Dragni Dragnev


by Dragni Dragnev October 21, 2015

GLOBAL DIGITAL SOLTN (OTCMKTS:GDSI, GDSI message board) added a staggering 185.71% to its market value yesterday, when the market finally had time to react to the news of the Grupo Rontan Electro Metalurgica purchase.

To elaborate – GDSI bought 100% of the shares in a Brazilian limited liability company from Joao Alberto Bolzan and Jose Carlos Bolzan. According to the 8-K, the purchase will cost GDSI a total of “approximately $26 million”, which will be paid out over a period of 48 months. Evidently investors thought that was exciting news, because the ticker soared – but is it really?

Sure acquisitions are more often than not reason for excitement for OTC Markets investors, but there's no real way to know the full extent of the assets that GDSI has really acquired and the opportunities they represent until a report throwing light on the matter hits the web.

Until then, we'll know scant little about the newly acquired entity – except the fact that a heap of money will be paid to relieve Mr. Bolzan and Mr. Bolzan from its ownership, and the fact that GDSI will have to assume its debts, which according to the filing, include the company's bank credit lines of "approximately $52 million".

It should be somewhere around this detail that investors should get a bit wary, if they weren't already. Was the acquisition of a company with so much debt really a good idea?

And even if it turns out that it was, there's the issue of what will GDSI do with its new assets and opportunities. It has hardly achieved anything impressive up to this point in time – quite the contrary, one look at its latest financial sheets gives the impression of mediocrity:

  • Cash and cash equivalents - $147 thousand
  • Total current assets - $769 thousand
  • Total current liabilities – $1.5 million
  • Total liabilities – $2.1 million
  • Revenue - $379 thousand
  • Net loss - $672 thousand

And if you thought that mediocre performance is the only glaring red flag in the report in question, better think again. Its “Notes Outstanding” section is rife with perilous toxic debt, a serious portion of which converts at a fixed discount of 40% from the lowest price over the last 20 days prior to conversion. Suffice it to say that toxic financiers such as JMJ Financial and LG Capital Funding could potentially make a killing if they decide to cash their ridiculously discounted notes now that the ticker is sky-high.

And there is evidence that they may already be doing so. After all, yesterday's session saw 159 million shares change hands. That means that this number has most likely increased substantially since August 4, 2015 when the GDSI reported having just 112 million.

Investors should really take all these facts into consideration, before jumping on the GDSI hype train.

Comments 0

Type the characters that you see in the box (5 characters).