ITEM
1. BUSINESS
Corporate
History
DSG
Global Inc. (formerly Boreal Productions Inc.)
(the “Company”) was incorporated under the laws of the State of Nevada on September 24, 2007. Andrea
Fehsenfeld was then appointed sole officer and director. The Company was formed to option feature films and TV projects and then
package them to sell at a profit to various studios and production companies. The Company is currently a technology development
company engaged in the design, manufacture, and marketing of fleet management solutions in the golf industry. The Company’s
principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles and related support services.
At
that time the board of directors voted to seek capital and begin development of our business plan. We received our initial funding
of $9,000 through the sale of common stock to Ms. Fehsenfeld who purchased 3,000,000 pre-reverse split shares of common
stock at $0.003 per share and $45,000 from the sale of 3,000,000 pre-reverse split shares of common stock issued to 30
un-affiliated investors at $0.015 per share. On June 11, 2008, we effected a five for one forward stock split of our authorized
and issued and outstanding common stock. As a result, our authorized capital increased from 75,000,000 to 375,000,000 pre-reverse
split shares of common stock and our outstanding share capital increased from 6,000,000 shares of pre-reverse split
common stock to 30,000,000 shares of pre-reverse split common stock.
We
have not achieved revenues and have accrued a net loss of $153,964 since inception through May 6, 2015, the date of the
reverse merger. We have been issued a going concern opinion by our auditors and rely upon the sale of our securities to fund operations.
To date, we have been unable to attain profitable operations and continue to be dependent upon continued financial support
from our shareholders and note holders in order to continue operations.
On
April 13, 2015, we entered into a share exchange agreement with DSG Tag Systems Inc. (“DSG TAG”) and the shareholders
of DSG TAG who become parties to the share exchange agreement. Pursuant to the terms of the share exchange agreement, we agreed
to acquire not less than 75% and up to 100% of the issued and outstanding shares of DSG TAG’s common stock in exchange for
the issuance by our company of up to 20,000,000 pre-reverse split shares of our common stock to the shareholders of DSG
TAG on the basis of one of our pre-reverse split common shares for 5.4935 common shares of DSG TAG.
Previously,
in anticipation of the share exchange agreement with DSG TAG, we undertook to change our name and effect a reverse stock split
of our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and
plan of merger to merge with our wholly-owned subsidiary DSG Global Inc., a Nevada corporation, to effect a name change from Boreal
Productions Inc. to DSG Global Inc. Our company remains the surviving company. DSG Global Inc. was formed solely for the change
of name.
Also
on January 19, 2015, our company’s board of directors approved a resolution to effect a reverse stock split of our authorized
and issued and outstanding shares of common stock on a three (3) old for one (1) new basis. Upon effect of the reverse split,
our authorized capital will decrease from 375,000,000 pre-reverse split shares of common stock to 125,000,000 pre-reverse
split shares of common stock and correspondingly, our issued and outstanding shares of common stock will decrease from 30,000,000
to 10,000,000 pre-reverse split shares of common stock, all with a par value of $0.001.
Articles
of Merger to effect the merger and change of name and a Certificate of Change to effect the reverse stock split were filed with
the Nevada Secretary of State on January 22, 2015, with an effective date of February 2, 2015. The name change and forward split
were reviewed by the Financial Industry Regulatory Authority (FINRA) were approved for filing with an effective date of February
23, 2015.
The
name change became effective with the Over-the-Counter Bulletin Board and OTC Markets quotation system at the opening of trading
on February 23, 2015 under the symbol “BRPOD”. Effective March 19, 2015 our stock symbol changed to “DSGT”.
Our new CUSIP number following the symbol change is 23340C104. The first trade of our common shares occurred on March 25, 2015.
On
May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common
shares of DSG TAG as contemplated by the share exchange agreement by issuing 15,185,875 pre-reverse split shares of our
common stock to shareholders of DSG TAG who became parties to the agreement. In addition, concurrent with the closing of the share
exchange agreement, we issued an additional 179,823 pre-reverse split shares of our common stock to Westergaard Holdings
Ltd. in partial settlement of accrued interest on outstanding indebtedness of DSG TAG.
Following
the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of
common stock of DSG TAG from shareholders who became parties to the share exchange agreement and issued to these shareholders
an aggregate of 18,422 pre-reverse split shares of our common stock. Following completion of these additional purchases,
DSG Global Inc. owns 100% of the issued and outstanding shares of common stock of DSG TAG.
The
reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG is considered the acquirer
for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at
their book value and no goodwill has been recognized. We adopted the business and operations of DSG TAG upon the closing of the
share exchange agreement.
Subsequent
to the closing of the share exchange agreement with DSG TAG, we adopted the business and operations of DSG TAG.
DSG
TAG was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia,
Canada in 2008. In March 2011, DSG TAG formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”).
DSG UK is a wholly owned subsidiary of DSG TAG.
When
used the terms “Company,” “we,” “our,” “us,” “DSG,” or “DSG
TAG,” means DSG Global, Inc. and its subsidiary DSG Tag Systems, Inc. and its wholly-owned subsidiary DSG Tag Systems International,
Ltd.
DSG
Global Inc. (“DSG”) is a technology development company based in Surrey, British Columbia, Canada, engaged in the
design, manufacture, and marketing of fleet management solutions for the golf industry, as well as commercial, government and
military applications. Its principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles,
and related support services. The Company was founded by a group of individuals who have dedicated their careers to fleet
management technologies and have been at the forefront of the industry’s most innovative developments. The Company
has developed the TAG suite of products that represents a major breakthrough as the first completely modular fleet management
solution for the golf industry. The Executive Team has over 50 years’ combined experience in the design and manufacture
of wireless, GPS, and fleet tracking solutions. The TAG suite of products is currently sold and installed around the world in
golf facilities and commercial applications through a network of established distributors and partnerships with some of the most
notable brands in fleet and equipment manufacture.
