Global Digital Solutions Inc (GDSI)

[srm4u]

Convertible Notes Payable



LG Capital Funding, LLC

On January 16, 2015, we entered into a Securities Purchase Agreement with LG Capital Funding, LLC (“LG Capital”) providing for the purchase of a Convertible Redeemable Note (“LG Note”) in the aggregate principal amount of $78,750. The LG Note was funded on January 20, 2015, and we received $67,500 of net proceeds (net of $3,750 legal fees and $7,500 finders fees). The LG Note bears interest at the rate of 8% per annum; is due and payable on January 16, 2016; is subject to prepayment penalties up to a 145% multiple of the principal, interest and other amounts owing, as defined. After the expiration of 180 days following the date of the LG Note, the Company has no right of prepayment; and the note may be converted by LG Capital at any time after 180 days of the date of closing 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 LG Note also contains certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rate under the Note in the event of such defaults.



The estimated fair value of the embedded derivative liability at inception was $128,438, of which $78,750 was discounted against the note and will be accreted over the term of the note and $49,688 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



JSJ Investments, Inc.

On January 26, 2015 (the “Issuance Date”) we entered into a financing agreement with JSJ Investments Inc. (“JSJ”) providing for the purchase of a 10% Convertible Note in the aggregate principal amount of $66,000 (the “JSJ” Note). The JSJ Note contains a $6,000 original issue discount such that the purchase price of the JSJ Note was $60,000. The JSJ Note was funded on January 27, 2015, and we received $52,000 of net proceeds (net of $2,000 legal fees and $7,500 due diligence fees). The JSJ Note bears interest at the rate of 10% per annum; is due and payable on January 26, 2016; may be prepaid until the one hundred and fiftieth (150th) day after the Issuance Date at a cash redemption of 150%; and the note may be converted by JSJ at any time into shares of our common stock at a conversion price equal to the lower of (i) a 40% discount of the lowest trading price during the previous twenty (20) trading days prior to the date of conversion; or (ii) a 40% discount to the lowest trading price during the previous twenty (20) trading days before the date that the JSJ Note was executed. The JSJ Note also contain certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rate under the JSJ Note in the event of such defaults.



The estimated fair value of the embedded derivative liability at inception was $132,002, of which $66,000 was discounted against the note and will be accreted over the term of the note and $66,002 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



Adar Bays, LLC

On January 26, 2015, we entered into a Securities Purchase Agreement (with Adar Bays, LLC (“Adar Bays”) providing for the purchase of a Convertible Redeemable Note (the “AB Note”) in the aggregate principal amount of $35,000. The AB Note was funded on January 27, 2015, and we received $29,750 of net proceeds (net of $1,750 of legal fees and $3,500 finders fees). The AB Note bears interest at the rate of 8% per annum; is due and payable on January 26, 2016; is subject to prepayment penalties up to a 145% multiple of the principal, interest and other amounts owing, as defined. After the expiration of 180 days following the date of the AB Note, the Company has no right of prepayment; and the note may be converted by Adar Bays at any time after 180 days of the date of closing 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 AB Note also contain certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rate under the AB Note in the event of such defaults.



The estimated fair value of the embedded derivative liability at inception was $65,333, of which $35,000 was discounted against the note and will be accreted over the term of the note and $30,333 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



JMJ Financial

On January 28, 2014, we received a funding of $82,500 (including an original issue discount of $7,500) pursuant to a $250,000 Convertible Note (the “JMJ Note”) dated January 28, 2015 with JMJ Financial. We received $67,500 of proceeds, net of $7,500 original issue discount and $7,500 finders fee. The JMJ Note matures twenty four months from the date funded, has a one-time 12% interest charge if not paid within 90 days, may be prepaid at ant tome on or before 90 days of h effective date, and is convertible at any time the option of JMJ Financial into shares of our common stock at the lesser of $0.075 per share or 60% of the average of the trade price in the 25 trading days prior to conversion. The JMJ Note might be accelerated if an event of default occurs under the terms of the JMJ Note, including the Company’s failure to pay principal and interest when due, certain bankruptcy events or if the Company is delinquent in its SEC filings.



