UNITED
STATES
SECURITIES
AND EXCHANGE COMMISSION
Washington,
D.C. 20549
FORM
10-K
(Mark
One)
[X]
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the fiscal year ended December 31, 2019
OR
[ ]
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For
the transition period from ____________ to
____________.
Commission
file number 000-53988
DSG
GLOBAL INC.
(Exact
Name of Registrant as Specified in Its charter)
Nevada |
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26-1134956 |
(State
or Other Jurisdiction of
Incorporation
or Organization)
|
|
(I.R.S.
Employer
Identification
No.)
|
312 – 2630 Croydon Drive
Surrey, British Columbia, V3Z 6T3, Canada
(Address
of Principal Executive Offices) (Zip Code)
(604)
575-3848
(Registrant’s
Telephone Number, Including Area Code)
Securities
registered pursuant to Section 12(b) of the Act:
None
Securities
registered pursuant to Section 12(g) of the Act:
Common
Stock, $0.001 par value
(Title
of Class)
Indicate
by check mark if the registrant is a well-known seasoned issuer, as
defined in Rule 405 of the Securities Act. Yes [ ] No
[X]
Indicate
by check mark if the registrant is not required to file reports
pursuant to Section 13 or 15(d) of the Act. Yes [ ] No
[X]
Indicate
by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such
reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate
by check mark whether the registrant has submitted electronically
and posted on its corporate Web site, if any, every Interactive
Data File required to be submitted and posted pursuant to Rule 405
of Regulation S-T (§232.405 of this chapter) during the preceding
12 months (or for such shorter period that the registrant was
required to submit and post such files). Yes [X] No
[ ]
Indicate
by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be
contained, to the best of registrant’s knowledge, in definitive
proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.
[ ]
Indicate
by check mark whether the registrant is a large accelerated filer,
an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See definition of “large accelerated filer,”
“accelerated filer” and “smaller reporting company” in Rule 12b-2
of the Exchange Act.
Large
accelerated filer [ ] |
Accelerated
filer [ ] |
Non-accelerated
filer [ ] |
Smaller
reporting company [X] |
(Do
not check if a smaller reporting company) |
Emerging
growth company [ ] |
If an
emerging growth company, indicate by checkmark if the registrant
has not elected to use the extended transition period for complying
with any new or revised financial accounting standards provided
pursuant to Section 7(a)(2)(B) of the Securities Act.
[ ]
Indicate
by check mark whether the registrant is a shell company (as defined
in Rule 12b-2 of the Exchange Act). Yes [ ] No
[X]
As of
June 30, 2019, the aggregate market value of the voting and
non-voting common equity held by non-affiliates was $787,569 based
on the closing price on that date. As of May 14, 2020, the
registrant had 13,721,779 shares of common stock issued and
outstanding.
DOCUMENTS
INCORPORATED BY REFERENCE
Portions
of the registrant’s Proxy Statement for the registrant’s 2019
Annual Meeting of Stockholders are incorporated by reference in
Part III of this Annual Report on Form 10-K. Such Proxy Statement
will be filed with the Securities and Exchange Commission within
120 days of December 31, 2019, the last day of the fiscal year
covered by this Annual Report on Form 10-K.
DSG
GLOBAL INC.
FORM
10-K
TABLE
OF CONTENTS
SPECIAL NOTE REGARDING
FORWARD-LOOKING STATEMENTS
This
Annual Report on Form 10-K contains forward-looking statements that
include information relating to future events, future financial
performance, strategies, expectations, competitive environment,
regulation, and availability of resources. The words “believe,”
“may,” “will,” “potentially,” “estimate,” “continue,” “anticipate,”
“intend,” “could,” “would,” “project,” “plan,” “expect” and similar
expressions that convey uncertainty of future events or outcomes
are intended to identify forward-looking statements. These
forward-looking statements include, but are not limited to,
statements concerning the following:
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our
future financial and operating results; |
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our
intentions, expectations and beliefs regarding anticipated growth,
market penetration and trends in our business; |
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the
timing and success of our business plan; |
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our
plans regarding future financings; |
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our
ability to attract and retain customers; |
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our
dependence on growth in our customers’ businesses; |
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the
effects of market conditions on our stock price and operating
results; |
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our
ability to maintain our competitive technological advantages
against competitors in our industry; |
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the
expansion of our business in our core golf market as well as in new
markets like commercial fleet management and
agriculture; |
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our
ability to timely and effectively adapt our existing technology and
have our technology solutions gain market acceptance; |
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our
ability to introduce new offerings and bring them to market in a
timely manner; |
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our
ability to maintain, protect and enhance our intellectual
property; |
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the
effects of increased competition in our market and our ability to
compete effectively; |
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the
attraction and retention of qualified employees and key
personnel; |
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future
acquisitions of or investments in complementary companies or
technologies; and |
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our
ability to comply with evolving legal standards and regulations,
particularly concerning requirements for being a public
company. |
These
forward-looking statements speak only as of the date of this Form
10-K and are subject to uncertainties, assumptions and business and
economic risks. As such, our actual results could differ materially
from those set forth in the forward-looking statements as a result
of the factors set forth below in Part I, Item 1A, “Risk Factors,”
and in our other reports filed with the Securities and Exchange
Commission. Moreover, we operate in a very competitive and rapidly
changing environment, and new risks emerge from time to time. It is
not possible for us to predict all risks, nor can we assess the
impact of all factors on our business or the extent to which any
factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking
statements we may make. In light of these risks, uncertainties and
assumptions, the forward-looking events and circumstances discussed
in this Form 10-K may not occur, and actual results could differ
materially and adversely from those anticipated or implied in our
forward-looking statements.
You
should not rely upon forward-looking statements as predictions of
future events. Although we believe that the expectations reflected
in our forward-looking statements are reasonable, we cannot
guarantee that the future results, levels of activity, performance
or events and circumstances described in the forward-looking
statements will be achieved or occur. Moreover, neither we nor any
other person assumes responsibility for the accuracy and
completeness of the forward-looking statements. We undertake no
obligation to update publicly any forward-looking statements for
any reason after the date of this Form 10-K to conform these
statements to actual results or to changes in our expectations,
except as required by law.
You
should read this Annual Report on Form 10-K and the documents that
we reference in this Annual Report on Form 10-K and have filed with
the Securities and Exchange Commission as exhibits thereto with the
understanding that our actual future results and circumstances may
be materially different from what we expect.
PART
I
Corporate
History
When
used in the Annual Report, the terms “Company,” “we,” “our,” “us,”
“DSG,” or “VTS” mean DSG Global, Inc., its subsidiary Vantage Tag
Systems Inc. and its wholly owned subsidiary DSG Tag Systems
International, Ltd.
DSG
Global Inc. (formerly Boreal Productions Inc.) was incorporated
under the laws of the State of Nevada on September 24, 2007. The
Company was initially formed to option and package rights for
feature film and television projects. We now operate as 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.
Upon
incorporation we received our initial funding of $9,000 through the
sale of common stock to our then sole officer and director, who
purchased 3,000,000 pre-reverse split shares of common stock at
$0.003 per share and $45,000 from the sale of 3,000,000 pre-reverse
split shares of common stock issued to 30 un-affiliated investors
at $0.015 per share. On June 11, 2008, we effected a five for one
forward stock split of our authorized and issued and outstanding
common stock. As a result, our authorized capital increased from
75,000,000 to 375,000,000 pre-reverse split shares of common stock
and our outstanding share capital increased from 6,000,000 shares
of pre-reverse split common stock to 30,000,000 shares of
pre-reverse split common stock.
On
April 13, 2015, we entered into a share exchange agreement with
Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag Systems Inc.)
and the shareholders of VTS who become parties to the share
exchange agreement. Pursuant to the terms of the share exchange
agreement, we agreed to acquire not less than 75% and up to 100% of
the issued and outstanding shares of VTS’s common stock in exchange
for the issuance by our company of up to 20,000,000 pre-reverse
split shares of our common stock to the shareholders of VTS on the
basis of one of our pre-reverse split common shares for 5.4935
common shares of VTS.
Previously,
in anticipation of the share exchange agreement with VTS, we
undertook to change our name and effect a reverse stock split of
our authorized and issued common stock. Accordingly, on January 19,
2015, our board of directors approved an agreement and plan of
merger to merge with our wholly owned subsidiary DSG Global Inc., a
Nevada corporation, to effect a name change from Boreal Productions
Inc. to DSG Global Inc. Our company remains the surviving company.
DSG Global Inc. was formed solely for the change of
name.
Also,
on January
19, 2015, our company’s board of directors approved a resolution to
effect a reverse stock split of our authorized and issued and
outstanding shares of common stock on a three (3) old for one (1)
new basis. Upon effect of the reverse split, our authorized capital
will decrease from 375,000,000 pre-reverse split shares of common
stock to 125,000,000 pre-reverse split shares of common stock and
correspondingly, our issued and outstanding shares of common stock
will decrease from 30,000,000 to 10,000,000 pre-reverse split
shares of common stock, all with a par value of $0.001.
Articles
of Merger to effect the merger and change of name and a Certificate
of Change to affect the reverse stock split were filed with the
Nevada Secretary of State on January 22, 2015, with an effective
date of February 2, 2015. The name change and forward split were
reviewed by the Financial Industry Regulatory Authority (FINRA)
were approved for filing with an effective date of February 23,
2015.
The
name change became effective with the Over-the-Counter Bulletin
Board and OTC Markets quotation system at the opening of trading on
February 23, 2015 under the symbol “BRPOD”. Effective March 19,
2015 our stock symbol changed to “DSGT”. Our new CUSIP number
following the symbol change is 23340C104. The first trade of our
common shares occurred on March 25, 2015.
On
May 6, 2015, we completed the acquisition of approximately 75%
(82,435,748 common shares) of the issued and outstanding common
shares of VTS as contemplated by the share exchange agreement by
issuing 15,185,875 pre-reverse split shares of our common stock to
shareholders of VTS who became parties to the agreement. In
addition, concurrent with the closing of the share exchange
agreement, we issued an additional 179,823 pre-reverse split shares
of our common stock to Westergaard Holdings Ltd. in partial
settlement of accrued interest on outstanding indebtedness of
VTS.
We
had not achieved revenues and have accrued a net loss of $153,964
from our inception through May 6, 2015, being the date of the
reverse merger. We had been issued a going concern opinion by our
auditors and relied solely upon the sale of our securities to fund
operations.
Following
the initial closing of the share exchange agreement and through
October 22, 2015, we acquired an additional 101,200 shares of
common stock of VTS from shareholders who became parties to the
share exchange agreement and issued to these shareholders an
aggregate of 18,422 pre-reverse split shares of our common stock.
Following completion of these additional purchases, DSG Global Inc.
owns 100% of the issued and outstanding shares of common stock of
VTS.
The
reverse acquisition was accounted for as a recapitalization
effected by a share exchange, wherein VTS was considered the
acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity were brought forward
at their book value and no goodwill has been recognized. We adopted
the business and operations of VTS upon the closing of the share
exchange agreement.
Subsequent
to the closing of the share exchange agreement with VTS, we adopted
the business and operations of VTS.
VTS
was incorporated under the laws of the State of Nevada on April 17,
2008 and extra provincially registered in British Columbia, Canada
in 2008. In March 2011, VTS formed DSG Tag Systems International,
Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned
subsidiary of VTS.
DSG
Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”)
provides patented electronic tracking systems and fleet management
solutions to golf courses and other avenues that allow for remote
management of the course’s fleet of golf carts, turf equipment and
utility vehicles. Their clients use VTS’s unique technology to
significantly reduce operational costs, improve the efficiency plus
profitability of their fleet operations, increase safety, and
enhance customer satisfaction. VTS has grown to become a leader in
the category of Fleet Management in the golf industry, with its
technology installed in vehicles worldwide. VTS is now aggressively
branching into several new streams of revenue, through programmatic
advertising, licensing and distribution, as well as expanding into
Commercial Fleet Management, PACER a single rider golf cart and
Agricultural applications. Additional information is available at
http://vantage-tag.com/
Ready
Golf: Our roots as a company are in golf, and our technology is
changing the way golf is being played and driving new revenue for
courses.
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Vantage
TAG equipped golf carts enhance fleet management. |
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Single
rider carts speed up pace of play and drive rental
revenue. |
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Onboard
touchscreens drive revenue and offer an enhanced course
experience. |
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Combination
of technology and single rider carts has the ability to decrease
average play time to 2:20 and drive numerous extra plays per
hour. |
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Our
“Pennies A Day, Pennies A Round” model provides easy entry to
leasing single-rider vehicles. |
In
Development: DSG’s Infinity On-Board Screen Offers Gaming Revenue
Potential
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In
the next two years, sports betting will generate $10B / licensed in
20+ States. |
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In
negotiations with leading mobile gaming developers. |
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DSG’s
existing Infinity screens work with current gaming
technology. |
Business
Unit Overview: On Board Media
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38,000
courses globally. |
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26,000
courses capable of installing the DSG TAG SYSTEM with the TAG and
INFINITIY. |
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Courses
with INFINITY screens in carts can generate $90,000 - $110,000 in
additional revenue. |
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Screens
for free and own revenue generated by 250 golf courses. |
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DSG
single-rider golf cars are available in any quantity for most
courses on a revenue share basis with no upfront cost to the golf
course. |
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Programmatic
Advertising has the ability to increase revenue 4x more than
standard advertising, an average increase of $200,000 - $300,000
per course. |
Business
Unit Overview: TAG / Fleet Management Vantage Golf
Potential:
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38,000
courses globally. |
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4
Million golf carts in the world market. |
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DSG
Tech on 300 courses now, with an additional 500 courses added in
2020 driving $15 million in sales. |
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Key
component of our “Pennies A Day, Pennies A Round”
program. |
Vantage
e-Rickshaw Potential:
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Global
three-wheelers market is projected to reach $39.9 billion by
2024. |
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11,000
new e-Rickshaws hit the streets every month, with annual sales
expected to increase about 9 percent by 2021. |
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Research
on car-data-monetization trends and characteristics suggests that
this value pool could be as large as $750 billion by
2030. |
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DSG
Global, Inc. has a strategic partnership in China to integrate
Vantage TAG Systems with EVs, incorporating the Company’s advanced
fleet management capabilities. |
Our
most recent product that is used to increase the Pace of Play on
the course up to 90 minutes per round is the RAPTOR. Our 3 wheel
single rider allows the course to revenue share with VTS as the
RAPTOR is put on the course free of charge and then allows the
course to revenue share with VTS along the way. Each seat is rented
to the customers for minimum $25 per round.
On
March 26, 2019, our company effected a reverse stock split of our
authorized and issued and outstanding shares of common stock on a
four thousand (4,000) old for one (1) new basis. Upon effect of the
reverse split, our authorized capital decreased from 3,000,000,000
pre-reverse split shares of common stock to 750,000 shares of
common stock and correspondingly, our issued and outstanding shares
of common stock decreased from 2,761,333,254 pre-reverse split to
690,403 shares of common stock, all with a par value of $0.001. On
May 23, 2019, an increase in common shares to 150,000,000 was
authorized, with a par value of $0.001. Our shares of Preferred
Stock remain unchanged. This Form 10-K gives retroactive effect to
such reverse stock split named above and all share and per share
amounts have been adjusted accordingly, unless otherwise
noted.
Our
principal executive office is located at 312 – 2630 Croydon Drive
Surrey, British Columbia, V3Z 6T3, Canada. The telephone number at
our principal executive office is 1 (877) 589-8806.
Recent
Developments
On
March 2, 2020 we entered into an Advisory Services Agreement (the
“Advisory Agreement”) with Graj + Gustavsen, Inc. (“G+G”). Under
the terms of this five-year Advisory Agreement, G+G has agreed to
provide the Company with strategic brand and business positioning,
strategic marketing, concept development and ongoing strategic
consulting services. In consideration of the services to be
rendered by G+G, the Company has agreed to (1) make a cash payment
in the amount of $350,000 payable in several tranches following the
Company’s completion of future financings of the Company, and
monthly payments of $10,000 following the first twelve months of
the engagement, and (2) issue a five-year warrant to purchase
2,829,859 at an exercise price of $0.25 per share, upon the
execution of the Advisory Agreement (the “First Warrant”), and a
five-year warrant to purchase such number of shares of the
Company’s common stock that is equal to 10% of the Company’s shares
of common stock calculated on a fully diluted basis as of the
closing date of the future financing, at an exercise price per
share equal to the 80% of the price of the Company’s securities in
such future financing less the number of shares represented by the
First Warrant. The warrants contains, among other provisions
customary for the instruments of this nature, provisions pertaining
to cashless exercise, and two-year piggy-back registration rights
which allows the holders of the warrants to have the shares of the
Company’s common stock underlying the warrants registered alongside
other registrable securities of the Company, subject to underwriter
cutbacks in case of underwritten public offering(s) of the
Company’s securities, if any.
On
September 18, 2019, we entered into an Equity Financing Agreement
(the “Financing Agreement”) and Registration Rights Agreement (the
“Registration Rights Agreement”) with GHS Investments, LLC (“GHS”).
Under the terms of the Financing Agreement, GHS has agreed to
provide the Company with up to $7,000,000 of funding upon
effectiveness of a registration statement on Form S-1. Following
effectiveness of the registration statement, the Company shall have
the right to deliver puts to GHS and GHS will be obligated to
purchase shares of our common stock based on the investment amount
specified in each put notice. The maximum amount that the Company
shall be entitled to put to GHS in each put notice will not exceed
two hundred percent (200%) of the average of the daily trading
dollar volume of the Company’s common stock during the ten (10)
trading days preceding the put, so long as such amount does not
exceed 4.99% of the outstanding shares of the Company. Pursuant to
the Financing Agreement, GHS and its affiliates will not be
permitted to purchase, and the Company may not put shares of the
Company’s common stock to GHS that would result in GHS’s beneficial
ownership equaling more than 4.99% of the Company’s outstanding
common stock. The price of each put share shall be equal to eighty
percent (82%) of the lowest traded price of the Company’s common
stock for the ten (10) consecutive trading days preceding the date
on which the applicable put is delivered to GHS. No put will be
made in an amount greater than $500,000. Puts may be delivered by
the Company to GHS until the earlier of forty-eight (48) months
after the effectiveness of the registration statement on Form S-1
or the date on which GHS has purchased an aggregate of $7,000,000
worth of put shares.
DSG
Technologies and Products
Technology Overview
DSG
produces a “modular” suite of products to provide fleet management
solutions for any vehicle required for a golf operation and
provides two golfer information display options to meet the
operators budget requirements. DSG has grown to be the leader in
the golf fleet management industry with these
capabilities.
The
Vantage Tag System is designed from the ground up to be a golf/turf
vehicle fleet management system. Its main function is addressing
the golf course operator needs. While employing same core
technology (cellular wireless and GPS) as traditional commercial
vehicle fleet management systems, DSG has created the patented TAG
Golf solutions to adapt it to the very specific requirements of the
golf environment. Compared to mainstream fleet tracking products,
DSG collects 10 to 50 times more data points per MB (megabyte) of
cellular data due to its proprietary data collection and
compression algorithms. Also, the relative positioning accuracy is
improved by almost one order of magnitude by the use of
application-specific geo-data validation and correction
methods.
DSG’s
proprietary methods make it possible to offer a solution suitable
for use on golf courses at a price low enough to be affordable in
the industry. Every system component incorporates state-of-the-art
technology (server, mobile trackers, display). In developing its
products, DSG Tag has adopted an application oriented approach
placing the most emphasis (and research & development) on
server and end-user software by taking advantage of the commodity
level reached by mainstream technologies such as Global Positioning
(GPS) and M2M (Machine to Machine) Cellular Data in the wider
context of Commercial Fleet Management.
DSG
leveraged the existence of an abundance of very cost-effective
telematics solutions by selecting an “off-the-shelf” hardware
platform that meets all the main performance and environmental
requirements for operation in the harsh, outdoor golf course
environment. While removing all risk and cost associated with
developing a proprietary hardware platform, DSG has maintained the
unique nature of its hardware solution by developing a set of
proprietary adapters and interfaces specifically for the golf
application.
