ITEM
1: Financial Statements (unaudited)
The
accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at June 30, 2019, have been prepared by
our management in conformity with accounting principles generally accepted in the United States of America and in accordance with
the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and, therefore, do not include all information and footnotes necessary
for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity
with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation
of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Operating
results for the six-month period ended June 30, 2019 are not necessarily indicative of the results that can be expected for the
year ending December 31, 2019.
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
AT JUNE 30, 2019 AND DECEMBER 31, 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
(unaudited)
|
|
|
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
31,820
|
|
|
$
|
5,059
|
|
Trade receivables, net
|
|
|
227,350
|
|
|
|
139,400
|
|
Inventories, net of inventory allowance of $149,577 and $146,292, respectively
|
|
|
162,104
|
|
|
|
141,296
|
|
Prepaid expenses and deposits
|
|
|
78,847
|
|
|
|
47,484
|
|
TOTAL CURRENT ASSETS
|
|
|
500,121
|
|
|
|
333,239
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Intangible assets, net
|
|
|
14,675
|
|
|
|
15,289
|
|
Fixed assets, net
|
|
|
33,195
|
|
|
|
869
|
|
Equipment on lease, net
|
|
|
2,120
|
|
|
|
3,316
|
|
TOTAL NON-CURRENT ASSETS
|
|
|
49,990
|
|
|
|
19,474
|
|
|
|
|
|
|
|
|
|
|
TOTAL ASSETS
|
|
$
|
550,111
|
|
|
$
|
352,713
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Trade and other payables
|
|
$
|
2,368,800
|
|
|
$
|
1,897,530
|
|
Deferred revenue
|
|
|
147,288
|
|
|
|
215,662
|
|
Operating lease liability
|
|
|
32,695
|
|
|
|
-
|
|
Convertible note payable to related party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
1,019,383
|
|
|
|
795,588
|
|
Derivative liability
|
|
|
1,717,939
|
|
|
|
2,188,354
|
|
Convertible loans payable, net of unamortized discounts and premiums of $212,401 and $213,461, respectively
|
|
|
1,743,361
|
|
|
|
1,613,912
|
|
TOTAL CURRENT LIABILITIES
|
|
|
7,339,466
|
|
|
|
7,021,046
|
|
|
|
|
|
|
|
|
|
|
Going concern (Note 2)
|
|
|
|
|
|
|
|
|
Commitments (Note 16)
|
|
|
|
|
|
|
|
|
Contingencies (Note 17)
|
|
|
|
|
|
|
|
|
Subsequent events (Note 18)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Redeemable preferred stock, (2019 and 2018 - to be issued)
|
|
$
|
6,702,450
|
|
|
$
|
6,702,450
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ DEFICIT
|
|
|
|
|
|
|
|
|
Preferred stock to be issued
|
|
|
4,872,732
|
|
|
|
4,872,732
|
|
Common stock, $0.001 par value, 150,000,000 shares authorized, (2018 - 750,000); 787,569
issued and outstanding (2018 - 634,471)
|
|
|
788
|
|
|
|
634
|
|
Additional paid in capital
|
|
|
22,649,842
|
|
|
|
22,415,121
|
|
Discounts on common stock
|
|
|
(69,838
|
)
|
|
|
(69,838
|
)
|
Other accumulated comprehensive income
|
|
|
1,389,278
|
|
|
|
1,465,389
|
|
Accumulated deficit
|
|
|
(42,334,607
|
)
|
|
|
(42,054,821
|
)
|
TOTAL STOCKHOLDERS’ DEFICIT
|
|
|
(13,491,805
|
)
|
|
|
(13,370,783
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
550,111
|
|
|
$
|
352,713
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Three months ending
|
|
|
Six months ending
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
284,646
|
|
|
$
|
237,046
|
|
|
$
|
786,070
|
|
|
$
|
347,942
|
|
Cost of revenue
|
|
|
32,886
|
|
|
|
79,552
|
|
|
|
338,954
|
|
|
|
97,881
|
|
Gross profit
|
|
|
251,760
|
|
|
|
157,494
|
|
|
|
447,116
|
|
|
|
250,061
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
144,673
|
|
|
|
209,174
|
|
|
|
279,756
|
|
|
|
417,802
|
|
General and administration expense
|
|
|
203,938
|
|
|
|
275,480
|
|
|
|
431,694
|
|
|
|
633,493
|
|
Warranty expense
|
|
|
-
|
|
|
|
46,273
|
|
|
|
-
|
|
|
|
46,273
|
|
Bad debt
|
|
|
(3,290
|
)
|
|
|
2,099
|
|
|
|
(1,866
|
)
|
|
|
30,992
|
|
Depreciation and amortization expense
|
|
|
10,900
|
|
|
|
2,220
|
|
|
|
20,821
|
|
|
|
8,914
|
|
Total operating expense
|
|
|
356,221
|
|
|
|
535,246
|
|
|
|
730,405
|
|
|
|
1,137,474
|
|
Loss from operations
|
|
|
(104,461
|
)
|
|
|
(377,752
|
)
|
|
|
(283,289
|
)
|
|
|
(887,413
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain (loss)
|
|
|
13,526
|
|
|
|
410,454
|
|
|
|
31,163
|
|
|
|
(150,212
|
)
|
Change in fair value of derivative instruments
|
|
|
7,356,541
|
|
|
|
6,013,778
|
|
|
|
720,624
|
|
|
|
397,517
|
|
Loss on extinguishment of debt
|
|
|
(54,145
|
)
|
|
|
(768,964
|
)
|
|
|
(128,254
|
)
|
|
|
(2,164,231
|
)
|
Finance costs
|
|
|
(318,274
|
)
|
|
|
(776,506
|
)
|
|
|
(620,030
|
)
|
|
|
(1,517,068
|
)
|
Total other income (expense)
|
|
|
6,997,648
|
|
|
|
4,878,762
|
|
|
|
3,503
|
|
|
|
(3,433,994
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,893,187
|
|
|
$
|
4,501,010
|
|
|
$
|
(279,786
|
)
|
|
$
|
(4,321,407
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) per share
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
9.80
|
|
|
$
|
16.80
|
|
|
$
|
(0.41
|
)
|
|
$
|
(23.26
|
)
|
Diluted
|
|
$
|
9.80
|
|
|
$
|
16.80
|
|
|
$
|
(0.41
|
)
|
|
$
|
(23.26
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing basic and diluted net loss per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
703,437
|
|
|
|
267,903
|
|
|
|
677,426
|
|
|
|
185,772
|
|
Diluted
|
|
|
703,437
|
|
|
|
267,903
|
|
|
|
677,426
|
|
|
|
185,772
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
FOR
THE THREE AND SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Three months ending
|
|
|
Six months ending
|
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
June 30, 2019
|
|
|
June 30, 2018
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,893,187
|
|
|
$
|
4,501,010
|
|
|
$
|
(279,786
|
)
|
|
$
|
(4,321,407
|
)
|
Other comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
(6,476
|
)
|
|
|
(361,594
|
)
|
|
|
(76,111
|
)
|
|
|
279,497
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss)
|
|
$
|
6,886,711
|
|
|
$
|
4,139,416
|
|
|
$
|
(355,897
|
)
|
|
$
|
(4,041,910
|
)
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ DEFICIT
(Expressed
in U.S. dollars)
(UNAUDITED)
|
|
Common
Stock
|
|
|
Preferred
Stock
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Amount
|
|
|
Additional
paid in capital
|
|
|
Discount
on
common stock
|
|
|
To
be
issued
|
|
|
Accumulated
comprehensive
income
|
|
|
Accumulated
deficit
|
|
|
Total
stockholders’
deficit
|
|
Balance, December 31, 2017
|
|
|
25,485
|
|
|
$
|
25
|
|
|
$
|
17,613,525
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
873,250
|
|
|
$
|
(32,229,417
|
)
|
|
$
|
(13,742,617
|
)
|
Shares issued for cash
|
|
|
12,501
|
|
|
|
12
|
|
|
|
81,647
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
81,659
|
|
Shares issued on conversion of debt
|
|
|
185,798
|
|
|
|
186
|
|
|
|
1,802,955
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,803,141
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
641,091
|
|
|
|
(8,822,417
|
)
|
|
|
(8,181,326
|
)
|
Balance, March 31, 2018
|
|
|
223,784
|
|
|
$
|
223
|
|
|
$
|
19,498,127
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,514,341
|
|
|
$
|
(41,051,834
|
)
|
|
$
|
(20,039,143
|
)
|
Shares issued for commission
|
|
|
188
|
|
|
|
-
|
|
|
|
2,250
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
2,250
|
|
Shares issued on conversion of debt
|
|
|
92,040
|
|
|
|
92
|
|
|
|
1,172,185
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
1,172,277
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(361,594
|
)
|
|
|
4,501,010
|
|
|
|
4,139,416
|
|
Balance, June 30, 2018
|
|
|
316,012
|
|
|
$
|
315
|
|
|
$
|
20,672,562
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
1,152,747
|
|
|
$
|
(36,550,824
|
)
|
|
$
|
(14,725,200
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2018
|
|
|
634,471
|
|
|
$
|
634
|
|
|
$
|
22,415,121
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,465,389
|
|
|
$
|
(42,054,821
|
)
|
|
$
|
(13,370,783
|
)
|
Shares issued on conversion of debt
|
|
|
55,932
|
|
|
|
56
|
|
|
|
119,921
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
119,977
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(69,635
|
)
|
|
|
(7,172,973
|
)
|
|
|
(7,242,608
|
)
|
Balance, March 31, 2019
|
|
|
690,403
|
|
|
$
|
690
|
|
|
$
|
22,535,042
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,395,754
|
|
|
$
|
(49,227,794
|
)
|
|
$
|
(20,493,414
|
)
|
Shares issued for services