F-27




The estimated fair value of the embedded derivative liability at inception was $157,208, of which $82,500 was discounted against the note and will be accreted over the term of the note and $74,708 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



Vista Capital Investments, LLC

On February 4, 2015 (the “Issuance Date”), we entered into a Convertible Note (the “Vista Note”) with Vista Capital Investments, LLC (“Vista”) in the original principal amount of $250,000 (including a 10% original issue discount (“OID”)). The Company and Vista agreed to an initial funding under the Vista Note of $55,000, including an OID of $5,000 (“Initial Funding”). Future advances under the Vista Note are at the sole discretion of Vista. We are only required to repay the amount funded, including the prorated portion of the OID. On February 9, 2015, we received $45,000 of net proceeds under the Initial Funding, net of $5,000 OID and a $5,000 finders fee. The Vista Note matures twenty four months from the date funded, has a one-time 12% interest charge if not paid within 90 days; may be prepaid at any time within the 90 day period immediately following the Issuance Date at a multiple of 145% of the original principal amount; and may be convertible at the option of Vista at any time after the Issuance Date into shares of our common stock at the lesser of $0.10 per share or 60% of the lowest trade occurring during the twenty five (25) consecutive trading days immediately preceding the applicable conversion date on which the holder elects to convert all or part of the Vista Note, subject to adjustment as provided for in the Vista Note.



The Vista Note might be accelerated if an event of default occurs under the terms of the Vista Note, including the our failure to pay principal and interest when due, certain bankruptcy events or if we are delinquent in our SEC filings. The Vista Note also contain certain representations, warranties, covenants and events of default, and increases in the amount of the principal and interest rate under the Note in the event of such defaults.



The estimated fair value of the embedded derivative liability at inception was $91,712, of which $55,000 was discounted against the note and will be accreted over the term of the note and $36,712 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



KBM Worldwide, Inc.

On February 17, 2015, we entered into a Securities Purchase Agreement (“KBM SPA”) with KBM Worldwide, Inc. (“KBM”) providing for the purchase of a Convertible Promissory Note bearing interest at 8% per annum in the principal amount of $115,000 due February 17, 2016 (the “KBM Note”). The KBM Note includes an $11,000 Original Issue Discount (“OID”). The KBM Note was funded on February 20, 2015, with the Company receiving net proceeds of $90,000, (net of the $11,000 OID, KBM’s legal expenses of $4,000, and a finders fee of $10,000. The terms of the KBM SPA also provide, for a period of six months following the effective date, a right of first refusal to KBM for certain future financings entered into by the Company for amounts less than $75,000.



The KBM Note can be prepaid, at redemption premiums ranging from 10% to 35%, until 180 days following the issuance date of the KBM Note, after which we have no right of repayment. The KBM Note is convertible at a price per share equal to 61% of the average of the lowest three trading prices of the Company’s common stock during the 10 trading days prior to conversion. If, at any time when the KBM Note is outstanding, The Company issues or sells, or is deemed to have issued or sold, any shares of its common stock in connection with a subsequent placement for no consideration or for a consideration per share based on a variable price formula that is less than the conversion price in effect on the date of such issuance of shares of common stock, then the KBM conversion price will be reduced to the amount of the consideration per share received for such issuance.



The KBM Note contains certain covenants and restrictions including, among others, that for so long as the KBM Note is outstanding the Company will not pay dividends or dispose of certain assets, and that the Company will maintain our listing on an over-the-counter market. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note.



