DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
AT SEPTEMBER 30, 2019 AND DECEMBER 31, 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
119,243
|
|
|
$
|
5,059
|
|
Trade receivables, net
|
|
|
250,006
|
|
|
|
139,400
|
|
Inventories, net of inventory allowance of $149,935 and $146,292, respectively
|
|
|
189,332
|
|
|
|
141,296
|
|
Prepaid expenses and deposits
|
|
|
10,022
|
|
|
|
47,484
|
|
TOTAL CURRENT ASSETS
|
|
|
568,603
|
|
|
|
333,239
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
24,128
|
|
|
|
869
|
|
Equipment on lease, net
|
|
|
1,682
|
|
|
|
3,316
|
|
Intangible assets, net
|
|
|
14,368
|
|
|
|
15,289
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
40,178
|
|
|
|
19,474
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
608,781
|
|
|
$
|
352,713
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
$
|
2,362,412
|
|
|
$
|
1,897,530
|
|
Deferred revenue
|
|
|
71,737
|
|
|
|
215,662
|
|
Operating lease liability
|
|
|
23,891
|
|
|
|
-
|
|
Convertible note payable to related party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
1,016,762
|
|
|
|
795,588
|
|
Derivative liability
|
|
|
7,153,570
|
|
|
|
2,188,354
|
|
Convertible loans payable, net of unamortized discounts and premiums of
$616,631 and $213,461, respectively
|
|
|
1,860,854
|
|
|
|
1,613,912
|
|
TOTAL CURRENT LIABILITIES
|
|
|
12,799,226
|
|
|
|
7,021,046
|
|
|
|
|
|
|
|
|
|
|
Going concern (Note 2)
|
|
|
|
|
|
|
|
|
Commitments (Note 16)
|
|
|
|
|
|
|
|
|
Contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Subsequent events (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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, 150,000,000 shares authorized, (2018 - 750,000); 904,969
issued and outstanding (2018 - 634,471)
|
|
|
905
|
|
|
|
634
|
|
Additional paid in capital
|
|
|
22,759,472
|
|
|
|
22,415,121
|
|
Discounts on common stock
|
|
|
(69,838
|
)
|
|
|
(69,838
|
)
|
Other accumulated comprehensive income
|
|
|
1,434,376
|
|
|
|
1,465,389
|
|
Accumulated deficit
|
|
|
(47,890,542
|
)
|
|
|
(42,054,821
|
)
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(18,892,895
|
)
|
|
|
(13,370,783
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
608,781
|
|
|
$
|
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 AND NINE MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Three
months ending
|
|
|
Nine
months ending
|
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
September
30, 2019
|
|
|
September
30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
453,210
|
|
|
$
|
708,963
|
|
|
$
|
1,239,280
|
|
|
$
|
1,056,905
|
|
Cost
of revenue
|
|
|
278,964
|
|
|
|
26,091
|
|
|
|
617,918
|
|
|
|
123,972
|
|
Gross
profit
|
|
|
174,246
|
|
|
|
682,872
|
|
|
|
621,362
|
|
|
|
932,933
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense
|
|
|
124,898
|
|
|
|
181,737
|
|
|
|
404,654
|
|
|
|
599,539
|
|
General
and administration expense
|
|
|
268,275
|
|
|
|
341,481
|
|
|
|
699,969
|
|
|
|
974,974
|
|
Warranty
expense
|
|
|
-
|
|
|
|
2,179
|
|
|
|
-
|
|
|
|
48,452
|
|
Bad
debt expense (recovery)
|
|
|
(28,172
|
)
|
|
|
39,163
|
|
|
|
(30,038
|
)
|
|
|
70,155
|
|
Depreciation
and amortization expense
|
|
|
9,795
|
|
|
|
3,427
|
|
|
|
30,616
|
|
|
|
12,341
|
|
Total
operating expense
|
|
|
374,796
|
|
|
|
567,987
|
|
|
|
1,105,201
|
|
|
|
1,705,461
|
|
Income
(loss) from operations
|
|
|
(200,550
|
)
|
|
|
114,885
|
|
|
|
(483,839
|
)
|
|
|
(772,528
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other
income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange
|
|
|
9,165
|
|
|
|
234,109
|
