Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
The
following discussion and analysis is based on, and should be read in conjunction with, the condensed, consolidated interim financial
statements and the related notes thereto of DSG Global, Inc. contained in this Quarterly Report on Form 10-Q (this “Report”).
As
used in this section, unless the context otherwise requires, references to “we,” “our,” “us,”
and “our company” refer to DSG Global, Inc. a Nevada corporation, together with our consolidated subsidiaries,
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;
|
|
|
|
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●
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the
timing and success of our business plan;
|
|
|
|
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●
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our
plans regarding future financings;
|
|
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●
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our
ability to attract and retain customers;
|
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●
|
our
dependence on growth in our customers’ businesses;
|
|
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|
|
●
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the
effects of market conditions on our stock price and operating results;
|
|
|
|
|
●
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our
ability to maintain our competitive technological advantages against competitors in our industry;
|
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|
●
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the
expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
|
|
|
|
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●
|
our
ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
|
|
|
|
|
●
|
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;
|
|
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|
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●
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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 DSG TAG Systems, Inc., a corporation incorporated
under the laws of the State of Nevada on April 17, 2008 and extra provincially registered in British Columbia, Canada in 2008.
On
April 13, 2015, we entered into a share exchange agreement with Vantage Tag Systems Inc. (“VTS”) (formerly DSG Tag
Systems Inc.) and the shareholders of VTS who become parties to the agreement. Pursuant to the terms of the share exchange agreement,
we agreed to acquire not less than 75% and up to 100% of the issued and outstanding common shares in the capital stock of VTS
in exchange for the issuance to the selling shareholders of up to 20,000,000 pre-reverse split shares of our common stock on the
basis of 1 common share for 5.4935 common shares of VTS.
On
May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common
shares of VTS as contemplated by the share exchange agreement by issuing 15,185,875 pre-reverse split shares of our common stock
to shareholders of VTS who became parties to the agreement. In addition, concurrent with the closing of the share exchange agreement,
we issued an additional 179,823 pre-reverse split shares of our common stock to Westergaard Holdings Ltd. in partial settlement
of accrued interest on outstanding indebtedness of VTS.
Following
the initial closing of the share exchange agreement and through October 22, 2015, we acquired an additional 101,200 shares of
common stock of VTS from shareholders who became parties to the share exchange agreement and issued to these shareholders an aggregate
of 18,422 pre-reverse split shares of our common stock. Following completion of these additional purchases, DSG Global Inc. owns
approximately 100% of the issued and outstanding shares of common stock of VTS. An aggregate of 4,229,384 shares of Series A Convertible
Preferred Stock of VTS were exchanged for 51 Series B and 3,000,000 Series E preferred shares during the year ended December 31,
2018 by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a previous member of our board of directors which have not
been issued as of December 31, 2018 or 2019.
The
reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein VTS is considered the acquirer
for accounting and financial reporting purposes. The assets and liabilities of the acquired entity have been brought forward at
their book value and no goodwill has been recognized. We adopted the business and operations of VTS upon the closing of the share
exchange agreement.
Overview
of Our Business
DSG
Global, Inc., under the brand name Vantage Tag Systems Inc. (“VTS”) provides patented electronic tracking systems
and fleet management solutions to golf courses and other avenues that allow for remote management of the course’s fleet
of golf carts, turf equipment and utility vehicles. Their clients use VTS’s unique technology to significantly reduce operational
costs, improve the efficiency plus profitability of their fleet operations, increase safety, and enhance customer satisfaction.
VTS has grown to become a leader in the category of Fleet Management in the golf industry, with its technology installed in vehicles
worldwide. VTS is now aggressively branching into several new streams of revenue, through programmatic advertising, licensing
and distribution, as well as expanding into Commercial Fleet Management, PACER a single rider golf cart and Agricultural applications.
Additional information is available at http://vantage-tag.com/
Ready
Golf Ready: Our roots as a company are in golf, and our technology is changing the way golf is being played and driving new revenue
for courses.