F-28




The estimated fair value of the embedded derivative liability at inception was $250,590, of which $115,000 was discounted against the note and will be accreted over the term of the note and $125,590 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



EMA Financial, LLC

On February 19, 2015, we entered into a Securities Purchase Agreement (the “EMA SPA”) with EMA Financial, LLC (“EMA”) providing for the purchase of a Convertible Note bearing interest at 10% per annum in the principal amount of $68,000 due February 19, 2016 (the “EMA Note”). The EMA Note includes an $6,800 Original Issue Discount (“OID”). The EMA Note was funded on February 23, 2015, with the Company receiving net proceeds of $52,080, (net of the $6,800 OID, EMA’s due diligence and documentation preparation expenses of $3,000, and a finders fee of $6,120).



The EMA Note can be prepaid, at a redemption premium of 50%, until 180 days following the issuance date of the EMA Note, after which the Company has no right of repayment. The EMA Note is convertible at a price per share equal to the lower of either (i) the closing sale price of the Company’s common stock on the day prior to the closing date, and (ii) 60% of the lowest trade price of the Company’s common stock Common Stock on the Principal Market during the twenty five (25) consecutive trading days prior to conversion.



The EMA Note contains certain covenants and restrictions including, among others, that for so long as the EMA Note is outstanding the Company will not pay dividends or dispose of certain assets, and that the Company will maintain its listing on an over-the-counter market. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note.



The estimated fair value of the embedded derivative liability at inception was $167,167, of which $68,000 was discounted against the note and will be accreted over the term of the note and $99,167 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



Tangiers Investment Group, LLC

On March 8, 2015, we entered into a Note Purchase Agreement (the “Tangiers NPA”) with Tangiers Investment Group, LLC ("Tangiers"), for the sale of a 10% convertible promissory note in the principal amount of up to $220,000, plus a 10% original issue discount (the "Tangiers Note"). On March 10, 2015, the Company closed on an initial funding of $82,500 and received net proceeds of $67,500, after deducting $7,500 retained by Tangiers for the original issue discount for due diligence and legal bills related to the transaction, and $7,500 that the Company paid to a third party for a finders fee. Tangiers has the option to finance additional amounts, up to the balance of the $220,000, during the term of the Tangiers Note.



The principal due under the Tangiers Note bears interest at the rate of 10% per annum. Upon an event of default, interest will accrue at the lower of 20% or the highest rate permitted by law. Events of default under the note include, among others, failure to pay principal or interest on the note or comply with certain covenants under the note. All interest and principal must be repaid on or before March 8, 2016. The Tangiers Note may be prepaid in whole or in part by the Company within 180 days, at redemption premiums ranging from 15% to 35% of the funded amount of the Tangiers Note plus accrued interest. After 180 days, the Tangiers Note may not be prepaid without the consent of all parties. The principal and interest underlying the Tangiers Note is convertible at any time into common stock, at Tangiers's option, at a conversion price equal to the lower of $0.04 or 60% of the lowest trading price of the Company's common stock during the twenty consecutive trading days prior to the date on which Tangiers (or the then-holder of the Tangiers Note) elects to convert all or part of the Tangiers Note. In connection therewith, Company agreed to reserve from its authorized and unissued shares at least four times the number of shares that may be issuable upon conversion of the note.



The estimated fair value of the embedded derivative liability at inception was $139,078, of which $82,500 was discounted against the note and will be accreted over the term of the note and 58,578 will be recorded as interest expense at inception. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the effective interest rate is not meaningful.



F-29




Interest expense for these convertible notes is estimated at approximately $566,000 for the year ended December 31, 2015, and includes approximately $539,000 for the initial fair value of the embedded derivative (conversion option) of the convertible notes. Given the significant amount of non-cash interest expense associated with the conversion option fair value, the weighted average effective interest rate for the above notes for 2015 will not be a meaningful number.



Legal Proceedings



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, 215, 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 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 Middle District of Florida.



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 accounts 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-XXXX. 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.