DSG
has secured an exclusive supply agreement with the third-party
hardware manufacturers for the golf industry. Additionally, DSG
owns the design of all proprietary adapters and interfaces. This
removes the risk of a potential competitor utilizing the same
hardware platform. Competitors could attempt to reverse engineer or
copycat the TAG technology and equipment. This risk factor is
mitigated by the fact that our product does not rely on a
particular technology or hardware platform to be successful but on
a very specific software application which is far more difficult to
copy and, therefore, is easier to protect.
The
application software contains patented features implemented in
every core component of the system. The TAG device runs DSG
proprietary firmware incorporating unique data collection and
compression algorithms. The web server software which powers the
end-user application is also proprietary and incorporates the
industry knowledge accumulated through the over 70 years of
collective industry experience of the DSG team.
This
approach has given the product line a high level of endurance
against technology obsolescence. At any point in time, if a
hardware component is discontinued or a better/less expensive
hardware platform becomes available, the software application can
be easily adapted to operate on the new platform or with the new
component. The Company benefits from the constant increase of
performance and cost reduction of mainstream hardware technology
without any additional cost.
The
web-based Software-as-a-Service (SaaS) model used by DSG Tag is
optimal for low operating and support costs and rapid-cycle release
for software updates. It is also a major factor in eliminating or
substantially reducing the need for any end-user premises
equipment. Customers have access to the service through any
internet connected computer or mobile device, there is no need for
a local wireless network on the facility and installation time and
cost are minimal.
DSG
is positioned to take advantage of mainstream technology and
utilize “best in class” hardware platforms to create new
generations of products. Our software is designed to be “portable”
to future new platforms with better GPS and wireless technology in
order to maintain the Company competitive edge.
DSG
follows the same model for all new product development: select the
best-in-class third-party hardware platform, design and produce
custom proprietary accessories, and focus the bulk of development
effort on vertical software applications to address a very specific
set of end-customer needs.
The
latest addition to the TAG family of products, the 12” INFINITY, is
a perfect example of this development philosophy in action: the
main component is a last-generation Android tablet PC wrapped in a
custom designed weather-proof body, and containing the power supply
and interface components required for the golf environment. The
software application takes advantage of all the advanced
high-resolution graphics, touch user interface, and computing power
of the Android OS, delivering a vastly superior user experience
compared to competitive systems. The time to market for INFINITY
was only 30% of how long it took to develop and launch similar
products in the past.
The TAG Control Unit
The
Company’s flagship product is the TAG Control unit. The TAG Control
unit can operate as a “stand alone” unit or with one of two
displays; the TEXT alphanumeric display or the INFINITY high
definition “touch activated” screen. The TAG Control unit is GPS
enabled and communicates with the TAG software using cellular GSM
networks. Using the cellular network rather than local Wi-Fi
assures carrier grade uptime, and vehicle tracking “off- property”.
GSM is the de facto global standard for mobile
communications.
The
TAG Control unit itself is discreetly installed usually in the nose
of the vehicle to give the GPS clear line of site. It is then
connected to the vehicle battery and ignition. The property is then
mapped using the latest satellite imagery that is graphically
enhanced and loaded into the TAG System as a map.
Once
installed the vehicle owner, equipped with any computer,
smartphone, or tablet that has an internet connection, can use the
TAG Software to locate the vehicle in real time and perform various
management operations.

The
operator can use the geo-fencing capabilities to create “restricted
zones” on the property where they can control vehicle behavior,
such as shutting down a vehicle that is entering a sensitive or
dangerous area. The TAG System also monitors the strength of a
vehicle’s battery, helping to prevent sending out vehicles with
undercharged batteries, which can be an inconvenience for the
course and negatively impact the golfer experience.
Features
and Benefits
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Internal
battery utilizing Smart Power technology which charges the battery
only when the vehicle is running (gas) or being charged
(electric) |
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Pace
of Play management and reporting which is a critical statistic for
the golf operator |
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No
software to install |
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Web
based access on any computer, smartphone, or tablet |
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● |
Set
up restricted zones to protect property, vehicles, and
customers |
|
|
● |
Real
time tracking both on and off property (using Street
Maps) |
|
|
● |
Email
alerts of zone activity |
|
|
● |
Cart
lockdown |
● |
Detailed
usage reporting for improved maintenance, proper vehicle rotation,
and staff efficiency |
|
|
● |
Geofencing
security features |
|
|
● |
Ability
to enforce cart path rules which is key to protecting course on wet
weather days |
|
|
● |
Modular
system allows for hardware and feature options to fit any budget or
operations |
TAG TEXT Display
The
TEXT is paired with the TAG Control unit as DSG’s TAG TEXT display
system for operators who desire to provide basic hole distance
information and messaging to the golf customer. The TAG TEXT unit
is a cost-effective solution for operators who desire to give their
customers GPS services with the benefits of a Fleet Management back
end. The TAG TEXT unit can be mounted on the steering column or the
dash depending on the customer’s preference.

DSG’s
TAG TEXT golf information display
Features
and benefits
● |
Hole
information display |
|
|
● |
Yardage
displays for front, middle, back locations of the pin |
|
|
● |
Messaging
capabilities – to individual carts or fleet broadcast |
|
|
● |
Zone
violation warnings |
|
|
● |
Pace
of Play notifications |
|
|
● |
Smart
battery technology to prevent power drain |
|
|
● |
Versatile
mounting option |
12” INFINITY Display
The
12” INFINITY is a solution for operators who desire to provide a
high-level visual information experience to their customers. The
INFINITY is a high definition “Touch” activated display screen
mounted in the golf cart integrated with the TAG Control unit to
provide a full back/front end Fleet Management solution. The
INFINITY displays hole graphics, yardage, and detailed course
information to the golfer and provides interactive features such as
Food and Beverage ordering and scorekeeping.

The
industry leading 12” INFINITY – featuring the largest and brightest
screen available.
Features
and Benefits
● |
Video
advertising |
|
|
● |
Advanced
score card |
|
|
● |
Integrated
food and beverage ordering |
|
|
● |
Easy
readability |
|
|
● |
3D
flyovers |
|
|
● |
Instantly
lay-up yardage |
|
|
● |
Bluetooth
capable |
|
|
● |
Pro
tips |
|
|
● |
Much
more… |
Advertising Platform
A
unique feature of the INFINITY system is the advertising display
capability. This can be used by the operator for internal promotion
of services or for generating revenue by selling the ad real estate
since the golf demographic is very desirable to advertisers. The
INFINITY displays banner, panel, full page, pro tip, and Green view
ads. There is also ad real estate on the interactive feature
screens for Food and Beverage ordering and the scorecard. The
INFINITY System can also display animated GIF files or play video
for added impact.
Advertising
displayed in multiple formats including animated GIF and
video
DSG
has developed proprietary “Ad Manager” software which is used to
place and change the ads on the system(s) in real time. The Ad
Manager can deploy to a single system or multiple systems. This
creates a network of screens that is also very desirable to
advertisers as ad content can be deployed locally, regionally, or
nationally. The advertising platform is an important part of the
Company’s future marketing and sales strategy.

DSG Advertising Platform
The
DSG advertising platform delivers advance ROI (Revenue Optimization
Intelligence). Utilizing all streams of advertising delivery, such
as automated, direct, and self-serve. The program has the ability
to deliver relevant advertising to golfers the moment they sit in
the cart. The new version is more effective than the previous
advertising model of ‘One to One’, these are local ads only sold
through direct sales by courses, or 3rd party
advertising sales firms. The new version offers ‘Many to one’
advertising options, delivering thousands of national, regional,
and local advertisers an opportunity to advertise on our screens
through our R3 Marketplace.
Previous
‘One to One’ model vs the new R3 model ‘Many to One’

TAG TURF
The
TAG TURF was developed to give course operators the same back-end
management features for their turf equipment and utility vehicles.
Turf equipment is expensive, and a single piece of equipment can
run over $100,000 which represents a large portion of a golf course
operating budget. The TAG TURF have comprehensive reporting that
the operator can utilize to implement programs to increase
efficiencies, reduce labor costs, help lower idle times, provide
fuel consumption and equipment performance, provide historical data
on cutting patterns, and reduce pollution from emissions by
monitoring idle times. Since the golf course needs to be maintained
regardless of volume these cost saving measures directly impact the
operator’s bottom line.
Features
and Benefits
● |
Can
be installed on any turf, utility, or service vehicle |
|
|
● |
Work
activity tracking and management |
|
|
● |
Work
breakdown and analysis per area, work group, activity type or
specific vehicle |
|
|
● |
Vehicle
idling alerts |
|
|
● |
Zone
entry alerts |
|
|
● |
Detailed
travel (cutting patterns) history |
|
|
● |
Detailed
usage reports with mileage and hours |
|
|
● |
Protection
for ecological areas through geo fencing |
|
|
● |
Vehicle
lock down and ‘off property’ locating features |

The
TAG Turf provides detailed trail history and cutting
patterns
Revenue Model
DSG
derives revenue from four different sources.
Systems
Sales Revenue, which consists of the sales price paid by those
customers who purchase or lease our TAG system hardware.
Monthly
Service Fees are paid by all customers for the wireless data
fee charges required to operate the GPS tracking on the TAG
systems.
Monthly
Rental Fees are paid by those customers that rent the TAG
system hardware. The amount of a customer’s monthly payment varies
based on the type of equipment rented (a TAG, a TAG and TEXT, or a
TAG and INFINITY).
Programmatic
Advertising Revenue is a new source of revenue that we believe
has the potential to be strategic for us in the future. We are in
the process of implementing and designing software to provide
advertising and other media functionality on our INFINITY
units.
Markets
Sales and Marketing Plan
The
market for the TAG System is the worldwide golf cart and Turf
equipment fleets. There are 40,000 golf courses around the world
with North America being the largest individual market with 20,000.
This represents over 3,000,000 vehicles. The golf market has five
distinct types of operations. Municipal, Private Country Clubs,
Destination Resorts, Public Commercial, Military and University
affiliated. DSG has deployed and has case studies developed TAG
systems in each of these categories.
Our
marketing strategy is focused on building brand awareness,
generating quality leads, and providing excellent customer
service.
North America Sales
Since
the largest market is North America the Company employs a direct
sales team and sales agents that provide full sales coverage. Our
sales agents are experienced golf industry professionals who
maintain established relationships with the golf industry and carry
multiple golf lines. Our sales objective is to offer our existing
and prospective customers a dedicated, knowledgeable, and
outstanding customer service team.
In
addition, our team is dedicated to existing accounts that focus on
up-selling and cross-selling additional products to our current
customer base, securing renewal agreements, and providing excellent
customer service. The current regions are:
● |
Western
Canada |
|
|
● |
Central
Canada |
|
|
● |
Eastern
Canada |
|
|
● |
Northeast
USA |
|
|
● |
Western
USA |
|
|
● |
Southeastern
USA |
|
|
● |
Midwest
USA |
International Sales
DSG
focuses on select global golf markets that offer significant volume
opportunities and that value the benefits that our products
deliver.
We
utilize strategic distributor partnerships in each targeted
region/country to sell, install and service our products.
Distributors are selected based on market strength, market share,
technical expertise and selling capability, and overall reputation.
We believe that DSG solutions appeal to all distributors, because
they are universal and fit any make or model of vehicle. We
maintain and leverage our strong relationship with Yamaha, E-Z-GO
and Ransomes Jacobsen (sister company to E-Z-GO) in developing our
distributor network around the world. Today, many of our
distributor partners are the leading distributors for E-Z-GO and RJ
and hold a dominant position in their respective markets. While
they are Yamaha or E-Z-GO distributors, most sell DSG products to
all courses regardless of their choice of golf car as a value add
to their customers and to generate additional revenue. We
complement this distributor base with independent distributors, as
needed, to ensure that we have sufficient coverage in all critical
markets.
Currently
DSG is focused on expanding in Europe, Asia, South Africa,
Australia and Latin America.
Management Companies
Many
golf facilities are managed by management companies. The portfolios
of these companies vary from a few to hundreds of golf courses.
Troon®, the world’s largest player in golf course
management, has over 200 courses under management. The management
companies provide everything from branding, staffing, management
systems, marketing, and procurement. DSG is currently providing
products and services to Troon, OB Sports, Kemper Sports, Trump,
Marriott Golf, Blue Green, Crown Golf, American Golf, Billy Casper,
Club Corp, and Club Link.
DSG
has been successful in completing installations and developing
relationships with several of the key players who control a
substantial number of courses. DSG will continue to implement
system developments that are driven by the needs of these
management companies such as combined reporting, multiple course
access through a centralized dashboard. This development will
become a competitive advantage for DSG in the management company
market.
DSG
has dedicated a team to create specific collateral for this market
and has assigned a senior executive team to have direct
responsibility to manage these relationships.
Competition
We
compete with a number of established producers and distributors of
vehicle fleet management systems. Our competitors include producers
of golf specific applications, such as GPS Industries, LLC., one of
the leading suppliers of golf cart fleet management systems, as
well as producers of non-golf specific utility vehicle fleet
management systems, such as Toro. Many of our competitors have
longer operating histories, better brand recognition and greater
financial resources than we do. In order for us to successfully
compete in our industry we must:
|
● |
demonstrate
our products’ competitive advantages; |
|
|
|
|
● |
develop
a comprehensive marketing strategy; and |
|
|
|
|
● |
increase
our financial resources. |
However,
there can be no assurance that we will be able to compete
effectively with the other companies in our industry, even if we
achieve these goals.
We
believe that we will be able to compete effectively in our industry
because of the versatility, reliability, and relative affordability
of our products when compared to those of our competitors. We will
attempt to build awareness of our competitive advantages among
existing and potential customers through trade shows, sales visits
and demonstrations, online marketing, and positive word of mouth
advertising.
However,
as we are a newly established company relative to our competitors,
we face the same problems as other new companies starting up in an
industry, such as limited access to capital. Our competitors may be
substantially larger and better funded than us, and have
significantly longer histories of research, operation and
development than us. In addition, they may be able to provide more
competitive products than we can and generally be able to respond
more quickly to new or emerging technologies and changes in
legislation and regulations relating to the industry. Additionally,
our competitors may devote greater resources to the development,
promotion and sale of their products or services than we do.
Increased competition could also result in loss of key personnel,
reduced margins or loss of market share, any of which could harm
our business.
Our
primary competitor in the field of golf course fleet management is
GPS Industries, a company that was founded in 1996 by Mr. Bob
Silzer, the founder of Vantage Tag Systems Inc. GPS Industries is
currently the largest player in the marketplace with an installed
base of approximately 750 golf courses worldwide. GPS Industries
was consolidated by various mergers and acquisitions with a
diversity of hardware platforms and application software. Since
2009, when GPS Industries has introduced its latest product
offering called the Visage, in an exclusive partnership with Club
Car, its strategy has been to target mostly their existing
customers and motivate them into replacing their existing, older
GPS system, with the Visage system.
GPS
Industries is leveraging very heavily its partnership with Club
Car, which is one of the three largest golf car manufacturers in
the world, and at times is benefiting from golf operators’
preference for Club Car and its vehicles when they select their
management system.
Market Mix
Since
the introduction of the DSG product line, the golf course operators
realized that they have now access to a budget-friendly fleet
management tool that works not only on golf cars, but also with all
other vehicles used on the golf course such as turf maintenance,
shuttles, and other utility vehicles.
Marketing
studies have identified that half of the golf course operators only
need a fleet management system and only 15% need a high-end GPS
golf system. This illustrates the strong competitive advantage that
Vantage Tag Systems has versus GPS Industries since GPS’ product
can only address the needs of a relatively small fraction of the
marketplace.
Consequently,
GPS Industries installed base has steadily declined since most of
its new product installations have replaced older product for
existing customers, and some customers have opted for a lower
budget system and switched over to DSG TAG Systems.
Marketing Activities
The
Company has a multi layered approach marketing the TAG suite of
products. One of the foundations of this plan is attending industry
trade shows which are well attended by golf operators. The two
largest shows are the PGA Merchandise Show and the Golf Industry
Show which are held in Florida at the end of January. The Company
also attends a number of regional shows around North America.
International events are attended by our distributors and
partners.
The
second layer is memberships in key organizations such as the
National Golf Course Owners Association, Golf Course
Superintendents Association, and Club Managers Association of
America. These are very influential in the industry and have
marketing channels such as publications, email blasts, and
web-based marketing. The Company also markets directly to course
operators through email, surveys direct mail programs.
Lead Generation
One
of the primary sources of lead generation is through the Company’s
strategic partnerships with EZ-GO, Yamaha, and Ransomes Jacobson.
These relationships provide the Company with a great deal of market
intelligence. The sales forces of the partners work in tandem with
the DSG sales team by passing on the leads, creating joint
proposals, and distributing TAG sales material. The Company has
also created co-branded materials for specific value items of
interest to operators, such as Pace of Play solutions. DSG sales
and marketing staff attend partner sales events to conduct training
and discuss marketing strategies.
The
Company is in the process of testing an internal telemarketing
program in several key markets to gauge whether this particular
channel warrants larger scale implementation.
Competitive Advantages
Pricing
One
of the “heroes” of the TAG System is providing the course operator
a range of modular fleet management options that are very
competitively priced. Pricing options range from the TURF, TAG,
Text, and INFINITY, giving the customer a wide range of pricing
options.
Functional
advantages
DSG
has the distinctive advantage of being able to offer a true fleet
management system, encompassing all the vehicles on the golf course
not just the golf carts. Due to the modular nature of the system,
customers now have the option to tailor their systems
configurations to precisely match their individual needs and their
budget.
Product
advantages
DSG
believes that its products are the most robust, reliable, and user
friendly systems in the world. DSG is the only company currently
providing systems that are waterproof, with internal batteries to
ensure our partners retain the full golf cart manufacturer’s
warranty.
Operational Plan
Our
Operations Department’s main functions are outlined
below:
Product
Supply Chain Management
● |
Product
procurement, lead-time management |
● |
Inventory
management |
Customer
Service
● |
Training |
● |
24/7
troubleshooting & support |
● |
Hardware
repairs |
Installations
● |
Content
& graphics procurement |
● |
System
configurations |
● |
Shipping,
installation and backend training |
Infrastructure
Management
● |
Communication
servers management |
● |
Cellular
data carriers |
● |
Service
and administration tools |
Product
Supply Chain
In
order to maintain high product quality and control the Company is
currently procuring all main hardware components offshore. This
also maximizes cost efficiencies. Final assembly is locally
performed in order to ensure product quality. Other main components
are also procured directly from manufacturers or from local
suppliers that outsource components offshore in order to keep costs
as low as possible.
The
Company currently requests its suppliers to perform a complete set
of quality testing and a minimum 24 hour burn-in before the product
is delivered. The local hardware assembler and components supplier
offers a 12 month warranty. The main offshore supplier of hardware
components offers a warranty plan of 15 months from the date the
product is shipped. With an extended 90 days beyond the current
warranty, such repair service would be paid by the supplier except
for component replacement costs, which would be paid by
DSG.
Another
important activity related to the management of the product supply
chain is working closely with the suppliers and ensuring that we
have alternate sources for the main components and identify well in
advance any components that may go “end-of-life” and find suitable
replacements before product shortages may occur.
Inventory Control
The
Company has implemented strict inventory management procedures
which govern the inbound flow of products from suppliers, the
outgoing flow to customers as well as the internal movement of
inventory between warehouses (Canada, US and UK). There are also
procedures in place to control the flow of equipment returning from
customers for repairs and their replacements.
Installation
The
Company is utilizing a small number of its own field engineers who
are geographically positioned to be in close proximity of areas
with high concentrations of current and future customers.
Occasionally, when new installations exceed our internal capacity,
the Company employs a number of external contractors, on a project
by project basis. Each contractor has been trained extensively to
perform product installations and the Company has created an
extensive collection of Installation Manuals for all products and
vehicle types.
Our
products are designed with ease of installation as a primary
consideration. Additionally, the installation process includes a
pre-shipping configuration process that prepares each device with
all the settings and graphics content (if applicable) required for
the specific location where it will be deployed. This makes the
installation process a lot simpler and less time consuming in the
field, which reduces costs (accommodations, food, travel) for
internal staff, as well as for external contractors (less billable
time).