●
|
Vantage
TAG equipped golf carts enhance fleet management.
|
|
|
●
|
Single
rider carts speed up pace of play and drive rental revenue.
|
|
|
●
|
Onboard
touchscreens drive revenue and offer an enhanced course experience.
|
|
|
●
|
Combination
of technology and single rider carts has the ability to decrease average play time to 2:20 and drive numerous extra plays
per hour.
|
|
|
●
|
Our
“Pennies A Day, Pennies A Round” model provides easy entry to leasing single-rider vehicles.
|
In
Development: DSG’s Infinity On-Board Screen Offers Gaming Revenue Potential
●
|
In
the next 2 years, sports betting will generate $10B / licensed in 20+ States.
|
|
|
●
|
In
negotiations with leading mobile gaming developers.
|
|
|
●
|
DSG’s
existing infinity screens work with current gaming technology.
|
Business
Unit Overview: On Board Media
●
|
38,000
courses globally.
|
|
|
●
|
26,000
courses capable of installing the DSG TAG SYSTEM with the TAG and INFINITIY.
|
|
|
●
|
Courses
with INFINITY screens in carts can generate $90,000 - $110,000 in additional revenue.
|
●
|
Screens
for free and own revenue generated by 250 golf courses.
|
|
|
●
|
DSG
single-rider golf cars are available in any quantity for most courses on a revenue share basis with no upfront cost to the
golf course.
|
|
|
●
|
Programmatic
Advertising has the ability to increase revenue 4x more than standard advertising, an average increase of $200,000 - $300,000
per course.
|
Business
Unit Overview: TAG / Fleet Management Vantage Golf Potential:
●
|
38,000
courses globally.
|
|
|
●
|
4
Million golf carts in the world market.
|
|
|
●
|
DSG
Tech on 300 courses now, with an additional 500 courses added in 2020 driving $15 million in sales.
|
|
|
●
|
Key
component of our “Pennies A Day, Pennies A Round” program.
|
Vantage
e-Rickshaw Potential:
●
|
Global
three-wheelers market is projected to reach $39.9 billion by 2024.
|
|
|
●
|
11,000
new e-Rickshaws hit the streets every month, with annual sales expected to increase about 9 percent by 2021.
|
|
|
●
|
Research
on car-data-monetization trends and characteristics suggests that this value pool could be as large as $750 billion by 2030.
|
|
|
●
|
DSG
Global, Inc. has a strategic partnership in China to integrate Vantage TAG Systems with EVs, incorporating the Company’s
advanced fleet management capabilities.
|
Our
most recent product that is used to increase the Pace of Play on the course up to 90 minutes per round is the RAPTOR. Our 3-wheel
single rider allows the course to revenue share with VTS as the RAPTOR is put on the course free of charge and then allows the
course to revenue share with VTS along the way. Each seat is rented to the customers for minimum $25 per round.
Components
of Our Results of Operations
Revenue
We
derive revenue from four different sources, as follows:
Systems
sales revenue, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
Monthly
service fees are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the TAG
systems.
Monthly
rental Fees are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly payment
varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and INFINITY).
Programmatic
advertising revenue is a new source of revenue that we believe has the potential to be strategic for us in the future.
We are in the process of implementing and designing software to provide advertising and other media functionality on our INFINITY
units.
We
recognize revenue when it satisfies a performance obligation by transferring control over a product to a customer. Revenue is
measured based on the consideration the Company expects to receive in exchange for those products. In instances where final acceptance
of the product is specified by the customer, revenue is deferred until all acceptance criteria have been met. We accrue for warranty
costs, sales returns, and other allowances based on its historical experience.
Our
revenue recognition policies are discussed in more detail under “Note 3 – Summary of Significant Accounting Policies”
in the notes to our Consolidated Financial Statements included in Part I, Item 1 of this Form 10-K.
Cost
of Revenue
Our
cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and
inventory adjustments.
Hardware
purchases. Our equipment purchases consist primarily of TAG system control units, TEXT display, and INFINITY displays.
The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or INFINITY high
definition “touch activated” display. Hardware purchases also include costs of components used during installations,
such as cables, mounting solutions, and other miscellaneous equipment.