F-30




EXHIBIT INDEX



Incorporated by Reference
Exhibit No. Description Form Filing Date / Period End Exhibit Number
2.1 Purchase Agreement, dated as of January 1, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC 10 8/9/13 2.1
2.2 Amendment to Purchase Agreement dated October 15, 2012, by and between Global Digital Solution, Inc., and Bronco Communications, LLC 10 8/9/13 2.2
2.3 Agreement of Merger and Plan of Reorganization dated as of October __, 2012, by and between Global Digital Solution, Inc., and Airtronic USA, Inc. 10/A 9/10/13 2.3
2.4 First Amendment to Agreement of Merger and Plan of Reorganization dated as of August 5, 2013, by and between Global Digital Solution, Inc., and Airtronic USA, Inc. 10 /A 9/10/13 2.4
2.5 Equity Purchase Agreement dated June 16, 2014 by and among Brian A. Dekle, John Ramsey, GDSI Acquisition Corporation, Global Digital Solutions, Inc. and North American Custom Specialty Vehicles, LLC. 8-K 6/19/14 2.1
3.1 Certificate of Incorporation 10 8/9/13 3.1
3.2 Articles of Merger 10 8/9/13 3.2
3.3 Certificate of Amendment to Certificate of Incorporation 10 8/9/13 3.3
3.4 Bylaws 10 8/9/13 3.4
3.5 Certificate of Amendment to Certificate of Incorporation filed July 7, 2014 8-K 7/30/14 3.1
10.1 Debtor In Possession Note Purchase Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012 10 8/9/13 10.1
10.2 8 1/4% Secured Promissory Note in the original principal amount of $750,000 dated October 22, 2012 in favor of the Company 10 8/9/13 10.2
10.3 Security Agreement by and between the Company and Airtronic USA, Inc. dated October 22, 2012 10 8/9/13 10.3
10.4 Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated March __, 2013 10/A 9/10/13 10.4
10.5 Second Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated as of August 5, 2013 10/A 9/10/13 10.5
10.6 8 1/4% Secured Promissory Note in the original principal amount of $550,000 dated August 5, 2013, in favor of the Company 10/A 9/10/13 10.6
10.7 Intellectual Property Security Agreement dated as of August 5, 2013, by and between Merriellyn Kett and the Company 10/A 9/10/13 10.7
10.8 Promissory Note Purchase Agreement by and between the Company and the investors listed therein dated December __, 2012 10 8/9/13 10.8
10.9 Secured Promissory Note in the original principal amount of $750,000 dated December __, 2012 in favor of Gabriel De Los Reyes 10 8/9/13 10.9
10.10 Security Agreement dated December __, 2012 by and between the Company, Bay Acquisition, LLC and the noteholder identified on Schedule A 10 8/9/13 10.10



