DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
AT MARCH 31, 2019 AND DECEMBER 31, 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
March 31, 2019
|
|
|
December 31,
|
|
|
|
(unaudited)
|
|
|
2018
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
43,017
|
|
|
$
|
5,059
|
|
Trade receivables, net
|
|
|
235,303
|
|
|
|
139,400
|
|
Inventories, net of inventory allowance of $146,687 and $146,292, respectively
|
|
|
158,973
|
|
|
|
141,296
|
|
Prepaid expenses and deposits
|
|
|
89,533
|
|
|
|
47,484
|
|
TOTAL CURRENT ASSETS
|
|
|
526,826
|
|
|
|
333,239
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
14,982
|
|
|
|
15,289
|
|
Fixed assets, net
|
|
|
42,479
|
|
|
|
869
|
|
Equipment on lease, net
|
|
|
3,388
|
|
|
|
3,316
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
60,849
|
|
|
|
19,474
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
587,675
|
|
|
$
|
352,713
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
Trade and other payables
|
|
$
|
2,273,040
|
|
|
$
|
1,897,530
|
|
Deferred revenue
|
|
|
110,064
|
|
|
|
215,662
|
|
Operating lease liability
|
|
|
34,124
|
|
|
|
-
|
|
Convertible note payable to related party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
979,791
|
|
|
|
795,588
|
|
Derivative liability
|
|
|
8,949,271
|
|
|
|
2,188,354
|
|
Convertible loans payable, net of unamortized discount of $206,618 and $213,461, respectively
|
|
|
1,716,256
|
|
|
|
1,613,912
|
|
TOTAL CURRENT LIABILITIES
|
|
|
14,372,546
|
|
|
|
7,021,046
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Operating lease liability (non-current)
|
|
|
6,093
|
|
|
|
-
|
|
TOTAL NON-CURRENT LIABILITIES
|
|
|
6,093
|
|
|
|
-
|
|
TOTAL LIABILITIES
|
|
|
14,378,639
|
|
|
|
7,021,046
|
|
|
|
|
|
|
|
|
|
|
Going concern (Note 2)
|
|
|
|
|
|
|
|
|
Commitments (Note 17)
|
|
|
|
|
|
|
|
|
Contingencies (Note 18)
|
|
|
|
|
|
|
|
|
Subsequent events (Note 19)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Redeemable preferred stock, (2019 and 2018 - to be issued)
|
|
$
|
6,702,450
|
|
|
$
|
6,702,450
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock to be issued
|
|
|
4,872,732
|
|
|
|
4,872,732
|
|
Common stock, $0.001 par value, 750,000 shares authorized, (2018 - 750,000); 690,403 issued and outstanding (2018 - 634,471)
|
|
|
690
|
|
|
|
634
|
|
Additional paid in capital
|
|
|
22,535,042
|
|
|
|
22,415,121
|
|
Discounts on common stock
|
|
|
(69,838
|
)
|
|
|
(69,838
|
)
|
Other accumulated comprehensive income
|
|
|
1,395,754
|
|
|
|
1,465,389
|
|
Accumulated deficit
|
|
|
(49,227,794
|
)
|
|
|
(42,054,821
|
)
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(20,493,414
|
)
|
|
|
(13,370,783
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
587,675
|
|
|
$
|
352,713
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
501,424
|
|
|
$
|
110,896
|
|
Cost of revenue
|
|
|
306,068
|
|
|
|
18,329
|
|
Gross profit
|
|
|
195,356
|
|
|
|
92,567
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
135,083
|
|
|
|
208,628
|
|
General and administration expense
|
|
|
227,756
|
|
|
|
358,013
|
|
Bad debt
|
|
|
1,424
|
|
|
|
28,893
|
|
Depreciation and amortization expense
|
|
|
9,921
|
|
|
|
6,694
|
|
Total operating expense
|
|
|
374,184
|
|
|
|
602,228
|
|
Loss from operations
|
|
|
(178,828
|
)
|
|
|
(509,661
|
)
|
|
|
|
|
|
|
|
|
|
Other Income (Expense)
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
17,637
|
|
|
|
(560,666
|
)
|
Unrealized loss on derivative instruments, net
|
|
|
(6,635,917
|
)
|
|
|
(5,616,261
|
)
|
Loss on extinguishment of debt
|
|
|
(74,109
|
)
|
|
|
(1,395,267
|
)
|
Finance costs
|
|
|
(301,756
|
)
|
|
|
(740,562
|
)
|
Total Other Expense
|
|
|
(6,994,145
|
)
|
|
|
(8,312,756
|
)
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(7,172,973
|
)
|
|
|
(8,822,417
|
)
|
|
|
|
|
|
|
|
|
|
Net loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and Diluted:
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(11.02
|
)
|
|
$
|
(85.88
|
)
|
Diluted
|
|
$
|
(11.02
|
)
|
|
$
|
(85.88
|
)
|
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
Basic
|
|
|
651,126
|
|
|
|
102,729
|
|
Diluted
|
|
|
651,126
|
|
|
|
102,729
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(7,172,973
|
)
|
|
$
|
(8,822,417
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in foreign currency translation adjustments
|
|
|
(69,635
|
)
|
|
|
641,091
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(7,242,608
|
)
|
|
$
|
(8,181,326
|
)
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
AS
AT MARCH 31, 2019 AND DECEMBER 31, 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Common
Stock
|
|
|