Another
benefit of the simplified installation procedure is increased
scalability, which anticipates an increased number of installs in
the future by reducing the skill level and training time
requirements for additional contractors.
Customer Service
The
Company has deployed its Customer Service staff strategically, so
it has at least one service representative active during business
hours in North America, Europe and South Africa.
The
Company is handling Customer Service directly in North America and
UK, offering telephone and on-line support to end-customers. In
other international markets, first-line customer service is handled
by local distributors’ staff. with DSG supplying training and more
advanced support to the distributors.
For
the management of customer service activities, the Company is
utilizing Zoho CRM system to create, update, close and escalate
service cases, and to issue RMA (Return Material Authorization)
numbers for defective equipment. Zoho also allows us to generate
management service, customer satisfaction, and equipment failure
reports in order to quickly identify trends, problem accounts, or
systemic issues.
In
addition, DSG began offering the DSG Par 72 Service & Support
Plan to guarantee service and support to client courses in the golf
business, during fiscal 2020. This program for client courses
guarantees service and support within 24 hours of a problem
arising.
Product Development and Engineering
The
Company employs a team of in-house software engineers to develop
and maintain the main components of our server software and
firmware.
All
product development is derived from continuous business needs
assessment and customer requests.
Our
Product Management team periodically reviews the list of feature
requests gathered by our sales staff, establishes priorities, and
updates our Product Roadmap for implementing updates and
improvements. .
Our
software engineers are also responsible for developing specialized
tools and systems to increase efficiency in tour operations. These
projects include features such as automated system monitoring,
automatic service alerts, improved remote troubleshooting tools,
and cellular data monitoring and reporting. All these tools are
critical to our future ability to support more customers with fewer
resources, streamline our support, and improve our internal
efficiency.
All
hardware development (electronics and mechanical) is generally
outsourced; however, small projects like mounting solutions or
cabling are handled in house.
Material
Contracts
On
January 22, 2019, we 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.
On
April 26, 2019, we 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. 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 December 31,
2019, $413,590 in principal and accrued interest had been assigned
to the purchaser.
On
May 7, 2019, we 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. Pursuant to this agreement, the
investor desired to purchase from us 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
December 31, 2019, four tranches totaling $250,420 had been
purchased by the investor.
On
July 30, 2019 we 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.
On
September 4, 2019 we 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 on the last complete trading day before conversion.
In connection with the note, we 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.
On
September 19, 2019 we 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 on the last complete trading day before
conversion.
On
October 2, 2019 we issued a convertible promissory note in the
principal amount of $82,500. The note is unsecured, bears interest
at 10% per annum, is due on September 30, 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 on the last complete trading day before conversion.
In connection with the note, we granted 83,333 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.
On
October 13, 2019, we signed a three year operating lease agreement
expiring on November 30, 2022 with the right to renew for an
additional two year term if written notice is provided within 10
months prior to the expiration of the current term. The annual rent
for the premises starts at is approximately $47,400 and commenced
on December 1, 2019.
On
December 31 2019, pursuant to a series of debt settlement
agreements, we agreed to issue an aggregate of 7,663,695 shares of
common stock and 6,563,371 warrants to settle accounts payable and
debt, as well as 100,500 and 4,649,908 shares of Series D and
Series E preferred shares, respectively.
Description
of Property
On June 1, 2018, we signed a two-year operating lease agreement
expiring on May 31, 2020 with the right to renew for an additional
two-year term if written notice is provided within 120 days prior
to the expiration of the current term. The annual rent for the
premises in Canada is approximately CDN$46,552 and commenced on
July 1, 2018.
On
October 13, 2019, we signed a three-year operating lease agreement
expiring on November 30, 2022 with the right to renew for an
additional two year term if written notice is provided within 10
months prior to the expiration of the current term. The annual rent
for the premises starts at is approximately $47,400 and commenced
on December 1, 2019.
For
the year ended December 31, 2018, the aggregate rental expense was
CDN$91,511 (approximately USD$70,654). Rent expense included other
amounts paid in Canada for warehouse storage and offices under
month to month or as needed basis.
For the year ended December 31, 2019, the Company made gross
operating lease payments of $44,875 which are included in general
and administration expense.
Intellectual
Property
General
Our
success will depend in part on our ability to protect our products
and product candidates by obtaining and maintaining a strong
proprietary position both in the United States and in other
countries. To develop and maintain our proprietary position, we
will rely on patent protection, trade secrets, know-how, continuing
technological innovations and licensing opportunities. In that
regard, we retain and rely on the advice of legal counsel
specialized in the field of intellectual property.
Patents
DSG
owns two U.S. patents
● |
US
Patent No. 8,836,490 for a “Vehicle Management” was issued
September 16, 2014 and expires June 29, 2031. |
|
|
● |
US
Patent No. 9,280,902 for a “Facilities Management” was issued March
8, 2016 and expires January 24, 2032. |
Domain
Names
We
have registered and own the domain name of our website
www.vantage-tag.com.
Copyright
We
own the common law copyright in the contents of our website
(www.vantage-tag.com) and our various promotional
materials.
Trademarks
We
own the common-law trademark rights in our corporate name, product
names, and associated logos, including “DSG TAG”, “TAG Golf”, “ECO
TAG”, “TAG Text”, “TAG Touch”, “TAG Turf”, “TAG Commercial” and
“TAG Military”. We have not applied to register any trademarks with
the U.S. Patent and Trademark Office or with any other national or
multi-national trademark authority. .
Employees
As of
May 14, 2020, we have six full-time employees in general and
administrative, operations, engineering, research and development,
business development, sales and marketing, and finance. We also
engage independent contractors and consultants from time to time on
an as-needed basis to supplement our core staff.
Investing
in our common stock involves a high degree of risk. You should
carefully consider the risks and uncertainties described below,
together with all of the other information in this Form 10-K,
including our consolidated financial statements and related notes,
before investing in our common stock. If any of the following risks
materialize, our business, financial condition, results of
operations and prospects could be materially and adversely
affected. In that event, the price of our common stock could
decline, and you could lose part or all of your
investment.
Risks
Related to Our Business
We have a limited operating history with significant losses and
expect losses to continue for the foreseeable
future.
We
have yet to establish any history of profitable operations and have
incurred net losses since our inception. We have generated only
nominal revenues since our inception and do not anticipate that we
will generate revenues which will be sufficient to sustain our
operations in the near future. Our profitability will require the
successful commercialization and sales of our products. We may not
be able to successfully achieve any of these requirements or ever
become profitable.
There is doubt about our ability to continue as a going concern due
to recurring losses from operations, accumulated deficit and
insufficient cash resources to meet our business objectives, all of
which means that we may not be able to continue
operations.
Our
independent auditors have added an explanatory paragraph to their
audit opinion issued in connection with the consolidated financial
statements for the years ended December 31, 2019 and 2018 with
respect to their doubt about our ability to continue as a going
concern. As discussed in Note 2 to our consolidated financial
statements for the years ended December 31, 2019 and 2018, we have
generated operating losses since inception, and our cash resources
are insufficient to meet our planned business objectives, which
together raise doubt about our ability to continue as a going
concern.
Our inability to complete our future research and development and
engineering projects in a timely manner could have a material
adverse effect of our results of operations, financial condition,
and cash flows.
If
our research and development projects are not completed in a timely
fashion, we could experience:
|
● |
substantial
additional cost to obtain a marketable product; |
|
|
|
|
● |
additional
competition resulting from competitors in the surveillance and
facial recognition market, and; |
|
|
|
|
● |
delay
in obtaining future inflow of cash from financing or partnership
activities. |
We face intense competition, which could result in lower revenues
and higher research and development expenditures and could
adversely affect our results of operations.
Unless
we keep pace with changing technologies, we could lose existing
customers and fail to win new customers. In order to compete
effectively in the fleet management systems market, we must
continually design, develop and market new and enhanced
technologies. Our future success will depend, in part, upon our
ability to address the changing and sophisticated needs of the
marketplace. Fleet management technologies have achieved widespread
commercial acceptance and our strategy of expanding our fleet
management technologies business could adversely affect our
business operations and financial condition.
Further,
we expect to derive revenue from government contracts, which are
often non-standard, involve competitive bidding, may be subject to
cancellation with or without penalty and may produce volatility in
earnings and revenue.
The
market for our technologies is still developing and if the industry
adopts technology standards that are different from our own our
competitive position would be negatively affected.
Parts of our company’s business plan are dependent on business
relationships with various parties.
We
expect to rely in part upon original equipment manufacturers (OEM),
and distribution partners to sell and install our products, and we
may be adversely affected if those parties do not actively promote
our products or pursue installations that use our products.
Further, if our products are not timely delivered or do not perform
as promised, we could experience increased costs, lower margins,
liquidated damage payment obligations and reputational
harm.
We must attract and maintain key personnel, or our business will
fail.
Success
depends on the acquisition of key personnel. We will have to
compete with other companies both within and outside the
electronics industry to recruit and retain competent employees. If
we cannot maintain qualified employees to meet the needs of our
anticipated growth, this could have a material adverse effect on
our business and financial condition.
We may not be able to secure additional financing to meet our
future capital needs due to changes in general economic
conditions.
We
anticipate requiring significant capital to fulfill our contractual
obligations, continue development of our planned products to meet
market evolution, and execute our business plan, generally. We may
use capital more rapidly than currently anticipated and incur
higher operating expenses than currently expected, and we may be
required to depend on external financing to satisfy our operating
and capital needs. We may need new or additional financing in the
future to conduct our operations or expand our business. Any
sustained weakness in the general economic conditions and/or
financial markets in the United States and Europe, or globally
could adversely affect our ability to raise capital on favorable
terms or at all. From time to time we have relied, and may also
rely in the future, on access to financial markets as a source of
liquidity to satisfy working capital requirements and for general
corporate purposes. We may be unable to secure debt or equity
financing on terms acceptable to us, or at all, at the time when we
need such funding. If we do raise funds by issuing additional
equity or convertible debt securities, the ownership percentages of
existing stockholders would be reduced, and the securities that we
issue may have rights, preferences or privileges senior to those of
the holders of our common stock or may be issued at a discount to
the market price of our common stock which would result in dilution
to our existing stockholders. If we raise additional funds by
issuing debt, we may be subject to debt covenants, which could
place limitations on our operations including our ability to
declare and pay dividends. Our inability to raise additional funds
on a timely basis would make it difficult for us to achieve our
business objectives and would have a negative impact on our
business, financial condition and results of operations.
Our business and operating results could be harmed if we fail to
manage our growth or change.
Our
business may experience periods of rapid change and/or growth that
could place significant demands on our personnel and financial
resources. To manage possible growth and change, we must continue
to try to locate skilled engineers and professionals and adequate
funds in a timely manner.
Our business depends on GPS technology owned and controlled by
others. If we do not have continued access to GPS technology, we
will be unable to deliver our services and our revenues will
decrease.
Our
services rely on signals from GPS satellites built and maintained
by the U.S. Department of Defense. GPS satellites and their ground
support systems are subject to electronic and mechanical failures
and sabotage. If one or more satellites malfunction, there could be
a substantial delay before they are repaired or replaced, if at
all, and our services may cease, and customer satisfaction would
suffer.
Our GPS technology depends on the use of radio frequency spectrum
controlled by others.
Our
GPS technology is dependent on the use of radio frequency spectrum.
The assignment of spectrum is controlled by an international
organization known as the International Telecommunications Union,
or ITU. The Federal Communications Commission, or FCC, is
responsible for the assignment of spectrum for non-government use
in the United States in accordance with ITU regulations. Any ITU or
FCC reallocation of radio frequency spectrum, including frequency
band segmentation or sharing of spectrum, could cause interference
with the reception of GPS signals and may materially and adversely
affect the utility and reliability of our products, which would, in
turn, cause a material adverse effect on our operating results. In
addition, emissions from mobile satellite service and other
equipment operating in adjacent frequency bands or in band may
materially and adversely affect the utility and reliability of our
products, which could result in a material adverse effect on our
operating results.
Government regulations and standards may harm our business and
could increase our costs or reduce our opportunities to earn
revenues.
In
addition to regulations applicable to businesses in general, we may
also be subject to direct regulation by governmental agencies,
including the FCC and Department of Defense. A number of
legislative and regulatory proposals under consideration by
federal, state, provincial, local and foreign governmental
organizations may lead to laws or regulations concerning various
aspects of wireless communications and GPS technology.
Additionally, it is uncertain how existing laws governing issues
such as taxation, intellectual property, libel, user privacy and
property ownership, will be applied to our services. The adoption
of new laws or the application of existing laws may expose us to
significant liabilities and additional operational requirements,
which could decrease the demand for our services and increase our
cost of doing business.
If we are not able to adequately protect our intellectual property,
then we may not be able to compete effectively, and we may not be
profitable.
Our
commercial success may depend, in part, on obtaining and
maintaining patent protection of our technologies and product as
well as successfully defending third-party challenges to such
technologies and products. We will be able to protect our
technologies and product candidates from use by third parties only
to the extent that valid and enforceable patents cover them and we
have exclusive rights to use them. The ability of our licensors,
collaborators and suppliers to maintain their patent rights against
third-party challenges to their validity, scope or enforceability
will also play an important role in determining our
future.
The
copyright and patent positions of software and technology related
companies can be highly uncertain and involve complex legal and
factual questions that include unresolved principles and issues. No
consistent policy regarding the breadth of claims allowed regarding
such companies’ patents has emerged to date in the United States,
and the patent situation outside the United States is even more
uncertain. Changes in either the patent laws or in interpretations
of patent laws in the United States or other countries may diminish
the value of our intellectual property. Accordingly, we cannot
predict with any certainty the range of claims that may be allowed
or enforced concerning our patents.
We
may also rely on trade secrets to protect our technologies,
especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect.
While we seek to protect confidential information, in part, through
confidentiality agreements with our consultants and scientific and
other advisors, they may unintentionally or willfully disclose our
information to competitors. Enforcing a claim against a third party
related to the illegal acquisition and use of trade secrets can be
expensive and time consuming, and the outcome is often
unpredictable. If we are not able to maintain patent or trade
secret protection on our technologies and product candidates, then
we may not be able to exclude competitors from developing or
marketing competing products, and we may not be able to operate
profitability.
If we are the subject of an intellectual property infringement
claim, the cost of participating in any litigation could cause us
to go out of business.
There
has been, and we believe that there will continue to be,
significant litigation and demands for licenses in our industry
regarding patent and other intellectual property rights. Although
we anticipate having a valid defense to any allegation that our
current products, production methods and other activities infringe
the valid and enforceable intellectual property rights of any third
parties, we cannot be certain that a third party will not challenge
our position in the future. Other parties may own patent rights
that we might infringe with our products or other activities, and
our competitors or other patent holders may assert that our
products and the methods we employ are covered by their patents.
These parties could bring claims against us that would cause us to
incur substantial litigation expenses and, if successful, may
require us to pay substantial damages. Some of our potential
competitors may be better able to sustain the costs of complex
patent litigation, and depending on the circumstances, we could be
forced to stop or delay our research, development, manufacturing or
sales activities. Any of these costs could cause us to go out of
business.
Risks
Relating to Ownership of Our Securities
Trading on the OTCQB® Venture Marketplace may be volatile and
sporadic, which could depress the market price of our common stock
and make it difficult for our stockholders to resell their
shares.
Our
common stock is quoted on the OTCQB Venture Marketplace operated by
the OTC Markets Group. Trading in stock quoted on the OTCQB is
often thin and characterized by wide fluctuations in trading prices
due to many factors that may have little to do with our operations
or business prospects. This volatility could depress the market
price of our common stock for reasons unrelated to operating
performance. Moreover, the OTCQB is not a stock exchange, and
trading of securities on the OTCQB is often more sporadic than the
trading of securities listed on a stock exchange like the Nasdaq
Stock Market or New York Stock Exchange. Accordingly, our
shareholders may have difficulty reselling any of their
shares.
Our stock is a penny stock. Trading of our stock may be restricted
by the SEC’s penny stock regulations and FINRA’s sales practice
requirements, which may limit a stockholder’s ability to buy and
sell our stock.
Our
stock is a penny stock. The Securities and Exchange Commission has
adopted Rule 15g-9 which generally defines “penny stock” to be any
equity security that has a market price (as defined) less than
$5.00 per share or an exercise price of less than $5.00 per share,
subject to certain exceptions. Our securities are covered by the
penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than
established customers and “accredited investors”. The term
“accredited investor” refers generally to institutions with assets
in excess of $5,000,000 or individuals with a net worth in excess
of $1,000,000 or annual income exceeding $200,000 or $300,000
jointly with their spouse. The penny stock rules require a
broker-dealer, prior to a transaction in a penny stock not
otherwise exempt from the rules, to deliver a standardized risk
disclosure document in a form prepared by the SEC which provides
information about penny stocks and the nature and level of risks in
the penny stock market. The broker-dealer also must provide the
customer with current bid and offer quotations for the penny stock,
the compensation of the broker-dealer and its salesperson in the
transaction and monthly account statements showing the market value
of each penny stock held in the customer’s account. The bid and
offer quotations, and the broker-dealer and salesperson
compensation information, must be given to the customer orally or
in writing prior to effecting the transaction and must be given to
the customer in writing before or with the customer’s confirmation.
In addition, the penny stock rules require that prior to a
transaction in a penny stock not otherwise exempt from these rules;
the broker-dealer must make a special written determination that
the penny stock is a suitable investment for the purchaser and
receive the purchaser’s written agreement to the transaction. These
disclosure requirements may have the effect of reducing the level
of trading activity in the secondary market for the stock that is
subject to these penny stock rules. Consequently, these penny stock
rules may affect the ability of broker-dealers to trade our
securities. We believe that the penny stock rules discourage
investor interest in, and limit the marketability of, our common
stock.
In
addition to the “penny stock” rules promulgated by the Securities
and Exchange Commission, FINRA has adopted rules that require that
in recommending an investment to a customer, a broker-dealer must
have reasonable grounds for believing that the investment is
suitable for that customer. Prior to recommending speculative
low-priced securities to their non-institutional customers,
broker-dealers must make reasonable efforts to obtain information
about the customer’s financial status, tax status, investment
objectives and other information. Under interpretations of these
rules, FINRA believes that there is a high probability that
speculative low-priced securities will not be suitable for at least
some customers. FINRA requirements make it more difficult for
broker-dealers to recommend that their customers buy our common
stock, which may limit your ability to buy and sell our
stock.
We do not anticipate paying any cash dividends to our common
shareholders.
We
presently do not anticipate that we will pay dividends on any of
our common stock in the foreseeable future. If payment of dividends
does occur at some point in the future, it would be contingent upon
our revenues and earnings, if any, capital requirements, and
general financial condition. The payment of any common stock
dividends will be within the discretion of our Board of Directors.
We presently intend to retain all earnings after paying the
interest for the preferred stock, if any, to implement our business
plan; accordingly, we do not anticipate the declaration of any
dividends for common stock in the foreseeable future.
Volatility in Our Common Share Price May Subject Us to Securities
Litigation.
The
market for our common stock is characterized by significant price
volatility as compared to seasoned issuers, and we expect that our
share price will continue to be more volatile than a seasoned
issuer for the indefinite future. In the past, plaintiffs have
often initiated securities class action litigation against a
company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar
litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention and
resources.
The Elimination of Monetary Liability Against our Directors,
Officers and Employees under Nevada law and the Existence of
Indemnification Rights of our Directors, Officers and Employees May
Result in Substantial Expenditures by our Company and may
Discourage Lawsuits Against our Directors, Officers and
Employees.
Our
articles of incorporation do not contain any specific provisions
that eliminate the liability of our directors for monetary damages
to our company and shareholders; however, we are prepared to give
such indemnification to our directors and officers to the extent
provided for by Nevada law. We may also have contractual
indemnification obligations under our employment agreements with
our officers. The foregoing indemnification obligations could
result in our company incurring substantial expenditures to cover
the cost of settlement or damage awards against directors and
officers, which we may be unable to recoup. These provisions and
resultant costs may also discourage our company from bringing a
lawsuit against directors and officers for breaches of their
fiduciary duties and may similarly discourage the filing of
derivative litigation by our shareholders against our directors and
officers even though such actions, if successful, might otherwise
benefit our company and shareholders.