|
|
|
40,328
|
|
|
|
83,897
|
|
Change
in fair value of derivative instruments
|
|
|
(4,944,421
|
)
|
|
|
(120,312
|
)
|
|
|
(4,223,797
|
)
|
|
|
277,205
|
|
Loss
on extinguishment of debt
|
|
|
(80,411
|
)
|
|
|
(4,494,554
|
)
|
|
|
(208,665
|
)
|
|
|
(6,658,785
|
)
|
Finance
costs
|
|
|
(339,718
|
)
|
|
|
(728,840
|
)
|
|
|
(959,748
|
)
|
|
|
(2,245,908
|
)
|
Total
other income (expense)
|
|
|
(5,355,385
|
)
|
|
|
(5,109,597
|
)
|
|
|
(5,351,882
|
)
|
|
|
(8,543,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
$
|
(5,555,935
|
)
|
|
$
|
(4,994,712
|
)
|
|
$
|
(5,835,721
|
)
|
|
$
|
(9,316,119
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(6.67
|
)
|
|
$
|
(12.53
|
)
|
|
$
|
(8.00
|
)
|
|
$
|
(36.17
|
)
|
Diluted
|
|
$
|
(6.67
|
)
|
|
$
|
(12.53
|
)
|
|
$
|
(8.00
|
)
|
|
$
|
(36.17
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
832,501
|
|
|
|
398,736
|
|
|
|
729,685
|
|
|
|
257,540
|
|
Diluted
|
|
|
832,501
|
|
|
|
398,736
|
|
|
|
729,685
|
|
|
|
257,540
|
|
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 AND SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Three months ending
|
|
|
Nine months ending
|
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
September 30, 2019
|
|
|
September 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,555,935
|
)
|
|
$
|
(4,994,712
|
)
|
|
$
|
(5,835,721
|
)
|
|
$
|
(9,316,119
|
)
|
Other comprehensive income (loss)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
45,098
|
|
|
|
108,430
|
|
|
|
(31,013
|
)
|
|
|
387,927
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive loss
|
|
$
|
(5,510,837
|
)
|
|
$
|
(4,886,282
|
)
|
|
$
|
(5,866,734
|
)
|
|
$
|
(8,928,192
|
)
|
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
(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 on conversion of debt
|
|
|
185,798
|
|
|
|
186
|
|
|
|
1,802,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,803,141
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
641,091
|
|
|
|
(8,822,417
|
)
|
|
|
(8,181,326
|
)
|
Balance, March 31, 2018
|
|
|
223,784
|
|
|
$
|
223
|
|
|
$
|
19,498,127
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,514,341
|
|
|
$
|
(41,051,834
|
)
|
|
$
|
(20,039,143
|
)
|
Shares issued for commission
|
|
|
188
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
Shares issued on conversion of debt
|
|
|
92,040
|
|
|
|
92
|
|
|
|
1,172,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,172,277
|
|
Net income for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(361,594
|
)
|
|
|
4,501,010
|
|
|
|
4,139,416
|
|
Balance, June 30, 2018
|
|
|
316,012
|
|
|
$
|
315
|
|
|
$
|
20,672,562
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,152,747
|
|
|
$
|
(36,550,824
|
)
|
|
$
|
(14,725,200
|
)
|
Shares issued on conversion of debt
|
|
|
160,620
|
|
|
|
161
|
|
|
|
849,945
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
850,106
|
|
Preferred shares to be issued for restructure of debt
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,872,732
|
|
|
|
-
|
|
|
|
-
|
|
|
|
4,872,732
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
108,430
|
|
|
|
(4,994,712
|
)
|
|
|
(4,886,282
|
)
|
Balance, September 30, 2018
|
|
|
476,632
|
|
|
$
|
476
|
|
|
$
|
21,522,507
|
|
|
$
|
-
|
|
|
$
|
4,872,732
|
|
|
$
|
1,261,177
|
|
|
$
|
(41,545,536
|
)
|
|
$
|
(13,888,644
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
634,471
|
|
|
$
|
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
|
)
|
Shares issued for services
|
|
|
17,500
|
|
|
|
18
|
|
|
|
19,582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,600
|
|