Preferred Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
paid in capital
|
|
|
Discount
on
common
stock
|
|
|
To
be
issued
|
|
|
Accumulated
Comprehensive
Income
|
|
|
Accumulated
Deficit
|
|
|
Total
Stockholders’
Deficit
|
|
Balance, December 31, 2017
|
|
|
25,485
|
|
|
$
|
25
|
|
|
$
|
17,613,525
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
873,250
|
|
|
$
|
(32,229,417
|
)
|
|
$
|
(13,742,617
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued for cash
|
|
|
12,501
|
|
|
|
12
|
|
|
|
81,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81,659
|
|
Shares issued for services
|
|
|
23,750
|
|
|
|
24
|
|
|
|
332,476
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
332,500
|
|
Shares issued for commission
|
|
|
188
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
Shares issued on conversion of debt
|
|
|
572,547
|
|
|
|
573
|
|
|
|
4,385,223
|
|
|
|
(69,838
|
)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,315,958
|
|
Preferred shares to be issued for restructure of
debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,872,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,872,732
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
592,139
|
|
|
|
(9,825,404
|
)
|
|
|
(9,233,265
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
634,971
|
|
|
$
|
634
|
|
|
$
|
22,415,121
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,465,389
|
|
|
$
|
(42,054,821
|
)
|
|
$
|
(13,370,783
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares issued on conversion of debt
|
|
|
55,932
|
|
|
|
56
|
|
|
|
119,921
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119,977
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(69,635
|
)
|
|
|
(7,172,973
|
)
|
|
|
(7,242,608
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, March 31, 2019
|
|
|
690,403
|
|
|
$
|
690
|
|
|
$
|
22,535,042
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,395,754
|
|
|
$
|
(49,227,794
|
)
|
|
$
|
(20,493,414
|
)
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE THREE MONTHS ENDED MARCH 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
(UNAUDITED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(7,172,973
|
)
|
|
$
|
(8,822,417
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments
to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
9,921
|
|
|
|
6,694
|
|
Change
in inventory allowance
|
|
|
(2,760
|
)
|
|
|
-
|
|
Non-cash
financing costs
|
|
|
12,500
|
|
|
|
229,134
|
|
Accretion
of discounts on debt
|
|
|
173,656
|
|
|
|
382,109
|
|
Accretion
of operating lease liability
|
|
|
1,388
|
|
|
|
-
|
|
Change
in fair value of derivative liabilities
|
|
|
6,635,917
|
|
|
|
5,616,261
|
|
Reserve
for bad debt
|
|
|
1,418
|
|
|
|
28,893
|
|
Loss
on extinguishment of debt
|
|
|
74,109
|
|
|
|
1,395,267
|
|
Unrealized
foreign exchange loss (gain)
|
|
|
(89,570
|
)
|
|
|
579,080
|
|
(Increase)
decrease in assets:
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
(92,279
|
)
|
|
|
(72,434
|
)
|
Inventories
|
|
|
(11,869
|
)
|
|
|
(29,253
|
)
|
Prepaid
expense and deposits
|
|
|
(46,567
|
)
|
|
|
(43,072
|
)
|
Related
party receivable
|
|
|
-
|
|
|
|
1,034
|
|
Increase
(decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
Trade
payables and accruals
|
|
|
385,118
|
|
|
|
118,575
|
|
Warranty
reserve
|
|
|
-
|
|
|
|
82,647
|
|
Deferred
revenue
|
|
|
(105,598
|
)
|
|
|
(27,822
|
)
|
Net
cash used in operating activities
|
|
|
(227,589
|
)
|
|
|
(555,304
|
)
|
|
|
|
|
|
|
|
|
|
Cash
flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds
from issuing shares
|
|
|
-
|
|
|
|
81,659
|
|
Payments
on operating lease liability
|
|
|
(9,453
|
)
|
|
|
-
|
|
Proceeds
from notes payable
|
|
|
275,000
|
|
|
|
615,500
|
|
Net
cash provided by financing activities
|
|
|
265,547
|
|
|
|
697,159
|
|
|
|
|
|
|
|
|
|
|
Net
increase in cash and cash equivalents
|
|
|
37,958
|
|
|
|
141,855
|
|
Cash
and cash equivalents at beginning of period
|
|
|
5,059
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
Cash
and cash equivalents at the end of the period
|
|
$
|
43,017
|
|
|
$
|
147,343
|
|
|
|
|
|
|
|
|
|
|
Supplemental
disclosures
|
|
|
|
|
|
|
|
|
Cash
paid during the period for:
|
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
payments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental
schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Shares
issued for services
|
|
$
|
-
|
|
|
$
|
15,000
|
|
Shares
issued for convertible notes payable
|
|
$
|
119,977
|
|
|
$
|
1,803,141
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – ORGANIZATION
DSG
Global, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on September 24, 2007.