Our business is subject to changing regulations related to
corporate governance and public disclosure that have increased both
our costs and the risk of noncompliance.
Because
our common stock is publicly traded, we are subject to certain
rules and regulations of federal, state and financial market
exchange entities charged with the protection of investors and the
oversight of companies whose securities are publicly traded. These
entities, including the Public Company Accounting Oversight Board,
the SEC and FINRA, have issued requirements and regulations and
continue to develop additional regulations and requirements in
response to corporate scandals and laws enacted by Congress, most
notably the Sarbanes-Oxley Act of 2002. Our efforts to comply with
these regulations have resulted in, and are likely to continue
resulting in, increased general and administrative expenses and
diversion of management time and attention from revenue-generating
activities to compliance activities. Because new and modified laws,
regulations and standards are subject to varying interpretations in
many cases due to their lack of specificity, their application in
practice may evolve over time as new guidance is provided by
regulatory and governing bodies. This evolution may result in
continuing uncertainty regarding compliance matters and additional
costs necessitated by ongoing revisions to our disclosure and
governance practices.
ITEM 1B. |
UNRESOLVED
STAFF COMMENTS |
None.
Our
principal executive office is located at 312 – 2630 Croydon Drive,
Surrey, BC, V3Z 6T3 Canada, where we lease approximately 2,024
square feet of office space. On June 1, 2018, the Company signed a
two year operating lease agreement which commenced on July 1, 2018
and expires on May 31, 2020 with the right to renew for an
additional two year term if written notice is provided within 120
days prior to the expiration of the current term.
ITEM 3. |
LEGAL
PROCEEDINGS |
On
September 7, 2016, Chetu Inc. has filed a Complaint for Damage in
Florida to recover unpaid invoice amounts of $27,335 plus interest
of $4,939. The invoice was not paid due to a dispute that the
Company did not think that vendor had delivered the service
according to the agreement between the two parties. As at December
31, 2019, included in trade and other payables is $40,227 related
to this unpaid invoice, interest and legal fees.
On
May 24, 2017, we 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.
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
December 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 1,848,130
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. The Company is currently in the process of negotiating a
settlement and no accrual has been recorded to date due to the
uncertainty of the settlement amount.
On
April 9, 2018, we 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 alleged 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 sought damages in excess of $200,000 but
not more than $1,000,000, consisting of the principal amount of the
note, default interest, and legal fees incurred by JSJ with respect
to the lawsuit. On August 31, 2018 final judgement was entered
against DSG Global in the amount of $187,908.06, which includes
$172,845.92 in damages, $2,450 in legal fees, $1,981.71 in
pre-judgement interest and $10,630.93 in post-judgment interest.
The appeal period expired on September 30, 2018. As at the date of
this Annual Report, the plaintiff is seeking to enforce the Texas
judgement again DSG Global in British Columbia, Canada. As at
December 31, 2019, the principal balance and accrued interest on
this convertible note is included on the consolidated balance sheet
under convertible notes payable.
We
may, from time to time, be party to litigation and subject to
claims incident to the ordinary course of business. As our growth
continues, we may become party to an increasing number of
litigation matters and claims. The outcome of litigation and claims
cannot be predicted with certainty, and the resolution of any
future matters could materially affect our future financial
position, results of operations or cash flows.
ITEM 4. |
MINE
SAFETY DISCLOSURES |
Not
applicable.
PART
II
ITEM
5. |
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES |
Market
Information for Common Stock
Our common
stock is currently quoted on the OTC Market’s OTCQB Venture
Marketplace (“OTCQB”) under the symbol “DSGT”. The following table
sets forth for the periods indicated the high and low bid price per
share of our common stock as reported on the OTCQB. The following
quotations reflect inter-dealer prices, without retail mark-up,
mark-down or commission, and may not represent actual
transactions:
OTC
Markets Group Inc. OTCQB (1)
Quarter Ended |
|
High
$
|
|
Low
$
|
|
|
|
|
|
December 31, 2019 |
|
|
1.64 |
|
|
|
0.76 |
|
September 30, 2019 |
|
|
1.50 |
|
|
|
0.29 |
|
June 30, 2019 |
|
|
3.36 |
|
|
|
1.00 |
|
March 31, 2019 |
|
|
3.60 |
|
|
|
1.18 |
|
December 31, 2018 |
|
|
6.00 |
|
|
|
2.40 |
|
September 30, 2018 |
|
|
10.40 |
|
|
|
2.40 |
|
June 30, 2018 |
|
|
33.20 |
|
|
|
4.60 |
|
March 31, 2018 |
|
|
26.00 |
|
|
|
4.00 |
|
(1)
Over-the-counter market quotations reflect inter-dealer prices
without retail mark-up, mark-down or commission, and may not
represent actual transactions.
Holders
of Record
As of
December 31, 2019, there were 76 holders of record of our common
stock. The actual number of stockholders is greater than this
number of record holders and includes stockholders who are
beneficial owners but whose shares are held in street name by
brokers and other nominees.
Dividend
Policy
We
have never declared or paid cash dividends on our common stock. We
currently intend to retain all available funds and any future
earnings for use in the operation of our business and do not
anticipate paying any dividends on our common stock in the
foreseeable future, if at all. Any future determination to declare
dividends will be made at the discretion of our board of directors
and will depend on our financial condition, results of operations,
capital requirements, general business conditions and other factors
that our board of directors may deem relevant.
Purchases
of Equity Securities by the Issuer and Affiliated
Purchasers
We
did not purchase any of our shares of common stock or other
securities during 2019 and 2018.
Recent
Sale of Unregistered Securities
Not
applicable.
ITEM 6. |
SELECTED
FINANCIAL DATA |
We
are a smaller reporting company as defined by Rule 12b-2 of the
Exchange Act and are not required to provide the information
required under this item.
ITEM 7. |
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS |
You
should read the following discussion and analysis of our financial
condition and results of operations in conjunction with the
consolidated financial statements and the related notes to the
consolidated financial statements included later in this Annual
Report on Form 10-K. In addition to historical financial
information, the following discussion contains forward-looking
statements that reflect our plans, estimates, beliefs and
expectations that involve risks and uncertainties. Our actual
results and the timing of events could differ materially from those
discussed in these forward-looking statements. Factors that could
cause or contribute to these differences include those discussed
below and elsewhere in this Annual Report on Form 10-K,
particularly in “Risk Factors” and “Special Note Regarding
Forward-Looking Statements.”
Overview
DSG
Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”)
provides patented electronic tracking systems and fleet management
solutions to golf courses and other avenues that allow for remote
management of the course’s fleet of golf carts, turf equipment and
utility vehicles. Their clients use VTS’s unique technology to
significantly reduce operational costs, improve the efficiency plus
profitability of their fleet operations, increase safety, and
enhance customer satisfaction. VTS has grown to become a leader in
the category of Fleet Management in the golf industry, with its
technology installed in vehicles worldwide. VTS is now aggressively
branching into several new streams of revenue, through programmatic
advertising, licensing and distribution, as well as expanding into
Commercial Fleet Management, PACER a single rider golf cart and
Agricultural applications. Additional information is available at
http://vantage-tag.com/
Ready
Golf Ready: Our roots as a company are in golf, and our technology
is changing the way golf is being played and driving new revenue
for courses.
● |
Vantage
TAG equipped golf carts enhance fleet management. |
|
|
● |
Single
rider carts speed up pace of play and drive rental
revenue. |
|
|
● |
Onboard
touchscreens drive revenue and offer an enhanced course
experience. |
|
|
● |
Combination
of technology and single rider carts has the ability to decrease
average play time to 2:20 and drive numerous extra plays per
hour. |
|
|
● |
Our
“Pennies A Day, Pennies A Round” model provides easy entry to
leasing single-rider vehicles. |
In
Development: DSG’s Infinity On-Board Screen Offers Gaming Revenue
Potential
● |
In
the next 2 years, sports betting will generate $10B / licensed in
20+ States. |
|
|
● |
In
negotiations with leading mobile gaming developers. |
|
|
● |
DSG’s
existing infinity screens work with current gaming
technology. |
Business
Unit Overview: On Board Media
● |
38,000
courses globally. |
|
|
● |
26,000
courses capable of installing the DSG TAG SYSTEM with the TAG and
INFINITIY. |
|
|
● |
Courses
with INFINITY screens in carts can generate $90,000 - $110,000 in
additional revenue. |
● |
Screens
for free and own revenue generated by 250 golf courses. |
|
|
● |
DSG
single-rider golf cars are available in any quantity for most
courses on a revenue share basis with no upfront cost to the golf
course. |
|
|
● |
Programmatic
Advertising has the ability to increase revenue 4x more than
standard advertising, an average increase of $200,000 - $300,000
per course. |
Business
Unit Overview: TAG / Fleet Management Vantage Golf
Potential:
● |
38,000
courses globally. |
|
|
● |
4
Million golf carts in the world market. |
|
|
● |
DSG
Tech on 300 courses now, with an additional 500 courses added in
2020 driving $15 million in sales. |
|
|
● |
Key
component of our “Pennies A Day, Pennies A Round”
program. |
Vantage
e-Rickshaw Potential:
● |
Global
three-wheelers market is projected to reach $39.9 billion by
2024. |
|
|
● |
11,000
new e-Rickshaws hit the streets every month, with annual sales
expected to increase about 9 percent by 2021. |
|
|
● |
Research
on car-data-monetization trends and characteristics suggests that
this value pool could be as large as $750 billion by
2030. |
|
|
● |
DSG
Global, Inc. has a strategic partnership in China to integrate
Vantage TAG Systems with EVs, incorporating the Company’s advanced
fleet management capabilities. |
Our
most recent product that is used to increase the Pace of Play on
the course up to 90 minutes per round is the RAPTOR. Our 3-wheel
single rider allows the course to revenue share with VTS as the
RAPTOR is put on the course free of charge and then allows the
course to revenue share with VTS along the way. Each seat is rented
to the customers for minimum $25 per round.
Reverse Acquisition
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated
under the laws of the State of Nevada on September 24, 2007. We
were formed to option feature films and TV projects to be packaged
and sold to movie studios and production companies.
In
January 2015, we changed our name to DSG Global, Inc. and effected
a one-for-three reverse stock split of our issued and outstanding
common stock in anticipation of entering in a share exchange
agreement with DSG TAG Systems, Inc., a corporation incorporated
under the laws of the State of Nevada on April 17, 2008 and extra
provincially registered in British Columbia, Canada in
2008.
On
April 13, 2015, we entered into a share exchange agreement with
Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag Systems Inc.)
and the shareholders of VTS who become parties to the agreement.
Pursuant to the terms of the share exchange agreement, we agreed to
acquire not less than 75% and up to 100% of the issued and
outstanding common shares in the capital stock of VTS in exchange
for the issuance to the selling shareholders of up to 20,000,000
pre-reverse split shares of our common stock on the basis of 1
common share for 5.4935 common shares of VTS.
On
May 6, 2015, we completed the acquisition of approximately 75%
(82,435,748 common shares) of the issued and outstanding common
shares of VTS as contemplated by the share exchange agreement by
issuing 15,185,875 pre-reverse split shares of our common stock to
shareholders of VTS who became parties to the agreement. In
addition, concurrent with the closing of the share exchange
agreement, we issued an additional 179,823 pre-reverse split shares
of our common stock to Westergaard Holdings Ltd. in partial
settlement of accrued interest on outstanding indebtedness of
VTS.
Following
the initial closing of the share exchange agreement and through
October 22, 2015, we acquired an additional 101,200 shares of
common stock of VTS from shareholders who became parties to the
share exchange agreement and issued to these shareholders an
aggregate of 18,422 pre-reverse split shares of our common stock.
Following completion of these additional purchases, DSG Global Inc.
owns approximately 100% of the issued and outstanding shares of
common stock of VTS. An aggregate of 4,229,384 shares of Series A
Convertible Preferred Stock of VTS were exchanged for 51 Series B
and 3,000,000 Series E preferred shares during the year ended
December 31, 2018 by Westergaard Holdings Ltd., an affiliate of
Keith Westergaard, a previous member of our board of directors
which have not been issued as of December 31, 2018 or
2019.
The
reverse acquisition was accounted for as a recapitalization
effected by a share exchange, wherein VTS is considered the
acquirer for accounting and financial reporting purposes. The
assets and liabilities of the acquired entity have been brought
forward at their book value and no goodwill has been recognized. We
adopted the business and operations of VTS upon the closing of the
share exchange agreement.
Factors
Affecting Our Performance
We
believe that the growth of our business and our future success
depend on various opportunities, challenges, and other factors,
including the following:
Inventory Sourcing
In
order to successfully deliver products, increase sales, and
maintain customer satisfaction, we continue to source new, reliable
suppliers of our hardware units and components at competitive
prices. Presently, we out-source our INFINITY and TAG suppliers in
China, which continues to provide us with higher quality, newer
technology at competitive pricing.
In
addition, DSG is currently in negotiations with a
telecommunications provider to provide new technology in hardware
and wireless access. However, there is no guarantee that we will
conclude any agreement in this regard.
Competition
We
compete with a number of established producers and distributors of
vehicle fleet management systems, as well as producers of non-golf
specific utility vehicle fleet management systems. Many of our
competitors have longer operating histories, better brand
recognition and greater financial resources than we do. In order
for us to successfully compete in our industry we must demonstrate
our products’ competitive advantages, develop a comprehensive
marketing strategy, and increase our financial
resources.
We
believe that we will be able to compete effectively in our industry
because of the versatility, reliability, and relative affordability
of our products when compared to those of our competitors. We will
attempt to build awareness of our competitive advantages among
existing and potential customers through trade shows, sales visits
and demonstrations, online marketing, and positive word of mouth
advertising. However, there can be no assurance that even if we do
these things, we will be able to compete effectively with the other
companies in our industry.
Additional Capital
We
require additional capital to continue to develop software and
products, meet our contractual obligations, and execute our
business plan. There can be no assurances that we will be able to
raise additional capital on acceptable terms or at all, which would
adversely affect our ability to achieve our business
objectives.
Components
of Our Results of Operations
Revenue
We
derive revenue from four different sources, as follows:
Systems sales revenue, which consists of the sales price
paid by those customers who purchase or lease our TAG system
hardware.
Monthly service fees are paid by all customers for the
wireless data fee charges required to operate the GPS tracking on
the TAG systems.
Monthly rental Fees are paid by those customers that rent
the TAG system hardware. The amount of a customer’s monthly payment
varies based on the type of equipment rented (a TAG, a TAG and
TEXT, or a TAG and INFINITY).
Programmatic advertising revenue is a new source of revenue
that we believe has the potential to be strategic for us in the
future. We are in the process of implementing and designing
software to provide advertising and other media functionality on
our INFINITY units.
We
recognize revenue when it satisfies a performance obligation by
transferring control over a product to a customer. Revenue is
measured based on the consideration the Company expects to receive
in exchange for those products. In instances where final acceptance
of the product is specified by the customer, revenue is deferred
until all acceptance criteria have been met. We accrue for warranty
costs, sales returns, and other allowances based on its historical
experience.
Our
revenue recognition policies are discussed in more detail under
“Note 3 – Summary of Significant Accounting Policies” in the
notes to our Consolidated Financial Statements included in Part I,
Item 1 of this Form 10-K.
Cost of Revenue
Our
cost of revenue consists primarily of hardware purchases, wireless
data fees, mapping, installation costs, freight expenses and
inventory adjustments.
Hardware purchases. Our equipment purchases consist
primarily of TAG system control units, TEXT display, and INFINITY
displays. The TAG system control unit is sold as a stand-alone unit
or in conjunction with our TEXT alphanumeric display or INFINITY
high definition “touch activated” display. Hardware purchases also
include costs of components used during installations, such as
cables, mounting solutions, and other miscellaneous
equipment.
Wireless data fees. Our wireless data fees consist
primarily of the data fees charged by outside providers of GPS
tracking used in all of our TAG system control units.
Mapping. Our mapping costs consist of aerial mapping,
course map, geofencing, and 3D flyovers for golf courses. This cost
is incurred at the time of hardware installation.
Installation. Our installation costs consist primarily of
costs incurred by our employed service technicians for the cost of
travel, meals, and miscellaneous components required during
installations. In addition, these costs also include fees paid to
external contractors for installations on a project by project
basis.
Freight expenses and Inventory adjustments. Our freight
expenses consist primarily of costs to ship hardware to courses for
installations. Our inventory adjustments include inventory write
offs, write downs, and other adjustments to the cost of
inventory.
Operating expenses & other income (expenses) We
classify our operating expenses and other income (expenses) into
six categories: compensation, general and administrative, warranty,
foreign currency exchange, and finance costs. Our operating
expenses consist primarily of sales and marketing, salaries and
wages, consulting fees, professional fees, trade shows, software
development, and allocated costs. Allocated costs include charges
for facilities, office expenses, telephones and other miscellaneous
expenses. Our other income (expenses) primarily consists of
financing costs and foreign exchange gains or losses.
Compensation expense. Our compensation expenses consist
primarily of personnel costs, such as employee salaries, payroll
expenses, and employee benefits. This includes salaries for
management, administration, engineering, sales and marketing, and
service support technicians. Salaries and wages directly related to
projects or research and development are expensed as incurred to
their operating expense category.
General and administrative. Our general and administrative
expenses consist primarily of sales and marketing, commissions,
travel, trade shows, consultant fees, insurance, and compliance and
other administrative functions, as well as accounting and legal
professional services fees, allocated costs and other corporate
expenses. Sales and marketing includes brand marketing, marketing
materials, and media management.
Warranty expense (recovery). Our warranty expenses consist
primarily of associated material product costs, labor costs for
technical support staff, and other associated overhead. Warranty
costs are expensed as they are incurred.
Bad debt. Our bad debt expense consists primarily of
amounts written down for doubtful accounts recorded on trade
receivables.
Depreciation and amortization. Our depreciation and
amortization costs consist primarily of depreciation and
amortization on fixed assets, equipment on lease and intangible
assets.
Foreign currency exchange. Our foreign currency exchange
consists primarily of foreign exchange fluctuations recorded in
Canadian dollar (CAD), British Pounds (GBP), or Euro (EUR) at the
rates of exchange in effect when the transaction
occurred.
Finance costs. Our finance costs consist primarily of
investor interest expense, investor commission fees, and other
financing charges for obtaining debt financing.
We
expect to continue to invest in corporate infrastructure and incur
additional expenses associated with being a public company,
including increased legal and accounting costs, investor relations
costs, higher insurance premiums and compliance costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we
expect sales and marketing expenses to increase in absolute dollars
in future periods. In particular, we expect to incur additional
marketing costs to support the expansion of our offerings in new
markets like commercial fleet management and
agriculture.
Results
of Operations
The
following tables set forth our consolidated results of operations
as a percentage of revenue for the periods presented:
|
|
For the year ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
Revenue |
|
|
100.0 |
% |
|
|
100.0 |
% |
Cost of revenue |
|
|
67.8 |
% |
|
|
15.0 |
% |
Gross profit |
|
|
32.2 |
% |
|
|
85.0 |
% |
Operating
expenses |
|
|
|
|
|
|
|
|
Compensation expense |
|
|
137.3 |
% |
|
|
56.7 |
% |
General and administration
expense |
|
|
63.4 |
% |
|
|
121.9 |
% |
Warranty recovery |
|
|
- |
% |
|
|
(7.0 |
)% |
Bad debt |
|
|
4.7 |
% |
|
|
4.8 |
% |
Depreciation and amortization
expense |
|
|
0.3 |
% |
|
|
1.1 |
% |
Total operating expense |
|
|
205.6 |
% |
|
|
177.5 |
% |
Loss from operations |
|
|
(173.4 |
)% |
|
|
(92.4 |
)% |
Other income
(expense) |
|
|
|
|
|
|
|
|
Foreign currency exchange |
|
|
2.7 |
% |
|
|
(4.6 |
)% |
Change in fair value of derivative
instruments |
|
|
19.4 |
% |
|
|
78.5 |
% |
Loss on extinguishment of debt |
|
|
47.2 |
% |
|
|
(537.8 |
)% |
Finance costs |
|
|
(115.8 |
)% |
|
|
(210.6 |
)% |
Total other expense |
|
|
(46.6 |
)% |
|
|
(674.6 |
)% |
Loss before
income taxes |
|
|
(220.0 |
)% |
|
|
(767.0 |
)% |
Provision for income taxes |
|
|
- |
% |
|
|
- |
% |
Net loss |
|
|
(220.0 |
)% |
|
|
(767.0 |
)% |
Other
comprehensive income (expense) |
|
|
|
|
|
|
|
|
Foreign currency translation
adjustments |
|
|
(6.6 |
)% |
|
|
46.2 |
% |
Comprehensive
loss |
|
|
(226.6 |
)% |
|
|
(720.8 |
)% |
Comparison
of the Years Ended December 31, 2019 and 2018
Revenue
|
|
For
the Years Ended
December
31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
%
Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,399,420 |
|
|
$ |
1,281,024 |
|
|
|
9.2 |
% |
Revenue increased by $118,396, or 9.2%, for the year ended December
31, 2019 as compared to the year ended December 31, 2018. Sales
increased as the result of aggressive marketing and installation of
the new Infinity suite of products in the prior year, which
resulted in greater sales in the current year.