Shares issued on conversion of debt
|
|
|
79,666
|
|
|
|
80
|
|
|
|
95,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95,298
|
|
Net income for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,476
|
)
|
|
|
6,893,187
|
|
|
|
6,886,711
|
|
Balance, June 30, 2019
|
|
|
787,569
|
|
|
$
|
788
|
|
|
$
|
22,649,842
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,389,278
|
|
|
$
|
(42,334,607
|
)
|
|
$
|
(13,491,805
|
)
|
Shares issued on conversion of debt
|
|
|
117,400
|
|
|
|
117
|
|
|
|
109,630
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
109,747
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
45,098
|
|
|
|
(5,555,935
|
)
|
|
|
(5,510,837
|
)
|
Balance, September 30, 2019
|
|
|
904,969
|
|
|
$
|
905
|
|
|
$
|
22,759,472
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,434,376
|
|
|
$
|
(47,890,542
|
)
|
|
$
|
(18,892,895
|
)
|
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 SIX MONTHS ENDED SEPTEMBER 30, 2019 AND 2018
(Expressed
in U.S. Dollars)
(UNAUDITED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(5,835,721
|
)
|
|
$
|
(9,316,119
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash
used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation
and amortization
|
|
|
30,616
|
|
|
|
12,341
|
|
Change
in inventory allowance
|
|
|
(1,643
|
)
|
|
|
-
|
|
Non-cash
financing costs
|
|
|
-
|
|
|
|
279,789
|
|
Accretion
of discounts on debt
|
|
|
461,536
|
|
|
|
1,416,573
|
|
Change
in fair value of derivative liabilities
|
|
|
4,223,797
|
|
|
|
(277,205
|
)
|
Bad
debt expense (recovery)
|
|
|
(30,038
|
)
|
|
|
70,155
|
|
Shares
issued for services
|
|
|
19,600
|
|
|
|
2,250
|
|
Loss
on extinguishment of debt
|
|
|
208,665
|
|
|
|
6,658,785
|
|
Unrealized
foreign exchange loss (gain)
|
|
|
(22,745
|
)
|
|
|
-
|
|
(Increase) decrease
in assets:
|
|
|
|
|
|
|
|
|
Trade
receivables, net
|
|
|
(80,568
|
)
|
|
|
(410,040
|
)
|
Inventories
|
|
|
(46,393
|
)
|
|
|
(198,565
|
)
|
Prepaid
expense and deposits
|
|
|
33,377
|
)
|
|
|
(53,866
|
)
|
Related
party receivable
|
|
|
-
|
|
|
|
1,034
|
|
Increase (decrease)
in current liabilities:
|
|
|
|
|
|
|
|
|
Trade
payables and accruals
|
|
|
556,140
|
|
|
|
596,818
|
|
Deferred
revenue
|
|
|
(143,925
|
)
|
|
|
122,235
|
|
Warranty
reserve
|
|
|
-
|
|
|
|
(28,258
|
)
|
Operating
lease liabilities
|
|
|
(24,724
|
)
|
|
|
-
|
|
Net cash used
in operating activities
|
|
|
(652,026
|
)
|
|
|
(1,124,073
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
-
|
|
|
|
(1,570
|
)
|
Purchase
of intangible assets
|
|
|
-
|
|
|
|
(1,100
|
)
|
Net cash used
in investing activities
|
|
|
-
|
|
|
|
(2,670
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuing
shares
|
|
|
-
|
|
|
|
81,659
|
|
Repayments of notes
payable
|
|
|
-
|
|
|
|
(45,000
|
)
|
Proceeds
from notes payable
|
|
|
766,210
|
|
|
|
1,292,000
|
|
Net cash provided
by financing activities
|
|
|
766,210
|
|
|
|
1,328,659
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
|
|
-
|
|
|
|
(152,238
|
)
|
|
|
|
|
|
|
|
|
|
Net increase in
cash
|
|
|
114,184
|
|
|
|
49,678
|
|
Cash at beginning
of period
|
|
|
5,059
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
Cash at the
end of the period
|
|
$
|
119,243
|
|
|
$
|
55,166
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
payments
|
|
$
|
3,400
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing
activities:
|
|
|
|
|
|
|
|
|
Convertible debenture
issued for financing fees
|
|
$
|
-
|
|
|
$
|
15,000
|
|
Initial
recognition of lease asset
|
|
$
|
51,203
|
|
|
$
|
-
|
|
Initial
recognition of lease liability
|
|
$
|
47,118
|
|
|
$
|
-
|