The
Company is 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.
On
April 13, 2015, the Company entered into a share exchange agreement with DSG Tag Systems Inc. (“DSG Tag”), now wholly-owned
subsidiary of the Company, 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.
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000
shares of common stock, with a par value of $0.001. Shares of Preferred Stock remain unchanged. These consolidated financial statements
give retroactive effect to such reverse stock split named above and all share and per share amounts have been adjusted accordingly,
unless otherwise noted.
Note
2 – GOING CONCERN
These
unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company
will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company
as a going concern is dependent upon the continued financial support from its shareholders and note holders, the ability of the
Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations. As
at March 31, 2019, the Company has a working capital deficit of $13,845,720 and has an accumulated deficit of $49,227,794 since
inception. Furthermore, the Company incurred a net loss of $7,172,973 and used $227,589 of cash flows for operating activities
during the three months ended March 31, 2019. These factors raise substantial doubt regarding the Company’s ability to continue
as a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments to the
recoverability and classification of recorded asset amounts and classification of liabilities that might be necessary should the
Company be unable to continue as a going concern.
Note
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles
in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore,
the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements
and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2018. Current
and future financial statements may not be directly comparable to the Company’s historical financial statements. However,
except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements
for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the three months ended March 31, 2019 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2019.
Principles
of Consolidation
The
interim condensed consolidated financial statements include the accounts of DSG Global Inc. and its subsidiary DSG Tag, and its
wholly owned subsidiary DSG UK, collectively referred to as the Company. All material intercompany accounts, transactions and
profits were eliminated in consolidation.
Use
of Estimates
The
preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and
the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined. New
estimates in the period relate to determining the Company’s estimated incremental borrowing rate in recognizing right-of-use
assets and lease liabilities. Differences in the estimated incremental borrowing rate could result in materially different lease
liabilities and right-of-use assets.
Recently
Adopted Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards
Update (“ASU”) No. 2016-02, which requires lessors to classify leases as a sales-type, direct financing, or operating
lease and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The
Company adopted the new standard effective January 1, 2019 and elected the modified retrospective for the transition. The Company
elected the following practical expedients:
●
|
Transition
method practical expedient – permits the Company to use the effective date as the date of initial application. Upon
adoption, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information
and disclosures for periods before January 1, 2019 were not updated.
|
|
|
|
|
●
|
Package
of practical expedients – permits the Company not to reassess under the new standard its prior conclusions about lease
identification, lease classification, and initial direct costs. This allowed the Company to continue classifying its leases
at transition in substantially the same manner.
|
|
|
|
|
●
|
Single
component practical expedient – permits the Company to not separate lease and non-lease components of leases. Upon transition,
rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the
condensed consolidated statement of operations.
|
|
|
|
|
●
|
Short-term
lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months.
|
|
Lessee
Accounting
The
new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a
term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern
and recording of expenses in the statement of operations. Upon transition the Company recognized lease assets and lease liabilities
principally for its office lease. When measuring lease liabilities for leases that were classified as operating leases, the Company
discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average incremental borrowing
rate applied was 11.98%. Refer to Notes 5 and 11.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
4 – TRADE RECEIVABLES, NET
As
of March 31, 2019, and December 31, 2018, trade receivables consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Accounts
receivables
|
|
$
|
282,502
|
|
|
$
|
184,214
|
|
Allowance
for doubtful accounts
|
|
|
(47,199
|
)
|
|
|
(44,814
|
)
|
Total
trade receivables, net
|
|
$
|
235,303
|
|
|
$
|
139,400
|
|
Note
5 – FIXED ASSETS AND EQUIPMENT ON LEASE
As
of March 31, 2019 and December 31, 2018, fixed assets consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Furniture
and equipment
|
|
$
|
15,937
|
|
|
$
|
20,509
|
|
Computer
equipment
|
|
|
24,967
|
|
|
|
28,460
|
|
Right-of-use
lease asset
|
|
|
51,203
|
|
|
|
-
|
|
Accumulated
depreciation
|
|
|
(49,628
|
)
|
|
|
(48,100
|
)
|
|
|
$
|
42,479
|
|
|
$
|
869
|
|
As
of March 31, 2019 and December 31, 2018, equipment on lease consisted of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Tags
|
|
$
|
123,608
|
|
|
$
|
120,998
|
|
Text
|
|
|
27,319
|
|
|
|
26,743
|
|
Touch
|
|
|
22,630
|
|
|
|
22,152
|
|
Accumulated
depreciation
|
|
|
(170,169
|
)
|
|
|
(166,577
|
)
|
|
|
$
|
3,388
|
|
|
$
|
3,316
|
|
For
the three months ended March 31, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $9,614 and
$6,411, respectively.