The
Company specializes in the vehicle fleet management industry. DSG stands for “Digital Security Guard” which
is the Company’s primary value statement giving fleet operator’s new capabilities to track and control their
vehicles. The Company has developed a proprietary combination of hardware and software that is marketed around the world
as the TAG System. The Company has primarily focused on the golf industry where the TAG System is deployed to help golf
course operators manage their fleet of golf carts, turf equipment, and utility vehicles. DSG is now a leader in the category of
Fleet Management in the golf industry and was awarded “Best Technology of the Year” by Boardroom magazine the publication
of the National Golf Course Owners Association in 2010. To date the TAG is installed on over 8,000 vehicles and the Company
has monitored over 6,000,000 rounds.
The
TAG system fills a void in the marketplace by offering a modular structure which allows the customer to customize their system
depending on desired functionality and budget constraints. In addition to the core TAG vehicle control functionality which can
operate independently, DSG has two golfer information display systems; the alphanumeric TEXT and high definition TOUCH providing
the operator two options which is unique in the industry.
The
market for the TAG System is the 40,000 golf operations worldwide. While the golf industry is still the primary sales and marketing
focus, the Company has completed several successful pilots of the TAG in other vertical markets such as agriculture, and
commercial fleet deployments. With appropriate resources in place the Company will implement a sales and marketing strategy
expanding into these markets.
We
have a direct sales force in North America, which comprises the most significant portion of the golf fleet market and have developed
key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive
sales for the North American and worldwide markets.
On
March 26, 2019, our company effected a reverse stock split of our authorized and issued and outstanding shares of common stock
on a four thousand (4,000) old for one (1) new basis. Upon effect of the reverse split, our authorized capital decreased from
3,000,000,000 pre-reverse split shares of common stock to 750,000 shares of common stock and correspondingly, our issued
and outstanding shares of common stock decreased from 2,761,333,254 pre-reverse split to 690,403 shares of common stock,
all with a par value of $0.001. Our shares of Preferred Stock remain unchanged. This Form 10K gives retroactive effect to such
reverse stock split named above and all share and per share amounts have been adjusted accordingly, unless otherwise noted.
Our
principal executive office is located at 312 – 2630 Croydon Drive Surrey, British Columbia, V3Z 6T3, Canada. The telephone
number at our principal executive office is 1 (877) 589-8806.
Emerging
Growth Company
We
are an Emerging Growth Company as defined in the Jumpstart Our Business Startups (JOBS) Act.
We
shall continue to be deemed an emerging growth company until the earliest of:
(A)
the last day of the fiscal year of the issuer during which it had total annual gross revenues of $1,000,000,000 (as such amount
is indexed for inflation every 5 years by the Securities Exchange Commission to reflect the change in the Consumer Price
Index for All Urban Consumers published by the Bureau of Labor Statistics, setting the threshold to the nearest 1,000,000) or
more;
(B)
the last day of the fiscal year of the issuer following the fifth anniversary of the date of the first sale of common equity securities
of the issuer pursuant to an effective registration statement under this title;
(C)
the date on which such issuer has, during the previous 3-year period, issued more than $1,000,000,000 in non-convertible debt;
or
(D)
the date on which such issuer is deemed to be a ‘large accelerated filer’, as defined in section 240.12b-2 of title
17, Code of Federal Regulations, or any successor thereto.’.
As
an emerging growth company we are exempt from Section 404(b) of Sarbanes Oxley. Section 404(a) requires Issuers to publish information
in their annual reports concerning the scope and adequacy of the internal control structure and procedures for financial reporting.
This statement shall also assess the effectiveness of such internal controls and procedures.
Section
404(b) requires that the registered accounting firm shall, in the same report, attest to and report on the assessment on the effectiveness
of the internal control structure and procedures for financial reporting.
As
an emerging growth company we are exempt from Section 14A and B of the Securities Exchange Act of 1934 which require the shareholder
approval of executive compensation and golden parachutes.
We
have elected not to opt out of the extended transition period for complying with any new or revised accounting standards pursuant
to Section 107(b) of the JOBS Act.
DSG
Technologies and Products
Technology
Overview
DSG
produces a “modular” suite of products to provide fleet management solution for any vehicle required for a golf operation
and provides two golfer information display options to meet the operators budget requirements. DSG believes that it is currently
the only company in the golf fleet management industry with these capabilities.
The
DSG TAG System is designed from the ground up to be a golf/turf vehicle fleet management system. Its main function is addressing
the golf course operator needs. While employing same core technology (cellular wireless and GPS) as traditional commercial vehicle
fleet management systems, DSG has created patent pending solutions to adapt it to the very specific requirements of the golf environment.
Compared to mainstream fleet tracking products, DSG collects 10 to 50 times more data points per MB (megabyte) of cellular data
due to its proprietary data collection and compression algorithms. Also the relative positioning accuracy is improved by almost
one order of magnitude by the use of application-specific geo-data validation and correction methods.
DSG’s
proprietary methods make it possible to offer a solution suitable for use on golf courses at a price low enough to be affordable
in the industry. Every system component incorporates state-of-the-art technology (server, mobile trackers, display). In developing
its products, DSG TAG has adopted an application oriented approach placing the most emphasis (and research & development)
on server and end-user software by taking advantage of the commodity level reached by mainstream technologies such as Global Positioning
(GPS) and M2M (Machine to Machine) Cellular Data in the wider context of Commercial Fleet Management.
DSG
leveraged the existence of an abundance of very cost effective telematics solutions by selecting an “off-the-shelf”
hardware platform that meets all the main performance and environmental requirements for operation in the harsh, outdoor golf
course environment. While removing all risk and cost associated with developing a proprietary hardware platform, DSG has maintained
the unique nature of its hardware solution by developing a set of proprietary adapters and interfaces specifically for the golf
application.
DSG
has secured an exclusive supply agreement with the third-party hardware manufacturers for the vertical of golf industry. Additionally,
DSG owns the design of all proprietary adapters and interfaces. This removes the risk of a potential competitor utilizing the
same hardware platform. Competitors could attempt to reverse engineer or copycat the TAG technology and equipment. This risk factor
is mitigated by the fact that our product does not rely on a particular technology or hardware platform to be successful but on
a very specific vertical software application that is far more difficult to copy (and respectively easier to protect).
The
application software contains patent features implemented in every core component of the system. The TAG device runs DSG proprietary
firmware incorporating unique data collection and compression algorithms. The web server software which powers the end-user application
is also proprietary and incorporates the industry knowledge accumulated through the over 70 years of collective experience of
the DSG team.