Wireless
data fees. Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking used
in all of our TAG system control units.
Mapping.
Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is incurred
at the time of hardware installation.
Installation.
Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel,
meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external
contractors for installations on a project by project basis.
Freight
expenses and Inventory adjustments. Our freight expenses consist primarily of costs to ship hardware to courses for installations.
Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory.
Operating
expenses & other income (expenses) We classify our operating expenses and other income (expenses) into six categories:
compensation, general and administrative, warranty, foreign currency exchange, and finance costs. Our operating expenses consist
primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade shows, software development, and
allocated costs. Allocated costs include charges for facilities, office expenses, telephones and other miscellaneous expenses.
Our other income (expenses) primarily consists of financing costs and foreign exchange gains or losses.
Compensation
expense. Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses,
and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service support
technicians. Salaries and wages directly related to projects or research and development are expensed as incurred to their operating
expense category.
General
and administrative. Our general and administrative expenses consist primarily of sales and marketing, commissions, travel,
trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting and legal professional
services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing, marketing materials,
and media management.
Warranty
expense (recovery). Our warranty expenses consist primarily of associated material product costs, labor costs for technical
support staff, and other associated overhead. Warranty costs are expensed as they are incurred.
Bad
debt. Our bad debt expense consists primarily of amounts written down for doubtful accounts recorded on trade receivables.
Depreciation
and amortization. Our depreciation and amortization costs consist primarily of depreciation and amortization on fixed
assets, equipment on lease and intangible assets.
Foreign
currency exchange. Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian
dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
Finance
costs. Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing
charges for obtaining debt financing.
We
expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company,
including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute
dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings
in new markets like commercial fleet management and agriculture.
Results
of Operations
The
following table summarizes key items of comparison and their related increase (decrease) for the three months ended March 31,
2020 and 2019:
|
|
For the Three Months
Ended
|
|
|
Increase
|
|
|
|
31-Mar-20
|
|
|
31-Mar-19
|
|
|
(Decrease)
|
|
|
|
($)
|
|
|
($)
|
|
|
(%)
|
|
Revenues
|
|
$
|
150,212
|
|
|
$
|
501,424
|
|
|
|
(70.0
|
)%
|
Cost of revenue
|
|
|
28,566
|
|
|
|
306,068
|
|
|
|
(90.7
|
)%
|
Gross profit
|
|
|
121,646
|
|
|
|
195,356
|
|
|
|
(37.7
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
642,536
|
|
|
|
135,083
|
|
|
|
375.7
|
%
|
General and administrative expense
|
|
|
524,747
|
|
|
|
236,792
|
|
|
|
121.6
|
%
|
Bad debt expense
|
|
|
9,348
|
|
|
|
1,424
|
|
|
|
556.5
|
%
|
Depreciation and amortization expense
|
|
|
656
|
|
|
|
885
|
|
|
|
(25.9
|
)%
|
Total operating expenses
|
|
|
1,177,287
|
|
|
|
374,184
|
|
|
|
214.6
|
%
|
Loss from operations
|
|
|
(1,055,641
|
)
|
|
|
(178,828
|
)
|
|
|
490.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange
|
|
|
(120,681
|
)
|
|
|
17,637
|
|
|
|
(784.2
|
)%
|
Change in fair value of derivative instruments
|
|
|
(945,594
|
)
|
|
|
(6,635,917
|
)
|
|
|
(85.8
|
%
|
Loss on extinguishment of debt
|
|
|
(428,465
|
)
|
|
|
(74,109
|
)
|
|
|
478.2
|
%
|
Finance costs
|
|
|
(407,578
|
)
|
|
|
(301,756
|
)
|
|
|
35.1
|
%
|
Total other expense
|
|
|
(1,902,318
|
)
|
|
|
(6,994,145
|
)
|
|
|
(72.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
|
(2,957,959
|
)
|
|
|
(7,172,973
|
)
|
|
|
(58.8
|
)%
|
Comparison
of the three months ended March 31, 2020 and 2019:
Revenue
|
|
For the Three Months Ended
March 31, 2020,
|
|
|
|
2020
|
|
|
2019
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
150,212
|
|
|
|
501,424
|
|
|
|
(70.0
|
)
|
Revenue
decrease by $351,212 or 70.0%, for the three months ended March 31, 2020 as compared to the three months ended March 31, 2019.