|
Shares
issued for convertible notes payable
|
|
$
|
325,022
|
|
|
$
|
3,853,296
|
|
Preferred
shares issued in exchange for mezzanine preferred shares and accrued interest
|
|
$
|
-
|
|
|
$
|
1,751,740
|
|
Preferred
shares issued in exchange for convertible debt and accrued interest
|
|
$
|
-
|
|
|
$
|
3,120,992
|
|
Mezzanine
preferred shares issued in exchange for mezzanine preferred shares and accrued interest
|
|
$
|
-
|
|
|
$
|
4,121,741
|
|
Mezzanine
preferred shares issued in exchange for convertible debt and accrued interest
|
|
$
|
-
|
|
|
$
|
2,488,765
|
|
Preferred
shares issued for accounts payable
|
|
$
|
-
|
|
|
$
|
91,944
|
|
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 Vantage Tag Systems Inc. (“VTS”) (formerly
DSG Tag Systems Inc.), 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, VTS formed DSG Tag Systems International,
Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of VTS.
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. On May 23, 2019, an increase in common shares to 150,000,000 was authorized,
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 September 30, 2019, the Company has a working capital deficit of $12,230,623 and has an accumulated deficit of $47,890,542
since inception. Furthermore, the Company incurred a net loss of $5,835,721 and used $652,026 of cash flows
for operating activities during the nine months ended September 30, 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 interim 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 interim condensed 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 nine months ended September 30, 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 wholly-owned subsidiaries
VTS and 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 September 30, 2019, and December 31, 2018, trade receivables consist of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Accounts receivables
|
|
$
|
291,994
|
|
|
$
|
184,214
|
|
Allowance for doubtful accounts
|
|
|
(41,988
|
)
|
|
|
(44,814
|
)
|
Total trade receivables, net
|
|
$
|
250,006
|
|
|
$
|
139,400
|
|
Note
5 – FIXED ASSETS AND EQUIPMENT ON LEASE
As
of September 30, 2019 and December 31, 2018, fixed assets consisted of the following:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Furniture and equipment
|
|
$
|
16,071
|
|
|
$
|
20,509
|
|
Computer equipment
|
|
|
25,179
|
|
|
|
28,460
|
|
Right-of-use lease asset
|
|
|
51,203
|
|
|
|
-
|
|
Accumulated depreciation
|
|
|
(68,325
|
)
|
|
|
(48,100
|
)
|
|
|
$
|
24,128
|
|
|
$
|
869
|
|
As
of September 30, 2019 and December 31, 2018, equipment on lease consisted of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Tags
|
|
$
|
124,652
|
|
|
$
|
120,998
|
|
Text
|
|
|
27,552
|
|
|
|
26,743
|
|
Touch
|
|
|
22,821
|
|
|
|
22,152
|
|
Accumulated depreciation
|
|
|
(173,343
|
)
|
|
|
(166,577
|
)
|
|
|
$
|
1,682
|
|
|
$
|
3,316
|
|
For
the three months ended September 30, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $9,488
and $3,121, respectively.
For
the nine months ended September 30, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $29,695
and $11,441, respectively.
Note
6 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of September 30, 2019 and December 31, 2018:
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
Intangible asset – Patent
|
|
$
|
22,353
|
|
|
$
|
22,353
|
|
Accumulated depreciation
|
|
|
(7,985
|
)
|
|
|
(7,064
|
)
|
|
|
$
|
14,368
|
|
|
$
|
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 September
30, 2019 and 2018, total amortization expense was $307 and $307, respectively.
