Corporate
History
When
used in the Annual Report, the terms “Company,” “we,” “our,” “us,”
“DSG,” or “VTS” mean DSG Global, Inc., its subsidiary Vantage Tag Systems Inc. and its wholly owned
subsidiary DSG Tag Systems International, Ltd.
DSG
Global Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007. The
Company was initially formed to option and package rights for feature film and television projects. We now operate as a technology
development company engaged in the design, manufacture, and marketing of fleet management solutions in the golf industry. The
Company’s principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles and related
support services.
Upon
incorporation we received our initial funding of $9,000 through the sale of common stock to our then sole officer and director,
who purchased 3,000,000 pre-reverse split shares of common stock at $0.003 per share and $45,000 from the sale of 3,000,000 pre-reverse
split shares of common stock issued to 30 un-affiliated investors at $0.015 per share. On June 11, 2008, we effected a five for
one forward stock split of our authorized and issued and outstanding common stock. As a result, our authorized capital increased
from 75,000,000 to 375,000,000 pre-reverse split shares of common stock and our outstanding share capital increased from 6,000,000
shares of pre-reverse split common stock to 30,000,000 shares of pre-reverse split common stock.
On
April 13, 2015, we entered into a share exchange agreement with Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag
Systems Inc.) and the shareholders of VTS who become parties to the share exchange agreement. Pursuant to the terms of the share
exchange agreement, we agreed to acquire not less than 75% and up to 100% of the issued and outstanding shares of VTS’s
common stock in exchange for the issuance by our company of up to 20,000,000 pre-reverse split shares of our common stock to the
shareholders of VTS on the basis of one of our pre-reverse split common shares for 5.4935 common shares of VTS.
Previously,
in anticipation of the share exchange agreement with VTS, we undertook to change our name and effect a reverse stock split of
our authorized and issued common stock. Accordingly, on January 19, 2015, our board of directors approved an agreement and
plan of merger to merge with our wholly owned subsidiary DSG Global Inc., a Nevada corporation, to effect a name change from
Boreal Productions Inc. to DSG Global Inc. Our company remains the surviving company. DSG Global Inc. was formed solely for
the change of name.
Also,
on January 19, 2015, our company’s board of directors
approved a resolution to effect a reverse stock split of our authorized and issued and outstanding shares of common stock on a
three (3) old for one (1) new basis. Upon effect of the reverse split, our authorized capital will decrease from 375,000,000 pre-reverse
split shares of common stock to 125,000,000 pre-reverse split shares of common stock and correspondingly, our issued and outstanding
shares of common stock will decrease from 30,000,000 to 10,000,000 pre-reverse split shares of common stock, all with a par value
of $0.001.
Articles
of Merger to effect the merger and change of name and a Certificate of Change to affect the reverse stock split were filed
with the Nevada Secretary of State on January 22, 2015, with an effective date of February 2, 2015. The name change and forward
split were reviewed by the Financial Industry Regulatory Authority (FINRA) were approved for filing with an effective date of
February 23, 2015.
The
name change became effective with the Over-the-Counter Bulletin Board and OTC Markets quotation system at the opening of trading
on February 23, 2015 under the symbol “BRPOD”. Effective March 19, 2015 our stock symbol changed to “DSGT”.
Our new CUSIP number following the symbol change is 23340C104. The first trade of our common shares occurred on March 25, 2015.
On
May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common
shares of VTS as contemplated by the share exchange agreement by issuing 15,185,875 pre-reverse split shares of our common stock
to shareholders of VTS who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement,
we issued an additional 179,823 pre-reverse split shares of our common stock to Westergaard Holdings Ltd. in partial settlement
of accrued interest on outstanding indebtedness of VTS.
We
had not achieved revenues and have accrued a net loss of $153,964 from our inception through May 6, 2015, being the date of the
reverse merger. We had been issued a going concern opinion by our auditors and relied solely upon the sale of our securities to
fund operations.
Following
the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of
common stock of VTS from shareholders who became parties to the share exchange agreement and issued to these shareholders an aggregate
of 18,422 pre-reverse split shares of our common stock. Following completion of these additional purchases, DSG Global Inc. owns
100% of the issued and outstanding shares of common stock of VTS.
The
reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein VTS was considered the acquirer
for accounting and financial reporting purposes. The assets and liabilities of the acquired entity were brought forward at their
book value and no goodwill has been recognized. We adopted the business and operations of VTS upon the closing of the share exchange
agreement.
Subsequent
to the closing of the share exchange agreement with VTS, we adopted the business and operations of VTS.
VTS
was incorporated under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia,
Canada in 2008. In March 2011, VTS formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG
UK is a wholly owned subsidiary of VTS.
DSG
Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”) provides patented electronic tracking systems
and fleet management solutions to golf courses and other avenues that allow for remote management of the course’s fleet
of golf carts, turf equipment and utility vehicles. Their clients use VTS’s unique technology to significantly reduce operational
costs, improve the efficiency plus profitability of their fleet operations, increase safety, and enhance customer satisfaction.
VTS has grown to become a leader in the category of Fleet Management in the golf industry, with its technology installed in vehicles
worldwide. VTS is now aggressively branching into several new streams of revenue, through programmatic advertising, licensing
and distribution, as well as expanding into Commercial Fleet Management, PACER a single rider golf cart and Agricultural applications.
Additional information is available at http://vantage-tag.com/
Ready
Golf: Our roots as a company are in golf, and our technology is changing the way golf is being played and driving new revenue
for courses.
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Vantage
TAG equipped golf carts enhance fleet management.
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Single
rider carts speed up pace of play and drive rental revenue.
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Onboard
touchscreens drive revenue and offer an enhanced course experience.
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Combination
of technology and single rider carts has the ability to decrease average play time to 2:20 and drive numerous extra plays
per hour.
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Our
“Pennies A Day, Pennies A Round” model provides easy entry to leasing single-rider vehicles.
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In
Development: DSG’s Infinity On-Board Screen Offers Gaming Revenue Potential
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In
the next two years, sports betting will generate $10B / licensed in 20+ States.
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In
negotiations with leading mobile gaming developers.
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DSG’s
existing Infinity screens work with current gaming technology.
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Business
Unit Overview: On Board Media
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38,000
courses globally.
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26,000
courses capable of installing the DSG TAG SYSTEM with the TAG and INFINITIY.
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Courses
with INFINITY screens in carts can generate $90,000 - $110,000 in additional revenue.
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Screens
for free and own revenue generated by 250 golf courses.
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DSG
single-rider golf cars are available in any quantity for most courses on a revenue share basis with no upfront cost to the
golf course.
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Programmatic
Advertising has the ability to increase revenue 4x more than standard advertising, an average increase of $200,000 - $300,000
per course.
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Business
Unit Overview: TAG / Fleet Management Vantage Golf Potential:
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38,000
courses globally.
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4
Million golf carts in the world market.
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DSG
Tech on 300 courses now, with an additional 500 courses added in 2020 driving $15 million in sales.
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Key
component of our “Pennies A Day, Pennies A Round” program.