Cost of Revenue
|
|
For the Years Ended
December 31,
|
|
|
|
|
2019 |
|
2018 |
|
% Change |
|
|
|
|
|
|
|
Cost of
revenue |
|
$ |
948,273 |
|
|
$ |
191,650 |
|
|
|
394.8 |
% |
Cost of revenue increased by $756,623 or 394.8%, for the year ended
December 31, 2019 as compared to the year ended December 31, 2018.
The table below outlines the differences in detail:
|
|
For the Years Ended |
|
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
Difference |
|
|
% Difference |
|
Cost of
goods |
|
$ |
857,507 |
|
|
$ |
86,832 |
|
|
$ |
770,675 |
|
|
|
887.5 |
|
Labour |
|
|
9,016 |
|
|
|
- |
|
|
|
9,016 |
|
|
|
- |
|
Mapping & freight
costs |
|
|
24,442 |
|
|
|
12,332 |
|
|
|
12,110 |
|
|
|
98.2 |
|
Wireless fees |
|
|
60,086 |
|
|
|
14,483 |
|
|
|
45,603 |
|
|
|
314.9 |
|
Inventory adjustments & write
offs |
|
|
(2,778 |
) |
|
|
78,003 |
|
|
|
(80,781 |
) |
|
|
(103.6 |
) |
|
|
$ |
948,273 |
|
|
$ |
191,650 |
|
|
$ |
756,623 |
|
|
|
394.8 |
|
The
overall increase was primarily due to the increase of cost of goods
sold, labour, and mapping and freight costs. Cost of goods sold
increased as certain sales in the prior period were satisfied with
refurbished RMA inventory, which have lower costs.
Compensation Expense
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
Compensation
expense |
|
$ |
1,921,078 |
|
|
$ |
726,520 |
|
|
|
164.4 |
% |
Compensation expense increased by $1,194,558 or 164.4%, for the
year ended December 31, 2019 as compared to the year ended December
31, 2018 primarily due to $1,287,637 in non-cash share-based
compensation for officers, directors and consultants, partially
offset by a reduction in headcount and employees.
General and Administration Expense
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
General &
administration expense |
|
$ |
886,592 |
|
|
$ |
1,561,000 |
|
|
|
(43.2 |
)% |
General & administration expense decreased by $674,408 or 43.2%
for the year ended December 31, 2019 as compared to the year ended
December 31, 2018. The table below outlines the differences in
detail:
|
|
December 2019 |
|
|
December 2018 |
|
|
Difference |
|
|
% Difference |
|
Accounting &
legal |
|
$ |
187,144 |
|
|
$ |
283,445 |
|
|
$ |
(96,301 |
) |
|
|
(34.0 |
)% |
Marketing & advertising |
|
|
73,281 |
|
|
|
404,391 |
|
|
|
(331,110 |
) |
|
|
(81.9 |
)% |
Subcontractor & commissions |
|
|
181,571 |
|
|
|
334,490 |
|
|
|
(152,919 |
) |
|
|
(45.7 |
)% |
Hardware |
|
|
13,487 |
|
|
|
47,604 |
|
|
|
(34,117 |
) |
|
|
(71.7 |
)% |
Office expense,
rent, software, bank & credit card charges, telephone &
meals |
|
|
431,109 |
|
|
|
491,070 |
|
|
|
(59,961 |
) |
|
|
(12.2 |
)% |
|
|
$ |
886,592 |
|
|
$ |
1,561,000 |
|
|
$ |
(674,408 |
) |
|
|
(43.2 |
)% |
For
the year ended December 31, 2019 as compared to the year ended
December 31, 2018, the overall decrease in expenses is primarily
related to a decrease in marketing and advertising costs which were
elevated in the prior year for to the rollout of new products. In
addition, subcontractor expenses decreased due to decrease in
headcount, accounting and legal expenses due to restructuring
expenses in the prior year which did not occur in the current
year.
Warranty Expense
|
|
For
the Years Ended
December
31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty expense |
|
$ |
- |
|
|
$ |
(89,037 |
) |
|
|
- |
|
Warranty
expense decreased by $89,037 to $Nil for the year ended December
31, 2019 as compared to the year ended December 31, 2018. The
decrease in warranty expense was primarily due to a change in
warranty policies in the prior year.
As of
December 31, 2019, our balance sheet included a reserve of $Nil for
future warranty costs (2018 - $Nil).
Foreign Currency Exchange
|
|
For
the Years Ended
December
31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
%
Change |
|
|
|
|
|
|
|
|
|
|
|
Foreign
currency exchange (gain) loss |
|
$ |
(37,224 |
) |
|
$ |
59,050 |
|
|
|
(163.0 |
)%
|
For the year ended December 31, 2019, we recognized a $37,224 in
foreign exchange gain as compared to $59,050 in foreign exchange
loss for the year ended December 31, 2018. The change was primarily
due to settlement of various foreign currency denominated debt
instruments in the prior year as well as beneficial movements in
foreign currency rates on payables, receivables and other foreign
exchange transactions denominated in currencies other than the
functional currencies of the legal entities in which the
transactions are recorded. Foreign currency fluctuations are
primarily from the Canadian dollar, Euro and British pound.
Change in fair value of derivative instruments
|
|
For
the Years Ended
December
31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
%
Change |
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative instruments |
|
$ |
(271,704 |
) |
|
$ |
(1,005,458 |
) |
|
|
(73.0 |
)% |
Derivative gain decreased by $733,754 or 73.0% to a gain of
$271,704, for the year ended December 31, 2019 as compared to a
gain of $1,005,458 for the year ended December 31, 2018. This was
due to the change in fair value as of December 31, 2019 triggering
unrealized gains on derivative instruments in the current year
ending on convertible notes payable. The change in fair value was
heavily impacted by the time decay as well as volatility and the
closing value of Company’s stock price.
(Gain) loss on extinguishment of debt
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss on
extinguishment of debt |
|
$ |
(659,999 |
) |
|
$ |
6,889,665 |
|
|
|
(109.6 |
)% |
(Gain) loss on extinguishment of debt decreased by $7,549,664 or
109.6% to a gain of $659,999, for the year ended December 31, 2019
as compared to a loss of $6,889,665 for the year ended December 31,
2018. During the year ended December 31, 2019 the Company settled
various accounts payable balances, debt and preferred shares in
exchange for shares of common stock to be issued and warrants at a
value lower than the carrying value of the liabilities settled.
These gains were partially offset by losses on conversion of
convertible debt. During the year ended December 31, 2018, the
Company incurred greater losses on conversion of convertible debt
and also incurred losses on restructuring preferred shares,
mezzanine preferred shares, convertible debt, accrued interest and
accounts payable balances.
Finance Costs
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
Finance
costs |
|
$ |
1,620,504 |
|
|
$ |
2,698,330 |
|
|
|
(39.9 |
)% |
Finance costs decreased by $1,077,826 or 39.9%, for the year ended
December 31, 2019 as compared to the year ended December 31, 2018.
Finance costs decreased due to the large number of conversions and
settlement of notes in the current period and prior year and was
partially offset by an inducement fee of $250,420 paid to a lender
to assign debt.
Net Loss
|
|
For the Years Ended
December 31,
|
|
|
|
|
|
|
2019 |
|
|
2018 |
|
|
% Change |
|
|
|
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(3,078,120 |
) |
|
$ |
(9,825,404 |
) |
|
|
(68.7 |
)% |
As a result of the above factors, net loss decreased by $6,747,284
or 68.7% for the year ended December 31, 2019 as compared to the
year ended December 31, 2018.
Liquidity
and Capital Resources
From our incorporation in April 17, 2008 through December 31, 2019,
we have financed our operations, capital expenditures and working
capital needs through the sale of common shares and the incurrence
of indebtedness, including term loans, convertible loans, revolving
lines of credit and purchase order financing. At December 31, 2019,
we had $8,627,232 in outstanding current liabilities which has
either already reached maturity or matures within the next twelve
months.
We had cash of $25,494 at December 31, 2019, compared to $5,059 at
December 31, 2018. We had a working capital deficit of $8,376,433
as of December 31, 2019 compared to working capital deficit of
$6,687,807 as of December 31, 2018.
Liquidity and Financial Condition
|
|
At December 31,
2019 |
|
|
At December 31,
2018 |
|
|
Percentage
Increase/(Decrease)
|
|
Current
assets |
|
$ |
250,800 |
|
|
$ |
333,239 |
|
|
|
(24.7 |
)% |
Current liabilities |
|
$ |
8,627,233 |
|
|
$ |
7,021,046 |
|
|
|
22.9 |
% |
Working capital |
|
$ |
(8,376,433 |
) |
|
$ |
(6,687,807 |
) |
|
|
25.2 |
% |
Cash Flow Analysis
Our
cash flows from operating, investing, and financing activities are
summarized as follows:
|
|
December 31 |
|
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Net cash (used
in) provided by operating activities |
|
$ |
(848,777 |
) |
|
$ |
(1,421,237 |
) |
Net cash (used in) provided by
investing activities |
|
|
(1,383 |
) |
|
|
(2,670 |
) |
Net
cash (used in) provided by financing activities |
|
|
869,991 |
|
|
|
1,328,659 |
|
Effect of exchange rate changes
on cash |
|
|
604 |
|
|
|
94,819 |
|
Net (decrease) increase in
cash |
|
|
20,435 |
|
|
|
(429 |
) |
Cash at beginning of period |
|
|
5,059 |
|
|
|
5,488 |
|
Cash and equivalents at end of period |
|
$ |
25,494 |
|
|
$ |
5,059 |
|
Net Cash Used in Operating Activities. During the
year ended December 31, 2019, cash used in operations totaled
$848,777. This consists of the net loss of $3,078,120, adjusted by
$2,229,343 for non-cash items and changes in non-cash working
capital. Changes in non-cash working capital items consisted
primarily of change in trade and other payables of $797,785,
partially offset by change in deferred revenue of $111,456.
During
the year ended December 31, 2018, cash used in operations totaled
$1,421,237. This consists of the net loss of $9,825,404, adjusted
by $8,404,167 for non-cash items and changes in non-cash working
capital. Changes in non-cash working capital items consisted
primarily of changes in trade and other payables of $568,132,
changes in deferred revenue of $55,997, partially offset by
inventory purchases of $278,659 and increases in trade receivables
of $216,538.
Net Cash Used in Investing Activities. During the
year ended December 31, 2019, cash used in investing activities
consisted of $1,383 for the acquisition of fixed assets. During the
year ended December 31, 2018, cash used in investing activities
consisted of $2,670 for the acquisition of fixed assets and
intangible assets.
Net Cash Provided by Financing Activities. Net cash
provided by financing activities during the year ended December 31,
2019 totaled $869,991 which consisted primarily of $846,538
proceeds from various note and loan facilities entered during the
period and $23,453 proceeds from shares to be issued. Net cash
provided by financing activities during the year ended December 31,
2018 totaled $1,328,659 which consisted primarily of $1,292,000
proceeds from various note and loan facilities entered during the
period and $81,659 proceeds from the issuances of shares.
Outstanding Indebtedness
Our
current indebtedness as of December 31, 2019 is comprised of the
following:
|
● |
Unsecured
loan payable with an outstanding principal amount of $317,500
(CAD$413,258), bearing interest at 18% per annum; |
|
|
|
|
● |
Unsecured
loan payable with an outstanding principal amount of $250,000,
bearing interest at 10% per annum, with a minimum interest amount
of $25,000, mature and in default; |
|
|
|
|
● |
Unsecured
loan payable with an outstanding principal amount of $150,000,
bearing interest at 10% per annum, is due on demand, and
convertible into common shares at $1.75 per share; |
|
|
|
|
● |
Unsecured,
convertible note payable to a former related party with an
outstanding principal amount of $310,000, bearing interest at 5%
per annum, mature and in default; |
|
|
|
|
● |
Senior
secured, convertible note payable with an outstanding principal
amount of $213,889, bearing interest at 8% per annum. Repayable in
cash or common shares at the lower of (i) twelve cents ($0.12) and
(ii) the closing sales price of the Common Stock on the date of
conversion; |
|
|
|
|
● |
Unsecured,
convertible note payable with an outstanding principal amount of
$81,470, bearing interest at 10% per annum. Matures on July 17,
2018. Principal is repayable in cash or common shares at the lower
of (i) six cents ($0.06) (ii) 55% of the lowest trading price
during the 20 Trading Days immediately preceding the date of
conversion; |
|
|
|
|
● |
Unsecured,
convertible note payable in the principal amount of $51,500, bears
interest at 10% per annum, is due on February 8, 2019, and is
convertible into common shares at a conversion price equal to the
lower of (i) 32% discount off of the lowest intra-day trading price
during previous (10) trading days immediately preceding a
conversion date; |
|
|
|
|
● |
Unsecured,
convertible note payable with an outstanding principal amount of
$180,000, bears interest at 10% per annum, is due on February 28,
2019, and is convertible into common shares at a conversion price
equal to the lower of (i) 32% discount off of the lowest intra-day
trading price during previous (15) trading days immediately
preceding a conversion date; |
|
● |
Unsecured,
convertible note payable with an outstanding principal amount of
$39,037, bears interest 10% per annum, is due on August 2, 2018,
and is convertible into common shares at a conversion price equal
to the lower of (i) lowest trading price during previous (25)
trading days prior to the date of note or (ii) lowest trading price
during previous (25) trading days prior to the date of
conversion; |
|
|
|
|
● |
Unsecured,
convertible promissory note in the principal amount of $226,000,
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; |
|
|
|
|
● |
Unsecured,
convertible note payable in the principal amount of $258,736, bears
interest 12% per annum, is due on September 19, 2018, and is
convertible into common shares at a conversion price equal to the
lower 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; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$137,500, 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; |
|
|
|
|
● |
Unsecured,
convertible bridge loan agreement with an outstanding principal
amount of $150,000, bears interest at 4.99% per month, is due 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; Settlement by conversion into common shares
would result in settlement for share of common stock of the Company
with a fair value of $214,286. Effective
September 1, 2019, interest was reduced to 2% per month and
effective December 1, 2019, the loan became non-interest
bearing; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$413,590, bears interest at 12% per annum, 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; |
|
|
|
|
● |
Secured,
convertible promissory note, bears interest at 10% per annum with
four tranches of $62,605, totaling $250,420, due on May 7, 2020,
June 28, 2020, July 8, 2020 and August 8, 2020 and is convertible
into common shares at a conversion price equal to 62% of the lowest
trading price of the Company’s common stock during the 10 trading
days immediately preceding the conversion of the note. Interest
will be accrued and payable at the time of promissory note
repayment; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$220,000, 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; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$137,500, bears interest at 10% per annum, is due on June 3, 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 on the last complete trading day
before conversion; |
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$55,000, 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 on the last complete
trading day before conversion; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$141,900, 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 on the last complete
trading day before conversion; |
|
|
|
|
● |
Unsecured
loan payable with an outstanding principal amount of CDN$10,000,
non-interest bearing and due on demand; |
|
|
|
|
● |
Unsecured,
convertible promissory note with an outstanding principal amount of
$82,500, bears interest at 10% per annum, is due on September 30,
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 on the last complete
trading day before conversion; |
Related Party Transactions
As at December 31, 2019, the Company owed $263,409 ($342,853 CDN)
(2018 - $139,835 ($190,764 CDN)) to the President, CEO, and CFO of
the Company for management fees and salaries, which is recorded in
trade and other payables. The amounts owed and owing are unsecured,
non-interest bearing, and due on demand. During the year ended
December 31, 2019 the Company incurred $200,000 (2018 - $200,000)
in salaries to the President, CEO, and CFO of the Company.
As at
December 31, 2019, the Company owed $7,260 ($9,450 CDN) (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 is recorded in trade and other payables. The
amount owing is unsecured, non-interest bearing, and due on
demand.
Prospective Capital Needs
We
estimate our operating expenses and working capital requirements
for the twelve-month period to be as follows:
Estimated Expenses for the Twelve-Month Period ending December 31,
2020 |
Management
compensation |
|
$ |
500,000 |
|
Professional fees |
|
|
150,000 |
|
General and administrative |
|
|
1,900,000 |
|
Total |
|
$ |
2,550,000 |
|
During the year ended December 31, 2019, cash used in operations
totaled $848,777. The relatively low level of cash used compared to
our estimated working capital needs in the future was the result of
an accumulation of vendor payables, some of which were settled with
equity. We need to reduce the current level of payables in the
future to maintain a good relationship with our vendors and expand
our sales and service team to achieve our operational objectives.
At present, our cash requirements for the next 12 months outweigh
the funds available. Of the $2,550,000 that we require for the next
12 months, we had $25,494 in cash as of December 31, 2019, and a
working capital deficit of $8,376,433. Our principal sources of
liquidity are cash generated from product sales and debt
financings. In order to achieve sustained profitability and
positive cash flows from operations, we will need to increase
revenue and/or reduce operating expenses. Our ability to maintain,
or increase, current revenue levels to achieve and sustain
profitability will depend, in part, on demand for our products.
In
order to improve our liquidity, we also plan to pursue additional
equity financing from private investors or possibly a registered
public offering. We do not currently have any definitive
arrangements in place for the completion of any further private
placement financings and there is no assurance that we will be
successful in completing any further private placement financings.
To help finance our day to day working capital needs, the founder
and CEO of the Company has made total payments of $113,475 since
late 2015. If we are unable to achieve the necessary additional
financing, then we plan to reduce the amounts that we spend on our
business activities and administrative expenses in order to be
within the amount of capital resources obligations and execute our
business plan. There can be no assurances that we will be able to
raise additional capital on acceptable terms or at all, which would
adversely affect our ability to achieve our business
objectives.
Off-Balance
Sheet Transactions
We do
not have any off-balance sheet arrangements.
Contractual
Obligations and Known Future Cash Requirements
Indemnification Agreements
In
the ordinary course of business, we enter into agreements of
varying scope and terms pursuant to which we agree to indemnify
customers, vendors, lessors, business partners and other parties
with respect to certain matters, including, but not limited to,
losses arising out of breach of such agreements, services to be
provided by us or from intellectual property infringement claims
made by third parties. In addition, we have entered into
indemnification agreements with directors and certain officers and
employees that will require us, among other things, to indemnify
them against certain liabilities that may arise by reason of their
status or service as directors, officers or employees. No demands
have been made upon us to provide indemnification under such
agreements and there are no claims that we are aware of that could
have a material effect on our consolidated balance sheet,
consolidated statements of operations, consolidated statements of
comprehensive loss or consolidated statements of cash
flows.
Operating Leases
We
currently lease our corporate headquarters in Surrey, British
Columbia and a showroom office in Vacaville, California, under
operating lease agreements that expire on May 31, 2020 and November
30, 2022, respectively. The terms of both lease agreements provide
for rental payments on a graduated basis.