Note
6 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of March 31, 2019 and December 31, 2018:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Intangible
asset – Patent
|
|
$
|
22,353
|
|
|
$
|
22,353
|
|
Accumulated
depreciation
|
|
|
(7,371
|
)
|
|
|
(7,064
|
)
|
|
|
$
|
14,892
|
|
|
$
|
15,289
|
|
The
estimated useful life of the patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended March
31, 2019 and 2018, total depreciation expense was $307 and $283, respectively.
Note
7 – TRADE AND OTHER PAYABLES
As
of March 31, 2019, and December 31, 2018, trade and other payables consist of the following:
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
Accounts
payable
|
|
$
|
1,202,074
|
|
|
$
|
978,770
|
|
Accrued
expenses
|
|
|
256,621
|
|
|
|
245,737
|
|
Accrued
interest
|
|
|
811,892
|
|
|
|
686,354
|
|
Other
liabilities
|
|
|
2,453
|
|
|
|
(13,331
|
)
|
Total
payables
|
|
$
|
2,273,040
|
|
|
$
|
1,897,530
|
|
Note
8 – LOANS PAYABLE
As
of March 31, 2019 and December 31, 2018, loans payable consisted of the following:
Loans
Payable
|
|
March
31, 2019
|
|
|
December
31, 2018
|
|
|
|
|
|
|
|
|
Unsecured,
due on demand, interest at 15% per annum
|
|
$
|
187,210
|
|
|
$
|
183,258
|
|
Unsecured,
due on demand, interest at 36% per annum
|
|
|
45,797
|
|
|
|
44,830
|
|
Unsecured,
loan payable, due on demand, interest at 18% per annum
|
|
|
317,500
|
|
|
|
317,500
|
|
Unsecured,
loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due on demand.
|
|
|
250,000
|
|
|
|
250,000
|
|
Unsecured
share-settled debt, interest at 4.99% per month, due on May 7, 2019.
|
|
|
179,284
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
979,791
|
|
|
$
|
795,588
|
|
On
March 8, 2019, the Company entered into a convertible bridge loan agreement (the “Share-Settled Loan”). The Share-Settled
Loan bears interest at 4.99% per month, was due in 60 days on May 7, 2019 and is convertible into restricted common shares of
the Company at the lender’s option at the market price per share less a 30% discount to market. The Company has accounted
the Share-Settled Loan as share-settled debt. It is initially recognized at its fair value and accreted to its share-settled redemption
value of $214,286 over the term of the debt. At March 31, 2019, the carrying value consists of principal of $150,000 and accumulated
accretion of $29,284. The Share-Settled Loan was not repaid on May 7, 2019 and is in default.
Note
9 – CONVERTIBLE NOTES
As
of March 31, 2019 and December 31, 2018, convertible loans payable consisted of the following:
Related
Party Convertible Loans Payable
(a)
|
On
March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by
a director of the Company for marketing services. The note is unsecured, bears interest at 5% per annum, is convertible at
$1.25 per common share, and is due on demand. As at March 31, 2019, the carrying value of the convertible promissory note
was $310,000 (December 31, 2018 - $310,000).
|
Third
Party Convertible Loans Payable
(b)
|
On
August 25, 2015, the Company issued a convertible promissory note in the principal amount of $250,000. The convertible promissory
note is unsecured, bears interest at 10% per annum, is due on demand, and is convertible at $7,000 per share. As at March
31, 2019, the carrying value of the convertible promissory note was $250,000 (December 31, 2018 - $250,000).
|
|
|
(c)
|
On
November 7, 2016, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement,
the Company was provided with proceeds of $125,000 on November 10, 2016 in exchange for the issuance of a secured convertible
promissory note in the principal amount of $138,889, which was inclusive of an 8% original issue discount and bears interest
at 8% per annum to the holder. The convertible promissory note matures nine months from the date of issuance and is convertible
at the option of the holder into our common shares at a price per share that is the lower of $480 or the closing price of
the Company’s common stock on the conversion date. In addition, under the same terms, the Company also issued a secured
convertible note of $50,000 in consideration for proceeds of $10,000 and another secured convertible note of $75,000 in consideration
for proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes for consideration
of $1 each at any time prior to the maturity date in the event that the convertible promissory note is exchanged or converted
into a revolving credit facility with the lender, whereupon the two $10,000 convertible note balances shall be rolled into
such credit facility.