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Vantage
e-Rickshaw Potential:
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Global
three-wheelers market is projected to reach $39.9 billion by 2024.
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11,000
new e-Rickshaws hit the streets every month, with annual sales expected to increase about 9 percent by 2021.
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Research
on car-data-monetization trends and characteristics suggests that this value pool could be as large as $750 billion by 2030.
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DSG
Global, Inc. has a strategic partnership in China to integrate Vantage TAG Systems with EVs, incorporating the Company’s
advanced fleet management capabilities.
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Our
most recent product that is used to increase the Pace of Play on the course up to 90 minutes per round is the RAPTOR. Our 3 wheel
single rider allows the course to revenue share with VTS as the RAPTOR is put on the course free of charge and then allows the
course to revenue share with VTS along the way. Each seat is rented to the customers for minimum $25 per round.
On
March 26, 2019, our company effected a reverse stock split of our authorized and issued and outstanding shares of common stock
on a four thousand (4,000) old for one (1) new basis. Upon effect of the reverse split, our authorized capital decreased from
3,000,000,000 pre-reverse split shares of common stock to 750,000 shares of common stock and correspondingly, our issued and outstanding
shares of common stock decreased from 2,761,333,254 pre-reverse split to 690,403 shares of common stock, all with a par value
of $0.001. On May 23, 2019, an increase in common shares to 150,000,000 was authorized, with a par value of $0.001. Our shares
of Preferred Stock remain unchanged. This Form 10-K gives retroactive effect to such reverse stock split named above and all share
and per share amounts have been adjusted accordingly, unless otherwise noted.
Our
principal executive office is located at 312 – 2630 Croydon Drive Surrey, British Columbia, V3Z 6T3, Canada. The telephone
number at our principal executive office is 1 (877) 589-8806.
Recent
Developments
On
March 2, 2020 we entered into an Advisory Services Agreement (the “Advisory Agreement”) with Graj + Gustavsen, Inc.
(“G+G”). Under the terms of this five-year Advisory Agreement, G+G has agreed to provide the Company with strategic
brand and business positioning, strategic marketing, concept development and ongoing strategic consulting services. In consideration
of the services to be rendered by G+G, the Company has agreed to (1) make a cash payment in the amount of $350,000 payable in several
tranches following the Company’s completion of future financings of the Company, and monthly payments of $10,000 following
the first twelve months of the engagement, and (2) issue a five-year warrant to purchase 2,829,859 at an exercise price of $0.25
per share, upon the execution of the Advisory Agreement (the “First Warrant”), and a five-year warrant to purchase
such number of shares of the Company’s common stock that is equal to 10% of the Company’s shares of common stock calculated
on a fully diluted basis as of the closing date of the future financing, at an exercise price per share equal to the 80% of the
price of the Company’s securities in such future financing less the number of shares represented by the First Warrant. The
warrants contains, among other provisions customary for the instruments of this nature, provisions pertaining to cashless exercise,
and two-year piggy-back registration rights which allows the holders of the warrants to have the shares of the Company’s
common stock underlying the warrants registered alongside other registrable securities of the Company, subject to underwriter
cutbacks in case of underwritten public offering(s) of the Company’s securities, if any.
On
September 18, 2019, we entered into an Equity Financing Agreement (the “Financing Agreement”) and Registration Rights
Agreement (the “Registration Rights Agreement”) with GHS Investments, LLC (“GHS”). Under the terms of
the Financing Agreement, GHS has agreed to provide the Company with up to $7,000,000 of funding upon effectiveness of a registration
statement on Form S-1. Following effectiveness of the registration statement, the Company shall have the right to deliver puts
to GHS and GHS will be obligated to purchase shares of our common stock based on the investment amount specified in each put notice.
The maximum amount that the Company shall be entitled to put to GHS in each put notice will not exceed two hundred percent (200%)
of the average of the daily trading dollar volume of the Company’s common stock during the ten (10) trading days preceding
the put, so long as such amount does not exceed 4.99% of the outstanding shares of the Company. Pursuant to the Financing Agreement,
GHS and its affiliates will not be permitted to purchase, and the Company may not put shares of the Company’s common stock
to GHS that would result in GHS’s beneficial ownership equaling more than 4.99% of the Company’s outstanding common
stock. The price of each put share shall be equal to eighty percent (82%) of the lowest traded price of the Company’s common
stock for the ten (10) consecutive trading days preceding the date on which the applicable put is delivered to GHS. No put will
be made in an amount greater than $500,000. Puts may be delivered by the Company to GHS until the earlier of forty-eight (48)
months after the effectiveness of the registration statement on Form S-1 or the date on which GHS has purchased an aggregate of
$7,000,000 worth of put shares.
DSG
Technologies and Products
Technology
Overview
DSG
produces a “modular” suite of products to provide fleet management solutions for any vehicle required for a golf operation
and provides two golfer information display options to meet the operators budget requirements. DSG has grown to be the leader
in the golf fleet management industry with these capabilities.
The
Vantage Tag System is designed from the ground up to be a golf/turf vehicle fleet management system. Its main function is addressing
the golf course operator needs. While employing same core technology (cellular wireless and GPS) as traditional commercial vehicle
fleet management systems, DSG has created the patented TAG Golf solutions to adapt it to the very specific requirements of the
golf environment. Compared to mainstream fleet tracking products, DSG collects 10 to 50 times more data points per MB (megabyte)
of cellular data due to its proprietary data collection and compression algorithms. Also, the relative positioning accuracy
is improved by almost one order of magnitude by the use of application-specific geo-data validation and correction methods.
DSG’s
proprietary methods make it possible to offer a solution suitable for use on golf courses at a price low enough to be affordable
in the industry. Every system component incorporates state-of-the-art technology (server, mobile trackers, display). In developing
its products, DSG Tag has adopted an application oriented approach placing the most emphasis (and research & development)
on server and end-user software by taking advantage of the commodity level reached by mainstream technologies such as Global Positioning
(GPS) and M2M (Machine to Machine) Cellular Data in the wider context of Commercial Fleet Management.
DSG
leveraged the existence of an abundance of very cost-effective telematics solutions by selecting an “off-the-shelf”
hardware platform that meets all the main performance and environmental requirements for operation in the harsh, outdoor golf
course environment. While removing all risk and cost associated with developing a proprietary hardware platform, DSG has maintained
the unique nature of its hardware solution by developing a set of proprietary adapters and interfaces specifically for the golf
application.
DSG
has secured an exclusive supply agreement with the third-party hardware manufacturers for the golf industry. Additionally, DSG
owns the design of all proprietary adapters and interfaces. This removes the risk of a potential competitor utilizing the same
hardware platform. Competitors could attempt to reverse engineer or copycat the TAG technology and equipment. This risk factor
is mitigated by the fact that our product does not rely on a particular technology or hardware platform to be successful but on
a very specific software application which is far more difficult to copy and, therefore, is easier to protect.
