Section 13 or 15(d) of the Securities Exchange Act
of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly
authorized.





GLOBAL DIGITAL SOLUTIONS, INC.Date:
June 18, 2019
By:
/s/
William J. DelgadoWilliam
J. DelgadoChief
Executive Officer





Pursuant to the
requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates
indicated.





Signatures

Title(s)

Date/s/ William J. Delgado

Chief
Executive Officer

June
18, 2018William
J. Delgado

and
Chairman of the Board (Principal Executive Officer)/s/ Jerome J. Gomolski

Chief
Financial Officer

June
18, 2018Jerome
J. Gomolski

(Principal
Financial Officer and Principal Accounting Officer)/s/ William J. Delgado

Director,
Executive Vice President

June
18, 2018William
J. Delgado











45





ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA





GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED FINANCIAL STATEMENTS AS OF DECEMBER 31, 2018 AND
2017





TABLE OF CONTENTS





PageREPORT
OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
F-2CONSOLIDATED
FINANCIAL STATEMENTS:Consolidated
Balance Sheets
F-3Consolidated
Statements of Operations
F-4Consolidated
Statements of Stockholders’ Deficit
F-5Consolidated
Statements of Cash Flows
F-6Notes
to Consolidated Financial Statements
F-7








F-1





REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING
FIRM





Board of Directors and Stockholders


Global Digital Solutions, Inc.


West Palm Beach, Florida





Opinion on the Financial Statements





We
have audited the accompanying consolidated balance sheets of Global
Digital Solutions, Inc. (the “Company”) as of December
31, 2018 and 2017 and the related consolidated statements of
operations, stockholders’ deficit and cash flows for the
years then ended, and the related notes (collectively referred to
as the “financial statements”). In our opinion, the
financial statements present fairly, in all material respects, the
consolidated financial position of the Company as of December 31,
2018 and 2017, and the results of its consolidated operations and
its consolidated cash flows for the years then ended, in conformity
with accounting principles generally accepted in the United States
of America.





Explanatory Paragraph – Going Concern





The
accompanying financial statements have been prepared assuming that
the Company will continue as a going concern. As discussed in Note
2 to the financial statements, the Company has suffered recurring
losses from operations since inception and has a working capital
deficiency both of which raise substantial doubt about its ability
to continue as a going concern. Management’s plans in regard
to these matters are also described in Note 2. The financial
statements do not include any adjustments that might result from
the outcome of this uncertainty.





Basis for Opinion





These
financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
Company’s financial statements based on our audits. We are a
public accounting firm registered with the Public Company
Accounting Oversight Board (United States) (“PCAOB”)
and are required to be independent with respect to the Company in
accordance with the U.S. federal securities laws and the applicable
rules and regulations of the Securities and Exchange Commission and
the PCAOB.





We
conducted our audits in accordance with the standards of the PCAOB.
Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the financial statements
are free of material misstatement, whether due to error or fraud.
The Company is not required to have, nor were we engaged to
perform, an audit of its internal control over financial reporting.
As part of our audits, we are required to obtain an understanding
of internal control over financial reporting but not for the
purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting.
Accordingly, we express no such opinion.





Our
audits included performing procedures to assess the risks of
material misstatement of the financial statements, whether due to
error or fraud, and performing procedures that respond to those
risks. Such procedures include examining, on a test basis, evidence
regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating
the overall presentation of the financial statements. We believe
that our audits provide a reasonable basis for our
opinion.





/s/ Turner, Stone & Company, L.L.P.





Dallas, Texas


June 18, 2019





We have served as the Company’s auditor since
2017.





F-2








GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED BALANCE SHEETS








December 31,2018
2017AssetsCurrent
assetsCash
$8,100
$93,000Prepaid
expenses
-
20,000Total
current assets
8,100
113,000Total
assets
$8,100
$113,000Liabilities
and Stockholders' DeficitCurrent
liabilitiesAccounts
payable
$672,284
$656,758Accrued
expenses
917,633
528,651Due
to factor
-
77,265Due
to Officer
-
71,920Financed
insurance policy
11,187
11,187Notes
payable, net of discount of $74,324 and$-0-,
respectively
1,999,676
1,288,000Convertible
notes payable, net of discount of $96,750and
$-0-, respectively
140,624
108,991Derivative
liability
562,175
382,948Total
current liabilities
4,303,579
3,125,720Stockholders'
deficitPreferred
stock, $0.001 par value, 35,000,000 sharesauthorized,
1,000,000 shares issued and outstanding atDecember
31, 2018 and 2017, respectively
1,000
1,000Common
stock, $0.001 par value, 650,000,000 sharesauthorized,
579,900,814 and 530,806,571 shares issued andoutstanding
at December 31, 2018 and 2017, respectively
579,901
530,807Additional
paid-in capital
30,785,442
30,282,937Accumulated
deficit
(35,661,822)
(33,827,464)Total
stockholders' deficit
(4,295,479)
(3,012,720)Total
liabilities and stockholders' deficit
$8,100
$113,000





The
accompanying footnotes are an integral part of these consolidated
financial statements.





F-3





GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF OPERATIONS





For the years ended December 31,2018
2017Revenues
$-
$-Cost
of revenues
-
-Gross
profit
-
-Operating
expensesSelling,
general and administrative expenses
1,277,524
1,363,752Total
operating expenses
1,277,524
1,363,752Loss
from operations
(1,277,524)
(1,363,752)Other
(income) expenseChange
in fair value of derivative liability
46,411
(289,776)Financing
costs
68,000
-Interest
expense
415,924
42,320Settlement
expense
43,764
-Gain
on conversion of liabilities
(17,265)
-Total
other (income) expense
556,834
(247,456)Net
loss
$(1,834,358)
$(1,116,296)Net
loss per common share, basic
$(0.00)
$(0.00)Weighted
average common shares outstanding, basic
566,130,000
530,806,571





The
accompanying footnotes are an integral part of these consolidated
financial statements.





F-4





GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT


FOR THE YEARS ENDED DECEMBER 31, 2018 AND 2017





Preferred Stock
Common Stock
Paid-In
AccumulatedShares
Amount
Shares
Amount
Capital
Deficit
TotalBalances at December 31, 2016
1,000,000
$1,000
530,806,571
$530,807
$30,282,937
$(32,711,168)
$(1,896,424)Net
loss
-
-
-
-
-
(1,116,296)
(1,116,296)Balances at December 31, 2017
1,000,000
$1,000
530,806,571
$530,807
$30,282,937
$(33,827,464)
$(3,012,720)Shares
sold
-
-
6,831,818
6,832
18,914
-
25,746-Shares issued
for conversion of debt
-
-
9,034,091
9,034
5,966
-
15,000-Shares issued
for financing fees
-
-
7,500,000
7,500
49,500
-
57,000Shares issued
for services
-
-
25,728,334
25,728
274,397
-
300,125Reduction in
derivative liability
-
-
-
-
98,787
-
98,787Debt discounts
related to warrants
-
-
-
-
54,941
-
54,941Net
loss
-
-
-
-
-
(1,834,358)
(1,834,358)Balances at December 31, 2018
1,000,000
$1,000
579,900,814
$579,901
$30,785,442
$(35,661,822)
$(4,295,479)





The
accompanying footnotes are an integral part of these consolidated
financial statements.





F-5





GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF CASH FLOWS





2018
2017Cash flows from
operating activities:Net
loss
$(1,834,358)
$(1,116,296)Adjustments to
reconcile net loss to net cashprovided by (used
in) operating activities:Bad
Debt
-
4,261Amortization of
debt discount
162,554
-Change in fair
value of derivative liability
46,411
(289,776)Stock-based
compensation
300,125
-Shares issued for
financing costs
57,000
-Financing
costs
9,000
-Interest expense
from derivative liability
121,166
-Operating expenses
settled through debt proceeds
77,750
-Gain on settlement
of liabilities
(17,265)
-Changes in
operating assets and liabilities:Prepaid
expenses
20,000
2,597Deposits

2,415Accounts
payable
15,526
106,652Accrued
expenses
623,615
1,084,152Due to
officer
(21,920)
30,995Net cash used in
operating activities
(440,396)
(175,000)Cash flows from
investing activities:Net cash provided
by investing activities
-
-Cash flows from
financing activities:Proceeds from notes
payable
350,000
300,000Repayments of notes
payable
(30,000)
(2,000)Proceeds from
convertible notes payable
101,250
-Repayments of
convertible notes payable
(31,500)
-Payments to
factor
(60,000)
(30,000)Proceeds from sale
of common shares
25,746
-Net cash provided
by financing activities
355,496
268,000Net increase
(decrease) in cash
(84,900)
93,000Cash at beginning
of year
93,000
-Cash at end of
year
$8,100
$93,000Supplementary
disclosure of non-cash investing and financing
activitiesPayments to officer
from proceeds from notes payable
$50,000
-Discount on notes
payable
167,000
-Discount from
warrants issued with notes payable
50,378
-Accrued expenses
settled through convertible notes payable
43,633
-Discount on
convertible notes payable
1,250
-Discount from
warrants issued with convertible notes payable
4,563
-Discount from
derivative on convertible notes payable
110,437
-Convertible debt
settled through issuance of common shares
15,000
-Reduction in
derivative liability from payments on convertible
notes
98,787
-Accrued expenses
settled through notes payable
200,000
-





The
accompanying footnotes are an integral part of these consolidated
financial statements.





F-6





GLOBAL DIGITAL SOLUTIONS, INC. AND SUBSIDIARIES


NOTES TO CONSOLIDATED FINANCIAL STATEMENTS





NOTE 1 – DESCRIPTION OF BUSINESS





We were
incorporated in New Jersey as Creative Beauty Supply, Inc.
(“Creative”) in August 1995. In March 2004, Creative
acquired Global Digital Solutions, Inc., a Delaware corporation
("Global”). The merger was treated as a recapitalization of
Global, and Creative changed its name to Global Digital Solutions,
Inc. (“the Company”, “we”), Global provided
structured cabling design, installation and maintenance for leading
information technology companies, federal, state and local
government, major businesses, educational institutions, and
telecommunication companies. On May 1, 2012, we made the decision
to wind down our operations in the telecommunications area and to
refocus our efforts in the area of cyber arms technology and
complementary security and technology solutions. From August 2012
through November 2013 we were actively involved in managing
Airtronic USA, Inc., and effective as of June 16, 2014 we acquired
North American Custom Specialty Vehicles (“NACSV”). In
July 2014, we announced the formation of GDSI International (f/k/a
Global Digital Solutions, LLC) to spearhead our efforts overseas.
The Company has been dormant since December 31, 2015. The Company
had limited operations from the NACSV subsidiary from December 31,
2015 until May 13, 2016. During the interim, the Company was
pursuing acquisition opportunities and responding to the litigation
with the Securities and Exchange Commission. Subsequent to May 13,
2016, the Company has been seeking acquisitions and additional
financing.





NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES





Going Concern





The
accompanying financial statements have been prepared assuming we
will continue as a going concern, which contemplates the
realization of assets and the liquidation of liabilities in the
normal course of business. We have sustained losses and experienced
negative cash flows from operations since inception, and for the
year ended ,December 31, 2018, incurred a net loss of $1,834,358
and used net cash of $440,396 to fund operating activities. At
December 31, 2018, we had cash of $8,100, an accumulated deficit of
$35,661,822, a working capital deficit of $4,295,479, and
stockholders’ deficit of $4,295,479. We have funded our
activities to date almost exclusively from equity and debt
financings.





Our
cash position is critically deficient, and payments essential to
our ability to operate are not being made in the ordinary course.
Failure to raise capital in the coming days to fund our operations
and failure to generate positive cash flow to fund such operations
in the future will have a material adverse effect on our financial
condition. These factors raise substantial doubt about our ability
to continue as a going concern.





We
need to raise additional funds immediately and continue to raise
funds until we begin to generate sufficient cash from operations,
and we may not be able to obtain the necessary financing on
acceptable terms, or at all.





We
will continue to require substantial funds to continue development
of our core business. Management’s plans in order to meet our
operating cash flow requirements include financing activities such
as private placements of common stock, and issuances of debt and
convertible debt instruments, and the establishment of strategic
relationships which we expect will lead to the generation of
additional revenue or acquisition opportunities.





While we believe that we will be successful in
obtaining the necessary financing to fund our operations, there are
no assurances that such additional funding will be achieved or that
we will succeed in our future operations.





Our
independent registered public accounting firm has expressed
substantial doubt about our ability to continue as a going concern
as a result of our history of net losses. Our ability to achieve
and maintain profitability and positive cash flow is dependent upon
our ability to successfully execute the plans to pursue
acquisitions and raise the funds necessary to complete such
acquisitions. The outcome of these matters cannot be predicted at
this time. The consolidated financial statements do not include any
adjustments relating to the recoverability and classification of
recorded asset amounts or the amounts and classification of
liabilities that might be necessary should we be unable to continue
as a going concern.





F-7





Principles of Consolidation





The
accompanying consolidated financial statements include the accounts
of the Company and our wholly owned subsidiaries, NACSV, GDSI
Florida, LLC and Global Digital Solutions, LLC, dba GDSI
International. All intercompany accounts and transactions have been
eliminated in consolidation.





Use of Estimates





The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of
assets, liabilities, equity-based transactions and disclosure of
contingent liabilities at the date of the financial statements and
revenues and expenses during the reporting period. Actual results
could differ from those estimates.





The
Company believes the following critical accounting policies affect
its more significant judgments and estimates used in the
preparation of the financial statements. Significant estimates
include the derivative liability valuation, deferred tax asset and
valuation allowance, and assumptions used in Black-Scholes-Merton,
or BSM, or other valuation methods, such as expected volatility,
risk-free interest rate, and expected dividend rate.





Income Taxes





Income
taxes are accounted for based upon an asset and liability approach.
Accordingly, deferred tax assets and liabilities arise from the
difference between the tax basis of an asset or liability and its
reported amount in the financial statements. Deferred tax amounts
are determined using the tax rates expected to be in effect when
the taxes will actually be paid or refunds received, as provided
under currently enacted tax law. Valuation allowances are
established when necessary to reduce deferred tax assets to the
amount expected to be realized. Income tax expense or benefit is
the tax payable or refundable, respectively, for the period plus or
minus the change in deferred tax assets and liabilities during the
period.





Accounting guidance
requires the recognition of a financial statement benefit of a tax
position only after determining that the relevant tax authority
would more likely than not sustain the position following an audit.
For tax positions meeting the more-likely-than-not threshold, the
amount recognized in the financial statements is the largest
benefit that has a greater than fifty percent likelihood of being
realized upon ultimate settlement with the relevant tax authority.
The Company believes its income tax filing positions and deductions
will be sustained upon examination and accordingly, no reserves, or
related accruals for interest and penalties have been recorded at
December 31, 2018 and 2017. The Company recognizes interest and
penalties on unrecognized tax benefits as well as interest received
from favorable tax settlements within income tax
expense.





On
December 22, 2017, the President of the United States signed and
enacted into law H.R. 1 (the “Tax Reform Law”). The Tax
Reform Law, effective for tax years beginning on or after January
1, 2018, except for certain provisions, resulted in significant
changes to existing United States tax law, including various
provisions that are expected to impact the Company. The Tax Reform
Law reduces the federal corporate tax rate from 34% to 21%
effective January 1, 2018. The Company analyzed the provisions of
the Tax Reform Law to assess the impact on the Company’s
consolidated financial statements and determined it had no material
impact.





F-8





Cash and Cash Equivalents





We
consider all highly liquid investments with original maturities of
three months or less to be cash equivalents.We maintain our cash in
high-quality financial institutions. The balances, at times, may
exceed federally insured limits.





Prepaid expenses





Prepaid
expenses consist primarily of legal retainers, which are expensed
when the services are incurred.





Fair Value of Financial Instruments





The
carrying value of cash, accounts payable and accrued expenses
approximate their fair values based on the short-term maturity of
these instruments. The carrying amounts of debt were also estimated
to approximate fair value. The Company utilizes market data or
assumptions that market participants would use in pricing the asset
or liability, including assumptions about risk and the risks
inherent in the inputs to the valuation technique. These inputs can
be readily observable, market corroborated, or generally
unobservable. ASC 820 establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy
gives the highest priority to unadjusted quoted prices in active
markets for identical assets or liabilities (level 1 measurement)
and the lowest priority to unobservable inputs (level 3
measurement). This fair value measurement framework applies at both
initial and subsequent measurement.





The
three levels of the fair value hierarchy defined by ASC 820 are as
follows:





●
 Level 1 –
Quoted prices in active markets for identical assets or
liabilities





●
 Level 2
–Quoted prices for similar assets or liabilities in active
markets, quoted prices for identical or similar assets or
liabilities in markets that are not active, or other inputs that
are observable, either directly or indirectly





●
 Level 3 –
Significant unobservable inputs that cannot be corroborated by
market data.





Derivative Financial Instruments





We
account for conversion options embedded in convertible notes
payable in accordance with the Financial Accounting Standards Board
(“FASB”) Accounting Standard Codification
(“ASC’) 815, “Derivatives and Hedging”.
Subtopic ASC 815-15, Embedded
Derivatives generally requires companies to bifurcate
conversion options embedded in the convertible notes from their
host instruments and to account for them as free standing
derivative financial instruments. Derivative liabilities are
recognized in the consolidated balance sheet at fair value as
Derivative Liabilities and
based on the criteria specified in FASB ASC 815-40, Derivatives and Hedging – Contracts in
Entity’s own Equity. The estimated fair value of the
derivative liabilities is calculated using various assumptions and
such estimates are revalued at each balance sheet date, with
changes recorded to other income or expense as Change in fair value of derivative
liability in the consolidated statement of operations. The
classification of derivative instruments, including whether such
instruments should be recorded as liabilities or equity, is
evaluated at the instrument origination date and reviewed at the
end of each event date (i.e. conversions, payments, etc.) and the
measurement period end date for financial reporting, as
applicable.





F-9





Earnings (Loss) Per Share (“EPS”)





Basic
EPS is computed by dividing net income (loss) by the weighted
average number of shares of common stock outstanding. Diluted EPS
includes the effect from potential issuance of common stock, such
as stock issuable pursuant to the exercise of stock options and
warrants and the assumed conversion of convertible
notes.





The
following table summarizes the securities that were excluded from
the diluted per share calculation because the effect of including
these potential shares was antidilutive:





Year
ended
December
31,2018
2017Convertible
notes
163,700,000
46,249,733Preferred
stock
214,560,000
196,398,431Stock
options
13,650,002
13,650,002Warrants
10,500,000
1,500,000Potentially
dilutive securities
402,410,002
257,798,166





Stock Based Compensation





In
accordance with ASC 718, "Compensation – Stock
Compensation” the Company measures the cost of employee
services received in exchange for share-based compensation measured
at the grant date fair value of the award.





The
Company’s accounting policy for equity instruments issued to
advisors, consultants and vendors in exchange for goods and
services follows the provisions of FASB ASC 505-50. The measurement date for the fair
value of the equity instruments issued is determined at the earlier
of (i) the date at which a commitment for performance by the
advisor, consultant or vendor is reached or (ii) the date at which
the advisor, consultant or vendor’s performance is complete.
In the case of equity instruments issued to advisors and
consultants, the fair value of the equity instrument is recognized
over the term of the advisor or consulting agreement. Stock-based
compensation related to non-employees is accounted for based on the
fair value of the related stock or options or the fair value of the
services, whichever is more readily determinable.





Convertible Instruments





The
Company evaluates and accounts for conversion options embedded in
its convertible instruments in accordance with accounting standards
for “Accounting for Derivative Instruments and Hedging
Activities.”





Accounting
standards generally provides three criteria that, if met, require
companies to bifurcate conversion options from their host
instruments and account for them as free standing derivative
financial instruments. These three criteria include circumstances
in which (a) the economic characteristics and risks of the embedded
derivative instrument are not clearly and closely related to the
economic characteristics and risks of the host contract, (b) the
hybrid instrument that embodies both the embedded derivative
instrument and the host contract is not re-measured at fair value
under otherwise applicable generally accepted accounting principles
with changes in fair value reported in earnings as they occur, and
(c) a separate instrument with the same terms as the embedded
derivative instrument would be considered a derivative instrument.
Professional standards also provide an exception to this rule when
the host instrument is deemed to be conventional as defined under
professional standards as “The Meaning of Conventional
Convertible Debt Instrument.”





