ITEM
1: Financial Statements (unaudited)
The
accompanying unaudited consolidated interim financial statements of DSG Global Inc. as at June 30, 2018, have been prepared by
our management in conformity with accounting principles generally accepted in the United States of America and in accordance with
the instructions to Form 10-Q and Rule 8-03 of Regulation S-X and, therefore, do not include all information and footnotes necessary
for a complete presentation of financial position, results of operations, cash flows, and stockholders’ equity in conformity
with generally accepted accounting principles. In the opinion of management, all adjustments considered necessary for a fair presentation
of the results of operations and financial position have been included and all such adjustments are of a normal recurring nature.
Operating
results for the six month period ended June 30, 2018 are not necessarily indicative of the results that can be expected for the
year ending December 31, 2018.
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED BALANCE SHEETS
AS
AT JUNE 30, 2018 AND DECEMBER 31, 2017
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
|
(unaudited)
|
|
|
(revised
- Note 15)
|
|
ASSETS
|
|
|
|
|
|
|
|
|
CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Cash
|
|
$
|
15,999
|
|
|
$
|
5,488
|
|
Trade receivables, net
|
|
|
100,580
|
|
|
|
23,736
|
|
Inventories
|
|
|
56,797
|
|
|
|
8,929
|
|
Prepaid expenses and deposits
|
|
|
53,984
|
|
|
|
20,355
|
|
Due from related
party
|
|
|
-
|
|
|
|
1,034
|
|
TOTAL
CURRENT ASSETS
|
|
|
227,360
|
|
|
|
59,542
|
|
|
|
|
|
|
|
|
|
|
NON-CURRENT ASSETS
|
|
|
|
|
|
|
|
|
Fixed assets, net
|
|
|
2,068
|
|
|
|
964
|
|
Equipment on lease, net
|
|
|
6,440
|
|
|
|
14,814
|
|
Intangible assets,
net
|
|
|
15,901
|
|
|
|
15,395
|
|
TOTAL
NON-CURRENT ASSETS
|
|
|
24,409
|
|
|
|
31,173
|
|
|
|
|
|
|
|
|
|
|
TOTAL
ASSETS
|
|
$
|
251,769
|
|
|
$
|
90,715
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
CURRENT LIABILITIES
|
|
|
|
|
|
|
|
|
Accounts payable and accrued liabilities
|
|
$
|
3,509,112
|
|
|
$
|
3,328,851
|
|
Deferred revenue
|
|
|
282,869
|
|
|
|
159,665
|
|
Warranty reserve
|
|
|
134,940
|
|
|
|
165,523
|
|
Convertible note payable to related
party
|
|
|
310,000
|
|
|
|
310,000
|
|
Loans payable
|
|
|
872,144
|
|
|
|
887,275
|
|
Derivative liabilities
|
|
|
2,471,295
|
|
|
|
1,676,155
|
|
Convertible notes
payable, net of unamortized discount of $606,928 and $301,360, respectively
|
|
|
2,109,878
|
|
|
|
2,019,132
|
|
TOTAL
CURRENT LIABILITIES
|
|
|
9,690,238
|
|
|
|
8,546,601
|
|
|
|
|
|
|
|
|
|
|
Commitments
|
|
|
-
|
|
|
|
|
|
Contingencies
|
|
|
|
|
|
|
|
|
Subsequent events
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
MEZZANINE EQUITY
|
|
|
|
|
|
|
|
|
Redeemable Preferred
Shares
|
|
$
|
5,286,731
|
|
|
$
|
5,286,731
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
Common stock, $0.001 par value, 2,000,000,000
shares
authorized 1,263,873,040 and 101,877,495 outstanding, respectively.
|
|
|
1,263,873
|
|
|
|
101,877
|
|
Additional paid in capital
|
|
|
19,409,004
|
|
|
|
17,511,673
|
|
Accumulated other
comprehensive income
|
|
|
1,152,747
|
|
|
|
873,250
|
|
Deficit
|
|
|
(36,550,824
|
)
|
|
|
(32,229,417
|
)
|
TOTAL
STOCKHOLDERS’ DEFICIT
|
|
|
(14,725,200
|
)
|
|
|
(13,742,617
|
)
|
|
|
|
|
|
|
|
|
|
TOTAL
LIABILITIES AND STOCKHOLDERS’ DEFICIT
|
|
$
|
251,769
|
|
|
$
|
90,715
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
FOR
THE SIX MONTHS ENDING JUNE 30, 2018 and 2017
(Unaudited)
|
|
Three
months ending
|
|
|
Six
months ending
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
237,046
|
|
|
$
|
434,202
|
|
|
$
|
347,942
|
|
|
$
|
682,472
|
|
Cost of revenue
|
|
|
79,552
|
|
|
|
135,940
|
|
|
|
97,881
|
|
|
|
205,445
|
|
Gross
profit
|
|
|
157,494
|
|
|
|
298,262
|
|
|
|
250,061
|
|
|
|
477,027
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
209,174
|
|
|
|
231,086
|
|
|
|
417,802
|
|
|
|
420,395
|
|
General and administration expense
|
|
|
275,480
|
|
|
|
165,472
|
|
|
|
633,493
|
|
|
|
438,459
|
|
Warranty expense
|
|
|
46,273
|
|
|
|
4,738
|
|
|
|
46,273
|
|
|
|
7,362
|
|
Bad debt
|
|
|
2,099
|
|
|
|
45,377
|
|
|
|
30,992
|
|
|
|
45,377
|
|
Depreciation
and amortization expense
|
|
|
2,220
|
|
|
|
7,686
|
|
|
|
8,914
|
|
|
|
15,510
|
|
Total
operating expense
|
|
|
535,246
|
|
|
|
454,359
|
|
|
|
1,137,474
|
|
|
|
927,103
|
|
Loss
from operations
|
|
|
(377,752
|
)
|
|
|
(156,097
|
)
|
|
|
(887,413
|
)
|
|
|
(450,076
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange gain (loss)
|
|
|
410,454
|
|
|
|
149,943
|
|
|
|
(150,212
|
)
|
|
|
160,946
|
|
Other expenses
|
|
|
-
|
|
|
|
(1,401
|
)
|
|
|
-
|
|
|
|
(5,419
|
)
|
Change in fair value of derivative instruments
|
|
|
6,013,778
|
|
|
|
1,946,087
|
|
|
|
397,517
|
|
|
|
91,670
|
|
Loss on extinguishment of debt
|
|
|
(768,964
|
)
|
|
|
|
|
|
|
(2,164,231
|
)
|
|
|
-
|
|
Finance costs
|
|
|
(776,506
|
)
|
|
|
(339,254
|
)
|
|
|
(1,517,068
|
)
|
|
|
(669,718
|
)
|
Total
other income (expense)
|
|
|
4,878,762
|
|
|
|
1,755,375
|
|
|
|
(3,433,994
|
)
|
|
|
(422,521
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
income (loss)
|
|
$
|
4,501,010
|
|
|
$
|
1,599,278
|
|
|
$
|
(4,321,407
|
)
|
|
$
|
(872,597
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustments
|
|
|
(361,594
|
)
|
|
|
(160,775
|
)
|
|
|
279,497
|
|
|
|
(210,649
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income (loss)
|
|
$
|
4,139,416
|
|
|
$
|
1,438,503
|
|
|
$
|
(4,041,910
|
)
|
|
$
|
(1,083,246
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
and diluted loss per share
|
|
$
|
0.00
|
|
|
$
|
0.04
|
|
|
$
|
(0.01
|
)
|
|
$
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
average number of shares used in computing basic and diluted net loss per share:
|
|
|
1,071,608,846
|
|
|
|
37,430,450
|
|
|
|
743,085,844
|
|
|
|
33,428,275
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL INC.
INTERIM
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR
THE PERIODS ENDED JUNE 30, 2018 AND 2017
(UNAUDITED)
|
|
Six
Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
|
|
|
|
|
|
Net loss
|
|
$
|
(4,321,407
|
)
|
|
$
|
(872,597
|
)
|
|
|
|
|
|
|
|
|
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
Depreciation and
amortization
|
|
|
8,914
|
|
|
|
15,510
|
|
Inventory write-off
|
|
|
-
|
|
|
|
1,580
|
|
Depreciation included
in cost of goods sold
|
|
|
-
|
|
|
|
5,216
|
|
Non-cash financing
costs
|
|
|
224,956
|
|
|
|
10,015
|
|
Accretion of
discounts on convertible debt
|
|
|
924,905
|
|
|
|
328,690
|
|
Change in fair
value of derivative liabilities
|
|
|
(397,517
|
)
|
|
|
(91,670
|
)
|
Reserve for bad
debt
|
|
|
30,992
|
|
|
|
16,140
|
|
Shares issued for
services
|
|
|
2,250
|
|
|
|
112,500
|
|
Loss on extinguishment
of debt
|
|
|
2,164,231
|
|
|
|
-
|
|
Unrealized foreign
exchange
|
|
|
152,901
|
|
|
|
(52,317
|
)
|
|
|
|
|
|
|
|
|
|
Change in operating assets and liabilities:
|
|
|
|
|
|
|
|
|
Trade receivables,
net
|
|
|
(107,836
|
)
|
|
|
(71,360
|
)
|
Inventories
|
|
|
(47,868
|
)
|
|
|
6,872
|
|
Prepaid expense
and deposits
|
|
|
(33,629
|
)
|
|
|
(8,809
|
)
|
Due from related
party
|
|
|
1,034
|
|
|
|
-
|
|
Trade payables and
other payables
|
|
|
313,849
|
|
|
|
387,484
|
|
Deferred revenue
|
|
|
123,204
|
|
|
|
8,970
|
|
Warranty reserve
|
|
|
(30,583
|
)
|
|
|
3,874
|
|
Net
cash used in operating activities
|
|
|
(991,604
|
)
|
|
|
(199,902
|
)
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities
|
|
|
|
|
|
|
|
|
Purchase
of property, plant and equipment
|
|
|
(1,544
|
)
|
|
|
-
|
|
Net
cash used in investing activities
|
|
|
(1,544
|
)
|
|
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities
|
|
|
|
|
|
|
|
|
Bank overdraft
|
|
|
-
|
|
|
|
(2,986
|
)
|
Proceeds from issuing
common stock
|
|
|
81,659
|
|
|
|
50,000
|
|
Repayments of
notes payable
|
|
|
(45,000
|
)
|
|
|
-
|
|
Proceeds from note
payable
|
|
|
967,000
|
|
|
|
338,000
|
|
Repayments
of related party loans payable
|
|
|
-
|
|
|
|
(11,886
|
)
|
Net
cash provided by financing activities
|
|
|
1,003,659
|
|
|
|
373,128
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents
|
|
|
10,511
|
|
|
|
173,226
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange
rate changes on cash
|
|
|
-
|
|
|
|
(173,226
|
)
|
|
|
|
|
|
|
|
|
|
Cash, beginning of period
|
|
|
5,488
|
|
|
|
-
|
|
Cash, end of
the period
|
|
$
|
15,999
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
Cash paid during
the period for:
|
|
|
|
|
|
|
|
|
Income
tax payments
|
|
$
|
-
|
|
|
$
|
-
|
|
Interest
payments
|
|
$
|
-
|
|
|
$
|
22,110
|
|
|
|
|
|
|
|
|
|
|
Supplemental schedule
of non-cash financing activities:
|
|
|
|
|
|
|
|
|
Convertible
debenture issued for financing fees
|
|
$
|
15,000
|
|
|
$
|
-
|
|
Shares
issued for convertible loans payable
|
|
$
|
2,975,418
|
|
|
$
|
165,000
|
|
Shares
issued for convertible related party payable
|
|
$
|
-
|
|
|
$
|
19,615
|
|
Returnable
shares issued for commitment fee
|
|
$
|
-
|
|
|
$
|
220,000
|
|
The
accompanying notes are an integral part of the unaudited condensed consolidated financial statements
DSG
GLOBAL, INC.
NOTES TO INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
JUNE
30, 2018
(unaudited)
Note
1 – ORGANIZATION
DSG
Global, Inc. (formerly Boreal Productions Inc.) (the “Company”) was incorporated under the laws of the State of Nevada
on September 24, 2007. The Company is a technology development company engaged in the design, manufacture, and marketing of fleet
management solutions for the golf industry, as well as commercial, government and military applications. Its principal activities
are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support services. The Company specializes
in the vehicle fleet management industry, primarily focused on the golf industry to help golf course operators manage their fleet
of golf carts, turf equipment, and utility vehicles.
Previously,
in anticipation of the share exchange agreement with DSG Tag Systems, Inc. (“DSG TAG”), 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 affect 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 our name.
The
Company’s wholly owned subsidiary, DSG TAG Systems, Inc. (“DSG TAG”) 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, DSG TAG
formed DSG Tag Systems International, Ltd. in the United Kingdom (“DSG UK”). DSG UK is a wholly owned subsidiary of
DSG TAG.
Note
2 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis
of Presentation
The
accompanying interim condensed consolidated financial statements have been prepared in conformity with generally accepted
accounting principles in the United States (“US GAAP”) for interim financial information and with the instructions
to Form 10-Q and Article 10 of Regulation S-X.