Critical
Accounting Policies and Estimates
We
prepare our consolidated financial statements in accordance with
U.S. GAAP. The preparation of consolidated financial statements
also requires us to make estimates and assumptions that affect the
reported amounts of assets, liabilities, revenue, costs and
expenses, and related disclosures. We base our estimates on
historical experience and on various other assumptions that we
believe to be reasonable under the circumstances. Actual results
could differ significantly from the estimates made by our
management. To the extent that there are differences between our
estimates and actual results, our future financial statements
presentation, financial condition, results of operations, and cash
flows will be affected.
We
believe that the assumptions and estimates associated with revenue
recognition, derivative liabilities, foreign currency and foreign
currency transactions and comprehensive loss have the greatest
potential impact on our consolidated financial statements.
Therefore, we consider these to be our critical accounting policies
and estimates. For further information on all of our significant
accounting policies, see the notes to our consolidated financial
statements.
Recently
Issued and Adopted Accounting Pronouncements
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 to use the modified retrospective for 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.
Recently
Issued Accounting Pronouncements
Applicable
for fiscal years beginning after December 15, 2019:
In
June 2016, FASB issued ASU 2016-13, Measurement of Credit Loss
on financial Instruments. ASU 2016-13 replaces the current
incurred loss impairment methodology with the expected credit loss
impairment model, which requires consideration of a broader range
of reasonable and supportable information to estimate expected
credit losses over the life of the instrument instead of only when
losses are incurred. This standard applies to financial assets
measured at amortized cost basis and investments in leases
recognized by the lessor.
The
Company is currently evaluating the impact of the above standard on
its consolidated financial statements. Other recent accounting
pronouncements issued by FASB, including its Emerging Issues Task
Force, the American Institute of Certified Public Accountants, and
the Securities and Exchange Commission did not or are not believed
by management to have a material impact on the Company’s
consolidated financial statements.
ITEM
7A. |
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK |
Not
applicable.
ITEM
8. |
FINANCIAL
STATEMENTS AND SUPPLEMENTAL DATA |
DSG
GLOBAL INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
REPORT OF INDEPENDENT PUBLIC
ACCOUNTING FIRM
To
the Shareholders and Board of Directors of DSG Global,
Inc.
Opinion
on the Consolidated Financial Statements
We have audited the accompanying consolidated balance sheets of DSG
Global Inc. and subsidiaries (the “Company”) as of December 31,
2019 and 2018, and the related consolidated statements of
operations, comprehensive loss, stockholders’ deficit, and cash
flows for the years then ended and the related notes (collectively
referred to as the financial statements). In our opinion, the
financial statements present fairly, in all material respects, the
financial position of the Company as of December 31, 2019 and 2018,
and the results of its operations and its cash flows for the years
then ended in conformity with accounting principles generally
accepted in the United States of America.
Basis
for Opinion
These
consolidated financial statements are the responsibility of the
Company’s management. Our responsibility is to express an opinion
on these consolidated financial statements based on our audits. We
are required to be independent with respect to the Company in
accordance with the relevant ethical requirements relating to our
audit.
We
conducted our audits in accordance with the auditing standards of
the Public Company Accounting Oversight Board (United States) and
in accordance with auditing standards generally accepted in the
United States of America. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material
misstatement, whether due to error or fraud. The Company is not
required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. As part of our audits,
we are required to obtain an understanding of internal control over
financial reporting but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over
financial reporting. Accordingly, we express no such
opinion.
Our
audit included performing procedures to assess the risks of
material misstatement of the consolidated financial statements,
whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures including examining, on a
test basis, evidence regarding the amounts and disclosures in the
consolidated financial statements. Our audits also included
evaluating the accounting principles used and significant estimates
made by management, as well as evaluating the overall presentation
of the consolidated financial statements. We believe that our
audits provide a reasonable basis for our opinion.
Emphasis
of Matter
The
accompanying financial statements have been prepared assuming that
DSG Global Inc. will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has a
working capital deficit, and has incurred significant operating
losses and negative cash flows from operations since inception.
These factors raise substantial doubt about the Company’s ability
to continue as a going concern. Management’s plans in regard to
these matters are also discussed in Note 2 to the consolidated
financial statements. The consolidated financial statements do not
include any adjustments that might result from the outcome of this
uncertainty.
/s/
BUCKLEY DODDS LLP |
|
Vancouver,
Canada |
|
|
|
May 14, 2020
|
|
We
have served as the Company’s auditor since March 2019.

DSG GLOBAL, INC.
CONSOLIDATED
BALANCE SHEETS
AS
AT DECEMBER 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
|
|
|
CURRENT ASSETS |
|
|
|
|
|
|
|
|
Cash |
|
$ |
25,494 |
|
|
$ |
5,059 |
|
Trade receivables,
net |
|
|
74,793 |
|
|
|
139,400 |
|
Inventories, net of
inventory allowance of $151,191 and $146,292, respectively |
|
|
140,943 |
|
|
|
141,296 |
|
Prepaid
expenses and deposits |
|
|
9,570 |
|
|
|
47,484 |
|
TOTAL CURRENT ASSETS |
|
|
250,800 |
|
|
|
333,239 |
|
|
|
|
|
|
|
|
|
|
Fixed assets,
net |
|
|
139,823 |
|
|
|
869 |
|
Equipment on lease,
net |
|
|
1,457 |
|
|
|
3,316 |
|
Intangible assets, net |
|
|
14,061 |
|
|
|
15,289 |
|
TOTAL ASSETS |
|
$ |
406,141 |
|
|
$ |
352,713 |
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT |
|
|
|
|
|
|
|
|
CURRENT LIABILITIES |
|
|
|
|
|
|
|
|
Trade and other
payables |
|
$ |
2,345,333 |
|
|
$ |
1,897,530 |
|
Deferred revenue |
|
|
65,274 |
|
|
|
215,662 |
|
Operating lease
liability |
|
|
62,935 |
|
|
|
- |
|
Convertible note
payable to related party |
|
|
- |
|
|
|
310,000 |
|
Loans payable |
|
|
789,469 |
|
|
|
795,588 |
|
Derivative
liability |
|
|
2,856,569 |
|
|
|
2,188,354 |
|
Convertible notes payable, net of unamortized discount of $550,876
and $213,461, respectively |
|
|
2,507,653 |
|
|
|
1,613,912 |
|
TOTAL CURRENT LIABILITIES |
|
|
8,627,233 |
|
|
|
7,021,046 |
|
|
|
|
|
|
|
|
|
|
Operating lease liability |
|
|
74,225 |
|
|
|
- |
|
TOTAL LIABILITIES |
|
|
8,701,458 |
|
|
|
7,021,046 |
|
|
|
|
|
|
|
|
|
|
Going concern (Note
2) |
|
|
|
|
|
|
|
|
Commitments (Note
16) |
|
|
|
|
|
|
|
|
Contingencies (Note
17) |
|
|
|
|
|
|
|
|
Subsequent events
(Note 20) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY |
|
|
|
|
|
|
|
|
Redeemable preferred stock, $0.001 par value, 11,000,000 shares
authorized (2018 – 11,000,000), to be issued (2018 - to be
issued) |
|
|
33,807 |
|
|
|
6,702,450 |
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT |
|
|
|
|
|
|
|
|
Preferred stock,
$0.001 par value, 3,010,000 shares authorized (2018 – 3,010,000),
200,376 issued and outstanding (2018 - to be issued) |
|
|
200 |
|
|
|
4,872,732 |
|
Common stock, $0.001
par value, 150,000,000 shares authorized, (2018 - 750,000);
1,146,302 issued and outstanding (2018 - 634,471) |
|
|
1,146 |
|
|
|
634 |
|
Additional paid in
capital, common stock |
|
|
28,097,710 |
|
|
|
22,415,121 |
|
Discounts on common
stock |
|
|
(69,838 |
) |
|
|
(69,838 |
) |
Common stock to be
issued |
|
|
7,402,254 |
|
|
|
- |
|
Other accumulated
comprehensive income |
|
|
1,372,345 |
|
|
|
1,465,389 |
|
Accumulated deficit |
|
|
(45,132,941 |
) |
|
|
(42,054,821 |
) |
TOTAL STOCKHOLDERS’ DEFICIT |
|
|
(8,329,124 |
) |
|
|
(13,370,783 |
) |
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES MEZZANINE EQUITY AND STOCKHOLDERS’ DEFICIT |
|
$ |
406,141 |
|
|
$ |
352,713 |
|
The
accompanying notes are an integral part of the audited consolidated
financial statements
DSG GLOBAL, INC.
CONSOLIDATED
STATEMENTS OF OPERATIONS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Revenue |
|
$ |
1,399,420 |
|
|
$ |
1,281,024 |
|
Cost of revenue |
|
|
948,273 |
|
|
|
191,650 |
|
Gross profit |
|
|
451,147 |
|
|
|
1,089,374 |
|
|
|
|
|
|
|
|
|
|
Operating expenses |
|
|
|
|
|
|
|
|
Compensation expense |
|
|
1,921,078 |
|
|
|
726,520 |
|
General and administration expense |
|
|
886,592 |
|
|
|
1,561,000 |
|
Warranty recovery |
|
|
- |
|
|
|
(89,037 |
) |
Bad debt |
|
|
65,802 |
|
|
|
61,059 |
|
Depreciation and amortization
expense |
|
|
4,218 |
|
|
|
13,649 |
|
Total operating
expense |
|
|
2,877,690 |
|
|
|
2,273,191 |
|
Loss from
operations |
|
|
(2,426,543 |
) |
|
|
(1,183,817 |
) |
|
|
|
|
|
|
|
|
|
Other income (expense) |
|
|
|
|
|
|
|
|
Foreign currency exchange |
|
|
37,224 |
|
|
|
(59,050 |
) |
Change in fair value of derivative
instruments |
|
|
271,704 |
|
|
|
1,005,458 |
|
Gain (loss) on extinguishment of debt |
|
|
659,999 |
|
|
|
(6,889,665 |
) |
Finance costs |
|
|
(1,620,504 |
) |
|
|
(2,698,330 |
) |
Total other
expense |
|
|
(651,577 |
) |
|
|
(8,641,587 |
) |
|
|
|
|
|
|
|
|
|
Loss before income taxes |
|
|
(3,078,120 |
) |
|
|
(9,825,404 |
) |
|
|
|
|
|
|
|
|
|
Provision for income
taxes |
|
|
- |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Net loss |
|
|
(3,078,120 |
) |
|
|
(9,825,404 |
) |
|
|
|
|
|
|
|
|
|
Net loss per share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted: |
|
|
|
|
|
|
|
|
Basic |
|
$ |
(3.84 |
) |
|
$ |
(28.88 |
) |
Diluted |
|
$ |
(3.84 |
) |
|
$ |
(28.88 |
) |
|
|
|
|
|
|
|
|
|
Weighted average number of shares used in
computing basic and diluted net loss per share: |
|
|
|
|
|
|
|
|
Basic |
|
|
801,993 |
|
|
|
340,264 |
|
Diluted |
|
|
801,993 |
|
|
|
340,264 |
|
The
accompanying notes are an integral part of the audited consolidated
financial statements
DSG GLOBAL, INC.
CONSOLIDATED
STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
|
|
2019 |
|
|
2018 |
|
|
|
|
|
|
|
|
Net
loss |
|
$ |
(3,078,120 |
) |
|
$ |
(9,825,404 |
) |
Other comprehensive income (loss) |
|
|
|
|
|
|
|
|
Foreign currency translation adjustments |
|
|
(93,044 |
) |
|
|
592,139 |
|
|
|
|
|
|
|
|
|
|
Comprehensive loss |
|
$ |
(3,171,164 |
) |
|
$ |
(9,233,265 |
) |
The
accompanying notes are an integral part of the audited consolidated
financial statements
DSG GLOBAL, INC.
CONSOLIDATED
STATEMENTS OF STOCKHOLDERS’ DEFICIT
AS
AT DECEMBER 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
|
|
Common
Stock
|
|
|
Preferred
Stock |
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Amount |
|
|
Additional
paid in
capital |
|
|
Discount on
common
stock |
|
|
To be
issued |
|
|
Amount |
|
|
Accumulated
other 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 |
|
|
634,471 |
|
|
$ |
634 |
|
|
$ |
22,415,121 |
|
|
$ |
(69,838 |
) |
|
$ |
- |
|
|
$ |
4,872,732 |
|
|
$ |
1,465,389 |
|
|
$ |
(42,054,821 |
) |
|
$ |
(13,370,783 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares to be issued for cash |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,453 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
23,453 |
|
Shares issued and to be issued for
services |
|
|
72,295 |
|
|
|
72 |
|
|
|
63,365 |
|
|
|
- |
|
|
|
1,224,000 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
1,287,437 |
|
Shares issued on conversion of
debt |
|
|
407,536 |
|
|
|
408 |
|
|
|
506,060 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
506,468 |
|
Shares issued for debt settlement |
|
|
32,000 |
|
|
|
32 |
|
|
|
37,728 |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
37,760 |
|
Shares to be issued and warrants
issued for restructure of preferred shares and debt |
|
|
- |
|
|
|
- |
|
|
|
5,075,436 |
|
|
|
- |
|
|
|
6,154,801 |
|
|
|
(4,872,732 |
) |
|
|
- |
|
|
|
- |
|
|
|
6,357,505 |
|
Preferred shares issued for
services |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
200 |
|
|
|
- |
|
|
|
- |
|
|
|
200 |
|
Net loss for
the period |
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
- |
|
|
|
(93,044 |
) |
|
|
(3,078,120 |
) |
|
|
(3,171,164 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance,
December 31, 2019 |
|
|
1,146,302 |
|
|
$ |
1,146 |
|
|
$ |
28,097,710 |
|
|
$ |
(69,838 |
) |
|
$ |
7,402,254 |
|
|
$ |
200 |
|
|
$ |
1,372,345 |
|
|
$ |
(45,132,941 |
) |
|
$ |
(8,329,124 |
) |
The
accompanying notes are an integral part of the audited consolidated
financial statements
DSG GLOBAL INC.
CONSOLIDATED
STATEMENTS OF CASH FLOWS
FOR
THE YEARS ENDED DECEMBER 31, 2019 AND 2018
(Expressed
in U.S. Dollars)
|
|
December 31, 2019 |
|
|
December 31, 2018 |
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(3,078,120 |
) |
|
$ |
(9,825,404 |
) |
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
net cash used in operating activities: |
|
|
|
|
|
|
|
|
Depreciation and
amortization |
|
|
4,218 |
|
|
|
13,649 |
|
Change in
inventory allowance |
|
|
2,096 |
|
|
|
146,292 |
|
Non-cash financing
costs |
|
|
235,177 |
|
|
|
261,220 |
|
Accretion of
discounts on debt |
|
|
751,691 |
|
|
|
1,742,705 |
|
Change in fair
value of derivative liabilities |
|
|
(271,704 |
) |
|
|
(1,005,458 |
) |
Bad debt
expense |
|
|
65,802 |
|
|
|
75,951 |
|
Shares issued and
to be issued for services |
|
|
1,287,637 |
|
|
|
334,750 |
|
(Gain) loss on
extinguishment of debt |
|
|
(659,999 |
) |
|
|
6,897,744 |
|
Unrealized foreign
exchange gain |
|
|
40,173 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
Changes in non-cash working
capital: |
|
|
|
|
|
|
|
|
Trade receivables,
net |
|
|
42,456 |
|
|
|
(216,538 |
) |
Inventories |
|
|
4,919 |
|
|
|
(278,659 |
) |
Prepaid expense
and deposits |
|
|
35,240 |
|
|
|
(27,129 |
) |
Related party
receivable |
|
|
- |
|
|
|
1,034 |
|
Trade payables and
accruals |
|
|
797,785 |
|
|
|
568,132 |
|
Deferred
revenue |
|
|
(111,456 |
) |
|
|
(165,523 |
) |
Warranty
reserve |
|
|
- |
|
|
|
55,997 |
|
Operating lease liabilities |
|
|
5,308 |
|
|
|
- |
|
Net
cash used in operating activities |
|
|
(848,777 |
) |
|
|
(1,421,237 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from investing
activities |
|
|
|
|
|
|
|
|
Purchase of fixed
assets |
|
|
(1,383 |
) |
|
|
(1,570 |
) |
Purchase of intangible assets |
|
|
- |
|
|
|
(1,100 |
) |
Net
cash used in investing activities |
|
|
(1,383 |
) |
|
|
(2,670 |
) |
|
|
|
|
|
|
|
|
|
Cash flows from financing
activities |
|
|
|
|
|
|
|
|
Proceeds from
issuing shares and shares to be issued |
|
|
23,453 |
|
|
|
81,659 |
|
Payments on notes
payable and accrued interest |
|
|
- |
|
|
|
(45,000 |
) |
Proceeds from notes payable |
|
|
846,538 |
|
|
|
1,292,000 |
|
Net
cash provided by financing activities |
|
|
869,991 |
|
|
|
1,328,659 |
|
|
|
|
|
|
|
|
|
|
Effect of
exchange rate changes on cash |
|
|
604 |
|
|
|
94,819 |
|
Net increase in cash |
|
|
20,435 |
|
|
|
(429 |
) |
Cash at beginning of period |
|
|
5,059 |
|
|
|
5,488 |
|
|
|
|
|
|
|
|
|
|
Cash
at the end of the period |
|
$ |
25,494 |
|
|
$ |
5,059 |
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow Information
(Note 19) |
|
|
|
|
|
|
|
|
The
accompanying notes are an integral part of the audited consolidated
financial statements
DSG GLOBAL, INC.
NOTES TO CONSOLIDATED
FINANCIAL STATEMENTS
(Expressed
in U.S. Dollars)
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, the Company approved to increase its authorized common stock
to 150,000,000, 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
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 December 31, 2019,
the Company has a working capital deficit of $8,376,433 and has an
accumulated deficit of $45,132,941 since inception. Furthermore,
the Company incurred a net loss of $3,078,120, used $848,777 of
cash flows for operating activities during the year ended December
31, 2019 and may experience business disruptions due to the recent
outbreak of the coronavirus, also known as “COVID-19”. These
factors raise substantial doubt regarding the Company’s ability to
continue as a going concern. These 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
consolidated financial statements of the Company have been prepared
in accordance with accounting principles generally accepted in the
United States (“U.S. GAAP”) and are expressed in U.S. dollars.
These consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain comparative information has been reclassified to conform
with the financial statement presentation adopted in the current
year.
Principles
of Consolidation
The
consolidated financial statements include the accounts of DSG
Global Inc. and its subsidiary VTS and its wholly owned subsidiary
DSG UK, collectively referred to as the “Company”. All intercompany
accounts, transactions and profits were eliminated in the
consolidated financial statements.
Use
of Estimates
The
preparation of 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
financial statements and the reported amounts of revenues and
expenses during the reporting period. The Company regularly
evaluates estimates and assumptions related to revenue recognition,
the collectability of accounts receivable, valuation of inventory,
useful lives and recoverability of long-lived assets, fair value
derivative liabilities, the Company’s incremental borrowing rate,
leases and deferred income tax asset valuation allowances. The
Company bases its estimates and assumptions on current facts,
historical experience and various other factors that it believes to
be reasonable under the circumstances, the results of which form
the basis for making judgments about the carrying values of assets
and liabilities and the accrual of costs and expenses that are not
readily apparent from other sources. The actual results experienced
by the Company may differ materially and adversely from those
estimates. Estimates and assumptions are reviewed periodically, and
the effects of revisions are reflected in the consolidated
financial statements in the period they are determined.
The
Company’s policy for equipment requires judgment in determining
whether the present value of future expected economic benefits
exceeds capitalized costs. The policy requires management to make
certain estimates and assumptions about future economic benefits
related to its operations. Estimates and assumptions may change if
new information becomes available. If information becomes available
suggesting that the recovery of capitalized cost is unlikely, the
capitalized cost is written off to the consolidated statement of
operations.
The
assessment of whether the going concern assumption is appropriate
requires management to take into account all available information
about the future, which is at least, but is not limited to, 12
months from the date the financial statements are issued. The
Company is aware that material uncertainties related to events or
conditions may cast substantial doubt upon the Company’s ability to
continue as a going concern.
Foreign
Currency Translation
The
Company’s functional and reporting currency is the U.S. dollar. The
functional currency of VTS is the Canadian dollar. The functional
currency of DSG UK is the British pound. Monetary assets and
liabilities denominated in foreign currencies are translated using
the exchange rate prevailing at the balance sheet date.