F-10





The
Company accounts for convertible instruments (when it has
determined that the embedded conversion options should not be
bifurcated from their host instruments) in accordance with
professional standards when “Accounting for Convertible
Securities with Beneficial Conversion Features,” as those
professional standards pertain to “Certain Convertible
Instruments.” Accordingly, the Company records, when
necessary, discounts to convertible notes for the intrinsic value
of conversion options embedded in debt instruments based upon the
differences between the fair value of the underlying common stock
at the commitment date of the note transaction and the effective
conversion price embedded in the note. Original issue discounts
(“OID”) under these arrangements are amortized over the
term of the related debt to their earliest date of redemption. The
Company also records when necessary deemed dividends for the
intrinsic value of conversion options embedded in preferred shares
based upon the differences between the fair value of the underlying
common stock at the commitment date of the note transaction and the
effective conversion price embedded in the note.





ASC
815-40 provides that, among other things, generally, if an event is
not within the entity’s control could or require net cash
settlement, then the contract shall be classified as an asset or a
liability.





Convertible Securities





Based
upon ASC 815-15, we have adopted a sequencing approach regarding
the application of ASC 815-40 to convertible securities. We will
evaluate our contracts based upon the earliest issuance date. In
the event partial reclassification of contracts subject to ASC
815-40-25 is necessary, due to our inability to demonstrate we have
sufficient shares authorized and unissued, shares will be allocated
on the basis of issuance date, with the earliest issuance date
receiving first allocation of shares. If a reclassification of an
instrument were required, it would result in the instrument issued
latest being reclassified first.





Recent Accounting Pronouncements





In May
2014, the FASB issued Accounting Standards Update ("ASU") No.
2014-09, Revenue from Contracts
with Customers: Topic 606, or ASU 2014-09. ASU 2014-09
establishes the principles for recognizing revenue and develops
a common revenue standard for U.S.
GAAP. The standard outlines a single comprehensive model for
entities to use in accounting for revenue arising from contracts
with customers and supersedes most current revenue recognition
guidance, including industry-specific guidance. In applying the new
revenue recognition model to contracts with customers, an
entity: (1) identifies the contract(s) with a customer; (2)
identifies the performance obligations in the contract(s); (3)
determines the transaction price; (4) allocates the transaction
price to the performance obligations in the contract(s); and (5)
recognizes revenue when (or as) the entity satisfies a performance
obligation. The accounting standards
update applies to all contracts with customers except those that
are within the scope of other topics in the FASB Accounting
Standards Codification. The accounting standards update also
requires significantly expanded quantitative and qualitative
disclosures regarding the nature, amount, timing and uncertainty of
revenue and cash flows arising from contracts with
customers. The Company adopted Topic 606 as of January 1, 2018,
using the modified retrospective
transition method. Under the modified retrospective method, the
Company would recognize the cumulative effect of initially applying
the standard as an adjustment to opening retained earnings at the
date of initial application; however, we did not have any material
adjustment as of the date of the adoption and adoption had no
impact on the Company's consolidated balance sheet, results of
operations, equity or cash flows as of the adoption date.
The comparative periods have not been restated.





In
February 2016, the FASB issued ASU No. 2016-02, Leases: Topic 842.
This standard requires all leases
that have a term of over 12 months to be recognized on the balance
sheet with the liability for lease payments and the
corresponding right-of-use asset initially measured at the present
value of amounts expected to be paid over the term. Recognition of
the costs of these leases on the income statement will be dependent
upon their classification as either an operating or a financing
lease. Costs of an operating lease will continue to be recognized
as a single operating expense on a straight-line basis over the
lease term. Costs for a financing lease will be disaggregated and
recognized as both an operating
expense (for the amortization of the right-of-use asset) and
interest expense (for interest on the lease liability). This
standard will be effective for our interim and annual periods
beginning January 1, 2019 and will be applied on a modified
retrospective basis to leases existing at, or entered into after,
the beginning of the earliest comparative period presented in the
financial statements. The Company has evaluated the timing of
adoption and the potential impact of this standard on our financial
position, but we do not expect it to have a material impact on our
financial position or results of operations.








F-11





NOTE 3 – ACCRUED EXPENSES





Accrued
expenses consist of the following amounts:





Year ended
December 31,2018
2017Accrued
compensation to executive officers
$572,437
$342,919Accrued
professional fees and settlements
196,663
125,771Accrued
Interest
148,533
59,961Total accrued
expenses
$917,633
$528,651





NOTE 4 – FAIR VALUE MEASUREMENTS





We had
no Level 1 or Level 2 assets and liabilities at December 31, 2018
and December 31, 2017. The Derivative liabilities are Level 3 fair
value measurements.





The
following is a summary of activity of Level 3 liabilities during
the years ended December 31, 2018 and
2017:





2018
2017Balance
at beginning of year
$382,948
$672,724Additions
231,603
-Settlements
(98,787)
-Change
in fair value
46,411
(289,776)Balance
at end of year
$562,175
$382,948





Embedded Derivative Liabilities of Convertible Notes





At
December 31, 2018, the fair value of the bifurcated embedded
derivative liabilities of convertible notes was estimated using the
following weighted-average inputs: risk free interest rate
–2.45%; term -.25 years; volatility – 193.28%; dividend
rate – 0%. At December 31, 2017, the fair value of the
bifurcated embedded derivative liabilities of convertible notes was
estimated using the following weighted-average inputs: risk free
interest rate- 1.39%%; term - .25 years; volatility –
246.62%; dividend rate – 0%.





F-12





NOTE 5 – NOTE PAYABLE





Convertible Note Payable





During
January 2015, the Company entered into a one-year $78,750
convertible note payable with LG Capital Funding (LG). The note
bears interest at 8% per annum and is convertible at any time at
the option of LG into shares of our common stock at a conversion
price equal to a 40% discount of the lowest closing bid price for
20 prior trading days including the notice of conversion date. The
embedded derivative liability associated with the conversion option
of the note was bifurcated from the note and recorded at its fair
value on the date of issuance and at each reporting date. The note
requires the Company to reserve four times the potential number of
shares of common stock issuable upon conversion, or 157,974,360 and
82,557,576 at December 31, 2018 and 2017, respectively. The Company
defaulted on the note in January 2016. Additionally, as a result of
declines in the fair value of the Company’s common stock,
from time to time the Company did not have sufficient authorized
shares to maintain this required four times share reserve.
Accordingly, the note holder had the right to accelerate the
repayment of the note and unpaid interest. In addition, LG has the
right to require that additional shares and/or monies be paid in
connection with the defaults. During December 2017, in settlement
of default, the Company and LG entered into a Convertible Note
Redemption Agreement under which the Company was to repay $68,110,
$39,921 in unpaid principal outstanding at December 31, 2017 and
$28,189 in accrued interest, in five payments through April 2018.
Through April 2018, the Company repaid $6,500 of principal under
the Convertible Note Redemption Agreement. The Company defaulted on
the Convertible Note Redemption Agreement in April 2018 and the
$28,189 in accrued interest was converted to principal. As of
December 31, 2018, and through the date of this report, the
principal balance totaling $61,610 is outstanding and remains in
default.





During
January 2015, the Company entered into a two-year convertible note
payable for up to $250,000 with JMJ Financial (JMJ), of which
$110,000 was funded between January and April 2015. The note was
issued with an original issue discount of 10% of amounts funded,
had a one-time 12% interest charge as it was not repaid within 90
days of the funding date, and is convertible at any time at the
option of JMJ into shares of our common stock at the lesser of
$0.075 per share or 60% of the average of the trading price in the
25 trading days prior to conversion. The embedded derivative
liability associated with the conversion option of the note was
bifurcated from the note and recorded at its fair value on the date
of issuance and at each reporting date. The note requires the
Company to reserve 26,650,000 shares of common stock. JMJ had the
option to finance additional amounts up to the balance of the
$250,000 during the term of the note. The Company defaulted on the
note during January 2017. During December 2017, in settlement of
default, the Company and JMJ entered into a Repayment Agreement
under which the Company was to repay $84,514, $69,070 in unpaid
principal outstanding at December 31, 2017 and $15,444 in accrued
interest, in four payments through May 2018. Through May 2018, the
Company repaid $25,000 of principal under the Repayment Agreement.
The Company defaulted on the Repayment Agreement in May 2018 and
the $15,444 in accrued interest was converted to principal. As of
December 31, 2018, and through the date of this report, the
principal balance totaling $59,514 is outstanding and remains in
default.





During
November 2018, the Company entered into a nine-month 12%
convertible note payable with Actus Fund, LLC totaling $90,000. The
note is convertible into common stock at a conversion price equal
to 50% of the lowest trading/closing price for the 25 trading days
prior to conversion. The embedded derivative liability associated
with the conversion option of the note was bifurcated from the note
and recorded at its fair value on the date of issuance and is
revalued at each reporting date. In connection with the convertible
note, the Company issued 2,500,000 warrants exercisable at $0.0069
over 5 years. At issuance, the derivative liability and warrants
were valued at $192,600 and $17,500, resulting in a $90,000
discount on the convertible note at origination. The warrants were
valued using the Black Scholes Merton model and the key valuation
assumptions used consist, in part, of the price of the
Company’s common stock of $0.007 at issuance date; a
risk-free interest rate of 3.07% and estimated volatility of the
Company’s common stock of 255%. The derivative liability was
valued using the Black Scholes Merton model and the key valuation
assumptions used consist, in part, of the price of the
Company’s common stock of $0.007 at issuance date; a
risk-free interest rate of 2.33% and estimated volatility of the
Company’s common stock of 190%. The $90,000 note remains
outstanding and in good standing as of December 31, 2018 and
through the date of this report.





During
December 2018, the Company entered into a Securities Purchase
Agreement with Adar Alef, LLC containing up to four one-year 8%
convertible notes payable with Adar Alef, LLC totaling $105,000.
The notes include an original issue discount of 5% of all amounts
funded such that the purchase price for each note shall be $25,000.
The notes are convertible into common stock at a conversion price
equal to 60% of the lowest trading price for the 20 trading days
prior to conversion. The first $26,500 note was funded in December
2018 and principal and interest are due at maturity in December
2019. The embedded derivative liability associated with the
conversion option of the note was bifurcated from the note and
recorded at its fair value of on the date of issuance and is
revalued at each reporting date. At issuance, the derivative
liability was valued at $39,000, resulting in a $25,000 discount on
the convertible note at origination. The derivative liability was
valued using the Black Scholes Merton model and the key valuation
assumptions used consist, in part, of the price of the
Company’s common stock of $0.006 at issuance date; a
risk-free interest rate of 2.62% and estimated volatility of the
Company’s common stock of 188%. The $26,250 note remains
outstanding and in good standing as of December 31, 2018 and
through the date of this report.