Certain
information and footnote disclosures normally included in these interim condensed consolidated financial statements prepared
in accordance with U.S. GAAP have been condensed or omitted pursuant to U.S. GAAP rules and regulations for presentation of interim
financial information. Therefore, the unaudited condensed interim consolidated financial statements should be read in conjunction
with the financial statements and the notes thereto, included in the Company’s Annual Report on the Form 10-K for the year
ended December 31, 2017. Current and future financial statements may not be directly comparable to the Company’s historical
financial statements. However, except as disclosed herein, there have been no material changes in the information disclosed in
the notes to the financial statements for the year ended December 31, 2017 included in the Company’s Annual Report on Form
10-K filed with the Securities and Exchange Commission. In the opinion of Management, all adjustments considered necessary for
a fair presentation, consisting solely of normal recurring adjustments, have been made. Operating results for the three and six
months ended June 30, 2018 are not necessarily indicative of the results that may be expected for the year ending December 31,
2018.
Principles
of Consolidation
These
interim condensed
consolidated financial statements include
the accounts of DSG Global Inc., its subsidiary DSG Tag Systems, Inc., and its wholly owned subsidiary DSG Tag Systems International,
Ltd., collectively referred to as the Company. For all periods presented, all significant intercompany accounts, transactions
and profits have been eliminated in the consolidated financial statements and corporate administrative costs are not allocated
to subsidiaries.
Use
of Estimates
The
preparation of these interim condensed consolidated financial statements in conformity with U.S. GAAP requires management
to make estimates and assumptions that affect the reported amounts of assets and liabilities and the disclosure of contingent
assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Estimates and assumptions are reviewed periodically, and the effects
of revisions are reflected in the condensed consolidated financial statements in the period they are determined.
Recently
Issued Accounting Pronouncements
Applicable
for fiscal years beginning after December 15, 2018:
In
May 2014, the FASB issued Accounting Standards Update (“ASU”) No. 2014-09, “Revenue from Contracts with Customers”.
This new standard replaces most of the existing revenue recognition guidance in U.S. GAAP permits the use of either the retrospective
or cumulative effect transition method. The new standard, as amended, became effective in the first quarter of fiscal year 2018.
The Company adopted the standard using the modified retrospective method. There was no effect for any adjustments to retained
earnings (accumulated deficit) upon adoption of the standard on January 1, 2018.
In
March 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-08 “
Receivables – Nonrefundable
Fees and Other Costs (Subtopic 310-20) – Premium Amortization on Purchased Callable Debt Securities”
an amendment
to shorten the amortization period for certain callable debt securities held at a premium to the earliest call date. The amendments
do not require an accounting change for securities held at a discount.
In
July 2017, the Financial Accounting Standards Board (“FASB”) issued ASC 2017-11 “
Earnings Per Share (Topic
260), Distinguishing Liability from Equity (Topic 480), and Derivatives and Hedging (Topic 815) – (i) Accounting for Certain
Financial Instruments with Down Round Features (ii) Replace of the Indefinite Deferral for Mandatorily Redeemable Financial Instruments.
”
The amendments in (i) change the classification analysis of certain equity-linked financial instruments (or embedded features)
with down round features and to help clarify existing disclosure requirements. The amendments in (ii) characterize the indefinite
deferral of certain provisions and do not have an accounting effect.
In
February 2016, the FASB issued ASU No. 2016-02, “Leases (Topic 842).” This accounting standard seeks to increase transparency
and comparability among organizations by recognizing lease assets and lease liabilities on the balance sheet and disclosing key
information about leasing arrangements. Current US GAAP does not require lessees to recognize assets and liabilities arising from
operating leases on the balance sheet. This standard also provides guidance from the lessees’ perspective on how to determine
if a lease is an operating lease or a financing lease and the differences in accounting for each. In January 2018, the FASB issued
ASU No. 2018-01, which allows for an entity to elect an optional transition practical expedient for land easements that exist
or expired before adoption of Topic 842. The adoption of this standard is required for interim and fiscal periods beginning
after December 15, 2018 and it is required to be applied using the modified retrospective approach. Early adoption is permitted.
The
Company is currently evaluating the impact of the above standards on their consolidated financial statements. Other recent accounting
pronouncements issued by the FASB, including its Emerging Issues Task Force, the American Institute of Certified Public Accountants,
and the Securities and Exchange Commission did not or are not believed by management to have a material impact on the Company’s
present or future consolidated financial statements.
Going
Concern
As
reflected in the accompanying financial statements, the Company incurred a net loss of $4,321,407 for the six month period
ended June 30, 2018 and has a working capital deficit of $9,462,878 and an accumulated deficit of $36,550,824 as
of June 30, 2018.
While
the Company is attempting to grow revenues, improve margins, and lower costs, the Company’s cash position may not be sufficient
to support the Company’s daily operations. Management is seeking to raise additional funds by way of a public or private
offering. Management believes that the actions presently being taken to further implement its business plan and generate revenues
provide the opportunity for the Company to continue as a going concern. While the Company believes in the viability of its strategy
to generate revenues and in its ability to raise additional funds, there can be no assurances to that effect. The ability of the
Company to continue as a going concern is dependent upon the Company’s ability to further implement its business plan and
generate revenues.
These
factors raise substantial doubt regarding the Company’s ability to continue as a going concern.
These interim condensed consolidated financial statements do not include any adjustments that might be necessary if the
Company is unable to continue as a going concern.
Reclassification
Certain
prior year amounts have been reclassified for consistency with the current period presentation. These reclassifications had no
effect on the reported results of operations or cash flows.
Note
3 – TRADE RECEIVABLES, NET
As
of June 30, 2018 and December 31, 2017, trade receivables consisted of the following:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Trade
receivables
|
|
$
|
116,365
|
|
|
$
|
52,373
|
|
Allowance
for bad debts
|
|
|
(15,785)
|
|
|
|
(28,637)
|
|
Total
trade receivables, net
|
|
$
|
100,580
|
|
|
$
|
23,736
|
|
Note
4 – FIXED ASSETS
As
of June 30, 2018, and December 31, 2017, fixed assets consisted of the following:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Furniture
and equipment
|
|
$
|
16,162
|
|
|
$
|
17,914
|
|
Computer
equipment
|
|
|
25,320
|
|
|
|
26,435
|
|
Accumulated
depreciation
|
|
|
(39,414
|
)
|
|
|
(43,385
|
)
|
|
|
$
|
2,068
|
|
|
$
|
964
|
|
As
of June 30, 2018, and December 31, 2017, equipment on lease consisted of the following:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Tags
|
|
$
|
125,353
|
|
|
$
|
124,314
|
|
Text
|
|
|
27,705
|
|
|
|
27,475
|
|
Touch
|
|
|
22,950
|
|
|
|
22,759
|
|
Accumulated
depreciation
|
|
|
(169,568)
|
|
|
|
(159,734)
|
|
|
|
$
|
6,440
|
|
|
$
|
14,814
|
|
For
the three months ended June 30, 2018 and 2017, total depreciation expense for fixed assets and leased equipment was $1,914 and
$7,390 respectively.
For
the six months ended June 30, 2018 and 2017, total depreciation expense for fixed assets and leased equipment was $8,320 and $14,918
respectively.
Note
5 – INTANGIBLE ASSETS
Intangible
assets consist of the following as of June 30, 2018 and December 31, 2017:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Intangible
asset – patent
|
|
$
|
22,353
|
|
|
$
|
21,253
|
|
Accumulated
depreciation
|
|
|
(6,452)
|
|
|
|
(5,858)
|
|
|
|
$
|
15,901
|
|
|
$
|
15,395
|
|
The
estimated useful life of the Patent is 20 years. Patents are amortized on a straight-line basis.
Note
6 – TRADE AND OTHER PAYABLES
As
of June 30, 2018 and December 31, 2017, trade and other payables consist of the following:
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Trade
payables
|
|
$
|
1,130,520
|
|
|
$
|
1,121,841
|
|
Accrued
expenses
|
|
|
217,410
|
|
|
|
255,542
|
|
Accrued
interest
|
|
|
2,159,516
|
|
|
|
1,889,537
|
|
Other
liabilities
|
|
|
1,666
|
|
|
|
61,931
|
|
Total
trade and other payables
|
|
$
|
3,509,112
|
|
|
$
|
3,328,851
|
|
Note
7 – LOANS PAYABLE
As
of June 30, 2018 and December 31, 2017, loans payable consisted of the following:
Loans
Payable
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
|
|
|
|
|
|
|
Unsecured,
due on demand, interest 15% per annum
|
|
$
|
189,854
|
|
|
$
|
199,283
|
|
Unsecured,
due on demand, interest 36% per annum
|
|
|
46,444
|
|
|
|
48,751
|
|
Unsecured,
loan payable, due on demand, interest 18% per annum
|
|
|
317,500
|
|
|
|
317,500
|
|
Unsecured,
loan payable, fee for services payable on the original loan amount of 5% by May 6, 2016, 10% payable by June 5, 2016, or 20%
payable by July 5, 2016
|
|
|
68,346
|
|
|
|
71,741
|
|
Unsecured,
loan payable, interest 10% per annum, with a minimum interest amount of $25,000, due July 22, 2016.
|
|
|
250,000
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
Total
current portion
|
|
$
|
872,144
|
|
|
$
|
887,275
|
|
Note
8 – CONVERTIBLE LOANS PAYABLE
Related
Party Convertible Loans Payable
(a)
|
On
March 31, 2015, the Company issued a convertible promissory note in the principal amount of $310,000 to a company owned by
a director of the Company for marketing services. The convertible promissory note is unsecured, bears interest at 5% per annum,
is convertible at $1.25 per common share, and is due on demand. As at June 30, 2018, the carrying value of the convertible
promissory note was $310,000 (December 31, 2017 - $310,000).
|
Third
Party Convertible Loans Payable
(b)
|
On
August 25, 2015, the Company issued a convertible promissory note in the principal amount of $250,000. The convertible promissory
note is unsecured, bears interest at 10% per annum, is due on demand, and is convertible at $1.75 per share. As at June 30,
2018, the carrying value of the convertible promissory note was $250,000 (December 31, 2017 - $250,000).
|
|
|
(c)
|
On
November 7, 2016, the Company entered into a securities purchase agreement with a non-related party. Pursuant to the agreement,
the Company was provided with proceeds of $125,000 on November 10, 2016 in exchange for the issuance of a secured convertible
promissory note in the principal amount of $138,889, which was inclusive of an 8% original issue discount and bears interest
at 8% per annum to the holder. The convertible promissory note matures six months from the date of issuance and is convertible
at the option of the holder into our common shares at a price per share that is the lower of $0.12 or the closing price of
the Company’s common stock on the conversion date. In addition, under the same terms, the Company also issued a secured
convertible note of $50,000 in consideration for proceeds of $10,000 and another secured convertible note of $75,000 in consideration
for proceeds of $10,000. Under the agreements, the Company has the right to redeem $62,500 and $40,000 of the notes for consideration
of $1 each at any time prior to the maturity date in the event that the convertible promissory note is exchanged or converted
into a revolving credit facility with the lender, whereupon the two $10,000 convertible note balances shall be rolled into
such credit facility.
|
|
|
|
On
May 7, 2017, the Company triggered an event of default in the convertible note by failing to repay the full principal amount
and all accrued interest on the due date. The entire convertible note payable became due on demand and would accrue interest
at an increased rate of 1.5% per month (18% per annum) or the maximum rate permitted under applicable law until the convertible
note payable was repaid in full.
|
|
On
May 8, 2017, the Company issued 100,000 common shares for the conversion of $5,000 of the $72,500 convertible note dated November
7, 2016. On May 24, 2017, the Company issued 210,000 common shares for the conversion of $10,500 of the $72,500 convertible
note dated November 7, 2016. Refer to Note 11.
|
|
|
|
On
May 25, 2017, the lender provided conversion notice for the remaining principal $57,000 of the $72,500 convertible note dated
November 7, 2016. This conversion was not processed by the Company’s transfer agent due to direction from the Company
not to honor any further conversion notices from the lender. In response, the Company received legal notification pursuant
to the refusal to process further conversion notices. Refer to Note 14.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $245,889 (December 31, 2017 - $245,889) and the fair value of the derivative
liability was $758,016 (December 31, 2017 - $629,759). During the six months ended June 30, 2018, the Company accreted $nil
(2017 - $72,099) of the debt discount to finance costs.
|
|
|
(d)
|
On
December 21, 2016, the Company entered into a convertible note agreement for the principal
amount of $74,500 for consideration of $72,250 which was received on January 10,
2017. The note is unsecured, bears interest at 12% per annum, was due on December 21,
2017, and is convertible into common shares at a conversion price equal to the lessor
of: (i) the closing sale price of the Company’s common stock on the trading day
immediately preceding the closing date, and (ii) 50% of the lowest sale price for the
Company’s common stock during the twenty-five consecutive trading days immediately
preceding the conversion date. Interest will be accrued and payable at the time of repayment
of the note. Financing fees on the note were $4,750. The derivative liability applied
as a discount on the note was $72,250 and is being accreted over the life of the note.
|
|
|
|
On
July 24, 2017, the Company issued 800,000 common shares for the conversion of $26,850 of principal and a $750 finance fee.