|
|
|
17,500
|
|
|
|
18
|
|
|
|
19,582
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
19,600
|
|
Shares issued on conversion of debt
|
|
|
79,666
|
|
|
|
80
|
|
|
|
95,218
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
95,298
|
|
Net loss for the period
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
(6,476
|
)
|
|
|
6,893,187
|
|
|
|
6,886,711
|
|
Balance, June 30, 2019
|
|
|
787,569
|
|
|
$
|
788
|
|
|
$
|
22,649,842
|
|
|
$
|
(69,838
|
)
|
|
$
|
4,872,732
|
|
|
$
|
1,389,278
|
|
|
$
|
(42,334,607
|
)
|
|
$
|
(13,491,805
|
)
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE SIX MONTHS ENDED JUNE 30, 2019 AND 2018
(Expressed
in U.S. Dollars)
(UNAUDITED)
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(279,786
|
)
|
|
$
|
(4,321,407
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and amortization
|
|
|
20,821
|
|
|
|
8,914
|
|
Change in inventory allowance
|
|
|
(2,814
|
)
|
|
|
-
|
|
Non-cash financing costs
|
|
|
-
|
|
|
|
224,956
|
|
Accretion of discounts on debt
|
|
|
328,055
|
|
|
|
924,905
|
|
Change in fair value of derivative liabilities
|
|
|
(720,624
|
)
|
|
|
(397,517
|
)
|
Reserve for bad debt
|
|
|
(1,866
|
)
|
|
|
30,992
|
|
Shares issued for services
|
|
|
19,600
|
|
|
|
2,250
|
|
Loss on extinguishment of debt
|
|
|
128,254
|
|
|
|
2,164,231
|
|
Unrealized foreign exchange loss (gain)
|
|
|
(81,146
|
)
|
|
|
152,901
|
|
(Increase) decrease in assets:
|
|
|
|
|
|
|
|
|
Trade receivables, net
|
|
|
(81,051
|
)
|
|
|
(107,836
|
)
|
Inventories
|
|
|
(12,103
|
)
|
|
|
(47,868
|
)
|
Prepaid expense and deposits
|
|
|
(35,880
|
)
|
|
|
(33,629
|
)
|
Related party receivable
|
|
|
-
|
|
|
|
1,034
|
|
Increase (decrease) in current liabilities:
|
|
|
|
|
|
|
|
|
Trade payables and accruals
|
|
|
554,903
|
|
|
|
313,849
|
|
Deferred revenue
|
|
|
(68,374
|
)
|
|
|
123,204
|
|
Warranty reserve
|
|
|
-
|
|
|
|
(30,583
|
)
|
Operating lease liabilities
|
|
|
(16,228
|
)
|
|
|
-
|
|
Net cash used in operating activities
|
|
|
(248,239
|
)
|
|
|
(991,604
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase of property, plant and equipment
|
|
|
-
|
|
|
|
(1,544
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(1,544
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
Proceeds from issuing shares
|
|
|
-
|
|
|
|
81,659
|
|
Repayments of notes payable
|
|
|
-
|
|
|
|
(45,000
|
)
|
Proceeds from notes payable
|
|
|
275,000
|
|
|
|
967,000
|
|
Net cash provided by financing activities
|
|
|
275,000
|
|
|
|
1,003,659
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash
|
|
|
26,761
|
|
|
|
10,511
|
|
Cash at beginning of period
|
|
|
5,059
|
|
|
|
5,488
|
|
|
|
|
|
|
|
|
|
|
Cash at the end of the period
|
|
$
|
31,820
|
|
|
$
|
15,999
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
|
|
|
|
|
|
|
|
|
Cash paid during the period for:
|
|
|
|
|
|
|
|
|
Income tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest payments
|
|
$
|
2,513
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Convertible debenture issued for financing fees
|
|
$
|
-
|
|
|
$
|
15,000
|
|
Initial recognition of lease asset
|
|
$
|
51,203
|
|
|
$
|
-
|
|
Initial recognition of lease liability
|
|
$
|
47,118
|
|
|
$
|
-
|
|
Shares issued for convertible notes payable
|
|
$
|
215,275
|
|
|
$
|
2,975,418
|
|
The
accompanying notes are an integral part of the unaudited interim condensed consolidated financial statements
DSG
GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
Note
1 – ORGANIZATION
DSG
Global, Inc. (the “Company”) was incorporated under the laws of the State of Nevada on September 24, 2007.
The
Company is a technology development company engaged in the design, manufacture, and marketing of fleet management solutions in
the golf industry. The Company’s principal activities are the sale and rental of GPS tracking devices and interfaces for
golf vehicles and related support services.
On
April 13, 2015, the Company entered into a share exchange agreement with Vantage Tag Systems Inc. (“VTS”) (formerly
DSG Tag Systems Inc.), now wholly-owned subsidiary of the Company, incorporated under the laws of the State of Nevada on April
17, 2008 and extra provincially registered in British Columbia, Canada in 2008. In March 2011, VTS formed DSG Tag Systems International,
Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of VTS.
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000
shares of common stock, with a par value of $0.001. Subsequently, on May 23, 2019, an increase in common shares to 150,000,000
was authorized, with a par value of $0.001. Shares of Preferred Stock remain unchanged. These consolidated financial statements
give retroactive effect to such reverse stock split named above and all share and per share amounts have been adjusted accordingly,
unless otherwise noted.
Note
2 – GOING CONCERN
These
unaudited interim condensed consolidated financial statements have been prepared on a going concern basis, which implies the Company
will continue to realize its assets and discharge its liabilities in the normal course of business. The continuation of the Company
as a going concern is dependent upon the continued financial support from its shareholders and note holders, the ability of the
Company to obtain necessary equity financing to continue operations, and ultimately the attainment of profitable operations. As
at June 30, 2019, the Company has a working capital deficit of $6,839,345 and has an accumulated deficit of $42,334,607 since
inception. Furthermore, the Company incurred a net loss of $279,786 and used $248,239 of cash flows for operating activities during
the six months ended June 30, 2019. These factors raise substantial doubt regarding the Company’s ability to continue as
a going concern. These unaudited interim condensed consolidated financial statements do not include any adjustments to the recoverability
and classification of recorded asset amounts and classification of liabilities that might be necessary should the Company be unable
to continue as a going concern.
Note
3 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying condensed consolidated financial statements were prepared in conformity with generally accepted accounting principles
in the United States (“U.S. GAAP”) and with the instructions to Form 10-Q.
Certain
information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been
condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim financial information. Therefore,
the unaudited condensed interim consolidated financial statements should be read in conjunction with the financial statements
and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year ended December 31, 2018. Current
and future financial statements may not be directly comparable to the Company’s historical financial statements. However,
except as disclosed herein, there have been no material changes in the information disclosed in the notes to the financial statements
for the year ended December 31, 2018 included in the Company’s Annual Report on Form 10-K filed with the Securities and
Exchange Commission. In the opinion of Management, all adjustments considered necessary for a fair presentation, consisting solely
of normal recurring adjustments, have been made. Operating results for the six months ended June 30, 2019 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2019.
Principles
of Consolidation
The
interim condensed consolidated financial statements include the accounts of DSG Global Inc. and its wholly-owned subsidiaries
VTS and DSG UK, collectively referred to as the Company. All material intercompany accounts, transactions and profits were eliminated
in consolidation.
Use
of Estimates
The
preparation of interim condensed consolidated financial statements in conformity with U.S. GAAP requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent assets and liabilities
at the date of the interim condensed consolidated financial statements and the reported amounts of revenues and expenses during
the reporting period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and
the effects of revisions are reflected in the condensed consolidated financial statements in the period they are determined. New
estimates in the period relate to determining the Company’s estimated incremental borrowing rate in recognizing right-of-use
assets and lease liabilities. Differences in the estimated incremental borrowing rate could result in materially different lease
liabilities and right-of-use assets.