This
approach has given the product line a high level of endurance against technology obsolescence. At any point in time, if a hardware
component is discontinued or a better/less expensive hardware platform becomes available, the software application can be easily
adapted to operate on the new platform or with the new component. The Company benefits from the constant increase of performance
and cost reduction of mainstream hardware technology without any additional cost.
The
web-based Software-as-a-Service (SaaS) model used by DSG TAG is optimal for low operating and support costs and rapid-cycle release
for software updates. It is also a major factor in eliminating or substantially reducing the need for any end-user premises equipment.
Customers have access to the service through any internet connected computer or mobile device, there is no need for a local wireless
network on the facility and installation time and cost are minimal.
DSG
is positioned to take advantage of mainstream technology and utilize “best of breed” hardware platforms to create
new generations of products. Our software is designed to be “portable” to future new platforms with better GPS and
wireless technology in order to maintain the Company competitive edge.
All
new product development effort of DSG is following the same model: select the best of breed third-party hardware platform, design
and produce custom proprietary accessories while focusing the bulk of the development efforts on vertical software application
to address a very specific set of end-customer needs.
The
latest addition to the TAG family of products, the TAG TOUCH is a perfect example of this development philosophy in action: the
main component is a last-generation Android tablet PC wrapped in a custom designed outdoor enclosure containing the power supply
and interface components required for the golf environment. The software application is taking advantage of all the advanced high
resolution graphics, touch user interface and computing power of the Android OS delivering a vastly superior user experience compared
to competitive systems. The time to market for this product was 30% of how long it took to develop and launch this type of products
in the past.
The
TAG Control Unit
The
Company’s flagship product is the TAG Control unit. The TAG Control unit can operate as a “stand alone”
unit or with one of two displays; the TEXT alphanumeric display or the TOUCH high definition “touch activated” screen.
The TAG Control unit is GPS enabled and communicates with the TAG software using cellular GSM networks. Utilizing the cellular
networks rather than erecting a local Wi-Fi network assures carrier grade uptime, and vehicle tracking “off- property”.
GSM is the de facto global standard for mobile communications.
The
TAG Control unit itself is discreetly installed usually in the nose of the vehicle to give the GPS clear line of site.
It is then connected to the vehicle battery and ignition. The property is then mapped using the latest satellite imagery that
is graphically enhanced and loaded into the TAG System as a map.
Once
installed the vehicle owner utilizes the TAG software to locate the vehicle in real time using any computer, smartphone, or tablet
that has an internet connection and perform various management operations.
The
operator can use the geo-fencing capabilities to create “zones” on the property where they can control the vehicles
behavior such as shutting down a vehicle that is entering a sensitive or dangerous area. The TAG System also monitors the strength
of the vehicle’s battery helping to prevent sending out vehicles undercharged batteries which can be an inconvenience for
the course and negatively impact the golfer experience.
Features
and Benefits
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Internal
battery utilizing Smart Power technology which charges the battery only when the vehicle is running (gas) or being charged
(electric)
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Pace
of Play management and reporting which is a critical statistic for the golf operator
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No
software to install
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Web
based access on any computer, smartphone, or tablet
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Set
up restricted zones to protect property, vehicles, and customers
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Real
time tracking both on and off property (using Street Maps)
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Email
alerts of zone activity
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Cart
lockdown
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Detailed
usage reporting for improved maintenance, proper vehicle rotation, and staff efficiency
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Geo
fencing security features
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Ability
to enforce cart path rules which is key to protecting course on wet weather days
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Modular
system allows for hardware and feature options to fit any budget or operations
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TEXT
Display
The
TEXT is paired with the TAG Control unit as DSG’s entry level display system for operators who desire to provide basic hole
distance information and messaging to the golf customer. The TEXT is a very cost effective solution for operators who desire to
give their customers GPS services with the benefits of a Fleet Management back end. The TEXT can be mounted on the steering column
or the dash depending on the customer’s preference.
DSG’s
entry level alphanumeric golf information’s display
Features
and benefits
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Hole
information display
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Yardage
displays for front, middle, back locations of the pin
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Messaging
capabilities – to individual carts or fleet broadcast
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Zone
violation warnings
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Pace
of Play notifications
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Smart
battery technology to prevent power drain
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Versatile
mounting option
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TOUCH
Display
The
TOUCH is a solution for operators who desire to provide a high level visual information experience to their customers. The TOUCH
is a high definition “Touch” activated display screen mounted in the golf cart integrated with the TAG Control unit
to provide a full back/front end Fleet Management solution. The TOUCH displays hole graphics, yardage, and detailed course information
to the golfer and provides interactive features such as Food and Beverage ordering and scorekeeping.
The
industry leading Touch HD – the most sophisticated display in the market.
Features
and Benefits
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Integrated
Food and Beverage ordering
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Pro
Tips
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Flyover
capability
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Daily
pin placement display
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Interactive
Scorecard with email capability
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Multiple
language choices
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No
power drain with Smart Battery technology
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Full
broadcast messaging capabilities
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Pace
of Play display
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Vivid
hole graphics
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Option
of steering or roof mount
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Generate
advertising revenue and market additional services
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Advertising
Platform
A
unique feature of the TOUCH system is the advertising display capability. This can be used by the operator for internal promotion
of services or for generating revenue by selling the ad real estate since the golf demographic is very desirable to advertisers.
The TOUCH displays banner, panel, full page, pro tip, and Green view ads. There is also ad real estate on the interactive feature
screens for Food and Beverage ordering and the scorecard. The Touch System can also display animated GIF files or play video for
added impact.
Advertising
displayed in multiple formats including animated GIF and video
DSG
has developed proprietary “Ad Manager” software which is used to place and change the ads on the system(s) from a
central NOC (Network Operations Center) in real time. The Ad Manager can deploy to a single system or multiple systems. This creates
a network of screens that is also very desirable to advertisers as ad content can be deployed locally, regionally, or nationally.
The advertising platform is an important part of the Company’s future marketing and sales strategy.