On October 10, 2017, the Company issued 1,000,000 common shares for the conversion of $705 of principal, $3,200 of penalty
interest, and a $750 finance fee. On October 19, 2017, the Company issued 4,400,000 common shares for the conversion of $4,814
of principal and a $1,500 finance fee. On October 25, 2017, the Company issued 2,700,000 common shares for the conversion
of $3,030 of principal and a $750 finance fee. On October 27, 2017, the Company issued 3,000,000 common shares for the conversion
of $3,450 of principal and a $750 finance fee. On October 31, 2017, the Company issued 3,000,000 common shares for the conversion
of $3,450 of principal and a $750 finance fee. On December 27, 2017, the Company issued 4,200,000 common shares for the conversion
of $1,182 of principal and a $750 finance fee. On December 29, 2017, the Company issued 4,600,000 common shares for the conversion
of $1,132 of principal and a $750 conversion fee.
|
|
|
|
During
the six months ended June 30, 2018, the Company incurred a default fee of $36,000 for failure to honor the conversion notice
in a timely manner and issued 56,200,000 common shares with a fair value of $129,676 for the conversion of $13,461 of principal,
$37,491 of default fees and finance costs, $5,250 for conversion fees resulting in a loss on settlement of debt of $73,474.
|
|
|
|
On
May 8, 2018, the Company paid $45,000 to settle the balance of the $74,500 convertible note including accrued interest. The
Company recognized a gain on the settlement of this convertible note totaling $24,752.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $65,887) and the fair value of the derivative
liability was $nil (December 31, 2017 - $31,431). During the six months ended June 30, 2018, the Company accreted $nil (2017
- $1,180) of the debt discount and $nil (2017 - $37,905) of the financing fees to finance costs.
|
|
|
(e)
|
On
January 18, 2017, the Company issued a convertible promissory note in the principal amount of $75,000. The note is unsecured,
bears interest at 12% per annum, was due on October 18, 2017, and is convertible into common shares at a conversion price
equal to the lessor of (i) 60% multiplied by the lowest trading price (representing a discount rate of 40%) during the previous
twenty-five trading day period ending on the latest complete trading day prior to the date of the note; and (ii) the variable
conversion price which means 50% multiplied by the lowest trading price (representing a discount rate of 50%) during the previous
twenty five trading day period ending on the latest complete trading day prior to the conversion date. Interest will be accrued
and payable at the time of promissory note repayment. Financing fees on the note were $2,750. The derivative liability applied
as a discount on the note was $75,000 and is being accreted over the life of the note.
|
|
On
July 28, 2017, the Company issued 500,000 common shares for the conversion of $4,474 of principal and $4,586 of accrued interest.
On September 7, 2017, the Company issued 750,000 common shares for the conversion of $12,549 of principal and $951 of accrued
interest. On October 11, 2017, the Company issued 750,000 common shares for the conversion of $3,342 of principal and $648
of accrued interest. On October 20, 2017, the Company issued 2,229,400 common shares for the conversion of $3,369 of principal
and $198 of accrued interest. On October 27, 2017, the Company issued 3,017,400 common shares for the conversion of $4,592
of principal and $236 of accrued interest. On November 7, 2017, the Company issued 3,667,000 common shares for the conversion
of $5,530 of principal and $337 of accrued interest.
|
|
|
|
On
November 7, 2017, the Company incurred a loan penalty of $15,000 for the conversion price being below the Company’s
par value.
|
|
|
|
On
June 1, 2018 the remaining $56,144 principal balance and $2,023 in accrued interest were reassigned to another unrelated
note holder and the note was treated as an extinguishment. Upon reassignment, the Company incurred a finance fee of $46,833
which was added to the principle balance of the new convertible note totaling $105,000. Refer to Note 8(z).
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $56,144) and the fair value of the derivative
liability was $nil (December 31, 2017 - $70,818). During the six months ended June 30, 2018, the Company accreted $nil (2017
- $3,149) of the debt discount and $nil (2017 - $49,725) of the financing fees to finance costs.
|
|
|
(f)
|
On
April 3, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The note is unsecured,
bears interest at 10% per annum, was due on October 3, 2017, and is convertible into common shares at a conversion price equal
to the lessor of: (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending
on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55%
multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading
day prior to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. In connection
with the issuance, the Company issued 550,000 common shares as a commitment fee, however, these common shares must be returned
if the note is fully repaid and satisfied prior to the maturity date. Financing fees on the note were $10,000. The derivative
liability applied as a discount on the note was $100,000 and is being accreted over the life of the note.
|
|
|
|
On
October 11, 2017, the Company issued 1,415,205 common shares for the conversion of $2,590 of principal and $5,880 of accrued
interest. On October 18, 2017, the Company issued 2,123,434 common shares for the conversion of $5,430 of principal and $494
of accrued interest. On October 19, 2017, the Company issued 2,229,450 common shares for the conversion of $3,879 of principal
and $134 of accrued interest. On October 23, 2017, the Company issued 2,440,467 common shares for the conversion of $4,134
of principal and $258 of accrued interest. On October 26, 2017, the Company issued 1,791,445 common shares for the conversion
of $3,107 of principal and $118 of accrued interest. On October 31, 2017, the Company issued 2,500,728 common shares for the
conversion of $4,262 of principal and $239 of accrued interest. On November 2, 2017, the Company issued 1,499,272 common shares
for the conversion of $2,528 of principal and $171 of accrued interest. On November 13, 2017, the Company issued 3,017,333
common shares for the conversion of $4,823 of principal and $608 of accrued interest. On November 22, 2017, the Company issued
4,000,565 common shares for the conversion of $4,292 of principal and $469 of accrued interest. On December 27, 2017, the
Company issued 4,200,200 common shares for the conversion of $1,656 of principal and $1,725 of accrued interest. On December
29, 2017, the Company issued 4,619,360 common shares for the conversion of $3,347 of principal and $48 of accrued interest.
During the six months ended June 30, 2018, the Company issued 247,495,414 common shares with a fair value of $571,886 for
the conversion of $69,952 of principal and $56,227 of default fees and finance costs resulting in a loss on settlement of
debt of $445,707.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $69,952) and the derivative liability was $nil
(December 31, 2017 - $108,326).
|
(g)
|
On
June 5, 2017, the Company issued a convertible promissory note in the principal amount of $110,000. The note is unsecured,
bears interest at 10% per annum, was due on December 5, 2017, and is convertible into common shares at a conversion price
equal to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty-five trading day period ending
on the latest complete trading day prior to the date of this note and (ii) the alternate conversion price which means 55%
multiplied by the lowest trading price during the previous twenty-five trading day period ending on the latest complete trading
day prior to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. Financing
fees on the note were $7,000. The derivative liability applied as a discount on the note was $103,000 and is being accreted
over the life of the note.
|
|
|
|
On
January 19, 2018, $50,000 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the note upon reassignment. Refer to Note 8(o).
|
|
|
|
On
March 2, 2018, $25,000 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the note upon reassignment. Refer to Note 8(r).
|
|
|
|
During
the six months ended June 30, 2018, the Company issued 206,994,645 common shares with a fair value of $524,487 for the conversion
of the remaining principal balance of $35,000, and default penalties and finance costs of $37,448 resulting in a loss on settlement
of debt of $452,039.
|
|
|
|
As
at June 30, 2018, the Company has accrued $9,487 in interest and penalties on the note and the fair value of the derivative
liability was $13,936 (December 31, 2017 - $188,798).
|
|
|
(h)
|
On
July 17, 2017, the Company issued a convertible promissory note in the principal amount of $135,000. The note is unsecured,
bears interest at 10% per annum, is due on July 17, 2018, and is convertible into common shares at a conversion price equal
to the lessor of (i) 55% multiplied by the lowest trading price during the previous twenty trading day period ending on the
latest complete trading day prior to the date of this note and (ii) $0.061. Interest will be accrued and payable at the time
of promissory note repayment. Financing fees on the note were $16,500. Derivative liability applied as discount on the note
was $118,500 and is being accreted over the life of the note. During the six months ended June 30, 2018, the Company issued
100,000,000 common shares with a fair value of $227,222 for the conversion of $53,530 of principal balance resulting in a
loss on settlement of debt of $173,692.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $81,470 (December 31, 2017 - $70,718) and the fair value of the derivative
liability was $138,828 (December 31, 2017 - $205,563). During the six months ended June 30, 2018, the Company accreted $64,282
(2017 - $nil) of the debt discount to interest expense.
|
|
|
(i)
|
On
August 17, 2017, the Company issued a convertible promissory note in the principal amount of $110,250. The note is unsecured,
bears interest at 8% per annum, is due on August 16, 2018, and is convertible at 58% of to the lowest trading price during
the previous ten trading days to the date of a conversion notice. Interest will be accrued and payable at the time of promissory
note repayment. Deferred financing fees on the note were $5,250. The derivative liability applied as a discount on the note
was $105,000 and is being accreted over the life of the note. During the six months ended June 30, 2018, the Company issued
86,173,799 common shares with a fair value of $293,267 for the conversion of $121,240 of principal and interest resulting
in a loss on settlement of debt of 172,027.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $44,661) and the fair value of the derivative
liability was $nil (December 31, 2017 - $166,460). During the six months ended June 30, 2018, the Company accreted $65,589
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(j)
|
On
September 6, 2017, the Company issued a convertible promissory note in the principal amount of $107,000. The note is unsecured,
bears interest at 10% per annum, is due on March 6, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. Deferred financing fees on the note were $7,000. The derivative liability applied as a discount
on the note was $100,000 and is being accreted over the life of the note.
|
|
|
|
On
March 2, 2018, $111,808 of the note was reassigned to another unrelated note holder and the note was treated as an extinguishment.
There were no material changes to the terms of the note upon reassignment. Refer to Note 8(s).
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $71,088) and the fair value of the derivative
liability was $nil (December 31, 2017 - $100,000). During the six months ended June 30, 2018, the Company accreted $35,912
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(k)
|
On
October 30, 2017, the Company issued a convertible promissory note in the principal amount of $107,000. The note is unsecured,
bears interest at 10% per annum, is due on April 30, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. Deferred financing fees on the note were $7,000. The derivative liability applied as a discount
on the note was $100,000 and is being accreted over the life of the note.
|
|
|
|
On
May 22, 2018, the principal balance of $87,045 and accrued interest of $5,543 was reassigned to another unrelated note
holder. There were no material changes to the note upon reassignment. Refer to Note 8(y).
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $41,066) and the fair value of the derivative
liability was $nil (December 31, 2017 - $100,000). During the six months ended June 30, 2018, the Company accreted $65,934
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(l)
|
On
December 18, 2017, the Company issued a convertible promissory note in the principal amount of $82,000. The note is unsecured,
bears interest at 10% per annum, is due on June 18, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. Deferred financing fees on the note were $7,000. The derivative liability applied as a discount
on the note was $75,000 and is being accreted over the life of the note.
|
|
|
|
On
May 22, 2018, the principal balance of $82,000 and accrued interest of $3,055 was reassigned to another unrelated note
holder. There were no material changes to the note upon reassignment. Refer to Note 8(y).
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil (December 31, 2017 - $12,357) and the fair value of the derivative
liability was $nil (December 31, 2017 - $75,000). During the six months ended June 30, 2018, the Company accreted $69,643
(2017 - $nil) of the debt discount to finance costs.
|
|
|
(m)
|
On
January 18, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on July 18, 2018, and is convertible into common shares at a conversion price equal
to the lessor of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. The derivative liability applied as a discount on the note was $55,000 and is being accreted
over the life of the note.
|
|
|
|
On
June 18, 2018, the principal balance of $55,000 and accrued interest of $2,215 was reassigned to another unrelated
note holder. There were no material changes to the note upon reassignment. Refer to Note 8(aa).
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil and the fair value of the derivative liability was $nil. During
the six months ended June 30, 2018, the Company accreted $49,258 of the debt discount to finance costs.
|
|
|
(n)
|
On
January 19, 2018, the Company issued a convertible promissory note in the principal amount of $55,000. The note is unsecured,
bears interest at 10% per annum, is due on January 19, 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. The derivative liability applied as a
discount on the note was $55,000 and is being accreted over the life of the note.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $24,411 and the fair value of the derivative liability was $90,688. During
the six months ended June 30, 2018, the Company accreted $24,411 of the debt discount to finance costs.
|
(o)
|
On
January 19, 2018, the Company issued a convertible promissory note in the principal amount of $50,000, as partial replacement
for a convertible promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 8(g). The note
is unsecured, bears interest at 10% per annum, is due on January 19, 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. The derivative liability
applied as a discount on the note was $50,000 and is being accreted over the life of the note. During the six months ended
June 30, 2018, the Company issued 57,244,977 common shares with a fair value of $137,143 to convert principal balance of $50,000
and accrued interest of $309 resulting in a loss on settlement of debt of $86,834.
|
|
|
|
During
the six months ended June 30, 2018, the Company accreted $50,000 of the debt discount to finance costs.
|
|
|
(p)
|
On
February 2, 2018, the Company issued a convertible promissory note in the principal amount of $107,500. The note is unsecured,
bears interest at 10% per annum, is due on August 2, 2018, and is convertible into common shares at a conversion price equal
to the lesser of the lowest trading price during the previous twenty-five trading days prior to: (i) the date of the promissory
note; or (ii) the latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time
of promissory note repayment. The derivative liability applied as a discount on the note was $107,500 and is being accreted
over the life of the note.
|
|
|
|
On
June 18, 2018, the principal balance of $107,500 and accrued interest of $4,005 was reassigned to another unrelated
note holder. There were no material changes to the note upon reassignment. Refer to Note 8(aa).
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $nil and the fair value of the derivative liability was $nil. During
the six months ended June 30, 2018, the Company accreted $87,418 of the debt discount to finance costs.
|
|
|
(q)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $128,000. The note is unsecured,
bears interest at 10% per annum, is due on March 2, 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. The derivative liability applied as a
discount on the note was $128,000 and is being accreted over the life of the note.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $42,082 and the fair value of the derivative liability was $210,605.