Recently
Adopted Accounting Pronouncements
In
February 2016, the Financial Accounting Standards Board, or FASB, established Topic 842, Leases, by issuing Accounting Standards
Update (“ASU”) No. 2016-02, which requires lessors to classify leases as a sales-type, direct financing, or operating
lease and requires lessees to recognize leases on-balance sheet and disclose key information about leasing arrangements. Topic
842 was subsequently amended by ASU No. 2018-01, Land Easement Practical Expedient for Transition to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and ASU No. 2018-11, Targeted Improvements.
The
Company adopted the new standard effective January 1, 2019 and elected the modified retrospective for the transition. The Company
elected the following practical expedients:
●
|
Transition
method practical expedient – permits the Company to use the effective date as the date of initial application. Upon
adoption, the Company did not have a cumulative-effect adjustment to the opening balance of retained earnings. Financial information
and disclosures for periods before January 1, 2019 were not updated.
|
|
|
|
|
●
|
Package
of practical expedients – permits the Company not to reassess under the new standard its prior conclusions about lease
identification, lease classification, and initial direct costs. This allowed the Company to continue classifying its leases
at transition in substantially the same manner.
|
|
|
|
|
●
|
Single
component practical expedient – permits the Company to not separate lease and non-lease components of leases. Upon transition,
rental income, expense reimbursement, and other were aggregated into a single line within rental and other revenues on the
condensed consolidated statement of operations.
|
|
|
|
|
●
|
Short-term
lease practical expedient – permits the Company not to recognize leases with a term equal to or less than 12 months.
|
|
Lessee
Accounting
The
new standard requires lessees to recognize a right-of-use asset and lease liability on the balance sheet for all leases with a
term longer than 12 months. Leases are classified as finance or operating at inception, with classification affecting the pattern
and recording of expenses in the statement of operations. Upon transition the Company recognized lease assets and lease liabilities
principally for its office lease. When measuring lease liabilities for leases that were classified as operating leases, the Company
discounted lease payments using its incremental borrowing rate at January 1, 2019. The weighted-average incremental borrowing
rate applied was 11.98%. Refer to Notes 5 and 11.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flow.
Note
4 – TRADE RECEIVABLES, NET
As
of June 30, 2019, and December 31, 2018, trade receivables consist of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Accounts receivables
|
|
$
|
272,132
|
|
|
$
|
184,214
|
|
Allowance for doubtful accounts
|
|
|
(44,782
|
)
|
|
|
(44,814
|
)
|
Total trade receivables, net
|
|
$
|
227,350
|
|
|
$
|
139,400
|
|
Note
5 – FIXED ASSETS AND EQUIPMENT ON LEASE
As
of June 30, 2019 and December 31, 2018, fixed assets consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Furniture and equipment
|
|
$
|
16,250
|
|
|
$
|
20,509
|
|
Computer equipment
|
|
|
25,459
|
|
|
|
28,460
|
|
Right-of-use lease asset
|
|
|
51,203
|
|
|
|
-
|
|
Accumulated depreciation
|
|
|
(59,717
|
)
|
|
|
(48,100
|
)
|
|
|
$
|
33,195
|
|
|
$
|
869
|
|
As
of June 30, 2019 and December 31, 2018, equipment on lease consisted of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Tags
|
|
$
|
126,042
|
|
|
$
|
120,998
|
|
Text
|
|
|
27,858
|
|
|
|
26,743
|
|
Touch
|
|
|
23,076
|
|
|
|
22,152
|
|
Accumulated depreciation
|
|
|
(174,856
|
)
|
|
|
(166,577
|
)
|
|
|
$
|
2,120
|
|
|
$
|
3,316
|
|
For
the three months ended June 30, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $10,593 and
$1,937, respectively.
For
the six months ended June 30, 2019 and 2018, total depreciation expense for fixed assets and leased equipment was $20,207 and
$8,348, respectively.
Note
6 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of June 30, 2019 and December 31, 2018:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Intangible asset – Patent
|
|
$
|
22,353
|
|
|
$
|
22,353
|
|
Accumulated depreciation
|
|
|
(7,678
|
)
|
|
|
(7,064
|
)
|
|
|
$
|
14,675
|
|
|
$
|
15,289
|
|
The
estimated useful life of the patent is 20 years. Patents are amortized on a straight-line basis. For the three months ended June
30, 2019 and 2018, total amortization expense was $307 and $283, respectively.
For
the six months ended June 30, 2019 and 2018, total amortization expense was $614 and $566, respectively.
Note
7 – TRADE AND OTHER PAYABLES
As
of June 30, 2019, and December 31, 2018, trade and other payables consist of the following:
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
Accounts payable
|
|
$
|
1,190,174
|
|
|
$
|
978,770
|
|
Accrued expenses
|
|
|
252,502
|
|
|
|
245,737
|
|
Accrued interest
|
|
|
906,052
|
|
|
|
686,354
|
|
Other liabilities
|
|
|
20,072
|
|
|
|
(13,331
|
)
|
Total payables
|
|
$
|
2,368,800
|
|
|
$
|
1,897,530
|
|
Note
8 – LOANS PAYABLE
As
of June 30, 2019 and December 31, 2018, loans payable consisted of the following:
Loans Payable
|
|
June 30, 2019
|
|
|
December 31, 2018
|
|
|
|
|
|
|
|
|
Unsecured, due on demand, interest at 15% per annum
|
|
$
|
190,896
|
|
|
$
|
183,258
|
|
Unsecured, due on demand, interest at 36% per annum
|
|
|
46,701
|
|
|
|
44,830
|
|
Unsecured, loan payable, due on demand, interest at 18% per annum
|
|
|
317,500
|
|
|
|
317,500
|
|
Unsecured, loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due on demand.
|
|
|
250,000
|
|
|
|
250,000
|
|
Unsecured share-settled debt, interest at 4.99% per month, due on May 7, 2019.
|
|
|
214,286
|
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
1,019,383
|
|
|
$
|
795,588
|
|
On
March 8, 2019, the Company entered into a convertible bridge loan agreement (the “Share-Settled Loan”). The Share-Settled
Loan bears interest at 4.99% per month, was due in 60 days on May 7, 2019 and is convertible into restricted common shares of
the Company at the lender’s option at the market price per share less a 30% discount to market. The Company has accounted
the Share-Settled Loan as share-settled debt. It is initially recognized at its fair value and accreted to its share-settled redemption
value of $214,286 over the term of the debt. At June 30, 2019, the carrying value consists of principal of $150,000 and accumulated
accretion of $64,286. The Share-Settled Loan was not repaid on May 7, 2019 and is in default.
Note
9 – CONVERTIBLE NOTES
As
of June 30, 2019 and December 31, 2018, convertible loans payable consisted of the following:
Related
Party Convertible Loans Payable
(a)
|
On
March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by
a director of the Company for marketing services. The note is unsecured, bears interest at 5% per annum, is convertible at
$1.25 per common share, and is due on demand. As at June 30, 2019, the carrying value of the convertible promissory note was
$310,000 (December 31, 2018 - $310,000).
|
Third
Party Convertible Loans Payable
(b)
|
On
August 25, 2015, the Company issued a convertible promissory note in the principal amount of $250,000. The convertible promissory
note is unsecured, bears interest at 10% per annum, is due on demand, and is convertible at $7,000 per share. As at June 30,
2019, the carrying value of the convertible promissory note was $250,000 (December 31, 2018 - $250,000).
|
|
|
(c)
|
On
November 7, 2016, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement,
the Company was provided with proceeds of $125,000 on November 10, 2016 in exchange for the issuance of a secured convertible
promissory note in the principal amount of $138,889, which was inclusive of an 8% original issue discount and bears interest
at 8% per annum to the holder. The convertible promissory note matures nine months from the date of issuance and is convertible
at the option of the holder into our common shares at a price per share that is the lower of $480 or the closing price of
the Company’s common stock on the conversion date. In addition, under the same terms, the Company also issued a secured
convertible note of $50,000 in consideration for proceeds of $10,000 and another secured convertible note of $75,000 in consideration
for proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes for consideration
of $1 each at any time prior to the maturity date in the event that the convertible promissory note is exchanged or converted
into a revolving credit facility with the lender, whereupon the two $10,000 convertible note balances shall be rolled into
such credit facility.
|
|
On
May 7, 2017, the Company triggered an event of default in the convertible note by failing to repay the full principal amount
and all accrued interest on the due date. The entire convertible note payable became due on demand and would accrue interest
at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the convertible
note payable was repaid in full.
|
|
|
|
On
May 8, 2017, the Company issued 25 common shares for the conversion of $5,000 of the $72,500 convertible note dated November
7, 2016. On May 24, 2017, the Company issued 53 common shares for the conversion of $10,500 of the $72,500 convertible note
dated November 7, 2016. On May 25, 2017, the lender provided conversion notice for the remaining principal $57,000 of the
$72,500 convertible note dated November 7, 2016. This conversion was not processed by the Company’s transfer agent due
to direction from the Company not to honor any further conversion notices from the lender. In response, the Company received
legal notification pursuant to the refusal to process further conversion notices. Refer to Note 17.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $245,889 (December 31, 2018 - $245,889) and the fair value of the derivative
liability was $307,641 (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 June 30, 2019, the carrying value of the note was $9,487 (December 31, 2018 - $9,487), relating to a penalty.
|
|
|
(e)
|
On
July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The note is unsecured,
bears interest at 10% per annum, is due on July 17, 2018, and is convertible into common shares at a conversion price
equal to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty trading day period ending
on the latest complete trading day prior to the date of this note and (ii) $244. Interest will be accrued and payable
at the time of promissory note repayment. Financing fees on the note were $16,500. Derivative liability applied as discount
on the note was $118,500 and is accreted over the life of the note.