48




Incorporated by Reference
Exhibit No. Description Form Filing Date /
Period End Exhibit Number
10.11 Warrant dated December __, 2012 for 3,000,000 shares of common stock 10 8/9/13 10.11
10.12 Amendment dated May 6, 2013, by and between the Company and Gabriel De Los Reyes 10 8/9/13 10.12
10.13 Form of Subscription Agreement and Securities Purchase Agreement 10 8/9/13 10.13
10.14 Form of Indemnification Agreement 10 8/9/13 10.14
10.15 8 1/4% Secured Promissory Note in the original principal amount of $200,000 dated October 10, 2013, in favor of the Company 10-K 3/28/14 10.15
10.16 Third Bridge Loan Modification and Ratification Agreement by and between the Company and Airtronic USA, Inc. dated as of October 10, 2013 10-K 3/28/14 10.16
10.17 Investment Banking Agreement with Midtown Partners & Co, LLC dated October 16, 2013 10-K 3/28/14 10.17
10.18 Addendum dated April 16, 2014 to Investment Banking Agreement with Midtown Partners & Co, LLC dated October 16, 2013 DRS/A 8/5/14 10.17
10.19* Global Digital Solutions, Inc. 2014 Equity Incentive Plan approved by Shareholders May 19, 2014 DRS/A 8/5/14 10.19
10.20 Online Virtual Office Agreement dated August 19, 2013 DRS/A 8/5/14 10.20
10.21* Restricted Stock Unit Agreement dated as of August 25, 2014 between Global Digital Solutions, Inc. and Stephen L. Norris 8-K/A 8/25/14 10.1
10.22 Securities Purchase Agreement, dated December 8, 2014, with Charter 804CS Solutions, Inc. 8-K 12/12/14 10.1
10.23 Convertible Promissory Note, dated December 8, 2014, with Charter 804CS Solutions, Inc. 8-K 12/12/14 10.2
10.24 First Amendment to 8% Convertible Redeemable Note dated February 4, 2015, with Charter 804CS Solutions, Inc. 8-K 2/9/15 10.2
10.25 Securities Purchase Agreement, dated December 8, 2014, with David A. Loppert 8-K 12/12/14 10.3
10.26 Convertible Promissory Note, dated December 8, 2014, with David A. Loppert 8-K 12/12/14 10.4
10.27 First Amendment to 8% Convertible Redeemable Note dated February 4, 2015, with David A. Loppert 8-K/A 2/9/15 10.3
10.28 Securities Purchase Agreement, dated January 16, 2015, with LG Capital 8-K 1/20/15 10.1
10.29 8% Convertible Redeemable Note, dated January 16, 2015, with LG Capital 8-K 1/20/15 10.2
10.30 10% Convertible Note, dated January 26, 2015, with JSJ Investments Inc. 8-K 1/30/15 10.1
10.31 Securities Purchase Agreement, dated January 26, 2015, with Adar Bays, LLC 8-K 1/30/15 10.2
10.32 8% Convertible Redeemable Note, dated January 26, 2015, with Adar Bays, LLC 8-K 1/30/15 10.3
10.33 $250,000 Convertible Note, dated January 28, 2015, with JMJ Financial 8-K 1/30/15 10.4
10.34 $250,000 Convertible Note, dated February 4, 2015, with Vista Capital Investments, LLC 8-K 2/9/15 10.1
10.35 Securities Purchase Agreement dated February 17, 2015 with KBM Worldwide, Inc. 8-K 2/24/15 10.1
10.36 Convertible Promissory Note dated February 17, 2015 with KBM Worldwide, Inc. 8-K 2/24/15 10.2


49



Incorporated by Reference
Exhibit No. Description Form Filing Date /
Period End Exhibit Number
10.37 Securities Purchase Agreement dated February 17, 2015 with EMA Financial, LLC 8-K 2/24/15 10.3
10.38 Convertible Promissory Note dated February 17, 2015 with EMA Financial, LLC 8-K 2/24/15 10.4
10.39 Note Purchase Agreement dated March 8, 2015 with Tangiers Investment Group, LLC 8-K 3/13/15 10.1
10.40 Convertible Promissory Note dated March 8, 2015 with Tangiers Investment Group, LLC 8-K 3/13/15 10.2
10.41** Non – exclusive agreement with Carter, Terry & Company dated December 19, 2014 to provide Financial Advisor, Investment Banking and Placement Agent services
21.1** List of Subsidiaries
24.1** Power of Attorney (included on the Signature Page of this Annual Report on Form 10-K)
31.1** Rule 13a-14(a) / 15d-14(a) Certification of Chief Executive Officer
31.2** Rule 13a-14(a) / 15d-14(a) Certification of Chief Financial Officer
32.1*** Section 1350 Certifications of Chief Executive Officer and Chief Financial Officer
99.1 NIMS Standards for Mobile Command Center Vehicles DRS/A 9/2/14 99.1
101. INS XBRL Instance
101. SCH XBRL Taxonomy Extension Scheme
101. CAL XBRL Taxonomy Extension Calculation
101. DEF XBRL Taxonomy Extension Definition
101. LAB XBRL Taxonomy Extension Labels
101. PRE XBRL Taxonomy Extension Presentation

http://www.sec.gov/Archives/edgar/data/1011662/000121390015002213/f10k2014_globaldigital.htm