The
application software contains patented features implemented in every core component of the system. The TAG device runs DSG proprietary
firmware incorporating unique data collection and compression algorithms. The web server software which powers the end-user application
is also proprietary and incorporates the industry knowledge accumulated through the over 70 years of collective industry experience
of the DSG team.
This
approach has given the product line a high level of endurance against technology obsolescence. At any point in time, if a hardware
component is discontinued or a better/less expensive hardware platform becomes available, the software application can be easily
adapted to operate on the new platform or with the new component. The Company benefits from the constant increase of performance
and cost reduction of mainstream hardware technology without any additional cost.
The
web-based Software-as-a-Service (SaaS) model used by DSG Tag is optimal for low operating and support costs and rapid-cycle release
for software updates. It is also a major factor in eliminating or substantially reducing the need for any end-user premises equipment.
Customers have access to the service through any internet connected computer or mobile device, there is no need for a local wireless
network on the facility and installation time and cost are minimal.
DSG
is positioned to take advantage of mainstream technology and utilize “best in class” hardware platforms to create
new generations of products. Our software is designed to be “portable” to future new platforms with better GPS and
wireless technology in order to maintain the Company competitive edge.
DSG
follows the same model for all new product development: select the best-in-class third-party hardware platform, design and produce
custom proprietary accessories, and focus the bulk of development effort on vertical software applications to address a very specific
set of end-customer needs.
The
latest addition to the TAG family of products, the 12” INFINITY, is a perfect example of this development philosophy in
action: the main component is a last-generation Android tablet PC wrapped in a custom designed weather-proof body, and containing
the power supply and interface components required for the golf environment. The software application takes advantage of all the
advanced high-resolution graphics, touch user interface, and computing power of the Android OS, delivering a vastly superior
user experience compared to competitive systems. The time to market for INFINITY was only 30% of how long it took to develop and
launch similar products in the past.
The
TAG Control Unit
The
Company’s flagship product is the TAG Control unit. The TAG Control unit can operate as a “stand alone” unit
or with one of two displays; the TEXT alphanumeric display or the INFINITY high definition “touch activated” screen.
The TAG Control unit is GPS enabled and communicates with the TAG software using cellular GSM networks. Using the cellular network
rather than local Wi-Fi assures carrier grade uptime, and vehicle tracking “off- property”. GSM is the de facto global
standard for mobile communications.
The
TAG Control unit itself is discreetly installed usually in the nose of the vehicle to give the GPS clear line of site. It is then
connected to the vehicle battery and ignition. The property is then mapped using the latest satellite imagery that is graphically
enhanced and loaded into the TAG System as a map.
Once
installed the vehicle owner, equipped with any computer, smartphone, or tablet that has an internet connection, can use the TAG
Software to locate the vehicle in real time and perform various management operations.
The
operator can use the geo-fencing capabilities to create “restricted zones” on the property where they can control
vehicle behavior, such as shutting down a vehicle that is entering a sensitive or dangerous area. The TAG System also monitors
the strength of a vehicle’s battery, helping to prevent sending out vehicles with undercharged batteries, which can be an
inconvenience for the course and negatively impact the golfer experience.
Features
and Benefits
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Internal
battery utilizing Smart Power technology which charges the battery only when the vehicle is running (gas) or being charged
(electric)
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Pace
of Play management and reporting which is a critical statistic for the golf operator
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No
software to install
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Web
based access on any computer, smartphone, or tablet
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Set
up restricted zones to protect property, vehicles, and customers
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Real
time tracking both on and off property (using Street Maps)
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Email
alerts of zone activity
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Cart
lockdown
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Detailed
usage reporting for improved maintenance, proper vehicle rotation, and staff efficiency
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Geofencing
security features
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Ability
to enforce cart path rules which is key to protecting course on wet weather days
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Modular
system allows for hardware and feature options to fit any budget or operations
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TAG
TEXT Display
The
TEXT is paired with the TAG Control unit as DSG’s TAG TEXT display system for operators who desire to provide basic hole
distance information and messaging to the golf customer. The TAG TEXT unit is a cost-effective solution for operators who desire
to give their customers GPS services with the benefits of a Fleet Management back end. The TAG TEXT unit can be mounted on the
steering column or the dash depending on the customer’s preference.
DSG’s
TAG TEXT golf information display
Features
and benefits
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Hole
information display
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Yardage
displays for front, middle, back locations of the pin
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Messaging
capabilities – to individual carts or fleet broadcast
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Zone
violation warnings
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Pace
of Play notifications
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Smart
battery technology to prevent power drain
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Versatile
mounting option
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12”
INFINITY Display
The
12” INFINITY is a solution for operators who desire to provide a high-level visual information experience to their customers.
The INFINITY is a high definition “Touch” activated display screen mounted in the golf cart integrated with the TAG
Control unit to provide a full back/front end Fleet Management solution. The INFINITY displays hole graphics, yardage, and detailed
course information to the golfer and provides interactive features such as Food and Beverage ordering and scorekeeping.
The
industry leading 12” INFINITY – featuring the largest and brightest screen available.
Features
and Benefits
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Video
advertising
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Advanced
score card
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Integrated
food and beverage ordering
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Easy
readability
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3D
flyovers
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Instantly
lay-up yardage
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Bluetooth
capable
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Pro
tips
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Much
more…
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Advertising
Platform
A
unique feature of the INFINITY system is the advertising display capability. This can be used by the operator for internal promotion
of services or for generating revenue by selling the ad real estate since the golf demographic is very desirable to advertisers.
The INFINITY displays banner, panel, full page, pro tip, and Green view ads. There is also ad real estate on the interactive feature
screens for Food and Beverage ordering and the scorecard. The INFINITY System can also display animated GIF files or play video
for added impact.
Advertising
displayed in multiple formats including animated GIF and video
DSG
has developed proprietary “Ad Manager” software which is used to place and change the ads on the system(s) in real
time. The Ad Manager can deploy to a single system or multiple systems. This creates a network of screens that is also very desirable
to advertisers as ad content can be deployed locally, regionally, or nationally. The advertising platform is an important part
of the Company’s future marketing and sales strategy.
DSG
Advertising Platform
The
DSG advertising platform delivers advance ROI (Revenue Optimization Intelligence). Utilizing all streams of advertising delivery,
such as automated, direct, and self-serve. The program has the ability to deliver relevant advertising to golfers the moment they
sit in the cart. The new version is more effective than the previous advertising model of ‘One to One’, these are
local ads only sold through direct sales by courses, or 3rd party advertising sales firms. The new version offers ‘Many
to one’ advertising options, delivering thousands of national, regional, and local advertisers an opportunity to advertise
on our screens through our R3 Marketplace.
Previous
‘One to One’ model vs the new R3 model ‘Many to One’
TAG
TURF
The
TAG TURF was developed to give course operators the same back-end management features for their turf equipment and utility vehicles.
Turf equipment is expensive, and a single piece of equipment can run over $100,000 which represents a large portion of
a golf course operating budget. The TAG TURF have comprehensive reporting that the operator can utilize to implement programs
to increase efficiencies, reduce labor costs, help lower idle times, provide fuel consumption and equipment performance, provide
historical data on cutting patterns, and reduce pollution from emissions by monitoring idle times. Since the golf course needs
to be maintained regardless of volume these cost saving measures directly impact the operator’s bottom line.