F-13





Notes Payable





During
August 2017, Dragon Acquisitions, a related entity owned by William
Delgado, and an individual lender entered into a Promissory Note
agreement for $20,000 as well as $2,000 in interest to accrue
through maturity on August 31, 2018 for a total of $22,000 due on
August 31, 2018. Dragon Acquisition assumed payment of a payable of
the Company and the Company took on the note. The Company defaulted
on the note at maturity in August 2018. The $20,000 note remained
outstanding December 31, 2018 and through the date of this
report.





On
December 22, 2017, the Company entered into a financing agreement
with Parabellum, an accredited investor, for $1.2 million. Under
the terms of the agreement, the Company is to receive milestone
payments based on the progress of the Company’s lawsuit (Note
6) for damages against Grupo Rontan Metalurgica, S.A (the
“Lawsuit”). Such milestone payments consist of (i) an
initial purchase price payment of $300,000, which the Company
received on December 22, 2017, (ii) $150,000 within 30 days of the
Lawsuit surviving a motion to dismiss on the primary claims, (iii)
$100,000 within 30 days of the close of all discovery in the
Lawsuit and (iv) $650,000 within 30 days of the Lawsuit surviving a
motion for summary judgment and challenges on the primary claims.
As part of the agreement, the Company shall pay the investor an
investment return of 100% of the litigation proceeds to recoup all
money invested, plus 27.5% of the total litigation proceeds
received by the Company. $300,000 was received by the Company in
December 2017. The $300,000 note remains outstanding and in good
standing as of December 31, 2018 and 2017, and through the date of
this report.





On December 23, 2017 (the “effective date”), the
Company entered into a $485,000, 7% interest rate, demand
promissory note with Vox Business Trust, LLC (Vox). The note was in
settlement of the amounts accrued under a consulting agreement
(Note 6), consisting of $200,000 owed for retainer payments through
December 2017, as well as $285,000 owed to Vox when the Resolution
Progress Funding was met on December 22, 2017. As part of the
agreement, Vox may not demand payment prior to the date of the
Resolution Funding Date. The Company also agreed to grant 5,000,000
shares within 90 days of the Resolution Progress Funding Date and
10,000,000 shares within 90 days of the Resolution Funding Date.
The 5,000,000 shares were issued on March 13, 2018. The Company
shall make mandatory prepayment in the following amounts and at the
following times –





●
 $1,000
on the effective date.


●
 $50,000
on the date on which the judge presiding over the lawsuit issues a
ruling or decision in which the lawsuit survives a motion to
dismiss.


●
 $50,000
on the date on which discovery closes with respect to the
lawsuit.


●
 $100,000
on the date on which the judge presiding over the lawsuit issues a
ruling or decision in which the lawsuit survives a motion for
summary judgement on the claims.





Under
the terms of the Vox note consulting agreement (Note 6), any unpaid
consulting fees subsequent to December 2017 causes a default on the
note with unpaid consulting fees to be added to the principal of
the note. During the year ended December 31, 2018, consulting fees
totaling $100,000 were added to the note principal and are included
in the note balance at December 31, 2018. The notes had a balance
of $584,000 and $484,000 as of December 31, 2018 and 2017,
respectively. Through the date of this report, monthly consulting
fees have not been repaid and continue to be added to the principal
balance of the note. The note remains in default however Vox has
voluntarily refrained from making demand prior to the Resolution
Funding Date.





On December 26, 2017 (the “effective date”), the
Company entered into a $485,000, 7% interest rate, demand
promissory note with RLT Consulting, Inc. (RLT), a related party.
The note was in settlement of the amounts accrued under a
consulting agreement (Note 6), consisting of $200,000 owed for
retainer payments through December 2017, as well as $285,000 owed
to RLT when the Resolution Progress Funding was met on December 22,
2017. As part of the agreement, RLT may not demand payment prior to
the date of the Resolution Funding Date. The Company also agreed to
grant 5,000,000 shares within 90 days of the Resolution Progress
Funding Date and 10,000,000 shares within 90 days of the Resolution
Funding Date. The 5,000,000 shares were issued on March 13, 2018.
The Company shall make mandatory prepayment in the following
amounts and at the following times –





F-14





●
 $1,000
on the effective date.


●
 $50,000
on the date on which the judge presiding over the lawsuit issues a
ruling or decision in which the lawsuit survives a motion to
dismiss.


●
 $50,000
on the date on which discovery closes with respect to the
lawsuit.


●
 $100,000
on the date on which the judge presiding over the lawsuit issues a
ruling or decision in which the lawsuit survives a motion for
summary judgement on the claims.





Under
the terms of the RLT note consulting agreement (Note 6), any unpaid
consulting fees subsequent to December 2017 causes a default on the
note with unpaid consulting fees to be added to the principal of
the note. During the year ended December 31, 2018, consulting fees
totaling $100,000 were added to the note principal and are included
in the note balance at December 31, 2018. The notes had a balance
of $584,000 and $484,000 as of December 31, 2018 and 2017,
respectively. Through the date of this report, monthly consulting
fees have not been repaid and continue to be added to the principal
balance of the note. The note remains in default however RLT has
voluntarily refrained from making demand prior to the Resolution
Funding Date. RLT was granted a first priority security interest in
the Litigation Proceeds and is pari passu to Parabellum and Vox. To
that end, they share in the litigation in a priority position to
proceed to repay the note.





During
April 2018, the Company entered into an Investment Return Purchase
Agreement with an accredited investor (the “Purchaser”)
for proceeds of $50,000 (the “Investment Agreement”).
The $50,000 proceeds were paid directly to Bill Delgado to
reimburse expenses incurred on behalf of the Company. Under the
terms of the Investment Agreement, the Company agreed to pay the
Purchaser the $50,000 proceeds plus a 50% return, or $25,000 (the
“Investment Return”) within seven (7) months from the
date of the Investment Agreement. In addition, the Company agreed
to issue to the Purchaser 1,000,000 warrants to purchase common
stock of the Company at an exercise price of $0.01 per share,
exercisable for a period of five (5) years. The warrants were
valued using the Black Scholes Merton model, resulting in a fair
value of $9,000 which were recorded as a discount on the note. The
key valuation assumptions used consist, in part, of the price of
the Company’s common stock of $0.009 at issuance date; a
risk-free interest rate of 2.60% and estimated volatility of the
Company’s common stock of 235%. During November 2018, the
Company defaulted on the Investment Agreement. As of December 31,
2018, the $50,000 principal and $25,000 Investment Return remained
outstanding. During May 2019, the Company and the Purchaser amended
the Investment Agreement, as detailed in Note 10.





During
April 2018, the Company entered into a one-month $30,000 note
payable with $18,000 in proceeds paid directly to a third-party
vendor for expenses. The note did not bear interest and included a
$12,000 original issue discount. As of December 31, 2018, the note
has been repaid.





During
April 2018, the Company entered into a two-month $36,000 note
payable with $31,000 in proceeds paid directly to a third-party
vendor for expenses. The note did not bear interest and included a
$5,000 original issue discount. During June 2018, the Company
defaulted on the note. As of December 31, 2018, and through the
date of this report, the $36,000 note remains
outstanding.





During
May 2018, the Company entered into an Investment Return Purchase
Agreement with an accredited investor (the “Purchaser”)
for proceeds of $200,000 (the “Investment Agreement”).
Under the terms of the Investment Agreement, the Company agreed to
pay the Purchaser the $200,000 proceeds plus a 10% return, or
$20,000 (the “Investment Return”) within three (3)
months from the date of the Investment Agreement. Such Investment
Return shall be paid earlier if the Company secures funding
totaling $500,000 within 90 days from the date of the Investment
Agreement. In addition, the Company agreed to issue to the
Purchaser 2,000,000 warrants to purchase common stock of the
Company at an exercise price of $0.01 per share, exercisable for a
period of three (3) years. The warrants were valued using the Black
Scholes Merton model, resulting in a fair value of $13,000 which
were recorded as a discount on the note. The key valuation
assumptions used consist, in part, of the price of the
Company’s common stock of $0.007 at issuance date; a
risk-free interest rate of 2.75% and estimated volatility of the
Company’s common stock of 220%. During August 2018, the
Company defaulted on the Investment Agreement. As of December 31,
2018, and through the date of this report, the $200,000 principal
and $20,000 Investment Return remained outstanding.





During
June 2018, the Company entered in to a one-year $300,000
non-convertible note with an accredited investor with $150,000
original issue discount (“OID”) for net proceeds of
$150,000. As part of the note agreement, the Company also agreed to
issue the investor 5,000,000 warrants at an exercise price of
$0.01, exercisable for a period of three (3) years. The warrants
were valued using the Black Scholes Merton model, resulting in a
fair value of $35,000 of which $28,378 was recorded as a discount
on the note. The key valuation assumptions used consist, in part,
of the price of the Company’s common stock of $0.008 at
issuance date; a risk-free interest rate of 2.62% and estimated
volatility of the Company’s common stock of 218%. At December
31, 2018, the $300,000 note remained outstanding. The Company
defaulted on the note at maturity in June 2019 and the note
remained outstanding through the date of this report. The note
contains a default interest rate of 10% plus a 5% penalty of the
outstanding balance of the note. The note holder has voluntarily
refrained from making demand for repayment under the default
provisions of the note, which would require the Company to pay the
holder 130% of the outstanding principal and interest accrued at
the default rate.





F-15





The
June 2018 note bears a personal guarantee by William Delgado, the
Chief Executive Officer of the Company. As further security for the
note, Mr. Delgado has also pledged the 1,000,000 Convertible
Preferred Shares of the Company that he owns, as well as 5,000,000
common shares of SHMP, another public company in which Mr. Delgado
is a director and Chief Financial Officer.





Revenue Based Factoring Agreements





During
2015, the Company entered into two revenue based factoring
agreements with Power Up Lending Group, Ltd. (Power Up) totaling
$145,700. During 2016, the Company defaulted on the $117,265
balance due under agreements. During September 2017, the Company
and Power Up settled the default with payments totaling $90,000 to
be made through May 2018. At December 31, 2017, the balance under
the agreements totaled $77,265. During May 2018, the Company made
the final payment under the settlement and recognized a $17,265
gain on settlement.