Sales
decreased for the three months ended, year over year, as the result of challenges related to COVID-19 and normal customer attrition.
This compares to the comparative period in which the Company experienced growth as a result of aggressive marketing and installation
of the new Infinity suite of products.
Cost
of Revenue
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
28,566
|
|
|
$
|
306,068
|
|
|
|
(90.7
|
)
|
Cost
of revenue increased by $277,502, or 90.7%, for the three months ended March 31, 2020 as compared to the three months March 31,
2019. The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
March 31,
2020
|
|
|
March 31,
2019
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of goods
|
|
$
|
15,517
|
|
|
$
|
287,694
|
|
|
$
|
(272,177
|
)
|
|
|
(94.6
|
)
|
Labour
|
|
|
-
|
|
|
|
8,995
|
|
|
|
(8,995
|
)
|
|
|
(100.0
|
)
|
Mapping & freight costs
|
|
|
3,175
|
|
|
|
12,150
|
|
|
|
(8,975
|
)
|
|
|
(73.9
|
)
|
Wireless fees
|
|
|
9,874
|
|
|
|
-
|
|
|
|
9,874
|
|
|
|
-
|
|
Inventory adjustments & write offs
|
|
|
-
|
|
|
|
(2,771
|
)
|
|
|
2,771
|
|
|
|
(100.0
|
)
|
|
|
$
|
28,566
|
|
|
$
|
306,068
|
|
|
$
|
(277,502
|
)
|
|
|
(90.7
|
)
|
Cost
of sales decreased for the three months ended, year over year, primarily due to challenges related to COVID-19 and normal customer
attrition. This decrease was consistent with the decrease in revenue for the same period.
Compensation
Expense
|
|
For the Three months ended
March 31,,
|
|
|
|
2020
|
|
|
2019
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
$
|
642,536
|
|
|
$
|
135,083
|
|
|
|
375.7
|
|
Compensation
expense increased by $507,453, or 375.7%, for the three months ended March 31, 2020 as compared to the three months ended March
31, 2019 primarily as a result of non-cash warrants issued for consulting services during the period.
General
and Administration Expense
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General & administration expense
|
|
$
|
524,747
|
|
|
$
|
236,792
|
|
|
|
121.6
|
|
General & administration
expense increased by $287,955 or 121.6% for the three months ended March 31, 2020 compared to the three months ended
March 31, 2019. The table below outlines the differences in detail:
|
|
For the Three Months Ended
|
|
|
|
March 31,
2020
|
|
|
March 31
2019
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & legal
|
|
$
|
87,248
|
|
|
$
|
9,321
|
|
|
$
|
77,927
|
|
|
|
836.0
|
|
Marketing & advertising
|
|
|
173,435
|
|
|
|
20,906
|
|
|
|
152,529
|
|
|
|
729.6
|
|
Subcontractor & commissions
|
|
|
97,068
|
|
|
|
90,876
|
|
|
|
6,192
|
|
|
|
6.8
|
|
Hardware
|
|
|
169
|
|
|
|
2,723
|
|
|
|
(2,554
|
)
|
|
|
(93.8
|
)
|
Office expense, rent, software, bank & credit card charges, telephone & meals
|
|
|
166,827
|
|
|
|
112,966
|
|
|
|
53,861
|
|
|
|
47.7
|
|
|
|
$
|
524,747
|
|
|
$
|
236,792
|
|
|
$
|
287,955
|
|
|
|
121.6
|
|
The
overall increase general and admin expenses was primarily due to increases in marketing and advertising, general office expenses
and accounting and legal expenses. Marketing and advertising increased as a result of non-cash shares issued for investor relations
services. General office expenses increased as a result of greater trade show and operating lease expenses in the current period.