|
|
On
May 7, 2017, the Company triggered an event of default in the convertible note by failing to repay the full principal amount
and all accrued interest on the due date. The entire convertible note payable became due on demand and would accrue interest
at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the convertible
note payable was repaid in full.
|
|
|
|
On
May 8, 2017, the Company issued 25 common shares for the conversion of $5,000 of the $72,500 convertible note dated November
7, 2016. On May 24, 2017, the Company issued 53 common shares for the conversion of $10,500 of the $72,500 convertible note
dated November 7, 2016. On May 25, 2017, the lender provided conversion notice for the remaining principal $57,000 of the
$72,500 convertible note dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due
to direction from the Company not to honor any further conversion notices from the lender. In response, the Company received
legal notification pursuant to the refusal to process further conversion notices. Refer to Note 18.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $245,889 (December 31, 2018 - $245,889) and the fair value of the derivative
liability was $1,521,870 (December 31, 2018 - $606,710).
|
(d)
|
On
June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The note is unsecured,
bears interest at 10% per annum, was due on December 5, 2017, and is convertible into common shares at a conversion price
equal to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending
on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55%
multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading
day prior to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. Financing
fees on the note were $7,000. The derivative liability applied as a discount on the note was $103,000 and is being accreted
over the life of the note.
|
|
|
|
During
the year ended December 31, 2018, $75,000 of the note was reassigned to another unrelated note holder and the note was treated
as an extinguishment. There were no material changes to the note upon reassignment.
|
|
|
|
During
the year ended December 31, 2018, the Company issued 51,749 common shares with a fair value of $524,487 for the conversion
of the remaining principal balance of $35,000, and default penalties and finance costs of $37,448 resulting in a loss on settlement
of debt of $452,039.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $9,487 (December 31, 2018 - $9,487), relating to a penalty.
|
|
|
(e)
|
On
July 17, 2017, the Company issued a convertible promissory note in the principal amount
of $135,000. The note is unsecured, bears interest at 10% per annum, is due on July 17,
2018, and is convertible into common shares at a conversion price equal to the lessor
of (i) 55% multiplied by the lowest trading price during the previous twenty trading
day period ending on the latest complete trading day prior to the date of this note and
(ii) $244. Interest will be accrued and payable at the time of promissory note repayment.
Financing fees on the note were $16,500. Derivative liability applied as discount on
the note was $118,500 and is being accreted over the life of the note.
During
the year ended December 31, 2018, the Company issued 25,000 common shares with a fair value of $227,222 for the conversion
of $53,530 of principal balance resulting in a loss on settlement of debt of $173,692.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $81,470 (December 31, 2018 - $81,470) and the fair value of the derivative
liability was $942,397 (December 31, 2018 - $121,485). During the three months ended March 31, 2019, the Company accreted
$nil (2018 - $45,726) of the debt discount to finance costs.
|
(f)
|
On
March 19, 2018, the Company issued a convertible promissory note in the principal amount
of up to $900,000. The note is unsecured, bears interest at 12% per annum, is due 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, the Company 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 the Company’s bank account in the amount of $5,562 per calendar day or $27,812 per week
until the Company has paid or the holder has converted an amount equal to the principal balance, interest, accrued interest,
and default amount.
|
|
|
|
First
Tranche
On
March 19, 2018, the Company received $270,000 pursuant to the first tranche of the note, which is $300,000 in the principal
amount, net of the original issuance discount of $30,000. The derivative liability applied as a discount on the note was
$270,000.
|
|
|
|
On
August 31, 2018, the principal balance of $300,000 and accrued interest of $15,978 for
the first tranche of the note was reassigned to another unrelated note holder. There
were no material changes to the note upon reassignment. Refer to Note 9(l).
|
|
Second
Tranche
|
|
|
|
On
May 3, 2018, the Company received $146,500, net of $3,500 in legal fees, pursuant to the second tranche of the note, which
is $166,667 in the principal amount, net of the original issuance discount of $16,667. The derivative liability applied as
a discount on the note was $150,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2019, the carrying value of the second tranche of the note was $166,667
(December 31, 2018 - $166,667) and the fair value of the derivative liability was $543,342
(December 31, 2018 - $229,951). During the three months ended March 31, 2019, the Company
accreted $nil (2018 - $nil) of the debt discount to finance costs.