Features
and Benefits
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Can
be installed on any turf, utility, or service vehicle
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Work
activity tracking and management
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Work
breakdown and analysis per area, work group, activity type or specific vehicle
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Vehicle
idling alerts
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Zone
entry alerts
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Detailed
travel (cutting patterns) history
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Detailed
usage reports with mileage and hours
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Protection
for ecological areas through geo fencing
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Vehicle
lock down and ‘off property’ locating features
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The
TAG Turf provides detailed trail history and cutting patterns
Revenue
Model
DSG
derives revenue from four different sources.
Systems
Sales Revenue, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
Monthly
Service Fees are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG systems.
Monthly
Rental Fees are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly payment
varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and INFINITY).
Programmatic
Advertising Revenue is a new source of revenue that we believe has the potential to be strategic for us in the future. We
are in the process of implementing and designing software to provide advertising and other media functionality on our INFINITY
units.
Markets
Sales
and Marketing Plan
The
market for the TAG System is the worldwide golf cart and Turf equipment fleets. There are 40,000 golf courses around the world
with North America being the largest individual market with 20,000. This represents over 3,000,000 vehicles. The golf market has
five distinct types of operations. Municipal, Private Country Clubs, Destination Resorts, Public Commercial, Military and University
affiliated. DSG has deployed and has case studies developed TAG systems in each of these categories.
Our
marketing strategy is focused on building brand awareness, generating quality leads, and providing excellent customer service.
North
America Sales
Since
the largest market is North America the Company employs a direct sales team and sales agents that provide full sales coverage.
Our sales agents are experienced golf industry professionals who maintain established relationships with the golf industry and
carry multiple golf lines. Our sales objective is to offer our existing and prospective customers a dedicated, knowledgeable,
and outstanding customer service team.
In
addition, our team is dedicated to existing accounts that focus on up-selling and cross-selling additional products to our current
customer base, securing renewal agreements, and providing excellent customer service. The current regions are:
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Western
Canada
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Central
Canada
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Eastern
Canada
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Northeast
USA
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Western
USA
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Southeastern
USA
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Midwest
USA
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International
Sales
DSG
focuses on select global golf markets that offer significant volume opportunities and that value the benefits that our products
deliver.
We
utilize strategic distributor partnerships in each targeted region/country to sell, install and service our products. Distributors
are selected based on market strength, market share, technical expertise and selling capability, and overall reputation. We believe
that DSG solutions appeal to all distributors, because they are universal and fit any make or model of vehicle. We maintain and
leverage our strong relationship with Yamaha, E-Z-GO and Ransomes Jacobsen (sister company to E-Z-GO) in developing our distributor
network around the world. Today, many of our distributor partners are the leading distributors for E-Z-GO and RJ and hold a dominant
position in their respective markets. While they are Yamaha or E-Z-GO distributors, most sell DSG products to all courses regardless
of their choice of golf car as a value add to their customers and to generate additional revenue. We complement this distributor
base with independent distributors, as needed, to ensure that we have sufficient coverage in all critical markets.
Currently
DSG is focused on expanding in Europe, Asia, South Africa, Australia and Latin America.
Management
Companies
Many
golf facilities are managed by management companies. The portfolios of these companies vary from a few to hundreds of golf courses.
Troon®, the world’s largest player in golf course management, has over 200 courses under management. The
management companies provide everything from branding, staffing, management systems, marketing, and procurement. DSG is currently
providing products and services to Troon, OB Sports, Kemper Sports, Trump, Marriott Golf, Blue Green, Crown Golf, American Golf,
Billy Casper, Club Corp, and Club Link.
DSG
has been successful in completing installations and developing relationships with several of the key players who control a substantial
number of courses. DSG will continue to implement system developments that are driven by the needs of these management companies
such as combined reporting, multiple course access through a centralized dashboard. This development will become a competitive
advantage for DSG in the management company market.
DSG
has dedicated a team to create specific collateral for this market and has assigned a senior executive team to have direct responsibility
to manage these relationships.
Competition
We
compete with a number of established producers and distributors of vehicle fleet management systems. Our competitors include producers
of golf specific applications, such as GPS Industries, LLC., one of the leading suppliers of golf cart fleet management systems,
as well as producers of non-golf specific utility vehicle fleet management systems, such as Toro. Many of our competitors have
longer operating histories, better brand recognition and greater financial resources than we do. In order for us to successfully
compete in our industry we must:
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demonstrate
our products’ competitive advantages;
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develop
a comprehensive marketing strategy; and
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increase
our financial resources.
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However,
there can be no assurance that we will be able to compete effectively with the other companies in our industry, even if we achieve
these goals.
We
believe that we will be able to compete effectively in our industry because of the versatility, reliability, and relative affordability
of our products when compared to those of our competitors. We will attempt to build awareness of our competitive advantages among
existing and potential customers through trade shows, sales visits and demonstrations, online marketing, and positive word of
mouth advertising.
However,
as we are a newly established company relative to our competitors, we face the same problems as other new companies starting up
in an industry, such as limited access to capital. Our competitors may be substantially larger and better funded than us, and
have significantly longer histories of research, operation and development than us. In addition, they may be able to provide more
competitive products than we can and generally be able to respond more quickly to new or emerging technologies and changes in
legislation and regulations relating to the industry. Additionally, our competitors may devote greater resources to the development,
promotion and sale of their products or services than we do. Increased competition could also result in loss of key personnel,
reduced margins or loss of market share, any of which could harm our business.
Our
primary competitor in the field of golf course fleet management is GPS Industries, a company that was founded in 1996 by Mr. Bob
Silzer, the founder of Vantage Tag Systems Inc. GPS Industries is currently the largest player in the marketplace with an installed
base of approximately 750 golf courses worldwide. GPS Industries was consolidated by various mergers and acquisitions with a diversity
of hardware platforms and application software. Since 2009, when GPS Industries has introduced its latest product offering called
the Visage, in an exclusive partnership with Club Car, its strategy has been to target mostly their existing customers and motivate
them into replacing their existing, older GPS system, with the Visage system.
GPS
Industries is leveraging very heavily its partnership with Club Car, which is one of the three largest golf car manufacturers
in the world, and at times is benefiting from golf operators’ preference for Club Car and its vehicles when they select
their management system.
Market
Mix
Since
the introduction of the DSG product line, the golf course operators realized that they have now access to a budget-friendly fleet
management tool that works not only on golf cars, but also with all other vehicles used on the golf course such as turf maintenance,
shuttles, and other utility vehicles.
Marketing
studies have identified that half of the golf course operators only need a fleet management system and only 15% need a high-end
GPS golf system. This illustrates the strong competitive advantage that Vantage Tag Systems has versus GPS Industries since GPS’
product can only address the needs of a relatively small fraction of the marketplace.