During the six months ended June 30, 2018, the Company accreted $42,082 of the debt discount to finance costs.
|
|
|
(r)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $25,000, as partial replacement
for a convertible promissory note originally issued on June 5, 2017 in the amount of $110,000. Refer to Note 8(g). The note
is unsecured, bears interest at 10% per annum, is due on March 2, 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. The derivative liability
applied as a discount on the note was $25,000 and is being accreted over the life of the note. During the six months ended
June 30, 2018, the Company issued 45,518,437 common shares with a fair value of $131,335 for the conversion of $25,000 of
principal and accrued interest of $35 resulting in a loss on settlement of debt of $106,300.
|
|
|
|
During
the six months ended June 30, 2018, the Company accreted $25,000 of the debt discount to finance costs.
|
|
|
(s)
|
On
March 2, 2018, the Company issued a convertible promissory note in the principal amount of $111,808, as partial replacement
for a convertible promissory note originally issued on September 6, 2017 in the amount of $107,000 plus accrued interest.
Refer to Note 8(j). The note is unsecured, bears interest at 10% per annum, is due on March 2, 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. The derivative liability applied as a discount on the note was $25,000 and is being accreted over the life of the
note. During the six months ended June 30, 2018, the Company issued 84,783,673 common shares with a fair value of $290,632
for the conversion of $93,400 of principal and $1,054 of accrued interest resulting in a loss on settlement of debt of $196,178.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $4,985 and the fair value of the derivative liability was $29,902. During
the six months ended June 30, 2018, the Company accreted $98,385 of the debt discount to finance costs.
|
(t)
|
On
March 19, 2018, the Company issued a convertible promissory note in the principal amount of up to $900,000. The note is unsecured,
bears interest at 12% per annum, is due on September 19, 2018, and is convertible into common shares after 180 days from issuance
date at a conversion price equal to the lessor of: (i) the lowest trading price during the previous fifteen trading days prior
to the date of the promissory note; or (ii) 55% of the lowest trading price during the previous fifteen days prior to the
latest complete trading day prior to the conversion date. Interest will be accrued and payable at the time of promissory note
repayment.
|
|
|
|
On
March 19, 2018, the Company received $270,000 pursuant to the first tranche of the agreement, which is $300,000 in the principal
amount, net of the original issuance discount of $30,000. The derivative liability applied as a discount on the note was $300,000
and is being accreted over the life of the note.
|
|
|
|
As
at June 30, 2018, the carrying value of the first tranche of the note was $163,043 and the fair value of the derivative liability
was $423,476. During the six months ended June 30, 2018, the Company accreted $163,043 of the debt discount to finance costs.
|
|
|
|
On
May 3, 2018, the Company received $146,500, net of $3,500 in legal fees, pursuant to the second tranche of the agreement,
which is $166,667 in the principle amount, net of the original issuance discount of $16,667. The derivative liability applied
as a discount on the note was $166,667 and is being accreted over the life of the note.
|
|
|
|
On
May 3, 2018, the Company amended the convertible promissory note to include that at any time after the 100th calendar day
after the funds are issued, and at the option of the holder in addition to the right of conversion, the holder may deduct
daily payments from the Company’s bank account in the amount of $5,562 per calendar day or $27,812 per week until the
Company has paid or the holder has converted an amount equal to the principal balance, interest, accrued interest, and default
amount.
|
|
|
|
As
at June 30, 2018, the carrying value of the second tranche of the note was $52,536 and the fair value of the derivative liability
was $241,079. During the six months ended June 30, 2018, the Company accreted $52,536 of the debt discount to finance costs.
|
|
|
(u)
|
In
January 2018, the Company issued a convertible promissory note in the principal amount of $15,000 as a commitment fee. The
note is unsecured, non-interest bearing until default, is due on August 16, 2018, and is convertible into common shares at
a conversion price equal to 75% of the average closing trading price during the previous five trading days prior to conversion
date, with a minimum of $0.00005. On March 28, 2018, the Company issued 6,230,530 common shares with a fair value of $19,937
for the conversion of $10,000 of principal resulting in a loss on settlement of debt of $9,937.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $5,000 and the fair value of the derivative liability was $5,364.
|
|
|
(v)
|
As
at June 30, 2018, the Company owed a convertible promissory note in the principal amount of $934,939 (Cdn$1,231,128)
(December 31, 2017 - $981,370 (Cdn$1,231,128)). The convertible promissory note is unsecured, bears interest at 17.2% per
annum, is due on demand, and is convertible into Tags units at the average closing price of the 120 days period prior to conversion
date. As at June 30, 2018, accrued interest of $604,452 (Cdn$795,960) (December 31, 2017 – $549,886(Cdn$689,832)) was
recorded in accounts payable and accrued liabilities.
|
|
|
(w)
|
On
May 8, 2018 the Company issued a convertible note in the principal amount of $51,500. The note is unsecured, bears interest
at 10% per annum, and is due on May 8, 2019. The note is convertible into common shares at a 32% discount to the lowest intra-day
trading price of the Company’s common stock for the ten trading days immediately preceding the conversion date.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $9,889 and the fair value of the derivative liability was $65,203. During
the six months ended June 30, 2018, the Company accreted $9,889 of the debt discount to finance costs.
|
|
|
(x)
|
On
May 28, 2018 the Company issued a convertible note in the principal amount of $180,000. The note is unsecured, bears interest
at 10% per annum, and is due on May 8, 2019. The note is convertible into common shares at a 32% discount to the lowest intra-day
trading price of the Company’s common stock for the ten trading days immediately preceding the conversion date.
|
|
As
at June 30, 2018, the carrying value of the note was $21,522 and the fair value of the derivative liability was $220,004.
During the six months ended June 30, 2018, the Company accreted $21,522 of the debt discount to finance costs.
|
|
|
(y)
|
On
May 22, 2018 the Company reassigned convertible note balances from another unrelated party in the principal amount of $177,643.
Refer to Note 8(k) and 8(l). The note is unsecured, bears interest at 10% per annum, became due and payable on June 18, 2018,
and is convertible into common shares at a conversion price equal to the lessor of the lowest trading price during the previous
twenty-five trading days prior to: (i) the date of the promissory note; or (ii) the latest complete trading day prior to the
conversion date. Interest will be accrued and payable at the time of promissory note repayment. During the six months ended
June 30, 2018, the Company issued 163,260,000 common shares with a fair value of $304,554 for the conversion of $146,518 of
principal and $817 of accrued interest resulting in a loss on settlement of debt of $157,219.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $31,125 and the fair value of the derivative liability was $22,996.
|
|
|
(z)
|
On
June 1, 2018, the Company reassigned a convertible note from another unrelated party in the principal amount of $105,000;
$58,167 in assigned principal and accrued interest and a finance fee of $46,833 Refer to Note 8(e). The note is unsecured,
bears interest at 12% per annum, was due on October 18, 2017, and is convertible into common shares at a conversion price
equal to the lessor of (i) 60% multiplied by the lowest trading price (representing a discount rate of 40%) during the previous
twenty-five trading day period ending on the latest complete trading day prior to the date of the note; and (ii) the variable
conversion price which means 50% multiplied by the lowest trading price (representing a discount rate of 50%) during the previous
twenty five trading day period ending on the latest complete trading day prior to the conversion date. Interest will be accrued
and payable at the time of promissory note repayment. During the six months ended June 30, 2018, the Company issued 13,000,000
common shares with a fair value of $26,000 for the conversion of $9,400 of principal and $350 of accrued interest resulting
in a loss on settlement of debt of $16,250.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $95,600 and the fair value of the derivative liability was $126,594.
|
|
|
(aa)
|
On
June 18, 2018, the Company reassigned convertible note balances from another unrelated party in the principal amount
of $168,721. Refer to Note 8(m) and 8(p). The note is unsecured, bears interest at 10% per annum, which is due on August 2,
2018, and is convertible into common shares at a conversion price equal to the lesser of the lowest trading price during the
previous twenty-five trading days prior to: (i) the date of the promissory note; or (ii) the latest complete trading day prior
to the conversion date. Interest will be accrued and payable at the time of promissory note repayment. The remaining derivative
liability applied as a discount on the reassigned note was $25,824 and is being accreted over the remaining life of the note.
|
|
|
|
As
at June 30, 2018, the carrying value of the note was $142,990 and the fair value
of the derivative liability was $124,604. During the six months ended June 30, 2018,
the Company accreted $73,669 of the debt discount to finance costs.
|
Note
9 – DERIVATIVE LIABILITIES
The
Company records the fair value of the of the conversion price of the convertible debentures disclosed in Note 8 in accordance
with ASC 815, Derivatives and Hedging. The fair value of the derivative was calculated using a multi-nominal lattice model. The
fair value of the derivative liabilities is revalued on each balance sheet date with corresponding gains and losses recorded in
the consolidated statement of operations. For the six-month period ended June 30, 2018, the Company recorded a gain on the change
in fair value of derivative liability of $397,517 (June 30, 2017 – $91,670). As at June 30, 2018 and December 31, 2017,
the Company recorded derivative liability of $2,471,295 and $1,676,155, respectively.
The
following inputs and assumptions were used to value the derivative liabilities outstanding during the period and year ended June
30, 2018 and December 31, 2017 respectively, assuming no dividend yield:
|
|
|
2018
|
|
|
|
2017
|
|
Expected volatility
|
|
|
294
- 379
|
%
|
|
|
96
- 533
|
%
|
Risk free interest rate
|
|
|
1.19
- 2.15
|
%
|
|
|
0.11
- 1.76
|
%
|
Expected life (in years)
|
|
|
0.01
- 1.0
|
|
|
|
0.1
- 1.0
|
|
A
summary of the activity of the derivative liabilities is shown below:
|
|
$
|
|
Balance, December 31, 2016
|
|
|
365,944
|
|
Derivative loss due to new issuances
|
|
|
350,250
|
|
Mark-to-market
adjustment
|
|
|
(91,670
|
)
|
Balance, June 30, 2017 (restated)
|
|
|
624,524
|
|
|
|
|
|
|
Balance, December 31, 2017
|
|
|
1,676,155
|
|
Derivative loss due to new issuances
|
|
|
1,192,657
|
|
Mark-to-market
adjustment
|
|
|
(397,517
|
)
|
|
|
|
|
|
Balance, June 30, 2018
|
|
|
2,471,295
|
|
Note
10 – MEZZANINE EQUITY
Authorized
150,000,000
shares of undesignated preferred stock authorized, each having a par value of $0.001 as of June 30, 2018 and December 31, 2017,
respectively.
Equity
Transactions
DSG
TAG designated 5,000,000 shares as Series A Convertible Preferred Stock (“Series A Shares”) and issued 4,309,384 Series
A Shares to a company controlled by a director of DSG TAG for conversion of its debt of $5,386,731 on October 24, 2014. The Series
A Shares have no general voting rights and carry a 5% per annum interest rate. Series A Shares that are converted to common shares
are entitled to the same voting rights as other common shareholders. The Series A Shares are subject to a redemption obligation
at $1.25 per common share pursuant to the following terms:
|
●
|
On
or before August 1, 2016, the Company must complete a financing for gross proceeds of at least $2.5 million and use at least
$1.125 million to redeem a minimum of 900,000 Series A Shares;
|
|
|
|
|
●
|
On
or before September 1, 2016, the Company must complete an additional financing for gross proceeds of at least $2.5 million
and use at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
|
|
|
|
|
●
|
On
or before October 1, 2016, the Company must complete an additional financing for gross proceeds of at least $5.0 million and
use at least $3.14 million to redeem the remaining 2,509,384 Series A Shares.
|
During
the year ended December 31, 2015, 80,000 Series A Shares with a value of $100,000 were purchased by an unrelated third-party and
exchanged for 80,000 shares of common stock of the Company. The Series A Shares were not exchanged for securities of DSG Global,
Inc. as part of the Share Exchange Agreement.
The
preferred shares are recorded in the consolidated financial statements as Mezzanine Equity.
On
June 21, 2018, the Company entered into a debt exchange agreement for the conversion of indebtedness totaling $6,283,766 ($7,627,303
CDN) including $5,286,731 in Series A Shares and $997,035 in interest accrued on the Series A Shares. For consideration of settlement,
the Company will designate and issue an undetermined number of Series B Convertible Preferred Stock (“Series B Shares”)
and Series E Convertible Preferred Stock (“Series E Shares” and all outstanding Series A Shares, previously issued
under conversion of debt on October 24, 2014 , will be returned. As of June 30, 2018, the agreement has not yet closed as certain
terms of the agreement have not yet been settled.
Note
11 – COMMON STOCK
During
the six months ended June 30, 2018 the Company issued an aggregate of;
|
●
|
1,161,245,545 shares
of common stock with a fair value of $2,975,418 upon the conversion of $811,187 of convertible debentures and
accrued interest, as noted in Note 8. The Company recorded a loss on extinguishment of debt of $2,164,231 in connection
with the conversions.
|
|
|
|
|
●
|
50,000,000
shares of common stock for proceeds of $81,659.
|
|
|
|
|
●
|
750,000 shares of
common stock, with a fair value of $2,250, in connection with a 5% commission granted on referral of sales totaling
$45,000.
|
Note
12 – RELATED PARTY TRANSACTIONS
As
at June 30, 2018, the Company owed $133,264 (Cdn$175,481) (December 31, 2017 - $205,963 (Cdn$258,381)) to the President, CEO,
and CFO of the Company for management fees, which has been recorded in accounts payable and accrued liabilities. The amounts owed
and owing are unsecured, non-interest bearing, and due on demand.