Third
Tranche
|
|
|
|
On
July 16, 2018, the Company received $125,000, net of $53,500 in legal and financing fees, pursuant to the third tranche of
the agreement, which is $198,333 in the principal amount, net of the original issuance discount of $19,833. The derivative
liability applied as a discount on the note was $125,000 and is being accreted over the life of the note.
|
|
|
|
As
at March 31, 2019, the carrying value of the third tranche of the note was $198,333 (December 31, 2018 - $181,087) and the
fair value of the derivative liability was $619,402 (December 31, 2018 - $231,250). During the three months ended March 31,
2019, the Company accreted $17,246 (2018 - $nil) of the debt discount to finance costs.
|
|
|
(g)
|
In
January 2018, the Company 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,
is due 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 $0.20.
During
the year ended December 31, 2018, the Company issued 1,558 common shares with a fair value of $19,937 for the conversion
of $10,000 of principal resulting in a loss on settlement of debt of $9,937.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $5,000 (December 31, 2018 - $5,000) and the fair value of the derivative
liability was $9,783 (December 31, 2018 - $2,714).
|
(h)
|
On
May 8, 2018, the Company issued a convertible note in the principal amount of $51,500. The note is unsecured, bears interest
at 10% per annum, and is due on February 8, 2019. The note is convertible into common shares at a 32% discount to the lowest
intra-day trading price of the Company’s common stock for the ten trading days immediately preceding the conversion
date.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $51,500 (December 31, 2018 - $44,223) and the fair value of the derivative
liability was $249,914 (December 31, 2018 - $44,543). During the three months ended March 31, 2019, the Company accreted $7,277
(2018 - $nil) of the debt discount to finance costs.
|
|
|
(i)
|
On
May 28, 2018 the Company issued a convertible note in the principal amount of $180,000.
The note is unsecured, bears interest at 10% per annum, and is due on February 28, 2019.
The note is convertible into common shares at a 32% discount to the lowest intra-day
trading price of the Company’s common stock for the ten trading days immediately
preceding the conversion date.
As
at March 31, 2019, the carrying value of the note was $180,000 (December 31, 2018 - $141,522) and the fair value of the
derivative liability was $863,134 (December 31, 2018 - $165,742). During the three months ended March 31, 2019, the Company
accreted $38,478 (2018 - $nil) of the debt discount to finance costs.
|
|
|
(j)
|
On
June 18, 2018, the Company reassigned convertible note balances from another unrelated party in the principal amount of $168,721.
The note is unsecured, bears interest at 10% per annum, which is due 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. The remaining derivative liability applied as a discount on
the reassigned note was $25,824 and is being accreted over the remaining life of the note.
|
|
During
the year ended December 31, 2018, the Company issued 43,750 common shares with a fair value of $185,200 for the conversion
of $66,672 of principal and $5,653 of accrued interest resulting in a loss on settlement of debt of $112,875.
|
|
|
|
As
at March 31, 2019, the carrying value of the note was $102,049 (December 31, 2018 - $102,049) and the fair value of the derivative
liability was $323,936 (December 31, 2018 - $53,896). During the three months ended March 31, 2019, the Company accreted $nil
(2018 - $nil) of the debt discount to finance costs.
|
|
|
(k)
|
On
August 31, 2018, the Company 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. Deferred financing fees and original
issuance discount on the note were $26,000. The derivative liability applied as a discount on the note was $200,000 and is
being accreted over the life of the note.
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|
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As
at March 31, 2019, the carrying value of the note was $131,266 (December 31, 2018 - $75,540) and the fair value of the derivative
liability was $1,351,867 (December 31, 2018 - $305,890). During the three months ended March 31, 2019, the Company accreted
$55,726 (2018 - $nil) of the debt discount to finance costs.
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(l)
|
On
August 31, 2018, the Company reassigned the first tranche of a convertible note balance from another unrelated party in the
principal amount of $315,978. The first tranche of the note is unsecured, bears interest at 12% per annum, which is due on
demand, and is convertible into common shares 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.
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|
The
deferred financing fees and derivative liability applied as discounts on the reassigned note were fully amortized at the time
of the transfer.
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During
the three months ended March 31, 2019, the Company issued 55,932 common shares with a fair value of $119,977 for the conversion
of $42,000 of principal and $3,868 of accrued interest resulting in a loss on settlement of debt of $74,109.
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As
at March 31, 2019, the carrying value of the note was $315,978 (December 31, 2018 - $315,978) and the fair value of the derivative
liability was $1,719,365 (2018 - $426,173).
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(m)
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On
January 22, 2019, the Company issued a convertible promissory note in the principal amount of $137,500. The note is unsecured,
bears interest at 12% per annum, is due on January 22, 2020, 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. Deferred financing fees and original
issuance discount on the note were $12,500. The derivative liability applied as a discount on the note was $125,000 and is
being accreted over the life of the note.