For
the nine months ended September 30, 2019 and 2018, total amortization expense was $921 and $900, respectively.
Note
7 – TRADE AND OTHER PAYABLES
As
of September 30, 2019, and December 31, 2018, trade and other payables consist of the following:
|
|
September
30, 2019
|
|
|
December
31, 2018
|
|
Accounts payable
|
|
$
|
964,440
|
|
|
$
|
978,770
|
|
Accrued expenses
|
|
|
321,073
|
|
|
|
245,737
|
|
Accrued interest
|
|
|
1,051,947
|
|
|
|
686,354
|
|
Other liabilities
|
|
|
24,952
|
|
|
|
(13,331
|
)
|
Total payables
|
|
$
|
2,362,412
|
|
|
$
|
1,897,530
|
|
Note
8 – LOANS PAYABLE
As
of September 30, 2019 and December 31, 2018, loans payable consisted of the following:
Loans Payable
|
|
September 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Unsecured, due on demand, interest at 15% per annum
|
|
$
|
188,790
|
|
|
$
|
183,258
|
|
Unsecured, due on demand, interest at 36% per annum
|
|
|
46,186
|
|
|
|
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.
|
|
|
214,286
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,016,762
|
|
|
$
|
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 September 30, 2019, the carrying value consists of principal of $150,000 and accumulated
accretion of $64,286. The Share-Settled Loan was not repaid on May 7, 2019 and is in default.
Note
9 – CONVERTIBLE NOTES
As
of September 30, 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 September 30, 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 September
30, 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 17.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $245,889 (December 31, 2018 - $245,889) and the fair value of the
derivative liability was $2,600,718 (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 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 September 30, 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 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 September 30, 2019, the carrying value of the note was $81,470 (December 31, 2018 - $81,470) and the fair value of the
derivative liability was $287,376 (December 31, 2018 - $121,485). During the nine months ended September 30, 2019, the Company
accreted $nil (2018 - $64,282) 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 accreted over the life of the note.
|
|
|
|
On
April 26, 2019 and May 22, 2019, an aggregate principal balance of $166,667 and accrued interest of $3,567 for the second
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(n).
|
|
|
|
As
at September 30, 2019, the carrying value of the second tranche of the note was $nil (December 31, 2018 - $166,667) and the
fair value of the derivative liability was $nil (December 31, 2018 - $229,951). During the nine months ended September 30,
2019, the Company accreted $nil (2018 - $52,536) 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 accreted over the life of the note.
|
|
|
|
On
September 24, 2019, the principal balance of $77,844 and accrued interest of $42,656 for the third 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(n).
|
|
|
|
As
at September 30, 2019, the carrying value of the third tranche of the note was $nil (December
31, 2018 - $181,087) and the fair value of the derivative liability was $nil (December
31, 2018 - $231,250). During the nine months ended September 30, 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,
was 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 September 30, 2019, the carrying value of the note was $5,000 (December 31, 2018 - $5,000) and the fair value of the derivative
liability was $2,658 (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 September 30, 2019, the carrying value of the note was $51,500 (December 31, 2018 - $44,223) and the fair value of the
derivative liability was $137,406 (December 31, 2018 - $44,543). During the nine months ended September 30, 2019, the Company
accreted $7,277 (2018 - $9,889) 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 September 30, 2019, the carrying value of the note was $180,000 (December 31, 2018 - $141,522) and the fair value of
the derivative liability was $475,117 (December 31, 2018 - $165,742). During the nine months ended September 30, 2019,
the Company accreted $38,478 (2018 - $21,522) 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 was 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 is accrued will be 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 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.
|
|
|
|
During the nine months ended
September 30, 2019, the Company issued 151,850 common shares with a fair value of $146,265
for the conversion of $31,688 of principal and $8,709 of accrued interest
resulting in a loss on settlement of debt of $105,868.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $70,360 (December 31, 2018 - $102,049) and the fair value of the
derivative liability was $151,424 (December 31, 2018 - $53,896). During the nine months ended September 30, 2019, the Company
accreted $nil (2018 - $73,669) 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, was 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
accreted over the life of the note.
|
|
|
|
On
May 7, 2019 and September 28, 2019, an aggregate principal balance of $125,209 was purchased by another unrelated note holder.