Non-monetary assets, liabilities, and items recorded in income
arising from transactions denominated in foreign currencies are
translated at rates of exchange in effect at the date of the
transaction. Gains and losses arising on translation or settlement
of foreign currency denominated transactions or balances are
included in the determination of income.
The
accounts of VTS and DSG UK are translated to U.S. dollars using the
current rate method. Accordingly, assets and liabilities are
translated into U.S. dollars at the period-end exchange rate while
revenues and expenses are translated at the average exchange rates
during the period. Related exchange gains and losses are included
in a separate component of stockholders’ equity as accumulated
other comprehensive income (loss).
Reportable
Segment
The
Company has one reportable segment. The Company’s activities are
interrelated, and each activity is dependent upon and supportive of
the other. Accordingly, all significant operating decisions are
based on analysis of financial products provided as a single global
business.
Revenue
Recognition and Warranty Reserve
In
May 2014, Financial Account Standards Board (“FASB”) issued ASU No.
2014-09, Revenue from Contracts with Customers (“ASU 2014-09”). The
Company adopted this standard on a modified retroactive basis on
January 1, 2018. No financial statement impact occurred upon
adoption.
Revenue
from Contracts with Customers
Accounting
Standards Update (“ASU”) No. 2014-09, Revenue from Contracts
with Customers (“Topic 606”), became effective for the
Company on January 1, 2018. The Company’s revenue recognition
disclosure reflects its updated accounting policies that are
affected by this new standard. The Company applied the “modified
retrospective” transition method for open contracts for the
implementation of Topic 606. As sales are and have been
primarily from product sales, delivery and installation, and
customer support services and the Company has no significant
post-delivery obligations, this new standard did not result in a
material recognition of revenue on the Company’s accompanying
consolidated financial statements for the cumulative impact of
applying this new standard. The Company made no adjustments to its
previously reported total revenues, as those periods continue to be
presented in accordance with its historical accounting practices
under Topic 605, Revenue Recognition.
The
Company recognizes revenue when it satisfies a performance
obligation by transferring control over a product to a customer.
Revenue is measured based on the consideration the Company expects
to receive in exchange for those products. In instances where final
acceptance of the product is specified by the customer, revenue is
deferred until all acceptance criteria have been met. Revenues are
recognized under Topic 606 in a manner that reasonably
reflects the delivery of its products and services to customers in
return for expected consideration and includes the following
elements:
|
● |
executed
contracts with the Company’s customers that it believes are legally
enforceable; |
|
● |
identification
of performance obligations in the respective contract; |
|
● |
determination
of the transaction price for each performance obligation in the
respective contract; |
|
● |
allocation
the transaction price to each performance obligation;
and |
|
● |
recognition
of revenue only when the Company satisfies each performance
obligation. |
Performance
Obligations and Signification Judgments
The
Company’s revenue streams can be categorized into the following
performance obligations and recognition patterns:
|
1. |
Sale,
delivery and installation of Tag, Text and Infinity products, along
with digital mapping and customer training. The Company recognizes
revenue at a point in time when final sign-off on the installation
is obtained from the General Manager and/or Director of
Golf. |
|
2. |
Provision
of internet connectivity, regular software updates, software
maintenance and basic customer support service. The Company
recognizes revenue over time, evenly over the term of the
service. |
|
3. |
Sale
and delivery of Fairway Rider products. The Company recognizes
revenue at a point in time when control transfers to the
customer. |
Transaction
prices for performance obligations are explicitly outlined in
relevant agreements, therefore, the Company does not believe that
significant judgments are required with respect to the
determination of the transaction price, including any variable
consideration identified.
Warranty
Reserve
The
Company accrues for warranty costs, sales returns and other
allowances based on its historical experience. During the years
ended December 31, 2019 and 2018, the Company did not provide a
warranty for any of its products sold during those periods. The
warranty reserve was $Nil as at December 31, 2019 and
2018.
Research
and Development
Research
and development expenses include payroll, employee benefits, and
other headcount-related expenses associated with product
development. Research and development expenses also include
third-party development and programming costs, localization costs
incurred to translate software for international markets, and the
amortization of purchased software code and services content. Such
costs related to software development are included in research and
development expense until the point that technological feasibility
is reached. Research and development is expensed and is included in
operating expenses.
Income
Taxes
The
Company accounts for income taxes using the asset and liability
method in accordance with ASC 740, Income Taxes. The asset and
liability method provides that deferred income tax assets and
liabilities are recognized for the expected future tax consequences
of temporary differences between the financial reporting and tax
bases of assets and liabilities, and for operating loss and tax
credit carryforwards. Deferred income tax assets and liabilities
are measured using the currently enacted tax rates and laws that
will be in effect when the differences are expected to reverse. The
Company records a valuation allowance to reduce deferred income tax
assets to the amount that is believed more likely than not to be
realized.
As of
December 31, 2019, and 2018, the Company did not have any amounts
recorded pertaining to uncertain tax positions. The Company
recognizes interest and penalties related to uncertain tax
positions in general and administrative expense. The Company did
not incur any penalties or interest during the years ended December
31, 2019 and 2018. On December 22, 2017 the U.S. enacted the Tax
Cuts and Jobs Act (“the Tax Act”) which significantly changed U.S.
tax law. The Tax Act lowered the Company’s statutory federal income
tax rate from a maximum of 39% to a rate of 21% effective January
1, 2018. The Company has deferred tax losses and assets and they
were adjusted as a result of the change in tax law reducing the
federal income tax rate. The Company’s tax years 2014 and forward
remain open.
Concentration
of Credit Risk
Financial
instruments that potentially subject the Company to concentrations
of credit risk are cash, and trade receivables arising from its
normal business activities. The Company places its cash in what it
believes to be credit-worthy financial institutions. The Company
has a diversified customer base, most of which are in Canada,
United States and the United Kingdom. The Company controls credit
risk related to trade receivables through credit approvals, credit
limits and monitoring procedures. The Company routinely assesses
the financial strength of its customers and, based upon factors
surrounding the credit risk, establishes an allowance, if required,
for uncollectible accounts and, as a consequence, believes that its
accounts receivable credit risk exposure beyond such allowance is
limited.
Risks
and Uncertainties
The
Company is subject to risks from, among other things, competition
associated with the industry in general, other risks associated
with financing, liquidity requirements, rapidly changing customer
requirements, limited operating history, foreign currency exchange
rates and the volatility of public markets.
Contingencies
Certain
conditions may exist as of the date the consolidated financial
statements are issued, which may result in a loss to the Company,
but which will only be resolved when one or more future events
occur or fail to occur. The Company’s management and legal counsel
assess such contingent liabilities, and such assessment inherently
involves judgment. In assessing loss contingencies related to legal
proceedings that are pending against the Company or un-asserted
claims that may result in such proceedings, the Company’s legal
counsel evaluates the perceived merits of any legal proceedings or
un-asserted claims as well as the perceived merits of the amount of
relief sought or expected to be sought.
If
the assessment of a contingency indicates it is probable that a
material loss has been incurred and the amount of the liability can
be estimated, then the estimated liability would be accrued in the
Company’s consolidated financial statements. If the assessment
indicates that a potential material loss contingency is not
probable but is reasonably possible, or is probable but cannot be
estimated, then the nature of the contingent liability, together
with an estimate of the range of possible loss if determinable and
material would be disclosed. Loss contingencies considered to be
remote by management are generally not disclosed unless they
involve guarantees, in which case the guarantee would be
disclosed.
Cash
and Cash Equivalents
Cash
and equivalents include cash in hand and cash in demand deposits,
certificates of deposit and all highly liquid debt instruments with
original maturities of three months or less. At December 31, 2019
and 2018, there were no uninsured balances for accounts in Canada,
the United States and the United Kingdom. The Company has not
experienced any losses in such accounts and believes it is not
exposed to any risks on its cash in bank accounts. At December 31,
2019 and 2018, the Company did not hold any cash
equivalents.
Accounts
Receivable
All
accounts receivable under standard terms are due thirty (30) days
from the date billed. If the funds are not received within thirty
(30) days, the customer is contacted to arrange payment. The
Company uses the allowance method to account for uncollectable
accounts receivable.
Financing
Receivables and Guarantees
The
Company provides financing arrangements, including operating leases
and financed service contracts for certain qualified customers.
Lease receivables primarily represent sales-type and
direct-financing leases. Leases typically have two- to three-year
terms and are collateralized by a security interest in the
underlying assets. The Company makes an allowance for uncollectible
financing receivables based on a variety of factors, including the
risk rating of the portfolio, macroeconomic conditions, historical
experience, and other market factors. At December 31, 2019 and 2018
management determined that there was no allowance necessary. The
Company also provides financing guarantees, which are generally for
various third-party financing arrangements to channel partners and
other customers. The Company could be called upon to make payment
under these guarantees in the event of nonpayment to the third
party. As at December 31, 2019 and 2018, no financing receivables
are outstanding.
Advertising
Costs
The
Company expenses all advertising costs as incurred. Advertising and
marketing costs were $73,281 and $404,391 for the years ended
December 31, 2019 and 2018, respectively.
Inventory
Inventories
are valued at the lower of cost or net realizable value. Cost is
determined using the first-in-first-out basis for finished goods.
Net realizable value is determined on the basis of anticipated
sales proceeds less the estimated selling expenses. Management
compares the cost of inventories with the net realizable value and
an allowance is made to write down inventories to net realizable
value, if lower.
Fixed
Assets and Equipment on Lease
Fixed
assets and equipment on lease are stated at cost less accumulated
depreciation. Fixed assets and equipment on lease are depreciated
using the straight-line method over the shorter of the estimated
useful life of the asset or the lease term. The estimated useful
lives of fixed assets are generally as follows:
Furniture
and equipment |
5-years
straight-line |
Computer
equipment |
3-years
straight-line |
Equipment
on lease |
5-years
straight-line |
Intangible
Assets
Intangible
assets are stated at cost less accumulated amortization and are
comprised of patents. The patents are amortized straight-line over
the estimated useful life of 20 years and are reviewed annually for
impairment.
Impairment
of Long-Lived Assets
The
Company reviews long-lived assets such as equipment, equipment on
lease, and intangible assets with finite useful lives for
impairment whenever events or changes in circumstance indicate that
the carrying amount may not be recoverable. If the total of the
expected undiscounted future cash flows is less than the carrying
value of the asset, a loss is recognized for the excess of the
carrying amount over the fair value of the asset.
Financial
Instruments and Fair Value Measurements
The
Company analyzes all financial instruments with features of both
liabilities and equity under ASC Topic 480, “Distinguishing
Liabilities from Equity,” and ASC Topic 815 “Derivatives and
Hedging”.
ASC
Topic 820, “Fair Value Measurements and Disclosures,”
requires disclosure of the fair value of financial instruments held
by the Company. ASC Topic 825, “Financial Instruments,”
defines fair value, and establishes a three-level valuation
hierarchy for disclosures of fair value measurement that enhances
disclosure requirements for fair value measures. The carrying
amounts reported in the consolidated balance sheets for receivables
and current liabilities each qualify as financial instruments and
are a reasonable estimate of their fair values because of the short
period of time between the origination of such instruments and
their expected realization and their current market rate of
interest. The three levels of valuation hierarchy are defined as
follows:
Level
1
Level
1 applies to assets or liabilities for which there are quoted
prices in active markets for identical assets or
liabilities.
Level
2
Level
2 applies to assets or liabilities for which there are inputs other
than quoted prices that are observable for the asset or liability
such as quoted prices for similar assets or liabilities in active
markets; quoted prices for identical assets or liabilities in
markets with insufficient volume or infrequent transactions (less
active markets); or model-derived valuations in which significant
inputs are observable or can be derived principally from, or
corroborated by, observable market data.
Level
3
Level
3 applies to assets or liabilities for which there are unobservable
inputs to the valuation methodology that are significant to the
measurement of the fair value of the assets or
liabilities.
The
Company’s financial instruments consist of cash, trade receivables,
trade and other payables, operating lease liabilities, convertible
note payable to related party, loans payable, derivative
liabilities and convertible notes payable. Except for cash and
derivative liabilities, the Company’s financial instruments’
carrying amounts, excluding any unamortized discounts, approximate
their fair values due to their short term to maturity. The fair
value of long-term operating lease liabilities approximates their
carrying value due to minimal changes in interest rates and the
Company’s credit risk since initial recognition. Cash and
derivative liabilities are measured and recognized at fair value
based on level 1 and level 2 inputs, respectively, for all periods
presented.
Loss
per Share
The
Company computes net income (loss) per share in accordance with ASC
260, Earnings per Share. ASC 260 requires presentation of both
basic and diluted earnings per share (“EPS”) on the face of the
consolidated statement of operations. Basic EPS is computed by
dividing net income (loss) available to common shareholders
(numerator) by the weighted average number of shares outstanding
(denominator) during the period. Diluted EPS gives effect to all
dilutive potential common shares outstanding during the period
using the treasury stock method and convertible preferred stock
using the if-converted method. In computing diluted EPS, the
average stock price for the period is used in determining the
number of shares assumed to be purchased from the exercise of stock
options or warrants. Diluted EPS excludes all dilutive potential
shares if their effect is anti-dilutive. As at December 31, 2019,
the Company had 13,287,548 (2018 – 35,173,897) potentially dilutive
shares outstanding.
Stock-Based
Compensation
The
Company records stock-based compensation in accordance with ASC
718, “Compensation – Stock Compensation”, using the fair value
method. All transactions in which goods or services are the
consideration received for the issuance of equity instruments are
accounted for based on the fair value of the consideration received
or the fair value of the equity instrument issued, whichever is
more reliably measurable.
The
Company uses the Black-Scholes option pricing model to calculate
the fair value of stock-based awards. This model is affected by the
Company’s stock price as well as assumptions regarding a number of
subjective variables. These subjective variables include but are
not limited to the Company’s expected stock price volatility over
the term of the awards, and actual and projected employee stock
option exercise behaviors. The value of the portion of the award
that is ultimately expected to vest is recognized as an expense in
the consolidated statement of operations over the requisite service
period. During the years ended December 31, 2019 and 2018 there was
no stock-based compensation.
Leases
The
Company determines if an arrangement is a lease at inception.
Operating and financing right-of-use assets and lease liabilities
are included within fixed assets on the consolidated balance
sheets. Right-of-use assets represent our right to use an
underlying asset for the lease term and lease liabilities represent
our obligation to make lease payments arising from the lease.
Right-of-use assets and liabilities are recognized at commencement
date based on the present value of lease payments over the lease
term. The Company uses its incremental borrowing rate, based on the
information available at the commencement date, in determining the
present value of future lease payments. Right-of-use assets include
any prepaid lease payments and exclude any lease incentives and
initial direct costs incurred. Operating lease expenses are
recognized on a straight-line basis over the term of the lease,
consisting of interest accrued on the lease liability and
depreciation of the right-of-use asset. The lease terms may include
options to extend or terminate the lease if it is reasonably
certain the Company will exercise that option.
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.
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 to use the modified retrospective for 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.
Recently
Issued Accounting Pronouncements
Applicable
for fiscal years beginning after December 15, 2019:
In
June 2016, FASB issued ASU 2016-13, Measurement of Credit Loss
on financial Instruments. ASU 2016-13 replaces the current
incurred loss impairment methodology with the expected credit loss
impairment model, which requires consideration of a broader range
of reasonable and supportable information to estimate expected
credit losses over the life of the instrument instead of only when
losses are incurred. This standard applies to financial assets
measured at amortized cost basis and investments in leases
recognized by the lessor.
The
Company is currently evaluating the impact of the above standard on
its consolidated financial statements. Other recent accounting
pronouncements issued by FASB, including its Emerging Issues Task
Force, the American Institute of Certified Public Accountants, and
the Securities and Exchange Commission did not or are not believed
by management to have a material impact on the Company’s
consolidated financial statements.
Note
4 – TRADE RECEIVABLES
As of
December 31, 2019 and 2018, trade receivables consists of the
following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Accounts receivables |
|
$ |
82,927 |
|
|
$ |
184,214 |
|
Allowance for
doubtful accounts |
|
|
(8,134 |
) |
|
|
(44,814 |
) |
Total trade
receivables, net |
|
$ |
74,793 |
|
|
$ |
139,400 |
|
Note
5 – FIXED ASSETS AND EQUIPMENT ON LEASE
As of
December 31, 2019 and 2018, fixed assets consisted of the
following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Furniture and
equipment |
|
$ |
- |
|
|
$ |
20,509 |
|
Computer equipment |
|
|
27,025 |
|
|
|
28,460 |
|
Right-of-use assets |
|
|
178,202 |
|
|
|
- |
|
Accumulated
depreciation |
|
|
(65,404 |
) |
|
|
(48,100 |
) |
|
|
$ |
139,823 |
|
|
$ |
869 |
|
As of
December 31, 2019 and 2018, equipment on lease consisted of the
following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Tags |
|
$ |
126,817 |
|
|
$ |
120,998 |
|
Text |
|
|
28,029 |
|
|
|
26,743 |
|
Infinity/Touch |
|
|
23,218 |
|
|
|
22,152 |
|
Accumulated
depreciation |
|
|
(176,607 |
) |
|
|
(166,577 |
) |
|
|
$ |
1,457 |
|
|
$ |
3,316 |
|
For
the year ended December 31, 2019, total depreciation expense for
fixed assets and equipment on lease was $2,990 (2018 - $12,443) and
is included in general and administration expense. For the year
ended December 31, 2019, total depreciation for right-of-use assets
was $39,671 (2018 - $nil) and is included in general and
administration expense as operating lease expense.
Note
6 – INTANGIBLE ASSETS
As of
December 31, 2019 and 2018, intangible assets consisted of the
following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Intangible asset -
Patents |
|
$ |
22,353 |
|
|
$ |
22,353 |
|
Accumulated
amortization |
|
|
(8,292 |
) |
|
|
(7,064 |
) |
|
|
$ |
14,061 |
|
|
$ |
15,289 |
|
Patents
are amortized on a straight-line basis over their estimated useful
life of 20 years. For the year ended December 31, 2019, total
amortization expense for intangible assets was $1,228 (2018 -
$1,206).
Note
7 – TRADE AND OTHER PAYABLES
As of
December 31, 2019, and 2018, trade and other payables consist of
the following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Accounts payable and
accrued expenses |
|
$ |
1,334,685 |
|
|
$ |
1,224,507 |
|
Accrued interest |
|
|
992,755 |
|
|
|
686,354 |
|
Other
liabilities |
|
|
17,893 |
|
|
|
(13,331 |
) |
Total trade and
other payables |
|
$ |
2,345,333 |
|
|
$ |
1,897,530 |
|
Note
8 – LOANS PAYABLE
As of
December 31, 2019 and 2018, loans payable consisted of the
following:
|
|
December 31,
2019 |
|
|
December 31,
2018 |
|
Unsecured,
due on demand, interest at 15% per annum(a) |
|
$ |
- |
|
|
$ |
183,258 |
|
Unsecured,
due on demand, interest at 36% per annum(b) |
|
|
- |
|
|
|
44,830 |
|
Unsecured, loan payable, due on
demand, interest at 18% per annum |
|
|
317,500 |
|
|
|
317,500 |
|
Unsecured, loan payable, due on
demand, interest 10% per annum, with a minimum interest amount of
$25,000 |
|
|
250,000 |
|
|
|
250,000 |
|
Unsecured share-settled debt, due on
May 7, 2019, non-interest bearing(c) |
|
|
214,286 |
|
|
|
- |
|
Unsecured loan
payable in the amount of CDN$10,000, due on demand, non-interest
bearing |
|
|
7,683 |
|
|
|
- |
|
|
|
|
|
|
|
|
|
|
|
|
$ |
789,469 |
|
|
$ |
795,588 |
|
(a) |
On
December 31, 2019, the outstanding loan payable in the principal
amount of $192,071 (CDN$250,000) and accrued interest of $149,183
(CDN$194,177), along with accounts payable due to the same lender
of $7,683 (CDN$10,000), were settled in exchange for 673,077 shares
of common stock to be issued. The shares of common stock had a fair
value of $528,365 based on their closing price on the date of
settlement, resulting in a loss on settlement of
$179,428. |
|
|
(b) |
On
October 24, 2019, the outstanding loan payable in the principal
amount of $46,986 (CDN$61,158) and accrued interest of $18,390
(CDN$23,936) were settled in exchange for 117,178 shares of common
stock. The shares of common stock had a fair value of $138,270
based on their closing price on the date of settlement, resulting
in a loss on settlement of $72,894. As of December 31, 2019, 32,000
shares of common stock were issued, and 85,178 shares of common
stock remain to be issued. The remaining 85,178 shares of common
stock were issued subsequent to year-end on February 5,
2020. |
|
|
(c) |
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 December 31, 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. Effective September 1, 2019, interest was reduced to
2% per month and effective December 1, 2019, the loan became
non-interest bearing. |
Note
9 – CONVERTIBLE LOANS
As of
December 31, 2019, and 2018, convertible loans payable consisted of
the following:
Related Party Convertible Notes Payable
During
the year ended December 31, 2019, the related party convertible
loans payable outstanding at December 31, 2018 was reclassified to
convertible notes payable as the lender ceased to be a related
party. Refer to Note 9(a).