During
the year ended December 31, 2018, the Company issued 25,000 common shares with a fair value of $227,222 for the conversion
of $53,530 of principal balance resulting in a loss on settlement of debt of $173,692.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $81,470 (December 31, 2018 - $81,470) and the fair value of the derivative
liability was $106,863 (December 31, 2018 - $121,485). During the six months ended June 30, 2019, the Company accreted $nil
(2018 - $64,282) of the debt discount to finance costs.
|
(f)
|
On
March 19, 2018, the Company issued a convertible promissory note in the principal amount of up to $900,000. The note is
unsecured, bears interest at 12% per annum, is due 184 days upon receipt, and is convertible into common shares after
180 days from issuance date at a conversion price equal to the lessor of: (i) the lowest trading price during the previous
fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price during the previous
fifteen days prior to the latest complete trading day prior to the conversion date. Interest will be accrued and payable
at the time of promissory note repayment.
On
May 3, 2018, the Company amended the convertible promissory note to include that at any time after the 100th calendar
day after the funds are issued, and at the option of the holder in addition to the right of conversion, the holder may
deduct daily payments from the Company’s bank account in the amount of $5,562 per calendar day or $27,812 per week
until the Company has paid or the holder has converted an amount equal to the principal balance, interest, accrued interest,
and default amount.
|
|
|
|
First
Tranche
On
March 19, 2018, the Company received $270,000 pursuant to the first tranche of the note, which is $300,000 in the principal
amount, net of the original issuance discount of $30,000. The derivative liability applied as a discount on the note was
$270,000.
|
|
|
|
On
August 31, 2018, the principal balance of $300,000 and accrued interest of $15,978 for the first tranche of the note was reassigned
to another unrelated note holder. There were no material changes to the note upon reassignment. Refer to Note 9(l).
|
|
|
|
Second
Tranche
|
|
|
|
On
May 3, 2018, the Company received $146,500, net of $3,500 in legal fees, pursuant to the second tranche of the note, which
is $166,667 in the principal amount, net of the original issuance discount of $16,667. The derivative liability applied as
a discount on the note was $150,000 and is accreted over the life of the note.
|
|
|
|
On
April 26, 2019 and May 22, 2019, an aggregate principal balance of $166,667 and accrued interest of $3,567 for the second
tranche of the note was reassigned to another unrelated note holder. There were no material changes to the note upon reassignment.
Refer to Note 9(n).
|
|
|
|
As
at June 30, 2019, the carrying value of the second tranche of the note was $nil (December 31, 2018 - $166,667) and the fair
value of the derivative liability was $87,975 (December 31, 2018 - $229,951). During the six months ended June 30, 2019, the
Company accreted $nil (2018 - $52,536) of the debt discount to finance costs.
|
|
|
|
Third
Tranche
|
|
|
|
On
July 16, 2018, the Company received $125,000, net of $53,500 in legal and financing fees, pursuant to the third tranche of
the agreement, which is $198,333 in the principal amount, net of the original issuance discount of $19,833. The derivative
liability applied as a discount on the note was $125,000 and is accreted over the life of the note.
|
|
|
|
On
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. There were no material changes to the note upon reassignment. Refer to Note 9(n).
|
|
|
|
As
at June 30, 2019, the carrying value of the third tranche of the note was $120,489 (December 31, 2018 - $181,087) and the
fair value of the derivative liability was $100,506 (December 31, 2018 - $231,250). During the six months ended June 30, 2019,
the Company accreted $17,246 (2018 - $nil) of the debt discount to finance costs.
|
|
|
(g)
|
In
January 2018, the Company issued a convertible promissory note in the principal amount
of $15,000 as a commitment fee. The note is unsecured, non-interest bearing until default,
was due on August 16, 2018, and is convertible into common shares at a conversion
price equal to 75% of the average closing trading price during the previous five trading
days prior to conversion date, with a minimum of $0.20.
During
the year ended December 31, 2018, the Company issued 1,558 common shares with a fair value of $19,937 for the conversion
of $10,000 of principal resulting in a loss on settlement of debt of $9,937.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $5,000 (December 31, 2018 - $5,000) and the fair value of the derivative
liability was $3,076 (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 June 30, 2019, the carrying value of the note was $51,500 (December 31, 2018 - $44,223) and the fair value of the derivative
liability was $46,432 (December 31, 2018 - $44,543). During the six months ended June 30, 2019, the Company accreted $7,277
(2018 - $9,889) of the debt discount to finance costs.
|
|
|
(i)
|
On
May 28, 2018 the Company issued a convertible note in the principal amount of $180,000. The note is unsecured, bears interest
at 10% per annum, and is due on February 28, 2019. The note is convertible into common shares at a 32% discount to the
lowest intra-day trading price of the Company’s common stock for the ten trading days immediately preceding the
conversion date.
As
at June 30, 2019, the carrying value of the note was $180,000 (December 31, 2018 - $141,522) and the fair value of the
derivative liability was $160,460 (December 31, 2018 - $165,742). During the six months ended June 30, 2019, the Company
accreted $38,478 (2018 - $21,522) of the debt discount to finance costs.
|
|
|
(j)
|
On
June 18, 2018, the Company reassigned convertible note balances from another unrelated party in the principal amount of $168,721.
The note is unsecured, bears interest at 10% per annum, which was due on August 2, 2018, and is convertible into common shares
at a conversion price equal to the lesser of the lowest trading price during the previous twenty-five trading days prior to:
(i) the date of the promissory note; or (ii) the latest complete trading day prior to the conversion date. Interest is accrued
will be and payable at the time of promissory note repayment. The remaining derivative liability applied as a discount on
the reassigned note was $25,824 and is accreted over the remaining life of the note.
|
|
|
|
During
the year ended December 31, 2018, the Company issued 43,750 common shares with a fair value of $185,200 for the conversion
of $66,672 of principal and $5,653 of accrued interest resulting in a loss on settlement of debt of $112,875.
|
|
|
|
During
the six months ended June 30, 2019, the Company issued 34,450 common shares with a fair value of $36,517 for the conversion
of $13,324 of principal and $6,571 of accrued interest resulting in a loss on settlement of debt of $16,622.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $88,725 (December 31, 2018 - $102,049) and the fair value of the derivative
liability was $43,846 (December 31, 2018 - $53,896). During the six months ended June 30, 2019, the Company accreted $nil
(2018 - $73,669) of the debt discount to finance costs.
|
|
|
(k)
|
On
August 31, 2018, the Company issued a convertible promissory note in the principal amount of $226,000. The note is unsecured,
bears interest at 12% per annum, is due on August 31, 2019, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment. Deferred financing fees and original
issuance discount on the note were $26,000. The derivative liability applied as a discount on the note was $200,000 and is
accreted over the life of the note.
|
|
|
|
On
May 7, 2019 and June 28, 2019, an aggregate principal balance of $125,209 was purchased by another unrelated note holder.