DSG
R3 Advertising Platform
The
DSG R3 program delivers advance ROI (Revenue Optimization Intelligence). Utilizing all streams of advertising delivery, such as
automated, direct, and self-serve. The R3 program has the ability to deliver relevant advertising to golfers the moment they sit
in the cart. The R3 model is more effective than the previous advertising model of ‘One to One’, these are local ads
only sold through direct sales by courses, or 3
rd
party advertising sales firms. The new R3 model offers ‘Many
to one’ advertising options, delivering thousands of national, regional, and local advertisers an opportunity to advertise
on our screens through our R3 Marketplace.
Previous
‘One to One’ model vs the new R3 model ‘Many to One’
TAG
TURF/ECO TAG
The
TAG Turf and the new ECO TAG were developed to give course operators the same back end management features for their turf equipment
and utility vehicles. Turf equipment is expensive and a single piece can run over $100,000 and represents a large portion of a
golf course operating budget. The TAG Turf and ECO TAG have comprehensive reporting that the operator can utilize to implement
programs that can increase efficiencies, reduce labor costs, help lower idle times, provide fuel consumption and equipment performance,
provide historical data on cutting patterns, and reduce pollution from emissions by monitoring idle times. Since the golf course
needs to be maintained regardless of volume these cost saving measures directly impact the operator’s bottom line.
Features
and Benefits
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Can
be installed on any turf, utility, or service vehicle
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Work
activity tracking and management
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Work
breakdown and analysis per area, work group, activity type or specific vehicle
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Vehicle
idling alerts
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Zone
entry alerts
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Detailed
travel (cutting patterns) history
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Detailed
usage reports with mileage and hours
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Protection
for ecological areas through geo fencing
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Vehicle
lock down and ‘off property’ locating features
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The
TAG Turf provides detailed trail history and cutting patterns
Revenue
Model
DSG
derives revenue from four different sources.
Systems
Sales Revenue
, which consists of the sales price paid by those customers who purchase our TAG system hardware.
Monthly
Service Fees
are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems.
Monthly
Rental Fees
are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly payment
varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and TOUCH).
Advertising
Revenue
is a source of revenue that has not been taken full advantage of. We believe it has the potential to be strategic
for us in the future. Currently, courses can deliver their own advertising to our TOUCH units and soon we’ll be introducing
our R3 program which automates the delivery of advertising.
Markets
Sales
and Marketing Plan
The
market for the TAG System is the worldwide golf cart and Turf equipment fleets. There are 40,000 golf courses around the world
with North America being the largest individual market with 20,000. This represents over 3,000,000 vehicles. The golf market has
five distinct types of operations. Municipal, Private Country Clubs, Destination Resorts, Public Commercial, Military and University
affiliated. DSG has deployed and has case studies developed TAG systems in each of these categories.
Our
marketing strategy is focused on building brand awareness, generating quality leads, and providing excellent customer service.
North
America Sales
Since
the largest market is North America the Company employs a direct sales team and sales agents that provide full sales
coverage. Our sales agents are experienced golf industry professionals who maintain established relationships with
the golf industry and carry multiple golf lines. Our sales objective is to offer our existing and prospective customers a dedicated,
knowledgeable, and outstanding customer service team.
In
addition, our team is dedicated to existing accounts that focus on up-selling and cross-selling additional products to our current
customer base, securing renewal agreements, and providing excellent customer service. The current regions are:
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Western
Canada
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Eastern
Canada
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Northeast
USA
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Western
USA
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Southeastern
USA
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Midwest
USA
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International
Sales
DSG
focuses on select global golf markets that offer significant volume opportunities and that value the benefits that our products
deliver.
We
utilize strategic distributor partnerships in each targeted region/country to sell, install and service our products. Distributors
are selected based on market strength, market share, technical and selling capability, and overall reputation. We believe that
DSG solutions appeal to all distributors because they are universal and fit any make or model of vehicle. We maintain and leverage
our strong relationship with Yamaha, E-Z-GO and Ransomes Jacobsen (sister company to E-Z-GO) in developing our distributor network
around the world. Today, many of our distributor partners are the leading distributors for E-Z-GO and RJ and hold a dominant position
in their respective markets. While they are Yamaha or E-Z-GO distributors, most sell DSG products to all courses regardless of
their choice of golf car as a value add to their customers and to generate additional revenue. We complement this distributor
base with independent distributors as needed to ensure we have sufficient coverage in critical markets.
Currently
DSG is focused on expanding in Europe, Asia and South Africa. The Company is looking to expand next into Australia
and Latin America.
Management
Companies
Many
golf facilities are managed by management companies. The portfolios of these companies vary from a few to hundreds of golf courses.
Troon
®
, the world’s largest player in golf course management, has over 200 courses under management. The
management companies provide everything from branding, staffing, management systems, marketing, and procurement. DSG is currently
providing products and services to Troon, OB Sports, Kemper Sports, Trump, Marriott Golf, Blue Green, Crown Golf, American Golf,
Billy Casper, Club Corp, and Club Link.
DSG
has been successful in completing installations and developing relationships with several of the key players who control a substantial
number of courses. DSG will continue to implement system developments that are driven by the needs of these management companies
such as combined reporting, multiple course access through a centralized dashboard. This development will become a competitive
advantage for DSG in the management company market.
DSG
has dedicated a team to create specific collateral for this market and has assigned a senior executive to have direct responsibility
to manage these relationships.
Competition
We
compete with a number of established producers and distributors of vehicle fleet management systems. Our competitors include producers
of golf specific applications, such as GPS Industries, LLC., one of the leading suppliers of golf cart fleet management systems,
as well as producers of non-golf specific utility vehicle fleet management systems, such as Toro. Many of our competitors have
longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully
compete in our industry we must:
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demonstrate
our products’ competitive advantages;
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develop
a comprehensive marketing system; and
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increase
our financial resources.
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However,
there can be no assurance that even if we do these things, we will be able to compete effectively with the other companies in
our industry.
We
believe that we will be able to compete effectively in our industry because of the versatility, reliability, and relative affordability
of our products when compared to those of our competitors. We will attempt to build awareness of our competitive advantages among
existing and potential customers through trade shows, sales visits and demonstrations, online marketing, and positive word of
mouth advertising.