During
the six months ended June 30, 2018 the Company paid $69,866 (Cdn$92,000) in management fees to the President, CEO, and CFO
of the Company.
As
at June 30, 2018, the Company owed $17,429 (Cdn$22,950) (December 31, 2017 - $4,273 (Cdn$27,950)) to a Company controlled by the
son of the President, CEO, and CFO of the Company. The balance owing has been recorded in accounts payable and accrued liabilities.
The amount owing is unsecured, non-interest bearing, and due on demand.
Note
13 – COMMITMENTS
Lease
Obligations
On
June 1, 2018, the Company 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 commencing on July 1, 2018.
Product
Warranties
The
Company’s product warranty costs are part of its cost of sales based on associated material product costs, labor costs for
technical support staff, and associated overhead. The products sold are generally covered by a warranty for a period of one year.
As of June 30, 2018, the Company has set up a reserve for future warranty costs of $134,940. The Company’s past experience
with warranty related costs was used as a basis for the reserve. During the six months ended June 30, 2018, the Company recorded
warranty expense of $46,273 (2017 - $7,362).
A
tabular reconciliation of the Company’s aggregate product warranty liability for the reporting periods is as follows:
|
|
Six
months ended
|
|
|
Year
ended
|
|
|
|
June
30, 2018
|
|
|
December
31, 2017
|
|
Product warranty
liability:
|
|
|
|
|
|
|
|
|
Opening balance
|
|
$
|
165,523
|
|
|
$
|
111,715
|
|
Accruals for product warranties issued
in the period
|
|
|
15,690
|
|
|
|
99,699
|
|
Adjustments to liabilities for pre-existing
warranties
|
|
|
(46,273
|
)
|
|
|
(45,891
|
)
|
Ending liability
|
|
$
|
134,940
|
|
|
$
|
165,523
|
|
In
the normal course of business, the Company indemnifies other parties, including customers, lessors, and parties to other transactions
with the Company, with respect to certain matters. The Company has agreed to hold the other parties harmless against losses arising
from a breach of representations or covenants, or out of intellectual property infringement or other claims made against certain
parties. These agreements may limit the time within which an indemnification claim can be made and the amount of the claim. In
addition, the Company has entered into indemnification agreements with its officers and directors, and the Company’s bylaws
contain similar indemnification obligations to the Company’s agents. It is not possible to determine the maximum potential
amount under these indemnification agreements due to the Company’s limited history with prior indemnification claims and
the unique facts and circumstances involved in each particular agreement. Historically, payments made by the Company under these
agreements have not had a material effect on the Company’s operating results, financial position, or cash flows.
Note
14 – CONTINGENCIES
A
director of the Company, representing his company, Adore Creative Agency Inc. (“Adore”), has filed a notice of default
on March 31, 2016, in regard to a related party convertible note issued by the Company. The note was issued in lieu
of marketing services and has a maturity date of March 31, 2016. The Company has countersued Adore for failure to provide services
as obligated under the terms and agreement of the convertible note, and in addition for damages as a result.
On
September 7, 2016, Chetu Inc. filed a Complaint for Damage in Florida to recover an unpaid invoice amount of $27,335 plus interest
of $4,939. The invoice was not paid due to a service dispute.
On
May 24, 2017, the Company received a notice of default from Coastal Investment Partners LLC (“Coastal”), on three
8% convertible promissory notes issued by the Company in aggregate principal amount of $261,389 and commenced a lawsuit on June
12, 2017 in the United States District Court, Southern District of New York. Coastal alleges that the Company failed to deliver
shares of common stock underlying the Coastal notes, and thus giving rise to an event of default. Coastal seeks damages in excess
of $250,000 for breach of contact damages, and legal fees incurred by Coastal with respect to the lawsuit. This action is still
pending.
On
October 10, 2017, a vendor filed a complaint for Breach of Contract with Superior Court of the State of California. The Complainant
is alleging that it is contractually owed 1,848,130 shares of the Company’s common stock and is seeking damages of $270,000.
In addition, a related vendor filed in the same filing a complaint for $72,000 as part of a consulting agreement the Company executed.
No accrual has been recorded because the Company is of the opinion that no obligation exists since the vendors have not
performed their contractual duties.
On
February 9, 2017, the Company received a notice of default from Auctus Fund LLC (“Auctus”), on a 12% convertible promissory
note issued to the Company in the principal amount of $75,000 and commenced a lawsuit on February 2, 2018 in the United States
District Court, District of Massachusetts. Auctus alleges that the Company failed to honor a conversion notice under the terms
of the note, and thus giving rise to an event of default. Auctus seeks damages in excess of $306,681, which consists of the principal
amount of the note, liquidated damages, and default interest, and legal fees incurred by Auctus with respect to the lawsuit. On
June 1, 2018 the remaining $58,167 note balance, including principal and interest, was reassigned to another unrelated
note holder and the note was extinguished. Refer to Note 8(e) and 8(z).
On
April 9, 2018, the Company received a share-reserve increase letter from JSJ Investments Inc. (“JSJ”) pursuant to
the terms of a 10% convertible promissory note issued to the Company in the principal amount of $135,000. On April 24, 2018, the
Company received a notice of default from JSJ for failure to comply with the share-reserve increase and on April 30, 2018 demanded
payment in full of the default amount totaling $172,845. On May 7, 2018, JSJ commenced a lawsuit in the United States District
Court, District of Dallas County, Texas. JSJ alleges that the Company failed to comply with the share-reserve increase letter,
thus giving rise to an event of default, and failed to pay the outstanding default amount due under the terms of the note. JSJ
seeks damages in excess of $200,000 but not more than $1,000,000, which consists of the principal amount of the note, default
interest, and legal fees incurred by JSJ with respect to the lawsuit. This action is still pending.
Note
15 – REVISION OF PRIOR YEAR FINANCIAL STATEMENTS
While
preparing the interim condensed consolidated financial statements for the period ending March 31, 2018, the Company noted that
there was a revision of the fair value of the derivative liabilities and during the period ended June 30, 2018, determined that
no non-controlling interest exists. Accordingly, the Company has revised its consolidated financial statements as at and for the
year ended December 31, 2017 to reflect the change in fair value of derivative liabilities and retained earnings during the period
and the fair value of the derivative liabilities and retained earnings as at December 31, 2017. This revision resulted in an increase
to retained earnings of 1,819,564, an increase to net loss of $720,424 and an increase to net loss per share of $0.01. There was
no impact on the consolidated statement of cash flows. In accordance with the guidance provided by the SEC’s Staff Accounting
Bulletin 99, Materiality and Staff Accounting Bulletin No. 108,
Considering the Effects of Prior Year Misstatements when Quantifying
Misstatements in Current Year Financial Statements
, the Company has determined that the impact of adjustments relating to
the correction of this accounting error are not material to previously issued annual audited consolidated financial statements
as the amount was derived from an estimate, has no impact on compliance with regulatory requirements or loan covenants, and has
no impact on the Company’s cash flows.. Accordingly, these changes are disclosed herein and will be disclosed prospectively.
The
impact of the revision as at December 31, 2017 and for the year then ended is summarized below:
Consolidated
Balance Sheet
|
|
As
at December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’
DEFICIT
|
|
|
|
|
|
|
|
|
|
|
|
|
Current Liabilities
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative
liabilities
|
|
|
1,191,396
|
|
|
|
484,759
|
|
|
|
1,676,155
|
|
Total Current Liabilities
|
|
|
8,061,842
|
|
|
|
484,759
|
|
|
|
8,546,601
|
|
Total Liabilities
|
|
|
8,061,842
|
|
|
|
484,759
|
|
|
|
8,546,601
|
|
Stockholders’ Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
Deficit
|
|
|
(30,409,853
|
)
|
|
|
(1,819,564
|
)
|
|
|
(32,229,417
|
)
|
Noncontrolling interest
|
|
|
(1,334,805
|
)
|
|
|
1,334,805
|
|
|
|
-
|
|
Total Stockholders’
Deficit
|
|
|
(13,257,858
|
)
|
|
|
(484,759
|
)
|
|
|
(13,742,617
|
)
|
Consolidated
Statement of Operations and Comprehensive Loss
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense)
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(340,227
|
)
|
|
|
(484,759
|
)
|
|
|
(824,986
|
)
|
Total other income (expense)
|
|
|
(1,987,202
|
)
|
|
|
(484,759
|
)
|
|
|
(2,471,961
|
)
|
Net loss for the year
|
|
|
(3,632,072
|
)
|
|
|
(484,759
|
)
|
|
|
(4,116,831
|
)
|
Net loss attributed to non-controlling
interest
|
|
|
235,665
|
|
|
|
(235,665
|
)
|
|
|
-
|
|
Comprehensive loss
|
|
|
(3,819,809
|
)
|
|
|
(720,424
|
)
|
|
|
(4,540,233
|
)
|
Consolidated
Statement of Stockholders’ Equity
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
Deficit
|
|
|
(30,409,853
|
)
|
|
|
(1,819,564
|
)
|
|
|
(32,229,417
|
)
|
Non-controlling interest
|
|
|
(1,334,805
|
)
|
|
|
1,334,805
|
|
|
|
-
|
|
Stockholders’
Equity
|
|
|
(13,257,858
|
)
|
|
|
(484,759
|
)
|
|
|
(13,742,617
|
)
|
Consolidated
Statement of Cash Flows
|
|
Year
ended December 31, 2017
|
|
|
|
As
reported
$
|
|
|
Adjustment
$
|
|
|
As
restated
$
|
|
|
|
|
|
|
|
|
|
|
|
Operating activities
|
|
|
|
|
|
|
|
|
|
|
|
|
Net
loss
|
|
|
(3,632,072
|
)
|
|
|
(484,759
|
)
|
|
|
(4,116,831
|
)
|
Adjustments to reconcile net loss to
net cash used in operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Change
in fair value of derivative liabilities
|
|
|
(340,227
|
)
|
|
|
(484,759
|
)
|
|
|
(824,986
|
)
|
Note
16 – SUBSEQUENT EVENTS
On
July 2, 2018, the Company issued 63,055,661 shares of common stock to settle $39,092 in convertible debentures.
On
July 3, 2018, the Company issued a second amendment to the convertible promissory note, dated March 19, 2018, which supersedes
any provisions to the contrary, to include that at any time after the 115
th
calendar day after the funds are issued,
and at the option of the holder in addition to the right to conversion, the holder may deduct daily payments from the Company’s
bank account in the amount of $5,562 per calendar day or $27,812 per week until the Company has paid or the holder has converted
an amount equal to the principal balance, interest, accrued interest, and default amount. In addition, an amount of $26,500 was
added to the balance of the note.
On
July 6, 2018, the Company received a notice of conversion to issue 44,000,000 shares of common stock to settle $25,300
in convertible debentures.
On
July 16, 2018, the Company received $125,000, net of $3,500 in legal fees which is $198,333 in the principal amount, net of the
original issuance discount of $19,833 and $50,000 payable to the holder for the Company’s benefit, pursuant to the third
tranche of the convertible promissory note dated March 19, 2018.
On
July 19, 2018, the Company received a notice of conversion to issue 19,095,964 shares of common stock to settle $10,503 in convertible
debentures.
On
July 24, 2018, the Company issued 57,000,000 shares of common stock to settle outstanding convertible debentures.
On
July 25, 2018, the Company received a notice of conversion to issue 42,502,808 shares of common stock to settle $21,039 in convertible
debentures.
On
August 1, 2018, the Company received a notice of conversion to issue 38,323,242 shares of common stock to settle $12,647 in convertible
debentures.
On
August 2, 2018, the Company issued 74,000,000 shares of common stock to settle outstanding convertible debentures.
On
August 8, 2018, the Company received a notice of conversion to issue 41,593,424 shares of common stock to settle $13,726 in convertible
debentures.
Item
2. Management’s Discussion and Analysis of Financial Condition and Results of Operations
FORWARD
LOOKING STATEMENTS
This
Quarterly Report on Form 10-Q contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933
and Section 21E of the Securities Exchange Act of 1934. The words “believe,” “may,” “will,”
“potentially,” “estimate,” “continue,” “anticipate,” “intend,” “could,”
“would,” “project,” “plan,” “expect” and similar expressions that convey uncertainty
of future events or outcomes are intended to identify forward-looking statements. These forward-looking statements include, but
are not limited to, statements concerning the following:
|
●
|
our
future financial and operating results;
|
|
|
|
|
●
|
our
intentions, expectations and beliefs regarding anticipated growth, market penetration and trends in our business;
|
|
|
|
|
●
|
the
timing and success of our business plan;
|
|
|
|
|
●
|
our
plans regarding future financings;
|
|
|
|
|
●
|
our
ability to attract and retain customers;
|
|
|
|
|
●
|
our
dependence on growth in our customers’ businesses;
|
|
|
|
|
●
|
the
effects of market conditions on our stock price and operating results;
|
|
|
|
|
●
|
our
ability to maintain our competitive technological advantages against competitors in our industry;
|
|
|
|
|
●
|
the
expansion of our business in our core golf market as well as in new markets like commercial fleet management and agriculture;
|
|
|
|
|
●
|
our
ability to timely and effectively adapt our existing technology and have our technology solutions gain market acceptance;
|
|
|
|
|
●
|
our
ability to introduce new offerings and bring them to market in a timely manner;
|
|
|
|
|
●
|
our
ability to maintain, protect and enhance our intellectual property;
|
|
|
|
|
●
|
the
effects of increased competition in our market and our ability to compete effectively;
|
|
|
|
|
●
|
the
attraction and retention of qualified employees and key personnel;
|
|
|
|
|
●
|
future
acquisitions of or investments in complementary companies or technologies; and
|
|
|
|
|
●
|
our
ability to comply with evolving legal standards and regulations, particularly concerning requirements for being a public company.
|
These
forward-looking statements speak only as of the date of this Form 10-Q and are subject to uncertainties, assumptions and business
and economic risks. As such, our actual results could differ materially from those set forth in the forward-looking statements
as a result of the factors set forth below in Part II, Item 1A, “Risk Factors,” and in our other reports filed with
the Securities and Exchange Commission. Moreover, we operate in a very competitive and rapidly changing environment, and new risks
emerge from time to time. It is not possible for us to predict all risks, nor can we assess the impact of all factors on our business
or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those contained
in any forward-looking statements we may make. In light of these risks, uncertainties and assumptions, the forward-looking events
and circumstances discussed in this Form 10-Q may not occur, and actual results could differ materially and adversely from those
anticipated or implied in our forward-looking statements.