Consequently,
GPS Industries installed base has steadily declined since most of its new product installations have replaced older product for
existing customers, and some customers have opted for a lower budget system and switched over to DSG TAG Systems.
Marketing
Activities
The
Company has a multi layered approach marketing the TAG suite of products. One of the foundations of this plan is attending industry
trade shows which are well attended by golf operators. The two largest shows are the PGA Merchandise Show and the Golf Industry
Show which are held in Florida at the end of January. The Company also attends a number of regional shows around North America.
International events are attended by our distributors and partners.
The
second layer is memberships in key organizations such as the National Golf Course Owners Association, Golf Course Superintendents
Association, and Club Managers Association of America. These are very influential in the industry and have marketing channels
such as publications, email blasts, and web-based marketing. The Company also markets directly to course operators through email,
surveys direct mail programs.
Lead
Generation
One
of the primary sources of lead generation is through the Company’s strategic partnerships with EZ-GO, Yamaha, and Ransomes
Jacobson. These relationships provide the Company with a great deal of market intelligence. The sales forces of the partners work
in tandem with the DSG sales team by passing on the leads, creating joint proposals, and distributing TAG sales material. The
Company has also created co-branded materials for specific value items of interest to operators, such as Pace of Play solutions.
DSG sales and marketing staff attend partner sales events to conduct training and discuss marketing strategies.
The
Company is in the process of testing an internal telemarketing program in several key markets to gauge whether this particular
channel warrants larger scale implementation.
Competitive
Advantages
Pricing
One
of the “heroes” of the TAG System is providing the course operator a range of modular fleet management options that
are very competitively priced. Pricing options range from the TURF, TAG, Text, and INFINITY, giving the customer a wide range
of pricing options.
Functional
advantages
DSG
has the distinctive advantage of being able to offer a true fleet management system, encompassing all the vehicles on the golf
course not just the golf carts. Due to the modular nature of the system, customers now have the option to tailor their systems
configurations to precisely match their individual needs and their budget.
Product
advantages
DSG
believes that its products are the most robust, reliable, and user friendly systems in the world. DSG is the only company currently
providing systems that are waterproof, with internal batteries to ensure our partners retain the full golf cart manufacturer’s
warranty.
Operational
Plan
Our
Operations Department’s main functions are outlined below:
Product
Supply Chain Management
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Product
procurement, lead-time management
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Inventory
management
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Customer
Service
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Training
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24/7
troubleshooting & support
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Hardware
repairs
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Installations
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Content
& graphics procurement
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System
configurations
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Shipping,
installation and backend training
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Infrastructure
Management
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Communication
servers management
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Cellular
data carriers
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Service
and administration tools
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Product
Supply Chain
In
order to maintain high product quality and control the Company is currently procuring all main hardware components offshore. This
also maximizes cost efficiencies. Final assembly is locally performed in order to ensure product quality. Other main components
are also procured directly from manufacturers or from local suppliers that outsource components offshore in order to keep costs
as low as possible.
The
Company currently requests its suppliers to perform a complete set of quality testing and a minimum 24 hour burn-in before the
product is delivered. The local hardware assembler and components supplier offers a 12 month warranty. The main offshore supplier
of hardware components offers a warranty plan of 15 months from the date the product is shipped. With an extended 90 days beyond
the current warranty, such repair service would be paid by the supplier except for component replacement costs, which would be
paid by DSG.
Another
important activity related to the management of the product supply chain is working closely with the suppliers and ensuring that
we have alternate sources for the main components and identify well in advance any components that may go “end-of-life”
and find suitable replacements before product shortages may occur.
Inventory
Control
The
Company has implemented strict inventory management procedures which govern the inbound flow of products from suppliers, the outgoing
flow to customers as well as the internal movement of inventory between warehouses (Canada, US and UK). There are also procedures
in place to control the flow of equipment returning from customers for repairs and their replacements.
Installation
The
Company is utilizing a small number of its own field engineers who are geographically positioned to be in close proximity
of areas with high concentrations of current and future customers. Occasionally, when new installations exceed our internal capacity,
the Company employs a number of external contractors, on a project by project basis. Each contractor has been trained extensively
to perform product installations and the Company has created an extensive collection of Installation Manuals for all products
and vehicle types.
Our
products are designed with ease of installation as a primary consideration. Additionally, the installation process includes a
pre-shipping configuration process that prepares each device with all the settings and graphics content (if applicable) required
for the specific location where it will be deployed. This makes the installation process a lot simpler and less time consuming
in the field, which reduces costs (accommodations, food, travel) for internal staff, as well as for external contractors (less
billable time).
Another
benefit of the simplified installation procedure is increased scalability, which anticipates an increased number of installs in
the future by reducing the skill level and training time requirements for additional contractors.
Customer
Service
The
Company has deployed its Customer Service staff strategically, so it has at least one service representative active during business
hours in North America, Europe and South Africa.
The
Company is handling Customer Service directly in North America and UK, offering telephone and on-line support to end-customers.
In other international markets, first-line customer service is handled by local distributors’ staff. with DSG supplying
training and more advanced support to the distributors.
For
the management of customer service activities, the Company is utilizing Zoho CRM system to create, update, close and escalate
service cases, and to issue RMA (Return Material Authorization) numbers for defective equipment. Zoho also allows us to generate
management service, customer satisfaction, and equipment failure reports in order to quickly identify trends, problem accounts,
or systemic issues.
In
addition, DSG began offering the DSG Par 72 Service & Support Plan to guarantee service and support to client courses in the
golf business, during fiscal 2020. This program for client courses guarantees service and support within 24 hours of a problem
arising.
Product
Development and Engineering
The
Company employs a team of in-house software engineers to develop and maintain the main components of our server software and firmware.
All
product development is derived from continuous business needs assessment and customer requests.
Our
Product Management team periodically reviews the list of feature requests gathered by our sales staff, establishes priorities,
and updates our Product Roadmap for implementing updates and improvements. .
Our
software engineers are also responsible for developing specialized tools and systems to increase efficiency in tour operations.
These projects include features such as automated system monitoring, automatic service alerts, improved remote troubleshooting
tools, and cellular data monitoring and reporting. All these tools are critical to our future ability to support more customers
with fewer resources, streamline our support, and improve our internal efficiency.
All
hardware development (electronics and mechanical) is generally outsourced; however, small projects like mounting solutions or
cabling are handled in house.
Material
Contracts
On
January 22, 2019, we issued a convertible promissory note in the principal amount of $137,500. The note is unsecured, bears interest
at 12% per annum, is due on January 22, 2020, and is convertible into common shares at a conversion price equal to 55% of the
lowest trading price during the previous fifteen trading days prior to the conversion date, including the conversion date. Interest
will be accrued and payable at the time of promissory note repayment.
On
April 26, 2019, we entered into a note purchase and assignment agreement with two unrelated parties pursuant to a certain secured
inventory convertible note issued on March 19, 2018 in the principal amount of $900,000. Pursuant to this agreement, the seller
desires to sell the balance owing under the Second and Third tranche of the original note in four separate closings on April 26,
May 22, June 24, and July 24, 2019, totaling $84,396, $85,838, $120,490 and $122,866, respectively (consisting of $375,804 principal
and $37,786 of accrued interest). As at December 31, 2019, $413,590 in principal and accrued interest had been assigned to the
purchaser.