Third Party Convertible Notes 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 December 31, 2019, the carrying value
of the convertible promissory note was $310,000 (December 31, 2018
- $310,000). |
|
|
(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 December 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 17. |
|
|
|
During
the year ended December 31, 2019, the Company issued 72,038 common
shares with a fair value of $59,097 for the conversion of $32,000
of principal resulting in a loss on settlement of debt of
$27,097. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $213,889
(December 31, 2018 - $245,889) and the fair value of the derivative
liability was $360,718 (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
December 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
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
December 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 $111,990 (December 31, 2018 - $121,485). During the
year ended December 31, 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 Company incurred a default fee of $15,000
subject to conditions of the convertible note dated March 19, 2018
and issued 13,886 common shares with a fair value of $144,417 for
the conversion of $15,000 of default fees resulting in a loss on
settlement of debt of $129,417. |
|
|
|
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). |
|
|
|
As at
December 31, 2019, the carrying value of the first tranche of the
note was $Nil (December 31, 2018 - $Nil) and the fair value of the
derivative liability was $Nil (December 31, 2018 - $Nil). During
the year ended December 31, 2019, the Company accreted $Nil (2018 -
$300,000) of the debt discount to finance costs.
|
|
|
|
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
December 31, 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 year ended December 31, 2019, the Company accreted $Nil
(2018 - $166,667) 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
June 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. On September 24, 2019,
the remaining principal balance of $120,489 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
December 31, 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 year ended December 31, 2019, the Company accreted
$17,246 (2018 - $181,087) 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
December 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 $2,601 (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
December 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 $48,918 (December 31, 2018 - $44,543). During the
year ended December 31, 2019, the Company accreted $7,277 (2018 -
$44,223) 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
December 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 $169,234 (December 31, 2018 - $165,742). During the
year ended December 31, 2019, the Company accreted $38,478 (2018 -
$141,522) of the debt discount to finance costs. |
|
|
(j) |
On
June 18, 2018, the Company reassigned convertible note balances
from the original lender to 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 year ended December 31, 2019, the Company issued 234,350 common
shares with a fair value of $268,614 for the conversion of $63,012
of principal and $9,671 of accrued interest resulting in a loss on
settlement of debt of $195,931. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $39,037
(December 31, 2018 - $102,049) and the fair value of the derivative
liability was $21,869 (December 31, 2018 - $53,896). During the
year ended December 31, 2019, the Company accreted $Nil (2018 -
$162,500) 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. |
|
|
|
During
the year ended December 31, 2019, the entire outstanding principal
and interest was assigned to another unrelated party with no
changes to the terms of the note upon assignment. Refer to Note
9(u). 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. In connection with the
assignment an inducement fee was paid to the assignor. Refer to
Notes 9(o). |
|
|
|
As at
December 31, 2019, the carrying value of the note was $Nil
(December 31, 2018 - $75,540) and the fair value of the derivative
liability was $Nil (December 31, 2018 - $305,890). During the year
ended December 31, 2019, the Company accreted $150,460 (2018 -
$75,540) of the debt discount to finance costs. |
|
|
(l) |
On
August 31, 2018, the Company reassigned the first tranche of a
convertible note balance from the original lender to another
unrelated party in the principal amount of $315,978. The first
tranche of the note is unsecured, bears interest at 12% per annum,
was due on September 19, 2018 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 year ended December 31, 2019, the Company issued 55,932 common
shares with a fair value of $119,981 for the conversion of $42,000
of principal and $3,869 of accrued interest resulting in a loss on
settlement of debt of $74,112.
|
|
|
|
During
the year ended December 31, 2019, the entire outstanding principal
and interest was assigned to another unrelated party with no
changes to the terms of the note upon assignment. Refer to Note
9(v). 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. In connection with the
assignment an inducement fee was paid to the assignor. Refer to
Notes 9(o). |
|
|
|
As at
December 31, 2019, the carrying value of the note was $Nil
(December 31, 2018 - $315,978) and the fair value of the derivative
liability was $Nil (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. |
|
|
|
During
the year ended December 31, 2019, the entire outstanding principal
and interest was assigned to another unrelated party with no
changes to the terms of the note upon assignment. Refer to Note
9(w). 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. In connection with the
assignment an inducement fee was paid to the assignor. Refer to
Notes 9(o). |
|
As at
December 31, 2019, the carrying value of the note was $Nil and the
fair value of the derivative liability was $Nil. During the year
ended December 31, 2019, the Company accreted $137,500, 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 December 31, 2019, $413,590 in principal and accrued interest
had been assigned to the purchaser. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $413,590. The
fair value of the derivative liability was $181,870. During the
year ended December 31, 2019, the Company accreted $Nil (2018 -
$Nil) of the debt discount to finance costs. |
|
|
(o) |
On
May 7, 2019, the Company entered into a secured convertible
promissory note agreement with an unrelated party. The note is
secured by an unconditional first priority interest in and to, any
and all property of the Company and its subsidiaries, of any kind
or description, tangible or intangible, whether now existing or
hereafter arising or acquired until the balance of all Notes has
been reduced to $Nil. The note bears interest at 10% per annum,
each tranche matures 12 months from the funding date and is
convertible into common shares at the holder’s discretion at a
conversion price equal to 62% of the lowest trading price of the
Company’s common stock during the 10 trading days immediately
preceding the conversion of the note. |
|
|
|
The
note was funded in four tranches on May 7, 2019, June 28, 2019,
July 8, 2019 and August 8, 2019, totaling $250,420. Proceeds from
the note were paid directly to a former lender as an inducement for
entering into a debt assignment arrangement. Refer to Notes 9(k),
(l) and (m). The $250,420 inducement is recorded to finance costs
for the year ended December 31, 2019. |
|
|
|
Deferred
financing fees and original issuance discount on the note were
$26,765. The derivative liability applied as a discount on the note
was $250,420 and is accreted over the life of the note. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $124,695 and
the fair value of the derivative liability was $323,514. During the
year ended December 31, 2019, the Company accreted $124,695 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
December 31, 2019, the carrying value of the note was $92,219 and
the fair value of the derivative liability was $284,734. During the
year ended December 31, 2019, the Company accreted $92,219 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 on the 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
December 31, 2019, the carrying value of the note was $43,322 and
the fair value of the derivative liability was $173,596. During the
year ended December 31, 2019, the Company accreted $43,322, 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 on the 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
December 31, 2019, the carrying value of the note was $15,370 and
the fair value of the derivative liability was $70,052. During the
year ended December 31, 2019, the Company accreted $15,370, of the
debt discount to finance costs. |
|
|
(s) |
On
September 19, 2019 the Company issued a convertible promissory note
in the principal amount of $141,900. 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 on the last complete trading day before conversion.
Deferred financing fees and original issuance discount on the note
were $16,400. The derivative liability applied as a discount on the
note was $125,500 and is accreted over the life of the
note. |
|
|
|
In
connection with the note, the Company granted 113,250 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 $125,500 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
December 31, 2019, the carrying value of the note was $40,043 and
the fair value of the derivative liability was $190,246. During the
year ended December 31, 2019, the Company accreted $40,043, of the
debt discount to finance costs. |
|
|
(t) |
On
October 2, 2019 the Company issued a convertible promissory note in
the principal amount of $82,500. The note is unsecured, bears
interest at 10% per annum, is due on September 30, 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 on the last complete trading day before conversion.
Deferred financing fees and original issuance discount on the note
were $9,500. The derivative liability applied as a discount on the
note was $73,000 and is accreted over the life of the
note. |
|
|
|
In
connection with the note, the Company granted 83,333 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 $73,000 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
December 31, 2019, the carrying value of the note was $20,795 and
the fair value of the derivative liability was $105,790. During the
year ended December 31, 2019, the Company accreted $20,795, of the
debt discount to finance costs.
|
|
|
(u) |
During
the year ended December 31, 2019, a convertible promissory note
with an outstanding principal balance of $226,000 was assigned to
another unrelated party with no changes to the terms of the note
upon assignment. Refer to Note 9 (k). 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. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $226,000 and
the fair value of the derivative liability was
$289,462. |
|
|
(v) |
During
the year ended December 31, 2019, a convertible promissory note
with an outstanding principal balance of $258,736 was assigned to
another unrelated party with no changes to the terms of the note
upon assignment. Refer to Note 9 (l). The note is unsecured, bears
interest at 12% per annum, was due on September 19, 2018 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. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $258,736 and
the fair value of the derivative liability was
$351,774. |
|
|
(w) |
During
the year ended December 31, 2019, a convertible promissory note
with an outstanding principal balance of $137,500 was assigned to
another unrelated party with no changes to the terms of the note
upon assignment. Refer to Note 9 (m). 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. |
|
|
|
As at
December 31, 2019, the carrying value of the note was $137,500 and
the fair value of the derivative liability was
$170,201. |
Note
10 – DERIVATIVE LIABILITIES
The
Company records the fair value of the of the conversion feature of
the convertible loans payable 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.
The
following range of inputs and assumptions were used to value the
derivative liabilities outstanding during the years ended December
31, 2019 and 2018, assuming no dividend yield:
|
|
|
2019 |
|
|
|
2018 |
|
Expected
volatility |
|
|
176 -
374 |
% |
|
|
180 -
447 |
% |
Risk
free interest rate |
|
|
1.6 -
2.6 |
% |
|
|
1.6 -
2.6 |
% |
Expected
life (years) |
|
|
0.25
- 2.0 |
|
|
|
0.1 -
1.0 |
|
A
summary of the activity of the derivative liabilities is shown
below:
|
|
$ |
|
Balance, January 1, 2018 |
|
|
1,676,155 |
|
New issuances |
|
|
1,517,657 |
|
Change in fair
value |
|
|
(1,005,458 |
) |
Balance, December 31, 2018 |
|
|
2,188,354 |
|
|
|
|
|
|
Balance, January 1, 2019 |
|
|
2,188,354 |
|
New issuances |
|
|
939,919 |
|
Change in fair
value |
|
|
(271,704 |
) |
Balance, December 31, 2019 |
|
|
2,856,569 |
|
Note
11 – LEASES
The
Company leases certain assets under lease agreements. The lease
liability relates to leases for office and showroom spaces. Upon
adoption of Topic 842, on January 1, 2019 the Company recognized a
right-of-use asset of $51,203 and lease liability of $47,118 for
its existing office operating lease on transition. The difference
between the operating lease assets and lease liabilities is due to
the reclassification of prepaid rent expense.
During
the year ended December 31, 2019, the Company entered into a lease
for a showroom office space in Vacaville, California which
commenced on December 1, 2019. In connection with this lease, the
Company recognized a right-of use assets and a lease liability of
$124,531.
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 consolidated balance sheet.
Right-of-use assets |
|
December 31,
2019 |
|
Cost |
|
$ |
178,202 |
|
Accumulated
amortization |
|
|
(39,671 |
) |
Net book value |
|
$ |
138,531 |
|
Future
minimum lease payments to be paid by the Company as a lessee for
operating leases as of December 31, 2019 for the next three years
are as follows:
Operating
lease commitments and lease liability |
|
December 31,
2019 |
|
2019 |
|
$ |
63,397 |
|
2020 |
|
|
49,977 |
|
2021 |
|
|
47,904 |
|
Total future minimum lease
payments |
|
|
161,278 |
|
Discount |
|
|
(24,118 |
) |
Total |
|
|
137,160 |
|
Current portion
of operating lease liabilities |
|
|
(62,935 |
) |
Long-term
portion of operating lease liabilities |
|
$ |
74,225 |
|
Operating
lease expense for the year ended December 31, 2019 was $44,875 and
is recorded in general and administration expense. As of December
31, 2019, the Company’s leases had a weighted average remaining
term of 2.64 years.
Note
12 – MEZZANINE EQUITY
Authorized
5,000,000
shares of 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 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 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.
Mezzanine
Preferred Equity Transactions
During
the year ended December 31, 2019:
|
● |
The
Company settled various accounts payable balances, debt and
preferred shares in exchange for shares of common stock to be
issued and warrants. Included in these settlements were 100,500 and
4,649,908 shares of Series D and Series E preferred shares,
respectively, with an aggregate carrying value of
$6,668,643. |
During
the year ended December 31, 2018:
|
● |
On
August 27, 2018, pursuant to a debt exchange agreement, the Company
agreed to exchange all 4,229,384 issued and outstanding series A
convertible preferred stock, as designated at the time, with a fair
value of $5,873,481 ($7,627,303 CDN) for 51 shares of Series B and
3,000,000 shares of Series E preferred shares, respectively. The
Series B preferred shares are classified as permanent equity. Refer
to Note 13. As at December 31, 2018, these Series B and Series E
preferred shares had not been issued. |
|
|
|
|
● |
Pursuant
to a series of debt exchange agreements, the Company agreed to
issue an aggregate of 148,706 shares of Series D preferred shares
for the settlement of outstanding accounts payable with a fair
value of $91,944. As at December 31, 2018, these Series D preferred
shares had not been issued. |
|
|
|
|
● |
Pursuant
to a series of debt exchange agreements, the Company agreed to
issue an aggregate of 81 shares of Series B and 1,649,908 shares of
Series E preferred shares, respectively, for the settlement of
outstanding convertible loans with a fair value of $5,609,757
($7,284,831 CDN). The Series B preferred shares are classified as
permanent equity. Refer to Note 13. As at December 31, 2018, these
Series B and Series E preferred shares had not been
issued. |
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 100,000 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.
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
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.
Preferred
Stock Transactions
During
the year ended December 31, 2019:
|
● |
The
Company settled various accounts payable balances, debt and
preferred shares in exchange for shares of common stock to be
issued and warrants. Included in these settlements were 132 shares
of Series B Preferred Stock with a carrying value of
$4,872,732. |
|
|
|
|
● |
On
October 29, 2019, the Company issued an aggregate of 200,376 shares
of Series A preferred shares at value of $200 to three directors of
the Company.
|
During
the year ended December 31, 2018:
|
● |
The
Company issued 81 and 1,649,908 shares of Series B and Series E
preferred shares, respectively, for the settlement of outstanding
convertible loans with a fair value of $5,609,757 ($7,284,831 CDN),
of which $3,908,614 ($5,075,727 CDN) was recorded in the
consolidated financial statements at a fair value of $Nil. The
Company recorded a loss on extinguishment of debt of $3,908,614 in
connection with the settlement. The Series E preferred shares are
classified as mezzanine equity. Refer to Note 12. As at December
31, 2018, these Series B and Series E preferred shares had not been
issued. |
|
|
|
|
● |
The
Company issued 51 and 3,000,000 shares of Series B and Series E
preferred shares, respectively, for the settlement all 4,229,384
issued and outstanding series A convertible preferred stock, as
designated at the time, with a fair value of $5,873,481 ($7,627,303
CDN). The Series E preferred shares are classified as mezzanine
equity. Refer to Note 12. As at December 31, 2018 and 2019, these
Series B and Series E preferred shares had not been
issued. |
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. Each share of common stock is entitled to one (1)
vote.
Common
Stock Transactions
During
the year ended December 31, 2019:
|
● |
The
Company issued an aggregate of 72,295 shares of common stock with a
fair value of $63,437 in exchange for services. |
|
|
|
|
● |
The
Company issued an aggregate of 32,000 shares of common stock with a
fair value of $37,760 as partial settlement for accounts payable,
as outlined in Note 8. |
|
|
|
|
● |
The
Company issued an aggregate of 407,536 shares of common stock with
a fair value of $506,468 upon the conversion of $180,642 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 |
|
|
|
37,211 |
|
|
|
12,280 |
|
|
|
(24,931 |
) |
March 15, 2019 |
|
|
27,137 |
|
|
|
54,238 |
|
|
|
17,899 |
|
|
|
(36,339 |
) |
June 17, 2019 |
|
|
45,216 |
|
|
|
58,781 |
|
|
|
31,651 |
|
|
|
(27,130 |
) |
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 |
|
|
|
6,620 |
|
|
|
(20,400 |
) |
September 18, 2019 |
|
|
39,500 |
|
|
|
49,376 |
|
|
|
8,255 |
|
|
|
(41,121 |
) |
October 11, 2019 |
|
|
35,000 |
|
|
|
44,450 |
|
|
|
13,475 |
|
|
|
(30,975 |
) |
November 13, 2019 |
|
|
47,500 |
|
|
|
77,899 |
|
|
|
18,810 |
|
|
|
(59,089 |
) |
November 7, 2019 |
|
|
23,149 |
|
|
|
18,519 |
|
|
|
10,000 |
|
|
|
(8,519 |
) |
December 19, 2019 |
|
|
48,889 |
|
|
|
40,578 |
|
|
|
22,000 |
|
|
|
(18,578 |
) |
Total |
|
|
407,536 |
|
|
$ |
506,468 |
|
|
$ |
182,203 |
|
|
$ |
(324,265 |
) |
|
(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. |
During
the year ended December 31, 2018:
|
● |
On
February 7, 2018, the Company issued 5,186 shares of common stock
and on March 19, 2018 the Company issued 7,315 shares of common
stock for aggregate cash proceeds of $81,659. |
|
|
|
|
● |
On
June 5, 2018, the Company issued 188 shares of common stock, with a
fair value of $2,250, in connection with a 5% commission granted on
referral of sales totaling $45,000. |
|
|
|
|
● |
On
October 18, 2018, the Company issued 23,750 shares of common stock,
with a fair value of $332,500, in connection with an investor
relations agreement. |
|
● |
The
Company issued an aggregate of 572,547 shares of common stock with
a fair value of $4,315,958 upon the conversion of $1,302,077 of
convertible debentures, accrued interest and finance fees, as noted
in Note 9, per the table below: |
Date
issued |
|
Common
shares issued
(#) |
|
|
Fair
value(1) |
|
|
Converted
balance(2) |
|
|
Loss
on conversion |
|
January
2, 2018 |
|
|
1,270 |
|
|
$ |
11,683 |
|
|
$ |
3,733 |
|
|
$ |
(7,950 |
) |
January
5, 2018 |
|
|
1,325 |
|
|
|
10,600 |
|
|
|
5,300 |
|
|
|
(5,300 |
) |
January
5, 2018 |
|
|
1,334 |
|
|
|
10,666 |
|
|
|
2,986 |
|
|
|
(7,680 |
) |
January
9, 2018 |
|
|
1,450 |
|
|
|
11,600 |
|
|
|
5,800 |
|
|
|
(5,800 |
) |
January
11, 2018 |
|
|
1,525 |
|
|
|
15,860 |
|
|
|
6,100 |
|
|
|
(9,760 |
) |
January
11, 2018 |
|
|
1,539 |
|
|
|
15,997 |
|
|
|
3,446 |
|
|
|
(12,551 |
) |
January
12, 2018 |
|
|
1,692 |
|
|
|
16,911 |
|
|
|
3,788 |
|
|
|
(13,123 |
) |
January
16, 2018 |
|
|
1,675 |
|
|
|
13,400 |
|
|
|
6,701 |
|
|
|
(6,699 |
) |
January
16, 2018 |
|
|
1,776 |
|
|
|
14,204 |
|
|
|
|