You
should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected
in our forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance
or events and circumstances described in the forward-looking statements will be achieved or occur. Moreover, neither we nor any
other person assumes responsibility for the accuracy and completeness of the forward-looking statements. We undertake no obligation
to update publicly any forward-looking statements for any reason after the date of this Form 10-Q to conform these statements
to actual results or to changes in our expectations, except as required by law.
Our
unaudited financial statements are stated in United States Dollars (US$) and are prepared in accordance with United States Generally
Accepted Principles. The following discussion should be read in conjunction with our unaudited condensed consolidated financial
statements and notes thereto appearing elsewhere in this Quarterly Report on Form 10-Q with the understanding that our actual
future results, levels of activity, performance and events and circumstances may be materially different from what we expect.
Corporate
History
DSG
Global, Inc. (formerly Boreal Productions Inc.) was incorporated under the laws of the State of Nevada on September 24, 2007.
We were formed to option feature films and TV projects to be packaged and sold to movie studios and production companies.
In
January 2015, we changed our name to DSG Global, Inc. and effected a one-for-three reverse stock split of our issued and outstanding
common stock in anticipation of entering in a share exchange agreement with 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 DSG TAG Systems Inc. and the shareholders of DSG TAG Systems 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 DSG TAG Systems in exchange for the issuance
to the selling shareholders of up to 20,000,000 shares of our common stock on the basis of 1 common share for 5.4935 common shares
of DSG TAG Systems.
On
May 6, 2015, we completed the acquisition of approximately 75% (82,435,748 common shares) of the issued and outstanding common
shares of DSG TAG Systems as contemplated by the share exchange agreement by issuing 15,185,875 shares of our common stock to
shareholders of DSG TAG Systems who became parties to the agreement. In addition, concurrent with the closing of the share exchange
agreement, we issued an additional 179,823 shares of our common stock to Westergaard Holdings Ltd. in partial settlement of accrued
interest on outstanding indebtedness of DSG TAG Systems.
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 DSG TAG Systems from shareholders who became parties to the share exchange agreement and issued to these shareholders
an aggregate of 18,422 shares of our common stock. Following completion of these additional purchases, DSG Global owns approximately
100% of the issued and outstanding shares of common stock of DSG TAG Systems. An aggregate of 4,229,384 shares of Series A Convertible
Preferred Stock of DSG TAG Systems continues to be held by Westergaard Holdings Ltd., an affiliate of Keith Westergaard, a former
member of our board of directors.
The
reverse acquisition was accounted for as a recapitalization effected by a share exchange, wherein DSG TAG Systems 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 DSG TAG Systems upon
the closing of the share exchange agreement.
Overview
of Our Business
DSG
Global, Inc. is a technology development company based in Surrey, British Columbia, Canada, engaged in the design, manufacture,
and marketing of fleet management solutions for the golf industry, as well as commercial, government and military applications.
Our principal activities are the sale and rental of GPS tracking devices and interfaces for golf vehicles, and related support
services. We were founded by a group of individuals who have dedicated their careers to fleet management technologies and have
been at the forefront of the industry’s most innovative developments, and our executive team has over 50 years of experience
in the design and manufacture of wireless, GPS, and fleet tracking solutions. We have developed the TAG suite of products that
we believe is the first completely modular fleet management solution for the golf industry. The TAG suite of products is currently
sold and installed around the world in golf facilities and as commercial applications through a network of established distributors
and partnerships with some of the most notable brands in fleet and equipment manufacture.
DSG
stands for “Digital Security Guard”, which is our primary value statement giving fleet operator’s new capabilities
to track and control their vehicles. We have developed a proprietary combination of hardware and software that is marketed around
the world as the TAG system. We have primarily focused on the golf industry where the TAG system is deployed to help golf course
operators manage their fleet of golf carts, turf equipment, and utility vehicles. We are a leader in the category of fleet management
in the golf industry and were awarded “Best Technology of the Year” in 2010 by Boardroom magazine, a publication of
the National Golf Course Owners Association. To date the TAG system is installed on over 8,000 vehicles and has been used to monitor
over 6,000,000 rounds of golf.
The
TAG system fills a void in the marketplace by offering a modular structure that allows the customer to customize their system
to meet desired functionality and budget constraints. In addition to the core TAG system vehicle control functionality, which
can operate independently, we offer two golfer information display systems — the alphanumeric TEXT and high definition TOUCH
— providing the operator with two display options which is unique in the industry.
The
primary market for our TAG system is the 40,000 golf operations worldwide. While the golf industry remains the primary focus of
our sales and marketing efforts, we have completed several successful pilots of the TAG system in other markets such as agriculture
and commercial fleet operations. With appropriate resources, we intend to expand our sales and marketing efforts into these new
markets.
We
have a direct sales force in North America, which comprises the most significant portion of the golf fleet market and have developed
key relationships with distributors and golf equipment manufacturers such as E-Z-GO, Yamaha and Ransomes Jacobsen to help drive
sales for the North American and worldwide markets.
In
order to successfully deliver products, increase sales, and maintain customer satisfaction, we need to have a reliable supplier
of our hardware units and components at competitive prices. Presently, we source our TOUCH units from one supplier in China and
our TAG units from one supplier in the United Kingdom. We have recently established a new relationship with a supplier for our
TOUCH units in China to provide us with higher quality, newer technology at competitive pricing. We are also exploring the opportunity
of a partnership with a US manufacturer.
In
addition, DSG is currently in negotiations with a telecommunications provider to provide new technology in hardware and wireless
access.
Our
Revenue Model
We
derive revenue from four different sources, as follows:
|
●
|
Systems
Sales Revenue
, which consists of the sales price paid by those customers who purchase or lease our TAG system hardware.
|
|
|
|
|
●
|
Monthly
Service Fees
are paid by all customers for the wireless data fee charges required to operate the GPS tracking on the
TAG systems.
|
|
●
|
Monthly
Rental Fees
are paid by those customers that rent the TAG system hardware. The amount of a customer’s monthly
payment varies based on the type of equipment rented (a TAG, a TAG and TEXT, or a TAG and TOUCH).
|
|
|
|
|
●
|
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 TOUCH units.
|
We
recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred, the fee is fixed or determinable,
and collectability is reasonably assured. In instances where final acceptance of the product is specified by the customer, revenue
is deferred until all acceptance criteria have been met. We accrue for warranty costs, sales returns, and other allowances based
on its historical experience.
Our
revenue recognition policies are discussed in more detail under “
Note 2 – Summary of Significant Accounting Policies
”
in the notes to our Condensed Consolidated Financial Statements included in Part I, Item 1 of this Form 10-Q.
Cost
of Revenue
Our
cost of revenue consists primarily of hardware purchases, wireless data fees, mapping, installation costs, freight expenses and
inventory adjustments.
|
●
|
Hardware
purchases.
Our equipment purchases consist primarily of TAG system control units, TEXT display, and TOUCH display
tablets. The TAG system control unit is sold as a stand-alone unit or in conjunction with our TEXT alphanumeric display or
TOUCH high definition “touch activated” display. Hardware purchases also include costs of components used during
installations, such as cables, mounting solutions, and other miscellaneous equipment.
|
|
|
|
|
●
|
Wireless
data fees.
Our wireless data fees consist primarily of the data fees charged by outside providers of GPS tracking
used in all of our TAG system control units.
|
|
|
|
|
●
|
Mapping.
Our mapping costs consist of aerial mapping, course map, geofencing, and 3D flyovers for golf courses. This cost is
incurred at the time of hardware installation.
|
|
|
|
|
●
|
Installation.
Our installation costs consist primarily of costs incurred by our employed service technicians for the cost of travel,
meals, and miscellaneous components required during installations. In addition, these costs also include fees paid to external
contractors for installations on a project by project basis.
|
|
|
|
|
●
|
Freight
expenses and Inventory adjustments.
Our freight expenses consist primarily of costs to ship hardware to courses for
installations. Our inventory adjustments include inventory write offs, write downs, and other adjustments to the cost of inventory.
|
|
|
|
|
●
|
Operating
Expenses & Other Income (Expenses)
We classify our operating expenses and other income (expenses) into six categories:
compensation, research and development, general and administrative, warranty, foreign currency exchange, and finance costs.
Our operating expenses consist primarily of sales and marketing, salaries and wages, consulting fees, professional fees, trade
shows, software development, and allocated costs. Allocated costs include charges for facilities, office expenses, telephones
and other miscellaneous expenses. Our other income (expenses) primarily consists of financing costs and foreign exchange gains
or losses.
|
|
|
|
|
●
|
Compensation
expense.
Our compensation expenses consist primarily of personnel costs, such as employee salaries, payroll expenses,
and employee benefits. This includes salaries for management, administration, engineering, sales and marketing, and service
support technicians. Salaries and wages directly related to projects or research and development are expensed as incurred
to their operating expense category.
|
|
●
|
Research
and development
. Our research and development expenses consist primarily of personnel costs and professional services
associated with the ongoing development and maintenance of our technology.
|
|
|
|
|
|
Research
and development expenses include payroll, and other headcount-related expenses associated with product development. Research
and development expenses also include third-party development and programming costs. Such costs related to software development
are included in research and development expense until the point that technological feasibility is reached. Research and development
is expensed and is included in operating expenses.
|
|
●
|
General
and administrative
. Our general and administrative expenses consist primarily of sales and marketing, commissions,
travel, trade shows, consultant fees, insurance, and compliance and other administrative functions, as well as accounting
and legal professional services fees, allocated costs and other corporate expenses. Sales and marketing includes brand marketing,
marketing materials, and media management.
|
|
|
|
|
●
|
Warranty
expense.
Our warranty expenses consist primarily of associated material product costs, labor costs for technical support
staff, and other associated overhead. Warranty costs are expensed as they are incurred.
|
|
|
|
|
●
|
Foreign
currency exchange.
Our foreign currency exchange consists primarily of foreign exchange fluctuations recorded in Canadian
dollar (CAD), British Pounds (GBP), or Euro (EUR) at the rates of exchange in effect when the transaction occurred.
|
|
|
|
|
●
|
Finance
costs.
Our finance costs consist primarily of investor interest expense, investor commission fees, and other financing
charges for obtaining debt financing.
|
We
expect to continue to invest in corporate infrastructure and incur additional expenses associated with being a public company,
including increased legal and accounting costs, investor relations costs, higher insurance premiums and compliance costs associated
with Section 404 of the Sarbanes-Oxley Act of 2002. In addition, we expect sales and marketing expenses to increase in absolute
dollars in future periods. In particular, we expect to incur additional marketing costs to support the expansion of our offerings
in new markets like commercial fleet management and agriculture.
Additional
Capital
We
require additional capital to continue to develop software and products, meet our contractual obligations, and execute our business
plan. There can be no assurances that we will be able to raise additional capital on acceptable terms or at all, which would adversely
affect our ability to achieve our business objectives.