NOTE 6 – COMMITMENTS AND CONTINGENCIES





Legal Proceedings





We may
be involved in legal proceedings in the ordinary course of our
business, and our management cannot predict the ultimate outcome of
these legal proceedings with certainty. The Company is plaintiff or
defendant in the following actions:





Dekle, et. al. v. Global Digital Solutions, Inc. et.
al.





Brian
A. Dekle and John Ramsay filed suit against the Company and its
wholly owned subsidiary, North American Custom Specialty Vehicles,
Inc. (“NACSV”), in the Circuit Court of Baldwin
Alabama, on January 14, 2015, case no. 05-CV-2015-9000050.00,
relating to our acquisition of NACSV (the ''Dekle Action"). Prior
to instituting the Dekle Action, in June 2014, the Company had
entered into an equity purchase agreement with Dekle and Ramsay to
purchase their membership interest in North American Custom
Specialty Vehicles, LLC. The Dekle Action originally sought payment
for $300,000 in post-closing consideration Dekle and Ramsay allege
they are owed pursuant to the equity purchase
agreement.





On February 9, 2015, the Company
and NACSV removed the Dekle Action to federal court in the United
States District Court in and for the Southern District of Alabama,
case no. 1:15-CV-00069. The Company and NACSV subsequently moved to
dismiss the complaint for (1) failing to state a cause of action,
and (2) lack of personal jurisdiction. Alternatively, the Company
and NACSV sought a transfer of the case to the United States
District Court in and for Middle District of Florida.





In
response to the Company’s and NACSV's motion to dismiss,
Dekle and Ramsay filed an amended complaint on March 2, 2015
seeking specific performance and alleging breach of contract,
violations of Security and Exchange Commission (“SEC”)
Rule 10b-5, and violations of the Alabama Securities Act. The
amended complaint also names the Company’s Chairman,
President, and CEO, Richard J. Sullivan (“Sullivan”),
as a defendant. On March 17, 2015, the Company, NACSV and Sullivan
filed a motion to dismiss the amended complaint seeking dismissal
for failure to state valid causes of action, for lack of personal
jurisdiction, or alternatively to transfer the case to the United
States District Court in and for the Middle District of Florida.
Dekle and Ramsay responded on March 31, 2015, and the Company filed
its response thereto on April 7, 2015.





On June
2, 2015, Dekle passed away.  On June 5, 2015, the Court
denied the Company’s motion to transfer the case to
Florida.   On June 10, 2015, the Company filed a motion
to reconsider the Court’s denial of its motion to transfer
the case to Florida. On September 30, 2105, the Court granted
the Company’s Renewed Motion to Transfer Venue. The case was
transferred to the Middle District of Florida, where it is
currently pending.





On June
15, 2015, Ramsay filed a second amended complaint. On June 25,
2015, the Company filed a motion to dismiss the second amended
complaint. The Company’s Motion to Dismiss was
denied.





F-16





On July
27, 2017, the Company and Dekle and Ramsay came to a Settlement
Agreement. The Company and the plaintiff came to the following
agreements:





i.
 Judgment is due to
be entered against the Company in the amount of $300,000 if the sum
of $20,000 as noted in iv is not paid.





ii.
 The Company grants
the plaintiffs vehicles and trailers in connection to this
proceeding.





iii.
 The Company will
assist the plaintiffs in obtaining possession of the said
vehicles.





iv.
 The Company will
pay the plaintiffs the sum of $20,000. The $20,000 settlement was
paid in August 2017.





PowerUp Lending Group, LTD., v. North
American Custom Specialty Vehicle, Inc.
et.al





On
September 13, 2017 Power Up received a default judgment against the
Company in the amount of $109,302.00. The Company negotiated a
settlement agreement on December 21, 2017 with Power Up to pay
$90,000 in three installments of $30,000. As of May 15, 2018, the
company has paid the entire amount (Note 5).





Global Digital Solutions, Inc. et. al. v. Communications
Laboratories, Inc., et. al.





On
January 19, 2015 the Company and NACSV filed suit against
Communications Laboratories, Inc., ComLabs Global, LLC,
Roland Lussier, Brian Dekle, John Ramsay and Wallace Bailey for
conversion and breach of contract in a dispute over the payment of
a $300,000 account receivable that ComLabs owed to NACSV
but sent payment directly to Brian Dekle. The case was filed in the
Eighteenth Judicial Circuit in and for Brevard County Florida, case
no. 05-2015-CA-012250. On February 18, 2015 (i) defendants
Communications Laboratories, Inc., ComLabs Global, LLC
and Roland Lussier and (ii) defendant Wallace Bailey filed their
respective motions to dismiss seeking, among other things,
dismissal for failure to state valid causes of action, lumping and
failure to post a non-resident bond. On February 26, 2015,
defendants Dekle and Ramsay filed their motion to dismiss, or stay
action, based on already existing litigation between the parties.
NACSV filed its required bond on March 2, 2015.





Jeff Hull, Individually and on Behalf of All Others Similarly
Situated v. Global Digital Solutions, Inc., Richard J. Sullivan,
David A. Loppert, William J. Delgado, Arthur F. Noterman and
Stephanie C. Sullivan United States District Court, District of New
Jersey (Trenton), Case No. 3:16-cv-05153-FLW-TJB





On
August 24, 2016, Jeff Hull, Individually and on Behalf of All
Others Similarly Situated (“Hull”) filed suit in the
United States District Court for
the District of New Jersey against Global Digital Solutions,
Inc. (“GDSI”), Richard J. Sullivan
(“Sullivan”), David A. Loppert (“Loppert”),
William J. Delgado (“Delgado”), Arthur F. Noterman
(“Noterman”) and Stephanie C. Sullivan
(“Stephanie Sullivan”) seeking to recover compensable
damages caused by Defendants’ alleged violations of federal
securities laws and to pursue remedies under the Securities
Exchange Act of 1934. On January 18, 2018, pursuant to the
Court’s December 19, 2017 Order granting Plaintiff Hull leave
to file an amended Complaint, Plaintiff Hull filed a Second Amended
Complaint against Defendants. On February 8, 2018, Defendants GDSI
and Delgado filed a Second Motion to Dismiss the Complaint. On
February 8, 2018, Defendant Loppert filed a Motion for Extension of
Time to File an Answer. On February 13, 2018, Defendant Loppert
filed a Motion to Dismiss the Second Amended Complaint for Lack of
(personal) Jurisdiction and for Failure to State a Claim. On
February 20, 2018, Plaintiff Michael Perry (“Perry”)
filed a Brief in Opposition to Defendants GDSI and Delgado’s
Second Motion to Dismiss the Complaint and to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
On February 26, 2018, Defendants GDSI and Delgado filed a Reply
Brief to Plaintiff Michael Perry’s Brief in Opposition to
their Motion to Dismiss the Second Amended Complaint. On February
26, 2018, Defendant Loppert filed a Response in Support of
Defendants GDSI and Delgado’s Second Motion to Dismiss the
Complaint. On March 12, 2018, Defendant Loppert filed a Reply Brief
to Plaintiff Perry’s Brief in Opposition to Defendant
Loppert’s Motion to Dismiss the Second Amended Complaint for
Lack of (personal) Jurisdiction and for Failure to State a Claim.
To date, the Court has not issued a decision as to aforementioned
Motions. Global Digital Solutions, Inc. and William J. Delgado
intend to continue to vigorously defend against the claims asserted
by Jeff Hull, Individually and on Behalf of All Others Similarly
Situated. The Company believes the likelihood of an unfavorable
outcome of the dispute is remote.





Securities and Exchange Commission v. Global Digital Solutions,
Inc., Richard J. Sullivan and David A. Loppert United States
District Court for the Southern District of Florida, Case No.
9:16-cv-81413-RLR





On
August 11, 2016, the Securities and Exchange Commission
(“SEC”) filed suit in the United States District Court for the Southern
District of Florida against Global Digital Solutions, Inc.
(“GDSI”), Richard J. Sullivan (“Sullivan”)
and David A. Loppert (“Loppert”) to enjoin GDSI;
Sullivan, GDSI’s former Chairman and CEO; and Loppert,
GDSI’s former CFO from alleged further violations of the
anti-fraud and reporting provisions of the federal securities laws,
and against Sullivan and Loppert from alleged further violations of
the certification provisions of the federal securities
laws.





F-17





On
October 12, 2016, Defendant GDSI filed its First Answer to the
Complaint. On November 9, 2016, Defendant Sullivan filed a Letter
with the Court denying all allegations regarding the case. On
December 15, 2016, the SEC filed a Motion for Judgment and Notice
of Filing of Consent of Defendant Loppert to entry of Final
Judgment by the SEC. On December 19, 2016, the Court entered an
order granting the SEC’s Motion for Judgment as to Defendant
Loppert. On December 21, 2016, the SEC filed a Notice of Settlement
as entered into by it and Defendants GDSI and Sullivan. On December
23, 2016, the Court entered an Order staying the case and directing
the Clerk of the Court to close the case for statistical purposes
per the December 21, 2016 Notice of Settlement. On March 7, 2017,
the SEC moved for a Judgment of Permanent Injunction and Other
Relief and Notice of Filing Consent of Defendant GDSI to Entry of
Judgment by the SEC. On March 13, 2017, the Judge signed the
Judgment as to Defendant GDSI and it was entered on the
Court’s docket. On April 6, 2017, the SEC moved for a final
Judgment of Permanent Injunction and Other Relief and Notice of
Filing Consent of Defendant Sullivan. On April 10, 2017, the Judge
signed the final Judgment as to Defendant Sullivan and it was
entered on the Court’s docket. On December 21, 2017, the SEC
moved for a final Judgment and Notice of Filing Consent of
Defendant GDSI to Entry of Final Judgment. On January 2, 2018, the
Judge signed the Final Judgment as to Defendant GDSI and it was
entered on the Court’s docket. The amount of the judgement is
One Hundred Thousand Dollars ($100,000.00) plus interest, which is
included in accrued expenses in the accompanying consolidated
balance sheet.