There were no material changes to the note upon purchase. Refer to Note 9(o). The deferred financing fees and derivative liability
applied as discounts on the purchase portion of the note were fully extinguished at the time of the transfer.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $81,597 (December 31, 2018 - $75,540) and the fair value of the derivative
liability was $129,531 (December 31, 2018 - $305,890). During the six months ended June 30, 2019, the Company accreted $131,266
(2018 - $nil) of the debt discount to finance costs.
|
|
|
(l)
|
On
August 31, 2018, the Company reassigned the first tranche of a convertible note balance from another unrelated party in the
principal amount of $315,978. The first tranche of the note is unsecured, bears interest at 12% per annum, which is due on
demand, and is convertible into common shares at a conversion price equal to the lessor of: (i) the lowest trading price during
the previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price during
the previous fifteen days prior to the latest complete trading day prior to the conversion date. Interest will be accrued
and payable at the time of promissory note repayment.
|
|
The
deferred financing fees and derivative liability applied as discounts on the reassigned note were fully amortized at the time
of the transfer.
|
|
|
|
During
the six months ended June 30, 2019, the Company issued 55,915 common shares with a fair value of $119,977 for the conversion
of $42,000 of principal and $3,868 of accrued interest resulting in a loss on settlement of debt of $74,109.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $273,978 (December 31, 2018 - $315,978) and the fair value of the derivative
liability was $362,395 (2018 - $426,173).
|
|
|
(m)
|
On
January 22, 2019, the Company issued a convertible promissory note in the principal amount of $137,500. The note is unsecured,
bears interest at 12% per annum, is due on January 22, 2020, and is convertible into common shares at a conversion price equal
to 55% of the lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion
date. Interest will be accrued and payable at the time of promissory note repayment. Deferred financing fees and original
issuance discount on the note were $12,500. The derivative liability applied as a discount on the note was $125,000 and is
accreted over the life of the note.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $59,897 and the fair value of the derivative liability was $202,332.
During the six months ended June 30, 2019, the Company accreted $59,897 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 June 30, 2019, $290,724 in principal
and accrued interest had been assigned to the purchaser.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $290,724.
|
|
|
(o)
|
On
May 7, 2019, the Company entered into a securities purchase agreement with an unrelated party pursuant to a certain secured
inventory convertible promissory note issued on August 31, 2018 in the principal amount of $226,000. Refer to Note 9(k). Pursuant
to this agreement, the investor desired to purchase from the Company the balance owing under the original note in four separate
closings on or about May 7 and up to three additional tranches, each at the investor’s discretion. As at June 30, 2019,
two tranches totaling $125,209 had been purchased by the investor. The derivative liability applied as a discount on the note
was $125,209 and is accreted over the life of the note.
|
|
|
|
As
at June 30, 2019, the carrying value of the note was $9,605 and the fair value of the derivative liability was $166,881. During
the six months ended June 30, 2019, the Company accreted $9,605 of the debt discount to finance costs.
|
Note
10 – DERIVATIVE LIABILITIES
The
Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 9 in accordance
with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The
fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in
the consolidated statement of operations. For the three and six months ended June 30, 2019, the Company recorded a gain on the
change in fair value of derivative liability of $7,356,541 and $720,624, respectively (2018 – $6,013,778 and $397,517, respectively).
As at June 30, 2019, the Company’s derivative liability had a balance of $1,717,939 (December 31, 2018 - $2,188,354).
The
following inputs and assumptions were used to value the derivative liabilities outstanding at June 30, 2019 and December 31, 2018,
assuming no dividend yield:
|
|
|
2019
|
|
|
|
2018
|
|
Expected
volatility
|
|
|
218
- 350
|
%
|
|
|
180
- 447
|
%
|
Risk
free interest rate
|
|
|
1.92
- 2.44
|
%
|
|
|
1.63
- 2.59
|
%
|
Expected
life (in years)
|
|
|
0.25
- 1.0
|
|
|
|
0.1
- 1.0
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
$
|
|
Balance, December 31, 2018
|
|
|
2,188,354
|
|
New issuances
|
|
|
250,209
|
|
Mark to market adjustment
|
|
|
(720,624
|
)
|
|
|
|
|
|
Balance, June 30, 2019
|
|
|
1,717,939
|
|
Note
11 - LEASES
The
Company leases certain assets under lease agreements. The lease liability consists of a single lease for office space. Upon adoption
of Topic 842, on January 1, 2019 the Company recognized right-of-use assets of $51,203 and lease liabilities of $47,118. The difference
between the recorded operating lease assets and lease liabilities is mainly due to the reclassification of prepaid rent deposits.
As of June 30, 2019, the lease had a remaining term of 0.92 years. Right-of-use assets have been included within fixed assets,
net, and lease liabilities have been included in operating lease liability on the Company’s interim condensed consolidated
balance sheet as follows:
Right-of-use asset
|
|
June 30, 2019
|
|
Right-of-use asset
|
|
$
|
51,203
|
|
Depreciation
|
|
|
(18,072
|
)
|
Total right-of-use asset
|
|
$
|
33,131
|
|
Lease liability
|
|
June 30, 2019
|
|
Lease liability
|
|
$
|
47,118
|
|
Lease payments
|
|
|
(18,741
|
)
|
Interest
|
|
|
2,513
|
|
Change in foreign exchange rate
|
|
|
1,805
|
|
Total lease liability
|
|
$
|
32,695
|
|
Current portion
|
|
$
|
32,695
|
|
Long-term portion
|
|
|
-
|
|
Total lease liability
|
|
$
|
32,695
|
|
Operating
lease liabilities are measured at the commencement date based on the present value of future lease payments. As the Company’s
lease did not provide an implicit rate, the Company uses its incremental borrowing rate based on the information available at
the commencement date in determining the present value of future payments. The Company used a weighted average discount rate of
11.98% in determining its lease liabilities. The discount rate was derived from the Company’s assessment of current borrowings.
Right-of-use
assets include any prepaid lease payments and exclude any lease incentives and initial direct costs incurred. Lease expense for
minimum lease payments is recognized on a straight-line basis over the lease term. The lease terms may include options to extend
or terminate the lease if it is reasonably certain that the Company will exercise that option.
Interest
on operating lease liabilities for the three and six months ended June 30, 2019 was $1,125 and $2,513, respectively. Total payments
for principal and interest on operating lease liabilities for the three and six months ended June 30, 2019 were $9,288 and $18,741,
respectively.
Future
minimum lease payments to be paid by the Company as a lessee for operating leases as of June 30, 2019 for the next two years and
thereafter are as follows:
2019
|
|
$
|
18,919
|
|
2020
|
|
|
15,766
|
|
|
|
|
|
|
Total future minimum lease payments
|
|
$
|
34,685
|
|
Discount
|
|
|
(1,990
|
)
|
|
|
|
|
|
Total
|
|
$
|
32,695
|
|
Note
12 – MEZZANINE EQUITY
Authorized
5,000,000
shares of convertible, redeemable Series C preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series C preferred shares is convertible into 10 shares of common stock.
1,000,000
shares of convertible, redeemable Series D preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series D preferred shares is convertible into 5 shares of common stock.
5,000,000
shares of convertible, redeemable Series E preferred shares authorized, each having a par value of $0.001 per share. Each share
of Series E preferred shares is convertible into 4 shares of common stock.
The
Series C, D and E preferred shares are mandatorily redeemable upon a major transaction which includes a change in control. As
a result, they are classified as mezzanine equity.
Mezzanine
equity transactions
During
the six months ended June 30, 2019, the Company did not have any mezzanine equity transactions.
Note
13 – PREFERRED STOCK
Authorized
3,000,000
shares of Series A preferred shares authorized, each having a par value of $0.001 per share.
10,000
shares of Series B convertible preferred shares authorized, each having a par value of $0.001 per share. Each share of Series
B convertible preferred shares is convertible into 1,000,000 shares of common stock.
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Preferred share amounts remained unchanged.
Preferred
Equity Transactions
During
the six months ended June 30, 2019, the Company did not have any preferred share equity transactions.
Note
14 – COMMON STOCK
Authorized
On
March 26, 2019, the Company effected a reverse stock split of its shares of common stock on a four thousand (4,000) old for one
(1) new basis. Upon effect of the reverse split, authorized capital decreased from 3,000,000,000 shares of common stock to 750,000
shares of common stock. Subsequently, on May 23, 2019, an increase in common shares to 150,000,000 was authorized, with
a par value of $0.001. These consolidated financial statements give retroactive effect to such reverse stock split named above
and all share and per share amounts have been adjusted accordingly, unless otherwise noted.
There
were 787,569 and 634,971 shares of common stock of the Company issued and outstanding as of June 30, 2019 and December 31, 2018,
respectively. Each share of common stock is entitled to one (1) vote.