On
May 7, 2019, we entered into a securities purchase agreement with an unrelated party pursuant to a certain secured inventory convertible
promissory note issued on August 31, 2018 in the principal amount of $226,000. Pursuant to this agreement, the investor desired
to purchase from us the balance owing under the original note in four separate closings on or about May 7 and up to three additional
tranches, each at the investor’s discretion. As at December 31, 2019, four tranches totaling $250,420 had been purchased
by the investor.
On
July 30, 2019 we issued a convertible promissory note in the principal amount of $220,000. The note is unsecured, bears interest
at 10% per annum, is due on July 30, 2020, and is convertible into common shares at a conversion price equal to the lesser of
(i) 60% of the lowest trading price during the previous twenty trading days prior to the issuance date, or (ii) the lowest trading
price for the Common Stock during the twenty day period ending one trading day prior to conversion of the note.
On
September 4, 2019 we issued a convertible promissory note in the principal amount of $137,500. The note is unsecured, bears interest
at 10% per annum, is due on June 3, 2020, and is convertible during the first 180 calendar days from the issuance date at a price
of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied
by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or
(ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before
conversion. In connection with the note, we granted 100,000 warrants to the lender. Each warrant can be exercised to purchase
shares of common stock of the Company at a price of $0.75 per warrant for a period of five years.
On
September 19, 2019 we issued a convertible promissory note in the principal amount of $55,000. The note is unsecured, bears interest
at 10% per annum, is due on September 19, 2020, and is convertible during the first six months from the issuance date at a price
of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied
by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or
(ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before
conversion.
On
October 2, 2019 we issued a convertible promissory note in the principal amount of $82,500. The note is unsecured, bears interest
at 10% per annum, is due on September 30, 2020, and is convertible during the first six months from the issuance date at a price
of $0.50 per share. For the subsequent period until repayment the conversion price shall equal the lesser of (i) 60% multiplied
by the lowest traded price of the Common Stock during the previous twenty trading days before the issuance date of the note, or
(ii) the lowest traded price for the Common Stock during the twenty day period ending on the last complete trading day before
conversion. In connection with the note, we granted 83,333 warrants to the lender. Each warrant can be exercised to purchase shares
of common stock of the Company at a price of $0.75 per warrant for a period of five years.
On
October 13, 2019, we signed a three year operating lease agreement expiring on November 30, 2022 with the right to renew for an
additional two year term if written notice is provided within 10 months prior to the expiration of the current term. The annual
rent for the premises starts at is approximately $47,400 and commenced on December 1, 2019.
On
December 31 2019, pursuant to a series of debt settlement agreements, we agreed to issue an aggregate of 7,663,695 shares
of common stock and 6,563,371 warrants to settle accounts payable and debt, as well as 100,500 and 4,649,908 shares of Series
D and Series E preferred shares, respectively.
Description
of Property
On June 1, 2018, we
signed a two-year operating lease agreement expiring on May 31, 2020 with the right to renew for an additional two-year
term if written notice is provided within 120 days prior to the expiration of the current term. The annual rent for the premises
in Canada is approximately CDN$46,552 and commenced on July 1, 2018.
On
October 13, 2019, we signed a three-year operating lease agreement expiring on November 30, 2022 with the right to renew
for an additional two year term if written notice is provided within 10 months prior to the expiration of the current term. The
annual rent for the premises starts at is approximately $47,400 and commenced on December 1, 2019.
For
the year ended December 31, 2018, the aggregate rental expense was CDN$91,511 (approximately USD$70,654). Rent expense
included other amounts paid in Canada for warehouse storage and offices under month to month or as needed basis.
For the year ended December
31, 2019, the Company made gross operating lease payments of $44,875 which are included in general and administration
expense.
Intellectual
Property
General
Our
success will depend in part on our ability to protect our products and product candidates by obtaining and maintaining a strong
proprietary position both in the United States and in other countries. To develop and maintain our proprietary position, we will
rely on patent protection, trade secrets, know-how, continuing technological innovations and licensing opportunities. In that
regard, we retain and rely on the advice of legal counsel specialized in the field of intellectual property.
Patents
DSG
owns two U.S. patents
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US
Patent No. 8,836,490 for a “Vehicle Management” was issued September 16, 2014 and expires June 29, 2031.
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US
Patent No. 9,280,902 for a “Facilities Management” was issued March 8, 2016 and expires January 24, 2032.
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Domain
Names
We
have registered and own the domain name of our website www.vantage-tag.com.
Copyright
We
own the common law copyright in the contents of our website (www.vantage-tag.com) and our various promotional materials.
Trademarks
We
own the common-law trademark rights in our corporate name, product names, and associated logos, including “DSG TAG”,
“TAG Golf”, “ECO TAG”, “TAG Text”, “TAG Touch”, “TAG Turf”, “TAG
Commercial” and “TAG Military”. We have not applied to register any trademarks with the U.S. Patent and Trademark
Office or with any other national or multi-national trademark authority. .
Employees
As
of May 14, 2020, we have six full-time employees in general and administrative, operations, engineering, research and development,
business development, sales and marketing, and finance. We also engage independent contractors and consultants from time to time
on an as-needed basis to supplement our core staff.
Investing
in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below,
together with all of the other information in this Form 10-K, including our consolidated financial statements and related notes,
before investing in our common stock. If any of the following risks materialize, our business, financial condition, results of
operations and prospects could be materially and adversely affected. In that event, the price of our common stock could decline,
and you could lose part or all of your investment.
Risks
Related to Our Business
We
have a limited operating history with significant losses and expect losses to continue for the foreseeable future.
We
have yet to establish any history of profitable operations and have incurred net losses since our inception. We have generated
only nominal revenues since our inception and do not anticipate that we will generate revenues which will be sufficient to sustain
our operations in the near future. Our profitability will require the successful commercialization and sales of our products.
We may not be able to successfully achieve any of these requirements or ever become profitable.
There
is doubt about our ability to continue as a going concern due to recurring losses from operations, accumulated deficit and insufficient
cash resources to meet our business objectives, all of which means that we may not be able to continue operations.
Our
independent auditors have added an explanatory paragraph to their audit opinion issued in connection with the consolidated financial
statements for the years ended December 31, 2019 and 2018 with respect to their doubt about our ability to continue as a going
concern. As discussed in Note 2 to our consolidated financial statements for the years ended December 31, 2019 and 2018, we have
generated operating losses since inception, and our cash resources are insufficient to meet our planned business objectives, which
together raise doubt about our ability to continue as a going concern.
Our
inability to complete our future research and development and engineering projects in a timely manner could have a material adverse
effect of our results of operations, financial condition, and cash flows.
If
our research and development projects are not completed in a timely fashion, we could experience:
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substantial
additional cost to obtain a marketable product;
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additional
competition resulting from competitors in the surveillance and facial recognition market, and;
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delay
in obtaining future inflow of cash from financing or partnership activities.