Accounting and legal expenses increased as a result of lower expenses in the prior period from delays in preparing and issuing
financial statements for the prior period.
Foreign
Currency Exchange
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange (gain) loss
|
|
$
|
120,681
|
|
|
$
|
(17,637
|
)
|
|
|
(784.2
|
)
|
For
the three months ended March 31, 2020, we recognized a $120,681 foreign exchange loss as compared to a $17,637 foreign exchange
gain for the three months ended March 31, 2019. The change was primarily due to unfavorable changes in foreign currency rates
on payables, receivables, loans and other foreign balances 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 United States dollar,
Canadian dollar, Euro and British pound.
Change
in Fair Value of Derivative Instruments
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative instruments
|
|
$
|
945,594
|
|
|
$
|
6,635,917
|
|
|
|
(85.8
|
)
|
Derivative
loss decreased by $5,690,323 or 85.8%, for the three months ended March 31, 2020 as compared to the three months ended March 31,
2019. The Company had a loss on derivatives of $945,594 in the current period due to minor increases in the volatility of the
Company’s stock price, partially offset by settlement of derivative instruments in the period. The Company had a loss on
derivatives of $6,635,917 in the prior period due to significant increases in the volatility of the Company’s common stock
price during the period. In general, the change in fair value was impacted heavily due to the volatility and closing value in
the Company’s stock price.
Loss
on extinguishment of debt
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Loss on extinguishment of debt
|
|
$
|
428,465
|
|
|
$
|
74,109
|
|
|
|
478.2
|
|
Loss
on extinguishment of debt increased by $354,356 or 478.2% to a loss of $428,465, for the three months ended March 31, 2020 as
compared to a loss of $74,109 for the three months ended March 31, 2019. The increase was primarily a result of more conversions
of convertible debt and accrued interest in the current period.
Finance
Costs
|
|
For the Three Months Ended
March 31,
|
|
|
|
2020
|
|
|
2019
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
$
|
407,578
|
|
|
$
|
301,756
|
|
|
|
35.1
|
|
Finance
costs decreased by $105,822 or 35.1%, for the three months ended March 31, 2020 as compared to the three months ended March 31,
2019. Finance costs increased due to greater debt outstanding during the current period in addition to elevated penalty interest
rates on debt in default.
Net
Loss
|
|
For the Three Months ended
March 31,,
|
|
|
|
2019
|
|
|
2018
|
|
|
% Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(2,957,959
|
)
|
|
$
|
(7,172,973
|
)
|
|
|
(58.8
|
)
|
As
a result of the above factors, net loss increased by $ 4,215,014 or 58.8% for the three months ended March 31, 2020 as compared
to the three months ended March 31, 2019.
Liquidity
and Capital Resources
From
our incorporation on April 17, 2008 through March 31, 2020, 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 March 31, 2020, we had $10,178,309 in total liabilities, the majority of which
matures within the next twelve months.
We
had cash in the amount of $16,398 as of March 31, 2020, as compared to $25,494 as of December 31, 2019. We had a working capital
deficit of $9,822,843 as of March 31, 2020 compared to working capital deficit of $8,376,433 as of December 31, 2019.
Liquidity
and Financial Condition
Our
financial position as of March 31, 2020 and 2019, and the changes for the periods then ended are as follows:
Working
Capital
|
|
At March 31,
2020
|
|
|
At December 31,
2019
|
|
Current assets
|
|
$
|
290,118
|
|
|
$
|
250,800
|
|
Current liabilities
|
|
$
|
10,112,961
|
|
|
$
|
8,627,233
|
|
Working capital
|
|
$
|
(9,822,843
|
)
|
|
$
|
(8,376,433
|
)
|
Cash
Flow Analysis
Our
cash flows from operating, investing, and financing activities are summarized as follows:
|
|
March
31,,
|
|
|
|
2020
|
|
|
2019
|
|
|
|
|
|
|
|
|
Net
cash used in by operating activities
|
|
$
|
(245,599
|
)
|
|
$
|
(237,042
|
)
|
Net
cash used in investing activities
|
|
|
-
|
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
239,965
|
|
|
|
275,000
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
(3,462
|
)
|
|
|
-
|
|
Net
increase in cash
|
|
|
(9,096
|
)
|
|
|
37,958
|
|
Cash
at beginning of period
|
|
|
25,494
|
|
|
|
5,059
|
|
Cash
at end of period
|
|
$
|
16,398
|
|
|
$
|
43,017
|
|
Net
Cash Used in Operating Activities. During the three months ended March 31, 2020, cash used in operations totaled $245,599.
