Borislav Tonev

Global Digital Soltn (OTCMKTS:GDSI) Wobbles About

by Borislav Tonev October 27, 2015

It's been an exciting week or so for Global Digital Soltn (OTCMKTS:GDSI, GDSI message board). The news of an upcoming acquisition of a company called Grupo Rontan Eletro Metalurgica S.A. turned what used to be an appallingly illiquid OTC ticker into one of the hottest stocks in Pennyland. At first glance, investors do have a reason to be excited.

Rontan is undoubtedly a solid entity. In fact, it's been quoted as one of the biggest specialty vehicles manufacturers in the world. If you want to get an idea of how massive the operations are, you need to consider the fact that, according to GDSI's press release, Rontan has the capacity to paint approximately 100 cars per day.

Speaking of operations, while quite a bit smaller than Rontan, North America Custom Specialty Vehicles, a company acquired by GDSI last year, also seems to be doing rather well. The 10-Q for the second quarter, for example, looks like this:

  • cash: $148 thousand
  • current assets: $769 thousand
  • current liabilities: $1.6 million
  • quarterly revenues: $379 thousand
  • quarterly net income: $672 thousand

It's plain to see that the statement is far from perfect. The net income, for example, is the result of changes in the fair value of derivatives. On the bright side, however, we are witnessing some progress in the revenue section which is definitely a good thing and the pace should be greatly increased once Rontan's financials are included.

In other words, there's no shortage of things that could make you reach for your wallet. Yet, the recent performance suggests that not everybody is convinced. The initial surge was quite impressive, but unfortunately, as soon as it approached the $0.005 mark, GDSI started feeling the pressure. On Friday, it lost more than a fifth of its value and although it managed to bounce yesterday, it only gained about 10% which means that it's currently sitting at a hair over $0.004 per share. This is not the sort of performance everyone expected to see, especially in light of the size of GDSI's new acquisition target. We'll now have a look at some of the potential reasons.

The truth is, it's hard to take a company seriously when the address of its corporate headquarters is offered as a virtual office, and it's harder still when the address in question (down to the number of suite occupied) is also used by Sanborn Resources Ltd (OTCMKTS:SANB).

Then there's the wording of the press release about Rontan's acquisition. It would have you believe that the deal has already been closed, but the 8-K detailing the transaction says a different thing. It says that the closing should occur within ten days of the publishing of Rontan's financial statement.

Clearing the confusion around the actual completion of the acquisition is really important not least because the company has a history of failing to close some pretty big deals. In March 2014, for example, GDSI ditched the previously announced merger with Airtronic USA Inc. and made a proposal for the acquisition of a firearms company called Freedom Group. It then failed to complete that deal as well.

We're pretty sure that a major portion of the people waiting for a confirmation on the Rontan acquisition have no idea how much dilution GDSI has gone through over the last few months. There's been a lot of it.

At the end of Q2 GDSI had more than $630 thousand worth of notes which were convertible at a 40% discount to the market price. The company also had about 111 million shares issued and outstanding. On October 7, Tangiers Investment Group LLC, one of the note holders filed a Schedule 13 form and said that they own a breath under 29 million shares which represent almost 10% of the total O/S count. In other words they told us that at the beginning of the month, there were around 287 million shares issued and outstanding.

Comments 0

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