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As
at March 31, 2019, the carrying value of the note was $25,616 and the fair value of the derivative liability was $804,260.
During the three months ended March 31, 2019, the Company accreted $25,616 of the debt discount to finance costs.
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Note
10 – DERIVATIVE LIABILITIES
The
Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 9 in accordance
with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The
fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in
the consolidated statement of operations. For the three months ended March 31, 2019, the Company recorded a loss on the change
in fair value of derivative liability of $6,635,917 (2018 – $5,616,261). As at March 31, 2019, the Company’s derivative
liability had a balance of $8,949,271 (December 31, 2018 - $2,188,354).
The
following inputs and assumptions were used to value the derivative liabilities outstanding at March 31, 2019 and December 31,
2018, assuming no dividend yield:
|
|
|
2019
|
|
|
|
2018
|
|
Expected
volatility
|
|
|
248
- 350
|
%
|
|
|
180
- 447
|
%
|
Risk
free interest rate
|
|
|
2.40
- 2.44
|
%
|
|
|
1.63
- 2.59
|
%
|
Expected
life (in years)
|
|
|
0.25-1.0
|
|
|
|
0.1
– 1.0
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
$
|
|
Balance,
December 31, 2018
|
|
|
2,188,354
|
|
New
issuances
|
|
|
125,000
|
|
Mark
to market adjustment
|
|
|
6,635,917
|
|
|
|
|
|
|
Balance,
March 31, 2019
|
|
|
8,949,271
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Note
11 - LEASES
The
Company leases certain assets under lease agreements. The lease liability consists of a single lease for office space. Upon adoption
of Topic 842, on January 1, 2019 the Company recognized right-of-use assets of $51,203 and lease liabilities of $47,118. The difference
between the recorded operating lease assets and lease liabilities is mainly due to the reclassification of prepaid rent deposits.
As of March 31, 2019, the lease had a remaining term of 1.2 years. Right-of-use assets have been included within fixed assets,
net, and lease liabilities have been included in operating lease liability on the Company’s interim condensed consolidated
balance sheet as follows:
Right-of-use
asset
|
|
March
31, 2019
|
|
Right-of-use
asset
|
|
$
|
51,203
|
|
Less
depreciation
|
|
|
(9,036
|
)
|
Total
right-of-use asset
|
|
$
|
42,167
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|
Lease
liability
|
|
March
31, 2019
|
|
Current
portion
|
|
$
|
34,124
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Long-term
portion
|
|
|
6,093
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|
Total
lease liability
|
|
$
|
40,217
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|
Operating
lease liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s
lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of
11.98% in determining its lease liabilities. The discount rate was derived from the Company’s assessment of current borrowings.
Right-of-use
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for
minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend
or terminate the lease if it is reasonably certain that the Company will exercise that option.
Accretion
on operating lease liabilities for the three months ended March 31, 2019 was $1,388. Principal payments against the operating
lease liabilities for the three months ended March 31, 2019 was $9,453.
Future
minimum lease payments to be paid by the Company as a lessee for operating leases as of March 31, 2019 for the next two years
and thereafter are as follows:
2019
|
|
$
|
26,146
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2020
|
|
|
14,525
|
|
|
|
|
|
|
Total
future minimum lease payments
|
|
$
|
40,671
|
|
Discount
|
|
|
(454
|
)
|
|
|
|
|
|
Total
|
|
$
|
40,217
|
|
Note
12 – MEZZANINE EQUITY
Authorized
5,000,000
shares of convertible, redeemable Series C preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series C preferred shares is convertible into 10 shares of common stock.
1,000,000
shares of convertible, redeemable Series D preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series D preferred shares is convertible into 5 shares of common stock.
5,000,000
shares of convertible, redeemable Series E preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series E preferred shares is convertible into 4 shares of common stock.
The
Series C, D and E preferred shares are mandatorily redeemable upon a major transaction which includes a change in control. As
a result, they are classified as mezzanine equity.
Mezzanine
equity transactions
During
the three months ended March 31, 2019, the Company did not have any mezzanine equity transactions.
Note
13 – PREFERRED STOCK
Authorized
3,000,000
shares of Series A preferred shares authorized, each having a par value of $0.001 per share.
10,000
shares of Series B convertible preferred shares authorized, each having a par value of $0.001 per share. Each share of Series
B convertible preferred shares is convertible into 1,000,000 shares of common stock.
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Preferred share amounts remained unchanged.
Preferred
Equity Transactions
During
the three months ended March 31, 2019, the Company did not have any preferred share equity transactions.