This reflects the net loss of $2,957,959 adjusted for $2,712,360 changes in non-cash working capital items and adjustments for
non-cash items. Non-cash and working capital adjustments consisted primarily of non-cash change in fair value of derivative liabilities
of $945,594, non-cash shares and warrants issued for services of $636,448, loss on extinguishment of debt of $428,465, increase
in trade payables and accruals of $394,350 and non-cash accretion of discounts on debt of $242,447.
Net
Cash (Used in) Provided by Investing Activities. The Company had no investing activities in the three months ended March
31, 2020.
Net
Cash Provided by Financing Activities. Net cash from financing activities during the three months ended March 31, 2020
totaled $239,965, from various note and loan facilities entered into during the period and issuance of common shares, partially
offset by repayments of notes payable. Net cash provided by financing activities during the three months ended March 31, 2020
was $275,000 primarily from various note and loan facilities entered during the period.
Outstanding
Indebtedness
Our
current indebtedness as of March 31, 2020 is comprised of the following:
|
●
|
Unsecured
loan payable with an outstanding principal amount of $317,500 (CAD$413,258), bearing interest at 18% per annum;
|
|
|
|
|
●
|
Unsecured
loan payable with an outstanding principal amount of $250,000, bearing interest at 10% per annum, with a minimum interest
amount of $25,000, mature and in default;
|
|
|
|
|
●
|
Unsecured
loan payable with an outstanding principal amount of $150,000, bearing interest at 10% per annum, is due on demand, and convertible
into common shares at $1.75 per share;
|
|
|
|
|
●
|
Unsecured,
convertible note payable to a former related party with an outstanding principal amount of $310,000, bearing interest at 5%
per annum, mature and in default;
|
|
|
|
|
●
|
Senior
secured, convertible note payable with an outstanding principal amount of $213,889, bearing interest at 8% per annum. Repayable
in cash or common shares at the lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on
the date of conversion;
|
|
|
|
|
●
|
Unsecured,
convertible note payable with an outstanding principal amount of $81,470, bearing interest at 10% per annum. Matures on July
17, 2018. Principal is repayable in cash or common shares at the lower of (i) six cents ($0.06) (ii) 55% of the lowest trading
price during the 20 Trading Days immediately preceding the date of conversion;
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the principal amount of $51,500, bears interest at 10% per annum, is due on February 8, 2019,
and is convertible into common shares at a conversion price equal to the lower of (i) 32% discount off of the lowest intra-day
trading price during previous (10) trading days immediately preceding a conversion date;
|
|
|
|
|
●
|
Unsecured,
convertible note payable with an outstanding principal amount of $180,000, bears interest at 10% per annum, is due on February
28, 2019, and is convertible into common shares at a conversion price equal to the lower of (i) 32% discount off of the lowest
intra-day trading price during previous (15) trading days immediately preceding a conversion date;
|
|
●
|
Unsecured,
convertible note payable with an outstanding principal amount of $39,037, bears interest 10% per annum, is due on August 2,
2018, and is convertible into common shares at a conversion price equal to the lower of (i) lowest trading price during previous
(25) trading days prior to the date of note or (ii) lowest trading price during previous (25) trading days prior to the date
of conversion;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note in the principal amount of $226,000, bears interest at 12% per annum, is due on August 31, 2019,
and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the previous fifteen
trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable at the time
of promissory note repayment;
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the principal amount of $258,736, bears interest 12% per annum, is due on September 19, 2018,
and is convertible into common shares at a conversion price equal to the lower of (i) the lowest trading price during the
previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price during the
previous fifteen days prior to the latest complete trading day prior to the conversion date;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $137,500, bears interest at 12% per annum, is due on January
22, 2020, and is convertible into common shares at a conversion price equal to 55% of the lowest trading price during the
previous fifteen trading days prior to the conversion date, including the conversion date. Interest will be accrued and payable
at the time of promissory note repayment;
|
|
|
|
|
●
|
Unsecured,
convertible bridge loan agreement with an outstanding principal amount of $150,000, bears interest at 4.99% per month, is
due on May 7, 2019 and is convertible into restricted common shares of the Company at the lender’s option at the market