There were no material changes to the note upon purchase. Refer to Note 9(o). The deferred financing fees and derivative liability
applied as discounts on the purchase portion of the note were fully extinguished at the time of the transfer.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $100,791 (December 31, 2018 - $75,540) and the fair value of the
derivative liability was $357,970 (December 31, 2018 - $305,890). During the nine months ended September 30, 2019, the Company
accreted $150,460 (2018 - $nil) of the debt discount to finance costs.
|
|
|
(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.
|
|
The
deferred financing fees and derivative liability applied as discounts on the reassigned note were fully amortized at the time
of the transfer.
|
|
|
|
During
the nine months ended September 30, 2019, the Company issued 55,932 common shares
with a fair value of $119,977 for the conversion of $42,000 of principal and $3,869
of accrued interest resulting in a loss on settlement of debt of $74,108.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $273,978 (December 31, 2018 - $315,978) and the fair value of the
derivative liability was $961,730 (2018 - $426,173).
|
|
|
(m)
|
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
accreted over the life of the note.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $94,555 and the fair value of the derivative liability was $419,650.
During the nine months ended September 30, 2019, the Company accreted $94,555, of the debt discount to finance costs.
|
|
|
(n)
|
On
April 26, 2019, the Company entered into a note purchase and 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 this 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). As at September 30, 2019, $413,590
in principal and accrued interest had been assigned to the purchaser.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $413,590. The fair value of
the derivative liability was $110,741. During the nine months ended September 30, 2019,
the Company accreted $nil (2018 - $nil) of the debt discount to finance costs.
|
|
|
(o)
|
On
May 7, 2019, the Company entered into a securities purchase agreement with an unrelated party pursuant to a certain secured
inventory convertible promissory note issued on August 31, 2018 in the principal amount of $226,000. Refer to Note 9(k). Pursuant
to this agreement, the investor desired to purchase from the Company the balance owing under the original note in four separate
closings on or about May 7 and up to three additional tranches, each at the investor’s discretion. As at September 30,
2019, four tranches totaling $250,420 had been purchased by the investor. The derivative liability applied as a discount on
the note was $250,420 and is accreted over the life of the note.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $41,165 and the fair value of the derivative liability was $682,708.
During the nine months ended September 30, 2019, the Company accreted $41,165 of the debt discount to finance costs.
|
|
|
(p)
|
On
July 30, 2019 the Company issued a convertible promissory note in the principal amount of $220,000. The note is unsecured,
bears interest at 10% per annum, is due on July 30, 2020, and is convertible into common shares at a conversion price equal
to the lesser of (i) 60% of the lowest trading price during the previous twenty trading days prior to the issuance date, or
(ii) the lowest trading price for the Common Stock during the twenty day period ending one trading day prior to conversion
of the note. Deferred financing fees and original issuance discount on the note were $23,500. The derivative liability applied
as a discount on the note was $196,500 and is accreted over the life of the note.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $37,370 and the fair value
of the derivative liability was $518,817. During the nine months ended September 30,
2019, the Company accreted $37,370 of the debt discount to finance costs.
|
(q)
|
On
September 4, 2019 the Company issued a convertible promissory note in the principal amount of $137,500. The note is unsecured,
bears interest at 10% per annum, is due on June 3, 2020, and is convertible during the first 180 calendar days from the issuance
date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser
of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance
date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending last complete trading
day before conversion. Deferred financing fees and original issuance discount on the note were $16,000. The derivative liability
applied as a discount on the note was $121,500 and is accreted over the life of the note.
|
|
|
|
In connection with the note, the Company granted 100,000 warrants to the lender. Each warrant can be exercised
to purchase shares of common stock of the Company at a price of $0.75 per warrant for a period of five years. As the entire net
proceeds of $121,500 were first allocated to the derivative liability which is measured at fair value on a recurring basis, the
residual value of $nil was allocated to the equity-classified warrants.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $9,041 and the fair value of the derivative liability was $321,796.