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We
face intense competition, which could result in lower revenues and higher research and development expenditures and could adversely
affect our results of operations.
Unless
we keep pace with changing technologies, we could lose existing customers and fail to win new customers. In order to compete effectively
in the fleet management systems market, we must continually design, develop and market new and enhanced technologies. Our future
success will depend, in part, upon our ability to address the changing and sophisticated needs of the marketplace. Fleet management
technologies have achieved widespread commercial acceptance and our strategy of expanding our fleet management technologies business
could adversely affect our business operations and financial condition.
Further,
we expect to derive revenue from government contracts, which are often non-standard, involve competitive bidding, may be subject
to cancellation with or without penalty and may produce volatility in earnings and revenue.
The
market for our technologies is still developing and if the industry adopts technology standards that are different from our own
our competitive position would be negatively affected.
Parts
of our company’s business plan are dependent on business relationships with various parties.
We
expect to rely in part upon original equipment manufacturers (OEM), and distribution partners to sell and install our products,
and we may be adversely affected if those parties do not actively promote our products or pursue installations that use our products.
Further, if our products are not timely delivered or do not perform as promised, we could experience increased costs, lower margins,
liquidated damage payment obligations and reputational harm.
We
must attract and maintain key personnel, or our business will fail.
Success
depends on the acquisition of key personnel. We will have to compete with other companies both within and outside the electronics
industry to recruit and retain competent employees. If we cannot maintain qualified employees to meet the needs of our anticipated
growth, this could have a material adverse effect on our business and financial condition.
We
may not be able to secure additional financing to meet our future capital needs due to changes in general economic conditions.
We
anticipate requiring significant capital to fulfill our contractual obligations, continue development of our planned products
to meet market evolution, and execute our business plan, generally. We may use capital more rapidly than currently anticipated
and incur higher operating expenses than currently expected, and we may be required to depend on external financing to satisfy
our operating and capital needs. We may need new or additional financing in the future to conduct our operations or expand our
business. Any sustained weakness in the general economic conditions and/or financial markets in the United States and Europe,
or globally could adversely affect our ability to raise capital on favorable terms or at all. From time to time we have relied,
and may also rely in the future, on access to financial markets as a source of liquidity to satisfy working capital requirements
and for general corporate purposes. We may be unable to secure debt or equity financing on terms acceptable to us, or at all,
at the time when we need such funding. If we do raise funds by issuing additional equity or convertible debt securities, the ownership
percentages of existing stockholders would be reduced, and the securities that we issue may have rights, preferences or privileges
senior to those of the holders of our common stock or may be issued at a discount to the market price of our common stock which
would result in dilution to our existing stockholders. If we raise additional funds by issuing debt, we may be subject to debt
covenants, which could place limitations on our operations including our ability to declare and pay dividends. Our inability to
raise additional funds on a timely basis would make it difficult for us to achieve our business objectives and would have a negative
impact on our business, financial condition and results of operations.
Our
business and operating results could be harmed if we fail to manage our growth or change.
Our
business may experience periods of rapid change and/or growth that could place significant demands on our personnel and financial
resources. To manage possible growth and change, we must continue to try to locate skilled engineers and professionals and adequate
funds in a timely manner.
Our
business depends on GPS technology owned and controlled by others. If we do not have continued access to GPS technology, we will
be unable to deliver our services and our revenues will decrease.
Our
services rely on signals from GPS satellites built and maintained by the U.S. Department of Defense. GPS satellites and their
ground support systems are subject to electronic and mechanical failures and sabotage. If one or more satellites malfunction,
there could be a substantial delay before they are repaired or replaced, if at all, and our services may cease, and customer satisfaction
would suffer.
Our
GPS technology depends on the use of radio frequency spectrum controlled by others.
Our
GPS technology is dependent on the use of radio frequency spectrum. The assignment of spectrum is controlled by an international
organization known as the International Telecommunications Union, or ITU. The Federal Communications Commission, or FCC, is responsible
for the assignment of spectrum for non-government use in the United States in accordance with ITU regulations. Any ITU or FCC
reallocation of radio frequency spectrum, including frequency band segmentation or sharing of spectrum, could cause interference
with the reception of GPS signals and may materially and adversely affect the utility and reliability of our products, which would,
in turn, cause a material adverse effect on our operating results. In addition, emissions from mobile satellite service and other
equipment operating in adjacent frequency bands or in band may materially and adversely affect the utility and reliability of
our products, which could result in a material adverse effect on our operating results.
Government
regulations and standards may harm our business and could increase our costs or reduce our opportunities to earn revenues.
In
addition to regulations applicable to businesses in general, we may also be subject to direct regulation by governmental agencies,
including the FCC and Department of Defense. A number of legislative and regulatory proposals under consideration by federal,
state, provincial, local and foreign governmental organizations may lead to laws or regulations concerning various aspects of
wireless communications and GPS technology. Additionally, it is uncertain how existing laws governing issues such as taxation,
intellectual property, libel, user privacy and property ownership, will be applied to our services. The adoption of new laws or
the application of existing laws may expose us to significant liabilities and additional operational requirements, which could
decrease the demand for our services and increase our cost of doing business.
If
we are not able to adequately protect our intellectual property, then we may not be able to compete effectively, and we may not
be profitable.
Our
commercial success may depend, in part, on obtaining and maintaining patent protection of our technologies and product as well
as successfully defending third-party challenges to such technologies and products. We will be able to protect our technologies
and product candidates from use by third parties only to the extent that valid and enforceable patents cover them and we have
exclusive rights to use them. The ability of our licensors, collaborators and suppliers to maintain their patent rights against
third-party challenges to their validity, scope or enforceability will also play an important role in determining our future.
The
copyright and patent positions of software and technology related companies can be highly uncertain and involve complex legal
and factual questions that include unresolved principles and issues. No consistent policy regarding the breadth of claims allowed
regarding such companies’ patents has emerged to date in the United States, and the patent situation outside the United
States is even more uncertain. Changes in either the patent laws or in interpretations of patent laws in the United States or
other countries may diminish the value of our intellectual property. Accordingly, we cannot predict with any certainty the range
of claims that may be allowed or enforced concerning our patents.
We
may also rely on trade secrets to protect our technologies, especially where we do not believe patent protection is appropriate
or obtainable. However, trade secrets are difficult to protect. While we seek to protect confidential information, in part, through
confidentiality agreements with our consultants and scientific and other advisors, they may unintentionally or willfully disclose
our information to competitors. Enforcing a claim against a third party related to the illegal acquisition and use of trade secrets
can be expensive and time consuming, and the outcome is often unpredictable. If we are not able to maintain patent or trade secret
protection on our technologies and product candidates, then we may not be able to exclude competitors from developing or marketing
competing products, and we may not be able to operate profitability.
If
we are the subject of an intellectual property infringement claim, the cost of participating in any litigation could cause us
to go out of business.