Common
Equity Transactions
During
the six months ended June 30, 2019 the Company had the following transactions:
|
●
|
The
Company issued an aggregate of 17,500 shares of common stock with a fair value of $19,600 in exchange for services.
|
|
●
|
The
Company issued an aggregate of 135,598 shares of common stock with a fair value of $215,274 upon the conversion of
$87,020 of convertible debentures, accrued interest and accounts payable, as noted in Note 9, per the table below:
|
Date Issued
|
|
Common Shares Issued (#)
|
|
|
Fair
Value
(1)
|
|
|
Converted
Balance
(2)
|
|
|
Gain (loss) on
Conversion
|
|
January 22, 2019
|
|
|
10,189
|
|
|
$
|
28,527
|
|
|
$
|
15,690
|
|
|
$
|
(12,837
|
)
|
March 11, 2019
|
|
|
18,606
|
|
|
|
37,212
|
|
|
|
12,280
|
|
|
|
(24,932
|
)
|
March 15, 2019
|
|
|
27,137
|
|
|
|
54,238
|
|
|
|
17,898
|
|
|
|
(36,340
|
)
|
June 17, 2019
|
|
|
45,216
|
|
|
|
58,780
|
|
|
|
21,257
|
|
|
|
(37,523
|
)
|
June 27, 2019
|
|
|
34,450
|
|
|
|
36,517
|
|
|
|
19,895
|
|
|
|
(16,622
|
)
|
Total
|
|
|
135,598
|
|
|
$
|
215,274
|
|
|
$
|
87,020
|
|
|
$
|
(128,254
|
)
|
|
(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, derivative liabilities, financing fees and interest
penalties converted upon the issuance of shares of common stock.
|
Note
15 – RELATED PARTY TRANSACTIONS
As
at June 30, 2019, the Company owed $216,579 ($283,632 CDN) (December 31, 2018 - $139,835 ($190,764 CDN)) to the President, CEO,
and CFO of the Company for management fees and salaries, which has been recorded in trade and other payables. The amounts owed
and owing are unsecured, non-interest bearing, and due on demand. During the six months ended June 30, 2019 the Company incurred
$100,000 (2018 - $100,000) in salaries to the President, CEO, and CFO of the Company.
As
at June 30, 2019, the Company owed $13,325 ($17,450 CDN) (December 31, 2018 - $12,791 ($17,450 CDN)) to a company controlled by
the son of the President, CEO, and CFO of the Company for subcontractor services. The balance owing has been recorded in trade
and other payables. The amount owing is unsecured, non-interest bearing, and due on demand.
Note
16 – COMMITMENTS
In
the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions
with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising
from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws
contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential
amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these
agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
Note
17 – CONTINGENCIES
On
September 7, 2016, Chetu Inc. filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus interest
of $4,939. The invoice was not paid due to a service dispute. As at June 30, 2019, included in trade and other payables is $44,804
related to this unpaid invoice, interest and legal fees.
On
May 24, 2017, the Company received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three
8% convertible promissory notes issued by the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June
12, 2017 in the United States District Court, Southern District of New York. Refer to Note 9. Coastal alleges that the Company
failed to deliver shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks
damages in excess of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the lawsuit. This
action is still pending but management’s assessment is that an unfavorable outcome is not probable. As at June
30, 2019, the principal balance and accrued interest on this convertible note is included on the consolidated balance sheet under
convertible notes payable.
On
October 10, 2017, a vendor filed a complaint for breach of contract with Superior Court of the State of California.
The complainant is alleging that it is contractually owed 462 shares of the Company’s common stock and is seeking
damages of $270,000. In addition, a related vendor filed in the same filing a complaint for $72,000 as part of a consulting agreement
the Company executed. No accrual has been recorded because the Company is of the opinion that no obligation exists since the vendors
have not performed their contractual duties. The outcome of this breach is undecided and the company will defend its position
if so required.
On
April 9, 2018, the Company received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to
the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the
Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded
payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District
Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter,
thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ
seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default
interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending but as at June 30,
2019, JSJ has negotiated a reduced amount with a private investor. As at June 30, 2019, the principal balance and accrued
interest on this convertible note is included on the consolidated balance sheet under convertible notes payable.
Note
18 – SUBSEQUENT EVENTS
Management
has evaluated events subsequent to June 30, 2019, for transactions and other events that may require adjustment of and/or disclosure
in such financial statements.
On
July 24, 2019, the Company issued 37,900 shares of common stock pursuant to the conversion of outstanding convertible debentures
and related accrued interest.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD
LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. 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-Q 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 II, 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-Q 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-Q to conform these statements
to actual results or to changes in our expectations, except as required by law.
Our
unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally
Accepted Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial
statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual
future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Corporate
History
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 Vantage Tag Systems Inc. (“VTS”) (formerly
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 VTS 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
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 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 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 shares of our common stock. Following completion of these additional purchases, DSG Global 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 continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a former member of our board of directors.
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.
Overview
of Our Business
DSG
Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”), is a technology development company based in
Surrey, British Columbia, Canada, engaged in the design, manufacture, and marketing of fleet management solutions for the golf
industry, as well as commercial, government and military applications. Our principal activities are the sale and rental of GPS
tracking devices and interfaces for golf vehicles, and related support services. We were founded by a group of individuals who
have dedicated their careers to fleet management technologies and have been at the forefront of the industry’s most innovative
developments, and our executive team has over 50 years of experience in the design and manufacture of wireless, GPS, and fleet
tracking solutions. We have developed the TAG suite of products that we believe is the first completely modular fleet management
solution for the golf industry. The TAG suite of products is currently sold and installed around the world in golf facilities
and as commercial applications through a network of established distributors and partnerships with some of the most notable brands
in fleet and equipment manufacture.
VTS
is giving fleet operator’s new capabilities to track and control their vehicles through the new INFINITY XL system and the
new 3G-4G TAG. We have developed inhouse a proprietary combination of hardware and software that is marketed around the world
as the INFINITY TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course
operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management
in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of
the National Golf Course Owners Association. To date the TAG system is installed on vehicles around the world and has been used
to monitor millions of rounds of golf.
The
TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system
to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which
can operate independently, we offer 3 information display systems to the golf courses management and golfer — the alphanumeric
TEXT and high definition 12” INFINITY XL, 10” INFINITY RM and 7” INFINITY DM— providing the operator with
three display options which is unique in the industry. VTS also offers inhouse financing thru purchase or lease.
The
primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of
our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture
and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new
markets.
We
are expanding our sales force in North America, which comprises the most significant portion of the golf fleet market and have
developed key relationships with privately owned distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes
Jacobsen to help drive sales through-out Europe, Asia, UK and many other markets worldwide Including our most recent move to New
Zealand and Australia.
In
order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier
of our hardware units and components at competitive prices. Presently, we source our TAG and INFINITY fleet from one fortune 200
companies in NA who has manufacturing in China and our RAPTORS from one supplier in the United Kingdom and Asia. This new relationship
that has been established provides us with higher quality, newer technology at competitive pricing.
In
addition, VTS recently engaged with a telecommunications provider to provide new technology in hardware and wireless access through-out
the world therefor allowing VTS to substantially reduce cellular cost.
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.
Our
Revenue Model
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.
|
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. 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 2 – Summary of Significant Accounting Policies
”
in the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
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, research and development, 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.
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.
|
|
|
|
|
●
|
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.
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.
Results
of Operations
We
recognized net income of $6,893,187 for the three-month period ended June 30, 2019, which was $2,392,177 or 53.1% more than the
net income of $4,501,010 for the three-month period ended June 30, 2018. The primary reasons are attributable to the increase
in gain from change in fair value of derivative liabilities, decrease in loss on extinguishment of debt and decrease in finance
costs. Also contributing to this increase in gain is a decrease in loss from operations.
We
recognized a net loss of $279,786 for the six-month period ended June 30, 2019, which was $4,041,621 or 93.5% less than the net
loss of $4,321,407 for the six-month period ended June 30, 2018. The primary reasons are attributable to decrease in loss on extinguishment
of debt, decrease in finance costs the increase in gain from change in fair value of derivative liabilities. Also contributing
to this increase in gain is a decrease in loss from operations and increase in gain from change in fair value of derivative liabilities.