Adrian Lopez, Derivatively and on behalf of Global Digital
Solutions, Inc. v. William J. Delgado, Richard J. Sullivan, David
A. Loppert, Jerome J. Gomolski, Stephanie C. Sullivan, Arthur F.
Noterman, and Stephen L. Norris United States District Court for
the District of New Jersey, Case No.
3:17-cv-03468-PGS-LHG





On
September 19, 2016, Adrian Lopez, derivatively, and on behalf of
Global Digital Solutions, Inc., filed an action in New Jersey
Superior Court sitting Mercer County, General Equity Division. That
action was administratively dismissed for failure to prosecute.
Plaintiff Lopez, through his counsel, filed a motion to reinstate
the matter on the general equity calendar on or about February 10,
2017. The Court granted the motion unopposed on or about April 16,
2017. On May 15, 2017, Defendant William Delgado
(“Delgado”) filed a Notice of Removal of Case No.
C-70-16 from the Mercer County
Superior Court of New Jersey to the United States District Court for the District
of New Jersey. On May 19, 2017, Defendant Delgado filed a
First Motion to Dismiss for Lack of Jurisdiction. On May 20, 2017,
Defendant David A. Loppert (“Loppert”) filed a Motion
to Dismiss for Lack of (Personal) Jurisdiction. On June 14, 2017,
Plaintiff Adrian Lopez (“Lopez”) filed a First Motion
to Remand the Action back to State Court. On June 29, 2017,
Defendant Delgado filed a Memorandum of Law in Response and Reply
to the Memorandum of Law in Support of Plaintiff’s Motion to
Remand and in Response to Defendants’ Delgado’s and
Loppert’s Motions to Dismiss. On January 1, 16, 2018, a
Memorandum and Order granting Plaintiff’s Motion to Remand
the case back to the Mercer County
Superior Court of New Jersey was signed by the Judge and
entered on the Docket. Defendants Delgado and Loppert’s
Motions to Dismiss were denied as moot. On February 2, 2018,
Defendants filed a Motion to Dismiss the Complaint. On February 20,
2018, Plaintiff filed a Motion to Consolidate Cases. On March 21,
2018, Plaintiff filed an Opposition to Defendants’ Motion to
Dismiss the Complaint. On March 23, 2018, Defendants filed a Brief
in Reply to Plaintiff’s Opposition to Defendants’
Motion to Dismiss the Complaint. The Court held a hearing on the
motions to dismiss and consolidate. Jurisdictional discovery was
ordered. As of this date, the Court has not issued a decision and
Order regarding Defendants’ Motion to Dismiss the Complaint.
The Company believes the likelihood of an unfavorable outcome of
the dispute is remote.





Adrian Lopez v. Global Digital Solutions, Inc. and William J.
Delgado Superior Court of New Jersey, Chancery Division, Mercer
County, Equity Part, Docket No. MER-L-002126-17





On
September 28, 2017, Plaintiff Adrian Lopez (“Lopez”)
brought an action against Global Digital Solutions, Inc.
(“GDSI”) and William J. Delgado (“Delgado”)
to compel a meeting of the stockholders of Global Digital
Solutions, Inc. pursuant to Section 2.02 of GDSI’s Bylaws and
New Jersey Revised Statute § 14A:5-2. On October 27, 2017,
Defendants GDSI and Delgado filed a Motion to Stay the Proceeding.
On November 24, 2017, Plaintiff filed an Objection to
Defendants’ Motion to Stay the Proceeding.On January 19, 2018,
Defendants’ Motion to Stay the Proceeding was denied. On
February 2, 2018, Defendants filed a Motion to Dismiss the
Complaint. On February 20, 2018, Plaintiff filed a Motion to
Consolidate Cases. On March 21, 2018, Plaintiff filed an Opposition
to Defendants’ Motion to Dismiss the Complaint. On March 23,
2018, Defendants filed a Brief in Reply to Plaintiff’s
Opposition to Defendants’ Motion to Dismiss the Complaint. As
of this date, the Court has not issued a decision and Order
regarding Defendants’ Motion to Dismiss the Complaint. The
Company believes the likelihood of an unfavorable outcome of the
dispute is remote.





F-18





In the Matter of GLOBAL DIGITAL SOLUTIONS, INC., ADMINISTRATIVE
PROCEEDING File No. 3-18325. Administrative Proceeding Before the
Securities and Exchange Commission.





On
December 26, 2017, the Securities and Exchange Commission
instituted public administrative proceedings pursuant to Section
12(j) of the Securities Exchange Act of 1934 (“Exchange
Act”) against the Respondent Global Digital Solutions, Inc.
On January 8, 2018, Respondent Global Digital Solutions, Inc.
(“GDSI”) filed its answer to the allegations contained
in the Order Instituting Administrative Proceedings and Notice of
Hearing Pursuant to Section 12U) of the Exchange Act. A briefing
schedule was entered into and on February 15, 2018, the Securities
and Exchange Commission filed a motion for an order of summary
disposition against Respondent GDSI on the grounds that there is no
genuine issue with regard to any material fact, the Division was
entitled as a matter of law to an order revoking each class of
GDSI's securities registered pursuant to Section 12 of the Exchange
Act. Respondent GDSI opposed the Securities and Exchange
Commission’s motion on the grounds that there were material
issues of fact. The Securities and Exchange Commission replied and
a hearing was held on April 9, 2018. The Administrative Law Judge
ordered supplemental evidence and briefing on the issues of
material fact. The Company believes the likelihood of an
unfavorable outcome of the dispute is reasonably possible but is
not able to reasonably estimate a range of potential loss, should
the outcome be unfavorable.





PMB HELIN DONOVAN, LLP vs. GLOBAL DIGITAL SOLUTIONS, INC. IN THE
CIRCUIT COURT FOR THE 15TH JUDICIAL CIRCUIT IN AND FOR PALM BEACH
COUNTY, FLORIDA, Docket No.: 50-2017-CA-011937-XXXX-MB





On
October 31, 2017, PMB Helin Donovan, LLP filed an action for
account stated in Palm Beach County. Global Digital Solutions, Inc.
(“GDSI”) settled the matter for Forty Thousand Dollars
($40,000.00) of which the first payment of Ten Thousand Dollars
($10,000.00) has been paid on May 16, 2018. The $40,000 is included
in accounts payable as of December 31, 2017 and $30,000 at December
31, 2018.





JENNIFER CARROLL, vs. GLOBAL DIGITAL SOLUTIONS, INC., NORTH
AMERICAN CUSTOM SPECIALTY VEHICLES, INC., IN THE CIRCUIT COURT
FOR THE 15TH JUDICIAL CIRCUIT in AND FOR PALM BEACH COUNTY,
FLORIDA, CASE NO.: 50-2015-CC-012942-XXXX-MB





On
October 27, 2017, Plaintiff Jennifer Carroll the former President
of NACSV, moved the court for a default judgment against Defendant
Global Digital Solutions, Inc. (“GDSI”) and its
subsidiary North American Custom Specialty Vehicles Inc. The amount
of the judgement is Fifteen Thousand Dollars ($15,000.00) plus fees
of Thirteen Thousand Three Hundred Fifty Three Dollars Forty Four
Cents ($13,353.44) and costs of six hundred twenty four dollars
thirty cents ($624.30).





Consulting agreements





The
Company entered into two consulting agreements (See Note 5) in May
2016, for services to be provided in connection towards the
resolution of the Rontan lawsuit (below). The consulting agreements
includes a monthly retainer payment of$10,000 to each consultant.
The agreement also includes consideration of 5,000,000 shares of
restricted common stock of the Company, plus a 5% cash
consideration of the Resolution Progress Funding, (defined as upon
the retention of legal counsel and receipt of funding for the
litigation), as of the Resolution Progress Funding date and
10,000,000 shares of restricted common stock of the Company and a
5% cash consideration of the Resolution Funding amount (defined as
a settlement or judgement in favor of the Company by Rotan),at the
Resolution Funding date. The Resolution Progress funding was met on
December 22, 2017.





Share Purchase and Sale Agreement for Acquisition of Grupo Rontan
Electro Metalurgica, S.A.





Effective October
13, 2015, the Company (as “Purchaser”) entered into the
SPSA dated October 8, 2015 with Joao Alberto Bolzan and Jose Carlos
Bolzan, both Brazilian residents (collectively, the
“Sellers”) and Grupo Rontan Electro Metalurgica, S.A.,
a limited liability company duly organized and existing under the
laws of Federative Republic of Brazil (“Rontan”)
(collectively, the “Parties”), pursuant to which the
Sellers agreed to sell 100% of the issued and outstanding shares of
Rontan to the Purchaser on the closing date.





F-19





The
purchase price shall consist of a cash amount, a stock amount and
an earn-out amount as follows: (i) Brazilian Real (“R”)
$100 million (approximately US$26 million) to be paid by the
Purchaser in equal monthly installments over a period of forty
eight (48) months following the closing date; (ii) an aggregate of
R$100 million (approximately US$26 million) in shares of the
Purchaser’s common stock, valued at US$1.00 per share; and
(iii) an earn-out payable within ten business days following
receipt by the Purchaser of Rontan’s audited financial
statements for the 12-months ended December 31, 2017, 2018 and
2019. The earn-out shall be equal to the product of (i)
Rontan’s earnings before interest, taxes, depreciation and
amortization (“EBITDA”) for the last 12 months, and
(ii) twenty percent and is contingent upon Rontan’s EBITDA
results for any earn-out period being at least 125% of
Rontan’s EBITDA for the 12-months ended December 31, 2015. It
is the intention of the parties that the stock amount will be used
by Rontan to repay institutional debt outstanding as of the closing
date.





Under
the terms of a Finders Fees Agreement dated April 14, 2014, we have
agreed to pay RLT Consulting Inc., a related party, a fee of 2%
(two percent) of the Transaction Value, as defined in the
agreement, of Rontan upon closing. The fee is payable one-half in
cash and one-half in shares of our common stock.





Specific conditions
to closing consist of:





a)
 Purchaser’s
receipt of written limited assurance of an unqualified opinion with
respect to Rontan’s audited financial statements for the
years ended December 31, 2013 and 2014 (the
“Opinion”);


b)
 The commitment of
sufficient investment by General American Capital Partners LLC (the
“Institutional Investor”), in the Purchaser following
receipt of the Opinion;


c)
 The accuracy of
each Parties’ representations and warranties contained in the
SPSA;


d)
 The continued
operation of Rontan’s business in the ordinary
course;


e)
 The maintenance of
all of Rontan’s bank credit lines in the maximum amount of
R$200 million (approximately US$52 million) under the same terms
and conditions originally agreed with any such financial
institutions, and the maintenance of all other types of funding
arrangements. As of the date of the SPSA, Rontan’s financial
institution debt consists of not more than R$200 million
(approximately US$52 million), trade debt of not more than R$50
million (approximately US$13 million) and other fiscal
contingencies of not more that R$95 million (approximately US$24.7
million);


f)
 Rontan shall enter
into employment or consulting service agreements with key employees
and advisors identified by the Purchaser, including Rontan’s
Chief Executive Officer; and


g)
 The Sellers
continued guarantee of Rontan’s bank debt for a period of 90
days following issuance of the Opinion, among other
items.