During the nine months ended September 30, 2019, the Company accreted $9,041, of the debt discount to finance costs.
|
|
|
(r)
|
On
September 19, 2019 the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on September 19, 2020, and is convertible during the first six months from
the issuance date at a price of $0.50 per share. For the subsequent period until repayment the conversion price shall equal
the lesser of (i) 60% multiplied by the lowest traded price of the Common Stock during the previous twenty trading days before
the issuance date of the note, or (ii) the lowest traded price for the Common Stock during the twenty day period ending last
complete trading day before conversion. Deferred financing fees and original issuance discount on the note were $7,000. The
derivative liability applied as a discount on the note was $48,000 and is accreted over the life of the note.
|
|
|
|
As
at September 30, 2019, the carrying value of the note was $1,658 and the fair value of
the derivative liability was $125,458. During the nine months ended September 30, 2019,
the Company accreted $1,658, of the debt discount to finance costs.
|
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 and nine months ended September 30, 2019, the Company recorded a loss
on the change in fair value of derivative liability of $4,944,421 and $4,223,797, respectively (2018 – $120,312 loss
and $277,205 gain, respectively). As at September 30, 2019, the Company’s derivative liability had a balance
of $7,153,570 (December 31, 2018 - $2,188,354).
The
following inputs and assumptions were used to value the derivative liabilities outstanding at September 30, 2019 and December
31, 2018, assuming no dividend yield:
|
|
|
2019
|
|
|
|
2018
|
|
Expected volatility
|
|
|
180
– 374
|
%
|
|
|
180 - 447
|
%
|
Risk free interest rate
|
|
|
1.75
- 2.59
|
%
|
|
|
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
|
|
|
741,419
|
|
Mark to market adjustment
|
|
|
4,223,797
|
|
|
|
|
|
|
Balance, September 30, 2019
|
|
|
7,153,570
|
|
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 September 30, 2019, the lease had a remaining term of 0.67 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
|
|
September 30, 2019
|
|
Right-of-use asset
|
|
$
|
51,203
|
|
Depreciation
|
|
|
(27,107
|
)
|
Total right-of-use asset
|
|
$
|
24,096
|
|
Lease liability
|
|
September 30, 2019
|
|
Lease liability
|
|
$
|
47,118
|
|
Lease payments
|
|
|
(28,124
|
)
|
Interest
|
|
|
3,400
|
|
Change in foreign exchange rate
|
|
|
1,497
|
|
Total lease liability
|
|
$
|
23,891
|
|
Current portion
|
|
$
|
23,891
|
|
Long-term portion
|
|
|
-
|
|
Total lease liability
|
|
$
|
23,891
|
|
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.
Interest
on operating lease liabilities for the three and nine months ended September 30, 2019 was $887 and $3,400, respectively. Total
payments for principal and interest on operating lease liabilities for the three and nine months ended September 30, 2019 were
$9,383 and $28,124, respectively.
Future
minimum lease payments to be paid by the Company as a lessee for operating leases as of September 30, 2019 for the next two years
are as follows:
2019
|
|
$
|
9,355
|
|
2020
|
|
|
15,592
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
24,947
|
|
Discount
|
|
|
(1,056
|
)
|
|
|
|
|
|
Total
|
|
$
|
23,891
|
|
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 nine months ended September 30, 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 nine months ended September 30, 2019, the Company did not have any preferred share equity transactions.
Note
14 – COMMON STOCK AND ADDITIONAL PAID IN CAPITAL
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. Subsequently, on May 23, 2019, an increase in common shares to 150,000,000 was authorized, with a par
value of $0.001. 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 904,969 and 634,971 shares of common stock of the Company issued and outstanding as of September 30, 2019 and December 31,
2018, respectively. Each share of common stock is entitled to one (1) vote.