Results
of Operations
The
following table summarizes key items of comparison and their related increase (decrease) for the three and six month periods June
30, 2018 and 2017:
|
|
Three
Months ended
|
|
|
Increase
(Decrease)
|
|
|
Six
months ended
|
|
|
Increase
(Decrease)
|
|
|
|
|
30-Jun-18
|
|
|
|
30-Jun-17
|
|
|
|
2018 – 2017
|
|
|
|
30-Jun-18
|
|
|
|
30-Jun-17
|
|
|
|
2018 – 2017
|
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
(%)
|
|
|
|
($)
|
|
|
|
($)
|
|
|
|
(%)
|
|
Revenues
|
|
$
|
237,046
|
|
|
|
434,202
|
|
|
|
-45.41
|
%
|
|
$
|
347,942
|
|
|
$
|
682,472
|
|
|
|
-49.02
|
%
|
Cost of revenue
|
|
|
79,552
|
|
|
|
135,940
|
|
|
|
-41.48
|
%
|
|
|
97,881
|
|
|
|
205,445
|
|
|
|
-52.36
|
%
|
Gross profit
|
|
|
157,494
|
|
|
|
298,262
|
|
|
|
-47.20
|
%
|
|
|
250,061
|
|
|
|
477,027
|
|
|
|
-47.58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation expense
|
|
|
209,174
|
|
|
|
231,086
|
|
|
|
-9.48
|
%
|
|
|
417,802
|
|
|
|
420,395
|
|
|
|
-0.62
|
%
|
General and administrative expense
|
|
|
275,480
|
|
|
|
165,472
|
|
|
|
66.48
|
%
|
|
|
633,493
|
|
|
|
438,459
|
|
|
|
44.48
|
%
|
Warranty expense
|
|
|
46,273
|
|
|
|
4,738
|
|
|
|
876.64
|
%
|
|
|
46,273
|
|
|
|
7,362
|
|
|
|
528.54
|
%
|
Bad debt
|
|
|
2,099
|
|
|
|
45,377
|
|
|
|
-95.37
|
%
|
|
|
30,992
|
|
|
|
45,377
|
|
|
|
-31.70
|
%
|
Depreciation and
amortization expense
|
|
|
2,220
|
|
|
|
7,686
|
|
|
|
-71.12
|
%
|
|
|
8,914
|
|
|
|
15,510
|
|
|
|
-42.53
|
%
|
Total Operating
Expenses
|
|
|
535,246
|
|
|
|
454,359
|
|
|
|
17.80
|
%
|
|
|
1,137,474
|
|
|
|
927,103
|
|
|
|
22.69
|
%
|
Loss from operations
|
|
|
(377,752
|
)
|
|
|
(156,097
|
)
|
|
|
142.00
|
%
|
|
|
(887,413
|
)
|
|
|
(450,076
|
)
|
|
|
97.17
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Income (Expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Change in fair value of derivative liabilities
|
|
|
6,013,778
|
|
|
|
1,946,087
|
|
|
|
209.01
|
%
|
|
|
397,517
|
|
|
|
91,670
|
|
|
|
333.64
|
%
|
Other (expenses) income
|
|
|
-
|
|
|
|
(1,401
|
)
|
|
|
100.00
|
%
|
|
|
-
|
|
|
|
(5,419
|
)
|
|
|
-100.00
|
%
|
Finance costs
|
|
|
(776,506
|
)
|
|
|
(339,254
|
)
|
|
|
128.89
|
%
|
|
|
(1,517,068
|
)
|
|
|
(669,718
|
)
|
|
|
126.52
|
%
|
Foreign currency exchange
|
|
|
410,454
|
|
|
|
149,943
|
|
|
|
173.74
|
%
|
|
|
(150,212
|
)
|
|
|
160,946
|
|
|
|
-193.33
|
%
|
Loss on extinguishment of debt
|
|
|
(768,964
|
)
|
|
|
-
|
|
|
|
|
|
|
|
(2,164,231
|
)
|
|
|
-
|
|
|
|
100.00
|
%
|
Total Other
Expense
|
|
|
4,878,762
|
|
|
|
1,755,375
|
|
|
|
177.93
|
%
|
|
|
(3,433,994
|
)
|
|
|
(422,521
|
)
|
|
|
712.74
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes expense (benefit)
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
|
|
-
|
|
|
|
-
|
|
|
|
0.00
|
%
|
Net income (loss)
|
|
|
4,501,010
|
|
|
|
1,599,278
|
|
|
|
181.44
|
%
|
|
|
(4,321,407
|
)
|
|
|
(872,597
|
)
|
|
|
395.24
|
%
|
We
recognized net income of $4,501,010 for the three-month period ended June 30, 2018, which was $2,901,732 or 181.4%
more than the net income of $1,599,278 for the three-month period ended June 30, 2017. The primary reason is attributable
to the derivative gain recorded in the current quarter end relating to the change in fair value on convertible notes.
We
recognized a net loss of $4,321,407 for the six-month period ended June 30, 2018, which was $3,448,810 or 395.2%
more than the net loss of $872,597 for the six-month period ended June 30, 2017. The primary reasons are attributable to the
$3,433,994 in other expenses incurred inclusive of $1,517,068 in finance cots, $150,212 in foreign exchange losses,
and $2,164,231 in losses on the extinguishment of debt upon conversion.
Comparison
of the three and six months ended June 30, 2018 and 2017:
Revenue
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
237,046
|
|
|
$
|
434,202
|
|
|
|
(45.4
|
)
|
|
$
|
347,942
|
|
|
|
682,472
|
|
|
|
(49.0
|
)
|
Revenue
decreased by $197,156 or 45.4%, for the three months ended June 30, 2018 as compared to the three months ended June 30, 2017.
Revenue decreased by $334,530 or 49.0% for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.
The
redevelopment of our product line has resulted in lower sales than anticipated. As a result, we have been forced to move to a
3G/4G GPS cellular device, require redevelopment of our advertising, and also software development delays in integrating the tournament
software onto the TOUCH screen, all of which that has caused delays in sales. Our Company along with the new sales team is aggressively
building its pipeline for the next year.
Cost
of Revenue
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of revenue
|
|
$
|
79,552
|
|
|
$
|
135,940
|
|
|
|
(41.5
|
)
|
|
$
|
97,881
|
|
|
$
|
205,445
|
|
|
|
(52.4
|
)
|
Cost
of revenue decreased by $56,388, or 41.5%, for the three months ended June 30, 2018 as compared to the three months June 30, 2017.
The table below outlines the differences in detail:
|
|
For
the Three Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of Goods
|
|
$
|
64,570
|
|
|
$
|
56,365
|
|
|
$
|
8,205
|
|
|
|
14.6
|
|
Labour
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
Mapping & Freight Costs
|
|
|
4,478
|
|
|
|
8,845
|
|
|
|
(4,367
|
)
|
|
|
(49.4
|
)
|
Wireless Fees
|
|
|
10,504
|
|
|
|
69,282
|
|
|
|
(58,778
|
)
|
|
|
(84.8
|
)
|
Inventory Write-off/Adjustments
|
|
|
-
|
|
|
|
1,448
|
|
|
|
(1,448
|
)
|
|
|
(100.0
|
)
|
|
|
$
|
79,552
|
|
|
$
|
135,940
|
|
|
$
|
(56,388
|
)
|
|
|
(41.5
|
)
|
For
the three months ended June 30, 2018 as compared to the three months ended June 30, 2017, the overall decrease was due to lower
revenues over the comparable period.
Cost
of revenue decreased by $107,564, or 52.4%, for the six months ended June 30, 2018 as compared to the six months June 30, 2017.
The table below outlines the differences in detail:
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
Difference
|
|
|
%
Difference
|
|
Cost of Goods
|
|
$
|
64,570
|
|
|
$
|
60,029
|
|
|
$
|
4,541
|
|
|
|
7.6
|
|
Labour
|
|
|
-
|
|
|
|
81
|
|
|
|
(81
|
)
|
|
|
(100.0
|
)
|
Mapping & Freight Costs
|
|
|
5,138
|
|
|
|
10,562
|
|
|
|
(5,424
|
)
|
|
|
(51.4
|
)
|
Wireless Fees
|
|
|
28,173
|
|
|
|
133,193
|
|
|
|
(105,020
|
)
|
|
|
(78.8
|
)
|
Inventory Write-off/Adjustments
|
|
|
-
|
|
|
|
1,580
|
|
|
|
(1,580
|
)
|
|
|
(100.0
|
)
|
|
|
$
|
97,881
|
|
|
$
|
205,445
|
|
|
$
|
(107,564
|
)
|
|
|
(52.4
|
)
|
For
the six months ended June 30, 2018 as compared to the six months ended June 30, 2017, the overall decrease was due to the decrease
in revenues due to the redevelopment of our product line as discussed above.
Compensation
Expense
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Compensation Expense
|
|
$
|
209,174
|
|
|
$
|
231,086
|
|
|
|
(9.5
|
)
|
|
$
|
417,802
|
|
|
$
|
420,395
|
|
|
|
(0.6
|
)
|
Compensation
expense decreased by $21,912, or 9.5%, for the three months ended June 30, 2018 as compared to the three months ended June 30,
2017. Compensation expense decreased by $2,593 or 0.6% for the six months ended June 30, 2018 as compared to the six months ended
June 30, 2017. The decreases in compensation expense were immaterial.
General
and Administration Expense
General
& administration expense increased by 107,758 or 65.12% for the three months ended June 30, 2018 compared to the three months
ended June 30, 2017. The table below outlines the differences in detail:
|
|
For
the Three Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & Legal
|
|
$
|
96,884
|
|
|
$
|
14,057
|
|
|
$
|
82,827
|
|
|
|
589.2
|
|
Marketing & Advertising
|
|
|
7,535
|
|
|
|
17,395
|
|
|
|
(9,860
|
)
|
|
|
(56.7
|
)
|
Subcontractor & Commissions
|
|
|
64,854
|
|
|
|
38,128
|
|
|
|
26,726
|
|
|
|
70.1
|
|
Hardware
|
|
|
21,632
|
|
|
|
373
|
|
|
|
21,259
|
|
|
|
5,699.5
|
|
Office Expense,
Rent, Software,
Bank & Credit Card Charges,
Telephone, Travel, & Meals
|
|
|
84,575
|
|
|
|
95,519
|
|
|
|
(10,944
|
)
|
|
|
(11.5
|
)
|
|
|
$
|
275,480
|
|
|
$
|
165,472
|
|
|
$
|
110,008
|
|
|
|
66.5
|
|
For
the three months ended June 30, 2018 as compared to the three months ended June 30, 2017, the overall increase in expenses is
primary related to increases in accounting and legal of $82,827 or 589.2% due to additional legal fees incurred pursuant to new
debt agreements. Subcontractors and commissions increased by $26,726 due to the hiring of more contract workers. These increases
were partially offset by decreases in office expenses, travel, and other miscellaneous operational expenses of $10,944 or 11.5%.
and marketing expense of $9,860 or 56.7%.
General
& administration expense increased by $195,034 or 44% for the six months ended June 30, 2018 compared to the six months
ended June 30, 2017. The table below outlines the differences in detail:
|
|
For
the Six Months Ended
|
|
|
|
June
30, 2018
|
|
|
June
30, 2017
|
|
|
Difference
|
|
|
%
Difference
|
|
Accounting & Legal
|
|
$
|
144,670
|
|
|
$
|
25,927
|
|
|
$
|
118,743
|
|
|
|
458.0
|
|
Marketing & Advertising
|
|
|
20,218
|
|
|
|
119,616
|
|
|
|
(99,398
|
)
|
|
|
(83.1
|
)
|
Subcontractor & Commissions
|
|
|
121,162
|
|
|
|
81,836
|
|
|
|
39,326
|
|
|
|
48.1
|
|
Hardware
|
|
|
37,240
|
|
|
|
1,246
|
|
|
|
35,994
|
|
|
|
2,888.8
|
|
Office Expense,
Rent, Software,
Bank & Credit Card Charges,
Telephone, Travel, & Meals
|
|
|
310,203
|
|
|
|
209,834
|
|
|
|
100,369
|
|
|
|
47.8
|
|
|
|
$
|
633,493
|
|
|
$
|
438,459
|
|
|
$
|
195,034
|
|
|
|
44.5
|
|
For
the six months ended June 30, 2018 as compared to the six months ended June 30, 2017, the overall increase in expenses is primary
related to increases in accounting and legal of $118,743 or 458.0% due to additional legal fees incurred pursuant to new debt
agreements. Subcontractors and commissions increased by $39,326 due to the hiring of more contract workers. Office expenses, travel,
and other miscellaneous operational expenses also increased by $100,369 or 47.8% due to additional shipping and travel
fees incurred during the period. These increases were partially offset by a decrease in marketing expense of $99,398 or 83.1%.
Warranty
Expense
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warranty Expense
|
|
$
|
46,273
|
|
|
$
|
4,738
|
|
|
|
876.6
|
|
|
$
|
46,273
|
|
|
$
|
7,362
|
|
|
|
528.5
|
|
Warranty
expense increased by $41,535, or 876.6% for the three months ended June 30, 2018 as compared to the three months ended June 30,
2017. Warranty expense increased by $38,911 or 528.5% for the six month period ended June 30, 2018 as compared to the six month
period ended June 30, 2017. Warranty expense increased primarily due to the replacement of cables and batteries for multiple clients
of which are expected to last for several years.
As
of June 30, 2018, our balance sheet included a reserve of $134,940 for future warranty costs (June 30, 2017 - $115,589).
Foreign
Currency Exchange
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
exchange (gain) loss
|
|
$
|
(410,454
|
)
|
|
$
|
(149,943
|
)
|
|
|
173.7
|
|
|
$
|
150,212
|
|
|
$
|
(160,946
|
)
|
|
|
(193.3
|
)
|
For
the three months ended June 30, 2018, we recognized a $410,454 gain in foreign currency transaction as compared to $149,943
in foreign currency transaction gain for the three months ended June 30, 2017. The increase in loss was primarily due to realized
exchange loss on the change in derivative liabilities for the three months ending June 30, 2018 due to exchange rate fluctuations
on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies
of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar,
Euro and British pound.
For
the six months ended June 30, 2018, we recognized a $150,212 loss in foreign currency transaction as compared to $160,943
in foreign currency transaction gain for the six months ended June 30, 2017. The increase in loss was primarily due to realized
exchange loss on the change in derivative liabilities for the six months ending June 30, 2018 due to exchange rate fluctuations
on payables, receivables, and other foreign exchange transactions denominated in currencies other than the functional currencies
of the legal entities in which the transactions are recorded. Foreign currency fluctuations are primarily from the Canadian Dollar,
Euro and British pound.
Finance
Costs
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Finance costs
|
|
$
|
776,506
|
|
|
$
|
339,254
|
|
|
|
128.9
|
|
|
$
|
1,517,068
|
|
|
$
|
669,718
|
|
|
|
126.5
|
|
Finance
costs increased by $437,252 or 128.9%, for the three months ended June 30, 2018 as compared to the three months ended June 30,
2017. Finance costs increased due to the large number of conversions of convertible notes payable. Finance costs increased
by $847,350 or 126.5% for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017.