The
Institutional Investor has committed to invest sufficient capital
to facilitate the transaction, subject to receipt of the Opinion,
as well as the ability to acquire 100% of the outstanding stock of
Rontan at a price of $200 million BR, and the Company can acquire
100% of all real estate held by Rontan.





Subject
to satisfaction or waiver of the conditions precedent provided for
in the SPSA, the closing date of the transaction shall take place
within 10 business days from the date of issuance of the
Opinion.





Rontan
is engaged in the manufacture and distribution of specialty
vehicles and acoustic/visual signaling equipment for the industrial
and automotive markets.





Subsequent to
December 31, 2015, on April 1, 2016, we believed that we had
satisfied or otherwise waived the conditions to closing (as
disclosed under the SPSA, the closing was subject to specific
conditions to closing, which were waivable by us,) and advised the
Sellers of our intention to close the SPSA and demanded delivery of
the Rontan Securities. The Sellers, however, notified us that they
intend to terminate the SPSA. We believe that the Sellers had no
right to terminate the SPSA and that notice of termination by the
Sellers was not permitted under the terms of the SPSA.





F-20





On
January 31, 2018, we announced that we initiated a lawsuit for
damages against Grupo Rontan Metalurgica, S. A,
(“Rontan”) and that company’s controlling
shareholders, Joao Alberto Bolzan and Jose Carlos Bolzan. The
action has been filed in the United States District Court for the
Southern District of Florida. The complaint alleges that Rontan is
wholly-owned by Joao Bolzan and Jose Bolzan. In the complaint, we
further allege that Rontan and its shareholders improperly
terminated a Share Purchase and Sale Agreement (the
“SPA”) by which we were to acquire whole ownership of
Rontan.





On
February 5, 2018, United States District Court Southern District of
Florida filed a Pretrial Scheduling Order and Order Referring Case
to Mediation dated February 5, 2018 for the Company’s lawsuit
against Grupo Rontan Electro Metalurgica, S.A., et al. The Case No.
is 18-80106-Civ-Middlebrooks/Brannon. The court has issued a
schedule outlining various documents and responses that are to be
delivered by the parties as part of the discovery
plan.





On
April 25, 2018, the Note of Filing Proposed Summons was completed
by the Company. On April 26, 2018, a summons was issued to Grupo
Rontan Electro Metalurgica, S.A. Also, on May 15, 2018, the Company
filed a motion for Issuance of Letters Rogatory.





NOTE 7 – STOCKHOLDERS’ EQUITY





Preferred Stock





We are
authorized to issue 35,000,000 shares of noncumulative, non-voting,
nonconvertible preferred stock, $0.001 par value per share. At
December 31, 2018 and 2017, 1,000,000 shares of preferred stock
were outstanding.





On
August 15, 2016, William J. Delgado, our current Chief Executive
Officer, agreed to convert $231,565 of indebtedness owed to him by
the Company into 1,000,000 shares of convertible preferred stock
(the “Preferred Stock”). The Preferred Stock has voting
rights as to one (1) preferred share to four hundred (400) shares
of the common stock of the Company. The Preferred Stock is
convertible into common stock at any time after issuance into 37%
of the outstanding common stock of the Company at the time of the
conversion. The conversion to common can only take place when there
are an adequate number of shares that are available and is subject
to normal stock adjustments (i.e. stock splits etc.) that are
executed by the Company in its normal course of
business.





Common Stock





We are
authorized to issue 650,000,000 shares of common stock, $0.001 par
value per share. At December 31, 2018 and 2017, 579,900,814 and
530,806,571 shares were issued, outstanding, or vested but unissued
under stock compensation plans, respectively.





Common Stock Warrant





We have
issued warrants, which are fully vested and available for exercise,
as follows:





Class of Warrant

Issued in connection with or for

Number outstanding

Exercise Price

Date of Issue

Date Vest

Date of ExpirationA-5

Financing

1,000,000

$ 0.01

April 3, 2018

April 3, 2018

April 3, 2023A-6

Financing

2,000,000

$ 0.01

May 15, 2018

May 15, 2018

May 15, 2021A-7

Financing

5,000,000

$ 0.01

June 1, 2018

June 1, 2018

June 1, 2021A-8

Financing

2,500,000

$ 0.0069

Nov. 2, 2018

Nov. 2, 2018

Nov. 2, 202310,500,000





F-21





All
warrants are exercisable at any time through the date of
expiration. All agreements provide for the number of shares to be
adjusted in the event of a stock split, a reverse stock split, a
share exchange or other conversion or exchange event in which case
the number of warrants and the exercise price of the warrants shall
be adjusted on a proportional basis. The warrants expired
unexercised on the dates of expiration, as shown
above.





The
following is a summary of outstanding and exercisable warrants at
December 31, 2018:





Outstanding
ExercisableWeightedAverage
Outstanding
Weighted

WeightedRange of
Number
Remaining
Average
Number
AverageExercise
Outstanding
Contractual
Exercise
Exercisable
ExercisePrices
at 12/31/18
Life (in yrs.)
Price
at 12/31/18
Price$ 0.01
1,000,000
4.26
$0.01
1,000,000
$0.01$
0.01
2,000,000
2.37
$0.01
2,000,000
$0.01$
0.01
5,000,000
2.40
$0.01
5,000,000
$0.01$
0.0069
2,500,000
4.85
$0.0069
2,500,000
$0.00690.0069
to 0.01
10,500,000
3.17
$0.0093
10,500,000
$0.0093





The
following is a summary of outstanding and exercisable warrants at
December 31, 2017





Outstanding
ExercisableWeightedAverage
Outstanding
Weighted

WeightedRange of
Number
Remaining
Average
Number
AverageExercise
Outstanding
Contractual
Exercise
Exercisable
ExercisePrices
at 12/31/17
Life (in yrs.)
Price
at 12/31/17
Price0.15
1,000,000
0.33
0.15
1,000,00
0.150.50
500,000
0.42
0.50
500,000
0.500.15
to 0.50
1,500,000
0.75
0.37
1,500,000
0.56





The
intrinsic value of warrants outstanding at December 31, 2018 and
2017 was $0. Aggregate intrinsic value represents the value of the
Company’s closing stock price on the last trading day of the
fiscal period in excess of the exercise price of the warrant
multiplied by the number of warrants outstanding or
exercisable.





Stock Incentive Plans





2014 Global Digital Solutions Equity Incentive Plan





On May
9, 2014 our shareholders approved the 2014 Global Digital Solutions
Equity Incentive Plan (“Plan”) and reserved 20,000,000
shares of our common stock for issuance pursuant to awards
thereunder, including options, stock appreciation right, restricted
stock, restricted stock units, performance awards, dividend
equivalents, or other stock-based awards. The Plan is intended as
an incentive, to retain in the employ of the Company, our
directors, officers, employees, consultants and advisors, and to
attract new officers, employees, directors, consultants and
advisors whose services are considered valuable, to encourage the
sense of proprietorship and to stimulate the active interest of
such persons in the development and financial success of the
Company and its subsidiaries.





In
accordance with the ACS 718, Compensation – Stock
Compensation, awards granted are valued at fair value at the
grant date. The Company recognizes compensation expense on a pro
rata straight-line basis over the requisite service period for
stock-based compensation awards with both graded and cliff vesting
terms. The Company recognizes the cumulative effect of a change in
the number of awards expected to vest in compensation expense in
the period of change. The Company has not capitalized any portion
of its stock-based compensation.





F-22





There
was not any stock based compensation in the year ended December 31,
2017. Stock-based compensation expense for the years ended December
31, 2018 is comprised as follows:





2018Stock based
compensation expense
$300,125Shares issued for
financing costs
57,000Total
$357,125





Awards Issued Under Stock Incentive Plans





Stock Option Activity





At
December 31, 2018 and 2017 we have outstanding 13,650,002 stock
options - all of which are fully-vested stock options that
were granted to directors, officers and consultants. The
outstanding stock options are exercisable at prices ranging from
$0.006 to $0.64 and expire between February 2024 and December 2025,
for an average exercise price per share of $0.60 and an average
remaining term of 7.5 years as of December 31, 2018.During 2016 1,449,998 unvested
stock options were either forfeited due to employees leaving the
Company or cancelled by the Board due to performance levels not
being met. Any compensation amount previously recognized on the
straight-line basis relating to the unvested stock options were
reversed in the period of cancellation or forfeiture. The remaining
533,334 options vested during the year ended December 31, 2016.
There were no options granted, exercised, or forfeited during the
years ended December 31, 2018 and 2017.





During
the years ended December 31, 2018 we did not recognize
any stock-based compensation cost related to the outstanding
stock options. The intrinsic value of options outstanding at
December 31, 2018 and 2017 was $0. Aggregate intrinsic value
represents the value of the Company’s closing stock price on
the last trading day of the fiscal period in excess of the exercise
price of the option multiplied by the number of options
outstanding.





Restricted Stock Units





On
October 10, 2014 we granted an employee 1 million RSU’s
convertible into 1 million shares of the Company’s common
stock, with a grant date fair market value of $100,000. The grant
was made under our 2014 Equity Incentive Plan. 333,333 RSU’s
will vest in respect of each calendar year (commencing January 1
and ending December 31) of the Company from 2015 through 2017 if
the Company has achieved at least 90% of the total revenue and
EBITDA midpoint targets set forth in the agreement. If less than
90% of the target is achieved in respect of any such fiscal year,
then the number of RSU’s vesting for that fiscal year shall
be 333,333 times the applicable percentage set forth in the
agreement; provided that,
if the company shall exceed 100% of the revenue and EBITDA midpoint
target for the 2018 or 2017 calendar year, and shall have failed to
reach 90% of the target for a prior calendar year, the excess over
100% shall be applied to reduce the deficiency in the prior
year(s), and an additional number of RSU’s shall vest to
reflect the increased revenue for such prior calendar year. Any
such excess shall be applied first to reduce any deficiency for the
2015 calendar year and then for the 2016 calendar year. The vesting
of the RSU’s shall be effective upon the issuance of the
audited financial statements of the Company for the applicable
calendar year and shall be based upon the total revenue and EBITDA
of the acquired companies as reflected in such financial
statements.