Common
Equity Transactions
During
the nine months ended September 30, 2019 the Company had the following transactions:
|
●
|
The
Company issued an aggregate of 17,500 shares of common stock with a fair value of $19,600 in exchange for services.
|
|
|
|
|
●
|
The Company issued an aggregate
of 252,998 shares of common stock with a fair value of $325,022 upon the conversion
of $116,357 of convertible debentures, accrued interest and accounts payable,
as outlined in Note 9, per the table below:
|
Date
Issued
|
|
Common
Shares
Issued (#)
|
|
|
Fair
Value(1)
|
|
|
Converted
Balance(2)
|
|
|
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
|
|
|
|
17,899
|
|
|
|
(36,339
|
)
|
June 17, 2019
|
|
|
45,216
|
|
|
|
58,780
|
|
|
|
30,091
|
|
|
|
(28,689
|
)
|
June 20, 2019
|
|
|
34,450
|
|
|
|
36,517
|
|
|
|
19,895
|
|
|
|
(16,622
|
)
|
July 17, 2019
|
|
|
37,900
|
|
|
|
33,352
|
|
|
|
5,628
|
|
|
|
(27,724
|
)
|
August 26, 2019
|
|
|
40,000
|
|
|
|
27,020
|
|
|
|
6,619
|
|
|
|
(20,401
|
)
|
September 18,
2019
|
|
|
39,500
|
|
|
|
49,376
|
|
|
|
8,255
|
|
|
|
(41,121
|
)
|
Total
|
|
|
252,998
|
|
|
$
|
325,022
|
|
|
$
|
116,357
|
|
|
$
|
(208,665
|
)
|
|
(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, accounts payable, financing fees and interest
penalties converted upon the issuance of shares of common stock.
|
Warrants
During
the nine months ended September 30, 2019, the Company granted 100,000 warrants with a weighted average exercise price of
$0.75 per warrant (Note 9(q)). There was no other warrant activity in the period. As at September 30, 2019, 100,000 warrants
were outstanding and exercisable with a weighted average remaining contractual life of 4.93 years and an aggregate intrinsic
value of $55,000.
Note
15 – RELATED PARTY TRANSACTIONS
As
at September 30, 2019, the Company owed $167,765 ($222,121 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 nine months ended September 30, 2019 the Company
incurred $150,000 (2018 - $150,000) in salaries to the President, CEO, and CFO of the Company.
As
at September 30, 2019, the Company owed $13,178 ($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
16 – 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
17 – 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 September 30, 2019, included in trade and other payables is
$44,804 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 September
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 but management’s assessment is that an unfavorable outcome is not probable. As at September 30,
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. The outcome of this breach is undecided and the company will defend its position if so required.
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 but as at September 30, 2019,
JSJ has negotiated a reduced amount with a private investor. As at September 30, 2019, the principal balance and accrued interest
on this convertible note is included on the consolidated balance sheet under convertible notes payable.
Note
18 – SUBSEQUENT EVENTS
Management
has evaluated events subsequent to September 30, 2019, for transactions and other events that may require adjustment of and/or
disclosure in such financial statements.
On
October 16, 2019, the Company issued 35,000 shares of common stock pursuant to the conversion of outstanding convertible debentures
and accrued interest.
On
October 24, 2019, the Company issued 32,000 shares of common stock pursuant to the settlement of outstanding litigation.
On
October 29, 2019, the Company re-designated its Series A Preferred Stock. The Series A Preferred Stock shall be entitled to vote
with the holders of the Company's Common Stock as a class at the rate of six hundred and 665 common share votes per share of Series
A Preferred Stock. The Series A Preferred Stock shall be deemed cancelled five years following issuance, provided that the Board
of Directors may, in its discretion, retire the Series A Preferred Stock at any time after two years following issuance, or defer
the retirement of the Series A Preferred Stock for up to 10 years following issuance. In connection with the re-designation the
Company issued an aggregate of 200,376 shares of Series A Preferred Stock to three directors of the Company in consideration of
services rendered to the Company.
On
November 13, 2019, the Company issued 47,500 shares of common stock pursuant to the conversion of outstanding convertible debentures
and accrued interest.