price per share less a 30% discount to market; Settlement by conversion into common shares would result in settlement for
share of common stock of the Company with a fair value of $214,286. Effective September 1, 2019, interest was reduced to 2%
per month and effective December 1, 2019, the loan became non-interest bearing;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $413,590, bears interest at 12% per annum, is convertible
into common shares after 180 days from issuance date at a conversion price equal to the lessor of (i) the lowest trading price
during the previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price
during the previous fifteen days prior to the latest complete trading day prior to the conversion date. Interest will be accrued
and payable at the time of promissory note repayment;
|
|
|
|
|
●
|
Secured,
convertible promissory note, bears interest at 10% per annum with four tranches of $62,605, totaling $250,420, due on May
7, 2020, June 28, 2020, July 8, 2020 and August 8, 2020 and is convertible into common shares at a conversion price equal
to 62% of the lowest trading price of the Company’s common stock during the 10 trading days immediately preceding the
conversion of the note. Interest will be accrued and payable at the time of promissory note repayment;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $220,000, bears interest at 10% per annum, is due on July
30, 2020, and is convertible into common shares at a conversion price equal to the lesser of (i) 60% of the lowest trading
price during the previous twenty trading days prior to the issuance date, or (ii) the lowest trading price for the Common
Stock during the twenty day period ending one trading day prior to conversion of the note;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $137,500, bears interest at 10% per annum, is due on June
3, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent
period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the
Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price
for the Common Stock during the twenty day period ending on the last complete trading day before conversion;
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $55,000, bears interest at 10% per annum, is due on September
19, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent
period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the
Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price
for the Common Stock during the twenty day period ending on the last complete trading day before conversion;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $141,900, bears interest at 10% per annum, is due on September
19, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent
period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the
Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price
for the Common Stock during the twenty day period ending on the last complete trading day before conversion;
|
|
|
|
|
●
|
Unsecured
loan payable with an outstanding principal amount of CDN$10,000, non-interest bearing and due on demand;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $82,500, bears interest at 10% per annum, is due on September
30, 2020, and is convertible during the first six months from the issuance date at a price of $0.50 per share. For the subsequent
period until repayment the conversion price shall equal the lesser of (i) 60% multiplied by the lowest traded price of the
Common Stock during the previous twenty trading days before the issuance date of the note, or (ii) the lowest traded price
for the Common Stock during the twenty day period ending on the last complete trading day before conversion;
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $119,600, bears interest at 8% per annum and is due on
February 10, 2021. The note is convertible into common shares of the Company, beginning 180 days from the date of the note
up to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock
during the fifteen trading days before conversion; and
|
|
|
|
|
●
|
Unsecured,
convertible promissory note with an outstanding principal amount of $60,950, bears interest at 8% per annum and is due on
March 2, 2021. The note is convertible into common shares of the Company, beginning 180 days from the date of the note up
to maturity or repayment, at a price equal to 80% of the average of the lowest two trading prices for the common stock during
the fifteen trading days before conversion.
|
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 March 31, 2021
|
Management compensation
|
|
$
|
500,000
|
|
Professional fees
|
|
$
|
150,000
|
|
General and administrative
|
|
$
|
1,900,000
|
|
Total
|
|
$
|
2,550,000
|
|
As
noted earlier, during the three months ended March 31, 2020, cash used in operations totaled $245,599. 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 $16,398 in cash as of March 31, 2020 and a working capital deficit of $9,822,843. 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.