F-23





Awards Not Issued Under Stock Incentive Plans





Restricted Stock Grants Awarded to Advisors





In
order to align our senior advisors with the interest of the
stakeholders of the Company, the Board of Directors of the Company
has granted the advisors restricted stock awards valued at $0.17 to
$0.364 per share which vest over a period of 12 – 24 months,
subject to remaining an advisor for a minimum of twelve months, and
which are forfeited if the advisor is terminated or is no longer an
advisor on the anniversary of the advisory award, as
follows:





December 31,
2018Name

Date
of
Grant

Number
of
Shares


Vest
from

Vest
To

Vested


Unvested


ForfeitedMathew
Kelley

4/17/13


1,250,000


4/30/13

3/31/14


1,250,000



-



-4/17/13


1,250,000


2/28/14

1/31/15


1,250,000



-



-Richard
J. Feldman

4/30/14


500,000


4/30/14

3/30/15


500,000



-



-500,000


4/30/15

3/30/16


375,000



-



125,000Gary
Gray

3/7/15


1,000,000


3/7/15

5/30/15


1,000,000Ross
Trevino

3/7/15


500,000


3/7/15

5/30/15


500,0005,000,000







4,875,000



-



125,000





The
aggregate intrinsic value of the restricted stock grant was $0 at
December 31, 2018 and 2017.





NOTE 8 – INCOME TAXES





Reconciliations
between the statutory rate and the effective tax rate for the year
ended December 31, 2018 consist as follows:





2018(rounded to nearest thousand)Amounts
RateIncome
tax (expense) benefit at statutory federal rate of 21%
$385,000
-21%Permanent
differences
(10,000)
1%Increase
(decrease) in valuation allowance
(375,000)
20%Income
tax expense (benefit) at Company’s effective tax
rate
$-
0%





TOTAL
12/31/2018
2018
Activity
TOTAL
12/31/2017Net Operating Loss
Carryforward
$12,151,033
$1,787,947
$10,363,086NOL tax
benefit
$3,007,000
$375,000
$2,632,000Stock based
compensation
2,908,000
-
2,908,000Accrued
expenses
26,000

26,000Amortization and
depreciation
19,000
-
19,000Impairment of
intangible assets
243,000

243,000Total Deferred Tax
Assets
6,203,000
375,000
5,828,000Valuation
allowance
(6,203,000)
(375,000)
(5,828,000)$-
$-
$-





F-24





As
of December 31, 2018, the Company had $12,151,033 of federal net
operating loss carry forwards. These carry forwards, if not used,
will begin to expire in 2028. Current or future ownership changes,
including issuances of common stock under the terms of the
Company’s convertible notes payable that were entered into
during 2015 and the closing of the Rontan Transaction may severely
limit the future realization of these net operating
losses.





The
Company provides for a valuation allowance when it is more likely
than not that they will not realize a portion of the deferred tax
assets. The Company has established a valuation allowance against
their net deferred tax asset due to the uncertainty that enough
taxable income will be generated in those taxing jurisdictions to
utilize the assets. Therefore, they have not reflected any benefit
of such deferred tax assets in the accompanying financial
statements. The Company’s net deferred tax asset and
valuation allowance increased by $375,000 the year ended December
31, 2018, related to the current year activity.





The
Company has reviewed all income tax positions taken or that are
expected to be taken for all open years and determined that their
income tax positions are appropriately stated and supported for all
open years. The Company is subject to U.S. federal income tax
examinations by tax authorities for years after 2011 due to
unexpired net operating loss carryforwards originating in and
subsequent to that year. The Company may be subject to income tax
examinations for the various taxing authorities which vary by
jurisdiction.





The
Company’s policy is to record interest and penalties
associated with unrecognized tax benefits as additional income
taxes in the consolidated statements of operations. As of December
31, 2018, there were no unrecognized tax benefits, or any tax
related interest or penalties.





The
Company files income tax returns in the U.S. federal jurisdiction
and the various states in which they operate. The former members of
NACSV are required to file separate federal and state tax returns
for NACSV for the periods prior to our acquisition of NACSV. The
Company files consolidated tax returns for subsequent periods. The
Company has not filed their U.S. federal and certain state tax
returns since 2014 and currently do not have any examinations
ongoing. Tax returns for the years 2012 onwards are subject to
federal, state or local examinations.





NOTE 9 – RELATED PARTY TRANSACTIONS





Due to
officer





During
the year ended December 31, 2018, approximately $170,000 of
expenses incurred by the Company were paid by Dragon Acquisitions
and Bronco Communications, entities controlled by William J.
Delgado. The Company reimbursed approximately $242,000
to these entities for 2018 expenses and $72,000 in unreimbursed
expenses as of December 31, 2017.





RLT
Consulting








Dragon
Acquisitions





During
2017 the Company assumed a note payable
from Dragon Acquisitions (see Note
5).





Accounts Payable


2018
2017RLT
Consulting
$33,841
$33,841Jerome
Gomolski
25,000
25,000Charter
804CS
20,099
20,099Gary
Gray
12,000
12,000Total
$90,940
$90,940





Accrued Compensation





At
December 31, 2018 and December 31, 2017, we had $482,431 and
$310,000 payable to William J. Delgado and $65,835 and $20,835 to
Jerome Gomolski, respectively.





Bill
JeromeTotal
Delgado
GomolskiBalance
12/31/2017
$330,835
$310,000
$20,8352018
Salary
$290,000
$240,000
$50,000Payments
$(72,569)
$(67,569)
$(5,000)Balance
12/31/2018
$548,266
$482,431
$65,835





F-25





NOTE 10 – SUBSEQUENT EVENTS





On January 21, 2019
the Company entered into a Convertible Promissory Note with Crown
Bridge Partners, LLC., in the principal amount of $75,000. The note
carries original issue discount of $7,500 The Principal amount with
interest at 12% will be due in twelve months from the advance. The
Principal amount will be advanced in Tranches of $25,000 each. The
note is convertible into shares of The Company’s common
stock. The conversion price shall equal the lessor of (i) Current
Market price or (ii) Variable Market price as defined as Market
Price less a 45% discount price. In addition, the Company agreed to
issue to Crown Bridge Partners 3,750,000 warrants to purchase
common stock of the Company at an exercise price of $0.01 per
share, exercisable for a period of five (5) years. As of the
issuance date of these financial statements, $25,000 has been
received and remains outstanding.
 
 On January 31, 2019, the Company increased its
authorized common shares to 2,000,000,000.
 
 On
February 11, 2019, the Company entered into an agreement for the
purchase of common stock with Mared Management LLC. Under the terms
of the agreement the purchaser purchased 25,000,000 shares of
common stock for $250,000. The purchaser also received warrants to
purchase 6,250,000 shares of GDSI common stock at
$.01/share. Warrants will have a three-year term to
exercise.
 
 On
February 26, 2019, the Company entered into a 10% Convertible
Promissory Note with Tangiers Global LLC. in the principal amount
of $55,000 due on February 26, 220. The note is convertible into
shares of the Company’s common stock. The conversion price
shall equal 55% of the lowest trading price of the Company’s
common stock during the 20 consecutive trading days prior to the
date on which the holder elects to convert part of all of the note.
As of the issuance date of these financial statements, the note
remains outstanding.
 
 On
March 7, 2019, the Company and Power Up Lending Group entered into
a security purchase agreement for a 10% Convertible Note in the
aggregate principal of $58,000 due on March 7, 2020. The note is
convertible into shares of common stock of the Company. The
conversion price is equal to the Variable Conversion price which is
defined as 61% of the Market Price for the lowest two trading dates
during a fifteen-day trading period ending on the latest complete
trading date prior to the Conversion date. As of the issuance date
of these financial statements, the note remains
outstanding.
 
 On May
10, 2019, the Company and GHS Investments LLC entered into a
security agreement for a 10% Convertible Note in the aggregate
principal of $335,000 due on February 10, 2020. The note carries
original issue discount or $35,000. The note is convertible into
shares of common stock of the Company. The “Conversion
Price” shall mean 60% multiplied by the Market Price (as
defined herein), representing a discount rate of 40%. “Market
Price” means the lowest Traded Price for the Common Stock
during the twenty (20) Trading Day period ending on the latest
complete Trading Day prior to the Conversion Date. The Company is
required to maintain a common share reserve of not less that three
times the number of shares that is actually issuable upon full
conversion of the note. The purchaser will also receive warrants to
purchase 5,000,000 shares of GDSI common stock at $.01/share.
Warrants will have a three-year term to exercise. The Convertible
Note is personally guaranteed by William Delgado, CEO. As of the
issuance date of these financial statements, the note remains
outstanding.
 
 On
March 1, 2019, the Company entered into a purchase agreement with
HarmAlarm, a company specializing in patented Aviation Technology.
The Company will leave 5,200,000 shares of its common stock in
exchange for the assets of HarmAlarm. Additionally, the Company
will pay 49.1% of any profits generated subsequently by the assets
to the former owner of HarmAlarm. As of the issuance date of these
financial statements, the shares have not been issued and no assets
have been received by the Company.
 
 On
March 1, 2019, the Company entered into a consulting agreement with
the former owner of HarmAlarm. The agreement commenced on March 1,
2019 and shall continue for a period of thirty-six (36) months. The
agreement may only be terminated by either incapacitation or death
of consultant or for cause with ten (10) days written notice.
During the term of the agreement consultant will be paid at a rate
of $5,000 per month.
 
 In May 2019 the
Company sold 3,513,888 of common stock shares for $35,138 to three
individual investors.
 
 On May 28, 2019,
the Company amended the March 28, 2018 $50,000 note payable. The
Company agreed to increase the holder's return by $25,000 to
$50,000 and repaid the original $50,000 principal in May 2019.
Additionally, the holder is to receive 1,000,000 additional common
stock warrants under the same terms as the original March 2018
warrants and the holder will receive $15,000 in common stock at a
20% discount to the closing price on the date the $50,000 holder's
return is paid. As of the issuance date of these financial
statements, the warrants and common stock have not been issued and
the $50,000 holder's return remains
outstanding.


F-26