However,
as we are a newly-established company relative to our competitors, we face the same problems as other new companies starting
up in an industry, such as limited access to capital. Our competitors may be substantially larger and better funded than us, and
have significantly longer histories of research, operation and development than us. In addition, they may be able to provide more
competitive products than we can and generally be able to respond more quickly to new or emerging technologies and changes in
legislation and regulations relating to the industry. Additionally, our competitors may devote greater resources to the development,
promotion and sale of their products or services than we do. Increased competition could also result in loss of key personnel,
reduced margins or loss of market share, any of which could harm our business.
Our
primary competitor in the field of golf course fleet management is GPS Industries, a company that was founded in 1996 by Mr. Bob
Silzer, the founder of DSG TAG Systems Inc. GPS Industries is currently the largest player in the marketplace with an installed
base of approximately 750 golf courses worldwide. GPS Industries was consolidated by various mergers and acquisitions with a diversity
of hardware platforms and application software. Since 2009, when GPS Industries has introduced their latest product offering called
the Visage, in an exclusive partnership with Club Car, their strategy has been to target mostly their existing customers and motivate
them into replacing their existing, older GPS system, with the Visage system.
GPS
Industries is leveraging very heavily their partnership with Club Car, which is one of the three largest golf cars manufacturers
in the world and at times is benefiting from golf operators’ preference for Club Car and their vehicles when they select
their management system.
Market
Mix
Since
the introduction of the DSG product line, the golf course operators realized that they have now access to a budget-friendly fleet
management tool that works not only on golf cars but also with all other vehicles used on the golf course such as turf maintenance,
shuttles, and other utility vehicles.
Marketing
studies have identified that half of the golf course operators only need a fleet management system and only 15% need a high-end
GPS golf system. This illustrates the strong competitive advantage that DSG TAG Systems has versus GPS Industries since their
product can only address the needs of a relatively small fraction of the marketplace.
Consequently,
GPS Industries installed base has steadily declined since most of their new product installations have replaced older product
for existing customers and some customers have opted for a lower budget system and switched over to DSG TAG Systems.
Marketing
Activities
The
Company has a multi layered approach marketing the TAG suite of products. One of the foundations of this plan is attending
industry trade shows which are well attended by golf operators. The two largest shows are the PGA Merchandise Show and the Golf
Industry Show which are held in Florida at the end of January. The Company also attends a number of regional shows around
North America. International events are attended by our distributors and partners.
The
second layer is memberships in key organizations such as the National Golf Course Owners Association, Golf Course Superintendents
Association, and Club Managers Association of America. These are very influential in the industry and have marketing channels
such as publications, email blasts, and web based marketing. The Company also markets directly to course operators through
email, surveys direct mail programs.
Lead
Generation
One
of the primary sources of lead generation is through the Company’s strategic partnerships with EZ-GO, Yamaha, and
Ransomes Jacobson. These relationships provide the Company with a great deal of market intelligence. The sales forces of
the partners work in tandem with the DSG sales team by passing on the leads, creating joint proposals, and distributing TAG sales
material. The Company has also created co-branded materials for specific value items of interest to operators such as Pace
of Play solutions. DSG sale s and marketing staff attend partner sales events to conduct training and discuss marketing strategies.
The
Company is in the process of testing an internal telemarketing program in several key markets to gauge whether this particular
channel warrants larger scale implementation.
Competitive
Advantages
Pricing
One
of the “heroes” of the TAG System is providing the course operator a range of modular fleet management options that
are very competitively priced. Pricing options range from the TURF, TAG, Text, and Touch System, giving the customer a wide range
of pricing options.
Functional
advantages
DSG
has the distinctive advantage of being able to offer a true fleet management system, encompassing all the vehicles on the golf
course not just the golf carts. Due to the modular nature of the system, customers have now the option to configure their system’s
configuration to match exactly their needs and their budget.
Product
advantages
DSG
products are the robust, reliable, and user friendly systems in the world. DSG is the only company currently providing systems
that are waterproof with internal batteries to ensure our partners retain the full golf cart manufacturer’s warranty.
Operational
Plan
Our
Operations Department’s main functions are outlined below:
Product
Supply Chain Management
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Product
procurement, lead-time management
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Inventory
Control
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Customer
Service
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Training
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Troubleshooting
& Support
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Hardware
Repairs
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Installations
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Content
& graphics procurement
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System
configurations
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Shipping
and Installation
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Infrastructure
Management
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Communication
Servers Management
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Cellular
Data Carriers
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Service
and administration tools
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Product
Supply Chain
In
order to maintain high product quality and control, as well as benefiting from cost savings, the Company is currently procuring
all main hardware components offshore. Final assembly is locally performed in order to ensure product quality. Other main components
are also procured directly from manufacturers or from local suppliers that outsource components office in order to keep the price
as low as possible.
The
Company is requesting the suppliers to perform a complete set of quality testing and minimum 24 hours’ burn-in before
the product is delivered. The local hardware assembler and components supplier offers 12 months’ warranty. The main hardware
components offshore supplier offers a warranty plan of 15 months from the date the product is shipped. With an extended 90 days
beyond the current warranty, such repair service would be paid by the supplier except for component replacement costs, which would
be paid by DSG.
Another
important activity related to the management of the product supply chain is working closely with the suppliers and ensuring that
we have alternate sources for the main components and identify well in advance any components that may go “end-of-life”
and find suitable replacements before product shortages may occur.
Inventory
Control
The
Company has implemented strict inventory management procedures that govern the inbound flow of products from suppliers, the outgoing
flow to customers as well as the internal movement of inventory between warehouses (Canada, US and UK). There are also procedures
in place to control the flow of equipment returning from customers for repairs and their replacements.
Installation
The
Company is utilizing a small number of its own field engineers, geographically positioned to be in close proximity of areas with
high concentrations of current and future customers. Occasionally, when new installations exceed the internal capacity, the company
employs a number of external contractors, on a project by project basis. Each contractor has been trained extensively to perform
product installations and the Company has created an extensive collection of Installation Manuals for all products and vehicle
types.