The
following table summarizes key items of comparison and their related increase (decrease) for the three and six month periods June
30, 2019 and 2018:
|
|
Three
months ended
|
|
|
Increase
(Decrease)
|
|
|
Six
months ended
|
|
|
Increase
(Decrease)
|
|
|
|
30-Jun-19
|
|
|
30-Jun-18
|
|
|
2019 – 2018
|
|
|
30-Jun-19
|
|
|
30-Jun-18
|
|
|
2019 – 2018
|
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Revenues
|
|
$
|
284,646
|
|
|
|
237,046
|
|
|
|
20.1
|
%
|
|
$
|
786,070
|
|
|
$
|
347,942
|
|
|
|
125.9
|
%
|
Cost of revenue
|
|
|
32,886
|
|
|
|
79,552
|
|
|
|
-58.7
|
%
|
|
|
338,954
|
|
|
|
97,881
|
|
|
|
246.3
|
%
|
Gross profit
|
|
|
251,760
|
|
|
|
157,494
|
|
|
|
59.9
|
%
|
|
|
447,116
|
|
|
|
250,061
|
|
|
|
78.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
144,673
|
|
|
|
209,174
|
|
|
|
-30.8
|
%
|
|
|
279,756
|
|
|
|
417,802
|
|
|
|
-33.0
|
%
|
General and administrative expense
|
|
|
203,938
|
|
|
|
275,480
|
|
|
|
-26.0
|
%
|
|
|
431,694
|
|
|
|
633,493
|
|
|
|
-31.9
|
%
|
Warranty expense
|
|
|
-
|
|
|
|
46,273
|
|
|
|
-100.0
|
%
|
|
|
-
|
|
|
|
46,273
|
|
|
|
-100.0
|
%
|
Bad debt
|
|
|
(3,290
|
)
|
|
|
2,099
|
|
|
|
-256.7
|
%
|
|
|
(1,866
|
)
|
|
|
30,992
|
|
|
|
-106.0
|
%
|
Depreciation and amortization expense
|
|
|
10,900
|
|
|
|
2,220
|
|
|
|
391.0
|
%
|
|
|
20,821
|
|
|
|
8,914
|
|
|
|
133.6
|
%
|
Total operating expenses
|
|
|
356,221
|
|
|
|
535,246
|
|
|
|
-33.4
|
%
|
|
|
730,405
|
|
|
|
1,137,474
|
|
|
|
-35.8
|
%
|
Loss from operations
|
|
|
(104,461
|
)
|
|
|
(377,752
|
)
|
|
|
-72.3
|
%
|
|
|
(283,289
|
)
|
|
|
(887,413
|
)
|
|
|
-68.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
13,526
|
|
|
|
410,454
|
|
|
|
-96.7
|
%
|
|
|
31,163
|
|
|
|
(150,212
|
)
|
|
|
-120.7
|
%
|
Change in fair value of derivative liabilities
|
|
|
7,356,541
|
|
|
|
6,013,778
|
|
|
|
22.3
|
%
|
|
|
720,624
|
|
|
|
397,517
|
|
|
|
81.3
|
%
|
Loss on extinguishment of debt
|
|
|
(54,145
|
)
|
|
|
(768,964
|
)
|
|
|
-93.0
|
|
|
|
(128,254
|
)
|
|
|
(2,164,231
|
)
|
|
|
-94.1
|
%
|
Finance costs
|
|
|
(318,274
|
)
|
|
|
(776,506
|
)
|
|
|
-59.0
|
%
|
|
|
(620,030
|
)
|
|
|
(1,517,068
|
)
|
|
|
-59.1
|
%
|
Total other expense
|
|
|
6,997,648
|
|
|
|
4,878,762
|
|
|
|
43.4
|
%
|
|
|
3,503
|
|
|
|
(3,433,994
|
)
|
|
|
-100.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
%
|
Net income (loss)
|
|
|
6,893,187
|
|
|
|
4,501,010
|
|
|
|
53.1
|
%
|
|
|
(279,786
|
)
|
|
|
(4,321,407
|
)
|
|
|
-93.5
|
%
|
Comparison
of the three and six months ended June 30, 2019 and 2018:
Revenue
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
284,646
|
|
|
$
|
237,046
|
|
|
|
20.1
|
|
|
$
|
786,070
|
|
|
|
347,942
|
|
|
|
125.9
|
|
Revenue
increased by $47,600 or 20.1%, for the three months ended June 30, 2019 as compared to the three months ended June 30, 2018. Revenue
increased by $438,128 or 125.9%, for the six months ended June 30, 2019 as compared to the three months ended June 30, 2018.
Sales
increased as the result of aggressive marketing and installation of the new infinity suite of products compared to lower sales
in the comparative period.
Cost
of Revenue
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
32,886
|
|
|
$
|
79,552
|
|
|
|
(58.7
|
)
|
|
$
|
338,954
|
|
|
$
|
97,881
|
|
|
|
246.3
|
|
Cost
of revenue decreased by $46,666, or 58.7%, for the three months ended June 30, 2019 as compared to the three months June 30, 2018.
The overall decrease was due to the decrease of cost of goods sold, partially offset by an increase in wireless fees. The table
below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of Goods
|
|
$
|
8,576
|
|
|
$
|
64,570
|
|
|
$
|
(55,994
|
)
|
|
|
(86.7
|
)
|
Labour
|
|
|
(28
|
)
|
|
|
-
|
|
|
|
(28
|
)
|
|
|
(100.0
|
)
|
Mapping & Freight Costs
|
|
|
(38
|
)
|
|
|
4,478
|
|
|
|
(4,516
|
)
|
|
|
(100.8
|
)
|
Wireless Fees
|
|
|
24,368
|
|
|
|
10,504
|
|
|
|
13,864
|
|
|
|
132.0
|
|
Inventory Write-off/Adjustments
|
|
|
8
|
|
|
|
-
|
|
|
|
8
|
|
|
|
100.0
|
|
|
|
$
|
32,886
|
|
|
$
|
79,552
|
|
|
$
|
(46,666
|
)
|
|
|
(58.7
|
)
|
Cost
of revenue increased by $241,073, or 246.3%, for the six months ended June 30, 2019 as compared to the six months June 30, 2018.
The overall increase was due to the increase of cost of goods sold and labour, partially offset by a decrease in wireless fees.
The table below outlines the differences in detail:
|
|
For the Six Months Ended
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of Goods
|
|
$
|
296,270
|
|
|
$
|
64,570
|
|
|
$
|
231,700
|
|
|
|
358.8
|
|
Labour
|
|
|
8,967
|
|
|
|
-
|
|
|
|
8,967
|
|
|
|
100.0
|
|
Mapping & Freight Costs
|
|
|
12,112
|
|
|
|
5,138
|
|
|
|
6,974
|
|
|
|
135.7
|
|
Wireless Fees
|
|
|
24,368
|
|
|
|
28,173
|
|
|
|
(3,805
|
)
|
|
|
(13.5
|
)
|
Inventory Write-off/Adjustments
|
|
|
(2,763
|
)
|
|
|
-
|
|
|
|
(2,763
|
)
|
|
|
(100.0
|
)
|
|
|
$
|
338,954
|
|
|
$
|
97,881
|
|
|
$
|
241,073
|
|
|
|
246.3
|
|
Compensation
Expense
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
$
|
144,673
|
|
|
$
|
209,174
|
|
|
|
(30.8
|
)
|
|
$
|
279,756
|
|
|
$
|
417,802
|
|
|
|
(33.0
|
)
|
Compensation
expense decreased by $64,501, or 30.8%, for the three months ended June 30, 2019 as compared to the three months ended June 30,
2018 due to a reduction in headcount and employees. Compensation expense decreased by $138,046, or 33.0%, for the six months ended
June 30, 2019 as compared to the six months ended June 30, 2018 due to a reduction in headcount and employees.
General
and Administration Expense
General
& administration expense decreased by $71,542 or 26.0% for the three months ended June 30, 2019 compared to the three months
ended June 30, 2018. The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & Legal
|
|
$
|
75,534
|
|
|
$
|
96,884
|
|
|
$
|
(21,350
|
)
|
|
|
(22.0
|
)
|
Marketing & Advertising
|
|
|
24,887
|
|
|
|
7,535
|
|
|
|
17,352
|
|
|
|
230.3
|
|
Subcontractor & Commissions
|
|
|
36,435
|
|
|
|
64,854
|
|
|
|
(28,419
|
)
|
|
|
(43.8
|
)
|
Hardware
|
|
|
1,091
|
|
|
|
21,632
|
|
|
|
(20,541
|
)
|
|
|
(95.0
|
)
|
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals
|
|
|
65,991
|
|
|
|
84,575
|
|
|
|
(18,584
|
)
|
|
|
(22.0
|
)
|
|
|
$
|
203,938
|
|
|
$
|
275,480
|
|
|
$
|
(71,542
|
)
|
|
|
(26.0
|
)
|
The
overall decrease in general and administrative expenses was primary related to a decrease in subcontractor and commissions. Also
contributing to this decrease was a decrease in office expense, rent, software and other charges primarily due to a reduction
in rent expense and travel and other expenses. Rent expense decreased as the Company relocating to a new office space. Travel
and other expenses decreased as the Company began providing remote service and support, rather than on-site support and attended
a trade show in the prior but not current period.
General
& administration expense decreased by $201,799 or 31.9% for the six months ended June 30, 2019 compared to the three months
ended June 30, 2018. The table below outlines the differences in detail:
|
|
For the Six Months Ended
|
|
|
|
June 30,
2019
|
|
|
June 30,
2018
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & Legal
|
|
$
|
84,855
|
|
|
$
|
144,670
|
|
|
$
|
(59,815
|
)
|
|
|
(41.3
|
)
|
Marketing & Advertising
|
|
|
45,793
|
|
|
|
20,218
|
|
|
|
25,575
|
|
|
|
126.5
|
|
Subcontractor & Commissions
|
|
|
127,311
|
|
|
|
121,162
|
|
|
|
6,149
|
|
|
|
5.1
|
|
Hardware
|
|
|
3,814
|
|
|
|
37,240
|
|
|
|
(33,426
|
)
|
|
|
(89.8
|
)
|
Office Expense, Rent, Software, Bank & Credit Card Charges, Telephone, Travel, & Meals
|
|
|
169,921
|
|
|
|
310,203
|
|
|
|
(140,282
|
)
|
|
|
(45.2
|
)
|
|
|
$
|
431,694
|
|
|
$
|
633,493
|
|
|
$
|
(201,799
|
)
|
|
|
(31.9
|
)
|
The
overall decrease in general and administrative expenses was primary related to a decrease in office expense, rent, software and
other charges of $140,282 or 45.2% primarily due to a reduction in rent expense and travel and other expenses. Rent expense decreased
as the Company relocating to a new office space. Travel and other expenses decreased as the Company began providing remote service
and support, rather than on-site support and attended a trade show in the prior but not current period.