Note
14 – COMMON STOCK
Authorized
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000
shares of common stock. These consolidated financial statements give retroactive effect to such reverse stock split named above
and all share and per share amounts have been adjusted accordingly, unless otherwise noted.
There
were 690,403 and 634,971 shares of common stock of the Company issued and outstanding as of March 31, 2019 and December 31, 2018,
respectively. Each share of common stock is entitled to one (1) vote.
Common
Equity Transactions
During
the three months ended March 31, 2019 the Company had the following transactions:
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●
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The
Company issued an aggregate of 55,932 shares of common stock with a fair value of $119,977 upon the conversion of $45,868
of convertible debentures and accrued interest, as noted in Note 9, per the table below:
|
Date
Issued
|
|
Common
Shares Issued (#)
|
|
|
Fair
Value
(1)
|
|
|
Converted
Balance
(2)
|
|
|
Gain
(loss) on
Conversion
|
|
January
22, 2019
|
|
|
10,189
|
|
|
$
|
28,527
|
|
|
$
|
15,690
|
|
|
$
|
(12,837
|
)
|
March
11, 2019
|
|
|
18,606
|
|
|
|
37,212
|
|
|
|
12,280
|
|
|
|
(24,932
|
)
|
March
15, 2019
|
|
|
27,137
|
|
|
|
54,238
|
|
|
|
17,898
|
|
|
|
(36,340
|
)
|
Total
|
|
|
55,932
|
|
|
$
|
119,977
|
|
|
$
|
45,868
|
|
|
$
|
(74,109
|
)
|
|
(1)
|
Fair
values are derived based on the closing price of the Company’s common stock on the date of the conversion notice.
|
|
|
|
|
(2)
|
Converted
balance includes portions of principal, accrued interest, derivative liabilities, financing fees and interest penalties converted
upon the issuance of shares of common stock.
|
Note
15 – RELATED PARTY TRANSACTIONS
As
at March 31, 2019, the Company owed $152,866 ($204,137 CDN) (December 31, 2018 - $139,835 ($190,764 CDN)) to the President, CEO,
and CFO of the Company for management fees and salaries, which has been recorded in trade and other payables. The amounts owed
and owing are unsecured, non-interest bearing, and due on demand. During the three months ended March 31, 2019 the Company incurred
$50,000 (2018 - $50,000) in salaries to the President, CEO, and CFO of the Company.
As
at March 31, 2019, the Company owed $13,067 ($17,450 CDN) (December 31, 2018 - $12,791 ($17,450 CDN)) to a company controlled
by the son of the President, CEO, and CFO of the Company for subcontractor services. The balance owing has been recorded in trade
and other payables. The amount owing is unsecured, non-interest bearing, and due on demand.
Note
17 – COMMITMENTS
In
the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions
with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising
from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws
contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential
amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these
agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
Note
18 – CONTINGENCIES
On
September 7, 2016, Chetu Inc. filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus interest
of $4,939. The invoice was not paid due to a service dispute. As at March 31, 2019, included in trade and other payables is $46,533
related to this unpaid invoice, interest and legal fees.
On
May 24, 2017, the Company received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three
8% convertible promissory notes issued by the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June
12, 2017 in the United States District Court, Southern District of New York. Refer to Note 9. Coastal alleges that the Company
failed to deliver shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks
damages in excess of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the lawsuit. This
action is still pending. As at March 31, 2019, the principal balance and accrued interest on this convertible note is included
on the consolidated balance sheet under convertible notes payable.
On
October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant
is alleging that it is contractually owed 462 shares of the Company’s common stock and is seeking damages of $270,000. In
addition, a related vendor filed in the same filing a complaint for $72,000 as part of a consulting agreement the Company executed.
No accrual has been recorded because the Company is of the opinion that no obligation exists since the vendors have not performed
their contractual duties.
On
April 9, 2018, the Company received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to
the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the
Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded
payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District
Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter,
thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ
seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default
interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending. As at March 31, 2019, the
principal balance and accrued interest on this convertible note is included on the consolidated balance sheet under convertible
notes payable.
Note
19 – SUBSEQUENT EVENTS
Management
has evaluated events subsequent to March 31, 2019, for transactions and other events that may require adjustment of and/or disclosure
in such financial statements.
On
April 26, 2019, the Company entered into a note purchase and assignment agreement (the “Assignment Agreement”) with
two unrelated parties pursuant to a certain secured inventory convertible note issued on March 19, 2018 in the principal amount
of $900,000. Refer to Note 9(f). Pursuant to the Assignment Agreement, the Seller desires to sell the balance owing under the
Second and Third tranche of the original note in four separate closings on April 26, May 22, June 24, and July 24, 2019 totaling
$84,396, $85,838, $120,490 and $122,866, respectively (consisting of $375,804 principal and $37,786 of accrued interest).