There
has been, and we believe that there will continue to be, significant litigation and demands for licenses in our industry regarding
patent and other intellectual property rights. Although we anticipate having a valid defense to any allegation that our current
products, production methods and other activities infringe the valid and enforceable intellectual property rights of any third
parties, we cannot be certain that a third party will not challenge our position in the future. Other parties may own patent rights
that we might infringe with our products or other activities, and our competitors or other patent holders may assert that our
products and the methods we employ are covered by their patents. These parties could bring claims against us that would cause
us to incur substantial litigation expenses and, if successful, may require us to pay substantial damages. Some of our potential
competitors may be better able to sustain the costs of complex patent litigation, and depending on the circumstances, we could
be forced to stop or delay our research, development, manufacturing or sales activities. Any of these costs could cause us to
go out of business.
Risks
Relating to Ownership of Our Securities
Trading
on the OTCQB® Venture Marketplace may be volatile and sporadic, which could depress the market price of our common stock and
make it difficult for our stockholders to resell their shares.
Our
common stock is quoted on the OTCQB Venture Marketplace operated by the OTC Markets Group. Trading in stock quoted on the OTCQB
is often thin and characterized by wide fluctuations in trading prices due to many factors that may have little to do with our
operations or business prospects. This volatility could depress the market price of our common stock for reasons unrelated to
operating performance. Moreover, the OTCQB is not a stock exchange, and trading of securities on the OTCQB is often more sporadic
than the trading of securities listed on a stock exchange like the Nasdaq Stock Market or New York Stock Exchange. Accordingly,
our shareholders may have difficulty reselling any of their shares.
Our
stock is a penny stock. Trading of our stock may be restricted by the SEC’s penny stock regulations and FINRA’s sales
practice requirements, which may limit a stockholder’s ability to buy and sell our stock.
Our
stock is a penny stock. The Securities and Exchange Commission has adopted Rule 15g-9 which generally defines “penny stock”
to be any equity security that has a market price (as defined) less than $5.00 per share or an exercise price of less than $5.00
per share, subject to certain exceptions. Our securities are covered by the penny stock rules, which impose additional sales practice
requirements on broker-dealers who sell to persons other than established customers and “accredited investors”. The
term “accredited investor” refers generally to institutions with assets in excess of $5,000,000 or individuals with
a net worth in excess of $1,000,000 or annual income exceeding $200,000 or $300,000 jointly with their spouse. The penny stock
rules require a broker-dealer, prior to a transaction in a penny stock not otherwise exempt from the rules, to deliver a standardized
risk disclosure document in a form prepared by the SEC which provides information about penny stocks and the nature and level
of risks in the penny stock market. The broker-dealer also must provide the customer with current bid and offer quotations for
the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing
the market value of each penny stock held in the customer’s account. The bid and offer quotations, and the broker-dealer
and salesperson compensation information, must be given to the customer orally or in writing prior to effecting the transaction
and must be given to the customer in writing before or with the customer’s confirmation. In addition, the penny stock rules
require that prior to a transaction in a penny stock not otherwise exempt from these rules; the broker-dealer must make a special
written determination that the penny stock is a suitable investment for the purchaser and receive the purchaser’s written
agreement to the transaction. These disclosure requirements may have the effect of reducing the level of trading activity in the
secondary market for the stock that is subject to these penny stock rules. Consequently, these penny stock rules may affect the
ability of broker-dealers to trade our securities. We believe that the penny stock rules discourage investor interest in, and
limit the marketability of, our common stock.
In
addition to the “penny stock” rules promulgated by the Securities and Exchange Commission, FINRA has adopted rules
that require that in recommending an investment to a customer, a broker-dealer must have reasonable grounds for believing that
the investment is suitable for that customer. Prior to recommending speculative low-priced securities to their non-institutional
customers, broker-dealers must make reasonable efforts to obtain information about the customer’s financial status, tax
status, investment objectives and other information. Under interpretations of these rules, FINRA believes that there is a high
probability that speculative low-priced securities will not be suitable for at least some customers. FINRA requirements make it
more difficult for broker-dealers to recommend that their customers buy our common stock, which may limit your ability to buy
and sell our stock.
We
do not anticipate paying any cash dividends to our common shareholders.
We
presently do not anticipate that we will pay dividends on any of our common stock in the foreseeable future. If payment of dividends
does occur at some point in the future, it would be contingent upon our revenues and earnings, if any, capital requirements, and
general financial condition. The payment of any common stock dividends will be within the discretion of our Board of Directors.
We presently intend to retain all earnings after paying the interest for the preferred stock, if any, to implement our business
plan; accordingly, we do not anticipate the declaration of any dividends for common stock in the foreseeable future.
Volatility
in Our Common Share Price May Subject Us to Securities Litigation.
The
market for our common stock is characterized by significant price volatility as compared to seasoned issuers, and we expect that
our share price will continue to be more volatile than a seasoned issuer for the indefinite future. In the past, plaintiffs have
often initiated securities class action litigation against a company following periods of volatility in the market price of its
securities. We may, in the future, be the target of similar litigation. Securities litigation could result in substantial costs
and liabilities and could divert management’s attention and resources.
The
Elimination of Monetary Liability Against our Directors, Officers and Employees under Nevada law and the Existence of Indemnification
Rights of our Directors, Officers and Employees May Result in Substantial Expenditures by our Company and may Discourage Lawsuits
Against our Directors, Officers and Employees.
Our
articles of incorporation do not contain any specific provisions that eliminate the liability of our directors for monetary damages
to our company and shareholders; however, we are prepared to give such indemnification to our directors and officers to the extent
provided for by Nevada law. We may also have contractual indemnification obligations under our employment agreements with our
officers. The foregoing indemnification obligations could result in our company incurring substantial expenditures to cover the
cost of settlement or damage awards against directors and officers, which we may be unable to recoup. These provisions and resultant
costs may also discourage our company from bringing a lawsuit against directors and officers for breaches of their fiduciary duties
and may similarly discourage the filing of derivative litigation by our shareholders against our directors and officers even though
such actions, if successful, might otherwise benefit our company and shareholders.
Our
business is subject to changing regulations related to corporate governance and public disclosure that have increased both our
costs and the risk of noncompliance.
Because
our common stock is publicly traded, we are subject to certain rules and regulations of federal, state and financial market exchange
entities charged with the protection of investors and the oversight of companies whose securities are publicly traded. These entities,
including the Public Company Accounting Oversight Board, the SEC and FINRA, have issued requirements and regulations and continue
to develop additional regulations and requirements in response to corporate scandals and laws enacted by Congress, most notably
the Sarbanes-Oxley Act of 2002. Our efforts to comply with these regulations have resulted in, and are likely to continue resulting
in, increased general and administrative expenses and diversion of management time and attention from revenue-generating activities
to compliance activities. Because new and modified laws, regulations and standards are subject to varying interpretations in many
cases due to their lack of specificity, their application in practice may evolve over time as new guidance is provided by regulatory
and governing bodies. This evolution may result in continuing uncertainty regarding compliance matters and additional costs necessitated
by ongoing revisions to our disclosure and governance practices.