Foreign
Currency Exchange
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
exchange (gain) loss
|
|
$
|
(13,526
|
)
|
|
$
|
(410,454
|
)
|
|
|
(96.7
|
)
|
|
$
|
(31,163
|
)
|
|
$
|
150,212
|
|
|
|
(120.7
|
)
|
For
the three months ended June 30, 2019, we recognized a $13,526 foreign exchange gain as compared to a $410,454 foreign exchange
gain for the three months ended June 30, 2018. The change was primarily due to settlement of various foreign currency denominated
debt instruments in the prior year as well as beneficial changes 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.
For
the six months ended June 30, 2019, we recognized a $31,163 foreign exchange gain as compared to a $150,212 foreign exchange loss
for the six months ended June 30, 2018. The change was primarily due to settlement of various foreign currency denominated debt
instruments in the prior year as well as beneficial changes 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.
Unrealized
(Gain) Loss on Derivative
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on derivative
|
|
$
|
(7,356,541
|
)
|
|
$
|
(6,013,778
|
)
|
|
|
22.3
|
|
|
$
|
(720,624
|
)
|
|
$
|
(397,517
|
)
|
|
|
81.3
|
|
Derivative
gain increased by $1,342,763 or 22.3%, for the three months ended June 30, 2019 as compared to the three months ended June 30,
2018 due to the change in fair value as of June 30, 2018 triggering of unrealized gains on derivative instruments in the current
quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s
stock price.
Derivative
gain increased by $323,107 or 81.3%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018
due to the change in fair value as of June 30, 2018 triggering of unrealized gains on derivative instruments in the current quarter
ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s
stock price.
Finance
Costs
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
$
|
318,274
|
|
|
$
|
776,506
|
|
|
|
(59.0
|
)
|
|
$
|
620,030
|
|
|
$
|
1,517,068
|
|
|
|
(59.1
|
)
|
Finance
costs decreased by $458,232 or 59.0%, for the three months ended June 30, 2019 as compared to the three months ended June 30,
2018. Finance costs decreased due to the large number of conversions of settlement of notes in the current period and prior year.
Finance
costs decreased by $897,038 or 59.1%, for the six months ended June 30, 2019 as compared to the six months ended June 30, 2018.
Finance costs decreased due to the large number of conversions of settlement of notes in the current period and prior year.
Net
Loss
|
|
For the Three Months Ended June 30,
|
|
|
For the Six Months Ended June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
6,893,187
|
|
|
$
|
4,501,010
|
|
|
|
53.1
|
|
|
$
|
(279,786
|
)
|
|
$
|
(4,321,407
|
)
|
|
|
(93.5
|
)
|
As
a result of the above factors, net income increased by $2,392,177 or 53.1% and net loss decreased by $4,041,621 or 93.5% for the
three and six months ended June 30, 2019 as compared to the three and six months ended June 30, 2018, respectively.
Liquidity
and Capital Resources
From
our incorporation in April 17, 2008 through June 30, 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 June 30, 2019, we had $7,346,720 in outstanding indebtedness, all of which matures
within the next twelve months.
We
had cash in the amount of $31,820 as of June 30, 2019, as compared to $5,059 as of December 31, 2018. We had a working capital
deficit of $6,839,345 as of June 30, 2019 compared to working capital deficit of $6,687,807 as of December 31, 2018.
Liquidity
and Financial Condition
Our
financial position as of June 30, 2019 and 2018, and the changes for the periods then ended are as follows:
Working
Capital
|
|
At June 30,
2019
|
|
|
At December 31, 2018
|
|
Current Assets
|
|
$
|
500,121
|
|
|
$
|
333,239
|
|
Current Liabilities
|
|
$
|
7,339,466
|
|
|
$
|
7,021,046
|
|
Working Capital
|
|
$
|
(6,839,345
|
)
|
|
$
|
(6,687,807
|
)
|
Cash
Flow Analysis
Our
cash flows from operating, investing, and financing activities are summarized as follows:
|
|
June 30,
|
|
|
|
2019
|
|
|
2018
|
|
|
|
|
|
|
|
|
Net cash used in by operating activities
|
|
$
|
(248,239
|
)
|
|
$
|
(991,604
|
)
|
Net cash used in investing activities
|
|
|
-
|
|
|
|
(1,544
|
)
|
Net cash provided by financing activities
|
|
|
275,000
|
|
|
|
1,003,659
|
|
Net increase in cash
|
|
|
26,761
|
|
|
|
10,511
|
|
Cash at beginning of period
|
|
|
5,059
|
|
|
|
5,488
|
|
Cash at end of period
|
|
$
|
31,820
|
|
|
$
|
15,999
|
|
Net
Cash Used in Operating Activities.
During the six months ended June 30, 2019, cash used in operations totaled $248,239.
This reflects the net loss of $279,786 less $31,547 provided by changes in operating assets and liabilities and adjustments for
non-cash items. Non-cash items and working capital items consisted primarily of non-cash change in fair value of derivative liabilities
of $720,624, non-cash accretion of discounts on debt of $328,055 and increase in trade payables and accruals of $554,903.
Net
Cash (Used in) Provided by Investing Activities
. The Company had no investing activities in the six months ended June
30, 2019. Investing activities reduced cash by $1,544 in the six months ended June 30, 2018, related to the purchase of property,
plant and equipment.
Net
Cash Provided by Financing Activities
. Net cash from financing activities during the six months ended June 30, 2019 totaled
$275,000, from various note and loan facilities entered during the period. Net cash provided by financing activities during the
six months ended June 30, 2018 was $1,003,659, primarily from various note and loan facilities entered during the period in addition
to the issuance of shares.
Outstanding
Indebtedness
Our
current indebtedness as of June 30, 2019 is comprised of the following:
|
●
|
Unsecured
loan payable in the amount of $190,896 bearing interest at 15% per annum and due on demand;
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $317,500 bearing interest at 18% per annum;
|
|
|
|
|
|
|
●
|
Unsecured
note payable in the amount of $46,701, bearing interest at 36% per annum, matured and in default;
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the 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 in the amount of $250,000, 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 related party in the amount of $310,000, bearing interest at 5% per annum, mature and in default;
|
|
|
|
|
|
|
●
|
Senior
secured, convertible note payable in the amount of $245,889 interest 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 in the amount of $81,470 interest 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 promissory note in the principal amount of up to $900,000, 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. As at June 30, 2019,
the Company had received $665,000 from the note. $300,000 was due on September 19, 2018 and was assigned to another lender
along with accrued interest on August 31, 2018. $166,667 was due on November 3, 2018 and was assigned to another lender along
with accrued interest in two tranches on April 26, 2019 and May 22, 2019. $198,333 was due on November 3, 2018, $77,844 of
which was assigned to another lender along with accrued interest in two tranches on June 24, 2019 and June 30, 2019. Interest
will be accrued and payable at the time of promissory note repayment;
|
|
|
●
|
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 in the 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 in the principal amount of $88,725, 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 $100,791, 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;
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Unsecured,
convertible note payable in the principal amount of $273,978, bears interest 12% per annum, is due on demand, 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;
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Unsecured,
convertible promissory note in the 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;
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Unsecured,
convertible bridge loan agreement in the principal amount of $150,000, bears interest at 4.99% per month, is 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. 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;
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Unsecured,
convertible promissory note in the principal amount of $290,724, 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; and
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Unsecured,
convertible promissory note in the principal amount of $125,210, bears interest at 12% per annum, is due on August 31, 2019,
and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen
trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time
of promissory note repayment.
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Prospective
Capital Needs
We
estimate our operating expenses and working capital requirements for the twelve-month period to be as follows:
Estimated Expenses for the Twelve-Month Period ending June 30, 2020
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Management compensation
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$
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500,000
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Professional fees
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$
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150,000
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General and administrative
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$
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1,900,000
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Total
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$
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2,550,000
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As
noted earlier, during the six months ended June 30, 2019, cash used in operations totaled $241,038. 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,
customer receivables, and an increasing loan payable balance. We need to reduce the current level of payables in the near future
to keep 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 $39,021 in cash as of June 30, 2019 and a working capital deficit of $6,839,398. Our principal sources of liquidity are
cash generated from product sales. 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 a total payment 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.
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, 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 condensed consolidated financial statements.