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		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

 

		Page
Special Note Regarding Forward-Looking Statements		3
PART I
Item 1.	Business	4
Item 1A.	Risk Factors	22
Item 1B.	Unresolved Staff Comments	26
Item 2.	Properties	26
Item 3.	Legal Proceedings	27
Item 4.	Mine Safety Disclosures	27
PART II
Item 5.	Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities	28
Item 6.	Selected Financial Data	28
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	29
Item 7A.	Quantitative and Qualitative Disclosures about Market Risk	42
Item 8.	Financial Statements and Supplementary Data	43
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	75
Item 9A.	Controls and Procedures	75
Item 9B.	Other Information	76
PART III
Item 10.	Directors, Executive Officers and Corporate Governance	77
Item 11.	Executive Compensation	80
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters	82
Item 13.	Certain Relationships and Related Transactions and Director Independence	83
Item 14.	Principal Accountant Fees and Services	83
PART IV
Item 15.	Exhibits and Financial Statement Schedules	83
Signatures		S-1

 

 

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:

 

	●	our future financial and operating results;
	●	our intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
	●	the timing and success of our business plan;
	●	our plans regarding future financings;
	●	our ability to attract and retain customers;
	●	our dependence on growth in our customers’ businesses;
	●	the effects of market conditions on our stock price and operating results;
	●	our ability to maintain our competitive technological advantages against competitors in our industry;
	●	the expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
	●	our ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
	●	our ability to introduce new offerings and bring them to market in a timely manner;
	●	our ability to maintain, protect and enhance our intellectual property;
	●	the effects of increased competition in our market and our ability to compete effectively;
	●	the attraction and retention of qualified employees and key personnel;
	●	future acquisitions of or investments in complementary companies or technologies; and
	●	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

 

ITEM 1.

BUSINESS

 

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.

 

●	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 two 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.

 

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

 

●	Internal battery utilizing Smart Power technology which charges the battery only when the vehicle is running (gas) or being charged (electric)
●	Pace of Play management and reporting which is a critical statistic for the golf operator
●	No software to install
●	Web based access on any computer, smartphone, or tablet
●	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 3^rd 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.

 

ITEM 1A.

RISK FACTORS

 

Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this Form 10-K, including our consolidated financial statements and related notes, before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline, and you could lose part or all of your investment.

 

Risks Related to Our Business

 

We have a limited operating history with significant losses and expect losses to continue for the foreseeable future.

 

We have yet to establish any history of profitable operations and have incurred net losses since our inception. We have generated only nominal revenues since our inception and do not anticipate that we will generate revenues which will be sufficient to sustain our operations in the near future. Our profitability will require the successful commercialization and sales of our products. We may not be able to successfully achieve any of these requirements or ever become profitable.

 

There is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient cash resources to meet our business objectives, all of which means that we may not be able to continue operations.

 

Our independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the consolidated financial statements for the years ended December 31, 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.

 

ITEM 2.

PROPERTIES

 

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

 

	Page
Report of Independent Registered Public Accounting Firm	44
Consolidated Financial Statements:
Consolidated Balance Sheets	45
Consolidated Statements of Operations	46
Consolidated Statements of Comprehensive Loss	47
Consolidated Statements of Stockholders’ Deficit	48
Consolidated Statements of Cash Flows	49
Notes to Consolidated Financial Statements	50

 

 

 

 

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