The
product was designed with ease of installation as one of its features. Additionally, the installation process includes a pre-shipping
configuration process that prepares each device with all the settings and graphics content (if applicable) required for the specific
location it will be deployed. This makes the installation process a lot simpler and less time consuming in the field which reduces
costs (accommodations, food, travel) for internal staff as well as external contractor cost (less billable time).
Another
benefit of the simplified installation procedure is increased scalability in anticipation of increased number of installs in the
future by reducing the skill level and training time requirements for additional contractors.
Customer
Service
The
Company has deployed its Customer Service staff strategically, so it has at least one service representative active during
business hours in North America, Europe and South Africa.
The
Company is handling Customer Service directly in North America and UK, offering telephone and on-line support to end-customers.
In other international markets, the first-line customer service is handled by local distributor’s staff while DSG is supplying
training and more advanced support to the distributors.
For
the management of the customer service activities, the Company is utilizing SalesForce.com CRM system which allows creating,
updating, closing and escalation of service cases, including the issuance of RMA (Return Material Authorization) numbers for defective
equipment. Using SalesForce.com also allows generation of management reports for service issues, customer satisfaction, and equipment
failures in order to quickly identify trends, problem accounts or systemic issues.
In
addition, DSG began offering the DSG Par 72 Service & Support Plan to guarantee service and support to client
courses in the golf business, during fiscal 2016. This program for client courses which guarantees service
and support programs within 24 hours of a problem arising.
Product
Development and Engineering
The
Company employs a team of software engineers in house to develop and maintain the main components of the server software
and firmware.
All
product development is derived from business needs assessment and customer requests.
The
Product Manager is reviewing periodically the list of feature requests with the Sales, establishes priorities and updates the
Product Roadmap.
The
software engineers are also responsible for developing specialized tools and systems utilized increase efficiency in the operation
of the Company. These projects include functionality such as: automated system monitoring, automatic service alerts, improved
remote troubleshooting tools, cellular data monitoring and reporting. All these tools are critical in future ability to support
more customers with less resources, streamline support, and improve internal efficiency.
All
hardware development (electronics and mechanical) is generally outsourced, however small projects like mounting solutions or cabling
are handled in house.
Material
Contracts
On
January 18, 2018, we issued a convertible promissory note in the principal amount of $55,000. The note is unsecured, bears interest
at 10% per annum, was overdue on July 18, 2018, and is convertible into common shares at a conversion price equal to the
lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory note;
or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time of promissory
note repayment.
On
January 19, 2018, we issued a convertible promissory note in the principal amount of $55,000. The note is unsecured, bears interest
at 10% per annum, was overdue on January 19, 2019, and is convertible into common shares at a conversion price equal to
55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment.
On
January 19, 2018, we issued a convertible promissory note in the principal amount of $50,000, as partial replacement for a convertible
promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 9(g) of the consolidated
financial statements. The note is unsecured, bears interest at 10% per annum, was overdue on January 19, 2019, and
is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen trading
days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time of promissory
note repayment.
In
January 2018, we issued a convertible promissory note in the principal amount of $15,000 as a commitment fee. The note is unsecured,
non-interest bearing until default, was overdue on August 16, 2018, and is convertible into common shares at a conversion
price equal to 75% of the average closing trading price during the previous five trading days prior to conversion date, with a
minimum of $0.00005.
On
February 2, 2018, we issued a convertible promissory note in the principal amount of $107,500. The note is unsecured, bears interest
at 10% per annum, was overdue on August 2, 2018, and is convertible into common shares at a conversion price equal to the
lesser of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory note;
or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time of promissory
note repayment.
On
March 2, 2018, we issued a convertible promissory note in the principal amount of $128,000. The note is unsecured, bears interest
at 10% per annum, was overdue on March 2, 2019, and is convertible into common shares at a conversion price equal to 55%
of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion date.
Interest will be accrued and payable at the time of promissory note repayment.
On
March 2, 2018, we issued a convertible promissory note in the principal amount of $25,000, as partial replacement for a convertible
promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 9(g) of the consolidated
financial statements. The note is unsecured, bears interest at 10% per annum, was overdue on March 2, 2019, and is
convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen trading
days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time of promissory
note repayment.
On
March 2, 2018, we issued a convertible promissory note in the principal amount of $111,808, as partial replacement for a convertible
promissory note originally issued on September 6, 2017 in the amount of $107,000 plus accrued interest. Refer to Note 9(j)
of the consolidated financial statements. The note is unsecured, bears interest at 10% per annum, was overdue on
March 2, 2019, and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the
previous fifteen trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable
at the time of promissory note repayment.
On
March 19, 2018, we issued a convertible promissory note in the principal amount of up to $900,000. The note is unsecured, bears
interest at 12% per annum, was overdue 184 days upon receipt, and is convertible into common shares after 180 days from
issuance date at a conversion price equal to the lessor of: (i) the lowest trading price during the previous fifteen trading days
prior to the date of the promissory note; or (ii) 55% of the lowest trading price during the previous fifteen days prior to the
latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time of promissory note
repayment. On May 3, 2018, we amended the convertible promissory note to include that at any time after the 100th calendar day
after the funds are issued, and at the option of the holder in addition to the right of conversion, the holder may deduct daily
payments from our bank account in the amount of $5,562 per calendar day or $27,812 per week until we has paid or the holder has
converted an amount equal to the principal balance, interest, accrued interest, and default amount.
On
May 1, 2018, we entered into an investor relations agreement with Chesapeake Group Inc., to assist in all phases of our investor
relations including broker/dealer relations. The contract will commence on May 1, 2018 and ending on April 30, 2019. In
consideration for the agreement, we are committed to providing 23,750 restricted common shares. The shares of common stock were
issued on October 18, 2018, refer to Note 13 of the consolidated financial statements.
On
May 8, 2018, we issued a convertible note in the principal amount of $51,500. The note is unsecured, bears interest at 10% per
annum, and was overdue on February 8, 2019. The note is convertible into common shares at a 32% discount to the
lowest intra-day trading price of our common stock for the ten trading days immediately preceding the conversion date.
On
May 28, 2018 we issued a convertible note in the principal amount of $180,000. The note is unsecured, bears interest at 10% per
annum, and was overdue on February 28, 2019. The note is convertible into common shares at a 32% discount to the
lowest intra-day trading price of our common stock for the ten trading days immediately preceding the conversion date.