Derivative
Expense
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized (gain) loss on derivative
|
|
$
|
(6,013,778
|
)
|
|
$
|
(1,946,087
|
)
|
|
|
209.0
|
|
|
$
|
(397,517
|
)
|
|
$
|
(91,670
|
)
|
|
|
333.6
|
|
Derivative
gain increased by $4,067,691 or 209%, for the three months ended June 30, 2018 as compared to the three months ended June 30,
2017 due to the change in fair value as of June 30, 2017 triggering of unrealized gains on derivative instruments in the current
quarter ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s
stock price.
Derivative
gain increased by $305,847 or 333.6%, for the six months ended June 30, 2018 as compared to the six months ended June 30, 2017
due to the change in fair value as of June 30, 2017 triggering of unrealized gains on derivative instruments in the current quarter
ending on convertible notes payable. The change in fair value was impacted heavily due to the volatility in the Company’s
stock price.
Net
Income (Loss)
|
|
For
the Three Months Ended June 30,
|
|
|
For
the Six Months Ended June 30,
|
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
2018
|
|
|
2017
|
|
|
%
Change
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
4,501,010
|
|
|
$
|
1,599,278
|
|
|
|
181.4
|
|
|
$
|
(4,321,407
|
)
|
|
$
|
(872,597
|
)
|
|
|
395.2
|
|
As
a result of the above factors, net income increased by $2,901,732 or 181.4% for the three months ended June 30,
2018 as compared to the three months ended June 30, 2017. The overall increase was primary due to the $4,878,762 in other
income earned inclusive of a gain in the fair value of derivative liabilities totaling $6,013,778 and a gain in foreign exchange
of $410,454 and partially offset by $776,506 in finance costs, and $768,964 in losses on the extinguishment of debt
upon conversion.
As
a result of the above factors, net loss increased by $3,448,810 or 395.2% for the six month period ended June 30,
2018 as compared to the six months ended June 30, 2017. The overall increase was primary due to the $3,433,994 in other
expenses incurred inclusive of $1,517,068 in finance cots, $150,212 in foreign exchange losses, and $2,164,231 in losses
on the extinguishment of debt upon conversion.
Liquidity
and Capital Resources
From
our incorporation in April 17, 2008 through June 30, 2018, we have financed our operations, capital expenditures and working capital
needs through the sale of common shares and the incurrence of indebtedness, including term loans, convertible loans, revolving
lines of credit and purchase order financing. At June 30, 2018, we had $9,690,238 in outstanding liabilities, which
all matures within the next twelve months.
We
had cash in the amount of $15,999 as of June 30, 2018, as compared to $5,488 as of December 31, 2017. We had a working capital
deficit of $9,462,878 as of June 30, 2018 compared to working capital deficit of $8,487,059 as of December 31, 2017.
Liquidity
and Financial Condition
Our
financial position as of June 30, 2018 and December 31, 2017, and the changes for the periods then ended are as follows:
Working
Capital
|
|
At
June 30, 2018
|
|
|
At
December 31, 2017
|
|
Current Assets
|
|
$
|
227,360
|
|
|
$
|
59,542
|
|
Current Liabilities
|
|
$
|
9,690,238
|
|
|
$
|
8,546,601
|
|
Working Capital
|
|
$
|
(9,462,878
|
)
|
|
$
|
(8,487,059
|
)
|
Cash
Flow Analysis
Our
cash flows from operating, investing, and financing activities are summarized as follows:
|
|
June
30,
|
|
|
|
2018
|
|
|
2017
|
|
|
|
|
|
|
|
|
Net
cash (used in) provided by operating activities
|
|
$
|
(991,604
|
)
|
|
$
|
(199,902
|
)
|
Net
cash (used in) provided by investing activities
|
|
|
(1,544
|
)
|
|
|
-
|
|
Net
cash provided by financing activities
|
|
|
1,003,659
|
|
|
|
373,128
|
|
Net
(decrease) increase in cash
|
|
|
10,511
|
|
|
|
173,226
|
|
Effect
of exchange rate changes on cash and cash equivalents
|
|
|
-
|
|
|
|
(173,226
|
)
|
Cash at beginning
of period
|
|
|
5,488
|
|
|
|
-
|
|
Cash at end of
period
|
|
$
|
15,999
|
|
|
$
|
-
|
|
Net
Cash (Used in) Provided by Operating Activities
. During the six months ended June 30, 2018, cash used in operations totaled
$991,604. This reflects the net loss of $4,321,407 less $3,329,803 provided by changes in operating assets and liabilities
and adjustments for non-cash items. Cash provided by working capital items was primarily impacted by non-cash adjustments from
fair valuing finance costs of $224,956, a loss on extinguishment of debt of $2,164,231, unrealized foreign exchange of $152,901
and interest on discount of convertible debt totaling $924,905.
Net
Cash (Used in) Provided by Investing Activities
. Investing activities reduced cash by $1,544 in the six months ended June
30, 2018, related to the purchase of property, plant and equipment, and decreased cash by $nil for the six months ended June 30,
2017.
Net
Cash (Used in) Provided by Financing Activities
. Net cash from financing activities during the six months ended June 30,
2018 totaled $1,003,659, mostly from various note and loan facilities entered during the period and from proceeds for the issuance
of shares. Net cash provided by financing activities during the six months ended June 30, 2017 was $373,128 from various note
and loan facilities entered during the period and from proceeds for the issuance of shares.
Outstanding
Indebtedness
Our
current indebtedness as of June 30, 2018 is comprised of the following. For loans that have expired terms, we are in talks with
the lenders to extend them. The Company must increase revenue or raise more equity capital to meet the payment obligations.
Our
current indebtedness as of June 30, 2018 is comprised of the following:
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $189,854 bearing interest at 15% per annum and due on demand;
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $317,500 bearing interest at 18% per annum;
|
|
|
|
|
|
|
●
|
Unsecured
note payable in the amount of $46,444, bearing interest at 36% per annum, matured and in default.
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $68,346 matured and in default
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $250,000, bearing interest at 10% per annum, with a minimum interest amount of $25,000, mature
and in default.
|
|
|
|
|
|
|
●
|
Unsecured
loan payable in the amount of $250,000, bearing interest at 10% per annum, is due
on demand, and convertible into common shares at $1.75 per share.
|
|
|
|
|
|
|
●
|
Secured
convertible loan payable in the amount of $934,939, bearing interest at 15.2% per annum, mature and in default.
|
|
|
|
|
|
|
●
|
Unsecured,
convertible note payable to related party in the amount of $310,000, bearing interest at 5% per annum, mature and in default.
|
|
|
|
|
|
|
●
|
Senior
secured, convertible note payable in the amount of $245,889 interest 8% per annum. Repayable in cash or common shares at the
lower of (i) twelve cents ($0.12) and (ii) the closing sales price of the Common Stock on the date of conversion.
|
|
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the amount of $81,470 interest 10% per annum. Matures on July 17, 2018. Principal is repayable
in cash or common shares at the lower of (i) six cents ($0.06) (ii) 55% of the lowest trading price during the 20 Trading
Days immediately preceding the date of conversion
|
|
|
|
|
|
|
●
|
Unsecured,
convertible promissory note in the principal amount of up to $900,000, bears interest at 12% per annum, is convertible into
common shares after 180 days from issuance date at a conversion price equal to the lessor of (i) the lowest trading price
during the previous fifteen trading days prior to the date of the promissory note; or (ii) 55% of the lowest trading price
during the previous fifteen days prior to the latest complete trading day prior to the conversion date. As at June 30, 2018,
the Company has received $466,667 from the note of which $300,000 is due on September 19, 2018 and $166,667 is due on November
3, 2018. Interest will be accrued and payable at the time of promissory note repayment.
|
|
|
|
|
|
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the amount of $55,000, bears interest at 10% per annum, is due on January 19, 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 amount of $18,408, bears interest 10% per annum and matures on March 2, 2019. Principal is
repayable in cash or common shares at the lower of (i) three cents ($0.03) and (ii) lowest Trading Price during the previous
twenty five (25) Trading Day period ending on the latest complete Trading Day prior to the Conversion Date.
|
|
|
|
|
|
|
●
|
Unsecured,
convertible promissory note in the principal amount of $128,000, bears interest at 10% per annum, is due on March 2, 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 $51,500, bears interest at 10% per annum, is due on February 8, 2019,
and is convertible into common shares at a conversion price equal to the lower of (i) 32% discount off of the lowest intra-day
trading price during previous (10) trading days immediately preceding a conversion date
|
|
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the principal amount of $31,125, bears interest 10% per annum, is due on demand, 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 note payable in the principal amount of $180,000, bears interest at 10% per annum, is due on February 28, 2019,
and is convertible into common shares at a conversion price equal to the lower of (i) 32% discount off of the lowest intra-day
trading price during previous (15) trading days immediately preceding a conversion date
|
|
|
|
|
|
|
●
|
Unsecured,
convertible note payable in the amount of $95,600, bearing interest at 12% per annum,
due on demand, and convertible into common shares at the lower of: (i) $0.03; or (ii)
50% of the lowest trading price during the previous twenty-five trading days ending on
the latest complete trading day prior to the conversion date.
|
|
|
●
|
Unsecured,
convertible note payable in the principal amount of $168,721, 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.
|
|
Preferred
Stock Redemption Obligations
Westergaard
Holdings Ltd. (“Westergaard), an affiliate of Keith Westergaard, a former member of our board of directors, owns 4,229,384
shares (the “Series A Shares”) of Series A Convertible Preferred Stock of DSG TAG Systems. Pursuant to a Subscription
/ Debt Settlement Agreement dated September 26, 2014 between DSG TAG Systems and Westergaard, as amended on April 29, 2016, DSG
TAG Systems has agreed that DSG Global, Inc. will complete financings for gross proceeds of at least $10 million and use a portion
of the proceeds to redeem all of the Series A Shares at a price of $1.25 per share, as follows:
|
●
|
On
or before August 1, 2016, we must complete a financing for gross proceeds of at least $2.5 million and use at least $1.125
million to redeem a minimum of 900,000 Series A Shares;
|
|
|
|
|
●
|
On
or before September 1, 2016, we must complete an additional financing for gross proceeds of at least $2.5 million and use
at least $1.125 million to redeem a minimum of 900,000 additional Series A Shares; and
|
|
|
|
|
●
|
On
or before October 1, 2016, we must complete an additional financing for gross proceeds of at least $5.0 million and use at
least $3.14 million to redeem the remaining 2,509,384 Series A Shares.
|
If
we fail to satisfy the above described financing and share redemption schedule, we will be in default of the subscription and
Debt Settlement Agreement which would entitle the holder of the Preferred Shares to convert the Series A Convertible Preferred
Shares into common shares in the capital of DSG Global at the price of $1.25 per share. As of the date of this report, these commitments
have not been satisfied and we are currently negotiating an extension on the terms of this agreement.
On
June 21, 2018, a Debt Exchange Agreement was entered into between DSG Global Inc. and DSG TAG Systems (together “the Company”)
and Westergaard Holdings. Pursuant to this agreement, the Company agreed to issue to Westergaard, an undetermined number of Series
B Convertible Preferred Stock (“Series B Shares”) and Series E Convertible Preferred Stock (“Series E Shares”)
and Westergaard agreed to return all Series A Shares to DSG Tag, as described above in Note 10. As of June 30, 2018, the agreement
has not yet closed as certain terms of the agreement have not yet been settled.
Related
party transactions
As
at June 30, 2018, we owed $133,264 (Cdn$175,481) (December 31, 2017 - $205,963 (Cdn$258,381)) to our President,
CEO, and CFO for management fees, which has been recorded in accounts payable and accrued liabilities. The amounts owed, and owing
are unsecured, non-interest bearing, and due on demand. During the six months ended June 30, 2018 the Company paid $69,866 (Cdn$92,000)
in management fees to the President and CEO.
As
at June 30, 2018, we owed $17,429 (Cdn$22,950) (December 31, 2017 - $4,273 (Cdn$27,950)) and paid $3,797 (Cdn$5,000) respectively
to a Company controlled by the son of our President, CEO, and CFO. The balance owing has been recorded in accounts payable
and accrued liabilities. The amount owing is unsecured, non-interest bearing, and due on demand.
Prospective
Capital Needs
We
estimate our operating expenses and working capital requirements for the twelve-month period to be as follows:
Estimated
Expenses for the Twelve-Month Period ending June 30, 2019
|
Management compensation
|
|
$
|
500,000
|
|
Professional fees
|
|
$
|
150,000
|
|
General and administrative
|
|
$
|
1,900,000
|
|
Total
|
|
$
|
2,550,000
|
|
As
noted earlier, during the six months ended June 30, 2018, cash used in operations totaled $991,604. 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 $15,999 in cash as of June 30, 2018, and a working capital deficit of $9,470,709. Our principal sources of liquidity are
cash generated from product sales and debt financings. In order to achieve sustained profitability and positive cash flows from
operations, we will need to increase revenue and/or reduce operating expenses. Our ability to maintain, or increase, current revenue
levels to achieve and sustain profitability will depend, in part, on demand for our products.
In
order to improve our liquidity, we also plan to pursue additional equity financing from private investors or possibly a registered
public offering. We do not currently have any definitive arrangements in place for the completion of any further private placement
financings and there is no assurance that we will be successful in completing any further private placement financings. To help
finance our day to day working capital needs, the founder and CEO of the company has made 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.