On
June 1, 2018, we signed a two year operating lease agreement which commenced on July 1, 2018 and expires on May 31, 2020 with
the right to renew for an additional two year term if written notice is provided within 120 days prior to the expiration of the
current term.
On
August 31, 2018, we issued a convertible promissory note in the principal amount of $226,000. The note is unsecured, bears interest
at 12% per annum, is due on August 31, 2019, and is convertible into common shares at a conversion price equal to 55% of the lowest
trading price during the previous fifteen trading days prior to the conversion date, including the conversion date. Interest will
be accrued and payable at the time of promissory note repayment.
On
August 27, 2018, pursuant to a debt exchange agreement, we agreed to exchange all 4,229,384 issued and outstanding DSG TAG Series
A Shares with a fair value of $5,873,481 ($7,627,303 CDN) for 51 shares of Series B and 3,000,000 shares of Series E preferred
shares, respectively. The Series B preferred shares are classified as permanent equity. Refer to Note 12 of the consolidated
financial statements.
During
the year ended December 31, 2018, pursuant to a series of debt exchange agreements, we agreed to issue an aggregate of 148,706
shares of Series D preferred shares for the settlement of outstanding accounts payable with a fair value of $91,944.
During
the year ended December 31, 2018, pursuant to a series of debt exchange agreements, we agreed to issue an aggregate of 81 shares
of Series B and 1,649,908 shares of Series E preferred shares, respectively, for the settlement of outstanding convertible loans.
The Series B preferred shares are classified as permanent equity. Refer to Note 12 of the consolidated financial statements.
Description
of Property
On
June 1, 2018, we signed a two year operating lease agreement expiring on May 31, 2020 with the right to renew for an additional
two year term if written notice is provided within 120 days prior to the expiration of the current term. The annual rent for the
premises in Canada is approximately $46,552 CDN and commenced on July 1, 2018.
For
the year ended December 31, 2017, the aggregate rental expense was CAD$92,913 (approximately USD$71,549). Rent expense included
other amounts paid in Canada for warehouse storage and offices under month to month or as needed basis.
For
the year ended December 31, 2018, the aggregate rental expense was CAD$91,511 (approximately USD$70,654). Rent expense
included other amounts paid in Canada for warehouse storage and offices under month to month or as needed basis.
Intellectual
Property
General
Our
success will depend in part on our ability to protect our products and product candidates by obtaining and maintaining a strong
proprietary position both in the United States and in other countries. To develop and maintain our proprietary position, we will
rely on patent protection, trade secrets, know-how, continuing technological innovations and licensing opportunities. In that
regard, we retain and rely on the advice of legal counsel specialized in the field of intellectual property.
Patents
DSG
owns two U.S. patents
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US
Patent No. 8,836,490 for a “Vehicle Management” was issued September 16, 2014 and expires June 29, 2031.
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US
Patent No. 9,280,902 for a “Facilities Management” was issued March 8, 2016 and expires January 24, 2032.
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Patent
Litigation
On
December 30, 2012, a corporation filed an action against DSG in the United States courts claiming patent infringement. On March
8, 2013, the parties agreed to a settlement, with the Company admitting no wrong doing, in the amount of $125,000. The settlement
is to be paid over an 18-month period in equal installments of $7,500 with annual interest rate of 8%. DSG had accrued
all liabilities related to this matter in the consolidated financial statements. The litigation has been fully settled.
Domain
Names
We
have registered and own the domain name of our website www.dsgtag .com.
Copyright
We
own the common law copyright in the contents of our website (
www.dsgtag.com
) and our various promotional materials.
Trademarks
We
own the common-law trademark rights in our corporate name, product names, and associated logos, including “DSG TAG”,
“TAG Golf”, “ECO TAG”, “TAG Text”, “TAG Touch”, “TAG Turf”, “TAG
Commercial” and “TAG Military”. We have not applied to register any trademarks with the U.S. Patent and Trademark
Office.
Employees
As
of May 20, 2019, we have 5 full-time employees in general and administrative, operations, engineering, research and development,
business development, sales and marketing, and finance. We also engage independent contractors and consultants from time to time
on an as-needed basis to supplement our core staff.
ITEM
1A. RISK FACTORS
Investing
in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below,
together with all of the other information in this Form 10-K, including our consolidated financial statements and related notes,
before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of
operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline,
and you could lose part or all of your investment.
Risks
Related to Our Business
We
have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We
have yet to establish any history of profitable operations and have incurred net losses since our inception. We have generated
only nominal revenues since our inception and do not anticipate that we will generate revenues which will be sufficient to sustain
our operations in the near future. Our profitability will require the successful commercialization and sales of our products.
We may not be able to successfully achieve any of these requirements or ever become profitable.
There
is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient
cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
Our
independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the consolidated
financial statements for the years ended December 31, 2018 and 2017 with respect to their doubt about our ability to continue
as a going concern. As discussed in Note 2 to our consolidated financial statements for the years ended December
31, 2018 and 2017, we have generated operating losses since inception, and our cash resources are insufficient to meet our planned
business objectives, which together raise doubt about our ability to continue as a going concern.
Our
inability to complete our future research and development and engineering projects in a timely manner could have a material adverse
effect of our results of operations, financial condition, and cash flows.
If
our research and development projects are not completed in a timely fashion, we could experience:
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substantial
additional cost to obtain a marketable product;
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additional
competition resulting from competitors in the surveillance and facial recognition market, and;
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delay
in obtaining future inflow of cash from financing or partnership activities.
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We
face intense competition, which could result in lower revenues and higher research and development expenditures and could adversely
affect our results of operations.
Unless
we keep pace with changing technologies, we could lose existing customers and fail to win new customers. In order to compete effectively
in the fleet management systems market, we must continually design, develop and market new and enhanced technologies. Our future
success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace. Fleet management
technologies have achieved widespread commercial acceptance and our strategy of expanding our fleet management technologies business
could adversely affect our business operations and financial condition.
Further,
we expect to derive revenue from government contracts, which are often non-standard, involve competitive bidding, may be subject
to cancellation with or without penalty and may produce volatility in earnings and revenue.
The
market for our technologies is still developing and if the industry adopts technology standards that are different from our own
our competitive position would be negatively affected.
Parts
of our company’s business plan are dependent on business relationships with various parties.
We
expect to rely in part upon original equipment manufacturers (OEM), and distribution partners to sell and install our products,
and we may be adversely affected if those parties do not actively promote our products or pursue installations that use our products.
Further, if our products are not timely delivered or do not perform as promised, we could experience increased costs, lower margins,
liquidated damage payment obligations and reputational harm.
We
must attract and maintain key personnel, or our business will fail.
Success
depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the electronics
industry to recruit and retain competent employees. If we cannot maintain qualified employees to meet the needs of our anticipated
growth, this could have a material adverse effect on our business and financial condition.
We
may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.
We
anticipate requiring significant capital to fulfill our contractual obligations, continue development of our planned products
to meet market evolution, and execute our business plan, generally. We may use capital more rapidly than currently anticipated
and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy
our operating and capital needs. We may need new or additional financing in the future to conduct our operations or expand our
business. Any sustained weakness in the general economic conditions and/or financial markets in the United States and Europe,
or globally could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied,
and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements
and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all,
at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership
percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges
senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which
would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt
covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to
raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative
impact on our business, financial condition and results of operations.
Our
business and operating results could be harmed if we fail to manage our growth or change.
Our
business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial
resources. To manage possible growth and change, we must continue to try to locate skilled engineers and professionals and adequate
funds in a timely manner.
Our
business depends on GPS technology owned and controlled by others. If we do not have continued access to GPS technology, we will
be unable to deliver our services and our revenues will decrease.
Our
services rely on signals from GPS satellites built and maintained by the U.S. Department of Defense. GPS satellites and their
ground support systems are subject to electronic and mechanical failures and sabotage. If one or more satellites malfunction,
there could be a substantial delay before they are repaired or replaced, if at all, and our services may cease, and customer satisfaction
would suffer.
Our
GPS technology depends on the use of radio frequency spectrum controlled by others.
Our
GPS technology is dependent on the use of radio frequency spectrum. The assignment of spectrum is controlled by an international
organization known as the International Telecommunications Union, or ITU. The Federal Communications Commission, or FCC, is responsible
for the assignment of spectrum for non-government use in the United States in accordance with ITU regulations. Any ITU or FCC
reallocation of radio frequency spectrum, including frequency band segmentation or sharing of spectrum, could cause interference
with the reception of GPS signals and may materially and adversely affect the utility and reliability of our products, which would,
in turn, cause a material adverse effect on our operating results. In addition, emissions from mobile satellite service and other
equipment operating in adjacent frequency bands or in band may materially and adversely affect the utility and reliability of
our products, which could result in a material adverse effect on our operating results.
Government
regulations and standards may harm our business and could increase our costs or reduce our opportunities to earn revenues.
In
addition to regulations applicable to businesses in general, we may also be subject to direct regulation by governmental agencies,
including the FCC and Department of Defense. A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of
wireless communications and GPS technology. Additionally, it is uncertain how existing laws governing issues such as taxation,
intellectual property, libel, user privacy and property ownership, will be applied to our services. The adoption of new laws or
the application of existing laws may expose us to significant liabilities and additional operational requirements, which could
decrease the demand for our services and increase our cost of doing business.
If
we are not able to adequately protect our intellectual property, then we may not be able to compete effectively, and we may not
be profitable.
Our
commercial success may depend, in part, on obtaining and maintaining patent protection of our technologies and product as well
as successfully defending third-party challenges to such technologies and products. We will be able to protect our technologies
and product candidates from use by third parties only to the extent that valid and enforceable patents cover them and we have
exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against
third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.
The
copyright and patent positions of software and technology related companies can be highly uncertain and involve complex legal
and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed
regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United
States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or
other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range
of claims that may be allowed or enforced concerning our patents.
We
may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through
confidentiality agreements with our consultants and scientific and other advisors, they may unintentionally or willfully disclose
our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets
can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret
protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing
competing products, and we may not be able to operate profitability.
If
we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could cause us
to go out of business.
There
has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding
patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current
products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third
parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights
that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our
products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause
us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential
competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could
be forced to stop or delay our research, development, manufacturing or sales activities. Any of these costs could cause us to
go out of business.
Risks
Relating to Ownership of Our Securities
Trading
on the OTCQB® Venture Marketplace may be volatile and sporadic, which could depress the market price of our common stock and
make it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB Venture Marketplace operated by the OTC Markets Group. Trading in stock quoted on the OTCQB
is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our
operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to
operating performance. Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic
than the trading of securities listed on a stock exchange like the Nasdaq Stock Market or New York Stock Exchange. Accordingly,
our shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales
practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our
stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The
term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with
a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. 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. We believe that the penny stock rules discourage investor interest in, and
limit the marketability of, our common stock.
In
addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, 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 non-institutional
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. 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.
We
do not anticipate paying any cash dividends to our common shareholders.
We
presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends
does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and
general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors.
We presently intend to retain all earnings after paying the interest for the preferred stock, if any, to implement our business
plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
Volatility
in Our Common Share Price May Subject Us to Securities Litigation.
The
market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that
our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have
often initiated securities class action litigation against a company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention and resources.
The
Elimination of Monetary Liability Against our Directors, Officers and Employees under Nevada law and the Existence of Indemnification
Rights of our Directors, Officers and Employees May Result in Substantial Expenditures by our Company and may Discourage Lawsuits
Against our Directors, Officers and Employees.
Our
articles of incorporation do not contain any specific provisions that eliminate the liability of our directors for monetary damages
to our company and shareholders; however, we are prepared to give such indemnification to our directors and officers to the extent
provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our
officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the
cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties
and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and shareholders.
Our
business is subject to changing regulations related to corporate governance and public disclosure that have increased both our
costs and the risk of noncompliance.
Because
our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities,
including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue
to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably
the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting
in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities
to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many
cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated
by ongoing revisions to our disclosure and governance practices.